Carillion CFO blew whistle over ‘sloppy accounting’ months before collapse

Carillion CFO blew whistle over 'sloppy accounting' months before collapse

MP Frank Field criticised the board for scrapping an independent review in favour of having KPMG "mark their own homework”

Carillion CFO blew whistle over ‘sloppy accounting’ months before collapse

After only six weeks in the role of CFO at Carillion, Emma Mercer was raising concerns over the state of the construction company’s accounts, acting as a “whistle-blower”, according to the minutes of board meetings from May 2017.

The documents published by the joint work and pensions and business committee show that up to three months before the company issued its first profit warning and announced a fatal £845m write-down, Mercer told managing director Adam Green that she had “identified some issues with which she was not comfortable.”

Mercer was tasked with producing a report for the progress review meeting on 26 April, and working with her predecessor Zafar “identified that negative accruals had been applied to nine projects, of which two (Battersea and Liverpool) comprised the great majority of value.”

In previous joint committee session Mercer described finding a shift to more “aggressive accounting” upon her return from Canada.

After speaking with then CEO Richard Howson and Zafar Khan, Mercer turned to group HR director Janet Dawson as she “appeared to be a whistle-blower who did not feel she was listened to”, according to chair of the remuneration committee Alison Horner.

According to the inquiry documents, Mercer’s revelations “threw up some serious questions, not least for the company’s auditors, KPMG”. In particular, it was called into question whether the 2016 year-end traded position could still be supported.

MP Frank Field MP, chair of the work and pensions committee, said: “Emma Mercer took just six weeks to spot and pull the thread that began the entire company unravelling. That the next chief financial officer had to go through whistle blowing procedures to get her concerns about accounting irregularities taken seriously by the Carillion board is extraordinary.”

Independent review scrapped in favour of KPMG “marking their own homework”

Mercer’s findings triggered a three-tier review, comprising of an internal review, a KPMG review and one by the sub-committee of the board chaired by Andrew Dougal.

Former chief executive Keith Cochrane initially agreed that an independent review was necessary as “the position raised some fairly substantial questions around the ability to manage large contracts properly, and the broader question of culture,” specifically a “glass-half-full” thinking.

However, the board’s initial plan to conduct an independent review into the contracts was later scuppered. The three-tier review eventually concluded that the 2016 accounts did not need to be re-stated.

Peter Meehan, KPMG partner responsible for Carillion’s external audit, commented that there was not “an intent to deceive, but rather was due to incompetence, negligence or sloppy accounting.”

Field added that he also found it extraordinary “that the board’s response was to reject an independent review and get KPMG, their pet rubber-stampers, to mark their own homework.”

“While our witnesses have been reticent in oral testimony, these minutes begin to reveal the true picture of a company falling apart at the seams in full view of the board and their auditors.”

Rachel Reeves, chair of the business, energy and industrial strategy select committee, commented: “Carillion directors say they couldn’t foresee what investors and company staff could – that spiralling debt problems and failing contracts were destined to sink the company. These board minutes point to a very different scenario – Emma Mercer was sounding the alarm but none of the Carillion directors were willing to wake up and listen”.

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