KPMG UK threatened with ban on bidding for British government contracts

KPMG risks a ban on bidding for public contracts if there is a repeat of recent scandals at one of the UK government’s biggest providers of consulting services, the cabinet office has warned.

The threat was made in a letter from the department to the Big Four consultant seeking assurances that there would be no further misconduct at the firm, people with knowledge of the matter told the Financial Times.

KPMG’s reputation has suffered in recent years after a series of fines for misconduct. It is also under investigation over other allegations of malpractice.

The firm was the third-biggest winner of public sector consulting contracts by value in the financial year to March 2021, behind Deloitte and PwC. It was awarded government work valued at £244 million (€286m) in that period, according to data provider Tussell. Its total UK revenues were £2.3 billion in the 12 months to September 2020.

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The cabinet office letter, which came after KPMG was fined £13 million in August for serious misconduct in its handling of the insolvency of bedmaker Silentnight, has caused serious concern among the consulting group’s leadership, one of the people said.

An industry tribunal found that KPMG had helped drive Silentnight into insolvency, allowing prospective client HIG Capital to buy the bedmaker without the burden of £100 million of pensions liabilities, which were transferred to the Pension Protection Fund.

KPMG, which employs about 16,000 people in the UK, was also found to have been dishonest in its dealings with the PPF and the UK pensions regulator and to have advanced an untruthful defence at the tribunal.

The Cabinet Office confirmed it had “been in contact with KPMG following the publication of the tribunal’s report”.

Jon Holt, chief executive of KPMG UK, told the Financial Times that he was taking the government’s concerns “very seriously”.

“I have been clear that it is my personal priority to deal with our legacy issues, take action and learn from them and we are fully engaging with the Cabinet Office to demonstrate the changes we have and are making to our business,” he said.

Holt took over in May, replacing Bill Michael, who resigned following a video call on which he told staff to “stop moaning” and that unconscious bias was “complete crap”.

Unusual step

Exclusion from public contracts was one of a “range of options” outlined to KPMG in the letter, said another person with knowledge of it.

Barring a large contractor from bidding for government work would be an unusual step. Security group G4S was temporarily blocked from winning government contracts in 2013 and 2014 after it overcharged the government for the electronic tagging of former prisoners, including billing for tracking “phantom” offenders who were dead or still in jail.

KPMG’s public consulting work during the pandemic included advice on setting up temporary “Nightingale” hospitals, designed to provide extra beds to treat Covid-19 patients during the first wave of coronavirus infections last year.

Its other public contracts included the provision of an apprenticeship programme for about 1,000 civil servants. KPMG’s training for the apprentices was declared “inadequate” in an Ofsted report last year, resulting in a ban on bidding for similar work.

The professional services group is the subject of several other investigations, including one into its work signing off the accounts of collapsed outsourcer Carillion and another into whether it gave false or misleading information to the UK accounting regulator.

The firm and its partners have been fined more than £26 million in the past three years, including over audit failings at Co-op Bank and BNY Mellon’s London branch.

Insurance group Watchstone, formerly known as Quindell, said on Tuesday it had served KPMG with a legal claim for £13.7 million plus interest for dividends paid out and fees incurred as a result of failings in the audit of its 2013 financial statements.

KPMG was fined £3.2 million in 2018 by the Financial Reporting Council for the audit but said on Tuesday it would defend the High Court claim because it believed the shortcomings in its audits had not caused the losses claimed. –Copyright The Financial Times Limited 2021