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Former KPMG professional steps down from top Kier role

Professional services firm Kier Group has seen its CEO step down with immediate effect, following a coup in the construction company’s boardroom. Haydn Mursell, an accountant who began his career with KPMG, has been ousted as the company looks to commence a new era of growth, amid a UK construction sector that has struggled in the last year.

The British construction sector has endured a tumultuous 2018. Despite obtaining a sequence of lucrative public sector contracts throughout 2017, Leicester-based firm Carillion collapsed at the beginning of the year, sending shockwaves through the outsourcing sector as a whole.

Amid the chaos which ensued, Capita saw its share value slump repeatedly, while the first quarter of the year saw Serco suffer a 3.9% fall, alongside G4S (-1.1%) and Interserve (-1.9%). This was particularly unhelpful for the beleaguered Interserve, as the group – also best known for its work in construction – was already grappling with poor trading and climbing costs. Kier was also impacted, and the first quarter saw a similar -1.3% fall.

The infrastructure services, buildings and developments and housing group bounced back after that, however. Recent key contract awards included the renewal of a three-year £70 million utility services deal in the South West and being appointed to three lots on the North West Construction Hub three-year £1.5 billion framework. More than £500 million of regional building projects were also secured during November and December, such as a major office development for Argent at King’s Cross in London, a research facility for the Pirbright Institute in Surrey, and a new hospital for Frimley Health NHS Foundation Trust.

The firm’s balance sheet was further strengthened on December 31 after the receipt of the £250 million net cash proceeds of the recent rights issue, and Kier remains on track to report a net cash position at the year-end. Despite this, however, board discontent has reportedly led to the exit of the firm’s long-standing CEO Haydn Mursell.

A chartered accountant, Mursell commenced his career with KPMG in 1995, before working at Bovis Lend Lease and then moving to the construction sector firm Balfour Beatty. He joined Kier in 2010, initially as Group Finance Director, before being confirmed as CEO just two months later. During his time in the role, he took on operational responsibility for the company’s property division.

With his exit from the firm, Kier has commenced the search for its new CEO, in a bid to steer the company into a fresh era of growth. Until this search is completed, Chairman Philip Cox will act as Executive Chair on an interim basis, working closely with the Chief Operating Officer Claudio Veritiero. They will jointly oversee operations for the time being.

Commenting on the move, Cox said, “The board believes that, following the completion of the recent rights issue, now is the right time for a new leader to take Kier forward to the next stage of its development. The board would like to thank Haydn for his contribution during eight years, firstly as finance director and then as Chief Executive.”

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KPMG partners receive bumper payouts despite Carillion fallout

KPMG, the auditing firm that gave Carillion a clean bill of health, has reported a leap in profits that will result in the average pay of its 635 partners soaring from £519,000 to more than £600,000 each.

Only months after KPMG was accused by MPs of being part of a “cosy club” and “complicit” in the run-up to the collapse of the construction and government outsourcing company, the accountancy group reported an 8% rise in revenue to £2.3bn in the 12 months to 30 September. Profits surged 18% to £365m.

Bumper profits helped to boost the pay packets of KPMG’s most senior executives, with the average payout per partner rising to £601,000. The chairman, Bill Michael, who was appointed last year, received £2.1m.

KPMG was one of the firms singled out in a damning report on the demise of Carillion, which collapsed under a mountain of debt in January.

“In its failure to question Carillion’s financial judgments and information, KPMG was complicit in the company’s questionable accounting practices, complacently signing off its directors’ increasingly fantastical figures over its 19-year tenure as Carillion’s auditor,” MPs on the work and pensions and the business select committees concluded in May.

KPMG was also fined £3m in August by the Financial Reporting Council (FRC) after the firm admitted to misconduct in its audits of the fashion chain Ted Baker in 2013 and 2014. That penalty followed a £4.5m fine by the FRC in June, for its audit of Quindell in 2013.

The boost to profits comes at a difficult time for the big four accountancy firms – KPMG, EY, Deloitte and PwC – which have attracted criticism from politicians and regulators over the quality of their audit work and face calls to be broken up.

They were all criticised for failing to spot problems at Carillion sooner and for prioritising profits over proper scrutiny of companies during their audits.

MPs accused the firms of “feasting” on the carcass of Carillion after banking £72m for work in the years leading up to the construction firm’s collapse.

Professional firms such as KPMG have also been criticised for conflicts of interest, given the wide array of work done for big clients such as Carillion. It has been claimed that firms are less willing to challenge auditing clients in the hope of winning lucrative contracts for consultancy and advisory work.

However, KPMG stressed in its latest results that it was the first UK firm to “voluntarily stop providing ‘non-audit’ services to the FTSE 350 companies it audits”. It has also recommended that the ban is rolled out across all audit firms in the UK.

Michael said: “I have been clear that our wider profession faces challenges. In order to safeguard against any perceptions of conflict of interest, we have drawn a clear line between our advisory and audit work for UK-listed businesses.”

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Former directors face questioning over Carillion’s collapse

The Insolvency Service is to start interviewing former directors of the collapsed government contractor Carillion as it steps up an investigation into one of the biggest corporate failures in recent British history.

Nearly seven months after Carillion entered liquidation, the government agency said it had finished transferring 278 contracts to new suppliers as part of a painstaking process designed to ensure smooth continuity of public services.

Officials are now expected to devote more time to an investigation into why the company failed, including a closer examination of the role played by former directors, who were branded “delusional” by MPs earlier this year.

The service has the power to disqualify people from serving as company directors for up to 15 years if it finds them guilty of misconduct and can pass information to criminal enforcement bodies in the most serious cases.

Earlier this year, the business secretary, Greg Clark, called on the government agency, which has 1,700 staff, to fast-track its investigation.

But while officials are understood to have been in contact with directors, who were accused of “recklessness, hubris and greed” in a report by MPs, they are yet to be interviewed.

The government’s official receiver, Dave Chapman, is expected to start the interview process in the coming weeks following the completion of the transfer of public and private sector contracts.

In a statement, the Insolvency Service said Chapman had “wide-ranging powers to obtain information, material and explanations”.

The inquiry will run alongside two parallel investigations into Carillion’s failure, which is likely to cost the government at least £150m due to the expense of hiring a team from the accountancy company PricewaterhouseCoopers to help manage its liquidation.

The Financial Conduct Authority is looking into allegations of insider trading, while the Financial Reporting Council (FRC) is examining the role played by its auditor, KPMG, and the former finance directors Zafar Khan and Richard Adam.

The Insolvency Service is turning its attention to the directors after completing the “trading phase” of the liquidation, which involved finding new companies to take on contracts for public services such as cleaning hospitals, serving school dinners, and road and rail projects.

A further 429 jobs have been rescued, taking the number saved since Carillion’s collapse to 13,945 – more than three-quarters of the company’s pre-liquidation workforce.

The number of redundancies has reached 2,787, while 1,272 have retired or found work elsewhere, the Insolvency Service said.

A further 240, mainly in Carillion’s former head office in Wolverhampton, have been retained by the Insolvency Service to help wind down its remaining activities.

Chapman said: “Carillion is the largest ever trading liquidation in the UK.

“The continued uninterrupted delivery of essential public service since the company’s collapse in January reflects the significant effort put in by its employees, supported by my team and those employed by the special managers [PwC].”

He said the Insolvency Service was still overseeing the transition of “limited” services to some suppliers and would also work with suppliers who have continued to provide goods and services during the liquidation to make sure they get paid.

“My investigation into the cause of the company’s failure, including the conduct of its directors, is also under way,” he said.

Carillion’s failure in January led to widespread recriminations, with former directors, regulators and the government all facing criticism over a company that managed huge construction projects and provided government services.

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Carillion’s demise spurs call for action against Big Four

MPs have said the stranglehold of the big four accountancy firms on the audit market needs to be broken.

Business and Work and Pensions Committees. say the competition regulator should look at breaking them up to prevent another situation like Carillion which collapsed months after accountants KPMG signed off its books.

But what impact might such a massive shake up have?

What have MPs proposed?

The committees want the government to refer the accountancy market to the competition regulator to investigate two possibilities. The first is breaking up KPMG, Deloitte, EY and PwC into smaller companies.

The second possibility is that the big four “detach” the audit part of the business which checks companies’ books, from consultancy part that offers advice.

The committees say this is needed because there is an inherent conflict of interest in having the two under one roof.

An auditing firm has an incentive to not highlight problems at a firm it is extracting juicy consultancy fees from. Non-audit work now makes up £4 in every £5 of fees for the big four.

Why have MPs proposed this?

The committees put forward the first, more radical, proposition because they say there is not enough competition in the audit market. The four firms sign off the accounts of 97 per cent of the UK’s 350 largest listed companies.

Firms over a certain size have to be audited and the largest of those companies have little choice but to employ one of the big four accountants to carry it out. No other accountancy firms have the manpower and other resources to be able to do the job.

This often results in “cozy” relationships like the one between Carillion and KPMG, which had audited the collapsed construction firm’s accounts for 19 years and failed to highlight serious problems.

What would happen if they are split up into smaller firms?

One possibility is that two or more smaller accountancy firms jointly audit large companies. France has this system and it has helped maintain a more competitive market than in the UK. The accountants produce a joint audit report and cross-check each others work, potentially making it more reliable. Both firms are then liable for the contents of the report.

Andrew Oury, partner at law and accounting firm Oury Clark says there “is some truth that ‘size matters’ but the cosy relationship needs disrupting”.

“Part of the solution could be an independent appointment from a wider pool of auditors for public interest entities – however those are defined.”

What would happen if audit and consultancy departments were split?

Accountancy firms would need to think of a new business model. Lower-level staff at the big four firms currently carry out a large volume of audit work. The job is inherently boring but the bargain is that new recruits slog their way through and eventually work their way up to more interesting and lucrative work. They also get their fees paid for professional exams.

If audit had to be hived off into a separate company the job would arguably be less attractive to talented graduates. However, it would at least mean that the employees carrying out audits are doing so because they want to rather than as a stepping stone to something else.

The most obvious positive is that auditors would clearly be working for shareholders of companies they audit, not the managers of those companies. This is, of course, the role that auditors are supposed to have been playing all along.

Is this a good idea?

It certainly has a lot of support. The Carillion disaster is merely a particularly high-profile example among many cases of auditors apparently failing in their duties. Apart from the two committees of MPs, the head of the accountancy watchdog, the Financial Reporting Council, also said recently it was time to break up the big four.

Sacha Romanovitch, the chief executive of the fifth-largest accountancy, Grant Thornton, has called for the CMA needs to investigate the sector. His firm stopped bidding to audit FTSE 350 companies recently, saying it was too expensive to do so.

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Magic circle law firm acquires Carillion’s legal arm

Clifford Chance today announced it has acquired collapsed construction giant Carillion’s ‘managed legal services’ offering. Carillion Advice Services (CAS) will be ‘fully integrated’ with Clifford Chance.

Uncertainty hung over the future of CAS when Carillion declared insolvency last month.

The legal arm was set up in 2011 to support Carillion’s in-house legal team from Newcastle. It has provided over 30,000 hours of support to the Carillion in-house team, which the company said saved the business around 15% in external legal spend in 2016. CAS’s team of 60 paralegals in Newcastle and 10 in Telford handles high-volume work of low-to-medium complexity, such as confidentiality agreements and legal research. CAS also provides contract management, document review and litigation support, corporate due diligence, unbundling and project support services.

Clifford Chance said the CAS team will continue to be led by director Lucy Nixon and it will continue to be based in Newcastle. The team will report to Clifford Chance managing partner Michael Bates, and Oliver Campbell, the firm’s global head of client services solutions, who is also responsible for the legal support centre in India.

Bates said: ‘Our priority is always to ensure that we are best placed to provide the optimum service to our clients. By working with the CAS team, we will enhance our ability to provide extremely cost-effective, efficient and high-quality service on a range of low complexity legal tasks as an integral part of our overall client offer.

‘To date, we have delivered this work either through our legal support centre in India, or through working with other third parties including legal outsourcers. The addition of the team in Newcastle, with their well-recognised expertise in unbundling, developing processes and applying the latest in legal tech, will enable us to provide clients with another option from within the firm.’