Construction industry blames auditors for Carillion’s collapse, says new report

A survey of the supply chain conducted by public sector procurement specialists Scape Group has found that “93% of suppliers think the relationship between Carillion and KPMG enabled the outsourcer’s true financial position to be concealed.”

Over half of suppliers polled think the accounting policies at Carillion were “not discharged in good faith” and that the subsequent collapse was “facilitated by poor management.” 64% of suppliers believe that Carillion’s downfall was due to “debt mismanagement, acquisitions and long payment terms, created by a focus on revenue rather than profit.” The survey also claims the construction industry would “support a shake-up of the ‘big four’ accounting firms, with 57% of suppliers polled saying they thought this was required.” 

The devastating collapse of Carillion in 2018 put thousands of jobs and the supply chain at risk, led to substantial financial losses, and brought into question the model of public outsourcing. Mark Robinson, Scape chief executive, said: “Carillion’s collapse sent shockwaves through the construction industry, with some people suggesting it was a precursor to the collapse of not just the company, but of outsourcing. Our research suggests that mismanagement, rising debt and the active concealing of the true extent of Carillion’s debt were to blame, not the outsourcing model itself. We need to be able to have faith in company accounts and the work auditors are carrying out, especially when public sector contracts and people’s livelihoods are at risk. 

“We found that the supply chain were not comfortable with the relationship between Carillion and KPMG, and that a reform of the ‘big four’ auditing firms would bring comfort to the construction industry that failures like this will not be repeated. Greater oversight and closer management of auditing practices are needed to rebuild trust in the industry, but we also need to make sure we are putting in place sensible reforms that do not put increased cost pressures on an industry that is already contending with the cost of materials and reduced access to labour.

“Given that SMEs are the lifeblood of the economy, the sustained growth and prosperity of local businesses should be a key priority for the public sector. As Carillion showed, it is critical that all suppliers and subcontractors are paid within a minimum of 30 days, and ideally much quicker still.”

Click here to download the full report, After Carillion: The Future of Outsourcing.