Adjudicated GB LSE

Carillion plc: Aggressive Contract Revenue and Going-Concern Concealment

UK government contractor Carillion concealed catastrophic construction project losses, booking expected future claims as current revenue while masking £1.5B in debt using supply chain financing.

CASE PROFILE & BENCHMARKS

Target Issuer: Carillion plc (GB).
Fraud Period: January 1, 2014 to July 10, 2017.
Reported Overstatement: $1.4B.
Total Fines & Penalties: $27.0M.
Maximum Incarceration: No prison sentence.
Independent Auditor: KPMG LLP.
Primary Schemes: premature recognition, going concern concealment, audit failure.
Enforcement Status: ADJUDICATED (neither admit nor deny).

OVERSTATEMENT $1.4B GBP reported

TOTAL PENALTIES $27.0M Civil & disgorgement

PRISON TIME None No prison sentence

FIRST ACTION January 29, 2018 Initial proceeding

DETECTION METHOD Liquidity Collapse and Surprise £845M Profit Warning Discovery source

PRIMARY REGULATOR Financial Reporting Council (UK) GB

ACCOUNTING MECHANICS FOR THIS CASE

HOW IT WAS DONE

Without admitting or denying the findings, the respondents consented to orders establishing that Carillion abused percentage-of-completion accounting (IAS 11 / IFRS 15) across major hospital and public infrastructure contracts (Royal Liverpool Hospital, Midland Metropolitan). Management recognized unagreed claims and disputed variations as revenue with zero probability of recovery. To hide liquidity stress, Carillion utilized reverse factoring (supply chain financing) through Santander, classifying hundreds of millions in bank borrowings as 'other payables' rather than net debt.

Applicable Scheme Classifications:

premature recognition → going concern concealment → audit failure →

CHARGED RESPONDENTS & OUTCOMES

2 NAMED PARTIES

Respondent	Role	Disposition & Judicial Outcome	Prison	Civil Penalty	O&D Bar
Carillion plc	ISSUER	Compulsory liquidation; largest trading insolvency in modern British corporate history.	None	$0	No
KPMG LLP	AUDITOR	Fined record £21M by FRC; reprimanded for gross negligence.	None	$27.0M	No

RED FLAGS OBSERVED PRIOR TO DISCOVERY

EARLY SIGNALS

CASH FLOW TO NET INCOME DIVERGENCE 2016 Operating cash flow turned deeply negative while reported EBIT was positive DAYS SALES OUTSTANDING SPIKE 2016 Average supplier payment terms extended past 125 days

ENFORCEMENT ACTIONS & PRIMARY DOCKETS

PRIMARY SOURCE CITATIONS

foreign regulator FRC-AEP-2023-KPMG

Filing Date: October 12, 2023

FRC Disciplinary Sanctions Against KPMG LLP in Carillion Audit

FRC concluded KPMG audits of Carillion failed to satisfy basic auditing standards, displaying pervasive lack of skepticism.

Provisions: Securities & Corporate Law Compliance

Disposition: neither admit nor deny View Primary Record ↗

Source: UK Financial Reporting Council (FRC): Enforcement Sanctions • Official Jurisdiction: GB • Licence: Open Government Licence v3.0 (OGL v3.0)

TIMELINE OF EVENTS

CHRONOLOGY

March 1, 2017 • Annual Report

Carillion publishes 2016 accounts showing £1.5B revenue and dividend hike with clean KPMG audit opinion.

July 10, 2017 • Profit Warning

Carillion issues shocking £845M contract write-down; CEO Richard Howson steps down.

January 15, 2018 • Liquidation

Carillion enters compulsory liquidation with £7B total liabilities.

October 12, 2023 • FRC Fine

UK FRC imposes £21M fine on KPMG and 10-year ban on lead partner.

FINANCIAL CRIME REFERENCE SERIES

Cross-Domain Investigation Network

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