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Decline in deals coincides with accountant’s work for Carillion and Gupta business family
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The value of new UK public sector contracts awarded to KPMG has dropped by almost 80 per cent since 2015 amid a series of high-profile scandals involving the Big Four accounting firm.
KPMG won public sector contracts worth £12m last year compared with £22m in 2016 and £55m in 2015, according to figures from Tussell, a research firm that compiles data on public procurement.
The decline in public sector contracts has occurred as KPMG has found itself at the centre of several controversies. These include a corruption scandal involving its South Africa arm and the collapse of Carillion, the government contractor KPMG has audited since 1999.
KPMG’s audit of Carillion is under investigation by the Financial Reporting Council, the UK accounting watchdog, which is also examining its audit of Rolls-Royce’s accounts after the UK engineer admitted to several corruption offences.
Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said KPMG’s recent reputational problems were likely to have contributed to the drop in public sector work.
He said: “Given the growing pile of questions about KPMG’s work around the world and especially its work at Carillion, it is no surprise that public sector entities would hesitate to give the firm new business. Which public official wants to do something that could call his or her judgment into question?”
KPMG said: “KPMG did not see a reduction in revenue from public sector engagements in 2017. In 2018, revenues from our work with the public sector has risen. We advise a broad range of public sector clients, from individual NHS Trusts, through to central government departments and are proud to work to help them tackle some of the biggest challenges presented in a generation.”
Tussell’s figures refer to the total value of new contracts won in 2015, 2016 and 2017 respectively. They exclude fee income from continuing contracts secured in preceding years.
The Big Four firms tend to include fee income from contracts secured in previous years when assessing annual revenues generated by public sector work.
The top 10 public sector buyers of services from the Big Four collectively issued contracts worth £186m last year, of which KPMG secured £3.6m, according to Tussell.
By contrast PwC, a rival, has nearly doubled the value of awards it received from public sector organisations during the past three years, from £49m in 2015 to £99m last year, the Tussell figures showed.
The value of public sector awards given to the Big Four nearly doubled last year to £205m, highlighting the firms’ growing involvement in how public bodies are run, from the Cabinet Office to the Department of Health.
The data are based on the total value of contracts awarded from January 2015 to the end of December 2017, as disclosed in publicly accessible government databases and the Tenders Electronic Daily, an EU portal for advertising high-value tenders and awards.
Gus Tugendhat, founder of Tussell, said the decline in public sector work for KPMG demonstrated the government had “successfully diversified its business exposure to the Big Four”.
KPMG accounted for 44 per cent of the total value of public sector contracts awarded to the Big Four in 2015, although that fell to 6 per cent last year. PwC’s share of the total value of public sector awards jumped from 39 per cent to 48 per cent over the same period.
This is despite the fact that PwC has also faced criticism after receiving two record fines from the UK accounting watchdog last year. PwC declined to comment on the figures.
Karthik Ramanna, professor of business and public policy at the University of Oxford’s Blavatnik School of Government, said: “It is difficult to say definitively what’s caused the drop for KPMG, because many of the concerns about the firm — for instance, the unwieldy scale and the decline in professional values — extend to the other Big Four as well.
“But even among the Big Four, KPMG hasn’t exactly had a glorious year. It’s found itself in the news for its role in Carillion and the Gupta scandal in South Africa. Then, there’s the recent move by US regulators to charge three former KPMG partners with fraud.” |
