A senior Carillion “whistleblower”, who later became the group’s finance boss, struggled to get her concerns about accounting irregularities within the company taken seriously in the run-up to its demise, it has emerged.
Emma Mercer raised questions last spring over the company’s accounting practices to the group’s human resources department six weeks into her new role as finance chief of Carillion’s construction services. Carillion folded in January with just £29m in cash on its balance sheet.
Mercer approached the HR unit after she was dissatisfied with explanations given to her by the then chief executive, Richard Howson, or the then finance director, Zafar Khan, on problems with the accounting on major Carillion projects. Those projects included the redevelopment of Battersea power station in London and the construction of the new Royal Liverpool hospital.
When directors discussed Mercer’s concerns at a board meeting in May 2017, the Carillion non-executive director Alison Horner noted that “Mrs Mercer appeared to be a whistleblower who did not feel she was listened to”.
In September 2017 Mercer became the Carillion finance director after replacing Khan, who had only been in post for just over a year. The board also said it would launch a part-independent investigation into why the errors had not been picked up by the auditors KPMG but later opted to exclude any independent oversight.
The latest revelations are contained in copies of Carillion’s board minutes from May last year, which were released on Monday by the the joint parliamentary select committee investigating the construction group’s collapse.
Frank Field, the Labour MP who chairs the work and pensions select committee, said: “Emma Mercer took just six weeks to spot and pull the thread that began the entire company unravelling. That the next chief financial officer had to go through whistleblowing procedures to get her concerns about accounting irregularities taken seriously by the Carillion board is extraordinary. So too is that the board’s response was to reject an independent review and get KPMG … to mark their own homework.”
Rachel Reeves, the Labour MP who chairs the business, energy and industrial strategy select committee, added: “Carillion directors say they couldn’t foresee what investors and company staff could – that spiralling debt problems and failing contracts were destined to sink the company. These board minutes point to a very different scenario – Emma Mercer was sounding the alarm but none of the Carillion directors were willing to wake up and listen.”
The issues Mercer identified revolved around Carillion allegedly using refunds it expected to receive from subcontractors to lower the amount it reported owing other firms in its annual accounts.
After investigating the errors, the KPMG partner Peter Meehan is quoted in the minutes as concluding that the company’s financial results did not need to be restated and that “he did not believe that there was an intent to deceive, but rather [it] was due to incompetence, negligence or sloppy accounting”.
In testimony before MPs on two select committees this month, Howson had said the company’s problems crystallised after KPMG reviewed its contracts in spring 2017, leading to write downs of £845m and a profit warning that began the company’s death spiral.
However, one former Carillion executive who has spent most of his career with the company told the Guardian last week that major problems were apparent long before that but were kept “on the back burner”.
The board minutes added: “[Finance chief Khan’s] view was that there had been incompetence and laziness in the accounting review of the contract and in recognising the position.”
A spokesman for KPMG, who said the accountants had not seen the board minutes released by the joint committees, said: “As we have already commented, we believe that we conducted our role as Carillion’s auditor appropriately and responsibly.”