KPMG and the HBOS whistleblower
By Ian Fraser
Published: Sunday Herald
Date: December 18th, 2011
KPMG was already auditing Halifax when the ex-building society merged with the Bank of Scotland a decade ago, and the audit firm took over responsibility for checking the HBOS books from September 2001. The firm fulfilled this function until HBOS had to be rescued via a shotgun marriage with Lloyds TSB in September 2008
KPMG does not appear to have done a particularly good job, seemingly turning a blind eye to the riskiness of many of HBOS’s activities. The firm signed off bank’s accounts year after year even though the valuations placed on many of the “assets” amassed by HBOS ex-head of corporate lending, Peter Cummings, turned out to be fanciful.
Speaking in the House of Lords last year, David Pitt-Watson, senior adviser to Hermes Pensions Management said: “I’m intrigued that when HBOS was taken over by Lloyds that, of their £432bn loan book, Lloyds said £186bn of that was not business that they would have wished to do. It would have been helpful … if [KPMG] had said, “Your loan book seems to us to be rather different from the loan books that we’re finding in other banks.”
For its pains KPMG, whose audit partner on HBOS was Guy Bainbridge, received £55.8m in audit fees and £45.1m in non-audit fees from HBOS. The other fees included consultancy work, tax advisory, advising on the abortive acquisition of Abbey National in 2004 and the handling corporate insolvencies of bankrupt HBOS clients. There was massive scope for conflicts of interest in some of these assignments.
In 2004 HBOS’s group head of regulatory risk, Paul Moore, sought to warn the bank’s board that weak governance coupled with an out-of-control culture was in danger of proving terminal for the Edinburgh-based bank. Moore’s reward was to be muzzled and fired by the bank’s former chief executive Sir James Crosby.
The bank appointed its auditors to produce an “independent” investigation into Moore’s allegations – even though, as auditor, KPMG was obviously conflicted. Having failed to interview key witnesses, KPMG produced a report claiming that Moore’s allegations were “without merit”. The bank collapsed – at vast expense to the UK taxpayer – three years later. As part of Lloyds Banking Group it is now audited by PWC.
Note: an edited version of this article accompanied a wider piece on plans from EU commissioner Michel Barnier to reform the audit sector. It was an accompanied by a similar piece on Deloitte and RBS
Short URL: http://www.ianfraser.org/?p=5712
Posted by Ian Fraser
on Dec 18 2011. Filed under Article Library.
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