MPs have accused Carillion of “gross failings of corporate governance and accounting” after an independent business review emerged showing that the failed contractor had been “poorly managed for a significant period”.
The draft review, commissioned by Carillion’s lenders last September in the wake of the company’s profit warning that summer, was highly critical of the firm’s business practices and warned that it “faced a financial crisis”.
The report, carried out by FTI Consulting, had been due for presentation to Carillion’s lenders on 17 January, two days after the firm went into liquidation.
In the report, the consulting firm said: “The group has been poorly managed for a considerable period, during which time significant underperformance and contract issues have been masked by aggressive accounting and working capital management.
“As a result, the balance sheet and liquidity position of the group is stretched and unsustainable.”
Responding to a draft of the report before the firm collapsed, Carillion’s management said its conclusions were “too harsh” but the authors insisted it reflected an accurate view.
The consultants said: “Management believe our sensitivities overstate the risks and are too harsh. Given the material funding requirement, risk items outside of the group’s control, weak information systems and the business’ track record, we consider that our sensitivities reflect a balanced view (and not a worst case).”
The extracts of the report were published at the same time as a letter from the Federation of Small Businesses that slammed Carillion directors for their dismissal of late payment allegations.
In a letter to the joint parliamentary inquiry into Carillion, FSB national chairman Mike Cherry said: “It was with some weariness that I heard of the responses given to your questioning of Carillion’s directors with regards to poor payment practices…The blank looks and apparent lack of awareness on display to your committees will have been hard for Carillion’s small business suppliers to swallow.
“The glib dismissal of small suppliers by the Carillion board, implicit in the suggestion that suppliers waiting for payment had simply not complied with documentation requirements.”
He added: “Any company that relies on squeezing working capital from its suppliers through searching documents for out of place commas and the like is neither a fit enough business to survive nor a fit part of a healthy economy”.
In a joint statement, work and pensions committee chairman Frank Field MP and business committee chairwoman Rachel Reeves MP said: “There are many losers from the Carillion calamity: employees, pensioners, suppliers and the well-run businesses that pay the PPF levy.
“Many of those face an anxious wait to see what the consequences of the gross failings of corporate governance and accounting will be for them, their businesses and their families.
“Not so these omnipresent consulting giants, who can always be relied upon to emerge enriched from any crisis. As everything collapsed round them, they were merrily cashing cheques.”
Meanwhile, The Guardian this weekend revealed that the government was aware of a plan that could have retrieved more than £360M from the company. Auditing firm EY had produced a plan to break up Carillion, sell the profitable parts and put the rest into liquidation. However, The Guardian said the Cabinet Office saw the plans before the firm collapsed but did not put any pressure on directors to accept it. The government told the newspaper that it had seen the plans, but would not comment on its response.