KPMG withdraws from ScotGov contract bids after string of scandals

It comes as Scots ministers have come under fire for the outsourcing award of NCS contracts to the private sector, including a £546,000 tender to KPMG.

KPMG have said that they have withdrawn from bidding for Scottish Government contracts while the review is in place.

The Scottish Government has been defending concerns that its relationship with KPMG and similar management consultancies is too close in the wake of NCS awards.

It has emerged that Fiona Bennett, the newly appointed head of social care finance at the Scottish Government was variously a consulting manager and audit manager with KPMG between January 2016 and December, 2019.

Before being appointed to the social care role she was the Scottish Government head of PPE data management from April, 2020.

Questions have been raised over whether the job could have been covered by professionals already within the Scottish public sector with an inside knowledge of the current care system.

The Scottish Government is seeking assurances over KPMG's conduct after a series of auditing controversies has hurt the reputation of the consultancy firm which employs around 16,000 people.

KPMG's contract for new care service covers the mapping of “current models” of health and social care across Scotland and producing a “high level road map for delivery”.

KPMG has received close to £3m in government contracts since the start of the pandemic to support Scotland’s health and social care services including the Covid-19 vaccination programme, and two other smaller contracts.

The Herald on Sunday previously revealed that ministers had already given one key contract to global consultancy firm PwC - but failed to use its own Scottish system for procurement which aims to make it easier for national businesses to supply goods and services to the public sector.

The Cabinet Office recently said it would bar the accounting and consultancy giant from new contracts if there was any further misconduct at the group.

The British-Dutch professional services company which was the third-biggest winner of public sector consulting contracts in the financial year to March 2021 has now taken the unusual step of temporarily stopping bidding for any Scottish Government tenders until the review is complete.

It has also withdrawn from bidding from UK Government contracts after the Cabinet Office threatened to ban it from winning public sector work.

The move to put on the temporary block comes as Scots ministers work with the Cabinet office in seeking assurances about KPMG's future conduct after a series of auditing scandals has hurt the reputation of the consultancy firm which employs around 16,000 people.

READ MORE: Scots ministers 'break law' over award of new National Care Service contract

Last year the Financial Reporting Council accounting regulator branded the quality of the firm’s banking audits “unacceptable” for a third year running in 2021 and said it was to be closely monitored.

Its UK chairman Bill Michael quit last year after telling staff to “stop moaning” about their work conditions during the pandemic.

Meanwhile it was fined a near-record £13m during the summer and severely reprimanded by an independent tribunal for misconduct, in a long-running case relating to the sale of the bedmaker Silentnight to a private equity group in 2011.

The tribunal determined that one of KPMG’s partners helped push Silentnight, which was a client of the blue chip accounting firm, towards insolvency so that the private equity group HIG could buy the business out of administration and dump the costly defined pension scheme for Silentnight’s 1,200 staff.

The accounting giant "advanced an untruthful defence" when it claimed it had no choice but to push Silentnight into insolvency and advise that it sold itself to private equity firm HIG Capital, a Financial Reporting Council disciplinary tribunal said.

The government-sponsored Pension Protection Fund (PPF) called for the fine proceeds to be used to plug any shortfall for Silentnight pension holders, who had been in limbo for a decade while investigations relating to the sale were carried out.

KPMG’s penalty was close to the UK record for a fine imposed by the accounting and audit regulator the Financial Reporting Council.

Earlier this month, the former KPMG partner in charge of auditing accounts of construction and facilities management giant Carillion before its collapse blamed his more junior colleagues for misleading regulators, as former team members turned on each other as a tribunal hearing heard allegations against the firm and six individual auditors.

KPMG has admitted misconduct and apologised. However, a tribunal run by the accounting regulator, the Financial Reporting Council (FRC), must also decide if any of the six individuals are guilty of misconduct. Five have denied all misconduct.

Carillion collapsed in January 2018, resulting in 3,000 job losses and causing chaos across hundreds of its projects – including building and maintaining primary schools, roads, and even Liverpool Football Club’s stadium, Anfield. The FRC alleges that KPMG misled its inspectors by forging documents in relation to the audit of Carillion and a software company, Regenersis.

KPMG, which is facing a £1bn claim in damages for alleged audit failures, argued that the tribunal can make no judgments on the quality of the Carillion audit, and that the problems highlighted were limited to the individual auditors. “There was no systemic problem, and none is alleged,” said Simon Brocklebank QC, KPMG’s counsel.

The hearing is expected to continue over weeks of evidence.

Now the Herald on Sunday has learnt that the Scottish Government is also looking into its relationship with KPMG.

A Scottish Government spokesman said: “The Scottish Government is working with KPMG and the UK Government Cabinet Office in seeking assurances that KPMG are taking steps to prevent the repeat of previous misconduct in current relationships and as part of standard due diligence processes for future contract opportunities.”

KPMG said it decided to halt bidding on further UK government work only pending the conclusion of the review but had initially not done the same with the Scottish Government. The firm has since done a u-turn.

Establishing the NCS is a key Scottish Government policy for the coming Holyrood term and is due to be fully up and running by 2026.

There have been nearly 13,000 deaths in Scotland where Covid has been mentioned on the death certificate and around a third occurred in care homes.

Nicola Sturgeon has said the reform of adult social care would be a “fitting legacy from the trauma of Covid” and would be the “most significant public service reform” since the establishment of the NHS.

But there has been increasing pressure for an end to all contracts being outsourced to the private sector over the development of the service as fears grow about the increasing use of the private sector.

Nick Kempe, a former head of service for older people and adults in Glasgow and convenor of Common Weal's Care Reform Group, said the fact KPMG had not initially pulled out of bidding for Scottish Government work might be an "indication of the extent to which its is 'in with the bricks' in Scotland".

He said the decision to outsource key parts of the design "of what should be a public service, like the NHS, to the private sector is wrong in principle and does not bode well". He added: "What has happened... indicates the degree of rot at the heart of government in Scotland."

Mr Kempe also questioned why the role of head of social care finance could not have been undertaken by heads of finance in local authorities who have "years of experience, know the system and all its failings and who would be much better placed to do this work".

"The Scottish Government’s relationship with KPMG and similar management consultancies is now very close," he said.

"The issue is not just that the Scottish Government is outsourcing significant amounts of work to management consultancies, it’s that their thinking pervades how the Scottish Government is approaching the design National Care Service."

He said there was "no chance" of KPMG coming up with a plan that excludes the private care home sector "when it is so involved in the development of markets in both health and social care".

"The key point that the Scottish Government has ignored is that these management consultancies have vested interests in breaking up the public sector in the form of more audit opportunities for the accountancy sides to their business. They are also imbued with private sector ideology."

Nicola Sturgeon has defended the use of private sector companies being paid to help set up the National Care Service saying it was "entirely appropriate".

“All contracts awarded by the Scottish Government are subject to robust contract management and adhere to the principles of transparency," she said.

She said that “where it makes sense to use external expertise to free up civil servants to focus on the policy development and implementation, we will do that, as other governments do that too”.

A KPMG UK spokesman told the Herald On Sunday: “We have been working with the Cabinet Office, and they with the Scottish Government to demonstrate the significant work that has been done, and is being done, to deal with the firm’s legacy issues. All of our existing contractual work for Government continues.

“We have voluntarily stepped back from pursuing new tenders for the UK Government and the Scottish Government whilst these conversations are ongoing.

“We believe this is the right thing to do whilst the firm works with the Cabinet Office to progress this matter.”

Ministers say assessment process for the contract awarded to KPMG was undertaken by a panel, including independent members. They say that  the Scottish Procurement Directorate awarded the contract and that the head of social care finance  was not involved in the decision to award the contract.

A Scottish Government spokesman said: “The decision was made to procure specialist services to support the development of the business case and operating models for the National Care Service, and this will provide a baseline and framework on which we will build the new system. All decisions on the design and delivery of the NCS will be made by Ministers, in partnership with the people who use social care services and informed by delivery bodies.

“KPMG bid for and won this contract following a procurement exercise under Crown and Commercial Services, Management Consultancy Three Framework. All contracts awarded by the Scottish Government are subject to a robust assessment process, in this case, with independent panel members. Strong contract management and adherence to the principles of transparency is also in place. Any outputs procured in relation to the national care service will be published to ensure that they are publicly available.

“The Scottish Government is working with KPMG and the UK Government Cabinet Office in seeking assurances that KPMG are taking steps to prevent the repeat of previous misconduct.  While that process continues, KPMG have voluntarily withdrawn from new contract opportunities with the Scottish and UK governments. Contracts that are already in place will be completed.

“We do not discuss individual staffing matters.”