The government’s Prompt Payment Code is “wholly ineffective” and needs revisiting, the MPs investigating the collapse of Carillion have warned.
The recommendation was one of a raft of suggested reforms to come out of the Carillion joint inquiry’s final report into the contractor’s collapse.
Carillion’s standard supplier payment terms were 120 days, with an early repayment facility in place that allowed suppliers to be paid earlier at a discount.
This was despite the fact that the government introduced a voluntary Prompt Payment Code (PPC) in 2008 before steps were taken to strengthen it in 2015.
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The PPC expects companies to pay 95% of invoices within 60 days, and to work towards adopting 30 days as the norm.
The report also recommended the break-up of the “big four” accountancy firms, calling them a “cosy club incapable of providing the degree of independent challenge needed”.
Rachel Reeves, chair of the BEIS Committee, said: “KPMG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion.
“It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny. The Competition and Markets Authority must now look at the break-up of the Big Four accountancy firms to help increase competition and deal with conflicts of interest.”
And the report was no less critical of the regulators, in which the Carillion joint inquiry said it had “no confidence”.
It said the Financial Reporting Council (FRC) and The Pensions Regulator (TPR) were “united in their feebleness and timidity” and too “passive and reactive” to make use of the powers they have.
It said the FRC is “too content with apportioning blame once disaster has struck” rather than challenging companies proactively and that the committees.
It added that TPR “clearly failed” in its statutory objectives to reduce the risk of pension schemes ending up in the Pension Protection Fund (PPF) and to protect members’ interests.
The PPF expects a funding shortfall, to be absorbed by the fund and its levy payers – of around £800m.
Meanwhile, the FRC this morning provided an update on its investigation into Carillion, which focuses on KPMG’s audit of the company between 2014 and 2017, and on finance directors Richard Adam and Zafar Khan.
It said “good progress” was being made and that it expected to review tens of thousands of documents and emails to establish how and why audit and accounting decisions were reached.
