KPMG has settled a £1.3bn lawsuit brought by Carillion’s liquidators, who claimed the auditor was negligent and missed serious red flags in the outsourcing firm’s accounts ahead of its disastrous collapse in 2018. The lawsuit – which related to audits of Carillion accounts between 2014 and 2016 – had been launched by Britain’s official receiver, which is attempting to recoup losses on behalf of Carillion’s creditors which are owed money by the failed company. Those creditors include the UK tax authority, HMRC. Creditors had claimed that Carillion had racked up massive losses, and paid out £210m in dividends, because it relied on audits from KPMG – which itself collected £29m for its audit work for Carillion over 19 years. Neither KPMG nor the official receiver would confirm the size of the settlement. “The parties have agreed that the terms of that settlement will remain confidential,” a spokesperson acting on behalf of the liquidator said. “I am pleased that we have been able to resolve this claim,” KPMG’s UK chief executive Jon Holt said in a statement. “Carillion was an extreme and serious corporate failure, and it is important that we all learn the lessons from its collapse.” The demise of Carillion was one of the UK’s biggest corporate failures in decades. The outsourcer collapsed with £7bn of debts in January 2018, resulting in 3,000 job losses and causing chaos across hundreds of its projects and public sector works, including schools, roads, prisons and even Liverpool FC’s stadium, Anfield. It also delayed the construction of two new hospitals including the 646-bed Royal Liverpool and 669-bed Midland Metropolitan in Sandwell, West Midlands, which were due to open in 2017 and 2018, respectively, resulting in the projects running hundreds of millions of pounds over budget. KPMG’s alleged failure to flag discrepancies in Carillion’s accounts has already led to a series of reprimands and financial penalties for the firm, but has also sparked wide-ranging criticism over the quality of audits across the UK. KPMG reached a £14.4m settlement with the accounting regulator the Financial Reporting Council (FRC) last May, after former staff were accused of forging documents and misleading the regulator over audits for companies that included Carillion. The penalty was one of the largest for a UK auditor, second only to the £15m fine issued to Deloitte in 2020 over its historic audits of the software company Autonomy. It came after a tribunal upheld allegations that KPMG and former staff created false meeting minutes and retroactively edited spreadsheets, before sharing those documents with the FRC. The FRC is still investigating KPMG and former Carillion directors over the audit, and preparation of Carillion’s 2016 accounts. The headline on this article was amended on 17 February 2023 to clarify that KPMG settled a £1.3bn lawsuit, rather than paid £1.3bn in a settlement. The amount of the settlement is unknown.