The UK boss of KPMG has said he “simply cannot defend” the firm’s auditing work on the failed government contractor, Carillion, describing it as “very bad,” as the accounting giant was hit with a record £21m fine by Britain’s accounting watchdog. The fine comes almost six years after the outsourcing firm collapsed with £7bn debts. Carillion had been one of the UK’s biggest construction and facilities management companies, with several major government contracts. The Financial Reporting Council (FRC) said its long-running investigation found that KPMG had failed to adhere to “the most basic and fundamental audit concepts”, as it uncovered an “unusually large number of breaches”. Jon Holt, KPMG’s UK chief executive, said the findings were “damning”. He said: “It is clear to me that our audit work on Carillion was very bad, over an extended period. In many areas, some of our former partners and employees simply didn’t do their job properly.” He said junior colleagues were “badly let down by those who should have set them a clear example … I am very sorry that these failings happened in our firm.” The fine was reduced from £30m because of KPMG’s cooperation. It comes on top of a £14.4m penalty imposed on the accounting firm last year for handing over misleading information to the regulator. The business will also pay legal costs of about £5.3m. KPMG audited Carillion’s books between 2014 and 2016, saying each time that the financial statements had been true and fair. However, for three years before it collapsed, Carillion was not subject to reliable audits, the watchdog said. The 2016 audit was particularly bad, being “seriously deficient”. It said KPMG and one of its partners, Peter Meehan, did not respond to “numerous indicators” that Carillion’s core operations were loss-making and its cashflows were supported by “short-term and unsustainable measures”. The auditors did not show “an adequate degree of professional scepticism” and did not properly scrutinise what Carillion bosses told them when their estimates appeared unreasonable. “The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit,” said Elizabeth Barrett, the executive counsel for the FRC. The demise of Carillion was one of the UK’s biggest corporate failures. The outsourcer collapsed in January 2018, resulting in 3,000 job losses and causing chaos across hundreds of its projects and 450 public sector projects, including schools, roads, prisons and even Liverpool FC’s stadium, Anfield. It 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. Earlier this year, KPMG 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 before its collapse. The lawsuit – which related to audits of Carillion accounts between 2014 and 2016 – had been launched by Britain’s official receiver, attempting to recoup losses on behalf of Carillion’s creditors. 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 at the time. In July, Carillion’s former finance director, Zafar Khan, was banned from serving as a company director for 11 years over his role in the collapse: he handed out dividends of more than £50m while misstating its financial position by more than £200m. The former Carillion chief executive Richard Howson cannot serve as a company director for eight years, and Richard Adam, Khan’s predecessor, has been banned from serving as a director for 12 and a half years. The Insolvency Service is still pursuing legal action against five former directors of Carillion, with a civil trial due to begin in the high court in London on Monday. The five are Carillion’s former chair Philip Green, who was once an adviser to David Cameron on corporate responsibility; Keith Cochrane, a company director since 2015 who became chief executive in the final months before Carillion failed; Andrew Dougal, a former non-executive director who chaired its audit committee; Alison Horner, who chaired its remuneration committee and is the former head of the Asian arm of Tesco; and Ceri Powell, another former non-executive director.