KPMG rocked by second huge fine after botched Co-op Bank audit

Battered accountant KPMG was engulfed in controversy again on Wednesday after regulators slapped it with a £5 million fine for a botched Co-op Bank audit, its second multi-million pound fine in a week.

The company, which was fined £6 million last Wednesday for a failed audit of motor insurer Equity Red Star, was sanctioned by the Financial Reporting Council for work on Co-op Bank during the ill-fated takeover of Britannia building society in 2009.

The FRC said KPMG had poorly audited Britannia’s risky loan book because it had failed to be “sceptical” enough and did not collect enough evidence.

The £5 million penalty was reduced by 20% after KPMG admitted misconduct, meaning that it will have to pay £4 million.

Audit partner Andrew Walker was fined £125,000, reduced to £100,000, and severely reprimanded for his role. He still works at KPMG.

The fine will add further fuel to the debate about breaking up the big four auditors. The Competition and Markets Authority is mulling plans to break up the companies by forcing separation of audit and consulting.

It could also force the big four — KPMG, EY, Deloitte and PwC — to work alongside smaller professional services firms on large audits.

The Co-op Bank nearly went bust after uncovering a £1.5 billion black hole in 2013. A report by Sir Christopher Kelly found the disaster was rooted in the Britannia merger and its risky loan book.

Co-op bank chairman Dennis Holt was later forced to apologise for the debacle after City regulators censured the company.

KPMG said: “We regret that some of our audit work around specific elements of the bank’s Fair Value Adjustments did not meet the appropriate standards.