KPMG quit Hollinger over probe refusal

ACCOUNTING firm KPMG quit as the auditor for Hollinger Inc last November because the company refused to start an independent investigation into the scandals currently dragging down the firm, according to a Canadian judge.

Ontario Superior Court Justice Colin Campbell has released his reasons for ordering the appointment of an inspector to look into transactions involving Lord Black's holding company.

He said the company had dragged its heels over investigations in the past and so an independent inspector is needed.

According to Canada's Globe and Mail newspaper, KPMG made a presentation to Hollinger Inc's board days after Black was dumped as chief executive of subsidiary Hollinger International. It threatened to report the company to the US Securities and Exchange Commission and said it had concluded Hollinger Inc had failed to take action 'in respect of illegal acts which would have a material effect on the financial statements'.

The firm said it was not prepared to complete any audit until an independent investigation was completed, and 'appropriate' remedial action taken.

But the company did nothing and KPMG resigned as Hollinger Inc's auditor a few days later. Judge Campbell said that since last November the company has often promised a forensic audit of its accounts but did not engage an auditor until July this year, although work is yet to start.

Even now, 'there is no suggestion that the investigation has commenced or when it will be completed', the judge wrote.

He said that even if the probe were completed, the company has not said if any findings will be made public. 'In my view the public security holders are entitled to answers to legitimately posed questions on as timely a basis as possible,' he said.

'The appearance of timeliness is not met as long as management of Hollinger Inc, who are the ones whose actions are questioned, are in charge of the process.' It is reasonable for minority shareholders of Hollinger Inc to expect that related-party payments 'will be not only investigated but reported on fully and promptly', the judge said.

Black was ousted from Hollinger International, which owns the Chicago Sun-Times and Jerusalem Post, for allegedly receiving unauthorised payments from the company. The scandal plunged the group into crisis, leading to the sell-off of the Telegraph.

Most of the parties are still mired in legal action including a $1.25bn (£700m) racketeering case against Black himself and a class action on behalf of shareholders in Hollinger Inc.