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Auditors ‘failed to stop £14.5m bribes in Sangcom project’

Audit report qualified only after whistle was blown on offshore payments

Auditors face accusations of failing to stop bribery payments of millions of pounds in a massive UK-Saudi defence deal.

The project’s former programme director, Ian Foxley, accuses auditors of complicity in corruption in a detailed letter to Vince Cable, business secretary, copied to the prime minister, David Cameron.

It comes as the Serious Fraud Office is under pressure to say whether it has launched a full investigation into the bribery allegations.

The FRC should look carefully at both KPMG’s auditory, and EADS compliance, roles in this affair

Ian Foxley, former programme director, Sangcom project

Foxley, a former lieutenant-colonel in the British army, worked for GPT Special Project Management, the prime contractor on the Sangcom project to overhaul the Saudi Arabian national guard’s communications systems.

KPMG, the accountancy firm, is the auditor to the company, which is a British subsidiary of EADS, the European defence giant.

Foxley calls in his letter for the Financial Reporting Council (FRC), the regulator responsible for promoting corporate governance in the UK, to investigate KPMG’s role.

His letter is among a large volume of submissions published as part of a government consultation exercise on reforming the FRC.

Sent in January, Foxley writes: “It is apparent from the evidential documentation that KPMG, which was the auditor of GPT Special Project Management Limited, was also aware of the corruption, and did not declare it to the Financial Regulatory Council and other proper governance bodies.”
“Even though it can be shown that they have been clearly aware since 2007, a note observing inconsistencies in GPT’s accounts did not appear until GPT’s company financial report was published in April 2011, which was only after the company and its EADS parent were aware that I had made my declaration to the SFO.

“Thus, I believe, that the FRC should look carefully at both KPMG’s auditory, and EADS compliance, roles in this affair to assess whether they… are guilty of wilful blindness in their auditing and reporting of GPT’s accounts.”

A KPMG spokesman said that GPT Special Project Management had not been charged with making corrupt payments. He added: “KPMG denies the allegations that Mr Foxley seeks to make against us.”

Two weeks ago, Exaro revealed details of 28 transfers totalling just over £14.5 million paid by GPT Special Project Management to two companies in the Cayman Islands between 2007 and 2010. Mystery surrounds the identities of the final beneficiaries of the offshore payments.

The latest 10-year phase of the Sangcom project began in 2010, and is reportedly worth £2 billion.

Exaro quoted the company’s accounts for the year to December 2010, which flagged up potential problems over the Sangcom project.

A note to the accounts under the heading, “Contingent liabilities”, says: “Certain allegations have been made in connection with the company’s contracts with a sub-contractor group. These allegations have been notified to the UK authorities with whom EADS is maintaining a dialogue. It is not yet clear what the outcome of the notification will be.”

The directors report in the accounts that they are unable to assess the financial impact that may arise from “any investigation by the authorities”.

The company’s auditors, KPMG, gave a qualified audit opinion, saying that it had been “unable to obtain sufficient appropriate audit evidence in relation to the potential consequences of the allegations.”

The audit report expressed further anxiety under a section headed, “Emphasis of matter – uncertain outcome of sub-contract allegations”.

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