Earlier this month Emma Mercer gave evidence to the joint work and pensions and business, energy and industrial strategy (BEIS) select committee examining the collapse of Carillion in January 2018.  She told MPs that when she returned to the UK from the company’s operations in Canada in early 2017, initially as finance director of construction services, she identified a more ‘aggressive’ approach to accounting.

Now the committee has published Carillion’s board minutes for three meetings held in May 2017, which show that within six weeks of her return, Mercer advised Adam Green, the managing director, that she had identified some issues with which she was not comfortable.

The minutes show that some days later, Mercer raised her concerns with the group HR director, and the chair of Carillion’s remuneration committee ‘noted that Mrs Mercer appeared to be a whistle-blower who did not feel she was listened to’.

The minutes indicate some of the concerns centred on two projects, in Liverpool and Battersea, where there was a risk that an over-optimistic approach had been adopted. The board was told that an initial assessment suggested costs had been offset by negative accruals, which should have been included in ‘other debtors’.

Even though, for example in Battersea, there was a view that a recovery could be made, it was not put in debtors. In other words the entries were in the balance sheet, but in the wrong place. They were included, and the net working capital was not misstated, but the gross figure was. In essence, creditors had been reduced rather than debtors increased, which did not appear to have been flagged up in the normal way and so denied to management.

The then CFO, Zafar Khan, who was replaced by Mercer in September 2017, told the May board meeting that ‘given the obvious significance of the two main contracts we needed to review the traded position’, while his view was ‘that there had been incompetence and laziness in the accounting review of the contract and in recognising the position.’

Patrick Meehan, the KPMG auditor partner, indicated that KPMG needed to review and reassess the judgments on each contract. They would separately have to consider the position at the year-end and thereafter to assess the traded position subsequent to the year-end.

The board discussed at this and a subsequent May meeting whether or not an independent accounting review of the 2016 year-end position in relation to the contracts was required, but decided against this.

The subsequent three-stage review comprising an internal review, a KPMG review and a review by the sub-committee of the board concluded that the 2016 year-end position did not need to be restated.

In the minutes, Meehan is quoted as stating: ‘He did not believe that there was an intent to deceive, but rather was due to incompetence, negligence or sloppy accounting.’

Frank Field, chair of the work and pensions committee, said: ‘Emma Mercer took just six weeks to spot and pull the thread that began the entire company unravelling.

‘That the next chief financial officer had to go through whistle blowing procedures to get her concerns about accounting irregularities taken seriously by the Carillion board is extraordinary. So too is that the board's response was to reject an independent review and get KPMG, their pet rubber-stampers, to mark their own homework.

‘While our witnesses have been reticent in oral testimony, these minutes begin to reveal the true picture of a company falling apart at the seams in full view of the board and their auditors.’

A spokesman for KPMG, who said the accountants had not seen the board minutes released by the joint committees, said: ‘As we have already commented, we believe that we conducted our role as Carillion’s auditor appropriately and responsibly.’

Ex-Carillion CFO, Richard Adam, sold his entire existing shareholding the day the 2016 accounts were published, and the rest the moment they vested, netting himself another £750,000 from shares that are now worthless.

Details of the Carillion board minutes are here.

Report by Pat Sweet