KPMG faces Pounds 1.6m legal bill for Independent Insurance failings

KPMG has been fined 495,000 and ordered to pay legal costs of 1.15m for failures in its duties as auditor of Independent Insurance almost a decade ago.

Andrew Sayers, the KPMG partner in charge of the Independent account at the time, was also personally fined 5,000 by watchdogs yesterday.

Independent collapsed in 2001, sliding into liquidation shortly after the company's actuaries revealed that its employers' liability insurance claims had shot through the roof. That admission triggered the withdrawal of a fundraising aimed at propping up the company's balance sheet.

After a lengthy investigation, Independent's founder and former chief executive, Michael Bright, was sentenced to seven years in jail. His business colleagues, Philip Condon and Dennis Lomas, were also imprisoned for their role in the scandal.

KPMG and Mr Sayers were fined after an investigation revealed that the actuaries, Watson Wyatt, had warned them that several of the reinsurance contracts taken out by Independent to try to prevent its collapse did not stack up. Furthermore, although a colleague of Mr Sayers had advised him to check the terms of the reinsurance policies, he had failed to do so.

In its report, published yesterday, the accountancy industry's Joint Disciplinary Scheme said the conduct of KPMG and Mr Sayers "fell seriously below the appropriate standard".

KPMG accepted the fines, but added that information had been withheld from it by Independent's management. "KPMG regrets that there were shortcomings in certain aspects of its audit of Independent and we accept that we could have done better," a spokesman said. "However, it must be noted that the frauds which led to the collapse of Independent Insurance were perpetrated by a number of Independent's senior directors who have been sentenced to substantial terms of imprisonment."

The firm added: "The complaints on which the settlement is based relate to an audit engagement which took place more than seven years ago. Any lessons that were to be learned ... were taken on board very soon after its collapse."

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