KPMG UK's restructuring provides insight for midsize, large firms

As KPMG UK works on its internal restructuring, mid-to-large-tier firms should be paying attention to the decisions–both good and bad–that the Big Four firm is making.

As the smallest of the Big Four, KPMG UK is potentially more prone to the pressures of a tumultuous economy than its counterparts, particularly with Brexit approaching. Throughout September, the firm has made changes to its staff, its structure and where it spends its money.

Additionally, starting in October, a number of KPMG UK staff will be required to turn in their work-issued mobile phones, which KPMG said will “free up funds to further invest in the future of the firm.”

If a major firm is cutting the fat from their budget, it might be time for mid-to-large- tier firms to take a hard look at what’s worth their money and what’s not.

An advisory to audit

Having multi-faceted employees can be beneficial, particularly with the overlap between different departments, such as advisory and audit staff.

With a potential forced company split on the horizon, thanks to the Competition and Market Authority (CMA), a reported 800 employees were moved between KPMG UK’s audit and advisory departments in late September.

A KPMG UK spokesperson said: “We are working on creating a model which gives our audit practice greater independence from the rest of the business while ensuring our auditors have access to the benefits a multi-disciplinary firm brings.

“As you would expect, this work involves moving a number of people from the advisory side of our business into audit and vice versa.”

These recommendations were made by the CMA back in 2018, and growing firms should take note of the regulatory body’s ideas regarding restructuring.

With these changes taking place, mid-tier firms should be aware of how they structure their staff and brace them for any potential changes. Implementing inter-department staff training, for example, helps all teams stay current on both information and technology.

Then, if restructuring takes place in the future, staff will be able to move positions with less re-training, saving the company time and money.

Staying on top of affairs

The Financial Reporting Council (FRC) held multiple hearings in 2019 in regard to a particular KPMG 2011 asset report, which resulted in the firm receiving a £3.5m fine in April for misconduct.

However, that fine was set to be £5m — until the FRC discounted it by 30% due to the firm’s admission of misconduct. Taking ownership of mistakes can be extremely beneficial; in KPMG’s case, it saved them £1.5m, after all.

However, a bad experience does not have to define your firm. By KPMG’s own admission, they are still rebuilding public trust from a series of auditing missteps, which requires both time and money to repair—but the takeaway is that progress is being made.

After these missteps with FRC, KPMG UK hired 800 experienced staff and over 1,000 new hires for its auditing practice, putting them through audit-specific training.

These additional staff, as well as their additional training, will potentially protect the company in the future. Additionally, KPMG handled the matters appropriately — noting that mistakes were made, but also moving forward.

Firms without as much public notoriety should take note, as a mistake may hit them harder than KPMG’s did. It’s important to double-check past work as well as present, in order to both remedy any potential mistakes and to avoid both a financial and reputational hit.

With the FRC issuing a statement of concern for UK auditors and committing to follow “significantly stronger requirements” than before, staying on top of auditing will become of paramount importance.

But, as KPMG and its Big Four colleagues have shown throughout the years, how a firm recovers from an incident can make all the difference in their success or failure — an important lesson for firms of all sizes to remember.

The benefits of restructuring

In September, KPMG UK between 200 and 250 of administrative positions as a cost-cutting measure, asking partners to file expenses themselves. The Financial Times reported that alongside the staff cuts, 24 new support positions would be established in the firm’s Birmingham office.

While mid-to-large firms will want a London presence, that postcode comes with a hefty price tag in the form of rent, salary and the overall cost of operation.

If a London location is truly serving the firm and bringing in revenue, then maybe it’s a valid cost—but the firm should consider if the same work could be done from a lower-cost, well-connected city like Manchester or Leeds.

Establishing these changes before they become financially necessary is an important move for firms to make. In this way, the move can be done carefully and in a calculated manner, saving as many jobs as possible and bringing in the best new talent.

In KPMG’s administrative cuts, secretaries were on the chopping block, but it is important to note that administrative personnel save the company both time and money in the form of manhours.

If a firm’s secretary has additional payroll and digital skills, they can essentially do the job of two people—so don’t write them off as an unnecessary cost or put them on the chopping block when restructuring becomes necessary.

All firms, regardless of size, come with their own set of challenges and rewards. However, it is important to learn from the triumphs and failures of other firms in order to grow both as a company and within the industry.