The Wolverhampton-based group went into compulsory liquidation in 2018 owing close to £7 billion.
A tribunal in London has heard that former KPMG staff forged documents and misled the Financial Reporting Council over audit quality reviews for companies including Carillion between 2014 and 2016.
The FRC, which regulates accountants, confirmed the £14.4m settlement at the tribunal and said KPMG would also face a “severe reprimand” over the “extremely serious” misconduct related to employees’ false representations to the watchdog.
Six staff at the business have been found to have created "fabricated" meeting minutes to cover up procedural failings at Carillion, which became Britain's biggest corporate failure for decades when it went bust.
The fine is the biggest penalty in KPMG UK's history and the second largest levied on any accountant.
The tribunal ruled that five of the firm’s auditors – Peter Meehan, the partner responsible for auditing Carillion; senior managers Alistair Wright, Richard Kitchen and Adam Bennett; and junior auditor Pratik Paw – were all guilty of misconduct.
Stuart Smith, the sixth auditor, settled with the FRC before the tribunal started in January. He accepted a £150,000 fine and a three-year ban as a qualified accountant.
They were found to have created false spreadsheets and records of meetings in response to questions from quality inspectors about work on Carillion and another outsourcer Regenersis between 2015 and 2017.
Mr Meehan tried to blame his colleagues for the misconduct during the tribunal, saying he was “let down” by junior members of the team.
Mark Ellison QC, representing the regulator, said the tribunal found that the four senior KPMG auditors “acted deliberately and dishonestly in the creation of false documents and the making of false representations” to the FRC.
Mr Paw, the junior auditor, acted without integrity but not dishonestly, the tribunal found.
Lawyers for the FRC called for a £400,000 fine for 60-year-old Mr Meehan and for him to be banned from the profession for 15 years. Mr Meehan’s lawyers argued that he should be fined £250,000 and excluded for 10 years.
The regulator said the three senior managers should each face a £100,000 fine and be banned for 12 years, while the junior auditor should be excluded for four years and be handed a £50,000 fine.
The individual penalties will be formally decided in the coming months oncer the tribunal has heard arguments from both sides.
KPMG will also have to pay all of the costs from the case. Its total fine would have been £20m, but the figure was reduced to to reflect the accounting firm’s cooperation and willingness to admit guilt.
Carillion's collapse in January 2018 resulted in 3,000 job losses and causing chaos across hundreds of its projects including two big hospitals.
Commenting on the settlement with the FRC, KPMG chief executive, Jon Holt, said KPMG was “deeply sorry that such serious misconduct occurred in our firm. It was unjustifiable and wrong. It was a violation of our processes and a betrayal of our values.
“I am saddened that a small number of former employees acted in such an inappropriate way, and it is right that they – and KPMG – now face serious regulatory sanctions as a result.”