Lloyds Banking Group and consultancy firm KPMG came under renewed pressure yesterday following the publication of a report into an historic fraud case at HBos’s Reading branch.

The internal report came from an ex-employee from within Lloyds Bank, and detailed allegations of criminal misconduct by senior bank employees and auditors surrounding the handling of the incident. According to the report, top executives at HBos understated the extent of liabilities left by the fraud to regulators and to shareholders ahead of the takeover of the bank by Lloyds in 2009, while also alleging serious misconduct by auditors KPMG.

The report speculated that, had the size of the provisions needed to cover the fraud been properly disclosed by a 2008 rights issue by HBos, the subsequent emergency takeover by Lloyds TSB at the peak of the financial crisis would not have been possible.

Six people, including former HBos managers, are currently serving a combined prison sentence of 47 years for the HBos Reading fraud. Those involved reportedly pushed small firms out of business before stripping their assets for personal gain between 2003 and 2007.

The Treasury Select Committee chair Nicky Morgan said that it is “likely to consider” the report in its investigation when several separate probes into the scandal are finished.

The so-called Project Lord Turnbull Report was “initiated by our employee at the time on her own initiative”, a Lloyds spokesperson has said.

“As soon as it came to Lloyds’ knowledge, the then head of group audit asked the employee to set out what she had found.”

The FCA and the police were provided with the report in 2014, according to Lloyds. However, it had not been published until yesterday when an independent businessman made it available.

“The FCA is currently investigating the extent and nature of knowledge of the discovery of misconduct within HBos Impaired Assets office in Reading and HBos’ communications with the regulator after the initial discovery of the misconduct,” a Lloyds spokesperson said.

A KPMG spokesperson said the firm had not seen the report until yesterday.

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