Wednesday, October 27, 2021

Audit firm fined $2.9 million for failing to spot Patisserie Valerie collapse

LONDON — The accounting firm Grant Thornton has been fined £2.3 million ($2.9 million) after auditing the books of the Patisserie Valerie supermarket chain during a financial hole that ultimately saw one of Britain’s biggest restaurant chains collapse.

The ruling comes more than a year after the scandal which ultimately left its largest shareholder, entrepreneur Luke Johnson, nursing a £30 million (US$42 million) loss.

The audit was conducted by Grant Thornton and was signed off in the first half of 2016 on the strength of the company’s accounts, showing turnover growing by 13 percent and a revenue increase of 24 percent year-on-year.

Despite Patisserie Valerie reporting “no material weaknesses in its accounts” at the time, the firm had lost a fortune following the collapse of Whitbread’s Costa Coffee chain.

A string of failures in the fast-food and coffee sector had prompted a change in the auditing industry, with a number of firms including Grant Thornton withdrawing from audits after signing non-performing contracts with government offices.

Auditors are trained to look out for deals that leave companies vulnerable to financial collapse, and Grant Thornton, which was contacted for comment, is known for taking special care when subjecting companies to their scrutiny.

In October, Grant Thornton CEO Alison Carnwath apologized “unreservedly” and vowed to repay any client who asked for her assistance in uncovering “systemic failings” at Patisserie Valerie.

“”We heard about the issues at Patisserie Valerie when an internal audit became apparent at the company’s auditors and we commissioned an investigation and appointed an independent accounting firm,” she said.

“Our role as an accountant, and indeed as a responsible corporate citizen, is to get it right first time. The lessons that Patisserie Valerie has learnt will be heard by our profession, not just by the company itself.”

The accounting scandal in England’s Channel Islands was brought to light by an Oct. 31 emailed letter from a supplier, Haywood, which informed Patisserie Valerie that it was not receiving any payment from the firm.

In the letter, Haywood argued that the grocer’s customers’ VAT payment to the VAT returns center had been delayed by a year and, in the letter, it laid the blame for the alleged malpractice on the bank accountants.

The firm then chose to no longer distribute its VAT payments to Patisserie Valerie and demanded they reverse the advance paid by the taxpayer to the firm.

That left Patisserie Valerie with a long-term liability of about £4 million.

After Patisserie Valerie failed to pay their £4 million debt in October, Haywood demanded that they return the payment to the VAT returns center.

Haywood, who was not immediately available for comment, left the firm in October and never attempted to reclaim the money. The letter resulted in Patisserie Valerie filing for administration in November, and the company went into liquidation two months later.

Former finance director Chris Marsh and accountant Liam Bailey were suspended from the accountancy firm on suspicion of misconduct by the firm.

But Grant Thornton, which put up the frozen money to pay Haywood’s “injunctive orders” to return the tax funds, has vowed to fight the misconduct charges which relate to the liquidation.

The company was involved in the recent administration of Byron, the gourmet burger chain.

As a result of the scandals, the UK accounting regulator, the Financial Reporting Council, initiated two investigations into the auditing of Patisserie Valerie.

The FRC said in a statement that its recent investigation into the accounting firm hired by Patisserie Valerie concluded that Grant Thornton’s audit caused an “unfair financial impact.”

“These costs were incurred as a direct result of a serious delay in conducting due diligence, a mistake in interpreting a contract with a UK taxpayer and a failure in the execution of a commercial contract,” it said.

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