Victoria Carpets has ‘potential irregularities’ in its accounts after auditor Grant Thornton raised concerns over possible fraud at one of the group’s subsidiaries
The royal carpet-maker, which distributes carpets, ceramic and tiles worldwide, was flagged in a financial update with ‘risk factors of fraud’ regarding certain transactions.
Auditor Grant Thornton has reported that it had been unable to complete its audit work due to a ‘limitation of scope’ which had been handed down by the company with one of its subsidiaries.
This concerned the accounts of Hanover Flooring Limited, a small regional distributor based in Yorkshire, whose trade, inventory and debtors were acquired by Victoria on 26 January 2021.
According to Grant Thornton, the firm had found ‘potential irregularities’ in respect of certain transactions for Hanover.
This included around £100,000 of customer receipts in FY23, and £1.2m since January 2021, which could not be reconciled to individual product invoices due to a lack of detailed records.
In the year ended 1 April 2023, Hanover had revenue of £18.7m, with a statutory loss before tax of £1.2m, and underlying profit before tax of £3.9m. The level of materiality set out by Grant Thornton for work performed on Hanover for FY23 was £2.4m and £6m for the entire group audit.
The firm concluded that while the initial amount which needed investigation at Hanover was £2.4m, these matters were ‘qualitatively and quantitatively material to the group financial statements.’
Grant Thornton said: ‘We were unable to reduce the risk of material fraud or error to an acceptable level and obtain sufficient and appropriate audit evidence for all Hanover balances and cannot conclude whether any irregularities have or have not taken place, other than those disclosed by management.’
In response to this, Victoria took the decision to impose a limitation of scope on the auditor’s work and requested that the firm stop its work on Hanover.
As a result, Grant Thornton was unable to complete their audit work on Hanover for the group audit for the year ended 1 April 2023.
In a statement, listed Victoria Carpets said: ‘There have been some deficiencies in the control environment in this minor subsidiary and it has not maintained adequate and complete accounting records for the purposes of demonstrating how individual customer receipts were applied to individual invoices in the debtors’ ledge.
‘Consequently, we allocated additional experienced finance resources to this subsidiary who are putting appropriate controls in place to ensure adequate accounting records will be maintained.
‘We believe, based on the extensive work carried out with the support of professional advisors, that due to inadequate books and records in certain areas, any further audit procedures by Grant Thornton will not provide them with sufficient and appropriate evidence to satisfy their concerns.
‘Therefore, we took the decision to impose a limitation of scope on the auditor’s work and requested them to stop their work in respect of Hanover.’
Shares in the carpet company fell 25% to 411.5p after releasing its audited results for the year.
Victoria plc, which was established in to 1895, reported a 43% increase in revenue to £1.46bn, according to its full-year results. Total earnings before tax rose by 20% to £196m.
Victoria currently employs approximately 4,900 people at more than 27 sites, with operations across the UK, Spain, Italy, the US and Australia.