GT probe finds £19m hole in Lookers’ accounts

Grant Thornton has identified a £19m hole in the accounts at national car dealership Lookers, stemming from fraudulent expenses claims and incorrect or inconsistent application of policies, processes and accounting standards

The firm was called in to handle an independent investigation in March, after Lookers said it had been forced to postpone the publication of its 2019 results following the discovery of potentially fraudulent transactions in one of its operating divisions.

Lookers has now revealed Grant Thornton has identified a cumulative total of approximately £19m of non-cash adjustments necessary to correct overstatements in profitability over several years.

The company says approximately half of these ‘draft adjustments’ impact the 2019 results with the remainder accumulated in prior years. At present it is not possible to determine if the historical elements would be material in any year.

As it reported previously, around £4m of the draft adjustments relate to the initial phase of the investigation which focused on one of the group’s operating divisions. These adjustments include certain misrepresented and overstated debtor balances in respect of supplier bonuses receivable together with a number of fraudulent expense claims.

The remaining £15m relates to the incorrect or inconsistent application of policies, processes and accounting standards, Lookers said.

Grant Thornton’s draft report also highlighted several areas where certain financial controls and some behavioural and cultural aspects require strengthening, and Lookers says it has started implementing remedial measures to address these points and is continuing to invest in its systems and controls to further improve their robustness.

An independent board committee has been established to ensure implementation of the recommendations from the report.

Lookers has already postponed publication of its results for the financial year ending 31 December 2019 as a result of the investigation. 

Having originally indicated these would be released in the second half of April, the results are expected to be published by tomorrow, 30 June, the last date permitted under Financial Conduct Authority (FCA) disclosure rules. If it misses this deadline, the company faces having trading in its share temporarily suspended.

Lookers’ auditor, Deloitte, has already told the company that it intends to resign following the publication of the 2019 results, ending a 14-year relationship.

Lookers said in a statement: ‘Whilst the company is making good progress in resolving the investigation there remain a number of outstanding issues and until such time as these issues are resolved and Deloitte have completed their audit, it is not possible for the company to confirm the full impact.

‘However, the board believes that 2019 will remain profitable at the underlying profit before tax level.’

The group has 164 franchise dealerships across the UK and at the beginning of this year sold four sites generating proceeds of £8.3m as part of an ongoing portfolio review which identified 15 sites for sale. Earlier this month Lookers announced a redundancy process likely to some 1,500 staff let go as part of a restructuring plan expected to deliver annual payroll savings of approximately £50m.

According to its 2018 annual report, Deloitte has been Lookers’ external auditor since the firm’s appointment for the year ending 31 December 2006. A formal re-tendering process was last undertaken in the financial year ending 31 December 2016.

Deloitte was paid £680,000 in audit fees for the company and its subsidiaries in 2018, plus £20,000 in fees for non-audit services. This compared with £357,000 in audit fees for the previous year.

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