[isleaiw1]

Originally Posted by JNW1

Looks like a rescue plan has been agreed and a big part of that is a £10m interest-free loan from Luke Johnson. Therefore, while something's clearly gone wrong on his watch, he appears to be doing everything he can to put things right so fair play to him on that IMO.

It will be interesting to see what the actual problem/irregularities is/are though; apparently some prior year accounts may also have been mis-stated which suggests its not something new (and perhaps indicates they should have been detected before now?). Wouldn't like to be in Grant Thornton's shoes if they've audited the accounts for several years and have continually failed to spot a material error....

Auditors breath a sigh of relief if it is fraud as they conduct their audit tests with a reasonable eye out for fraud but cannot be expected to find it....

Like you will be interested in facts, perhaps because I am an accountant, with an interest in audit, who has a background in retail and food / hospitality.... so what they have been up to has a professional interest...

[MashinBenzin]

On the face of it, Luke Johnson appears to have done the right thing with the cash injection/loan.

[JNW1]

There now appears to be talk of secret overdrafts and bank accounts the directors weren't aware of. However, in my experience banks usually require at least two authorised signatories for every business account and at least some (e.g. HSBC) won't allow someone who initiates a transaction to also be an approver (you have to be one or the other but can't be both). Therefore, I'm still confused as to how the FD could have been doing lots of dodgy dealings without anyone else in PV being aware...

[Craig-SM]

Does sound a load of crap. GT would have been aware of it when they requested external confirmation from their bank, which would have shown all balances, loans and securities. Any charges on the assets for such an overdraft would have been listed on Companies House too.

[isleaiw1]

Originally Posted by Craig-SM

Does sound a load of crap. GT would have been aware of it when they requested external confirmation from their bank, which would have shown all balances, loans and securities. Any charges on the assets for such an overdraft would have been listed on Companies House too.

Assuming they wrote to those banks? and assuming overdrafts had a floating charge?

Opening them would almost certainly have needed multiple signatories.... and to be £20m short on cash suggests that the performance reporting was wrong too, you cant be that short on cash if the rest of your reporting is accurate.....

[Craig-SM]

If GT didn’t write to the banks for external confirmation it would be poorly executed audit with no risk assessment taken on the client, merely a tick box exercise in which they wouldn’t have been able to give an independent opinion on the financial statements.
I’ve never known auditors not request confirmation from the banks even on much smaller clients. The size of PV their bank balances would have been material to the balance sheet and even with a generous level of materiality they would not have gone unchecked.
As I had stated previously the turnover could have been inflated to improve performance for dividends and share value.
It will be interesting to see what comes out in the wash and I’m sure a few a GT will be panicky.

[JD6]

Originally Posted by JNW1

There now appears to be talk of secret overdrafts and bank accounts the directors weren't aware of. However, in my experience banks usually require at least two authorised signatories for every business account and at least some (e.g. HSBC) won't allow someone who initiates a transaction to also be an approver (you have to be one or the other but can't be both). Therefore, I'm still confused as to how the FD could have been doing lots of dodgy dealings without anyone else in PV being aware...

The larger the client, the less keen the bank would be to make them jump through hoops, so while banks tend to need more than one signatory, they are less likely to question a request or go over forms with a fine-toothed comb with a more important client.

A similar problem affects banks internally in my experience - individuals who appear to be making a lot of money for the bank are seen as untouchable, and they do everything not to annoy them. As a consequence, rogue traders are often only picked up at quite a late stage.

[JNW1]

Originally Posted by JD6

The larger the client, the less keen the bank would be to make them jump through hoops, so while banks tend to need more than one signatory, they are less likely to question a request or go over forms with a fine-toothed comb with a more important client.

A similar problem affects banks internally in my experience - individuals who appear to be making a lot of money for the bank are seen as untouchable, and they do everything not to annoy them. As a consequence, rogue traders are often only picked up at quite a late stage.

I know what you mean and I think a similar issue sometimes affects external auditors (i.e. they tend not to want to upset large clients).

However, that notwithstanding, I still struggle to understand how a black hole could have been created on the apparent scale it has in PV without anyone else in the Group knowing apart from the FD; if true it suggests some very significant weaknesses in the company's internal controls.....

[isleaiw1]

Originally Posted by JNW1

I know what you mean and I think a similar issue sometimes affects external auditors (i.e. they tend not to want to upset large clients).

However, that notwithstanding, I still struggle to understand how a black hole could have been created on the apparent scale it has in PV without anyone else in the Group knowing apart from the FD; if true it suggests some very significant weaknesses in the company's internal controls.....

Apparently they have said they are going to beef up their control environment and finance teams. More money for one of the big firms advising what they should do then....

[JNW1]

Originally Posted by isleaiw1

Apparently they have said they are going to beef up their control environment and finance teams. More money for one of the big firms advising what they should do then....

Stable doors and horses spring to mind but if the control environment was really that bad shouldn't some of GT's auditing testing have spotted it? Generally auditors test internal controls to help give them an idea of what they can rely on so if GT had done this you'd have thought any glaring weaknesses - and lack of segregation of duties - would have been apparent?

That said they'll no doubt argue their testing is designed primarily to detect error rather than fraud so if it's the latter - as appears to be the case in PV - they'll probably say they weren't really looking for that....

[sahajesh]

Originally Posted by isleaiw1

Apparently they have said they are going to beef up their control environment and finance teams. More money for one of the big firms advising what they should do then....

They should bring in Boston Consulting Group, they are awesome at restructuring organisations and taking a huge pile of cash at the same time...

[isleaiw1]

Originally Posted by sahajesh

They should bring in Boston Consulting Group, they are awesome at restructuring organisations and taking a huge pile of cash at the same time...

There are a fair few of them - but given the issues I expect PwC to be the ones to benefit as they are doing the investigatory work now....