Grant Thornton/ Patisserie Valerie: underbaked audit
The FRC issue its report into the accounting scandal at the British cake shop chain.
Happy Monday to you all – except, perhaps, Grant Thornton.
The auditor this morning was slapped with a £2.3m fine, and ordered to pay an extra £650k of costs, by the Financial Reporting Council over its work on overcooked cake shop Patisserie Valerie between 2015 and 2017. If you don’t remember, the £600m Aim-listed purveyor of pastry delights collapsed into administration in January 2019 after its board, chaired by star entrepreneur Luke Johnson, was notified of some accounting funnies at the company the previous September.
Along with the fine, the FRC released its full report into the scandal, and it makes for pretty eye-opening reading if you’re of the persuasion that a set of signed-off accounts mean a company’s accounts can be implicitly trusted.
The 65-page report is split into four parts covering revenue, cash balances, journals and fixed assets, and we recommend reading through the whole thing if you want to leave your jaw on the floor for the best part of an hour.
Just in case you haven’t got time to read the whole thing, though, we thought we’d share this one delicious crumb, to whet your appetite.
First, here’s the headline summary of this particular issue from the FRC. And, in case you’re wondering, PH stands for “Patisserie Holdings Plc” and GT, for errr, “Grant Thornton”.
PH’s figures showed very large proportions of revenue being received at or around year end, for example 73% of the Group’s entire annual revenue from vouchers from a third party company in FY16 was purportedly received in one payment, on 28 September 2016. This was 11 times the average monthly receipts in preceding months.
And here’s how these large revenue inflows at the end of September — which marked the end of Patisserie Valerie’s accounting year — look in table form:
There’s a few glaring problems here, but the obvious one is that Patisserie Valerie’s wholesale customers had a weird habit of making large orders right before the year end. For instance in 2017, orders from Customer A were responsible for just over half of its wholesale revenues from that customer for the entire year.
To some, that one might be suspicious on its own. For instance, why would a wholesale customer choose to suddenly order a material amount of baked goods, teas and coffees just before Patisserie Valerie’s year-end? Particularly when it made orders in relatively consistent amounts during the rest of the financial year.
But that wasn’t the only questionable part of the transaction. From the report:
These receipts are over 14 times higher than the average monthly receipts from Company A. Further, they are for 217,788 afternoon teas, which ought to have prompted investigation as there were only 124,779 afternoon teas sold through Company A in the rest of FY17, and they are all shown as being for afternoon tea, whereas all earlier Company A receipts had been for a range of different offers.
And what did Grant Thornton make of this? Well, as it turns out, diddly squat:
The documents retained by PH in relation to these payments were for large amounts but contain little or no detail. There is no evidence that GT queried this lack of detail. No documents to support each of the final five receipts were retained on the audit file.
Maybe the team at Grant Thornton also enjoyed afternoon teas as much as Customer A?
But that’s not all, the report goes on:
. . . One copy Company A invoice dated 2 October 2017 relied on by GT had various errors in the invoice and inconsistencies with other Company A documents, which (given other red flags) should have cast doubt on the provenance of the document and ought to have prompted investigation:
5.24.3.1. The Company A logo is missing from the top of the invoice, and the Company A website address is missing from the bottom of the invoices. These details are present on other Company A invoices;
5.24.3.2. The word “quantity” is spelt incorrectly as “quantiiy”;
5.24.3.3. The postcode for Stonebeach is written as “828 8DT” compared to B28 8DT in other Company A invoices;
and 5.24.3.4. The font and format are different to other Company A invoices.
So not only was one of these invoices issued in October, but it contained multiple other differences — including a typo and a wrong address — compared to other invoices related to the same customer.
A generous interpretation here might be that someone was in a rush issuing this particular invoice, and therefore made a spate of errors in doing so.
The less generous interpretation? Well, we think we’ll leave that unsaid.
