After delaying for eight months its 2019 audited financial statements, U.K. car dealership chain Lookers has disclosed a £45.5 million (U.S. $60.5 million) loss following discovery of accounting fraud by a former employee. The company also revealed it has set aside £10.4 million (U.S. $13.8 million) for a potential fine by the Financial Conduct Authority (FCA).
According to Lookers’ annual report, issued Nov. 25, profits were overstated by £25.5 million (U.S. $33.9 million) over several years, including by £10.9 million (U.S. $14.5 million) in 2019 alone. Additionally, Lookers disclosed a £21.8 million (U.S. $29 million) shortfall, “of which £8.3 million related to the previously unreported 2019 financial statements and £13.5 million related to prior years.”
The fraud, totaling around £327,000 (U.S. $435,000) across multiple years, was perpetrated by one individual who is now the subject of a criminal investigation, the company said. The individual was not identified by name.
The investigation began in early March, when the potentially fraudulent transactions were discovered. In the first stage of the investigation, a forensic team from Grant Thornton reviewed the relevant operating division, followed by an extensive internal review by Lookers’ board. “The investigation identified accounting irregularities including certain financial systems and controls weaknesses, non-compliance with the Group’s accounting policies or accounting standards, and poor accounting,” the company said in the annual report.
Additionally, Lookers said it’s currently in discussion with the FCA regarding improvements to its governance, compliance, and risk management controls, specific to the following areas:
- Embedding changes to the group’s governance arrangements and systems and controls, including the design and implementation of revised sales and oversight practices; the development of a robust risk management framework; and a number of senior appointments, including a chief risk officer and two non-executive directors with experience in financial services and regulated businesses.
- Assisting with an ongoing investigation by the FCA’s Enforcement and Market Oversight team into the group’s sales processes and potential breaches of certain FCA’s principles and rules regarding the period Jan. 1, 2016, to June 13, 2019.
- Providing details to the FCA relating to the events that led to the delay in publishing the annual report and accounts and the suspension of shares on July 1, 2020.
“The investigation into our financial systems and accounting controls, the delay in the publication of our 2019 results, and the subsequent temporary suspension of our shares have been a great disappointment,” Chairman Phil White said in a statement. “As chairman of Lookers, I would like to apologize unreservedly to all our stakeholders for the uncertainty this has caused.” White said his focus now is “to restore the listing of our shares and to strengthen the board.”
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