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- Written by Charli Chaplin
The Times – lid lifted on £40m hole at heart of Patisserie Valerie: Cheques worth millions of pounds were bounced at HSBC and Barclays in Solihull in the West Midlands, artificially inflating the cash reserves of accounts belonging to Patisserie Valerie, according to a report. The banks are a 20-minute drive from the head office of Patisserie Valerie in Birmingham.
The report by PricewaterhouseCoopers (PwC), which has been investigating the suspected fraud that led to the collapse of Patisserie Valerie for the past three months, has not been published but details have been reported by The Times. The report contains details of ways a black hole of more than £40m was hidden in the accounts of Patisserie Holdings, its parent company. PwC has identified forged company minutes used to take out overdrafts of almost £10m, bank contracts with forged signatures of some senior directors and fictitious invoices for shop refurbishments. All of this went undetected for at least three years and possibly far longer until an announcement to shareholders in October in which the company revealed “significant and potentially fraudulent accounting irregularities”.
The Serious Fraud Office opened an investigation and Patisserie Holdings’ shares were suspended. Administrators were called in last week after the company failed to renew its banking facilities with Barclays and HSBC. A total of 71 sites have closed with the loss of 900 jobs. “This is a company that may have been built on sand all along and no one got wind of it,” said Gavin Pearson, a forensic accountant at Quantuma. Unlike many of its rivals in the casual dining business, Patisserie Valerie was reporting a rise in sales each year and an ever-growing pile of cash. “Anyone looking to invest should have looked at its margins relative to its peers,” said Stephen Clapham, an analyst specialising in studying company accounts. “In fact it was making better margins than Starbucks in 2011, which is inconceivable.” Sam Fuller, managing director of GCA Altium, a mergers and acquisitions adviser, added: “Surely alarm bells must have been ringing when everyone else was being pummelled by the heavily publicised rising tide of costs? Did no-one on the board raise any doubts?”
The manipulation of the accounts has been described as unsophisticated, leading to further questions from shareholders and regulators about how Patisserie Valerie’s board, its auditors and its banks failed to spot the apparent fraud. Grant Thornton, Patisserie’s former auditor, is facing questions over whether it examined the company’s accounting journals, which could have provided clues about the suspected fraud.
Its audits going back three years are also being investigated by the Financial Reporting Council. Meanwhile, the Financial Conduct Authority is scrutinising Barclays and HSBC for possible failures in their monitoring of Patisserie’s current accounts and overdrafts. “These were simple techniques being used to fake the numbers to make the shops look like they were performing well,” said a person who has read the PwC report. There was no evidence in PwC’s report money was being routinely siphoned off for personal use, the person added. Both PwC and KPMG, its administrators, are picking over Patisserie’s true financial position, and the business, which still operates 121 outlets around the UK, could be sold this week. David Costley-Wood, the joint administrator, said last week KPMG was “pleased with the level of interest we have received”.
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