Lookers £4m charge could be a common problem, says accountants

5:10 pm, April 24, 2020

National accountancy group UHY Hacker Young has said that there are key lessons to be learnt from the Lookers’ £4m accounting black hole.

The accountants admit they has seen ‘numerous instances’ when they have taken on clients with similar issues.

Paul Daly, partner at UHY Hacker Young, issued a statement that explained how easy it can be to make these mistakes with some advice on how to ensure they don’t happen.

He said: ‘In our experience, the subject of manufacturer bonus remains one of the most challenging when it comes to both internal or external audit. The manufacturer offer is inherently complex and often subject to variation in response to trading conditions.’

Adding: ‘In our view, at any year end the resulting debits and credits in the balance sheet must be audited in totality and not just on a sample basis.’

Lookers’ problems came from a series of issues within the group, with Grant Thornton LLP appointed to investigate the fraud, which initially looked at the operating division. The result is a £4m charge in the group’s 2019 financial statements.

‘The most common error being to deliberately or otherwise misallocate the incoming payments against the debts (usually oldest first),’ explained Daly.

‘This can provide false reassurance to an auditor who sees that the remaining balances appear current when in fact they represent mistakes or fraud that can have built up over several years.

‘Due to the high volume and value of transactions, the resulting write offs can be truly eye watering as illustrated in this example with just one division suffering a £4m problem.’

The other issue for Lookers was certain balance sheet accounts not being reconciled properly, which is ‘is an all too common problem that we see on a regular basis’ according to Daly.

He advised: ‘Disciplines should be in place to ensure that every single balance sheet account is reconciled on a frequent (ideally monthly) basis.

‘Furthermore, in larger businesses there should be peer review or an internal audit function to regularly carry out detailed secondary checks to ensure these disciplines are being followed and encourage the right mindset in both the finance and operational functions in the business.’

Daly added that new approaches to interrogating data are being introduced using technology, which UHY Hacker Young are developing themselves, its accountants are ‘still firmly of the view that our audit must be heavily focused on ensuring the year end balance sheet is not materially misstated. When fraud and errors stop manifesting themselves in this way, we may be convinced to change our approach!’