Forensic accountants have uncovered “significant manipulation” within Patisserie Valerie’s accounts, suggesting its financial troubles are more extensive than first thought.
The company said the work carried out by its forensic accountants since “potentially fraudulent” accounts were discovered in October has revealed that the “misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts.” This involved thousands of false entries into the company’s ledgers.
The cafe chain suspended its chief financial officer Chris Marsh after the discovery. This led to the company receiving an emergency fundraising from shareholder and hospitality entrepreneur Luke Johnson, to prevent it from going into administration. Marsh was subsequently arrested and is currently under investigation by the Serious Fraud Office.
Patisserie Valerie said: “It will take some time before a reliable trading outlook can be completed while the above work streams progress.”
The initial indications from the work show that the cash flow and profitability of the business had been overstated in the past and is materially below that announced in the trading update on 12 October 2018, based on the limited work carried out over a 48-hour period.
The company has now hired KPMG to assist it in carrying out a review of all options available to it in order to recover from the “devastating effects” of the fraud, and to preserve value for its stakeholders going forward. Patisserie Valerie also confirmed that RSM were appointed auditors yesterday (16 January), but said because to the fraud and attendant accounting issues it will be some time to complete a restatement of its accounts and prepare the audited figures to 30 September 2018.
The company has also been in discussion with its bankers to extend the standstill of its bank facilities beyond 18 January, and will issue an update when those discussions have concluded.