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Forensic investigation opens ‘can of worms’ for Lookers

Service Area: Fraud

Motor sales group Lookers, which has been undertaking financial investigations since March, has now revealed that alleged fraud in the company could cost it £4 million.

A recent statement from the firm said that the investigation had identified ‘potential fraudulent transactions’ in one of its operating divisions, which will result in “a one-off, non-cash charge, in the 2019 financial statements of circa £4 million”.

The business was already struggling before the lockdown started last month, with new vehicle sales down 4.8 per cent year-on-year in the first two months of 2020.

On 10 March the group announced it was delaying publication of its full-year results owing to a fraud investigation into misstated accounts and expenses.

Now the first phase of this investigation has been completed, revealing misrepresented debtor balances in respect of bonus receivables and some fraudulent expenses claims.

In light of these findings, the board has decided to extend the investigation further, even though when the alleged fraud was first announced, it had been described as “not material”.

Despite the investigation, which has been described as “opening a can of worms” for Lookers, the board anticipates that the group will still be profitable for the 2019 financial year on an underlying profit before tax (PBT) basis and it continues to believe that it is too early to make a reasonable estimate of the financial impact during this year and beyond.

When fraud is alleged in one area of a large group of companies, with several divisions, there are usually repercussions for the other parts of the business, as forensic investigators look at the overall governance of the organisation.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The adverse effects of the Lockdown will be severe for many businesses but those that had pre-existing vulnerabilities will find that their viability may become even more precarious.

Motor Dealerships will face particularly tough challenges. They may have been able to mothball their businesses in recent weeks but juggling cashflows will be very challenging if they have to reopen in circumstances in which consumer demand remains depressed. Coping with no income is easier than coping with reduced income. At least if a business is closed, it can cauterise most if not all its costs. By contrast, once those costs start to resume as staff return to work and rent becomes payable, a minimum level of sales turnover will be needed to meet them.”

Author: Roger Isaacs
27 April 2020

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