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PATISSERIE HOLDINGS (CAKE)

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Dod101
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Re: PATISSERIE HOLDINGS (CAKE)

#196831

Postby Dod101 » January 27th, 2019, 12:30 pm

scrumpyjack wrote:There is, as I recall, an old legal principle that the auditor is a watchdog and not a bloodhound, and is not expected to disbelieve statements made to him/her by the directors unless there is something that creates a lack of trust. That may apply in this case as the fraud seems so extreme


I assume that reliance on the Directors' word will be the auditors' defence but I am not altogether sure that I would go along with that. Even if it is the case, then it puts even more responsibility on the Executive Chairman and principle shareholder. He most certainly must be in the frame, not as a party to the fraud; I can see no benefit to him in that except indirectly in being able to extract dividends, but as one of those responsible for the stewardship of the company on behalf of himself and of his fellow shareholders. Something though, does not seem to add up. Why would he be so negligent?

Dod

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Re: PATISSERIE HOLDINGS (CAKE)

#196847

Postby PinkDalek » January 27th, 2019, 1:36 pm

johnhemming wrote:One would assume they are supposed to see some details of bank accounts.


Including the alleged "secret" ones?

According to this dated 15 October 2018 https://www.accountingweb.co.uk/communi ... e-auditors :

… allegedly managing to open up secret multi-million-pound bank facilities …

They also quote The Times headline Patisserie could sue auditor Grant Thornton over £40m hole - subscribers can find that article here:

https://www.thetimes.co.uk/article/cafe ... -87hmvcmlj

scrumpyjack
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Re: PATISSERIE HOLDINGS (CAKE)

#196850

Postby scrumpyjack » January 27th, 2019, 1:44 pm

re my comment about the auditor being a watchdog not a bloodhound, perhaps 'lapdog' would be a better description of many now?

I recall many years ago (in the '70s!) asking a big 4 audit partner for his definition of a good audit. His reply - we got a good recovery, we didn't get sued and we kept the job!

(For those not in the professions) 'recovery' refers to the amount of fee compared to the chargeable hours recorded at scale rates.

Dod101
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Re: PATISSERIE HOLDINGS (CAKE)

#196858

Postby Dod101 » January 27th, 2019, 2:17 pm

Maybe part of the answer to this fraud and the fraud at Tesco is explained in the Sunday Times today. In respect of Tesco, the then CEO was so anxious to please the City that he put huge pressure on the underlings and they did some judicious 'adjustments' to the figures to keep them looking good. In the same way that the Finance Director at Patisserie does not seem to have directly benefited by the fraud, those at Tesco did not either.

It is suggested that the bosses in both cases put so much pressure on the underlings that they felt obliged to perform as requested. Doesn't say much for corporate governance because the boss saw what he wanted to see and asked n questions. That could explain a lot I guess.

Dod

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Re: PATISSERIE HOLDINGS (CAKE)

#196860

Postby Alaric » January 27th, 2019, 2:25 pm

PinkDalek wrote:Including the alleged "secret" ones?


The allegation appears to be that an account or series of accounts with overdraft facilities were opened, but never consolidated into the main Company accounts and disclosed to the auditors. The consequence being that the overdraft facilities were utilised to partly finance the Company. Thus if you have £ 10 million in a bank account disclosed to the auditors, but overdrafts with other banks of £ 15 million, the reality is that you are £ 5 million in debt rather than £ 10 million is assets.

If it becomes a fraud prosecution or prosecutions, it's going to be a while before the full story is told.

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Re: PATISSERIE HOLDINGS (CAKE)

#196879

Postby thebarns » January 27th, 2019, 3:49 pm

If the company has opened an overdraft and not told the auditors about it, then it is not an issue for the auditors, it is an issue for the management of the company.

Auditors only confirm balances with banks that the company tells them they have account (s) with.

Auditors do not send an all encompassing letter to all banks seeking out bank deposits or overdrafts - the banks simply could not cope with those sort of requests.

Audits and auditors almost forever have suffered from the lack of independence between those that appoint them, which is senior personnel in the company, and the fact they then report on the company and them.

If the fee is significant then grey judgemental areas are liable to swing one particular way.

If the area is black and white, there should be no such choice for the auditor, however the auditor can come under pressure depending on the size of the client.

The only way to properly address auditor independence and it is so obvious, is to remove the company’s ability to appoint an auditor and make it a process whereby the government or other independent body appoints the auditors with all companies having to pay audit fees into a central process.

It still does not guarantee that all frauds will be found, but it will remove the pressurised relationship that exists between those that appoint and indeed dismiss auditors and those that report on the company or people that pays their fees and livelihoods.

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Re: PATISSERIE HOLDINGS (CAKE)

#196893

Postby johnhemming » January 27th, 2019, 5:38 pm

Fair points.

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Re: PATISSERIE HOLDINGS (CAKE)

#196941

Postby Charlottesquare » January 27th, 2019, 10:46 pm

johnhemming wrote:As I remember it auditors are supposed to check at least some of the assets and liabilities. One would assume they are supposed to see some details of bank accounts.


A bank letter sent by the auditors to the banks used by the company used to be standard, this disclosed balances but also securities offered/cross guarantees etc. Hate to say even back in the 1980s, when I worked on much larger audits, the bank responses often did not match information we held and sometimes needed reverified by additional enquiries.

If accounts opened with other banks (or with existing) one would expect Minutes re same, part of the audit would be reviewing company Minutes.

I must admit the advent of laptops, semi automated analytical review processes etc that have crept into audit have often left me cold. I work as Group Accountant for an smaller entity which was originally an audit client of my former employer where I did the audit- I was headhunted by the client- when we were subsequently audited (until we no longer required an audit) by another firm post my joining I was pretty shocked at the limited compliance and substantive testing they performed, it seemed to me that reliance on slick audit software was replacing human audit work- then again I am out of date, set in my ticking ways, but audit seems to have morphed into doing as little as possible whilst ensuring the audit files will stand up to regulatory review if needed.

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Re: PATISSERIE HOLDINGS (CAKE)

#196942

Postby Charlottesquare » January 27th, 2019, 10:49 pm

thebarns wrote:If the company has opened an overdraft and not told the auditors about it, then it is not an issue for the auditors, it is an issue for the management of the company.

Auditors only confirm balances with banks that the company tells them they have account (s) with.

Auditors do not send an all encompassing letter to all banks seeking out bank deposits or overdrafts - the banks simply could not cope with those sort of requests.

Audits and auditors almost forever have suffered from the lack of independence between those that appoint them, which is senior personnel in the company, and the fact they then report on the company and them.

If the fee is significant then grey judgemental areas are liable to swing one particular way.

If the area is black and white, there should be no such choice for the auditor, however the auditor can come under pressure depending on the size of the client.

The only way to properly address auditor independence and it is so obvious, is to remove the company’s ability to appoint an auditor and make it a process whereby the government or other independent body appoints the auditors with all companies having to pay audit fees into a central process.

It still does not guarantee that all frauds will be found, but it will remove the pressurised relationship that exists between those that appoint and indeed dismiss auditors and those that report on the company or people that pays their fees and livelihoods.


If a company opens a bank account the bank will require a company Board Minute, copies ought to be in the Minute Book, the auditors ought to review the Minute Book. One would accordingly surely need forged Minutes, not recorded in the Minute Book, for a trail not to be evident that could have been checked.

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Re: PATISSERIE HOLDINGS (CAKE)

#196948

Postby Alaric » January 27th, 2019, 11:27 pm

Charlottesquare wrote:If a company opens a bank account the bank will require a company Board Minute, copies ought to be in the Minute Book, the auditors ought to review the Minute Book. One would accordingly surely need forged Minutes, not recorded in the Minute Book, for a trail not to be evident that could have been checked.


On the face of it then, there are already procedures in place to guard against the accounting fraud of financing a Company from undisclosed loan facilities.

Shareholders will await reports on how these safeguards were circumvented.

Dod101
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Re: PATISSERIE HOLDINGS (CAKE)

#196959

Postby Dod101 » January 28th, 2019, 7:23 am

All of which is very worrying for the poor shareholder. I know nothing of Luke Johnson but he seems to have been a very trusting hands off Executive Chairman and major shareholder. Executive Chairman. You could not get much more of 'the one in charge' than that.

And this was just a lot of cake shops not a Carillion.

Dod

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Re: PATISSERIE HOLDINGS (CAKE)

#196994

Postby Charlottesquare » January 28th, 2019, 10:35 am

Alaric wrote:
Charlottesquare wrote:If a company opens a bank account the bank will require a company Board Minute, copies ought to be in the Minute Book, the auditors ought to review the Minute Book. One would accordingly surely need forged Minutes, not recorded in the Minute Book, for a trail not to be evident that could have been checked.


On the face of it then, there are already procedures in place to guard against the accounting fraud of financing a Company from undisclosed loan facilities.

Shareholders will await reports on how these safeguards were circumvented.


There ought to be such procedures, it is part of the directors' duties to ensure there are, however if say collusion very difficult for any such controls to detect this, collusion can disable controls.

I have never opened a company bank account without providing a Minute to the bank that the directors agreed to open an account/take a loan with said bank, the company will record directors's meetings, the company secretary will have responsibility for the management of all such Minutes.

If there are other additional undisclosed borrowings that are such a surprise to the company that suggests that possibly any such Minutes may not have been signed by the authorised parties but by A N Other(s) and never reached the Minutes records. (perennial audit issue- how do you ensure completeness?)

The catch is the external audit process really cannot be designed to detect fraud (if that is what has occurred), if collusion it is doubly difficult as a lot of controls rely upon separation of duties, the watchdog not bloodhound reference from Re Kingston Cotton Mill Company still likely stands despite its age.

The first line of defence against fraud really needs to be the internal controls of the business rather than the external auditors, the external auditors test the internal controls as described/documented/discerned as operating but subject to that testing they then rely on them re planning their audit scope/extent/approach, if internal controls have broken down re say collusion then the external auditors may not be at fault-the devil will be in the detail, who did what?

https://en.wikisource.org/wiki/Re_Kings ... pany_(No.2)_(1896)

Years ago I used to collect audit fraud stories, my favourite was (cannot remember the company name) one where the company had these enormous oil storage containers, there is a whole line of them, and the auditors are dipping each one to check amount stored. The catch was the auditors were not aware the containers were connected by underground pipework, after the auditors checked one its oil was being pumped into empty ones further down the line which then measured full when checked by the auditors.

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Re: PATISSERIE HOLDINGS (CAKE)

#197114

Postby genou » January 28th, 2019, 5:06 pm

Charlottesquare wrote:The catch was the auditors were not aware the containers were connected by underground pipework, after the auditors checked one its oil was being pumped into empty ones further down the line which then measured full when checked by the auditors.


That's the complicated version. The one I remember, they were floating a few feet of oil on top of a tank of water.......

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Re: PATISSERIE HOLDINGS (CAKE)

#197132

Postby Bouleversee » January 28th, 2019, 5:41 pm

Articles in the Sunday Times say that Johnson has lost £170m but I wonder whether he has really. Didn't he cash in a lot of his shares when the prices had inflated because of this fraudulent activity? If so, I call it poetic justice rather than loss.

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Re: PATISSERIE HOLDINGS (CAKE)

#197208

Postby ADrunkenMarcus » January 29th, 2019, 7:14 am

An article in the Telegraph claims CAKE's sales have been 'on an accelerating downward slide since 2015'.

Documents containing the stricken cafe chain’s finances show revenues from "un-loved" established stores were falling even as the management team under executive chairman Luke Johnson pursued an "ambitious roll-out plan".

Marketing material rushed together by administrators KPMG reveals like-for-like revenue has been on an accelerating downward slide since 2015, including a 4pc drop in the past two years.

The chain's parent Patisserie Holdings did not report such sales figures prior to its sudden failure, with former... [cut off by paywall]


Best wishes

Mark.

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Re: PATISSERIE HOLDINGS (CAKE)

#197218

Postby PinkDalek » January 29th, 2019, 8:30 am

ADrunkenMarcus wrote:An article in the Telegraph claims CAKE's sales have been 'on an accelerating downward slide since 2015'.


Here for subscribers https://www.telegraph.co.uk/business/20 ... t-reveals/

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Re: PATISSERIE HOLDINGS (CAKE)

#197420

Postby ADrunkenMarcus » January 29th, 2019, 8:28 pm

The 'true figures', it seems from this, are that PatVal was on course to lose £2.6 million in the year to September 2019 and make £5.3 million in the year to September 2020.

This compares to consensus estimates of profits of about £25 and £28 million respectively, so there's a shortfall of £22.4 million and £22.7 million for these years.

Best wishes

Mark.

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Re: PATISSERIE HOLDINGS (CAKE)

#197628

Postby dspp » January 30th, 2019, 4:05 pm

"Head of Grant Thornton tussles with select committee over collapse of cafe and cake chain
.... The former auditor of the collapsed cake chain Patisserie Valerie has argued that it is not the role of accountants to uncover fraud."

"Reeves also noted that according to the Financial Reporting Council’s ISA (international accounting standards) rules, auditors must pick up misstatements where they are due to fraud or error.

More than 30 Patisserie Valerie shareholders have expressed interest in joining legal action against the chain.

Legal firm Teacher Stern, which has contacted shareholders about a group action, said any claim was likely to focus on any misleading statements made to the City ahead of the suspension of the company’s shares in October."


https://www.theguardian.com/business/20 ... to-uncover

http://www.teacherstern.com/patisserie- ... -accounts/

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Re: PATISSERIE HOLDINGS (CAKE)

#197629

Postby dspp » January 30th, 2019, 4:08 pm

http://www.teacherstern.com/practice-ar ... -interest/

They are collecting shareholder names who may potentially be interested in a class action.

Please do not take this as a recommendation. Please do your own research.

regards, dspp

*************

Philip Rubens, a partner at the law firm, said it was “clearly important” to establish if there had been inaccuracies in documents sent to investors when the firm listed on the junior Aim stock market in May 2014. He said the issue mattered because, under Aim rules, company directors assume personal liability for the accuracy of information contained in stock market admission documents.

One top five shareholder told the Guardian it was not prepared to join any action while others suggested there was no point in doing so unless it was found that Patisserie Valerie had insurance in place which would pay out in the case of negligence.

“If this is just a case against individuals, even Luke Johnson being extremely wealthy, you are only likely to get no more than £30m. If there is no insurance capable of paying a substantial sum out then [a class action] is just straws in the wind,” a shareholder said.

https://www.theguardian.com/business/20 ... to-uncover

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Re: PATISSERIE HOLDINGS (CAKE)

#197955

Postby StepOne » January 31st, 2019, 2:21 pm

Avantegarde wrote:I am not an investor in Patisserie, or an accountant, or even a customer. But I had a look at the 2017 annual report. Total stated income was £114m from 198 shops plus a single bakery supplying other similar businesses. So excluding the bakery, that was an annual income of £575,758 per shop, or £11,072 per week. Was that credible, from selling coffee and cakes? I don't think so. Assuming an average spend of £7.50 per customer (an expensive cake and a coffee), that suggested each outlet served 1,476 customers per week or 211 per day. In my view, those figures would have been literally unbelievable.


They do lunches as well though, so maybe 15 pounds per customer. Plus takeways? The one in Aberdeen is open 6am to 10pm. Don't know if this is normal.

StepOne


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