Grant Thornton has been fined more than £2.3m for a “serious lack of competence” in its audits of UK café chain Patisserie Valerie, which collapsed in January 2019 amid allegations of fraud.
The Financial Reporting Council also ordered the accounting firm to pay its investigation costs of more than £650,000, taking the total penalty to almost £3m.
The fine was for audits carried out between 2015 and 2017, regulator the Financial Reporting Council said, adding that Grant Thornton had “missed red flags” and failed to “question information provided by management,”
Grant Thornton admitted to not following audit rules. It must report annually to show how it is improving.
Claudia Mortimore, deputy executive counsel to the FRC, said: “This decision notice sets out numerous breaches of relevant requirements across three separate audit years, evidencing a serious lack of competence in conducting the audit work.”
Patisserie Holdings announced in October 2018 that its board had been notified of possible fraudulent accounting irregularities.
The company consequently entered into administration, which led to the closure of 70 outlets and more than 900 job losses.
The collapse followed the discovery of a black hole in the firm’s accounts, eventually valued at £94m, and the cafe chain was found to have overstated its cash position by £30m and failed to disclose overdrafts of nearly £10m.
The company said: “We regret the quality of our work fell short of what was expected of us in this instance,” said Grant Thornton, adding that it co-operated fully with the FRC.
“Since the period in question, we have invested significantly in our audit practice to better ensure consistent quality and have started to see the material outcome of this investment, evidenced most recently in our latest audit quality review]scores.”
However, the accountancy firm said it did not take full responsibility for Valerie Patisserie’s failure. A spokesperson stated that the firm would “vigorously defend” itself in a separate legal proceedings brought by Patisserie Valerie’s liquidators, saying the claim “ignores board’s and management’s own failings in detecting the sustained and collusive fraud which took place.
“We recognise that there were shortcomings in our audit work; however, our work did not cause the failure of the business,” it said.