Diabetic Accounts: Was Patisserie Valerie ex-chair tricked by a false picture of the company’s health?

June 26, 2019


2 min read

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What's going on here?

In January 2019 it was discovered that Patisserie Valerie, a chain that specialises in cakes, had manipulated their accounts by overstating cash by £30 million. They omitted a £10 million overdraft and disclosed £54 million in cash that simply didn’t exist. The question remains, who should be held responsible?

What does this mean?

The former chairman of Patisserie Valerie, Luke Johnson, broke his silence earlier this month by releasing a statement claiming that he was “tricked” into believing the company had healthy accounts by receiving solid weekly numbers, as well as comprehensive annual reports from the company’s auditors that showed no signs of fraud. Accordingly, Johnson has shifted the blame onto ex-Patisserie Valerie auditor, Grant Thornton.  He said Thornton should have spotted any inconsistencies in the company’s accounts. However, David Dunckley, chief executive of Grant Thornton, has said that it is “not his role to uncover fraud” and that those audit procedures were not set up to do so.

What's the big picture effect?

Evaluating how Patisserie Valerie’s corporate governance failure came about leads us to re-examine the duties for non-executive directors and board members. When Patisserie Valerie listed on the junior Aim stock market in May 2014, the rules dictated that company directors assume personal liability for the accuracy of the information contained in stock market admission documents. While the investigation into the accuracy of invoices released to investors in 2014 is still taking place, what is already clear is that, since 2014, directors of Patisserie Valerie failed to notice major red flags. For one, they did not question why Patisserie Valerie produced much higher operating values than its competitors. However, to what extent, if at all, should directors have to examine accounts? If the directors are entitled to trust all the information that is provided to them, then the fraud case at Patisserie Valerie is perhaps not a result of unqualified directors but poor internal controls. This yet again poses the question of whether the auditors are to blame for failing to notice any account inconsistencies.

Looking to the future, determining whether the information contained in junior Aim stock market admission documents were fraudulent or not will be of utmost importance for deciding whether this is a case against individuals or the company. However, regardless of how a class action suit by investors turns out, the collapse of Patisserie Valerie should highlight the importance of quality audit work and good governance to the community of non-executive directors and board members.

Report written by Lina Jeffcock

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