Investigation finds £2.5m shortfall in books was deliberately hidden

A £2.5m black hole in the finances of chain manufacturer Renold was deliberately hidden – a report has found.

The Manchester based firm said an investigation of suspected accounting errors in its books confirmed the business had overstated profits by £1m as a result of misreporting on a local level.

Earlier this year the firm launched an independent internal audit investigation after irregularities were discovered.

The investigation was supported by PWC after the issues were discovered in its gears business.

The investigation has since confirmed that the issues were limited to the gears business.

Renold’s original investigation identified a total overstatement of the balance sheet at 31 March 2019 of £1.8m.

The more extensive independent investigation largely backed up the initial findings but found further errors.

The misreporting resulted in net assets at 31 March 2019 being overstated by £2.5m in total.

As result adjusted operating profit in the year to 31 March 2019 was overstated by £1m.

The independent investigation concluded that the misstatement was a result of ‘intentional mis-reporting of financial information at a local level’.

A review of the gears business unit was carried out following comments made by the auditor to the Audit Committee in relation to application of accounting controls in the business unit.

Chief executive Robert Purcell said: “These events are frustrating and deeply disappointing but the board, in conjunction with the Audit Committee, have acted swiftly to fully investigate all matters.

“We are working closely with Deloitte, the group’s auditor, to ensure that recommended improvements to the internal control environment are quickly and effectively implemented.

“With the investigation and audit of the revised accounts completed, we can refocus our efforts on operational improvement and generating value for shareholders.”