Cattles, the troubled sub-prime lending company has announced it will have to put aside an additional £850m to cover customers defaulting on debts.

The company believes a 'breakdown in internal controls' at its Welcome Financial Services arm meant its impairment policies had been applied incorrectly, leading to the underprovisioning for bad debtors.

Six senior executives of the group, including group FD James Corr and divisional FD Peter Miller remain suspended pending the final outcome of a probe by internal auditors Deloitte and law firm Freshfields Bruckhaus Deringer.

Jamie Smith, a former Deloitte transaction and reorganisation services partner, will be parachuted in as interim FD, subject to approval from the Financial Services Authority.

Cattles said in a statement today: 'The Deloitte report estimates that the group will need to make a provision of around £700m in excess of that originally anticipated with respect to the value of customer loans held as at 31 December, 2008.

'The Board is also considering whether to include an additional Incurred But Not Reported provision consistent with accounting standard IAS39.

'Based on work carried out to date, the Board believes that the adoption of such a policy would result in an IBNR impairment provision of approximately £150m with respect to the value of customer loans held as at 31 December, 2008.'

In order for the breakdown in internal controls to have occurred, Cattles said, and for the extent of underprovisioning to have remained unrecognised (despite specific and repeated questioning by members of the board as part of its monitoring of the group's credit risk position) the board believed that it had received inaccurate and/or incomplete information.

The release of Cattles annual report has been shelved until its issues have been resolved.

Cattles expects to report a significant loss before tax for the year ended 31 December, 2008 and in the requirement to restate the Group's financial statements for the year ended 31 December, 2007, it said.

'It is possible that such a restatement of the 2007 financial statements could result in a significant reduction in previously reported profit before tax for that year. The impact on the Group's financial statements for earlier years is still being considered.'