Was lack of visibility to blame for Patisserie Valerie fraud?

Was lack of visibility to blame for Patisserie Valerie fraud?

With nearly 3,000 jobs at stake, Accountancy Age speaks to Mario Spanicciati, chief strategy officer at BlackLine about what was to blame for the fraud's success

Patisserie Valerie is in turbulent times after possibly fraudulent accounting activities were discovered on its accounts last week.

The popular cafe chain’s CFO, Chris Marsh, was arrested this week after the company found accounting irregularities that were potentially fraudulent in its finances. Marsh has since been released on bail.

Trouble started for the cake seller when two “secret” overdrafts with banks HSBC and Barclays were discovered. Almost £10m had already been spent through them.

The Serious Fraud Office has now opened an investigation into the accounting error and the Financial Reporting Council (FRC) has also promised an investigation.

Grant Thornton, who audit Patisserie Valerie’s accounts, are also facing serious questioning. It has been reported that the cafe chain could take legal action against Grant Thornton.

Accountancy Age spoke to Mario Spanicciati, chief strategy officer at BlackLine, about what this particular scandal means for the wider industry.

Spanicciati said: “Patisserie Valerie is just the latest high profile organisation to face claims of potential fraud, inaccurate data and lack of financial controls. While details are continuing to emerge, it raises the question of how this could happen, why it wasn’t identified earlier via standard financial processes and controls, and of course who is ultimately responsible.

“Although in this instance it seems the financial irregularities are as a result of fraudulent activity, basic reporting and controls into the CFO’s team should be there as a matter of course in today’s technology-driven business world. This is particularly important as both data sources and volumes grow exponentially.

“Recent research from BlackLine indicates that this lack of visibility and control may be more prevalent than we would like to think. In fact 33% of UK CFOs in large organisations admitted to being concerned about errors in accounts that they know must exist, but of which they have no visibility.

“Was this lack of visibility partly to blame for the Patisserie Valerie incident? Increased visibility is an essential safeguard against error; if management and finance professionals, including auditors, are given access to near real-time data, they can recognise and identify anomalies or potential fraud as it appears, not just at month-end or at the end of the quarter.

“Many financial close processes are simply not adequately designed to support the time-sensitive nature of financial reporting, and despite the number of cases regarding fraudulent activity and inaccurate reporting, the issue that seems continues to resurface is the fact that many organisations are still heavily reliant on outdated systems – such as spreadsheets. These are highly susceptible to error, time-consuming and easy to get wrong.

“While the arrest of Patisserie Valerie’s CFO may be of no surprise, our research also showed that half of the UK’s CEOs we asked believed it is ultimately their responsibility to ensure that accounts are correct. Less than a third of (30%) CFOs thought that it was theirs. Is it possible there is a gap between CFO’s and CEOs’ expectations of accountability – a gap that can allow errors and deliberate fraud to slip in?

“The bottom line is that there needs to be organisational buy-in from the top to ensure that processes and technology are in place to enable continuous visibility of financial data. Without that we can expect to see many more similar cases, at a time when advances in available tools means there’s really no excuse.”

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