Audit alarm bells sound at Fraser Group amid missing payroll data

In a development that has sparked fresh concerns over corporate governance standards at Mike Ashley’s retail empire, two fashion brands under the Frasers Group umbrella are facing significant audit issues. The problems stem from missing or unverifiable financial information, particularly related to payroll data.

Cooper Parry, the auditors for online e-tailer I Saw It First, were unable to verify nearly £7 million in wages and salary payments, according to reports from This is Money. The fast-fashion brand, which Frasers Group acquired for £1 in July 2022, attributes the issue to a loss of payroll data during the transition of its accounting systems to those used by Frasers Group.

“A limited set of I Saw It First payroll data can no longer be accessed because it was not migrated on to Frasers Group’s systems during the post-acquisition integration process, and the I Saw It First system which it was stored on no longer exists,” said a spokesperson for Frasers Group.

The audit problems are not isolated to I Saw It First. At Choice, another Frasers Group brand acquired from JD Sports in late 2022, auditors from Hart Shaw reported that “crucial information” was missing from the company’s accounts, preventing them from completing their work.

These audit issues have reignited discussions about the corporate governance practices within Mike Ashley’s fashion empire. The Frasers Group, which has grown to become one of the UK’s top retailers under Ashley’s leadership, has faced scrutiny over its governance standards in the past.

Legacy problems continued

Notably, this is not the first time the group has encountered audit-related challenges. The Financial Reporting Council previously investigated the accounts of Sports Direct International – later renamed Frasers – for the 12 months to April 2016. The investigation resulted in a £1.3 million fine for Sports Direct’s former auditor, Grant Thornton, due to “serious failings” in reviewing the retailer’s accounts.

The current audit issues at I Saw It First and Choice have raised eyebrows in the financial community, especially given the substantial sum involved in the case of I Saw It First. The inability to verify £7 million in wages and salary payments is a significant concern for a company of its size and stature.

Frasers Group’s growth strategy has historically relied on acquiring smaller brands, often those on the brink of collapse. This approach has fueled the group’s expansion but has also led to challenges in integrating diverse accounting systems and practices.

Despite these setbacks, Frasers Group continues to be a major player in the UK retail landscape. In its latest full-year accounts, the group reported a 13.1 percent increase in adjusted profit before tax, reaching £545 million across its various brands.

The group has also been actively building its portfolio, acquiring stakes in other fashion retailers. It has a significant shareholding in N Brown, the owner of JD Williams, Jacamo, and Simply Be, and has also invested in Boohoo and Hugo Boss.

As the audit issues come to light, industry observers are calling for greater transparency and improved corporate governance practices within the Frasers Group. The inability to verify substantial payroll data and the missing crucial information in financial accounts raise questions about the robustness of the group’s financial reporting systems, especially in the context of its aggressive acquisition strategy.

For now, all eyes are on Frasers Group as it navigates these audit challenges. The fashion retail giant will need to address these concerns head-on to maintain investor confidence and ensure the long-term stability of its growing brand portfolio. As the situation unfolds, it serves as a reminder of the critical importance of robust financial reporting and corporate governance practices in the fast-paced world of retail acquisitions and mergers.