Haden MacLellan Holdings, the engineering group, issued a profit warning this week following a #5m accounting irregularity at a UK subsidiary, which resulted in the resignation of its finance director.
In a trading statement, the HMH board said it would only break even for 1998 because of cost overruns on contracts at its Birmingham-based process engineering division, Haden Drysys International.
The overruns, which had wrongly been recorded as recoverable income, were uncovered in an internal company review which was launched last month.
The breakdown in internal controls has already claimed two managerial scalps – the subsidiary’s finance director, who the company refused to name, and Jeremy Beeton, group executive director responsible for the process engineering and industrial services divisions. Both left the company voluntarily.
Speaking to Accountancy Age, group finance director John Kimber said the accounting irregularities stemmed from managers underestimating the resources needed to complete long-term contracts.
‘The reviews were underestimating the cost of completing a contract and it impacted on profitability,’ he said, adding that existing financial controls were perfectly adequate if properly adhered to.
HMH said the accounting error was an internal matter and occurred before its auditor Ernst & Young had started its audit for 1998.
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