The investigation into fraud at Lookers has exposed a £19 million ‘black hole’ resulting from overstated supplier bonuses, fraudulent expenses claims and the inconsistent application of policies, processes and accounting standards.

Despite the multi-million-pound non-cash adjustments that the AM100's second-placed car retail group said would be necessary to correct overstatements in profitability over several years, it added in a statement issued today (June 29) that “it is not possible for the company to confirm the full impact”.

News of the scale of Lookers' accounting crisis comes on the day of an annual general meeting (AGM) which is due to set in motion a shake-up of its board members as the group embarks on widespread redundencies and dealership closures in a bid to save £50m. 

Grant Thornton begun their investigation into the accounts of one of Lookers’ divisions back in March but widened its scope to the entire group just over a month later.

Earlier this month the group revealed that the investigation would delay the reporting of its 2019 accounts, triggering a suspension of its ability to trade shares on the London Stock Exchange and an announcement from auditor Deloitte that it would part company with the business on completion of the results statement.

In today’s statement Lookers said: “The Draft Report identified a cumulative total of approximately £19m of non-cash adjustments (the “Draft Adjustments”) necessary to correct overstatements in profitability over several years. 

“The Company has reviewed and agreed the Draft Adjustments and currently considers that approximately half of the Draft Adjustments impact the 2019 results with the remainder accumulated in prior years.

“Analysis is ongoing to determine the historical impact of the Draft Adjustments prior to 2019, but at present it is not possible to determine if the historical elements of the Draft Adjustments would be material in any year.”

Lookers said that more than £4m of the Draft Adjustments – reported in an earlier statement – related to the initial phase of the investigation which focused on one of the Group’s operating divisions.

“These adjustments include certain misrepresented and overstated debtor balances in respect of supplier bonuses receivable together with a number of fraudulent expense claims”, it said.

The remaining £15m of the Draft Adjustments relate to the incorrect or inconsistent application of policies, processes and accounting standards.

Lookers said that Grant Thornton’s Draft Report had also highlighted several areas where “certain financial controls and some behavioural and cultural aspects require strengthening”.

The group said that it has commenced implementing remedial measures to address these points and is continuing to invest in its systems and controls to further improve their robustness.

An independent board committee has also been established to ensure proper implementation of the recommendations from the report.

Lookers added: “Whilst the Company is making good progress in resolving the investigation there remain a number of outstanding issues and until such time as these issues are resolved and Deloitte LLP have completed their audit, it is not possible for the Company to confirm the full impact.

“However, the board believes that 2019 will remain profitable at the underlying profit before tax level.”

Lookers announced at the start of June that it planned to close a further 12 car dealerships and make up to 1,500 redundancies as part of a restructure plan targeting annual savings of £50 million.

The move comes eight months after the group announced followed-up a profit warning with its "portfolio consolidation" plan to close 15 dealership locations.

Last week it also announced a shake-up of its board as it searched for "new skills and experience".

Senior independent director, Richard Walker, and Sally Cabrini, the non-executive-director and chair of Lookers’ Remuneration Committee, have both confirmed that they will not stand for re-election at today's AGM.

In the group's earlier statement about job cuts and the continued business restructure, Lookers chief executive, Mark Raban, said: “We are pleased to have reopened our dealerships and have been careful to do this in a way that is safe for our customers and colleagues.

“At the same time, we are having to reflect on the outlook for the group and how we must adapt to ensure a positive future in what is likely to remain an uncertain economic and industry environment.

“Against this backdrop we have taken the decision to restructure the size of the Group’s dealership estate to position the business for a sustainable future, which regrettably means redundancy consultation with a number of our colleagues.

“This has been a very difficult decision and we will be supporting our people as much as possible throughout the process.”