Danwood founder suspended following accounting irregularities
Wednesday, January 16, 2013
Danwood Group Holdings has suspended four of its senior managers, including founder and chairman Colin Daniels, pending investigation.
The other suspended managers are Richard Coles, Peter Hopton and David Jones, all of whom have been placed on gardening leave while the investigation is ongoing.
Chief executive Stephen Francis said the shock move was the result of "accounting irregularities" uncovered following his appointment in mid-September.
"I arrived with a brief to establish on behalf of the investor the highest possible standards of governance and ethics," said Francis.
"As part of that I encouraged whistle blowing, which led to a number of people coming forward and saying: you should know that this happened on this contract."
Francis said that this whistle-blowing exercise resulted in the discovery of the "accounting irregularities" that the company was currently investigating although he added that the investigation was not "directly linked" to the suspensions.
A note in the group accounts elaborating on the "accounting irregularities" states: "Following management changes within the group the Board has recently become aware of information through whistle blowing communication affecting a proportion of contracts with funders resulting in some documentation being completed incorrectly.
"The group has taken steps to ensure that control measures are in place to prevent these practices being repeated and that any necessary remediation action is taken. The group has retained external legal advisors to advise on these issues and will be conducting further internal investigations and taking the necessary disciplinary measures in respect of any relevant employees as appropriate."
Francis stressed that no customers had been affected by the contractual issues and said that a £1.2m provision for remediation costs with funders that may have suffered a loss, which was charged the the P&L account in the group's restated accounts for the year ended 30 September 2010 "may be more than we need".
The remediation steps could take the form of indemnities or a requirement to settle the funder's outstanding exposure should there be issues with customer settlements.
Francis said: "In terms of [our] future viability it’s immaterial, the problem is more to do with the fact that everything should be perfect when it comes to documentation."
The Lincoln-headquartered print equipment supplier has also started a 30-day consultation with around 430 sales staff and dismissed some 35 short service employees. This follows a shake-up of the group structure, which was previously based on regional lines but will now be customer focused.
Francis said: "We used to have lots of regions, which was a historical outcome of doing lots of acquisitions where it was easier to give the vendors patches and the autonomy to do their own thing.
"I changed the management structure so that we have just three guys responsible for sales on a national basis, covering commercial, corporate and public sector customers."
Francis stressed that the suspensions, investigation and restructuring were all separate issues to a change in accounting policy for multi-year Managed Print Services (MPS) contracts that has led Danwood to restate its accounts for the past six years.
In its restated accounts for the year ended 30 September 2010, Danwood has deferred the MPS revenue – previously recorded as a sale at the start of the contract – and associated costs recognised from 2005-2010.
This has resulted in a reduction in shareholder funds of £52.6m and an £8.6m reduction in reported profit, leading to a £6.1m net loss.
Francis said that in adopting the new accounting policy the group was "coming late" to a way of working that had been accepted as best practice by companies such as Xerox and Ikon in the mid-1990s.
He added that the recent change of auditors - from Ernst & Young to PwC had preceded the discovery of accounting irregularities and was not a result of it: "We made a decision a year ago to appoint new auditors and part of that decision resulted in a review of the most appropriate accounting policies. The discovery of the accounting irregularities came later as a result of the whistle blowing."
"This was an event that was triggered by the private equity house as a process to improve the company with the driving objective of up-rating the way we work to be more efficient and more effective," added Francis.
"We are doing what Danwood has done for 40 years - if there are any issues we make whole and we move on - it's essentially a tidying up exercise."Tweet