Goals Soccer Centre admits accounting blunder ‘materially higher’ than £12mby
The accounting crisis engulfing Goals Soccer Centre has deepened following an admission the liabilities it owes HMRC may be far higher than the £12m it first estimated, causing the five-a-side pitch operator to delay its annual report.
Goals, of which Sports Direct owner Mike Ashley owns a significant stake, was kicked off the stock exchange on Monday having breached listing rules, and its shares, suspended from March, were immediately cancelled.
Failure to file accounts on “the significant number and quantity of material correcting accounting entries”, in the past three years was cited for the expulsion.
Goals has blamed “a number of individuals” for the misconduct, mentioned “improper behaviour”, and said it expects to find irregularities stretching as far back as 2010 “at least”.
In a regulatory filing on Monday, the company said the total bill could be a lot higher than initial estimates of £12m.
“The actual liability may be materially higher than that previously announced dependent on the approach and working assumptions that could be adopted by HMRC in assessing the misdeclaration,” the company said in a statement.
The company will have to re-state its 2016, 2017, and 2018 balance sheets, and the final figure will require an agreement from HMRC or a tribunal, Goals said.
Earlier this year, the Scottish five-a-side firm told shareholders its full-year results would be “materially below” expectations in both 2018 and 2019.
The company’s ex-chief executive, Keith Rogers, and finance chief, Bill Gow, are under investigation for misstating historic financial statements, leaving the company owing vast sums of unpaid tax.
Media reports allege forensic accountants at BDO discovered emails from Rogers to Gow asking him to “work your usual magic” to create fake invoices.
Goals is understood to be working closely with Deloitte to resolve the issues. BDO took over as the company’s auditor from KPMG in June 2018.
Goals put itself up for sale in August, and the unpaid VAT row soured a £4m bid for the remaining shares by Mike Ashley, who accused the Goals board of covering up the extent of the problem, which the firm strongly denied.
Much to explain
The allegations of fraud have also attracted the attention of Britain’s financial services regulator, the Financial Conduct Authority, which is also probing the matter.
“The FCA will be looking to see if Goals has overstated its revenue and whether it has been making inflated claims about the company's profits and net worth,” said Syedur Rahman of business crime solicitors Rahman Ravelli.
The FCA will also look at the company’s current assets against its current liabilities, said Rahman, to examine whether they have been overstated.
“At this stage, there appears to be much that needs to be clarified at Goals,” Rahman said.
“This investigation will be a classic case of examining whether there has been accounting fraud: manipulation of financial statements to disguise the financial health of the company.”
“This crisis is only beginning and no audit firm will sign-off on accounts with intentional misstatements,” said Broken Business: Seven Steps to Reform Good Companies Gone Bad author José Hernandez. “A full and comprehensive forensic investigation must be completed, leaving no stone unturned.”
The involvement of Goals’ founders and top management is clearly in focus, especially when they may have been aware of fictitious documents being provided to the external auditors, Hernandez told AccountingWEB. “The board itself may be questioned,” he said. “Providing fake documentation to external auditors certainly crosses ethical and legal lines.”
Although there is a current shareholder offer by Sports Direct to acquire Goals, the potential civil and criminal liabilities cannot yet be determined, meaning toxic assets will remain on the balance sheet, said Hernandez, CEO of consultancy Ortus Strategies.
Misconduct within businesses is inevitable, but a scandal is not, Hernandez added, stating firms must resist pressures to rationalise misconduct in order to fix problems.
“The board needs to complete the investigation, undertake comprehensive remediation actions, including at the top management level, and establish a robust compliance program to prevent this from happening again,” he said.