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Goals Soccer Centre admits accounting blunder ‘materially higher’ than £12m

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.

2nd Oct 2019
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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.

Forensic probe

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.”

Not-so-beautiful game

“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.

Replies (10)

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By johnhemming
02nd Oct 2019 21:15

I would think (para 1) that the listing was cancelled and not the shares.

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By normanwl
03rd Oct 2019 10:16

Is it not time that non-executive directors have the skills to spot this before it gets too far.

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Replying to normanwl:
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By Rgab1947
03rd Oct 2019 11:50

And what were the auditors doing?

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Replying to normanwl:
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By richard.snape
03rd Oct 2019 13:29

If there is fraud going on, how are even skilled non execs going to spot it if auditors can't.

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Replying to richard.snape:
Hallerud at Easter
By DJKL
04th Oct 2019 10:19

Have a robust (reporting to non Execs) internal audit team constanly working/reviewing and being very visible.

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By C.Y.Nical
05th Oct 2019 15:14

I have for many years been a non-executive director where I am also the largest single shareholder (but well short of a majority holding). I have often been fobbed off when I ask questions, there is no audit committee, and in the past the only time I have ever been able to have any contact with the external auditor has been at the AGM. I think it is high time for non-execs to be given statutory powers to demand, not request, information which they need to enable effective scrutinisation, subject only to there being severe penalties to deter misuse of such information.

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Replying to C.Y.Nical:
Hallerud at Easter
By DJKL
13th Oct 2019 20:07

Surely the Companies Acts give you such power already, your problem is possibly not lack of power it is not exercising the legal powers you already have.

"In terms of statutory rights, statute law since the beginning of the twentieth century has provided for the maintenance of company accounts, and the rights of the directors to inspect those accounts. Over one hundred years later, those rights are contained in section 388 of the Companies Act 2006, which provides, at section 388(1) that:

“ A company’s accounting records-

a. Must be kept at its registered office or such other place as the directors think fit, and
b. Must at all times be open for inspection by the company’s officers”

A company’s “officers” are its directors and the company secretary."

https://allanjanes.com/-What-Rights-Do-Directors-Have-To-Access-Company-...

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Replying to DJKL:
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By C.Y.Nical
15th Oct 2019 14:08

Thanks to DJKL for your helpful response but I do see the accounts, it has been when I ask questions that I have encountered difficulties and I can see why NEDs in larger companies have sometimes been found to be ineffective in challenging established hierarchies.

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Replying to C.Y.Nical:
Hallerud at Easter
By DJKL
15th Oct 2019 14:31

When you say see the accounts do you mean the published/management accounts or getting stuck in to the accounting records/bank statements/invoices etc. Frankly if you make yourself enough of a pain they may start answering your questions to get you out of the office.

Whilst the organisation may not justify it, the appointment of internal auditors , reporting to a heavily NED centred audit committee, can also work wonders, unlike externals they can be pointed at the areas of concern.

When the firm I was with did internal audit work (For a Non-Departmental Public Body) whilst we planned our own work and covered the main entity drivers re incomings and outgoings we also did targeted work and VFM work aimed at certain aspects,often at the specific request of the audit committee. (expense claims and meeting arrangements and travel/mileage were some of their pet interests) We did circa 2-3 days a month (team of two) so , with up to 6 man days a month we really got to understand the entity.

No idea if you can force through but suggesting continuing non corporation will result in the instigation of an internal audit function may be enough to bring parties to heel- all depends what upon what is the real underlying problem and what are your concerns.

Just remember, as a non exec you are still a director, just lazier than the ones who do all the work.

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By C.Y.Nical
18th Oct 2019 11:42

Thanks for suggestions. I have decided on another approach and will report back if it works.
Perhaps worth mentioning that it was normanwl's comment that NEDs ought to have the skills to stop bad situations developing which enticed me to post in the first place. Sometimes these skills are not obvious.

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