The financial conduct authority (FCA) has launched an investigation into Wasps RFC, who play in England’s top flight, after allegations the published misleading financial statements.
There’s a sting in the tail for Wasps as a mismanaged financial statement in 2017 refuses to go away. The FCA is now looking into the Premiership side’s financial results from 2017 after it was revealed the club had misclassified a £1.1m shareholder contribution as income.
The cash injection, which came from Wasps’ majority shareholder Derek Richardson, inflated the club’s actual earnings from £2.4m to £3.5m. The misstatement led to the club breaching its covenants on a £35m retail bond.
The error was uncovered by the club’s auditors PwC. The big four firm resigned its role as auditor afterwards and appeared determined to get ahead of any potential scandal. In a letter published on Companies House, PwC claimed that “during the course of our audit we were provided with evidence which our testing revealed to have been falsified.
“Given the seriousness of these events, following completion of our audit we do not consider it appropriate that we continue as auditors,” it added.
Wasps Holdings -- which is the club’s parent company -- continued to play the issue down, however. In its 2018 annual report, the organisation blamed the error on moving accounting systems.
“The move onto the new accounting system at the end of 2016 resulted in various transactions being recognised in the old system after the statutory accounts had been finalised.
“This has resulted in a £1.9m pre-tax restatement of prior period information and opening reserves. The result of this review gives us confidence that our balance sheet is in a robust position to continue to support our ambitions to invest in and grow the business.”
In its going concern statement, Wasps Holdings also said it is "dependent upon the financial support" of Derek Richardson to remain within its committed lending facilities. This would indicate the organisation is far from economically self-sufficient.
Wasps actually led the Premiership in total turnover, but spiralling wages kept the club in the red. Its wage bill sits at £17m or 51% of the club’s turnover. Wasps’ disappointing financials is not unique though; only one club in the Premiership (the Exeter Chiefs) turned a profit.
For Wasps, as it tries to get to profitability, the FCA investigation is another bump in the road. The watchdog will investigate the accounting irregularity as well as the company’ reaction to the error.