(Alliance News) - Victoria PLC shares fell sharply on Monday, after the company's auditor identified "risk factors of fraud", according to the flooring firm's annual report.

The findings, first reported by the Financial Times on Sunday, sent Victoria shares 11% lower at 492.00 pence each in London on Monday morning, hitting a low of 411.50p.

The assessment centres on Victoria's Hanover Flooring division, acquired in January 2021. Victoria handed down a limitation of scope on auditor Grant Thornton due to matters involving Hanover. A limitation of scope is a restriction on an audit.

The AIM listing published annual results earlier in September, which showed that revenue surged 43% to a record GBP1.46 billion in the year ended April 1. The full annual report followed roughly a week later, released after the market close on Friday.

The annual results did not include an independent auditor's report, but the annual report published later did. It included a "qualified opinion" from Grant Thornton, which essentially means that, save for some exceptions, a company's financial numbers are an accurate representation.

Grant Thornton's statement, included in the annual report, noted that "potential irregularities" were found at Hanover.

The auditor said: "After the acquisition of trade and assets which form Hanover in January 2021 customers continued to pay into the seller's (pre-acquisition) bank account and the seller made a number of payments on behalf of Hanover. Management identified GBP5.2 million of receipts and GBP400,000 of payments relating to Hanover since January 2021. One of the sellers of the trade and assets acquired by Hanover is the managing director of Hanover. Management have explained to us that this account is used for various activities and includes a significant number of transactions not relating to Hanover."

Grant Thornton added that "inadequate accounting records were retained" and it spotted "instances of non-compliance with high value dealer regulations", essentially a money laundering supervision.

According to HM Revenue & Customs in the UK, a high value dealer is a company that "that accepts or makes high value cash payments of EUR10,000 or more in exchange for goods".

Grant Thornton said that it sought "further evidence" from Victoria, seeking a removal of the limitation of scope.

"We requested that the board remove management's limitation, which they did not. Because of their view that our proposed procedures are unlikely to generate further or better-quality evidence to address our concerns, the board has prevented us from undertaking further work in the area," the auditor explained.

It added that the issues are "qualitatively and quantitatively material" to Victoria's financial statements.

In its defence, Victoria told the FT that "there is no wrong-doing" and nor is Grant Thornton alleging that there is. Victoria explained the issues are due to poor accounting records, something that is commonplace for smaller businesses that are then acquired by larger firms.

"Not surprisingly, we've identified the issues, allocated additional finance resources, and are putting appropriate controls in place and the issue is not ongoing," Victoria told the FT, adding that the issue is "immaterial".

Hanover represents less than 1.3% of Victoria's total revenue, it said.

https://www.ft.com/content/52ba07ba-fca4-40aa-aea7-756114e6da5a

By Eric Cunha, Alliance News news editor

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