This week, Accounting Web ran the news story that Conviviality, one of the UK’s largest drinks wholesalers, had entered in administration.
“The business has been in a death spiral since the beginning of March, when the retailer said its adjusted EBITDA would be 20% lower than the £70m market expectation. The company later confirmed an expected range of adjusted EBITDA of £55.3m – £56.4m.
£5.2m of that £14m came thanks to “a material error in the financial forecasts”. The error, it later admitted, was “a spreadsheet arithmetic error”. The tumult didn’t end there, though, days later, Conviviality announced it hadn’t budgeted for a £30m tax bill, due at the end of March.”
Source : Accounting Web Conviviality PLC
I think that there are a few items from this news story that are worthy of pondering.
Initially I groaned at hearing that, once again, a spreadsheet error had caused a major problem.
To err is human but to really foul up requires a computer perhaps, but, garbage in = garbage out.
It left me pondering how as to how many critical processes within this large business were run on spreadsheet, were all the data feeds into the ERP/MRP systems spreadsheet based?
Ask any Senior the definition of the SWOT acronym and for most, the answer will be swiftly delivered, but ask when the SWOT model was last used and a swerve appears in the conversation saying that “that’s the domain of Risk Management and Compliance.”
That risk element should of course be covered in the process section of the Risk Management Framework; it’s the bright ones that pick that up.
If I put the above comments aside, my next thoughts were about reporting and budget variance.
As a Senior, would you not want to be diving into the nuances of any variances and I do mean deep dive and then wanting answers and a remedial plan?; I’m assuming that the Chart of Accounts bore some semblance to the trading Organisation structure; the KPI’s , they are the control loop aren’t they? Where were the voices from the rest of the team when looking at the Dashboards or Scorecards?
Next up was the announcement that there was no provision for the £30m tax bill, was this also a reflection on poor reporting and consequential action or an evasion of a financial cash black hole that the Directors wanted to keep covered up?; there would have to be a lot of people in that party, to sweep that one, under the carpet.
My final thought was regarding the AIM share price collapse. Initially I thought “typical short term investing and vision again” but then I thought perhaps not.
The collapse has undoubtedly left many with a huge loss, not least HMRC- my question is “who has defrauded who? is this competence displayed in the free market, in that the financiers are running from risk, or is it a reflection of incompetence, in both managing the business (clearly) and a lack of foresight to rally around it to support it following a massive blunder?; easier to take the hit and move on to the next business that my trading dashboard lights up as green.
Where do you stand, what are your thoughts?