SYDNEY: Investors in stricken apparel business Specialty Fashion Group may desert the company unless decisive action is taken over its multi-million dollar fraudulent invoice scheme, commentators say.
The troubled group, which operates 840 stores under the Millers, Katies, Crossroads, Autograph, City Chic and Queenspark brands, has had its internal auditing practices called into question after it discovered around $16 million of unauthorised expenditure has been charged to its accounts over the past four to five years.
As first reported on Ragtrader Online, the Gary Perlstein-led group has suspended a senior employee from its property department as a result of the finding and has begun legal action in a bid to protect its position.
The discovery comes at a tough time for the company, which employs more than 5000 staff across Australia and New Zealand, with the group reporting a 21.6 per cent fall in first half profit to $15.6 million.
The company instigated redundancies across its buying, design, production, property, logistics and development divisions in late December with even more believed to have taken place after the commencement of the Chinese New Year.
In a statement issued to the Australian Stock Exchange, the company confirmed it would take "all necessary steps" to recover the funds but admitted the scope of any recovery remained unclear.
SFH media representative Chris Savage said as the situation was before the courts, the company was not in a position to comment. Savage said he did not know who the company's legal representatives were and was going to be "most unhelpful because [his] hands [were] tied".
Both IBISWorld retail analyst Raghu Rajakumar and Australian Centre for Retail Studies (ACRS) acting executive director Andrew Cavanagh said fraud of this nature was exceptionally common among large retail groups with WalMart, Sainsburys and Home Depot all experiencing similar issues in recent years.
Rajakumar said SFG's share price had already fallen substantially over the year.
Rajakumar said while $16 million of irregular expenses out of $150 million total property expenses was a major amount, recovering from an expense irregularity, while large, was still possible.
"The announcement is based on an internal review by SFG and an event like this can often result in a business emerging with much more stringently administered accounting practices and efficient processes," he said.
Cavanagh said while internal audits were a good first line of defence, internal staff often knew how to cover things up by using holes in the system.
From an investor perspective, shareholders had a choice where they placed their investments and this could prove bad news for the group, he said.
"Suspending the person involved is a good start but they need to be seen to be taking decisive action. If they prevaricate and don't sack them quickly after their investigation is concluded - assuming the person is found guilty - then investors will walk away.
"Fraud could be quite a dangerous complication for SFG at this moment. Clearly they are going to try and minimise the impact through insurance but when the landscape is bleak, something like this can be the final straw."