“Aggressive” accounting practices have been one of the main focuses of an investigation of “accounting irregularities” at healthcare staffing specialist Healthcare Locums, according to chairman Peter Sullivan.

Ahead of today’s Annual General Meeting, Sullivan said: “The board believes, in the light of these investigations, that there was a breakdown in controls within the group and that previous accounts were misstated.

“One area of focus of the investigation is the use of what your current board consider to be aggressive accounting practices regarding revenue recognition, capitalisation of costs and impairment of fixed assets. 

“We are in discussions with our advisers over the appropriateness of these practices and the way they should be dealt with in the accounts for 2010. A further area of focus is whether the breakdown in controls led to any other accounting issues.

“While the investigation and the audit of the 2010 accounts are both unfinished your board considers it likely that there will be a restatement of prior year figures, but at this stage it would not be appropriate to comment on the extent of that restatement. Clearly, all of this has made the process of producing audited accounts for 2010 far more complex than originally anticipated.   

“When I first became chairman of HCL, I was struck by the extremely poor levels of corporate governance. For example, there was a lack of normal business policies and procedures, insufficient management of costs and the level of record keeping surrounding major decisions taken by the board was well below the standard shareholders would expect from a publicly listed company.

“Our investigations have revealed many cases where the accounting treatments adopted by the company were incorrect. In light of the investigations to date and a review of appropriate accounting treatment, your board is of the opinion that it is probable that a material amount of profit, which the company recognised over recent years, will need to be written back. When published, the 2010 accounts will quantify this for each of the affected years.

“I am sure that the results of the investigations to date will come as a shock to shareholders — as the situation has to the current board, the company’s advisers and the group’s lenders, National Australia Bank, Commonwealth Bank of Australia and Ares Capital. The banks lent a substantial sum of money to the Group in December 2010 before finding out just a month later that the group’s true financial position was materially different from that which had been represented to them. However, the banks remain supportive and the board is in constructive, ongoing dialogue with them.

“Against this backdrop, it remains the board’s priority to stabilise the group’s financial situation and reduce its levels of debt.”