Outlook: Can't brush this under the rug

SHAREHOLDERS in Allied Carpets have had the rug well and truly pulled from under them over the last six months. Now the company looks intent on removing the floor boards too. Not content with a poor sales performance since flotation, which precipitated a profits warning in May, we were yesterday presented with a new problem: a little local difficulty in the accounts department.

The company is providing only limited information, so for the time being it's hard to judge the severity of the damage. What is clear is that some store managers ahead of the all important year-end were booking sales as soon as the money had been received on carpet orders rather than after they have been fitted, as is company policy.

This doesn't sound like an enormous difference and indeed this is how the company was portraying it yesterday. There is no cash loss to the business, it claimed and no evidence of malpractice. Just a bit of over- enthusiasm by some store managers who aren't too familiar with accounting practices. None the less, the episode raises some worrying questions. One is how good are Allied's controls? No one expects branch managers to be chartered accountants, but they should know how - and when - to book a sale.

Another is the issue of financial gain. Allied Carpets managers are paid commission on a monthly basis linked to their sales. With pressure coming from head office, the temptation must be to push a few sales through a bit early, particularly if things aren't going too well.

And then there is the role of the auditors. It may be that this problem turns out to be a one-month aberration. If so, then Arthur Andersen, Allied's auditors, will deserve praise for uncovering the scam. But if it was more widespread and conducted over a longer period, then Andersen's position will be a good deal less comfortable.

For everyone's sake, let's hope that Allied's difficulty do not take on the scale of the irregularities uncovered at Wickes a few years ago, when profits at the DIY group turned out to be over-stated over several years and heads had to roll. The auditors then? Arthur Andersen.

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