The encyclopedia · Finance & Accounting · Financial decision · 2018–2019
Patisserie Valerie collapsed over a £20m fraud its auditor failed to spot
A profitable-looking café chain was built on fictitious transactions. KPMG found a £20m hole, the banks walked, and 900 jobs went in a week.
Patisserie Valerie · Grant Thornton · 2019-01
What happened
Patisserie Valerie was a British café chain, founded in Soho in 1926 and listed on the London Stock Exchange in 2014, when it raised £33m. At its peak it ran nearly 200 cafés and concessions and was valued at roughly £500m.
On 10 October 2018 the company suspended its shares after discovering accounting irregularities, first reported as a £20m black hole. A forensic investigation by KPMG found fictitious transactions and inflated cash balances stretching back years, and two unauthorised overdrafts of almost £10m surfaced. The board described a very substantial hole in the accounts.
Rescue talks with the banks failed, and on 22 January 2019 Patisserie Valerie collapsed into administration, which the company called the direct result of the significant fraud. Seventy of its nearly 200 outlets closed at once and about 900 jobs were lost; the rump of around 100 cafés was later sold in a £13m rescue deal.
The auditor, Grant Thornton, was fined £2.3m by the Financial Reporting Council in 2021 for failing to question information supplied by management and missing red flags. In 2023 the Serious Fraud Office charged four people over the fraud.
Why it happened
- The finance function fabricated transactions and inflated cash balances for years; the figures looked consistent because they were invented internally rather than drawn from a real bank
- Grant Thornton signed off the accounts without independently verifying the bank balances that would have exposed the gap, so the audit rested on management's own numbers
- The board first treated the disclosure as a financing problem to be solved with a loan and a share placement, not as a going-concern threat, until the hole kept growing
- Once the fraud was public the banks would not extend rescue financing, so a chain that had been profitable on paper had no cash to trade on
The lesson
An auditor that confirms the numbers a company hands it, instead of checking the bank balances itself, is not auditing. The fraud here was ordinary; the failure was the verification nobody performed.
Aftermath
The case became a standard reference on audit quality in Britain: a profitable-looking chain had been built on numbers the auditor never independently checked. The FRC's £2.3m fine on Grant Thornton and the SFO's later charges were the regulatory aftermath, while the brand survived only as a much smaller business under new ownership.
Sources
- The Guardian — Patisserie Valerie shares suspended over accounting black hole
- BBC — Patisserie Valerie goes into administration
- BBC — Grant Thornton fined over Patisserie Valerie audit
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