Cohort empties can of worms at subsidiary

18th Mar 2010 09:29

Defence and security technical services firm Cohort said the investigation into the income overstatement at its Systems Consultant Services (SCS) subsidiary last year had confirmed the size of the error at £1.85m.The board of Cohort is satisfied that there was no deliberate attempt on the part of SCS staff to misrepresent the company’s income. The error was caused by a number of factors including a new accounting and management information system; poor communication between project management and finance functions, and management shortcomings in the finance function at SCS.None of these problems were identified or addressed by senior management at SCS in a timely manner.A formal review of the problems at SCS by Sir Robert Walmsley, an independent director on the board of Cohort, formed the view that while recognising that the problems originated within SCS ‘there were areas for improving both Cohort's internal governance and the governance of its subsidiaries.’A number of changes to Cohort and SCS’s management methods and processes have been made by Walmsley, all of which have been or will be implemented.The board has decided that a change in senior management at Cohort ‘would be unhelpful to the process of recovering the group's profitability’ at this time. Management bonuses paid to Cohort directors in relation to the group's financial performance in 2008/9 will be repaid.A new managing director is currently being recruited for SCS to oversee a restructuring operation in which the subsidiary will withdraw from loss making areas, cut staff levels and trim overheads.For the year to April 2010 Cohort’s board expects SCS to more or less break even, excluding restructuring costs.‘Looking ahead to 2010/11 the board anticipates a much improved performance compared with the current year. MASS and SEA expect to close the current year with order books substantially ahead of the position at the beginning of the year and we expect SCS to trade profitably following its restructuring,’ the group said in a statement.