How Clive Peeters lost then found its $20m LUCY BATTERSBY AND IAN MCILWRAITH December 5, 2009 .
ighting back: Clive Peeters managing director Greg Smith. Photo: Wayne Taylor
IT WAS late on a Thursday night when Steve Rowarth, the financial controller at retailer Clive Peeters, had his wife drive him the short distance from their Warrandyte home to his boss Greg Smith's, so he could tell him face-to-face he had discovered a rat in the ranks.
While much of Australia spent that July 30 day debating whether radio shock jock Kyle Sandilands should keep his job, Rowarth's team had been trying to work out why there were multimillion-dollar discrepancies in the company's accounts.
The discovery was a revelation for a company that had spent more than a year struggling to reverse a bewildering decline in cash flow.
Even more revealing, according to affidavits filed with the Victorian Supreme Court, was that as they tried to unravel why millions were missing, a trusted senior accountant, Sonya Causer, volunteered to help - although her ''help'' allegedly included altering the numbers to remove the imbalances.
About 7pm that same day, she went into Rowarth's office, burst into tears and confessed she had been ''fudging the numbers''. It was that shock confession, and another discussion over a cigarette, that prompted Rowarth to visit Smith, rather than telephoning him. Smith was, after all, not just the boss - he and business partner Peter Lord own more than 60 per cent between them of the company they floated on the stock exchange in 2005.
The saving grace was that Causer had put nearly all the money into a string of properties (concentrated in Melbourne's outer east but including houses in Brisbane, Tasmania and rural Victoria), and not poker machines or roulette tables - not that that was going to change the fact almost 200 jobs had already evaporated at Peeters, some of them through forced redundancies, as it went on a swingeing cost-cutting drive to try to remain profitable.
Smith's management team eventually took $38 million, or 25 per cent, out of annual operating costs. They even cancelled staff Christmas parties.
Trimming costs enabled the company to reduce the stocks of fridges, TVs, kettles and other household goods in its warehouses by almost $24 million. The downside was that like most retailers, Clive Peeters earns discounts from manufacturers and importers for taking goods in container and truck loads. If you cannot buy enough to earn those rebates, you cannot compete as well with rivals on price.
''Our industry was having a reasonably strong [2008-09] year,'' Smith told BusinessDay, ''and a lot of it was driven by the Government stimulus packages. People were getting their $900 cheques and racing out and buying a new TV.
''But it was passing us by because that was the area where we were most affected with our stock interruption - in the home entertainment technology suppliers.''
Where the industry sold Blu-Ray recorders and digital set top boxes hand over fist to average a 9.3 per cent increase in sales across the sector, Clive Peeters' sales fell 7.1 per cent. It was, says Smith, the first time his company had not matched or beaten the average.
Analysts made fun of the excuses which Clive Peeters came up with for the declining performance - cool weather, rising petrol costs, rising food costs, falling sharemarket and flat housing markets in Victoria, southern Queensland and NSW.
But it was not until the company's auditors asked in July for reconciliations between two ledgers that senior staff uncovered the ''misappropriation'' of nearly $20 million since mid-2007.
Smith expects the company will recover about $16.4 million of that, which will add to this financial year's accounts. Smith and his team have been taking turns attending weekend auctions to approve the property sales, and their lawyers have taken care of the rest.
''I suppose you do feel a little vindication,'' he says, ''Because we were busily defending ourselves and people were saying, 'Why aren't you matching your competitors?'
''When we were able to come out and say, 'There has been a serious misappropriation, a lot of money has left our business that should have been there all the while' … there was a little bit of vindication then.''
Clive Peeters' civil court action against Causer to freeze bank accounts and claw back the assets has finished, but Victorian police are still investigating events.
How can you not notice $20 million is missing? Ironically, Smith says, the upheaval of the company's restructuring, to fix the problems caused by Causer's alleged actions, meant the discrepancies went undetected for longer.
Smith, who told BusinessDay he has 15 years auditing experience and is a qualified chartered accountant, said he had no reasons to suspect there was anything other than tough trading conditions causing the problems.
''It was quite simple once you know how it was being done,'' he says, ''Where the complexity came in was the way she was able cover her tracks.''
According to Smith's court affidavit, Causer joined the company in 2006, but only received full access to the company's accounting systems, and became one of two employees able to electronically transfer funds its bank accounts, around April 2007.
She did not, however, have access to the backup ledgers stored in the IT department.
When another staff accountant, Peter Katsipodas, compared the two, the alarm bells started ringing. When he saw that Causer had changed the figures in the new spreadsheet he created to track the missing money, Causer appears to have realised the game was up.
According to court documents, she told Rowarth she had done it for the company, and to take the pressure off him - but when Rowarth asked how much, she reportedly said only $5 million. That figure did not gel with the $19.3 million in variances between the ''live'' ledgers used in the office and the backup copies held by Peeters' IT department.
Rowarth and Causer went outside for a cigarette at Peeters' isolated head office, on an industrial estate in suburban Bayswater, where he says she told him not to worry and that ''we can probably claw it back over the next year''.
That led to Rowarth's visit at home with Smith who, after a sleepless night, by early next morning was already in the office in problem-solving mode.
He met with Causer and others to discuss the discrepancies, taking notes and getting everyone present to sign a copy.
What Causer didn't know was that after Rowarth visited Smith the night before, Smith had asked the company's lawyers to start searching for properties in her name.
''I instinctively knew that employees don't go and put through irregular accounting entries to help the company,'' he says.
Property came to mind because Smith remembers hearing Causer saying she was interested in negative gearing and building up a property portfolio.
''They came back within 24 hours and said, 'We've turned up a treasure trove of property here,' '' he says.
At this point Causer had only admitted to fudging the figures, and spent that day helping to reconstruct the payroll figures.
Meanwhile, Smith ordered the IT manager to disable her external access to the company's financial system and print out her emails.
At about 1.30pm the company sent a request to the Australian Securities Exchange for a trading halt while it investigated ''accounting discrepancies''.
The team spent all of Saturday, August 1, trying to reconcile the two spreadsheets, but at the end of the day, with her access cut off, Causer went into Katsipodas' office and asked for one more adjustment to be made to the ledgers.
He refused, and according to court documents, she said: ''I have stuffed up big time and just want to curl up in a ball and disappear.''
According to court documents, on Monday Katsipodas found payments in bank statements that had been deleted from online records, and bank account details that did not match up with the payee's details.
Causer was suspended from work on full pay that afternoon.
The company asked the ASX for a voluntary suspension of its shares the next morning, August 4, while forensic accountants poured over Causer's bank accounts, her husband Michael's bank accounts, and two companies she owned.
The searches turned up 43 properties which Causer owned or was in the process of buying, and a further 15 properties which she had bought and already sold.
According to an affidavit lodged in the Victoria Supreme Court by the company's lawyer, they also found certificates for about $25,000 worth of jewellery, cars and evidence that Causer was trading ''beanie kids'' (collectible plush toys).
When Smith confronted her with this information on August 5, she agreed to sign land transfers of all the Victorian properties, and said she had tried to sell an Audi Q7 that day which she had bought with money misappropriated from the company.
By August 6, Clive Peeters had court orders to freeze all the accounts and have the property transferred to the company.
''She did obviously have a passion for property and loved buying and selling property. She liked going to auctions and being the winning bidder,'' Smith says.
''I knew her as well as any other manager, but there was no outward sign that would give you an indication that she was the type of person that would do this. Certainly no ostentatious lifestyle to support [suspicions].''
On August 11, Clive Peeters made a frank announcement to the ASX, saying a $19.9 million property portfolio had been purchased with company money.
By August 24 they had transferred the properties back into their name and removed the voluntary suspension - shares jumped 10¢ to 27¢.
It later emerged that Causer had also bought 389,314 shares in the company, making her the 14th biggest shareholder.
''I have never come across anything like this,'' Smith reflects.
Since the missing cash was discovered, the company share price has risen 211.76 per cent, from 17¢ to 53¢, but this is compared to the high of $3.46 it reached in April 2007 - which also happens to be when the employee concerned was given access to the company's bank accounts. Clive Peeters has even returned to hiring more floor staff.
Vitally, the staff will get their Christmas parties this year after all, although they will be austere.
Both Sonya Causer and her lawyer declined to comment when contacted by BusinessDay.
