The accounting problems, which included a "material overstatement" of profits in the first half of last year, were uncovered by a new board voted on to the company three weeks ago after the chairman, Jeffrey Fowler, had resigned.
In a damning statement it described as "highly unusual", the new board said it was unable to make any recommendation on the pounds 290m takeover bid launched by Michael Ashcroft's New Carlisle group because it needed to review CSG's budgets further.
Mr Ashcroft has already effectively dropped his offer following the resignation of Jeffrey Fowler on 8 April. The Takeover Panel has insisted the offer cannot lapse until this Friday, but it is conditional on 90 per cent acceptances, which New Carlisle says it no longer wants.
The statement reveals that David Lake, the recently-appointed finance director of CSG, discovered this spring that the group's accounting policy had been applied "aggressively", particularly in the UK head office accounts.
It also says that two profit warnings made in March were "as unwelcome to the banks as they were to shareholders".
In March, three shareholders requisitioned the egm to oust the board after the profit warnings, which said profits would be flat against last year - well below City expectations.
The statements also said the group would write off pounds 20.9m of loan notes flowing from the sale of its training division last November. The terms of the sale included formal assurances to the buyer.
Before the egm, discussions about new debt facilities from the banks had been put on hold until the company completed a review of its finances.
Some analysts said the statement confirmed their suspicions after the interim profits announced last year. In what it trumpeted as "record results", the group said sales were up 9 per cent while profits were up 32 per cent.
Corporate Services Group, which embraces a series of recruitment firms, including Blue Arrow, assigned responsibility for sales to operational headquarters. But invoicing and credit control were handled by corporate management at head office.
"As a result, the group has neither been invoicing nor collecting debts in a timely or proper manner," the statement said.Reuse content