Molins reveals hole in accounts

The chartered accountants KPMG are at the centre of a second auditing nightmare - this time at Molins, the tobacco machinery company. Michael Orr, chairman of Molins, stunned shareholders at yesterday's annual meeting with revelations of a potential multi-million pound hole in its accounts after identifying "certain financial irregularities" at Langston Corporation, its US corrugated board machinery subsidiary.

Mr Orr told the meeting: "Preliminary indications suggest that the cumulative overstatement of profits could be in the region of $12m (pounds 7.4m)."

He said that after tax relief the figure could be reduced to $7.2m. Of this about $1.8m after anticipated tax relief appeared to relate to the 1996 accounts. This compared with the corrugated board division's operating profits last year of pounds 3.7m and overall Molins group pre-tax profits of pounds 24.9m.

Two senior American executives, Leo Maynes, president, and Walt Belville, chief financial officer, have been sacked. Mr Orr has sent in two replacements from the UK - Tony Stroud, group international director of sales, as Langston's new general manager, and Bart Van Egmond as finance director.

Molins has also called in Price Waterhouse to work with KPMG on an immediate investigation. Asked by a shareholder if he thought KPMG were "blameworthy", Mr Orr said: "The very fact that we have asked Price Waterhouse to work alongside KPMG speaks for itself. We as directors of the company must take the blame. Perhaps the auditors share in that."

KPMG is already at the centre of a row at National Westminster over the pounds 90m the bank lost in its interest rate options department. An investigation into the NatWest affair by Coopers & Lybrand, chartered accountants, and Linklaters & Paines, the law firm, will examine the role of auditors KPMG.

The US losses at Molins sent the shares 97.5p lower to 645p, wiping pounds 35m off the company's stock market value. They have fallen nearly 400p from last year's peak.

Problems at Langston first surfaced 10 days after release of annual accounts in the middle of last month.

"We were alerted by a phone call from a former employee of Langston who had recently resigned from the company," Mr Orr revealed. "At first the problem appeared to be a small one and in any case the allegations were unproven."

But by the end of March both Mr Maynes, who had been running the US operation since 1987, and his finance director, Mr Belville, were suspended. Both lost their jobs on Monday.

Mr Orr insisted that there was no suggestion of cash being taken out of the business but said overstating profits would have affected staff bonuses.