Nationwide Accident unveils £2.4m hole in accounts

Ernst & Young, the accountancy group, was yesterday at the centre of a row with Nationwide Accident Repair Services over a £2.4m hole that has appeared in the accounts of its former client.

Nationwide, which specialises in crash repair centres, has suspended one of its managers following the discovery of accounting irregularities at its PDS division, which supplies car body parts to Ford.

Nationwide would not identify the member of staff, but said that it was investigating whether he had acted fraudulently. The company believes that the problem started when the manager tried to use a new computer system in 1999 and did not understand it properly, leading to the overstatement of the value of stock on the books.

Nationwide has called in forensic accountants from Grant Thornton to establish whether the individual then tried to cover up these problems. The manager is understood not to have benefited personally from the misleading descriptions of stock values, but if evidence of fraud is found the company is preparing to terminate his employment.

Ernst & Young may also come into the firing line because Nationwide believes its former auditors should have picked up on the problem. The company is understood to be considering legal action against Ernst & Young.

The accountancy group resigned as the Hertford-based company's auditors after signing off the 1999 accounts and was replaced by Grant Thornton. Ernst & Young said in a statement: "After initial discussions it appears that the majority of problems outlined relate to an issue raised during the course of our 1999 audit, which their management and us felt had been adequately resolved."

The overstated stock will mean profits downgrades for 1999, with some downward revision flowing into 2000 and 2001. Nationwide's shares slumped 11 per cent to 72.5p.

The company will restate its accounts when it announces its full-year results on 27 March. It said PDS's historic results would be hit, but that the problem will not significantly affect its performance budget for the current year.