Hammonds has replaced its auditors as it embarks on a radical shake-up of its financial management.
Fletcher Greenwood & Co, a Bradford-based two-partner firm which has audited Hammonds for decades, has been sidelined in favour of Pricewaterhouse-Coopers (PwC) following a tender of major practices.
Confirming the move, Hammonds managing partner Peter Crossley said: “In view of the worldwide profit-sharing arrangement, it gets pretty complicated. We decided we needed some more focused help.”
At the same time, the Inland Revenue is currently querying some of the Hammonds partners’ personal income tax accounts, although there is no suggestion whatsoever of any wrongdoing.
Well-placed sources have told The Lawyer that some partners have been told that their self-assessment tax returns, submitted last month and based on Hammonds’ profits, have been queried by the Inland Revenue.
Crossley said he had not been contacted personally by Fletcher Greenwood, but conceded that Hammonds was in discussions with the Inland Revenue about the firm’s accounts and whether such items as marketing costs could be offset. He described the discussions as normal practice.
In the meantime, it has emerged that Hammonds has overpaid partners by a total of £3m in drawings this financial year. Equity partners will be required to repay the amount collectively.
Earlier this month the firm told partners that profits for 2004-05 would be dented severely by a one-off “exceptional charge”.
This includes £1.4m of costs to cover reorganisation, which includes a cull of 60 employees; but the bulk of the money is needed to absorb a £1.6m write-off of fees billed to Customs and Excise.
Some of this money was billed in 2002, but it has been rolled over several financial years onto the 2004-05 balance sheet. It is understood that Hammonds was forced into the write-off because there were no formal terms of engagement with Customs and it could not recover the fees.
With the profit drop for this financial year predicted at 25 per cent, Hammonds’ equity spread could be as low as £90,000-£225,000, with average profit per partner below £200,000.
Crossley said: “We’re taking steps to restore the growth dynamic back into the business.”
Fletcher Greenwood did not return calls for comment.