Torex Retail, the software company under investigation by the Serious Fraud Office (SFO), incorrectly included a £5 million contract in its interim figures, according to documents seen by The Times.

The company agreed a licence distribution contract with Magdalen Consulting, run by Rob Loosemore, the former chairman at Torex Retail, which floated in March 2004.

The company received a £2.5 million initial payment from Magdalen in July 2006, but included the sum in its interim results, which cover the period to June 30, 2006.

Shortly afterwards, on July 3, Torex Retail announced that it was issuing a £65 million bond to acquire Retail-J, a point-of-sale software company, for £40 million in cash and £10 million in shares.

Torex Retail, which is now being run by new management, has not yet received the £2.5 million balance promised as part of the agreement with Magdalen, which was set up in September 2003, and counts Rob Loosemore and John Loosemore as directors. Torex Retail believes that there is significant risk attached to recovering the money and has excluded the entire £5 million from its restated accounts.

The new management at Torex Retail, which is now being advised by Deloitte, the accountancy firm, has uncovered other errors in the company accounts, including nearly £2 million in sales that local management was asked to include in revenues for the six-month figures but were then written back in the second half of the year.

It is understood that both the contract with Magdalen and the Retail-J acquisition are being examined by the SFO, which launched an investigation into Torex Retail on January 30, after the company suspended its shares.

The new management at Torex Retail has also uncovered £1.7 million in invoice credits that were awarded to Retail-J just prior to its acquisition, according to the documents seen by the The Times. The invoices were apparently issued to compensate Retail-J for previous poor service.

However, there is now doubt over whether the invoices relate to genuine transactions and whether the value of the invoices was offset by a £5 million increase in the price paid for Retail-J weeks before the transaction took place.

Torex Retail is being investigated by the SFO, the Financial Services Authority and the London Stock Exchange after it suspended its shares in January, when it announced that a number of contracts to supply point-of-sale technology to companies would now be delayed into its new financial year.

Deloitte has reviewed the company’s accounts and uncovered a catalogue of accounting errors dating back to 2005, including millions of pounds’ worth of revenues that were included in the company’s accounts on contracts that had not been signed with customers.

Most recently, it failed to write off £1.3 million-worth of research and development costs from its American business, and instead used the sum to bridge a trading shortfall in January this year.

The new management at Torex Retail is now hoping to sell the business off.

On the block

January 18, 2007 Torex Retail unveils “new business wins” in 2006’s final quarter
January 26 Torex suspends its shares
January 29 Calls in Deloitte
January 30 SFO says it is investigating Torex and has raided properties with police
January 31 Neil Mitchell asked to step down; Christopher Moore agrees to step aside
February 7 Keith Taylor, former NHS director, is appointed acting chief executive
February 14 Steve Marshall, former chief executive at Railtrack, is appointed nonexecutive chairman
February 26 Geoffrey Forster and David Hallett resign as nonexecutives
March 6 Michael Grant joins as a nonexecutive director; Michael Carrell resigns
March 21 The SFO launches a second series of raids
March 30 Torex puts itself up for sale

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax