The Harvey Norman stock control system “Is a shambles claim observers” with suppliers who have been hit by the placing into administration of the NSW Harvey Norman Commercial operation, which delivered $300M or 10% of Harvey Normans revenues set to push for change, some are calling for an ASIC investigation of the way that Harvey Norman benefits from their franchise structure.

The chance of suppliers, other than the six who have a lean over the assets, of former Harvey Norman Commercial NSW franchisee Druin Pty Ltd, getting paid out quickly are looking slimmer by the day, as new information is revealed about how Harvey Norman was able to take back assets in the failed business, whose sole director is one multi-millionaire Alan Stephenson, who was sacked last month by his close mate Harvey Norman Chairman Gerry Harvey.

It’s now been revealed that the problems at Gerry Harvey’s “most profitable” franchise were discovered when management at Harvey Norman head office, decided to shift all stock from Taren Point to a new warehouse in Casula where Harvey Norman stores are consolidating stock for NSW stores.

Suddenly stock levels failed to match records resulting in the forensic audit and the NSW Police being called in.

According to Joe Aston writing in the Australian Financial Review, NSW Police have established Strike Force Gundle to investigate activities at Harvey Normans most profitable business, with questions now being raised about the entire Harvey Norman franchise structure when organisations such as Harvey Norman benefit, from the simple flicking of a franchisee and its debts, to then carry on trading grabbing millions in profits along the way.

The operation and structure of the Harvey Norman franchise business appears to now be in question, especially when a multi-millionaire such as Stephenson who is himself under investigation by forensic accountants can call in the administrators leaving suppliers owed millions of dollars while it’s business as normal for Gerry Harvey and his directors at the $300 million dollar a year business and Stephenson who is believed to own over $100M worth of properties wipes his hands of the debts.

10 per cent of Harvey Norman’s total Australian franchise revenue came from the NSW Harvey Norman Commercial operation with both NSW Police and forensic accounts looking for the missing million in stock.

To date Alan Stephenson has not been charged and ChannelNews has no evidence that he has done anything illegal.

However, suppliers who don’t want to go on the record fearing a backlash from Harvey Norman management claim “The Harvey Norman franchise model is broken and needs to be investigated”.

“Harvey Norman is able to manipulate the media, when things don’t go his way because he has buying power. One also has to question why Federal investigators at the Australian Securities and Investment Commission have not investigated his Franchisee operation which is not controlled by franchisees, they really have no say in the running of the business” they said.

“The only winner is Harvey Norman and their franchisees who can walk away from multimillion dollar liabilities, Harvey Norman get their store back along with tens of millions in profits with what appears to be no goodwill payment, while suppliers like us are flicked off to administrators to battle being paid. It’s not right”.

Joe Aston writing in the AFR wrote ‘Incredibly, more than six weeks have passed since retail trade publication ChannelNews revealed that Harvey Norman had punted Alan Stephenson, the biggest franchisee in its entire store network, after two of his staff were charged with fraud by NSW Police. Yet there still hasn’t been a word about this scandal in the mainstream press’.

In March, 159 charges were laid against two former employees, Kerry Dalton, and Troy Robinson, over their alleged $594,000 theft. Dalton has pleaded not guilty to all charges while Robinson is yet to enter a plea.

It appears that Stephenson was more “pissed off” about being sacked than paying back creditors said one observer.

In an email exclusively revealed by ChannelNews he bleats “a very difficult two years compounded by the staff theft … and the sloppy procedures relating to our Aged Trial Balance over a 20-year period (by our operations manager at the time and [Harvey Norman headquarters’] lack of follow up)”.

The AFR claims you could ask Gerry for answers at the next AGM, but he’ll only call you a c— or a sexual predator.

For suppliers, the nightmare started to unfold when on April 20, nine Harvey Norman entities were granted security interest over the assets of Druin Pty Ltd.

This was the start of a dump operation that saw Stephenson’s failed franchise operation replaced with a new franchisee appointed on May 1.

Brazenly, Druin skipped administration and was immediately kicked straight into receivership by no other than the administrators for another dodgy business Big Un, whose former CEO Richard Evans, also known as Richard Simon Evertz, who was recently charged with insider trading.

The centre of any Harvey Norman franchise operation is called “The Gerry Bank which lends its franchisees the money to pay suppliers.

The “financial accommodation” has its price and franchisees have to pay commission.

As the AFR points out, when franchisees go under, Harvey Norman typically forgives those loans in what it used to call “tactical support.”

Despite this, Harvey Norman’s auditor EY says that Harvey Norman does not stand behind franchisees’ debts and therefore their assets and liabilities don’t need to be consolidated in Harvey Norman’s accounts.

The revelations at Harvey Norman Commercial have exposed what is now seen as “sloppy” monitoring of stock.

Stephenson is trying to say it’s not his fault that stock worth millions went missing he claims Harvey Norman headquarters are also to blame.

Currently an up the road Harvey Norman franchisee is called in to do stock levels at nearby franchisee and so on and that according to former franchisees constitutes a stock audit.

Now the franchisees self-report operation is being questioned as it appears that the local franchisees who were supposed to check Harvey Norman Commercial stock in NSW failed to pick up major discrepancies.

Ironically, Harvey Normans auditors claim that they can’t audit the stock of the franchisees for the very reason that EY declares the stock isn’t really Harvey Norman’s.

Joe Aston claims ‘Were it really true that Harvey Norman franchisees are responsible for their own debts, it would be absolutely bonkers that only six suppliers out of dozens even bothered to secure their financial interests against Harvey Norman’s largest franchise, now in receivership. It is abundantly clear they are all relying on Gerry to pay them. And pay them he will.

So, you have a supposed independent business, historically the most profitable in the Harvey Norman network, and its proprietor is dispensed with on Gerry’s say-so without a single dollar of compensation for the inherent goodwill of his business. How implausible is that?

What’s more, Gerry buses in a guy in from Western Australia to take Taren Point over, all of Stephenson’s staff are re-employed and all of his stock orders are honoured. It’s business as usual. Stephenson never happened.