Chairman Paul Shepherd, who is to leave the firm next month, said poor accounting and control procedures were to blame for the £5.5m loss.
These problems were discovered last year after a computer system was installed, but Shepherd said the division’s underlying business was sound.
He said: “These problems have received the most rigorous remedial attention, with external support, to strengthen quality of accounting and control procedures.”
Shepherd’s housebuilding division was profitable but at a lower level than last year, whereas the firm’s property development arm produced record results. Shepherd Construction’s profit was identical to last year on similar turnover.