FRC bans two former Connaught finance directors responsible for a £4m accounting misstatement
Connaught FD Stephen Hill and deputy financial director David Wells banned from profession after FRC investigation into £4m accounting misstatement
Connaught FD Stephen Hill and deputy financial director David Wells banned from profession after FRC investigation into £4m accounting misstatement
TWO former Connaught finance directors responsible for a £4m accounting misstatement at the collapsed social housing maintenance provider have been banned from the profession by the FRC.
An investigation by the accounting watchdog found that the conduct of Stephen Hill, Connaught’s finance director, and David Wells, the deputy financial director responsible for the company’s treasury management, “fell significantly short of the standards” to be expected of members of the profession.
The ICAEW members were banned over their role in the £4m accounting misstatement of a short-term loan in Connaught’s interim financial statements for the six months ended February 2010. In addition, the loan was not disclosed to the audit committee or the auditors, PwC; neither was it disclosed as a related party transaction, as it should have been.
The former social housing maintenance provider collapsed in 2010 with debts of £220m, with administrators from KPMG called in.
The £4m loan – made by the CEO of Connaught shortly before the 28 February half- year end, and substantially repaid between 15 March and 29 April 2010 – was not accounted for as a loan, but as operating cash-flow in Connaught’s interim financial statements.
The interim statements, issued on 27 April 2010, were therefore “materially misleading” in that cash flows from operating activities were overstated by £4m and net cash generated from financing activities was understated by £4m, the FRC said.
“This materially increased Connaught’s cash conversion rate. But for the loan, the Group would have fallen somewhere between 6 and 11% short of their 70% cash conversion target,” the FRC said in its ruling.
“This ratio was one of a number of key measures used by analysts and one upon which investors rely – and a figure that was especially important to Connaught at the beginning of 2010.”
The FRC’s independent tribunal accepted that neither Hill of Wells acted dishonestly. Hill admitted that his conduct was sufficiently reckless to have amounted to acting with a lack of integrity. He was banned from the ICAEW for five years and ordered to pay £133,387 in costs.
Wells admitted that he failed to act in accordance with the ICAEW’s fundamental principles of objectivity and ‘professional competence and due care’. He was banned for three years and ordered to pay £125,198 in costs.
Gareth Rees QC, Executive Director of Enforcement and Executive Counsel of the FRC, said: “The outcome sends a clear message to accountants in business of their responsibility to carry out their work diligently and in accordance with professional standards.
Leave a Reply
You must be logged in to post a comment.