Page 2 - How Not To Cook The Books Article

“If men were angels, no government would be necessary. If angels
were to govern men, neither external nor internal controls on

government would be necessary.”

James Madison, The Federalist Papers, No. 51,
1788 (1)

In March 2009 Wrekin Construction went into administration, with nearly
500 jobs losses. Its management blamed Royal Bank of Scotland (RBS)
for its predicament because the bank would not extend credit to cover its
cash-flow problems of some £2M. Wrekin claimed it had signed two

contracts worth a total of £50 million on the day it had been taken into
administration. However, the administrators found, when examining the
assets that the company's owner, David Unwin, had entered an uncut
ruby gemstone (The Gem of Tanzania) valued at £11m, into the
company accounts by exchanging it for the shares. Unwin’s venture

capitalist, business vehicle, Tamar, had only recorded the gem in its
accounts as an asset valued at £300,000. But on transfer to Wrekin a
false valuation report gave it the £11m value, an increase in value of
almost 37 fold. Unwin also changed Wrekin’s auditors.

If £11 million were its true value then taking the figures shown in the

accounts and ratios its sale would have alleviated the financial pressure
on the company especially, as it was an asset that was not essential to
operating procedures nor was its possession contributing to output.

In 2007, Tamar had switched its accountants to Ashgates, who accepted
the rock’s raised value of £11m. However, it was inevitable that this

valuation would be questioned and as such would inevitably be found to
be erroneous unless Unwin could buy it back before the deception was
discovered.

Wrekin Construction, a private company, owned by the Frain family had
since 2000 experienced a turbulent economic environment which had

seen it at the time introduce disastrous growth strategies which forced its
collapse and acquisition by Unwin. The acquisition in 2007 however,