Page 159 - Articles Written by JGJ EF DPS

How Not To Cook The Books

J.G. Gallagher, E. Fordyce and D.P. Stevenson

“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.