McAlpine FD walks following Slate fraud

Dominic Lavelle, finance director at Alfred McAlpine, has become the latest head to roll at the firm following the "extensive and systematic fraud" uncovered at its North Wales Slate subsidiary earlier this year. Matt Henkes reports.

Following an investigation by Ashhurst and Deloitte, the firm has admitted that the fraud, which continued undetected for "a number of years", will cost McAlpine around £30m. The firm says it had made provisions of £40m to cover the bill.

The managing director of the subsidiary Chris Law has been sacked, along with five other senior executives.

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Comments

FRAUD OR NEGLIGENCE?

jmsynge | | Permalink

As we have not been told the exact nature of the fraudulent activity, and that it went unnoticed, and that none of the fradusters benefitted financially, one can only surmise that the loss of funds from the company was through negligence, laxness or both, or indeed nothing more than an old custom or practice that was never reviewed for compliance.

What actually did happen here one has to ask?

davidwinch's picture

I don't know

davidwinch | | Permalink

James

I don't know what happened so what follows is speculation on my part, but one possibility is that customers were allowed to order / purchase goods at (unacceptably) reduced prices in return for payment considerably in advance of delivery. These sales could then have been accounted for as turnover of the current period (although delivery had not been effected), thus apparently boosting turnover and profit of the current period in order to hit or exceed budgets.

This would be a fraud (i.e. dishonest accounting to provide a false picture) which would cost the company but not benefit the fraudsters.

If it is a fraud that necessarily means there must have been dishonesty on someone's part - not mere negligence, laxity or old custom and practice. (For the avoidance of doubt, I am not suggesting that Dominic Lavelle was in any way dishonest.)

David
www.AccountingEvidence.com

McAlpine FD walks following Slate fraud

jmsynge | | Permalink

David
Thanks for your useful comment.
So presumably those perpetrating the fraud would actually be benefitting financially, by, for example employee performance related bonuses / pay review etc, which they might otherwise be deprived of.
By the same token if profits were higher, so would the tax bill, for which they might receive little thanks.
One aspect of this is that if, as you suggest, you bring sales into the P&L because they have been paid for, you do end up with no debtors - surely this would or should have been noticed?
Finally - the report states this "will cost McAlpine around £30m". Do you think that means "has cost ...£30m" Or are we looking at some future cost impact?
As you say speculation, but it is quite an interesting case, which has cost a finance director his job because he is not Sherlock Holmes.

James Synge
jamess@aims.co.uk

davidwinch's picture

Sometimes . . .

davidwinch | | Permalink

James

Sometimes staff simply feel a pressure to meet budgets for sales, etc and create the 'sales' to achieve that even though there is no financial benefit for them in doing so.

I would imagine that not all the company's sales would be on this basis - so there would still be a relatively normal level of debtors. If this had been going on for a number of years, and gradually increasing in volume, then the comparison of debtor days in relation to turnover would not have changed markedly from one year to the next.

I remember a case not too long ago when the branch manager of a bank won the 'Manager of the Year' award several years running in view of the amount of new business he was getting. At the time no one suspected that most of this new business lending was fictional and he was stealing money hand over fist from his grateful employers!

It is amazing what 'obvious' things are not spotted when one is not alert to them.

My guess would be that the figure of £30 million quoted is the difference between the value of the sales at full price that the invoiced value at the heavily discounted price actually charged. Presumably the company had to honour the agreed invoiced prices.

David
www.AccountingEvidence.com