Tenon FD fined and banned for five years

Former RSM Tenon agrees fine and ban
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Former RSM Tenon Group finance director Russell McBurnie has been excluded from the accountancy profession for five years and fined £57,000 for his part in the listed accountancy firm’s downfall.

He was also required to pay £825,000 towards the Financial Reporting Council’s investigative costs.

In a settlement statement agreed with the Financial Reporting Council (FRC), McBurnie admitted nine allegations that his conduct fell short of the standard expected from an ICAEW accountant when preparing and approving the RSM Tenon financial statements for the year ended 30 June 2011.

McBurnie also accepted that he had fallen short of fundamental principles in the ICAEW Code of Ethics for honesty and integrity. These findings were based on an admission of recklessness over whether information within the financial statements had been fairly and accurately stated.

Going into specifics, the FRC statement detailed shortcomings relating to:

  • Accrual of bonus payments
  • Recognition of work in progress and amounts recoverable on contracts
  • Recognition of prepaid fees for the purpose of obtaining IVA appointments
  • Accounting for “Econocom” leases in the FY2011 accounts as operating leases when they should have been classified as finance leases
  • Assessment of goodwill impairment
  • Preparation of the financial statements on a going concern basis.

The statement noted in mitigation that McBurnie’s misconduct involved “recklessness but not dishonesty” and was limited to statements for a single financial year. On the other side of the coin, his misconduct related to a publicly listed company, potentially having an adverse effect on a significant number of people and undermining wider confidence in accountants and financial reporting.

Tenon: Too good to be true?

After qualifying as an accountant with Deloitte and Touche in Bristol and working for First Group plc, McBurnie joined Tenon as group financial controller in 2005. He was promoted to finance director in 2008 as the listed firm accelerated its ambitious expansion plans. Tenon merging with RSM Bentley Jennison to form RSM Tenon in 2009 and upgraded from AIM to the London Stock Exchange in May 2010. The acquisition of Vantis advisory departments followed in June 2010.

But RSM Tenon had overstretched itself in the post-financial crisis market and wasn’t able to trade its way out from under £33m debt, leading to a downbeat trading alert in December 2011 and a restatement of its 2011 accounts three months later.

The disciplinary wheels started rolling after the firm entered administration in 2013. In the FRC’s analysis, RSM Tenon grew its revenue through acquisition but profit increases were offset by amortisation and exceptional costs of integration: “Its profit before tax did not therefore increase.”

McBurnie’s professional reprimand was the last in a series of disciplinary complaints arising from the RSM Tenon collapse. The £5.1m fine levied against PwC and the £150,000 imposed on its audit partner Andrew Boden last year were bigger than McBurnie’s sanction, but he is the only individual to receive a professional ban.

Former Tenon CEO Andy Raynor, also an ICAEW accountant, was reprimanded and agreed a fine of £26,500 and £50,000 costs with the FRC in October 2016 for approving the bonus accruals and misclassified Econocom leases in the 2011 accounts, but not banned.

*26 June 2018: This article was amended to correct a spelling error in a company name*

About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.

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26th Jun 2018 09:52

I'd like to know how executive counsel's costs can be as high as £825k on such relatively straight forward facts where little if anything is contentious. Sounds like a nice easy well paid job to me!

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to Justin Bryant
26th Jun 2018 12:38

As the payment was a 'contribution' towards the costs then presumably they were much higher than £825K - which in turn means Justin's comment is even more relevant!

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By Dib
26th Jun 2018 10:34

Deloitte and Touche!

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to Dib
26th Jun 2018 10:41

Thanks Dib - error corrected.

Tom

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26th Jun 2018 13:45

As an aside, it seems from para 117 of the judgment below that Tenon did not implement this failed tax scheme particularly well:

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10479/TC0...

The Tribunal there helpfully tells you how to operate the scheme successfully!

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27th Jun 2018 10:49

Too little and too late.

RSM Tenon had, if memory is correct, a tax planning arm called Premier Strategies which is now history. That part of the organisation created and/or sold a number of arrangements that have been and continue to be subject to HMRC enquiry.

Those who were persuaded to use such schemes (and some probably required less persuasion than others) are now facing concerted HMRC attack using every subtle and not so subtle means to bring pressure to accept an analysis of tax law that is frankly untrue. Whichever way that turns out, the experience of a decade and more of enquiry will leave emotional scars and perhaps will result in loss of assets, pensions, homes and worse.

I have little sympathy for the guy here who is more than likely covered by insurance for the majority of the costs awarded.

I also would point out that the ICAEW has done the right thing by bringing the charges, but why did they not - at the time the firm was using high pressure sales techniques to sell debatable schemes - act earlier?

Little wonder that many of my clients are asking me about professional negligence claims and with this sort of report, defending my professional colleagues becomes more and more difficult.

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27th Jun 2018 12:00

I don't get why these FD's who knowingly prepare false figures aren't serving jail time. Clearly the guy HAS £825K + £57K to pay this fine/costs with and one would assume, correctly or not, that some or all of it came during his time at Tenon? I would imagine that a lot of people lost a lot of money through his mismanagement. In most other walks of life this would be called "theft", so why not here? And PWC again? Once would be careless, but they seem to pop up regularly in these type of cases...

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27th Jun 2018 12:04

Bring back the birch.

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to SJH-ADVDIPMA
29th Jun 2018 07:53

Saucy

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27th Jun 2018 12:27

Live by the sword ………...you know the rest

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29th Jun 2018 07:50

Extract abvove
'But RSM Tenon had overstretched itself in the post-financial crisis market and wasn’t able to trade its way out from under £33m debt,'

Wow 33 m debt, it just goes to show you regardless of low interest rates, debt is the enemy within (despite being so welcome and overlooked), did they overpay for their acquisitions.

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By DJKL
to AndrewV12
02nd Jul 2018 17:00

Yes, I believe they did, also not sure they got the structure correct absorbing partners and staff etc from the firms they swallowed.

I know about one former partner of a long established Edinburgh firm who received a fair chunk of his consideration as shares (with a lock in) and loan notes and rued the day he agreed to any such deal.

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