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Selling a hotel that you don’t own – what could possibly go wrong?

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One of the general duties of company directors is to exercise reasonable skill, care and diligence.

Three directors by the name of Robin Reichelt, Stephen Nathan and John Gibbs were clearly not exercising any of these attributes though.

Whilst on the face of it their plan to reclaim VAT on the purchase of a hotel sounded ok, in reality there were a number of things which didn’t quite work or to put it more bluntly, a couple of things which were completely illegal.

The background to the situation was that one of their group companies sold a lease to a central London hotel to another of their group companies.

The company that “sold” the hotel went into liquidation after selling it and the company that bought the hotel then submitted a claim for a refund of over £200,000 of related VAT.

The whole thing was completely illegal however as not only did they not pay the VAT in the first place (so had nothing to claim back) but the hotel didn’t even belong to the group company that had claimed it had sold it!

So, in summary they claimed to have sold a hotel that they didn’t even own to another group company and claimed back VAT that had never been paid. What could possibly go wrong??

Well, they will have several years in jail to contemplate what went wrong and to plan their next great money making idea…

What type of fine do you get for cheating?

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McLaren are one of the top Formula One motor racing teams. They are not only experts at ensuring cars are driven fast around racing circuits but they are also experts at ensuring that £34m fines are tax deductible…

Back in 2007 McLaren were fined £34 million pounds because it “had possessed and in some way used proprietary information belonging to Ferrari, and had thereby breached the rules of the FIA’s International Sporting Code to which McLaren was contractually bound”.

Or to put it another way, they had cheated by photocopying an 800 page technical document belonging to Ferrari that detailed the designs of the 2007 Ferrari cars.

Formula One’s governing body, the Federation Internationale de L’Automobile (FIA), weren’t happy about McLaren taking this approach and ordered McLaren to pay a £34m fine which they duly did.

The interesting thing though is that in their UK company tax return McLaren claimed a tax deduction for the fine.

In the UK as well as most countries around the world, fines are not tax deductible. This means that the expense does not reduce the level of profits on which tax is calculated.

McLaren argued though that this particular fine was tax deductible (i.e. the expense could be used to reduce the level of profits on which tax was applied). They said that it wasn’t a statutory fine for breaking the law (which would be non tax deductible) but instead was a fine imposed by their governing body and as such was a genuine business expense incurred in their trade which should be tax deductible.

The UK tax authorities understandably didn’t agree with this viewpoint and the argument went to an independent tax tribunal who surprisingly agreed with McLaren and said that the fine was tax deductible.

A surprising decision and there’s no truth in the rumour that the head of the independent tax tribunal is currently driving around in a McLaren…

I’d love to invite you to lunch but…

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Have you ever been to lunch with a colleague?

My guess is that unless (a) you work by yourself, (b) nobody likes you , or (c) you have a serious body odour problem then the chances are that you have had lunch with a colleague.

Now let me guess. What did you talk about over lunch?

Was it by any chance “work”?

Yes, we all do it. If we go out for lunch with a colleague then a lot of the time we’ll probably end up talking about work. Now, this could be the latest racy gossip about Mr X and Mrs Y but the chances are it may well just be about some project you are currently working on.

So is this a problem that you are talking about work over lunch?

Tech giant Apple seem to think that there could be some issues over talking about work whilst eating your lunch. They have just announced plans to open a restaurant which is reserved solely for employees.

This isn’t an on-site canteen or cafe. No, it is a two-storey building that will be located several streets away from Apple’s headquarters in Cupertino, California.

Apple already run a restaurant called Caffe Mac but this restaurant is open to non-Apple employees as well as Apple employees. An obvious concern of this is that if all the Apple people are chatting away about projects they are working on such as the iPhone 28 then who knows if Mr Samsung, Mrs HTC or Miss Nokia are sitting at the next table pretending to read a newspaper.

The new “Apple only” restaurant will be a separate stand-alone restaurant exclusively for Apple employees who will be free to talk as loud as they like about the latest project they are working on.

I wonder though whether the waiters and waitresses will be using Samsung or HTC phones…

Which companies do you think are most likely to bribe?

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Here’s a quick question for you:

Companies from which of the following countries are most likely to bribe when doing business abroad?

Is it China, Netherlands, Russia or Switzerland?

My feeling is that a lot of you will probably be able to guess the correct answer but in case you’re struggling to identify which ones are most likely to make illegal payments then according to a survey of 3,000 business executives undertaken by Transparency International, companies from Russia and China are the most likely to pay bribes when doing business abroad.

Transparency International Chair, Huguette Labelle said “It is clear that bribery remains a routine business practice for too many companies and runs throughout their business dealings, not just those with public officials. And companies that fail to prevent bribery in their supply chains run the risk of being prosecuted for the actions of employees and business partners.”

At the other end of the honesty scale are companies from the Netherlands and Switzerland. Companies from these two countries were found to be the most ethical when it came to bribes, or rather not making bribes.

It’s not just the countries that the companies are from that can have an impact on the likelihood of bribing but also the industry sector that they are working in.

Bribery was most likely to happen when public sector works and construction contracts were involved.

Agriculture was reported as being the least likely industry to find bribes.

So in summary, the purchases of unmarked brown envelopes which would fit a wad of cash in are likely to be significantly higher by a Russian construction company than a Dutch agricultural company.

Was it really that easy to lose £1.3 billion?

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I tell you what. I don’t really have insurance against anything going wrong but if I put a tick in this box and pretend that I do nobody will notice and it will be ok. Won’t it?

Mr Kweku Adoboli, a 31 year old banker with UBS in London, was working in his office in the early hours of Thursday when he was arrested on suspicion of fraud and false accounting.

In simple terms he is alleged to be a “Rogue Trader“ who undertook illegal transactions which cost the bank a serious amount of money.

£1,300,000,000 to be precise.

That’s a fairly significant figure and would represent the largest single fraud that has ever taken place in the City of London.

Not whilst there is the principle of “innocent until proven guilty” and Mr Adoboli hasn’t yet had an opportunity to defend himself, it’s not currently looking too good for him.

There are striking similarities to the case 3 years ago where trader Jerome Kerviel lost Societe Generale nearly €5bn through Rogue Trading activities.

A detailed investigation has just begun but the early reports indicate that the fraud involved setting up fictitious hedging transactions to trick the bank’s risk management systems into thinking that a trade or position had been hedged against to minimise risk and limit exposure.

A hedge is in effect a form of insurance to insure that if a particular trade goes wrong there is some offset present to mitigate the loss.

If setting up false hedging entries into the bank’s “computer risk system” turns out to be true then there will be some nervous (and possibly soon to be unemployed) people at the bank who were responsible for the risk management system.

Many thought that the days of individuals being able to lose significant amounts of money for banks through unauthorised transactions were a thing of the past. After all, banks have spent a considerable amount of time and money over recent years in ensuring their risk management systems were good enough.

Unfortunately for UBS though it looks suspiciously like their systems weren’t up to the job.

Do you know a male, aged 36 to 45 who works in a finance related function?

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Don’t panic whatever you do but by any chance do you work with a male who is 36 to 45 years old and whose job is in a finance related function?

If you do then look at him as discretely as you can.

Is he exhibiting any of the following characteristics?

– Volatility and being melodramatic, arrogant and confrontational, threatening or aggressive, when challenged.

– Performance or skills of new employees in their unit do not reflect past experiences detailed on resumes.

– Unreliability and prone to mistakes and poor performance, with a tendency to cut corners and/or bend the rules, but makes attempts to shift blame and responsibility for errors.

– Unhappy, apparently stressed and under pressure, while bullying and intimidating colleagues.

– Being surrounded by “favorites,” or people who do not challenge the fraudster, and micromanaging some employees, while keeping others at arm’s length.

– Vendors/suppliers will only deal with this individual, who also may accept generous gestures that are excessive or contrary to corporate rules.

– Persistent rumors or indications of personal bad habits, addictions or vices, possibly with a lifestyle that seems excessive for their income, or apparently personally over-extended in their finances.

– Self-interested and concerned with their own agenda, and who has opportunities to manipulate personal pay and rewards.

If he is then that may be a bit of a worry.

KPMG have announced that after an analysis of nearly 350 cases that they investigated for their clients across 69 countries from 2008 to 2010 a typical fraudster was a male, aged 36 to 45 who works in a finance related function and exhibits the above list of traits.

Now, strangely enough everyone in our office who is reading this is has now turned to look at me who just happens to be a male, aged 36 to 45 who works in a finance related function…

Tesco – “Every Little Helps”. Especially someone else’s shares…

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Share incentive schemes are a good way to motivate and reward senior executive employees.

As far as I’m aware though there are very few supermarket checkout operators that find themselves eligible for £100,000 worth of company shares as part of their remuneration package.

Mr Jeffrey Adams who worked on the checkout at Tesco’s Burton-on-Trent store in the UK though thought otherwise.

Back in 2002 he received some 44,000 shares in Tesco’s from the company that runs Tesco’s executive remuneration share plan.

These were meant for Mr Adams but alas not the Mr Jeffrey Adams that worked at the checkout in Burton-on-Trent but instead, Mr Jeff Adams who is the Chief Operating Officer of Tesco’s Fresh and Easy business in America.

Now what did Mr Adams (the checkout operator) do when he received the shares?

Did he do he honest thing and report it to his employees straight away?

No he didn’t.

Instead he sold the shares and made a profit of £100,000.

His ill-gotten gain remained secret for 7 years until Mr Adams (the Chief Operating Officer) tried to cash them in and found that the shares were nowhere to be found.

Mr Adams (the checkout operator) didn’t really appreciate the paper trail that exists when shares are sold and when he was arrested he claimed that they were left to him by his grandfather.

Mr Adams (the checkout operator) no longer works for Tesco and was last week jailed.

The judge said “You have to serve a prison sentence for £100,000 of dishonesty. You have shown no remorse and gave no plea of guilty.”

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Which is worse. A $3 billion fraud or taking $100 and giving it back the next day?

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Taylor Bean & Whitaker were one of the largest privately held mortgage lenders in the US.

Paul Allen was their CEO and involved in all the key areas of the business. Unfortunately for a lot of people Mr Allen also became involved in the fraud which led to the Taylor Bean business being closed down with 2,000 people losing their jobs.

The fraud also contributed to the collapse of Colonial Bank in the States after they purchased hundreds of millions of dollars of Taylor Bean mortgages.

Two major European banks also suffered as BNP Paribas and Deutsche Bank lost nearly $2 billion as a result of buying various corporate paper from Taylor Bean which was not suitably backed up by collateral.

A $3 billion fraud with thousands of people losing their jobs. Clearly a serious crime.

The end result was that Mr Allen was jailed for just over 3 years.

Meanwhile at the other end of the spectrum in terms of crime against financial institutions and the financial amount involved, a teller at Capital One bank in the States was approached by Roy Brown who put a hand under his jacket, claimed it was a gun and demanded money.

The teller handed Mr Brown 3 piles of money but he only took one $100 bill.

Mr Brown then had a change of heart and the next day handed himself into police and told them that his mother didn’t raise him that way.

He was homeless and told police that he needed the $100 to attend a detox centre.

Despite Mr Brown’s dramatic change of heart he was subsequently sentenced to 15 years in prison for the robbery.

So in summary, $3 billion and 3 years vs. $100 and 15 years…

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Would you steal £30m from ING Bank?

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How much would you try to steal from your employer if you work for ING bank and you’re an accountant?

Hopefully most of you would not try to steal anything from your employer but if you were a lady by the name of Rajina Rita Subramaniam who worked for ING in Sydney, Australia for 20 years then the temptation was just too much.

So what did she steal?

A few pens? Maybe some yellow post-it stickers?

Nope, not even close.

According to press reports in Australia Rajina is about to plead guilty to defrauding ING of an astonishing AUS $45 million (approx. £30 million).

The sharp eyed amongst you will probably guess that she didn’t take if from the petty cash til.

She allegedly siphoned off millions of dollars from the company into a number of private accounts.

Rather than hold on to the stolen money for a rainy day she spent the money on a variety of items including beachside apartments and diamond jewellery (oh, and rather bizarrely some Michael Jackson memorabilia).

Even ignoring the items such as luxury properties she had outside her office, Police allege that she had over 600 pieces of jewellery as well as 200 perfume and make-up items in her office at the ING building where she worked.

Whilst Ms Subramaniam was temporarily one of the wealthiest people in Australia I don’t think she was one of the brightest. Surely it must have been obvious that when a normal bank employee started having the lifestyle of a Saudi Prince there would be certain suspicions raised.

After all, how many of her colleagues also had luxury properties looking over Bondi Beach and wore a Bulgari diamond necklace worth nearly £1 million.

According to prosecutors, the thefts came to light when staff at Bulgari saw that the accountant was paying for luxury items via direct transfers from ING accounts.

It’s not clear from the reports whether Ms Subramaniam wore a Michael Jackson diamond studded single glove to meetings in the office.

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Is it acceptable for a client to hold your audit files hostage?

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It seems that Deloitte has had a spot of bother in dealing with one of its Chinese clients.

When they initially won the audit for Longtop they were no doubt very pleased.

Longtop Financial Technologies Ltd., to give it its full name, is a Hong Kong-based maker of financial software. In 2007 it raised $210 million in a US IPO underwritten by Goldman Sachs and Deutsche Bank.

Things haven’t been going too well recently though. Their share price has plunged by 56% since last November reducing the company’s market value by more than $1 billion.

They have also just lost their auditors as Deloitte has just resigned.

Auditor resignations aren’t that unusual but in Deloitte’s resignation letter that was submitted to the U.S. Securities and Exchange Commission there are a few items which to put them in non technical language, sound “extremely dodgy”.

The full resignation letter submitted to the SEC can be found here but some extracts of the letter showing the highlights (or lowlights) of some items that Deloitte identified at Longtop are as follows (note that the bold emphasis on certain words was made by us):

[Start of extract from  resignation letter]

As part of the process for auditing the Company’s financial statements for the year ended 31 March 2011, we determined that, in regard to bank confirmations, it was appropriate to perform follow up visits to certain banks. These audit steps were recently performed and identified a number of very serious defects including: statements by bank staff that their bank had no record of certain transactions; confirmation replies previously received were said to be false; significant differences in deposit balances reported by the bank staff compared with the amounts identified in previously received confirmations (and in the books and records of the Group); and significant bank borrowings reported by bank staff not identified in previously received confirmations (and not recorded in the books and records of the Group).

In the light of this, a formal second round of bank confirmation was initiated on 17 May. Within hours however, as a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

In that connection, we must insist that you promptly return our documents.

[End of extract of resignation letter]

I have to say that my initial observations are that Deloitte did the right thing in resigning!

Longtop however have released a press release in connection with the resignation and included the statement that they have “initiated a search for a new auditor.”

Somehow I’m not convinced that the other top auditing companies will be rushing out to win Longtop as a client.

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