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Who can really be trusted to keep a secret? Accountants or lawyers?

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When you speak with your lawyer, you can say almost anything and be confident in the knowledge that the lawyer will be able to preserve the confidentiality of your discussion.

Most people probably assume the same thing when having discussions with their accountant, especially in the context of discussing tax planning opportunities with a tax advisor.

Unfortunately, English readers should pay careful attention to the decision in a recent case, R (on the application of Prudential PLC) v HMRC, EWCA Civ 1094 if you would like the full legal citation.

This Court of Appeal decision stated that client privilege only extends between a lawyer and a client.  This means that any discussion between a client and an accountant cannot be guaranteed to be confidential.

This is an English legal case, which is binding in England and Wales only, but the judgment is based on common law, so is likely to be highly influential in jurisdictions based on the English system globally.

As the accountancy and legal professions increasingly compete, especially in the area of tax advice, this gives a significant advantage to the legal profession over the accountancy profession.

Who would you rather seek advice from: a lawyer who you are confident cannot be compelled to reveal the content of your discussion, or an expert accountant who is unable to promise confidentiality?

If you talk to a lawyer about this then they may well say they were pleased that they had this advantage over accountants.

Note of course though that if they felt like it they wouldn’t have to disclose what was said in your conversation…

That’s some obligation – it will take 180,000 years to repay it…

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Yesterday, the so called “Rogue Trader”, Jerome Kerviel, whose unauthorised trades cost his former employer Societe Generale vast losses was sentenced.

Whilst this has got a serious element to it (he was jailed for 5 years) it also has a certain element of farce. As well as the jail sentence he was ordered to pay compensation to his former employer.

Now, this wasn’t any “normal” compensation we’re talking about here. It was the princely sum of €4.9 billion. Yes, Mr Kerviel was told that he has to pay nearly €5,000,000,000 to his former employer.

Based on his annual earnings before going to jail it would take him nearly 180,000 years to pay that amount! Societe Generale have sensibly announced that they will not be pursuing the money.

Control environments don’t generally strike students as the most scintillating area of their studies.  A number of ACCA and CIMA Papers however place considerable emphasis on controls, using Sarbanes-Oxley and the COSO frameworks.

Respecting controls might slow down an employee’s daily work routine and may feel sometimes like a constraint on innovation and enterprise.  Sometimes, it may be tempting to circumvent controls, especially if it generally appears to result in making quicker profits.

Anybody tempted to do this might be interested to note the Paris court’s decision to sentence Mr Kervie.  Although the hapless gentleman alleged that the bank had been complicit in allowing him to trade beyond his authority limits, this seemed to be little defence in either showing innocence or getting a more lenient sentence.

The lesson seems to be fairly clear.  Even if the tone appears to be one of disregarding controls because management don’t take them seriously, if anything then goes wrong, management will most probably not agree that controls were considered to be unimportant!

The safest thing to do is to assume that any controls are meant to be respected, even if it doesn’t feel that way.

It could literally be your “get out of jail” card.

Look out for two prostitutes, £3.7 million of stolen cash and a 58 year old accountant at your local Toys R Us store.

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Toys R Us is one of the largest toy store chains in the world.

It’s very successful and has nearly 1,300 stores around the world. What it didn’t have though was a strong internal control system in their UK purchase ledger department.

Between 2006 and 2008, married father of two and accounts payable manager Paul Hopes made over 20 illegal payments ranging from £100,000 to £300,000 to bank accounts of fictitious toy suppliers in the Far East which he had set up himself.

The £3.7 million of illicit money was then spent on various items. One of Mr Hopes favourite methods of spending the money was on Wednesday nights when he would regularly entertain 2 prostitutes at luxury hotel suites.

As well as paying for their time and energy he also bought them a string of luxury cars including a Bentley, Toyota Land Cruiser and a BMW M3 (incidentally, his wife was at the time driving the family Ford Mondeo).

In total he spent nearly £2.5 million on the two prostitutes.

It all came to a sticky ending for Mr Hopes though as he was sentenced to 7 years in jail.

What is interesting about the sentencing is that under the Proceeds of Crime Act the Judge ordered Mr Hopes to repay £3.4 million of the £3.7 million stolen. If he fails to repay the £3.4 million then an additional 10 years will be added to his 7 year sentence. At the end of the 17 year sentence he will still be obliged to repay the £3.4 million.

Now, remember that Mr Hopes is an Accountant so I’m sure he’s an expert in double entry but even the best bookkeeping skills won’t be able to make “income” of £3.7 million minus “expenses” of £2.5 million equal a balance of £3.4 million.

I guess he’s hoping that these two particular ladies are now desperately trying to find him every Wednesday evening to give him the money back.

How can you make a salary of £26,000 stretch to buying a horse riding business, a holiday home, luxury holidays and a Range Rover costing £45,000?

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It seems that not all accountants are 100% honest.

Whilst the vast majority of accountants are  trustworthy there were two court cases in the UK this week that resulted in jail sentences for accountants.

Gary Gordon, who previously worked for the Big 4 firm PricewaterhouseCoopers, stole £45,000 from his employer UK Mission Enterprises. He rather unimaginatively simple diverted the cash into his own accounts.

He apparently had a gambling habit and didn’t appreciate the amount of money that he had stolen. He’s been jailed for 16 months.

£45,000 however pales into insignificance when compared with £1.3 million which was the amount that Tracey Laws stole from her employer Inchcape Limited.

Inchcape Limited is the parent company of a number of motor trading companies in the UK and for nearly 10 years Laws wrote 75 fraudulent cheques totaling £750,000 to her own horse riding school (which she had set up with money that she had already been stolen from her employers). She had also fraudulently transferred over £500,000 to her husband’s decorating company.

Despite having a maximum annual salary of £26,000 during her time with Inchcape she managed to buy a horse riding school, a holiday home, luxury holidays and a brand new Range Rover.

It wasn’t these mis-matched spending habits that caught her out though. Her crime was uncovered by accident when one of the motor trading companies was changing payment systems and two employees noticed a cheque made out to West Acres Stables (the stables owned by Laws).

These two observant individuals noticed that the handwriting looked very much like the handwriting of Tracey Laws. It turned out that it was her hand writing and the end result was that Laws was jailed for four years last week.

No doubt there are new internal controls in place at Inchcape and looking on the bright side for Laws she will at least save her annual accountancy membership fees going forward and she will also have her bed and breakfast supplied free of charge by Her Majesty’s Government for the next few years.

You know you’ve had too much to drink when your eyesight goes blurry, you slur your words and you spend half a billion dollars…

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Steven Perkins, a 34 year old commodity broker, attended a company golfing weekend, had a bit too much to drink over the weekend and then took the Monday off of work.

This in itself didn’t justify being fined £72,000 earlier this week by the Financial Services Authority (FSA) and being identified as “an extreme risk to the market when drunk”.

It was what he did on the Monday evening that caused all the excitement.

After the golfing weekend, Mr. Perkins felt the need to carry on drinking and started drinking again on the Monday lunchtime. Late that night in a drunken stupor he bought 7 million barrels of oil using $520 million dollars belonging to his then employers PVM Oil Futures.

Because the purchases took place in the middle of the night other traders around the world thought that there was something major happening in the oil market and as a result the price of oil shot up by $1.50 a barrel in less than 30 minutes. Through the alcoholic haze Mr. Perkins gradually increased his bidding price each time to push the price up until at one stage he was responsible for nearly 70% of the global market volume.

He tried to gradually sell down his position in the morning but no doubt with a very dry mouth eventually admitted everything to his employer.

His drunken night time purchases resulted in PVM losing £6million, him being fined £72,000 and banned from the industry for five years. Plus of course, an almighty hangover.

Organic, Natural and Ethical or fraudulent trading?

‘Organic, Natural and Ethical’ is what the One stood for in the name of a company called Onefood.

Reported recently in the UK media, I think this case could well become my new lecturing example for the criminal offence of fraudulent trading.

Ostensibly the company was supplying the famous London food store Fortnum & Mason (as well as others) with organic produce. In reality, the company was buying cheap non-organic foods in supermarkets such as Waitrose and Tescos, removing the original packaging and then replacing with the company’s own packaging.

Neil Stansfield the CEO of the company, who also traded under the name of Swaddles Organic was quoted in a local newspaper as saying “Fortnum & Mason searched for the finest British classic pie throughout the UK and after arduous searching they came upon Onefood and Swaddle, sampled the product and found it to be the best in the UK. We’re impassioned by supplying natural, ethical and unadulterated food and we’re here to educate consumers about the well-being that comes from choosing British-grown organic meat.”

In truth the pork pies being referred to were bought from a local butcher for £1.30 and sold to Fortnum & Mason for £2.50. In another example given in court, a salmon purchased from Waitrose for £20 was sold on for £51.

Stansfield, his wife Kate (who acted as Company Secretary) and Russell Hudson (the company operations manager) all pleaded guilty to fraudulent trading. Neil Stansfield was sent to prison for 27 months and disqualified from working as a company director for 6 years. Kate Stansfield was sent to prison for 50 weeks, ordered to do 150 hours community service and banned from being a company director for 3 years. Russell Hudson received a 40 week prison sentence, suspended for 2 years and was ordered to do 150 hours community service.

Now where’s that organic chicken I was going to roast for supper tonight?