AIDB judicial microscope poses questions across the board

When Ian Shelton took the witness chair this week, he made history as the
first accountant to be forcibly disciplined under the glare of the public eye.

The complaint against him saw the 42-year-old former financial controller of
Transbus, accused of ‘dishonesty’.

The case’s public airing has not only been the first public outing for the
AIDB, but it has also revealed some interesting questions about many of the
parties involved.

Patrick Lawrence QC, the Accountancy Investigation and Discipline Board’s
counsel in the case put to the five-member panel adjudicating, that Shelton had
not just been dishonest, but worn a ‘badge of dishonesty’ for failing to follow
basic paper trails or to question obvious fraudulent practices at Mayflower, his
cash-strapped company.

Transbus, a subsidiary of listed Mayflower Plc, effectively abused a
revolving debt facility it had with HSBC, the charges say.

And when Shelton discovered the inappropriate practices, he chose to keep
quiet, in the hope that those above him would report the misleading practices to
the auditors or shareholders.

The charges are the first in a series relating to Mayflower. Not only is
Shelton under the judicial microscope, so are auditors from

The complaints against PwC relates to their audit of the 2002 accounts,
particularly amounts held on behalf of HSBC under the invoice discounting
scheme, as well as disclosure relating to the company’s ability to continue as a
going concern. The case before the firm will be heard from 25 September.

Mayflower’s group FD, David Donnelly, is also set to take the stand.

Mayflower went into administration in March 2004, with debts of £250m. The
2002 accounts over which PwC are accused, are thought to have masked a £20m
black hole. The case is the first test of new public hearings, and also indeed
the first of Cameron Scott’s new regime at the AIDB. Until now, most major
disciplinary matters had been held by the Joint Disciplinary Scheme under the
eyes of Chris Dickson, Scott’s counterpart and the JDS’s executive counsel.

The public hearings and Scott’s investigations have already revealed some
interesting flaws in audit procedure that might not otherwise have come to

HSBC, for example, could perhaps have been more critical in its analysis of
the accounts at Transbus, court evidence suggested, as part one of the case
against Mayflower accountants unravelled.

The bank periodically visited the Guildford premises, to inspect the invoice
facility in question.

However an employee junior to Shelton prepared spreadsheets for HSBC’s
inspectors – which saw customer payment dates being manipulated to withhold
money from the bank.

Instead of interrogating the procedures, the panel heard how the HSBC
inspectors were ‘walked’ through the spreadsheets by an employee junior to

The bank itself may have some cause to think over its approach to those sorts
of cases.

In addition, the bank also failed to have proper processes which would
require documentary proof that Transbus did in fact manufacture and deliver the
goods for which it requested payment, through its invoice discounting.

The atmosphere at Mayflower in the difficult circumstances it faced also
raised eyebrows.

Shelton recalled, and it seems an integral part of his defence, how an
executive told him to either do as he was told or face losing his job.

Under cross-examination, Shelton repeatedly explained away his frank and
telling admissions – of how the bank had no clue that the spreadsheets showing
customer payment dates had been manipulated – made to Scott, as ‘looking at
things with the benefit of hindsight’.

Contrary to his better judgment, and the code of ethics he subscribed to as a
member of ICAEW, Shelton carried out and maintained fraudulent practices, under
the threat of losing his job, the tribunal heard.

Shelton this week accepted that what he did was dishonest. But he maintained
that he was not.

Whatever the outcome of the case and its related actions, its public airing
has given us an at times slightly tragic insight into the circumstances of a
failing company, and what its executives will apparently do to try and stave off

The AIDB can impose sanctions, an unlimited fine, exclusion from membership
of a professional body, and withdraw practising licences if the tribunal upholds
the complaints. The panel will present written findings at a later stage.


?‘In December 2003,you knew the bank was being ripped off.
The company was struggling to survive and you were asked to sign a form which
would amount to another rip off…’
Patrick Lawrence QC to Ian Shelton during proceedings this week.

?’At any point there would be a balance of funds which had been received from
customers in respect of invoices which had already been financed through Midfes
but which had not yet been paid over to HSBC. At the half-year (June 30) and
yearend (December 31) these funds, the so called “double-dip” would be included
in the
Transbus cash balance in the half-year and year-end accounts.’
Frank Daly, former FD of Body Group Division of Transbus International

?‘Transbus would hold onto payments received from its customers for a longer
period of time in order to improve its cash flow… accordingly two set of
accounts were being maintained,’
Grant Thornton insolvency practitioner who helped review the Midfes facility
at Transbus in March 2004.
Grant Thornton’s investigation revealed a £25.8m hole which appeared to
have originated in early 2000.

?‘[Executives] would often ask us to withhold additional payments to HSBC
thus ensuring the group hit target. This would make [those executives] look very
Ian Shelton in his witness statement to the AIDB.

?’David Berry resigned as Finance Director in October 2003.He left Transbus
in the first week of November 2003 with a £100k compromise payment for his
sterling work…was very, very nervous about not being paid due to the cash-flow
situation within the group and regularly checked with his bank,’
Ian Shelton in his witness statement to the AIDB.

Related reading