Nadir's ghost rises to haunt Swinson

The expulsion of Polly Peck’s group accountant John Turner from the English ICA following an investigation by the Joint Disciplinary Scheme could not have come at worse time for those trying to secure self-regulation of the accountancy profession. Just as English ICA president Chris Swinson’s plan for a Review Board is being considered by trade and industry ministers, attention has been focused on the fact that eight years after Polly Peck collapsed only one person has been disciplined and the JDS’s investigation into the group’s auditors BDO Stoy Hayward remains stalled.

The JDS has been investigating the Polly Peck affair in one guise or another since 1993. An important factor in this delay is the inability of the JDS to investigate until it receives a complaint. In the case of Polly Peck, this did not happen until 1993. The appointment of Dickson from the Serious Fraud Office, as the first full-time head of investigations, was intended to speed up proceedings.

But the chances of bringing the BDO Stoy Hayward investigation to a successful conclusion are limited by difficulties in retrieving important evidence.

The JDS has been campaigning for access to vital documents in the courts of northern Cyprus for the last two years. A Cypriot judge has heard evidence from the JDS and lawyers representing Erdal & Co (the northern Cypriot firm that audited Polly Peck’s main subsidiaries between 1986 and 1989) and discredited Polly Peck tycoon Asil Nadir – but the hearings have made little progress.

Dickson says the JDS has been examining the conduct of two Erdal partners, Hussein Erdal and Firuz Fehmi, both English ICA members. While the firm itself is outside English ICA jurisdiction, the partners are members of the institute. ‘It has been to court and been tested’ he says. ‘They have obligations under the rules of the English ICA to make documents available.’ But Erdal & Co have claimed they are not permitted by the law of northern Cyprus to produce them. ‘While it does not necessarily affect the case against BDO Stoy Hayward, it does affect the position of Erdal & Co,’ says Dickson.

The matter was further complicated by a judicial review application by Stoys. Although that was refused, it did have the effect of holding up the JDS investigation. ‘We’ve done a lot of work, but we were diverted by the judicial review,’ says Dickson.

The limitations of the JDS investigation were underlined in July, however, when Stoys reached an out-of-court settlement with Polly Peck administrators Deloitte & Touche. Although never publicly disclosed, the value of the settlement was reported to be between #25m and #30m. Deloittes is believed to have been seeking between #250m and #300m. Stoys had always denied negligence and admitted no liability under the settlement. It is believed to have settled due to the rising legal costs involved.

It is now possible that the JDS investigation can gain fresh momentum if it makes headway in the Cypriot courts. It can also seize on the gains made in investigating Stoys over its auditing of Astra Holdings, the defence company at the centre of the arms-to-Iraq scandal.

Last month, the JDS fined Stoys #150,000 and #600,000 costs, its largest ever penalty, for failing to identify a fraud at Astra in 1986 and four unqualified audit reports until 1989. It was also criticised over a supporting letter for Astra’s takeover bid for PRB in 1989.

The manner in which the JDS released its findings on the Astra affair was, on the surface, a slick affair. A full set of questions and answers supported a 50-page report listing the fines and reprimands against the firm.

It is certainly an indication of where the JDS wants to go. But, despite the problems facing Stoys, its managing partner Adrian Martin remains unconvinced about the JDS’ chances of moving forward quickly: ‘I don’t know how long the JDS will take to look at Polly Peck. They haven’t really started yet, and if they can’t get the papers from Erdal & Co, it is difficult to see how they will investigate us. I would be very surprised to see it happen until next year,’ he said.

The fine was only the second financial penalty imposed by the JDS on a firm. In 1995, it fined two-partner London firm Somers Baker over its role as auditor to charity War on Want. Before 1993, it fined individual members a maximum of #1,000. The cap has since been removed, although no individuals have yet to be faced with its new powers.

Meanwhile, discussions between the profession and the government on the future of regulation have been continuing. Swinson is said to have met DTI representatives last month and new trade secretary Peter Mandelson is expected to come to a decision this month. Leaders of the profession fear privately that Swinson’s proposals could be torpedoed by another audit scandal. He must be hoping one is not about to emerge from the past to haunt him.