wickes fraud scandal

Issues in Accounting and Finance

Wickes Scandal

The purpose of this report is to critically analyse the insight of the scandal, which occurred in Wickes during 1996 and also discuss whether the scandal was preventable. Wickes was first established in Manchester 1972 when it was launched as a joint venture between the US group, Wickes Corporation and another UK Building merchant. They are the leading UK Company of DIY merchants focusing on raw materials and suppliers for public and trade.

Wickes was a fast growing company until a fraud scandal took place associated with its employees. The fraud scandal was investigated by serious fraud officers along with the cooperation of the Metropolitan police. This fraud scandal was committed by four previous directors of DIY wholesalers and building merchants with the names of Trefor Llewellyn, Geoffrey Battersby, Terrence Carson and Leslie Rosenthal. Furthermore, it was found that a fifth person called Henry Sweetbaum was also involved. He was an ex-chairman and chief executive of the organisation.

The charge which five individuals committed had a connection with an accounting scandal because they produced false statements and false dealing of products in relation to the business. This incident had a huge impact on the company as a whole as many employees lost their jobs and also profits declined tremendously eventually leading to the organisation to gain a poor reputation in the market.

The awareness of the scandal occurred in 1996 after Wickes realised they had considerably overstated the amount in operating profits of £53 million between the years of 1992 to 1995 and the investors of the company’s funds were practically overstated too. The company established mistakes of misdeeds which included the company’s executives who constructed refunds that synthetically increased profits. This meant defrauding shareholders in Wickes stock and as a result the shares of the companies were suspended. However, the company later modified that the operating profits decreased from £36 million in 1994 and £7 million in 1995, which was then later turned around to be a reduced profit of £18.4 million in 1994 and a loss of £9.9 million in 1995. The losses announced were examined by scandal exterior and auditors who examined the books thoroughly and become aware of the extensive changes.

The five defendants were taken to court on the accusation placed on them of a fraud scandal. “Henry Sweetbaum, Trefor Llewellyn and Terence Carson were questioned on the offences relating to the £18.3 million pound overstatement on Wickes profit, the fraudulent trading and the false statements to auditors contrary to section 389A(2) of the companies act 1985. Henry Sweetbaum and Trefor Llewellyn made a false statement to the Wickes group auditor who was Arthur Andersen in 1995 and Henry Sweetbaum and Terence Carson were similarly charged in relation to 1996.”

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“How ever Henry Sweetbaum Wickes former chairman and ...

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“How ever Henry Sweetbaum Wickes former chairman and chief executive he accepted “ultimate responsibility” for accounting irregularities. He also agreed to repay back £1.2 million pounds in bonuses and has waived claims for up to £3 million in compensation for loss of office, said “As far as he is concerned, the affair is now over” (Telegraph) http://www.telegraph.co.uk/htmlContent.jhtml?html=/archive/1996/10/17/cwick17.html

All the three defendants were found not guilty on all the accusations which were charged on them

The other two defendants, Geoffrey Battersby and Leslie Rosenthal who was also associated with the fraud scandal were questioned through out the early months of the trial followed with the corporation of the other three defendants. Geoffrey Battersby was released free due to there was no case to answer so therefore the judge directed the jury to return to a not guilty verdict. Leslie Rosenthal would have to return to court next year faced by another jury as this jury was acquit from delivering a verdict due to legal reasons.

The company was a well growing established retailer industry in the market, how ever due to the scandal charges against Wickes. This caused a lot damage to company itself, it gave Wickes a bad status in the market and also they were black listed which meant that the company had a poor financial history so therefore in the future they will be refused on credit products and any other kind of financial circumstances. On the same day the company got black listed which was on the 25th June 1996, the announcement of the scandal was exposed to the public. The announcement of the scandal instantaneously affected the company’s market value to 150 million pound and the stock was suspended from London market trading. So in order for Wickes to operate the business back to the way it was they refurbished its corporate management and also made emends with any shareholders and suppliers they had. This took the company a good two years of hard development. Bye the end of 1998 the company’s profits increased by 653 million pound so therefore sales rise by 27%. They instituted three new stores and redesigned locations to include ornamental and garden commodities.

The fraud scandal could have been preventable in many ways, Wickes became aware of this incident when scandal exteriors and auditors thoroughly checked the books and notice the major extensive changes. How ever this could have been notice at an early stage. Wickes could carry out monthly or yearly check ups on transactions account to notice any changes or misappropriate mistakes occurred in the business. Wickes could employee internal audit; internal audit will improve the function of the organisation and consulting action which will be intended to add value to the business, along side meeting the company’s objectives. The organisations objectives will be achieved by bringing an efficient approach to evaluate and develop the efficiency of risk management, control and governance processes. Although to bring in an internal audit to check the operation of the business yearly will be expensive. In my opinion I personally think that Wickes will be able to pay for the expense of an internal audit as they are a fast established business which creates good profit. This will be beneficial for the business as a whole.

Another suggestion to prevent the scandal could be to have good ethics and standards in place. The following charges which were made on the defendant were producing false statement and giving false information to the auditor (Arthur Andersen), so therefore Wickes could locate a system which contains a principle of governing morality and acceptable conduct. They could do this by producing a code of ethics which all the employees will have to fallow and can not be broken. Therefore the company will have strict rules and have control over their employees. This will help the business to be safe and prevent employee misbehaviour.

An additional idea is to direct different position to different individuals; Henry Sweetbaum was the company’s former chairman and chief executive. So therefore Wickes could have given two individuals them to positions instead of just giving it to one individual. If they were two individuals directed for them positions then they would have had an inter link with one another jobs and would have been aware of what each one is undertaking. So therefore I personally think that the incident of the scandal would have occurred earlier than later if the former chairman and chief executive roles were given to two individual instead of just one.

In conclusion I personally think that the fraud scandal which arose in 1996 for Wickes was a huge turn around for the company and now due to this incident they will be more careful now in the future. Wickes will be more alert and aware of how to minimise the risks and the prospect which occur in a scandal.