This month one of the most devastating reports into a privatisation rip off was published by the Financial Reporting Council, which regulates chartered accountants. It involves a long running saga of the failed privatisation of London and Lincoln’s fire engines, handed over to what are now revealed to be liars and fraudsters who ran Assetco at the time.
The three top directors, chief executive, John Shannon; chief financial officer, Frank Flynn; and group financial controller, Matt Boyle, could not even be bothered to attend a tribunal hearing to defend themselves against 27 allegations of misconduct. Shannon and Boyle are thought to be somewhere in South East Asia Flynn is in Northern Ireland
Between them they lied and hid millions of pounds ripped off from income paid by London fire brigade – the London Fire and Emergency Planning Authority – through a string of Northern Ireland companies and a consultancy to Abu Dhabi and falsified invoices from the London authority to boost the income of Assetco duping shareholders so they could live on the hog with large salaries.
The worst culprit was John Shannon who has been banned as practising as a chartered accountant for 16 years – a new British record – fined £250,000 and ordered to pay £300,000 in costs. This was the same man who wined and dined the now disgraced former Tory chair of the London fire authority, Brian Coleman, while simultaneously ripping off the authority for personal gain.
His story included in a damning FRC reportis a trail of dishonesty and improper financial gain for himself and his family, His first act in 2008 was to take £1.5 million out of Assetco, ostensibly to invest in a Northern Ireland property company, Jaras Property Development. In fact the report found the money was transferred almost immediately from the company to Mr Shannon’s personal bank account to pay off a loan.
To compound his action when Assetco’s accounts were prepared for 2010 he created a false invoice and lied about the use of the money to fellow directors and the auditors, Grant Thornton.
The second dishonest act involved Assetco’s take over of Graphic, a company that provided lettering for vehicles, in 2010. Mr Shannon claimed he was owed £685,000 by the company. No documentation was ever found to prove the debt but the money taken from Assetco was the exact same money owed by this son, Joel, to clear a debt with another business he was running. The report concludes this was a sham.
He then moved to fiddle the accounts of another Assetco business, Assetco Abu Dhabi, which was launched with a £15m share issue. Included in the costs was a management fee to a firm called XYZ2 for £900,000. In fact there were no management services provided by this company, instead the money was used to pay off interest owed.
Earlier Mr Shannon and his fellow directors Frank Flynn and Matt Boyle inflated the goodwill value of three other companies,UV Modular Limited (“UVM”), The Vehicle Application Centre Limited (“TVAC”) and Simentra Limited (“Simentra”). All three had been bought by Assetco and had huge operating losses, all became insolvent, yet between them they were valued at over £15m.
UVM which built ambulances and mobility vehicles for the NHS was ” in a parlous financial condition ” and collapsed. It got contracts from the NHS by offering cheap deals which meant it lost money.
TVAC built chassis and fire appliances was acquired in 2007 and went bust in 2008 and was an operational disaster. But it was obviously intended to service fire engines for London.
Simentra had just three staff and was supposed to provide management advice for emergency services.
The report found Mr Shannon was well aware of this yet allowed the £15m for goodwill to be included as an asset in the company’s accounts.
Mr Shannon, Mr Flynn and Mr Boyle also inflated income from the London fire authority on purchasing equipment and providing emergency crew training. All this led to inflated accounts which Mr Shannon claimed he had not seen but the report found that he had lied to them about his knowledge of what was agreed to be published in the accounts. There is an earlier report on my blog here.
The conclusions against Mr Shannon are stark :” While there have been no actual convictions, certain of the activities contained within the allegations could be characterised as causing or facilitating fraud. The Jaras and Graphic Allegations amount to fraud on AssetCo by Mr Shannon. The XYZ Investment was also a fraud.”
The report also says the level of dishonesty even put the fire fighters work at risk. It is as well that the London and Lincolnshire operations of Assetco went bust before the tragic Grenfell fire or their services would have only compounded the problems.
Most of the misconduct by Flynn and Boyle was to assist in covering up rather than exposing the dishonesty of Shannon.
Raymond “Frank” Flynn (former Chief Financial Officer) for banned from practising for 14 years and Matthew Boyle (former Financial Controller) for 12 years. Additionally, £150,000 and £100,000 respectively have been imposed and they share paying part of the £400,000 costs bill.
The Financial Reporting Council has a memorandum of understanding with the Serious Fraud Office which could launch a criminal investigation.
The SFO told me that they were aware of the case but could neither confirm nor deny whether they would take action. In my view they should pursue these people – even if they have left the country- with the aim of securing convictions so they can spend some time in British jails.