News July 2016 Outcome of disciplinary case against Stephen Hill and David Wells in connection with Connaught plc.

Outcome of disciplinary case against Stephen Hill and David Wells in connection with Connaught plc.

25 July 2016

PN 43/16

The Financial Reporting Council (FRC) today announces the outcome of the disciplinary case relating to Mr. Stephen Hill (former Finance Director) and Mr. David Wells (former Deputy Financial Director – with responsibility for treasury functions) of Connaught plc.   Both are members of the Institute of Chartered Accountants in England and Wales (“ICAEW”).

The disciplinary case relates to Mr Hill’s and Mr Wells’ conduct regarding their role in relation to the incorrect accounting of a £4 million short-term loan in Connaught’s 2010 interim financial statements.

The short-term loan was made by the CEO of Connaught shortly before the 28 February half-year end, and substantially repaid between 15 March and 29 April 2010. The £4 million was not accounted for as a loan, but as operating cash-flow in Connaught’s interim financial statements, which were issued on 27 April 2010.   The interim statements were therefore materially misleading in that cash flows from operating activities were overstated by £4 million and net cash generated from financing activities was understated by £4 million.

This materially increased Connaught’s cash conversion rate. But for the loan, the Group would have fallen somewhere between 6 and 11% short of their 70% cash conversion target. This ratio was one of a number of key measures used by analysts and one upon which investors rely – and a figure that was especially important to Connaught at the beginning of 2010.

In addition, the loan was not disclosed to the Audit Committee or the auditors; neither was it disclosed as a related party transaction, as it should have been.

Settlements agreed between the Executive Counsel to the FRC, Gareth Rees QC, and both Mr Hill and Mr Wells have been approved by the FRC independent Tribunal.  The Executive Counsel accepts that neither Mr Hill nor Mr Wells acted dishonestly in failing to account accurately for the sums in question.  For their part, Mr Hill and Mr Wells have admitted that their conduct fell significantly short of the standards to be expected of Members of the ICAEW, as set out in the Formal Complaint.

Mr Hill has admitted that his conduct was sufficiently reckless to have amounted to acting with a lack of integrity.  He has agreed the following terms of settlement:
  • Exclusion from the ICAEW for a recommended period of 5 years;
  • Payment of £133,397 towards the Executive Counsel’s costs.

Mr Wells has admitted that he failed to act in accordance with the ICAEW’s fundamental principles of objectivity and ‘professional competence and due care’.  He has agreed the following terms of settlement
  • Exclusion from the ICAEW for a recommended period of 3 years;
  • Payment of £125,198 towards the Executive Counsel’s costs.
Gareth Rees QC, Executive Director of Enforcement and Executive Counsel of the FRC, said:

“The outcome sends a clear message to accountants in business of their responsibility to carry out their work diligently and in accordance with professional standards. The result demonstrates the FRC’s public interest commitment to ensure that the standards of conduct of the accountancy profession, particularly in relation to financial reporting, are upheld so that it can justifiably maintain public and market confidence. By engaging in the FRC’s settlement process, Mr Hill and Mr Wells have accepted their misconduct and the imposition of sanctions. This has led to a considerable saving of time and cost.”

Formal Complaints against Mr Stephen Hill and Mr David Wells relating to Connaught plc (PDF)

Mr Stephen Hill Settlement Agreement (PDF)

Mr David Wells Settlement Agreement (PDF)

Notes to editors:
  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.