Supplemental Report on Allegations on Financial Irregularities in MSF

Prepared by Stuart Burn

Dated: 12 July 2001____________________________________________________________________________

1 Summary

Unauthorised, Interest-free loans

1.1 In accordance with the Work Programme, no additional work was carried out

in this area.

Private use of Union Credit Card

1.2 In accordance with the Work Programme, no additional work was carried out

in this area.

Claims for sustenance at meetings

1.3 We have summarised our work in Section 6A, which is contained within a

separate report, also dated 12 July 2001.

1.4 Additional work was carried out in respect of the procedures now in place for

the authorisation of personal expenses. These are detailed in Section 6.1 of this'

report.

Nelson Mendes unreceipted expense claims

1.5 We note from the MSF nominal ledger and petty cash claim forms that

Nelson Mendes claimed expenses totalling £11,399 during 1997. Following

matters that have arisen since our previous investigation, it is now apparent

that NM has made claims for journeys that he may not have undertaken, for

which tickets originated outside of London. It follows that these claims could

be improper. We have been presented with expense forms in respect of £4,743

and we consider that £3,797 of these are improper claims. The expenses on the

missing expense claim forms total £6,656. This has been derived from the

purchase ledger printouts provided to us by Mohan Arunanchalam, who

works within the Finance Department at MSF. Therefore, the total maximum

amount that could have been claimed improperly during 1997 is £10,453

(£6,656 + £3,797). We understand that Mr Mendes has given reimbursement by

way of set off from salary settlement due to him amounting to £5,608 to MSF.

On instructions, we have not further pursued the matter with him (for

example, by clarifying the precise basis for this repayment). We understand

that Mr Mendes has made it clear that he does not wish us to communicate

further with him.

Payments from alleged false bank accounts

1.6 UTB provided us with a list of all accounts held in the name of MSF at UTB,

which amounted to 1,287 accounts. As described in this report, we then

carried out extensive testing to confirm that all accounts held by MSF at UTB

had been included on this list. The outcome of our testing revealed 5 accounts

held by MSF that were not on the UTB list, 4 of these accounts did not

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001______________________________________________________________________

contain 'MSF' in the title and the fifth was deleted from the list by UTB in

error. The UTB list was amended to include the 5 additional accounts.

1.7 We are satisfied that the updated UTB list comprises all accounts held by MSF

at UTB during 1997 with 'MSF' in the title, and we have found no evidence

that any other accounts exist at UTB during 1997 without 'MSF' in the title.

1.8 UTB identified all payments from these 1,292 accounts paid during 1997 for

£4,000 or over, of which there were 566 cheque payments. We have identified

the payee of 564 of these cheques and confirm that none of these were payable

to Roger Lyons ("RAL"), Nelson Mendes ("NM") or anyone with the surname

Lyons or Mendes. None of these cheques bears any reference to Daxo or

Guildhall, and none have been amended or endorsed.

1.9 Accordingly, based on the information provided by UTB, as verified by our

own work, we confirm that no cheque payments for £4,000 or more have been

made to RAL or NM from any MSF account at UTB with "MSF" in the title,

and we have found no evidence that any payments were made to RAL or NM

from MSF accounts at UTB without 'MSF' in the title.

1.10 We also examined all non-cheque payments of £4,000 or more and confirm

that none were paid to Mr Lyons or Mr Mendes, or anyone with their

surnames. Some large payments were made by BACS in respect of payroll and

expenses, and these were tested on a restrictive sample basis.

1.11 Our testing does not prove without doubt that there are no further accounts

held by MSF at UTB without "MSF" in the title, and does not prove without

doubt that there are no accounts named on the Membership List which have

not been included on the updated UTB list. However, this should be

considered in the context of the allegations made. Ms Solomon has

maintained that the cheques were made from the accounts 'MSF Daxo' and

'MSF Guildhall', and that these accounts were included on the Pool

Statements, as she saw the balances of these accounts dwindle on the Pool

Statements. It was suggested at the Employment Tribunal that Ms Solomon

mistook the Membership List for the Pool Statements, but we note that the

Membership List does not show account balances at all and therefore' is

unlikely to be the source document that Ms Solomon saw.

1.12 In addition, the Membership List is not a definitive list of bank accounts and

still includes historic names of branches that have merged or dissolved and is

therefore of limited merit as a source of accurate information. In order to

completely satisfy ourselves that no further accounts exist, which have not

been identified by UTB, we would have wished to contact each branch named

on the Membership List. For the reasons set out in Paragraph 8.1.10 (c), Mr

Gardner of MSF did not wish us to proceed with the proposed questionnaire

mailshot. However, we have carried out extensive testing in other areas,

especially in respect of transfers, and did not identify any other accounts that

were not on the Pool Statements. The Certification Officer confirmed on 5

June 2001 that no further testing is required in this area.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July

2001___________________________________________________________________________

1.13 We are satisfied that the allegations as stated are untrue and we are satisfied

that no accounts exist with "MSP" in the title other than those included on

the updated UTB list. We are also satisfied that that no payments of £4,000 or

over were made to RAL or NM from any of these 1,292 accounts, which

includes all accounts appearing on the Pool Statements.

1.14 In addition we obtained personal bank statements from Roger Lyons and his

family and have confirmed that all receipts of £4,000 or more were adequately

supported by valid documentation. We found no evidence of any personal

bank accounts other than those for which statements were provided.

Other financial discrepancies

1.15 We noted that all the allegations listed under this heading were in respect of

expenses incurred on the Union credit card. Therefore, in accordance with the

Work Programme, no additional work was carried out in this area.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001_______________________________________________________________________________

2 Introduction

2.1 H W Fisher & Company is a firm of Chartered Accountants with 22 partners

and approximately 300 staff.

2.2 I, Stuart Burns, am a partner in the firm H.W. Fisher & Company specialising

in Forensic Accounting/Litigation support assignments and I head up Fisher

Forensic, which is the practice's established Forensic Accounting Department.

The subject matter of such assignments varies considerably, from fraud,

employee theft and Department of Trade and Industry prosecutions to breach

of contract, professional negligence, personal injury and forensic casework

involving both personal and corporate matters. I have given many hours of

expert witness evidence in court in connection with these assignments, and

have prepared detailed reports for submission as expert evidence. I am a

member of the Academy of Experts and am a Certified Fraud Examiner.

2.3 H W Fisher & Company are the auditors of MSF. I have no involvement with

this function.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001___________________________________________________________________________

4 Allegation 1 - Unauthorised, Interest free loans

4.1 In respect of this allegation, the work programme states that "no further

action is considered necessary in order to meet the requirements of the present

allegation, as outlined by Ted Whybrew and confirmed by John Gardner."

4.2 As stated in the Work Programme, therefore, no further work was carried out

in this area.

Allegation 2 - Private use of Union credit card

5.1 As with allegation 1, the work programme states that "no further action is

considered necessary in order to meet the requirements of the present

allegation, as outlined by Ted Whybrew and confirmed by John Gardner."

5.2 As stated in the Work Programme, therefore, no further work was carried out

in this area.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001________________________________________________________________________________

6 Allegation 3 - Claims for sustenance at meetings

6A - Work Programme Action Points 1-3

We have carried out extensive work in this area and this has been detailed

within a separate report of the same date.

6B - Work Programme Action Points 4 & 6

Please note that the Certification Officer requested that these action points,

which represent additional work, be carried out as part of our investigation.

6.1 Expense Claim Procedures

Background

6.1.1 As part of H W Fisher's audit procedures for the year ended 31 December

2000, a complete review of MSF's expense claims procedures was undertaken.;

We have summarised below a review of the relevant findings. However, we

note that the Union's internal procedures relating to expense claims have been

improved with effect from 1 January 2001. The amended rules are discussed

in paragraph 6.1.6 below.

Officers

Notes on authorisation

6.1.2 Claim forms did not have to show an authorising signature on them. There

was actually no designated area on the form for such a signature. When the

forms were received into the finance department, it was assumed that the

relevant regional official in charge had already approved the expenses.

Evidence pertaining to claim

6.1.3 Officers did not have to provide receipts for meal claims under £10 and the

guidelines were not specific as to what other receipts needed to be provided

when claiming expenses.

Results of detailed testing

6.1.4 In general the inclusion of receipts in a claim is sporadic. There is no

consistency as to what receipts are provided. As no invoices are required for

claims under £10, there is a tendency to claim exactly that amount. When an

officer has travelled by train, they may attach a credit card voucher by way of

receipt, but this will not contain details of their destination. Hotel and meal

bills (above £10) are also not always provided. In addition, it is rare for an

officer to provide both details of their destination together with the reason for

the trip.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001______________________________________________________

Lay Members

6.1.5 Lay members must have their claim form signed by the regional officer and

they must state the reason for their trip. Whilst lay members tend to provide

more details of their trip, they do not always provide receipts.

6.1.6 All expenses tested for lay members (6 forms) had been authorised.

New Claim Forms and Procedures

6.1.7 A new style of expense claim form was introduced at the beginning of 2001.

On the new forms there is now a designated space for an authorising signature

and claims must now be signed prior to payment. The Head Office Accounts

department is currently trying to obtain specimen signatures of those persons

responsible for authorising the expense claims from all of the Lead/National

officials for the various regions.

6.1.8 The new forms have provided more columns for different categories of

expenses and officers must use a separate form for each month.

* Claims should be made on a monthly basis

* Mileage - each journey should be recorded separately with a brief description

of the reason for it.

* Hotel/accommodation receipts must be provided

* Meals/sustenance - breakfast, lunch and dinner can be claimed and receipts

must be provided for claims over £10

* Telephone claims must be accompanied by the relevant telephone bill

* Fares - the rules do not state that travel tickets/taxi receipts should be

provided

Results of post year end testing

6.1.9 In general, information provided on the new claim forms is more detailed and-

people are providing receipts. However, there are a few exceptions where

destinations are not stated when claiming mileage and receipts for meals over

£10 are not provided.

6.1.10 As the rules do not state that travel receipts should be provided, in general

people do not provide them, whether it is small amounts (under £10) or larger

amounts (over £50).

6.1.11 All forms sampled (8 forms) had been authorised by somebody. However,

there was not an up to date listing on who the authorised signatories actually

are.

6.1.12 A summary of these findings was reported to MSF within the management

letter, following the audit for the year ended 31 December 2000.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001________________________________________________________________________________

7 Allegation 4 - Nelson Mendes (NM) unreceipted expense claims

Work Programme Action Point 1

7.1.1 We have scheduled out a list of the people who confirmed meetings with NM

and then cross-correlated this back through the HWF files to locate records of

these conversations (See Appendix 2).

7.1.2 In addition, we compared the third party confirmations of meetings with NM,

referred to above, with the rail tickets and receipts for which NM claimed

expenses in 1998. At Appendix 2, in the column entitled 'Evidence

contradicted by supporting information', we note whether the confirmations

given in the first report have been contradicted by NM's train tickets and

receipts.

7.1.3 It should be noted that we have only flagged up contradictions in evidence

where we were informed that a meeting at a location remote from London had

taken place, notwithstanding the presence of invalid rail tickets (as explained

in more detail in paragraph 7.6). During our first investigation, we discovered

conflicts between London meetings noted in NM's diary and expenses claimed

for journeys outside London on the same day. Therefore, we sought to

determine whether these conflicting meetings had been cancelled and would

therefore support the validity of NM's expenses for meetings outside London

(on the basis that he could not have attended both meetings). At Appendix 2,

we have not sought to flag up those occasions, where we have been informed

that a London meeting was cancelled, and where on the same day NM appears

to have improperly claimed for a journey outside London. This is because,

where we have identified that an incorrect ticket has been used to support his

expense claim and therefore he may not have attended a meeting outside

London, it does not necessarily follow that we had been misinformed about

the London meeting as well.

Work Programme Action Point 2

7.2 This investigation is being undertaken by John Gardner.

Work Programme Action Points 3, 4 e>' 5

7.3 We have analysed the expense claim forms and petty cash forms for NM for the year ended 31 December 1997. We have distinguished the two types of

form by adding a (P) in our referencing for petty cash forms. From our

analysis, there is no difference between the two forms, other than the method

by which the reimbursement was made, namely through BACS or direct cash.

This analysis is included at Appendix 3.

7.4 We have identified payments to NM from the nominal ledger printout which

summarises all of NM's expense claims for 1997, together with the petty cash

expense forms that we obtained from MSF. We note that NM claimed a total

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001

of £11,398.96 during 1997. We have analysed expense claim forms totalling

£4,743.04 and believe that of this amount, £3,796.76 (80%) has been

improperly claimed for the reasons set out below. We have been unable to

analyse a total of £6,655.92 amounting to 17 expense forms, as the MSF

Accounts department cannot find these. The expenses on the missing expense

claim forms total £6,656. This has been derived from the entries on the

purchase ledger printouts provided by Mohan Arunanchalam, the

management accountant at MSF. (We have traced the located expense claim

forms to entries on the same purchase ledger printout, which agree exactly).

Therefore, the total maximum amount that could have been claimed

improperly during 1997 is £10,453 (£6,656 + £3,797).

7.5 The claim forms that we have seen were approved by either RAL or John

Chowcat.

7.6 The improperly claimed amounts can in the main be classified into the

following categories:

a) Invalid Train Travel

Incorrect tickets have been used to verify expense claims. We understand that

all NM journeys should originate in London and therefore the outbound part

of each train ticket should originate in London. Following matters that have

arisen since our previous investigation, it is now apparent that NM has made

claims for Journeys that he may not have undertaken, for which tickets

originated outside of London. It follows that these claims could be improper.

Similarly, incorrect rail receipts have also been used. Each receipt shows where

the ticket has been issued. Therefore, where the destination on the claim form

is the same as the issuing office on the receipt, this amount has been treated as

improper.

b) Invalid taxi fares and meals on trips out of London.

NM also claimed for taxi fares and meals. Where we have shown that NM

claimed for a train journey that he may not have made, we have calculated the

incidental costs of taxis and meals associated with that journey that NM

appears to have improperly claimed.

c) Double counting

On one occasion, a VISA receipt was used to claim for a meal (3 March 1997)

and on the following claim form, the same meal was used with the restaurant

bill as back-up, except the date had been altered (8 March 1997). The total

incorrectly cast, as the amount had also been altered.

d) Meeting with Accountants

On 29 December 1997 a Garfunkels receipt was used to verify a "meeting with

accountants". HW Fisher & Company are always closed between Christmas

and New Year and Sailesh Mehta's diary has no record of this meeting. (Mr

Mehta is the partner who would normally liaise with NM).

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001________________________________________________________________

8 Allegation 5 - Payments from alleged false bank accounts

Work Programme Action Point 1

8.1 Checking the veracity of the UTB list of 1997 MSF accounts

8.1.1 We asked Unity Trust Bank (UTB) to provide a list from their records of all

bank accounts held in the name of MSF, both branch and head office, that

were open at any time during 1997. UTB's search resulted in a list of 1,287

accounts that detailed each account's name and number.

8.1.2 We examined this document for any account names bearing the description

Daxo or Guildhall. We did not identify any accounts with the names Daxo or

Guildhall.

8.1.3 In addition we identified 24 accounts on the UTB list that had account

numbers but did not have account names. We asked UTB to identify the

names of these accounts in order to ensure that none of these accounts were

named Daxo or Guildhall. UTB provided a list of these missing account

names and we found that none of these new account names bore the

description Daxo or Guildhall. UTB explained that the list they had provided

us missed out a column in which these names were identified.

Work Programme Action Point 1 (i & iv)

(i) MSF internal records of bank accounts & (iv) List identified by Marcia

Solomon at Tribunal

8.1.4 We ascertained from the MSF accounts department that MSF keeps a list of

branch accounts. The membership department requires this list of accounts so

that quarterly commission payments and Honoraria payments can be made to

branches. This list is referred to internally as the 'membership list' and is

maintained by the IT department. MSF were able to obtain for us an old

internal membership list of accounts dated 28 August 1997.

8.1.5 We have been informed by Paul Talbot, a National Officer of MSF, that this

list includes not only current branch accounts, but also branches that have

become defunct, such as by merging with other branches or dissolving. For

example, we note that the same account number appears for more than one

branch name whilst other branch names have no account number at all.

Accordingly, although not all the accounts on this list are presently active, we

consider that this list can be useful in helping to identify MSF accounts held

at UTB that are not on the UTB list.

8.1.6 Please note that once we had obtained the membership list it quickly became

clear on comparison that the document produced by Marcia Solomon at her

Employment Tribunal is part of a copy of this membership list, dated 5

November 1997. The Marcia Solomon document comprises pages 10-35 of the

39-page membership list document. The membership list contained 1.467

accounts, while the Marcia Solomon document contains 1,040 accounts.

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Supplemental Report on Allegations of Financial Irregularities at MSF

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Dated: 12 July 2001______________________________________________________________

8.1.7 The only difference between the two lists, is that the 5 November list contains

one account that is not contained within the 28 August document.

8.1.8 We checked the full membership list for the names Daxo or Guildhall. We did

not find any accounts bearing either of these names.

8.1.9 We used the membership list to try to identify any further accounts that were

held by MSF that had not been included on the UTB list. We compared the

account numbers in the full MSF membership list (plus the extra account

found on the Marcia Solomon document) to the account numbers contained

in the UTB list of 1997 MSF accounts.

8.1.10 We noted the following;

a) There were 234 accounts that appeared in the MSF membership list that

did not appear on the UTB list.

* We provided a list of these accounts to Laurie Bell at UTB and

requested that he explain why these accounts had not been included on

the UTB list.

* Mr Bell explained that the account numbers that did not rail between

20024749 and 52928977 did not fall within the UTB range of account

numbers and must therefore be held at another bank. (It should br

noted that MSF also banks witli the Bank of Ireland and the Co-

operative Bank). This accounted for 231 of the 234 accounts.

* He further explained that the other three accounts were indeed UTB

accounts. However, since they did not have "MSF" in their name, they

were not picked up in UTB's search for MSF accounts open in 1997.

T. hcse 3 accounts have the following names:

20024749 HVA Northern Board Centre

35007298 CPHVA Mid Downs Centre

40012977 Eastern Health Board NI Health Assoc.

* UTB have confirmed that there were no payments, by cheque or

otherwise, from the above accounts during 1997.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001______________________________________________________________________

b) There were 88 accounts with the same account number appearing more

than once on the MSF membership list with different names.

* Mr Bell explained that it was impossible to have more than one

account held under the same account number. He said that the most

likely explanation for this occurrence is that branches have merged or

changed their names and have taken the account and the account

number with them. In this way, it is entirely conceivable that an old

name has remained on the membership list, while the new branch is

entered on the list with the same account number.

c) There were 238 branch names on the MSF list for which no bank account

number was given. (This list is included at Appendix 4).

d) Initially, we attempted to obtain account numbers for these branches from

UTB by providing their names to Mr Bell. He explained that in the first

instance these names could relate to bank accounts held at any bank, not

necessarily UTB, and furthermore these names may not relate to bank

accounts at all, but could represent internal references to branches.

Therefore Mr Bell did not feel able to assist with this area of our work.

e) Nevertheless, we contacted Graham Thomas, UTB Manager of Services and

Support, who, Mr Bell had explained, had more of a hands-on involvement

in relation to maintaining bank account information. Mr Thomas

reiterated Mr Bell's comments, explaining that it would be an extremely

lengthy, and in all likelihood, a fruitless task to search the UTB bank

records for account numbers using the names that appeared on the MSF

membership list. This is because many bank account titles were

combinations of names or initials and he would need to take account of