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

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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

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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

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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

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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

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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

the many different permutations for each account title when performing

the search.

f) In order to help us to appreciate the complexity of the task, Mr Thomas

attempted to search for a few accounts using the different possible accou-nt

name permutations while on the telephone with us. Mr Thomas spent

approximately 30 minutes, searching for 4 accounts. He was not able to

find the account number for any of these accounts.

g) We then asked Mohan Arunanchalam, the acting Financial Controller of

MSF, if he was able to provide account numbers for these accounts. He

contacted the Subscriptions and IT departments of MSF, in order to see if

they maintained the details of bank accounts for these branches. Sue

Fairman, of the Subscriptions department, who had liaised with the IT

department, explained that MSF did not have these account numbers on

record. Further, it is possible that MSF never had the details of some of

these accounts. This is because MSF would have made commission

payments to some of these branches by cheque rather than by BACS and

would have had no need for their account details.

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Supplemental Report on Allegations of Financial Irregularities at MSF

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h) As described in paragraph 8.1.5, Paul Talbot has also explained to us that,

over time, branches merge, amalgamate or close and that the Membership

List would not necessarily reflect these changes. Consequently, the

Membership List, which has been built up over a number of years, is not a

true reflection of existing bank accounts at any given moment in time, but

is a historical list of branches and branch names.

i) Notwithstanding these comments, we attempted ourselves to match the

account names to account names that appear on the UTB list of 1997 MSF

accounts. Some of the account names appearing on the UTB list of

accounts included 4 digit numbers and these numbers correlate to the

individual branch numbers on the MSF membership list. Therefore, we

attempted to use these 4 digit branch numbers to help identify some of the

accounts with no account numbers. The result of this exercise was that we

matched 11 accounts from the 238 accounts with no account numbers to

the UTB list of 1997 MSF accounts. However, there remain 227 branch

names that appear on the MSF internal Membership list that we are unable

to match to the UTB list of accounts.

j) We explained the situation to John Gardner and subsequently Paul Talbot,

with a view to contacting the individual branches and asking them to

provide their bank account details. Mr Talbot drafted an appropriate

questionnaire to be sent to Regional offices and the relevant branches, a

copy of which we approved for sending. However, Mr Gardner has

requested that these questionnaires not be sent out, as he is concerned that

this would create unwanted speculation within the MSF organisation at a

politically sensitive time.

k) Mr Gardner has stated that, in any event, had the questionnaires been sent

to the branches, he estimates that we would receive responses from less

than half of those branches circularised. In our opinion this is a common

occurrence when requesting historical and unusual information from

many different parties who may not have the means or the inclination to

carry out the required research into their records. We have endeavoured, to

confirm the completeness of the UTB list entirely, and we agree that we

would be unlikely to obtain 100% of the required responses even if these

questionnaires had been sent to the branches. However, notwithstanding

the likely incomplete responses that we may receive, it is still our opinion

that the questionnaires should have been sent out.

l) Needless to say, we would have liked to have proved beyond doubt that the

UTB list contained all accounts held by MSF during 1997 and that all

potential references to other accounts had been fully reconciled to the

UTB list. However, the above problems should be viewed in context of the

allegations made.

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Supplemental Report on Allegations of Financial Irregularities at MSF

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Dated: 12 July 2001____________________________________________________________________________

m) Marcia Solomon has consistently stated that she saw cheques from

accounts bearing the names "MSF Daxo" and "MSF Guildhall". Ms

Solomon also maintained that the accounts were included on the Pool

Statements and that 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.

n) We have already satisfied ourselves that the UTB list includes all accounts

with "MSF" in the title and also includes all accounts appearing on the

Pool Statements (see 8.1.11 onwards). We have also received explanations,

both from MSF and from UTB, that names appearing on the Membership

List may not relate to actual bank accounts. Consequently, we do not

consider that the inability to determine account numbers (such that they

exist) for all the names on the Membership List detracts from the veracity

of the UTB list, and we consider it unlikely that further work would be

likely to identify further MSF accounts.

o) The Certification Officer confirmed to us on 5 June 2001 that no further

work is required in this area.

Work Programme Action Point 1 (it <iy Hi)

(ii) Auditing Working Papers & (iii) Pool statements list of MSF bank

accounts previously provided to HWF for first report

8.1.11 In our first report we used the weekly pool statements provided by UTB to

MSF in order to track the balances on certain accounts with names that

sounded like Daxo or Guildhall. The work programme dictated that we check

the completeness of the UTB list of 1997 MSF accounts by reference to these

weekly documents. Please note that we actually used 54 pool statements in

carrying out our work, incorporating pool statements dated '1 January 1997

and 31 December 1997, to ensure that we did not miss any bank accounts

listed on these pool statements throughout the entire period of 1997.

8.1.12 The work programme also required utilising the H.W. Fisher audit files to

ensure that all UTB MSF accounts had been picked up by UTB on their 1997

account report. However, the list of accounts evidenced in the audit files is

actually a pool statement dated 31 December 1997 and this was already

included within our work on the Pool Statements.

8.1.13 In order to reconcile all the accounts listed on all 54 pool statements to the

UTB 1997 list, we created a document that recorded all accounts that appeared

anywhere on any pool statement. Since each pool statement contained (on

average) more than 1,000 accounts it was imperative to carry out this exercise

in a methodical manner.

to constantly monitor the

amount owing to UTB. However there were

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Supplemental Report on Allegations of Financial Irregularities at MSF

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Dated: 12 July 2001_____________________________________________________________________

8.1.14 Therefore, we entered the details of one weekly pool statement in its entirety

onto a spreadsheet. Then, we checked each line on every other pool statement

in 1997 to see whether the account details that appeared on the spreadsheet

matched with the details of the first pool statement. If the details matched the

spreadsheet, we ticked it against each bank account entry. If we found a new

account on a pool statement that did not appear on the spreadsheet, we added

the details to the list. In this way we ensured that we picked up every account

appearing on all of the 54 pool statements together with a record of the

particular pool statement on which each account appeared. As summarised at

Appendix 5, we examined approximately 58,000 account references and from

this we identified 1,120 unique accounts.

8.1.15 We note that the 1,120 accounts identified from the Pool Statements is

significantly less than 1,287 accounts that were listed on the UTB 1997 list. Mr

Bell said that there were two main reasons why there are fewer accounts listed

on the weekly pool statements than on the list produced for the purpose of

the investigation.

8.1.16 Firstly, Mr Bell explained that the weekly pool statements that were produced

for MSF represented the accounts that were monitored within the MSF

borrowing facility. This enabled UTB and MSF about 50 - 60 branches, which

chose to continue with deposit accounts and earn interest for their branch

rather than offset this interest against the overall union borrowing. These

branches, which chose not to be a part of the union borrowing, were,

therefore, omitted from the weekly pool statements. However, these accounts

were maintained by UTB and did appear on the 1997 list produced by UTB.

8.1.17 Mr Bell further explained that the UTB list of MSF accounts includes

accounts that were closed between April 1996 and December 1996. Mr Bell

said that this is because UTB went on to a new system in April 1996 and that

the report he produced for us was for all accounts, as at 31 December. 1997,

that had been open since the new system was launched in April 1996.

8.1.18 Although in total the UTB list of MSF accounts contained more accounts

than were included on the pool statements, we have identified 5 accounts

appearing on the pool statements that did not appear on the UTB 1997 list.

Therefore, we contacted Mr Bell at UTB and requested explanations for these

occurrences.

8.1.19 Mr Bell explained that we had identified the same 3 accounts that we found

on the membership list that did not appear on the UTB list of accounts,

which are listed at paragraph 8.1.10 (a) above. We also identified an account

with the name "London & Manchester Field Staff (account no. 20018218).

which Mr Bell also explained did not contain "MSF" in its name and was,

therefore, not captured by the UTB search.

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Supplemental Report on Allegations of Financial Irregularities at MSF

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Dated: 12 July 2001______________________________________________________________________________

8.1.20 He further explained that the other remaining account (account no. 40012692)

that we had identified was called "MSF Racial equality group". The reason that

this account had not appeared on the UTB list was because when UTB ran the

search, a small number of accounts were identified where 'msf appeared in the

title, but were not MSF union accounts. An example of this would be where

words like 'ChelwJ/brd' appeared. These accounts were stripped out and it

appears that the account named "MSF Racial equality group" was deleted by

UTB in error.

8.1.21 Mr Bell advised us that the UTB IT department ran the search again for 1997

using the same database and that they had confirmed that this account had

appeared again.

Transfers

8.1.22 In order to test further the integrity of the 1997 UTB list of accounts, we

performed various work on transfers and payments from MSF accounts to see

whether we could identify any other accounts that did not appear on the 1997

UTB list.

8.1.23 We used the list that we obtained from UTB of all debits over £4,000 (see work

programme action point 2) to carry out this work.

8.1.24 We identified on the list of debit items, the transfers where another account

number was listed as a destination account on the list of transfers. We then

cross-checked all of these account numbers to see if they appeared on the 1997

UTB list of MSF accounts.

8.1.25 The majority of these numbered destination accounts do appear on the UTB

1997 list. The only exceptions to this are transfers to NUIW accounts. We have

spoken with Mr Arunanchalam, the acting financial controller of MSF, who

explained that NUIW has now merged with MSF and that in 1997 the

accounts of NUIW were being run side by side with MSF. Accordingly, these

were not MSF accounts at all during 1997. We are therefore satisfied that there

were no accounts that we found to be MSF UTB accounts in 1997, which did

not appear in the UTB list.

8.1.26 We also sought to obtain verification from UTB and from the MSF finance

department as to the destination of certain debit entries that were not

obviously payments to companies and therefore potentially represented

payments to other MSF accounts.

8.1.27 Using the information provided by UTB and MSF, we have been able to

identify the destination of these payments. We have ensured that none of these

payments have been made to UTB MSF accounts that did not appear on the

UTB 1997 list of MSF accounts.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001_______________________________________________________________________________

8.1.28 Please note that this extra test was to further examine the veracity of the UTB

list of MSF accounts beyond what was required in the Work Programme and

to search for UTB MSF accounts that UTB had not identified. We were not

concerned with payments once we had established that they were not made to

UTB accounts. Therefore, when carrying out this work, if we established that a

payment had been made to a Bank of Ireland account, for example, we did not

perform any further work.

8.1.29 We also performed an additional examination of the physical cheques that we

obtained from UTB as part of our investigation. Unfortunately, the physical

cheques did not provide information regarding destination bank account

numbers. However, where we could identify a payment to an MSF bank

account using the payee details, we cross-checked the name to the 1997 UTB

list of MSF bank accounts. We identified 15 MSF bank accounts from the

cheque payee details. We were able to match all 15 of these account names to

MSF account names appearing on the UTB list. As can be seen from Appendix

6, the account names do not exactly match the payee details per the cheques

but are sufficiently close for us to assume that they are the same.

8.1.30 During our work in respect of debit items over £4,000, we observed the fact

that each quarter, MSF made commission payments to branches and to

regional offices. Therefore, in order to be consistent with our work in this

area, we attempted to verify the destination accounts of individual payments,

where they had been made to MSF UTB accounts and where the payment was

in excess of £4,000.

8.1.31 We asked UTB to request from BACS a detailed breakdown of the

commissions paid to the branches so that we could identify the various

destination accounts. At the time of writing this report, BACS had not yet

provided the relevant information. However, Mr Arunanchalam did provide

us with the MSF documentation that underpinned the commission payments

to the branches and regional offices in 1997. The Certification Officer

confirmed to us on 5 June 2001 that no further work is required in this area.

8.1.32 Using these documents, we identified the payments that were made to each

branch or regional office of over £4,000 and checked these destination account

numbers to the 1997 UTB list of MSF accounts. The result of this test was that

we did not identify any accounts that did not appear on the 1997 UTB list of

MSF accounts.

8.1.33 In addition, we noticed that one of the largest debits on the list of debits

related to a payroll payment. Therefore, as a further test not required by the

Work Programme, we attempted to ensure that no bogus employees had

received any payments. We did this by comparing a 1997 payroll run (October

1997) to MSF telephone lists and MSF payroll records. Initially we were unable

to find evidence of 2 employees (M. Grant and M. Tanner).

Page 18 of 27

Supplemental Report on Allegations of Financial Irregularities at MSF

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Dated: 12 July 2001__________________________________________________________________

8.1.34 However. John Gardner assisted us and was able to ascertain that these two

employees did exist but that their middle initial had been used on the payroll

lists rather than the first initial. M. Grant should have been A. Grant and M.

Tanner should have been K. Tanner. In order to verify this, we cross-checked

the bank account details of A. Grant and K. Tanner held on their personnel

records to the bank details on the October 1997 payroll listing. These details

agreed and we are therefore satisfied that they were indeed legitimate

employees of MSF.

8.1.35 We have included at Appendix 7 a complete list of the 1,292 accounts held by

MSF at UTB.

Work Programme Action Point 2

8.2.1 As explained in paragraph 8.1.23, we have obtained from UTB a list of all

payments and debits over £4,000 or more made during 1997, which relate to

MSF accounts. Please note that Mr Bell has confirmed that there were no such

debits over £4,000 from the 5 accounts, which did not appear on the UTB list,

identified in paragraphs 8.1.18.

Work Programme Action Point 3

8.3.1 UTB have produced a list of cheque payments in 1997 for £4,000 and over for

all the 1,292 MSF accounts identified by UTB.

8.3.2 We note that Marcia Solomon stated in her witness statement of 25 March

2000 that the poot statements showed that the Daxo and Guildhall accounts

dwindled in the earlier part of 1997 and that she became aware of the alleged

payments to RAL and NM in September 1997. In devising the work

programme, however, it was considered prudent to extend our search of MSF

cheques until December 1997 rather than curtailing our search at September

1997.

Work Programme Action Point 4

Physical Review of UTB Cheques

8.4.1 We have obtained 537 original returned cheques and 26 copies of cheques

from UTB, although unfortunately the payee details on 7 of the copies are

illegible. UTB have been unable to locate the originals or copies of the 3

remaining cheques.

8.4.2 We have reviewed each cheque and in respect of the 537 originals and 19

legible copies, we have carried out the following:

a) Identified any amendments or endorsements on the back of the cheques.

b) Identified any references to Daxo or Guildhall

c) Identified any payments to RAL or NM or anyone with their surnames.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001_______________________________________________________

8.4.3 In respect of the 7 illegible copies, we were able to carry out parts 'a' and 'b'

above only.

8.4.4 The results of this work were as follows:

a) We did not find any amendments or endorsements on the backs of any of

the cheques.

b) We did not find any references to Daxo or Guildhall on any of the

cheques.

c) We did not find any payments made to anyone with the surname Lyons or

Mendes.

8.4.5 During the course of our work on these cheques, we came across 5 cheques

that we felt required further attention. Therefore we asked Mr Arunanchalam

of MSF to provide explanations for the following:

a) 3 June 1997 - £8,500 from account no.

This cheque is made out to "CASH" and would have therefore allowed

someone to withdraw £8,500 from the bank.

* Mr Arunanchalam explained that every year cash is withdrawn for the

MSF annual conference in May/June to pay for various expenses that

are incurred by MSF delegates. He confirmed that this is the reason

that this money was taken out.

b) 14 October 1997 - £5.000 from account no.MBSSSU.

The payee is "A P Andrews". We wanted to ensure that this person was a

legitimate payee.

* Mr Arunanchalam explained that AP Andrews carried out some

professional work for the Union. Furthermore, he evidenced a

properly attributed invoice for this payment.

c) 14 March 1997 - £22,028 from account no.J

The payee is D Stoddart. We wanted to ensure that this person was" a

legitimate payee.

* Mr Arunanchalam explained that D Stoddart was an MSF officer and

that this payment related to redundancy monies that were due to him.

d) There are various payments to American Express Europe.

E.g. £5,394 on 4 April 1997, from a/c no. S@B.

We wanted to ensure that someone within MSF did have an MSF

American Express credit card.

* Mr Arunanchalam explained that Tim Hanley, a conference co-

ordinator, held an American Express corporate card and that these

payments relate to expenditure on his card.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001______________________________________________________________________

e) On the back of some cheques, there are various number references. For

example, on the cheque dated 2 May 1997, for the amount £5,623.53 paid

to GE Capital Services (UK) Ltd, is written:

00069250-6 £4,084.73

95020291 - 6 £1,538.80

We wanted to know what these references on the reverse of these related

to.

* Mr Arunanachalam explained that these numbers represent invoice

numbers together with the amount that was being paid.

8.4.6 UTB were unable to provide either the originals or copies for 3 cheques and,

as noted above, the payee details on 7 of the cheque-copies provided are

illegible. Mr Arunanachalam has been able to identify the payee of 8 of these

10 cheques from the records of MSF and we have verified that the payments

agree to invoices or other supporting documentation.

8.4.7 The payees of the two remaining cheques have been verified as follows;

8.4.8 Cheque 000323 from account number 30192726 (Castle 553 Branch) for

£7,154.45. Mr Arunanachalam reviewed the records of receipts by MSF Head

Office at about the time the cheque cleared UTB and noted that MSF received

a cheque for the same amount four days before the cheque cleared the bank.

He therefore considered it very likely that the cheque paid from Castle 553

Branch was the same as the receipt by MSF Head Office. In addition, we have

been provided with a report from the Subscriptions Department that shows

the receipt of £7,154.45 was recorded as having been received from Imperial

Tobacco. Susan Fairman, who is head of Subscriptions at MSF, informed us

that Imperial Tobacco is affiliated to Castle Tobacco Workers and that Castle

553 Branch and Castle Tobacco Worker merged in 1994.' This provided

additional assurance that the cheque paid from Castle 553 Branch was the

same as the cheque received by MSF.

8.4.9 Cheque 325249 from account number 30190838 (MSF Head Office) for

£6,697.50. Mr Arunanachalam has provided us with an extract from the

Purchase Ledger Payments report which identifies the payment as being made

on 31 December 1996 to the Industrial Society. Mr Arunanachalam informed

us that this was in respect of staff training, although the invoices for 1996 are

held in storage and he is presently unable to locate them. We contacted the

Industrial Society and, although they were unable to confirm the dates or

amounts that they received, they did confirm that they carried out in-house

training for MSF during 1996 and 1997. The cost of the training in 1996 was

approximately £60,000. We consider there to be adequate assurance that the

payment was to the Industrial Society.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001

8.4.10 In summary we have verified the payee by the following methods;

Original cheques provided

Details agreed per cheque 537

Copies of cheques provided

Details agreed per cheque 19

Details agreed by vouching to invoice 7

No cheques provided

Details agreed by vouching to invoice 1

Details agreed by other evidence 2

Total cheques > £3,999 566

Work Programme Action point 5

The work programme required that we identify all accounts with names

bearing any relation to Guildhall or Daxo and examine the balances in these

accounts throughout 1997. As described in paragraph 8.1.2 above, we

examined the UTB list of MSF accounts and we did not find any accounts

with the name Daxo or Guildhall. As in our first report, this test was designed

to identify large payments from certain accounts by observing decreases in the

balances of those accounts. However, we have now checked all payments over

£3,999 from any MSF account at UTB, and have therefore already carried out

the work that the test was designed to achieve.

Work Programme Action point 6

The work programme suggests that if it were considered necessary, all the tests

detailed in Action Points 1-5 should be extended to cover earlier and later

periods. Since we found no evidence of payments to RAL or NM and no

evidence of false bank accounts in our work to date, we have been instructed

by the Certification Officer not to extend our work beyond 1997.

Work Programme Action point 7

We asked RAL to provide details of all his and his immediate family's bank

accounts that were open during 1997.

We obtained the following documentation from RAL, from his wife Kitty

Lyons and from the Royal Bank of Scotland, to whom he had given

permission to provide us with details of his bank account.

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001

RAL bank account documentation

* Royal Bank of Scotland 1997 statements (account no.

* Credit Agricole 1997 statements (account no.@@

* Bradford & Bingley Building Society statements in respect of a mortgage

and two home improvement loans (account nos. flBB / 4@BB|-

* Correspondence and statements in respect of PEPs and ISAs held with

Friends Provident (account no.JHBHf)

Family bank account documentation

K. Lyons (Wife)

* NatWest Bank 1997 statements (account no.

H. Lyons (Daughter)

* Lloyds TSB 1997 statements (account no.

S. Lyons (Daughter)

* Lloyds TSB 1997 statements (account no.

G. Lyons(Son)

* Barclays 1997 statements (account no.flfl

J. Lyons (Son)

* National Savings Bank passbook (account no.

8.7.3 We have reviewed all of the above documentation for evidence of receipts of

* £4,000 or over and for evidence of the existence of further bank accounts

indicated by inter-bank transfers.

8.7.4 This review indicated that only two amounts of £4,000 or over were received

into any of the family's accounts, as follows:

Royal Bank Of Scotland (Roger Lyons) 30 May l@?,!@@@- Blacks

Solicitors.

* RAL explained that this related to the balance of the mortgage owing to

the Royal Bank of Scotland at the time a new mortgage was taken out with

Bradford & Bingley Building Society.

* We have noted that soon after this receipt on 13 June 1997,f@Fwas

transferred from this account to the "mortgage" account.

* We have reviewed correspondence from the Royal Bank of Scotland and

Blacks Solicitors, which confirms RAL's explanation.

Page 23 of 27

Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001______________________________________________________________________

Royal Bank Of Scotland (Roger Lyons) 15 April 1997, £4,000 - Expense

account.

* This was addressed in our previous report and relates to a loan to RAL

from MSF.

8.7.5 In addition, our review of the bank statements did not indicate that there were

any further family bank accounts that RAL had not informed us of. \.

Work Programme Action Point 8

Unexplained income

8.8.1 We have reviewed RAL's bank accounts for sources of unexplained income.

8.8.2 We identified 4 receipts on RAL's Bank of Scotland account in respect of

which neither we, nor RAL, were able to identify the origin. RAL thought that

these might have been cheque payments from MSF or from the TUC for

overseas conferences. All these receipt entries on the bank statements carry the

description "BGC" and they range from VSSSSSBSUS-

8.8.3 Therefore, we contacted the Royal Bank of Scotland and requested that they

identify the origin of these payments. Mr O'Shea explained to us that BGC

stood for Bank Giro Credit and represented monies paid in by RAL to his

bank account, normally in the form of cheques. Although the Royal Bank of

Scotland was able to produce the relevant paying in slips for these receipts

they were unable to identify the source of these payments.

8.8.4 Therefore, we asked Mr Arunanchalam of MSF to check whether any of these

payments to RAL were made by MSF. Mr Arunanchalam explained that none

of these payments were made by MSF. Therefore, we were unable to pursue

this matter any further. Furthermore, since the four receipts are all well below

£4,000, there is no reason to suspect that these payments related to the alleged

cheque paid to RAL from MSF accounts.

Reconciliation of income to MSF accounts

8.8.5 At Appendix 8. we have attempted to reconcile RAL's income per his bank

account to the level of income noted in MSF's AR21 form for 1997, in which

RAL's annual income is disclosed by law.

8.8.6 RAL's income per the AR21 is BHRD'. After taking account of Income tax,

National Insurance payments and pension contributions, we estimate his net

income over the year would be flHW' The actual amount that is received

into RAL's bank account over 1997 is fW, giving a difference of £1,119.

8.8.7 Therefore, we are satisfied that the small difference is probably due to

assumptions made in calculating tax and National Insurance payable. For

example, we took an average of RAL's personal allowances over two tax years.

Page 24 of 27

Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001___________________________________________________________________________

Work Programme Action Point 9

8.9.1 We agreed with John Gardner and the Certification Officer that he would

write to NM in order to request his family bank accounts for 1997. We

understand that this information has not been made available and we cannot

therefore carry out any work in this area. . .

@'@@@@ ' ' @@ @@ ... ,. - *@-

Work Carried out in addition to Work Programme requirements

Action Point 14

8.10.1 The Work Programme allowed for us, if it was considered necessary, to ask

UTB to provide mandate details for all accounts, which we would then review.

Upon receipt of 563 of the 566 cheques identified, we requested mandates for

all accounts for which cheques had been provided. We examined every cheque

returned to us and tested these to ensure that the cheque signatory was an

authorised signatory, as shown on the bank maJidaXe;.

8.10.2 At the time of writing this report, we were still awaiting specimen signatures in

respect of 5 accounts from UTB. However, the,Certification Officer confirmed

on 5 June 2001 that no further work was required in this area. In respect of all

other accounts, except where listed below, we have confirmed that all the

cheques examined were signed by an authorised signatory for that account:

a) Account number 48007421, cheque number 001853 for £29,666.36

payable to MSF. One of the two signatures on the cheque appears to

read "P. Heuleu" yet this signature or name'does not appear on the

mandate (see Appendix 9a). The other signatory was an authorised

signatory and the reverse of the cheque was stamped MSF a/c

30040441, which is the Income Account.

b) Account number 30190838, cheque number 333815 for £8,475.58

payable to Reed Personnel Services pie. The cheque does not appear to

have been signed at all (see Appendix 9b). --

c) Account number 30190838, cheque number 331298 for £7,578.75

payable to Leonard Carter. NM appears to have begun to sign this

cheque but not finished his signature. Accordingly, the signature reads

"N." (see Appendix 9c)

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Supplemental Report on Allegations of Financial Irregularities at MSF

Prepared by Stuart Burns

Dated: 12 July 2001____________________________________________________________________________

d) Account number 30193194, cheque number 000371 payable for

£5,700.00 to R. Pinkos. One of the two signatures was an authorised

signatory, but the other appears to read "R. Perry". The specimen

signature at the time when the cheque was written appears to read "T.

Perry". We note that R Pinkos was the Treasurer for the London North

West Branch. UTB also noted that the signatory was unauthorised and

the cheque was returned to the drawer. The cheque then appears to

have been signed by an authorised signatory (R Pinkos). Subsequently,

the authorised signatures were changed and did then include a

signature similar to the original "R. Perry" signature (see Appendix 9d).

8.10.3 We do not consider that any of the above items provide any evidence that

payments were made to RAL or NM as alleged and so no further investigation

has been deemed appropriate.

Work Carried out in addition to Work Programme requirements

Action Point 17

8.11.1 The Work Programme allowed for us, if it was considered necessary, to

identify all transfers from MSF bank accounts to non-MSF bank accounts. We

could then examine the name of the destination account and consider if it

could be related to RAL or NM (or Daxo or Guildhall).

8.11.2 In the course of verifying the completeness of the UTB 1997 list of MSF

accounts, we were provided with a list of all non-cheque payments from all

MSF accounts held at UTB for £4,000 or over, as described in paragraphs

8.1.22 to 8.1.34. The work described above was to help identify any MSF

accounts held at UTB that had been omitted from the UTB list of accounts.

In addition, we examined each payment to identify any that were made to

accounts in the name of RAL, NM or to accounts with their surnames. We

also looked for payments to accounts containing any reference to Daxo or

Guildhall. We identified no payments to any of these accounts.

Page 26 of 27