The news that the Serious Fraud Office has brought charges against five former executives – including three senior financial managers – of DIY retailer Wickes turns the spotlight back on an “accounting irregularities” scandal that first broke three years ago. The SFO is bringing charges of fraudulent trading and making false statements against Trefor Wilmot Llewellyn, who was group FD until August 1995, when he resigned to join Caradon plc; Geoffrey Battersby, the former group financial controller; Terence Carson, who was the FD of the main retailing subsidiary; and Leslie Rosenthal, who was the trading director responsible for buying. Former group chairman and chief executive Henry Sweetbaum returned from the US to be charged. The indications from the SFO are that no one else will be prosecuted: “Our investigation is concluded” is all a spokeswoman would say. But this was an accounting fraud which probably could not have been sustained without the help or co-operation of at least some managers at a number of the businesses that supply Wickes. There must be, therefore, a possibility that suppliers will appear in court as witnesses for the prosecution. Wickes ran into serious financial trouble in mid-1996 when it was discovered that gross profit margins had been hugely inflated by special deals with some of its suppliers, the proper terms of which were found to have been hidden or disguised. The result was that Wickes’s 1995 operating profits of £37m were overstated by £26m. Overstatement in previous years’ accounts amounted to a further £25m. No cash or other assets were misappropriated, although significant performance-related bonuses had been paid out to managers, including Sweetbaum, who repaid a bonus to Wickes after the scandal broke. The company needed a £30m rights issue to restore its balance sheet after the p&l reserve was holed. A number of accounting tricks were used by executives within the group to inflate profits. In some cases, “golden hello” rebates from suppliers, offered legitimately as part of the multi-year deals that were agreed, ought to have been amortised over the lifetime of the contracts but were, in fact, taken fully into the books in “year one”. In other contracts, front-end loading of purchase deals made it look as though Wickes was extracting special price discounts from suppliers when, in fact, price escalation clauses would adversely affect Wickes’s profits in subsequent years. Some deals contained suppliers’ contributions to Wickes’s marketing campaigns – again, a legitimate tactic in the retail trade – but the payments were often “mismatched” with the actual marketing programme. A representative from Arthur Andersen, the company’s then-auditors, told Accountancy Age at the time: “You’ve heard of pyramid selling? This was pyramid buying.” Sources close to the company said at the time that, “With every formal (contract) letter there was a side letter,” which contained the real terms of the deals. Finance director Bill Hoskyns said, “Anybody who asked any questions about it, there were always answers to it that were documented on the files. The fact that they didn’t bear any resemblance to the underlying contractual position with the suppliers was not known about by anybody like Mr Straddling or others.” Stuart Straddling joined Wickes as FD in 1995 and was instrumental in uncovering the fraud. When the scandal broke, he announced his intention to leave the group after the investigation was completed. Exactly how the suppliers accounted for the contracts with Wickes has never been revealed. Nor has it been explained how it is that “third-party confirmation” letters sent to the suppliers appear to have resulted in the auditors being satisfied that the documentation shown to them by Wickes executives tallied with the suppliers’ understanding of the contract terms. Sources close to the company said at the time that Wickes directors were anxious to “draw a line under all this … They don’t want to go around and tramp on all the suppliers.” Hence, the explanatory document sent to shareholders in October 1996 made virtually no mention of the role of suppliers. “They’ve probably had a very soft ride on this,” said the source. “But there we go …”.