The Price Waterhouse report to Harland's board, which the Independent revealed on Saturday, shows that the company's small pension scheme has paid nearly pounds 1m to Roy Ashman, the chairman who was sacked with pounds 360,000 compensation in February. The report also raises questions about pounds 53,000 of cash advances made to John Redshaw, Harland's former managing director.
Neither issue was new to Harland watchers. This newspaper had raised both these topics in previous weeks with the company itself and with Hambros Bank, its financial adviser. Neither Harland nor Hambros produced any form of response.
Harland assured PW that Mr Redshaw's cash drawings were valid expense claims. Mr Redshaw has since left the company after several weeks' absence from Harland's Milton Keynes offices.
The public statements that have accompanied Harland's downfall - in January it had a stock market value of more than pounds 100m and was expected to make profits of pounds 13m - have been notable for their lack of clarity on key points.
As the crisis deepened last month, Harland recruited the reputedly expensive skills of Sir Ian Morrow and Tony McCann. Typically, Harland failed to point out that neither company doctor had joined its board. This enabled Sir Ian, an adviser to Hambros, to maintain that Mr Ashman's pension payments and other past matters were not his concern; he and Mr McCann were focusing on Harland's future, he said.
The PW report sheds important new light on the ownership and control of Perfect Information, an on-line news cutting service at the heart of Harland's problems. By not treating Perfect as a member of the group, Harland was able to boost its 1991 profits by up to pounds 2m.
Doubts about the correctness of this approach prompted PW to qualify the accounts, which included a pounds 5.1m provision against exposure to Perfect. David Mahony, a Hambros adviser who replaced Mr Ashman as chairman, told the Financial Times this was a 'technical qualification'.
Mr Ashman and Harland both owned shares in Perfect. The other large shareholder, until recently, was Sandford Etablissement, a Liechtenstein trust. Mr Mahony suggested as recently as 28 July that Sandford was controlled by Oerlikon-Buhrle, a Swiss company that Harland said provided pounds 2.45m for investment in Perfect. Oerlikon has denied making any such investment.
The PW report - dated 21 July - records that the auditors discussed with Mr Mahony, Mr Redshaw and John Stobart, the company secretary, 'the discovery during our final audit . . . that Harland Simon had organised and funded the set-up of Sandford. Previously we had been told that the group had not been involved in any way in the establishment of the trust'.
PW also raised questions about Mr Ashman's continuing involvement in Perfect and about 'the giving by Sandford to Julia Nightingale (until recently assistant to Mr Stobart) of a very wide-ranging power of attorney over the Sandford shares in Perfect in February 1992'. The report also makes it clear that Harland had taken legal advice, inconclusively, on the extent to which Mr Ashman (and thus the company itself) had 'exercised a dominant influence or control over Perfect'. (Another source says Mr Mahony was the signatory of Perfect's bank mandates until last March - eight months after he came off the firm's board.)
Yet only a week later Mr Mahony and his board made the following statement: 'At no time during the period of its interest in Perfect did Sandford look to Harland Simon for instructions. . . . The board reiterates that the shares were not at any time held for the benefit of any company in the Harland Simon Group or for any of its directors or officers.'
This statement seems to come perilously close to contradicting the private PW report to directors. At the very least, Harland was once again failing to provide all the facts. PW has not forced a correction of any mis-statements; the firm was reappointed as auditor in early August.
Perfect was supposed to have become a subsidiary of Harland. Last month Harland decided it could no longer support Perfect, which quickly forced the firm to appoint a liquidator. Harland did not announce this.
It is arguable that much of the information in the PW report could and should have been made available to shareholders. Harland devotes a whole page of its accounts to discussing Perfect yet fails to mention the important details in the PW report. Shareholders would also have been interested in the amount paid to Mr Ashman in respect of his pension entitlements.
The report contains other tit- bits, including a disputed pounds 1.1m debt owed by News International reflecting 'a major change in the nature of the previously strong trading relationship', and a pounds 6.2m fair value adjustment for pounds 1.6m of assets bought from Oerlikon.
Receivers from Touche Ross are trying to find buyers for Harland's trading subsidiaries, in an attempt to save the jobs of the group's 800 UK employees.
Whatever their difficulties, not everyone has done badly out of Harland Simon. Quite apart from its fees, Hambros Bank made a handsome profit when in 1988 it sold a 13 per cent stake in Harland to Asil Nadir's son Birol. The Nadir family baled out, again at a profit, in the wake of the Polly Peck scandal two years later. And last October, Mr Mahony sold 55,000 shares, netting himself nearly pounds 400,000.
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