Allied Carpets head manipulated profits

The former managing director of Allied Carpets yesterday became the latest executive to fall foul of the law for trying to manipulate auditors in a bid to artificially boost profits.

Raymond Nethercott was yesterday given a nine-month suspended sentence for manipulating the company's accounts to artificially boost profits by £2m in the 1990s.

He pleaded guilty at Blackfriars Crown Court in London to two charges of misleading Andersen, the company's auditors. Mr Nethercott was also ordered to pay £15,000 in costs incurred by an investigation into his actions by the Department of Trade and Industry.

Mr Nethercott, who was struck off as a director for seven years in July 2001, has already paid £775,000 to Allied Carpets, which has already sued him for his actions as head of the company.

Allied Carpets suspended its shares in July 1998 after an employee blew the whistle on a scam that had been taking place since 1993. Unknown to the company's auditors, Allied Carpets changed its accounting system by bringing forward the point at which it booked a profit from selling a carpet.

It told Andersen it was using a prudent system by accounting for profits only when a carpet had been delivered or collected by a customer. In fact it adopted a more risky system of booking the profit when a deposit on the carpet was paid.

The system Allied Carpets used was not illegal, but Mr Nethercott was prosecuted by the DTI because he misled auditors about which system was being used, which led to accounts being published that failed to comply with company law.

After finding out about the situation, Andersen said the accounting irregularities meant Allied Carpets was overstating sales by more than £6m, boosting profits by more than £2m over the period of the irregularity.

John Pout, the former finance director of Allied Carpets, was also disqualified for six years in March 2002.