MPs appalled at embassy fraud that netted more than pounds 700,000

"Astonishingly" lax management practices at the British embassy in Yemen allowed the formation of an extraordinary web of fraud and financial irregularities involving more than pounds 700,000, MPs said yesterday.

The powerful Public Accounts Committee said it was appalled that warning signs went ignored at the Sana'a embassy and "disturbed by the persistent failure" to rectify the problems.

In a damning report, members said: "We are concerned at the inadequate controls which facilitated a direct fraudulent loss to public funds of some pounds 41,000.

"And we find it astonishing that the management at Sana'a also allowed their staff to use public money to gain up to pounds 670,000 from manipulating the local currency markets."

A diplomat at the embassy, Gerald Ryan, was arrested on suspicion of false accounting and theft but committed suicide in December last year before any charges were brought.

A locally-engaged accountant, Al-Duais, was also involved but went on leave after the irregularities were found, and never returned.

The report said: "We are appalled, despite the known poor management of the post and the other warnings signs, that the irregularities were not identified and acted on much earlier.

"In view of the number, range and seriousness of the weaknesses found by internal audit and others, we are all the more disturbed at the persistent failure to rectify them."

The Foreign and Commonwealth Office, has since put in stricter financial controls. Most of the irregularities centred on the existence of a currency "black market" which allowed the embassy's money to be changed into local currency at up to four times the official exchange rate, with the profit pocketed.

Mark Marshall, the ambassador for most of the time the irregularities occurred, was forced to take early retirement. The Foreign Office is considering disciplinary action against a number of other staff at the time.