Monday, 16 March 2009

The Curious Case of The 'Gem of Tanzania'

Sad news from the construction industry this week, with the collapse of the Shropshire based contractor Wrekin Construction resulting in 412 redundancies.

The administrators, Ernst and Young, have uncovered a bizarre twist while reviewing the ashes of the company's finances. Two years before the collapse, the struggling contractor issued £11 million of shares to a company owned by Derbyshire businessman David Unwin, in exchange for a ruby gemstone known as the 'Gem of Tanzania'. The result of this unique deal was to add £11 million to Wrekin's balance sheet, whilst no actual money was put into the business.

The highest price ever fetched at auction for a ruby is under £3 million, but the £11 million 'fair value' was accepted by Wrekin ( and presumably it's auditors ) based on a valuation supposedly from the Instituto Gemmologico Italiano, based in Valenza, Italy, on 31st August 2007.

A spokesperson for the Instituto is quoted thus - "That is impossible, because we were on holiday on August 31 2007.” She said IGI never assesses the price of gemstones, only the quality – and "the Valenza office does not even do that".

The obvious question? What on earth do auditors do? This looks like a classic business scam. Aren't auditors supposed to ensure these things don't happen? Yet this 'asset' sits on the company's accounts unquestioned.

Presumably the auditors in question will move onto the next client, whilst 412 people look for new employment.

Nothing shiny about this story.

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