Alfred McAlpine unveils £13m scam in slate subsidiary

The rain has come pouring through the roof in Alfred McAlpine’s slate subsidiary, based in north Wales, where two senior managers have been suspended for cooking the books. The upshot is that McAlpine’s 2006 profit will take a £13m hit.

There will also be a knock-on effect in 2007 as the slate troubles unwind further, resulting in an estimated £15m hole in the next set of accounts.

In a statement to the Stock Exchange this morning, McAlpine said that it had uncovered “a systematic misrepresentation of production volumes and sales for a number of years by a number of senior managers at the slate subsidiary”.

It added: “Those involved sought to conceal the financial implications of their action through the pre-selling of slate at discounted prices. The board believes that the behaviour and collusion of the managers responsible has been deliberate and involves the possibility of fraud.”

Analysts had pencilled in a pre-tax profit figure for 2006 of £43m for McAlpine. This has now been trimmed back to an expectation of £30m. Further ahead, the expectation of a £48m profit in 2007 has also been moved downwards, to £33m.

The falsification dates back to 2003, triggering comparisons with the scam recently uncovered by Interserve in one of its operations - it had run undetected for five years and only surfaced by chance.

At McAlpine, it is thought that in addition to concocting false invoices, those involved were bringing the volumes of future orders forward and adding them into sales figures.

Then, knowing that the cash-flow accounts would show up the wheeze, their solution to this was to pre-sell stock not yet quarried out, offering it at cut-down prices in order to bring in cash to cover up the misrepresentation of sales lying there in existing paperwork.

At this stage, there is no evidence of any personal gain. A source said: “When you’re in a hole like this and faced with two choices, you can make the wrong one. Like Nick Leeson did: he thought he could trade his way out and it all just spiralled.”

In 2005, McAlpine’s turnover of £1bn generated a pre-tax profit of £42m. In today’s statement, the group confirmed that trading in its three core businesses remains strong – these are Business Services, Infrastructure Services and Project Services.

McAlpine has brought a team of independent forensic accountants on board to get to the bottom of the shenanigans.