Two former directors of iSoft, the NHS software supplier, have been barred from practising as accountants almost a decade after the one-time FTSE 250 firm was engulfed in an accounting scandal.
The action by the Financial Reporting Council (FRC), the professional regulator, comes nine years after iSoft shareholders were told of “accounting irregularities”. The company had been booking revenues in its financial updates before a major contract had been signed.
Tim Whiston, iSoft’s former finance director who also briefly served as chief executive, and John Whelan, who served as finance director for a short period, have been banned for eight years.
The sanction comes six months after the Guardian revealed that the FRC had quietly dropped its investigation into iSoft co-founder and former executive chairman Patrick Cryne.
Whiston, 48, who had sold shares in iSoft for £5.2m in 2005, agreed this month to pay £50,000 as a contribution towards the cost of investigating his misconduct. Neither he nor Whelan were fined by the regulator.
The scandal dates from2006, when iSoft issued a heavy profit warning and admitted the company’s books would need to be restated. Shares in the company went on to lose more than 90% of their value before it was bought by Australian rival IBA Health in 2007.
Once a stockmarket star, iSoft had been valued at £1bn. As its shares had climbed, several directors, led by Cryne, who is best known as owner of Barnsley football club, had become millionaires by selling shares. Cryne and operations director Steve Graham netted £41m and £30m, respectively, between 2001 and 2005.
In settlements announced by the FRC on Monday, the regulator found that in 2003 and 2004 Whiston and Whelan had acted recklessly and had failed to act with integrity in relation to one contract with the Irish health service.
Revenues from the contract had been reported in iSoft’s financial statements before the agreement had been concluded. There was no finding of dishonesty against either Whiston or Whelan, both of whom had been acquitted of criminal offences relating to the same allegations.
In 2010, they had been charged, together with Cryne and Graham, with the criminal offence of conspiracy to mislead investors.
All four denied the allegations, and were ultimately cleared of wrongdoing after the prosecution against three of them collapsed at trial. The prosecution had been brought by the Financial Conduct Authority, the regulator in charge of consumer protection.
It emerged in court there was confusion in prosecution records of where key evidence had been found in iSoft’s offices. The trial collapsed and the judge ordered that the defendants be acquitted. Cryne, who had been due to be tried at a later date for health reasons, was also cleared.
The accountancy regulator has already issued an eight-year ban on a former junior iSoft accountant who later helped blow the whistle on the accounting scandal. The group’s auditor, RSM Robson Rhodes, now part of Grant Thornton, also faced sanction for failing to make proper checks before signing off iSoft’s financial statements. It was fined £225,000.
Shortly after the criminal case against the former iSoft directors collapsed, the FRC unsealed details of the disciplinary action against RSM Robson Rhodes, laying bare a catalogue of accounting failures that had misled investors between 2003 and 2005. The FRC findings against the former auditor went beyond the narrow focus of the single Irish healthcare IT contract which had formed the basis of the FCA’s failed prosecution.
