A leading accountant has told the jury in the Aer Lingus Holidays fraud conspiracy trial at Dublin Circuit Criminal Court that there were huge mis-statements on the company's financial accounts in 1987 and 1988.

Mr Tom McCarthy told defence counsel Mr Adrian Hardiman SC that he could not say it would benefit the company to engage in false accounting, though it could benefit some individual trying to cover up.

He said his company, Craig Gardner, had been commissioned by Aer Lingus in 1990 to investigate whether there had been false accounting and possible fraud in ALH. Every payment over £5,000 made by ALH in the years 198789 was examined by him in his investigation. He found there had been false accounting by overstatement of amounts due from foreign resort agents and understatement of amounts to be paid out.

The profit-and-loss account was also mis-stated due to understatement of ground handling costs and aircraft costs.

Mr McCarthy said the only effect of the false accounting was to conceal the true position in ALH. The company would eventually have had to find the cash to clear out the false entries.

The former ALH chief executive, Mr Malachi Faughnan, told him he was unaware of the extent of the false accounting, but believed that "some small amount" had gone on the books.

Mr Faughnan didn't admit knowing that a portion of the borrowings raised to lease-purchase apartment blocks had been channelled back into the company as credits, but he suggested an individual might be involved.

Mr McCarthy was under continued cross-examination on the 26th day of the trial of Mr Peter Keely, of Carrig Avenue, Dun Laoghaire and Mr Desmond P Flynn, of Tritonville Avenue, Sandymount, who are pleading not guilty to conspiracy to defraud.

Both men deny they conspired together and with Mr Peter Noone, on dates from March 1987 to November 1988, to defraud Aer Lingus Holidays by misappropriating funds to purchase part of the Los Hibiscos apartment complex in Lanzarote for their own use and benefit.

Mr McCarthy said that, in addition to the false accounting, he also identified £715,000 of the £5.3 million raised for the La Penita-Las Vegas deal which was unaccounted for. He reported to Mr Paul Dalton, then Aer Lingus assistant chief executive, finance, and the garda fraud squad was called in.

The hearing continues before Judge Kieran O'Connor.