The jury in the Aer Lingus Holidays fraud conspiracy trial has been told the company's former financial controller has gone missing and that the company was totally insolvent in 1990 with a £15 million deficit.
When the hearing opened on the 25th day of the trial, the jury foreman asked Judge Kieran O'Connor why Mr Peter Noone, who is alleged in the charges to be one of the conspirators and whose name features prominently in evidence each day, had not appeared.
Judge O'Connor replied: "The short answer is I don't know. The real answer is that Mr Noone is missing."
Mr Peter Keely, of Carrig Avenue, Dun Laoghaire and Mr Desmond P. Flynn, of Tritonville Avenue, Sandymount, are pleading not guilty in the trial at Dublin Circuit Criminal Court to conspiracy to defraud.
Both men deny they conspired together and with Mr 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 Niall O'Neill, now a partner in Horwath Bastow Charleton, chartered accountants, told the jury his then firm, Conroy, O'Neill and Company, were retained in late 1989 by the then newly-appointed Aer Lingus assistant chief executive (finance) Mr Paul Dalton to work on the Aer Lingus Holidays accounts for the year to October 31st, 1989.
He reported a £6.3 million loss for the year as well as a further £2 million resulting from the accounts for previous years being wrong and another £2.5 million which he couldn't account for at that time from £7.5m borrowed on behalf of the company for property acquisition. He suspected the money had been used for other purposes.
He examined property files in relation to the San Francisco Park, La Penita and Las Vegas apartments in Lanzarote, and Ecudor in Malaga and established that assets and liabilities relating to them were understated in Aer lingus Holidays accounts. He corrected all these figures.
Mr O'Neill said his report came as a great shock to the airline which appointed Craig Gardner to carry out a full investigation of the situation. He worked along with Mr Tom McCarthy of Craig Gardner for about six months. His role was to report to Aer Lingus while Craig Gardner was to report to the Minister.
Mr O'Neill agreed with Mr Michael Cush SC (for Mr Keely) that Aer Lingus Holidays had previously reported "fictitious profits" due to understated losses. The signed accounts which emerged in June 1990 showed a deficit of £15 million, meaning Aer Lingus Holidays was "totally and abjectly insolvent".
Mr McCarthy told prosecuting counsel Mr Kenneth Mills SC he was given specific terms of reference by Mr Dalton in relation to false accounting and fraud. He was asked to investigate if there had been false accounting in Aer Lingus Holidays; if there had been, should the Aer Lingus Holidays auditors, Stokes Kennedy Crowley, have discovered it; if they should have discovered it, was there a case for compensation; and if false accounting had occurred, had there been fraud.
Mr McCarthy said Craig Gardner were also asked to advise Aer Lingus on the commercial options for the Aer Lingus Holidays properties and finally to advise on the redundancy packages negotiation for Aer Lingus Holidays executives involved in these matters who had left the company.
He was also briefed about the concerns unearthed by Mr O'Neill, in particular that £2.5 million borrowings could not be accounted for. They were to work in conjunction with the Aer Lingus solicitors, McCann Fitzgerald, as there might be legal matters arising out of the investigation.
Mr McCarthy said he decided to investigate foreign transactions and how the properties had been handled. McCann Fitzgerald investigated the quality of the title of the properties as "there was a dearth of documents on file in relation to them".
Every payment over £5,000 made by Aer Lingus Holidays in the years 1987, 1988 and 1989 was also examined by him in his investigation of the issue of fraud.
He concluded there had been false accounting to a total of almost £6 million in the accounts for the year to October 31st, 1988.
Mr McCarthy said he uncovered an overstatement of £1.4 million in relation to alleged payments due by foreign resorts; incorrect journal entries which had the affect of understating losses by £2.2 million; understating of aircraft costs for flights by £100,000; and the omission of property-related losses of £2.1 million which should have been included in the 1988 accounts. In addition to the false accounting, he also identified £715,000 in funds which were unaccounted for. This was from the £2.5 million of borrowings which concerned Mr O'Neill but he was able to trace the balance of the £7.5 million.
Mr McCarthy said the system used by Aer Lingus Holidays with Cara Marketing and Capital Leasing to purchase the San Francisco block in 1987 was "a breach of the spirit of accountancy standards in Ireland". He found Aer Lingus Holidays partly paid for the purchase with £408,000 from its own bank accounts but recorded it as a charge for airport ground costs. When it got a loan from the Bank of Nova Scotia for the purchase, it recorded this money as a credit on its ground cost charges.
The hearing continues on Monday.
