The great Scottish water fraud as firm finds £16m hole in finances

DRAWN from the rolling Campsie Fells, StrathLomond mineral water is described by its producers as "light, fresh, soft and clean" and "of the highest quality".

But StrathLomond's owners have now found the company's financial affairs have been far from pure and clear.

A fraud amounting to almost £16 million has been carried out over three years by a former financial controller, it emerged yesterday.

As a result of the revelation, Greencore, the label's Dublin-based owners, yesterday sacked three of its senior managers as part of an investigation.

However, the motive remains a mystery, as the company claims that there appears to be no evidence of direct financial gain.

The £15.8 million fraud was discovered during an audit that showed costs at the plant had been deliberately concealed by the employee.

The result was to artificially inflate the mineral water company's profits. A Greencore spokesman said the officer had left the company before the concealment was uncovered at the start of the month.

The company has not named the financial officer at the centre of the controversy, saying that it is still taking legal advice on how to proceed. No police complaint has been made.

Three managers directly responsible for the financial controller have been dismissed and new management put in their place.

A spokesman for Greencore said yesterday that the company was "shocked" and disappointed" by the fraud, adding that it would have a significant effect on the StrathLomond company.

He said: "There is now a whole new set of management in place there, but we also have to look at the business and bring it back to a level of profitability that we think it should have. It will have a pretty significant effect."

The problem emerged on 6 June following an internal audit, and a full investigation was launched three days later. A report identifying the concealment was presented to the board on 20 June.

The spokesman said it was too early to talk about job cuts, but systemic changes would be needed to turn around the business's performance. The spokesman said the company was still investigating the reason why the costs were concealed. He said: "There doesn't appear to be any personal gain here. It's not like money was pocketed.

"The profitability of the business was artificially inflated. The motivation for this is not 100 per cent clear. The next stage may well reveal this.

"Whether it was designed to help the person keep their job or something that started small and snowballed, we don't know. It was being done in a pretty effective way. It not only got through internal controls and audits, but through external audits as well."

The firm believes is was unlikely to have been an attempt to boost Greencore's share price as StrathLomond was a relatively small part of its business.

In a statement, the company said it would have to take millions of pounds off past and future profit statements.

It said: "The financial implications of these issues will lead to a re-statement, reducing the group's operating profit by £3.16 million for 2006 and by £6.3 million for 2007. In addition, the estimated impact of this issue in 2008 will be a reduction in operating profit of £7.11 million."

The company's share price was hit hard yesterday following the news, dropping at one point by 19 per cent to its lowest level since December 1993.

Analyst Paul Meade said Greencore's overall financial position was strong, but that it was a setback for management and it would take time to regain confidence in the company.

Irish firm with the bottle to weather cash storm

ALTHOUGH based in Dublin, Greencore bottles more mineral water in the UK under customers' brands than any other company, producing 200 million bottles a year.

Established in 1991 by the Irish government to take over the nationalised Irish Sugar company, it shut its last sugar factory, at Carlow, in 2006. It now makes most of its money from selling a variety of convenience foods to the major supermarkets, including soup to Asda and organic sauces to Sainsbury's.

It also owns the Weight Watchers brand.

The company has manufacturing sites in Ireland, the UK, the Netherlands and Belgium, and employs more than 9,000 people in total.

Greencore took on the troubled StrathLomond brand in 2001, when it bought Hazlewood Foods Plc.

The company has reportedly been struggling to pass on increased costs as surging commodity prices have driven expenses up, and it has stated that its profit margins will be hurt by the pound's drop against the euro.

It said in May that first-half UK profits were down 10 per cent, when adjusted for the effect of currency translation.

However, experts believe the company is strong enough to weather yesterday's news without suffering too heavily.