Kernahan Sent For Trial On All 60 Charges

Press, Volume CIV, Issue 30761, 27 May 1965, Page 6

Kernahan Sent For Trial On All 60 Charges

Derek Harold Kernahan, aged 40, a public accountant, was committed to the Supreme Court for trial on 60 charges after the hearing of evidence was completed before Mr H. J. Evans, S.M., in the Magistrate’s Court yesterday afternoon. Kernahan pleaded not guilty to 48 charges of theft as a servant from W. G. Evans and Company, Ltd., eight of unlawfully drawing cheques, two of theft, and two of falsifying records. He elected trial by jury on all charges. The amount allegedly involved is £54,840.

Kernahan was granted bail in his own recognisance of £lOOO with two sureties of £lOOO each, and he was ordered to report at the Sumner Police Station at 9 a.m. and at the Central Police Station at 7 p.m. each day.

Mr C. M. Roper, who was assisted by Mr K. S. Jameson, a public accountant, prosecuted. Mr P. G. S. Penlington, with him Mr G. R. Joyce, appeared for the accused. The defence was assisted by Mr C. W. Evans, a public accountant. The hearing began on Monday. Keeley Selwyn Jameson, an accountant, said when continuing his evidence from the previous day, that the cheques allegedly involved in the eight charges of unlawfully drawing cheques were written by Kernahan. They were drawn on W. G. Evans and Company, Ltd., and paid into the account of Janitor Finance, Ltd.

The witness produced 48 cheques allegedly involved in the charges of theft as a servant. He said they were drawn on W. G. Evans and Company, Ltd., and paid into the account of Janitor Finance, Ltd. Bank Account A schedule produced as an exhibit showed that from January, 1960, to December, 1964, £485,000 was paid into the account of W. G. Evans and Company, Ltd. This amount did not include the payments made back into the account by Janitor Finance,

Ltd., which were shown in another schedule.

During that time the bank account of W. G. Evans and Company, Ltd., was in credit on very few occasions and then only for short periods, the witness said. Another schedule showed that during that time payments of £55,665 were made from W. G. Evans and Company to Janitor Finance, Ltd. Repayments totalled £13,682. The interest actually paid in cash to W. G. Evans and Company, Ltd., over the five years on these deposits amounted to £2ll 13s 9d.

The simple interest, at 5 and 6 per cent, which should have been paid by Janitor Finance, Ltd., to W. G. Evans and Company, Ltd., should have exceeded £5BOO and £7OOO at the respective rates, the witness said. Outlining the effects of the large deposits of W. G. Evans and Company, Ltd., in Janitor Finance, Ltd., the witness said there would be a loss of interest because of the low rate of interest credited to it by Janitor Finance, Ltd. The contracting company incurred additional interest because of the bank overdraft interest it had to pay at a rate of at least 5j per cent a year. Tax commitments were not met by the due date, and penalty payments totalling £9OO were incurred. At all stages over this period the sum owed to creditors was much higher than it should have been because of the funds which had beCn diverted from the company. “Good Profit” Evans was mistaken when he believed that he was not working at a profit at Benmore, the witness said. According to the books, and the Witness had no reason to doubt the substantial accuracy of the profit-and-loss accounts, Evans was making a good profit. At all times during the period the major source of funds for Janitor Finance, Ltd. was W. G. Evans and Company, Ltd. At March 31, 1962, Janitor Finance, Ltd. owed W. G. Evans and Company, Ltd. £25,000 and other depositors about £BOOO. At December 31, 1964, Janitor Finance, Ltd. owed the company more than £43,000 and other depositors about £4500. Referring to a schedule the witness said that at various times Kernahan personally or companies in which he had an interest owed Janitor Finance, Ltd. £25,238, £25,780, and £26,629. It did not show any interest being paid on this money. As far as he was able to ascertain, at December 31, 1964, Janitor Finance, Ltd. owed £43,856 to W. G. Evans and Company, Ltd., £72 to the National Bank of New Zealand, and £4412 to other creditors, making a total of £48,340.' Assets Set Out The assets of Janitor Finance, Ltd. were £29,282 owed to it by Kernahan, £13,319 owed to it by Helge Lotz, Ltd., £2740 owed to it by Potgeiter Properties, Ltd., £2338 owed to it by other debtors, and office equipment, at book Value, of £2Ol. This made a total of £47,880. The witness said he found no evidence of any discount

being allowed to W. G. Evans and Company, Ltd. by the Shell Oil Company. It was the normal practice of petrol companies to render net accounts, no discount being allowed.

To Mr Penlington the witness said that almost all his calculations were based on material found in Kernahan’s office. He used these figures subject to any alteration he considered necessary from his investigations. He had not acted as an accountant for any contractors of the precise nature of W. G. Evans and Company, Ltd. but he had acted for contractors.

It was a fairly common practice for public accountants to have finance companies allied to their practices. These included firms with several partners as well as one-man practices and firms of the highest standard. Interest Calculation

Asked for the basis on which he calculated the interest figures owed by Janitor Finance, Ltd., to W. G. Evans and Company, Ltd. the witness said it was done on the basis of the balance of deposits at the end of each month. As the deposits were increasing he considered his calculations were conservative. During the period the current rates of interest paid on deposits at call with financial companies was 5 or 6 per cent a year. Mr Penlington’s crossexamination then dealt with a diagram showing the flow of funds from W. G. Evans and Company, Ltd. to Janitor Finance, Ltd. and then to other sources. The Magistrate made an order forbidding publication of the details of the diagram when it was produced in evidence by De-tective-Sergeant B. I. Kimber on the first day of the bearing on the application of Mr Penlington, who said that it showed only the flow of funds one way. The Magistrate rescinded his order after Mr Penlington had completed part of his cross-examination.

Figures In Diagram

The diagram showed W. G. Evans and Company, Ltd., with a figure of £486,368 17s 4d and £55,655 of this amount going to Janitor Finance, Ltd. From there the following sums were shown as flowing to various organisations: £15,392 9s 4d to Helge Lotz, Ltd.; £12,221 6s lid to South Islands Hotels, Ltd. (Bruce Hotel, Akaroa); £5261 10s Id to Potgeiter Properties, Ltd.; £29,227 18s lOd to share investments in the name of D. H. Kernahan; £7211 14s 5d to D. H. Kernahan’s Children’s Trust investments; and £15,946 7s to D. H. Kernahan’s office and personal. The witness agreed with Mr Penlington that the diagram showed the flow of funds only in one direction. He agreed that the repayments of £13,682 made by Janitor Finance, Ltd., would have to be taken into account to get a true picture. He also agreed that there had been a flow of money back to Janitor Finance, Ltd., by way of repayments. He agreed that repayments had been made to Janitor Finance, Ltd., with the possible exception of South Island Hotels, Ltd. No interest was paid by Kernahan on the money he got from Janitor Finance, Ltd.