Melbourne accountant jailed for three years after orchestrating $8 million tax fraud from prison

A Melbourne-based accountant has been sentenced to three years in prison for fraud after dodging almost $8 million in tax in 2005.

Stephen Lynne Wharton has been found guilty by the Supreme Court of Western Australia of filing three false tax returns to the Australian Tax Office in 2005, while he was in prison for other fraud-related offences.

The fraud was uncovered by the Australian Crime Commission during an investigation of tax schemes used by wealthy businessman and entertainment figures, according toThe Age.

The incorrect tax returns understated income earnt by Wharton’s trust accounts between 2002 and 2004.

The investigation by the ACC was part of Operation Haycastle, which saw tax schemer Gregory Dunn sentenced in February to seven years in prison.

Wharton is said to have operated as the middle man in the scheme, concealing money on behalf of Dunn in different trust accounts. Dunn then paid Wharton an 8% commission in return.

Dunn had passed Wharton more than $12 million from two of his clients in the 2002 tax year.

Warfield and Associates chief executive Brett Warfield told SmartCompany creating fraudulent tax returns is a reasonably common tax scheme.

“This has happened numerous times before where tax accountants have submitted false returns without the knowledge of their clients and then gained the profits, although this one seems to have occurred with the knowledge of the clients,” he says.

“There are two ways false returns can work, either misrepresenting the income of a trust or it would overstate the expenses. Either way, you don’t pay as much to the ATO.”

Warfield says these schemes are usually created out of greed.

“The majority of these schemes I’ve seen have been conducted by individuals, but the biggest schemes can’t be done on an individual basis, so always require collusion,” he says.

“This is a guy who has been in trouble, gone to jail and continued to be involved in schemes while in jail. He’s certainly not someone who has learnt his lessons”.

In July 2004 Wharton was jailed for five years, with a conditional release after 18 months, for attempting tax fraud of $26 million in conjunction with Perth-based accountants Walter Tieleman and Sean Pearce.

The men had promoted a tax minimisation scheme in 1998 which offered large tax deductions to miners with high incomes.

At the time Judge John McKechnie described Wharton as “a man of straw” and a “financial rogue”.

Warfield says the ATO doesn’t generally “go digging” into the activities of a specific accountant, unless it receives a tip off or discover inaccuracies as part of a broader investigation.

“In order to commence a large scale investigation they tend to need to uncover a goldmine of information,” he says.

“The ATO rely on the honesty and integrity of both lawyers and accountants, and when this is breached it can have a significant impact on the country’s financial system.”

This article first appeared on SmartCompany.