Here's How Holmes solved "The Wheels of Commerce"

Dearest detectives,

As always, we’d like to thank those detectives who wrote in by mail and at Dearholmes.com/solve with their questions and solutions to October’s mystery, "the Wheels of Commerce". We’re evaluating your solutions now to choose our next Featured Detective, but in the mean-time, Holmes would like to share with you a letter explaining how he unravelled the case.

Best wishes and best of luck with our latest mystery,

The Dear Holmes Team

——

Harbor Anderton

6 Chicago Square

Clerkenwell, London.

31 January 1905

Dear Mr. Anderton,

I am in receipt of a prospectus for the public sale of the shares of Houston & Sons coal merchants and see that you are listed as the auditor of the company, which is at present in private hands.

I note from this document that, as you mentioned, in the year ended 31 December 1904 the company had broadly the same turnover as in the previous year but that its gross profit has risen by no less than 16%. With static overheads, the company's net profit has grown by over 34%.

Coal merchants are plentiful in London, so it is remarkable (some might say impossible) that its gross profit has increased by this amount on largely static sales. In the directors' report, it is stated that the company has speculated heavily on coal stocks and bought coal in large volumes just as the price was about to rise. It thus benefitted from low purchase costs and high sales prices. 

In my opinion, Houston has inflated its stocks at its premises at Smith Street by Tower Hill by depositing four horse-buses under the mound of coal that your quantity surveyor counted at the coal merchant's yard at Smith Street as part of the year-end audit. The buses had been moved into the company's premises on the night of 11 to 12 December and buried under the coal. 

When the coal stocks were counted by the quantity surveyors as part of the year end audit on Friday 30 December 1904, those quantities counted were bulked up by the horse-buses concealed underneath. The buses were then used to transport coal to Houston's new site at Gidea Park where the same coal (very probably bolstered by the same subterfuge of burying horse-buses under it), was counted a second time on the next day.

These two or (more probably three) subterfuges will have greatly increased the amount of counted coal stocks and consequently will have inflated its gross profit for the business year just ended. 

The directors and current owners of the company are therefore seeking to enrich themselves by selling shares in their business on the basis of an artificially inflated result for their most recent financial year.

This subterfuge will become obvious when the company declares its results for the financial year ending 31 December 1905 as an inflation of profits of the type described above can only be practised once - unless, obviously, further horse-buses are bought and used to bolster coal stock next year. 

If this subterfuge should at any point be disclosed, Harbour Anderton may wish to check whether its failure to detect this fraud is covered by professional indemnity insurance.

I write this letter to you as an outside observer with no personal interest in the company, and no intent to benefit from what I regard as inside knowledge. Should you wish to make this matter in any way public, please do not bring my name into it, as I wish to be associated only with cases which present the investigator with a degree of difficulty.

Yours sincerely,