WHEN Malcolm Macintosh, the artistic director of a Dartmouth amateur theatre company, heard rumours in the town about the secretary, he checked and made a shocking discovery.

He found that Kevin Joseph Hanafee, of Fairview Road, Dartmouth, had a couple of months earlier made a £2,500 cheque out to himself and paid it into his own bank account.

Hanafee, who had previously borrowed £5,000 from the Inn Theatre Company with its committee's consent, had offered to pay it off with 20 per cent interest but had not repaid any of that.

At Newton Abbot Magistrates Court on Tuesday, the 60-year-old former secretary was found guilty of abusing the position by fraudulently gaining £2,500 for himself and causing loss to the company. He had denied the charge.

The bench adjourned sentence until today for probation reports and allowed the businessman, whom the court heard had gone bankrupt, unconditional bail.

Chris Bittlestone, prosecuting, said Hanafee joined the theatre company in 2005, three years after it was formed, bringing some skills of finance and, to his credit, brought benefit through sponsorship and advertising.

'The company's fortunes seemed to thrive, but in 2009 Hanafee's fortunes seem to have waned. It was agreed that he should have the benefit of a £5,000 loan,' he said.

He added that it was normal practice for a number of years for several blank cheques to be signed and passed to Hanafee in January.

Mr Macintosh, said the non-profit making company was formed by a group of friends with a theatre background who decided to put on an annual Shakespearean play in the grounds of Dartmouth Castle. A portion of the proceeds going to charity.

He stated that in the past the company was successful with a £5,000 Heritage Lottery grant for equipment. It had a constitution and since 2002 a designated bank account.

Mr Macintosh said at a time when the company had around £12,000 in the bank in 2009, Hanafee had spoken to him about a £5,000 loan because he was about to open a business venture and had a cash flow problem.

'It was loaned to him and he had agreed to pay it back in six months at his own suggestion of 20 per cent interest. With interest that now stands at £7,500.

'In March, we had heard some unsettling rumours in the town about Hanafee's financial position and we got a bit nervous about our bank account,' he said.

Mr Macintosh said he discovered Hanafee had made out a cheque to himself for £2,500 on January 17. 'When I saw it I felt sick. Despite everything I trusted him and he was a friend.

'There was a document for a second loan but it was not signed. He wrote us a letter regretting the situation and offering to pay us £250 monthly by direct debit or standing order. We received one amount in June but nothing more.

'We made some inquiries and discovered that he had been made bankrupt,' he said.

When interviewed by police, Hanafee told them: 'I should have asked them. It is easy after the event. I have written now and I have every intention of paying it'.

'Following my arrival on the scene the finances improved and stabilised. I was involved in sponsorship to get income. It was a combination of increasing income and cutting back on expenditure. I would like to think I improved the situation,' he said.

Hanafee said he was responsible for producing the profit and loss account and added that Mr Macintosh was very good at what he did and kept everything in budget.

Concerning the £5,000 loan, Hanafee said he had a property on the market at the time and would have paid it back once that was sold.

'Unfortunately there was a crash in the housing market and the house did not sell until sometime later with a £4,000 loss and no money left,' he added.

The court heard that he had also set up a wine bar and when that was sold there was some money left at the end although he had borrowed money from others all of whom were repaid.

Hanafee said he had been hit by the housing scenario and had also been involved in a difficult situation with an ex-business partner which resulted in legal proceedings.

Hanafee said he needed money to pay some legal fees. 'I thought I could borrow some money and repay it'.

He said he did not ask if he could borrow the money because 'at that time I was fairly stressed out over the whole legal issue.

'I thought I could use the money and did not give it any real thought. It had not crossed my mind.

'It is easy to look back on reflection. I agree if I had thought I would have asked'.

He continued that he had been made bankrupt and had significant limitations on his financial arrangements. Hanafee said a friend had since paid the £2,500 loan for him.

Asked what was in his mind when he made out the £2,500 cheque, he answered: 'I had no thought of it being dishonest. I have had a fairly strict religious upbringing.

'I don't think I have done anything dishonest. If I thought I was being dishonest, I would not have done it. I have some fairly affluent friends I could have asked.'

Questioned by Mr Bittlestone as to how much was owed following the bankruptcy, he replied 'something like £50,000-£70,000', and he said he had arranged to repay creditors monthly.

For Hanafee, Nicholas Bradley when asking the bench to acquit his client, said the vast majority of the prosecution's case was not in dispute.

'The crucial issue is what was in Hanafee's mind at the moment he signed the cheque with his name on it as beneficiary.

'The prosecution has to prove that at that time he knew he was acting dishonestly by the reasonable standards of honest people.

'He is 60 years of age and comes before you as a man of good character.

'In this situation, he was not being dishonest because he did not realise he was doing something dishonest,' said Mr Bradley.