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Former CEO Sandile Nomvete. (Photo: Gallo Images / Financial Mail / Robert Tshabalala)
Like Steinhoff, the Delta Property Fund board refuses to release a forensic investigation report that revealed wrongdoing at the real estate company, citing “legal privilege.”
The Delta Property Fund board has taken a page from Steinhoff’s playbook by informing shareholders of a forensic investigation pointing to accounting flaws and fraud at the real estate company.
And the murky events at Delta, which owns a variety of office properties that are largely occupied by government departments and entities, possibly implicate former executives.
The group issued an updated JSE Sens warning on the matter after the market closed on Wednesday, December 9, which also noted that the investigation and subsequent forensic report resulted in the withdrawal of its 2020 annual financial statements.
Delta’s stock price plunged more than 31% in Thursday morning trading as the market took in the news.
In the Steinhoff case, the board appointed PwC to investigate the retailer’s affairs after it admitted to fraud-style “accounting irregularities” in 2017 under the supervision of former CEO Markus Jooste.
Meanwhile, the Delta board appointed Mazars Forensic Services to conduct a forensic investigation into alleged misappropriation and misappropriation of funds at the company by senior executives, including former CEO Sandile Nomvete.
The problems at Delta reached a critical point on August 25, 2020 when the company was left without a leader because Nomvete and Shaneel Maharaj (CFO) resigned with immediate effect. The couple left Delta after the conclusion of a preliminary internal investigation into the company’s affairs.
To add insult to injury, Delta’s chief operating officer Otis Tshabalala also abruptly left the company and decided not to complete his notice period that was initially announced in early July.
Since then, Delta’s board has followed in Steinhoff’s footsteps when it decided not to release Mazars’ forensic investigation report, despite making adverse findings related to the alleged misuse of shareholder funds.
Poor business decisions by management have eroded shareholder value, as Delta’s shares have fallen 42% so far this year. Delta’s shares have gone from highs of R9.60 – shortly after they were listed on the JSE in 2012 – to converting to penny stocks, ending at 28 cents on Thursday, December 10.
Legal privilege
Delta told shareholders Wednesday that Mazar’s forensic report will not be released because it is “confidential and subject to legal privilege,” a line used by Steinhoff after PwC, in a 7,000-page report, revealed a fraud ring in the retailer.
Companies that want to protect forensic reports from being made public cite “legal privilege” because, in principle, legal advice from a lawyer (company that conducts a forensic investigation with the help of lawyers) to a client (the company who initiated the investigation) is confidential. . And that a company that pays another to carry out a forensic investigation allows it to make the decisions about whether to publish a report.
Others have used the excuse of “legal privilege”: Sasol when he commissioned a review of the delays and cost overruns at his US-based Lake Charles and EOH chemical project, which suffered from years of corruption.
Back to Delta. Mazar’s forensic investigation has “found evidence of past practices involving governance failures and wrongdoing at the company, including unsubstantiated payments, procurement irregularities and other unethical business dealings.”
These shady deals by Delta’s top executives total some R46 million.
Delta’s board says it has reported the alleged fraudulent activities to police and other authorities for further investigation and possible prosecution of the senior executives involved.
Nomvete previously said Business maverick who wants to have access to all forensic reports to possibly question them.
Among the key issues identified in the Mazar report are:
- The payment of the commission by the company for a total of R43.9 million for the three financial years ended in February 2018, 2019 and 2020, as a result of invalid, expired or no intermediary mandates. (Commissions are generally paid to real estate brokers for the sale or purchase of property. Commission payments are normal business practice for real estate companies);
- Fraud resulting from unethical transactions in the amount of R2.1 million;
- Nondisclosure of related or connected party transactions to the board.
Delta said failure to properly recognize commissions and other real estate expenses is likely to cause the value of the company’s investment property to decline from R10.6 billion to approximately R8.7 billion in financial statements for the year. year to February 2020.
In other words, the value of your investment property could have been artificially inflated through astute accounting practices.
More concerning is that this has resulted in Delta’s auditor, BDO, withdrawing its audit opinion for the 2020 financial statements. The board has also withdrawn Delta’s 2020 financial statements, saying it can no longer be trusted. them due to inaccuracies.
This accounting and auditing nightmare has led Delta’s board to delay the release of the interim results until the end of August 2020. They were supposed to be released on December 11. DM / BM
