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Another accounting scandal involving a JSE-listed firm is coming to light with the new Delta Property Fund management revealing on Wednesday that a forensic investigation into former top executives has found cases of unsubstantiated payments, acquisition irregularities. and other unethical business deals totaling about R46 million.
The group issued an updated JSE Sens warning on the matter after the market closed on Wednesday, which also noted that the investigation and subsequent forensic report have resulted in the withdrawal of its 2020 annual financial statements (through the end of February ).
Delta’s stock price plunged more than 31% in Thursday morning trading as the market took in the news.
Read: Delta shaken by forensic investigation of former executives
The group also further delayed the release of its interim results, which ended on August 31, 2020, warning that the valuation of its investment properties for the financial year 2020 could decline by around R1.9 billion due to an assessment. of the findings of the forensic report.
Delta reiterated that it has reported the matter to the police and the relevant authorities (probably the National Prosecutor’s Office), who will undertake a further investigation.
The completion of the group’s internal but independent forensic investigation follows the sudden resignation of Delta’s three top executives in recent months, including the group’s founder and former CEO Sandile Nomvete.
Nomvete resigned along with the group’s former chief financial officer, Shaneel Maharaj, on August 24, 2020, which took immediate effect. Former COO Otis Tshabalala, who resigned on July 2, also chose not to complete his notice period at the time and also left with immediate effect.
Sandile Nomvete, former CEO of Delta and founder of the real estate group. Image: supplied
Read: Delta Founding CEO Sandile Nomvete Resigns
“Delta shareholders are referred to the various announcements posted by the company in Sens, the latest on November 27, 2020, relating to a Mazars forensic investigation [the “Forensic Investigation”) into alleged procurement irregularities and the misappropriation of funds by senior executives, and Delta’s subsequent engagement with its auditor, BDO South Africa Incorporated in respect of the Forensic Investigation and the circumstances surrounding the resignations of its former executive management,” it noted in its latest Sens statement.
“Following the submission of a forensic report by Mazars and the recommendations by Mazars to the board of directors of Delta… the board has recently completed an internal assessment of the findings of the Forensic Investigation.
“While the Forensic Report is confidential and subject to legal privilege, and without waiving this legal privilege, the board confirms that the Forensic Investigation has found evidence of past practices involving governance failings and wrongdoing at the company, including unsubstantiated payments, procurement irregularities and other unethical business dealings,” it added.
Delta’s new board, led by Phumzile Langeni as chairperson, noted that the “past practices are of significant concern to the board and the group’s auditor.
“The required reporting has been made by the company to the South African Police Services and other relevant authorities for further investigation and the board is taking legal advice based on the Forensic Report as to any civil claims that may arise,” it added.
Some of the key issues identified in the forensic report include:
- payment of commission by the company totalling R43.9 million (for the three financial years ended February 2018, 2019, and 2020), resulting from invalid, lapsed or no broker mandates;
- fraud resulting from unethical dealings amounting to R2.1 million; and
- non-disclosure of related/connected party transactions to the board.
“As a result of the key issues identified in the forensic report, the internal assessment has revealed a failure to recognise commission and property management expenses in the property valuations, which will likely result in a decrease in the valuation of investment property [including investment property held-for-sale) from R10.6 billion to approximately R8.7 billion in the financial statements for the year ended February 2020,” Delta said.
“In light of the circumstances described above, the company has been advised by the auditor [BDO South Africa], immediately prior to the publication of this announcement, that the auditor withdrew its Audit Opinion with respect to the 2020 financial statements, ”the group added.
“As a result of the aforementioned withdrawal, the board has resolved to withdraw the 2020 financial statements and therefore relying on the 2020 financial statements is no longer appropriate,” he noted.
“Since the 2020 financial statements influence the company’s interim results and are used as a comparative basis for the six months ended August 31, 2020, the company will not be in a position to publish interim results before December 11 2020, as indicated above, ”said Delta.
Delta’s stock price has plummeted more than 56% over the past year, valuing the company at less than R300 million.
