Delta management caught in R46m fraud finding
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CAPE TOWN - DELTA Property Fund’s share price plunged 31 percent to 28 cents yesterday after it had to write down the value of its properties by more than a fifth after a forensic audit discovered fraud by senior executives in the company.
The group said in a cautionary notice late on Wednesday that there had been a failure to recognise commission and property management expenses in the property valuations, which was likely result in a decrease in the valuation of investment property from R10.6 billion to about R8.7bn in the financial statements for the year ended February 2020.
Delta, which owns office, retail and industrial properties with particular emphasis on government tenanted office portfolio, has delayed the publication of its interim results after a probe discovered fraud, and has withdrawn the February 2020 financial statements, while its auditor BDO South Africa had withdrawn the audit opinion therein.
The company announced last month that Mazars was doing a forensic investigation into the firm in alleged procurement irregularities and misappropriation of funds by senior executives.
Following the submission of the report by Mazars, Delta’s board did an internal assessment of the report that had found evidence of unsubstantiated payments, procurement irregularities and “other unethical business dealings.”
Delta reported the matters to the SAPS and other relevant authorities for further investigation, and legal advice had been taken on civil claims that might arise.
Irregularities included payment of commission of R43.9m for the three financial years to February 2020, resulting from invalid, lapsed or no broker mandates; fraud resulting from unethical dealings amounting to R2.1m and non-disclosure of related/connected party transactions to the board.
The probe by Mazars was the second into the firm. On first becoming aware of the allegations through the company’s anonymous tip-off programme, the board did a preliminary investigation, and then appointed Mazars to do a first investigation, which had initially covered the period March 1, 2018 to April 2020.
After the findings of the first forensic investigation, the then chief executive Sandile Nomvete and chief financial officer Shaneel Maharaj resigned immediately, while chief operating officer Otis Tshabalala elected to complete his notice period.
Shareholders were advised that MJN (JJ) Njeke had resigned as lead independent non-executive director from the board and the chairperson of the audit, risk and compliance committee, JJ Njeke, also resigned from the end of last month.
Delta’s previously published and now withdrawn results for the year to February showed a group where distributable earnings were falling sharply and it did not declare a dividend because of concerns about the solvency and liquidity requirements of the company.