Fictitious and fraudulent loans a ‘reportable irregularity’ – Spar
South African grocery chain Spar has conceded that ‘fictitious’ and ‘fraudulent’ loans flagged by its auditors and a team of lawyers, were reportable irregularities, saying they should have never happened.
Read the full Sens announcement here.
Last year, the JSE-listed retailer, which operates on a franchise model, came under the spotlight following a slew of allegations against it.
Read: Spar Group CEO Brett Botten to exit
The retailer’s auditors, PwC, notified the company that the loans were a “reportable irregularity”, in turn leading it to reporting the matter to the auditing industry body, the Independent Regulatory Board of Auditors (Irba).
Following that, Spar sought legal opinion to conduct a full probe which ended with the retailer’s board agreeing that an irregularity had occurred.
A Business Day news report last year cited an investigative report compiled on behalf of Spar’s board, by Harris Nupen Molebatsi attorneys, that found that the retailer sold one of its corporate-owned stores for a book value of R11 million to independent merchants. The report further noted that Spar advanced a loan to the merchants to both buy and take care of the refurbishment costs of the store in 2018.
But, the retailers only paid R8 million, Business Day reported. In another claim, a store in Midrand was said to have been sold twice in three weeks to a single buyer. First for a sum of R1 000, then R8 million, Business Day reported.
Spar appeared to defend the transaction, saying a loan took place between a willing lender and borrower at normal interest rates and with fixed repayment terms.
“However, the board concluded that the loan did not seem to have served any real commercial or economic purpose and should not have taken place,” Spar said in an update to investors on Thursday.
Read: Market punishes Spar
Spar flagged two other transactions of a similar nature and said the combined value of all three loans was to the tune of R11 million.
“These loans were isolated and occurred five years ago. This arrangement is not Spar practice and there is no evidence to support any allegations of accounting irregularities with any other loan transactions,” the retailer said.
On Tuesday this week, its CEO, 57-year-old Brett Botten’s ‘retirement’ was announced.
The retailer said Botten would retire this month after 22 months at the helm of Spar. His departure follows that of Spar’s ex-chair, Graham O’Connor who stepped down last December to make way for the retailer to focus on the allegations that had been levelled against it.
“Mr Botten’s retirement is pursuant to his request to the Board for an early retirement. Shareholders are advised that succession discussions are underway and the appointment of a new group CEO will be announced in due course,” Spar said.
Spar confirmed O’Connor has not made himself available for re-election, citing that he will retire at the company’s annual general meeting on 14 February. Independent non-executive director, Phumla Mnganga will be stepping down at the same time.
As part of its board shake-up, the retailer has appointed Anne Zinn and Pedro Manuel Pereira da Silva as independent non-executive directors, whose roles are effective immediately.