Billion rand JSE company accused of fraud

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Is there substance to the allegations or is it just a smear campaign?

JOHANNESBURG - Adcorp (JSE:ADR) senior management and a board member allege the staff solutions company is involved in fraud and misconduct, fingering CEO Richard Pike as protecting "friends". Pike calmly and openly denies the allegations.

Legal papers filed by six senior managers in Adcorp make varied allegations. The people involved are:

Petrus Jacobus Bierman -management of the financial shared services function for the majority of the group

Faunce Doreen Burd - group financial director

Jacobus Boonzaaier - senior analyst at Adcorp Holdings

Anna Jane Ramsden - divisional head of human resources

Lodewyk Christiaan Koch - general manager for finance at Adcorp Accountability

Francois Jacobus van Emmenes - financial manager at Adcorp Accountability

Their allegations extend to Chief Operations Officer Nelis Swart and Kobus Pienaar, who are accused of:

Inappropriate conduct

Racism

Employee abuse and unfair labour practice

Fraud

Failure to fulfil duties

All the issues, except for the fraud allegations, come down to "he said, she said" stuff. With the fraud, there are names, numbers and dates.

The first fraud allegation relates to R7.7m that went missing in financial services provider Crestfin's microloan book. Crestfin administered Adcorp's pension and provident fund. The legal papers say this eventually became R15m. Pike says that Crestfin's loan book losses are not on Adcorp's accounts, as Crestfin is not a subsidiary. Pike says Adcorp has no ownership in Crestfin, despite the legal papers claiming Adcorp purchased it.

In July 2009, Crestfin was pronounced technically insolvent owing Adcorp R8.6m. This was split as R6.7m in hard cash and R1.88m in unrealised profits, due to a profit share agreement between Adcorp and Crestfin. The legal papers allege that Pienaar took a performance bonus partly based on this fabricated profit.

Pike says that Adcorp bought two critical products from Crestfin when it became technically insolvent, as the company needed to keep the products running. Adcorp subtracted the outstanding amounts from the purchase price, thus realising the cash and the profit.

A further allegation is that Pienaar's performance bonus was based on the fabricated R1.88m profit. Pike explains that Pienaar's bonus is based on group earnings and non-financial measurements. The allegation that his bonus was affected by the R1.88m is not true.

The second fraud allegation is that Swart moved money from his "cost centre" to Pienaar's "cost centre" to cover up a net loss. Pike explains Pienaar is within Swart's cost centre, thus, the allegation makes no sense, essentially reading as "Swart moved money from himself to himself."

The third fraud allegation is that the cost of implementing of Adcorp's resource planning system ballooned from R27m to R81m. Adcorp expanded over 60% between the initial budget being set and the R81m being spent, accounting for the increase, says Pike.

The fourth allegation is over a payment of R719 000 to John Botha, termed an "independent consultant". Pike explains that Botha is paid a retainer by the company, acting on behalf of Adcorp against government's push to ban labour broking.

Botha also acts as a consultant, and the payment in question is from a joint contract won from Eskom. Botha's half of the contract was worth R719 000.

Pike has also committed to making himself and any relevant documents available to Moneyweb as required.

Write to Chris Blaine: chris@moneyweb.co.za