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Covid-19 aftermath: a world beset with fraud and write-offs

… and corporate updates from Sasol, Sanlam, PPC and Steinhoff.
Comforting or depressing? The UK’s government-funded ‘bounce-back’ loan scheme may have been defrauded to the tune of R570bn. Image: Shutterstock

It’s difficult to decide whether the following news is utterly depressing or a little comforting, but it does put our own experience in perspective. By one count, based on the report recently released by the UK’s National Audit Office, the UK’s government-funded ‘bounce-back’ loan scheme may have been defrauded to the tune of £26 billion (R570 billion).

As in South Africa, the loans were intended to support small businesses facing cash flow problems due to the pandemic.

Inevitably, the government had to move very quickly to set up the scheme. “It prioritised one aspect of value for money – payment speed – over almost all others and has been prepared to tolerate a potentially very high level of losses as a result,” says the National Audit Office. “These losses stem from businesses wanting to pay back loans but finding themselves unable to, through to organised criminals taking out loans with no intention of ever paying them back.”

In its coverage of the potential Covid-related fraud, the UK’s Spectator Magazine refers to fake companies set up under false names, phantom employees invented to claim compensation, and start-ups pocketing loans for ventures that don’t exist.

It is likely to be some considerable time before a definite figure is put to the size of fraud (of Covid assistance funds), not just in the UK and SA, but across the globe.

It is likely to run to trillions of dollars, reminding us that Covid-19 is not just a medical and economic disaster but also an ethical one.

In the US, JP Morgan has already dismissed several employees who allegedly pocketed bailout funds intended to help businesses deal with the Covid crisis.

Of course the fraud in South Africa was made grimmer by the fact that it often resulted in funds/food intended for the most vulnerable being diverted to wealthy, opportunistic villains.

And now governments across the globe are going to have to waste more precious resources catching up to these criminals. It is actually utterly depressing.

And it seems South Africa’s short-term insurers weren’t the only ones coming up with clever legal reasons why the Covid-19 lockdown didn’t actually represent an instance of ‘business interruption’.

The insurance industry in the UK offered up the same contrived response to some of its clients. Fortunately for the latter the UK financial authorities intervened, launching a test case that ruled in favour of the clients. And early on in this nightmare there were the dramatic price increases on essential goods such as hand sanitisers; it seems that was also not just a South African practice.

Executive pay

On more prosaic Covid-related matters, with companies rushing to pour as much as possible into the black hole that is the Covid-19 ‘write-off’, will their remuneration committees be taking notice?

Write-offs can do wonders for ‘return on equity’, which is often used as a measure to determine how generously to reward executives.

In the best of times it is a totally inadequate measure – not taking into account the cost of that equity or the frequent write-offs. These are not the best of times.

There’s also the matter of share repurchases. If executive performance is being measured on the basis of earnings per share (EPS) then the frequent, albeit short-term, boost to EPS that follows a repurchase needs to be taken into consideration.

While on the subject of executive pay, Sasol has gifted Priscillah Mabelane, who was recently appointed executive vice-president of its energy business, R11 million worth of shares in terms of its long-term incentive scheme. This apparently comes with some performance conditions. The gift is to help make-up for the unvested BP shares she relinquished when she moved to Sasol.

And over at Life Healthcare CFO Pieter van der Westhuizen has been given six months to buy R2 million worth of the company’s shares. If he makes the target he will be gifted an additional R6 million worth of performance shares by the company.

The awarding of shares to executives is intended to align their interests with those of shareholders. But does anyone know of instances of shareholders securing this kind of very common executive windfalls?

Corporate updates

Former Sanlam CEO Ian Kirk has just landed his second new directorship, indicating he’s not quite ready to give up on a full-time business career. Last week’s appointment to the Transaction Capital board came just a few weeks after he secured a slot on the JSE board.

Meanwhile PPC’s results for the year to end-March were released last week – more than six months after the close of the period – and were encouraging. For the first time in years management does give a sense that it realises how big the problems are, as well as the potential for recovery. The market certainly seemed encouraged.

The share price bounced almost 5% before closing on Friday – but it’s off a ridiculously low price.

Of course as it’s PPC, we should wait a few days to see if there are any restatements.

On Friday Steinhoff issued a reminder of how complex and time-consuming the process of securing a settlement with its very many claimants is likely to be. But it says it is making progress with the claimants and their battalions of lawyers and has just launched a “consent request” to obtain the formal support of its financial creditors. For the legal fraternity Steinhoff’s collapse really has been the ‘gift that keeps giving’ – there surely won’t be much left over after all the lawyers are paid.

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SA was really beset with fraud and write-offs through ANC corruption. Then with theft and corruption within Covid-19 PPE Procurement they are complicit in crimes against humanity.

They stole money that was meant to save South Africa lives.

True. JZ and AM and many other top ANC leaders have filled their own pockets with stolen billions. And in so doing have robbed the poor – mainly Black folk – of South Africa. It’s time the ducking and diving by JZ and others stopped and they are arrested. Get them on their tax initially, if nothing else. It worked with Al Capone. And we have plenty of home-grown Al Capone.

End of comments.

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