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Delta forensic investigation reveals R46m fraud

Group withdraws 2020 financial statements, share price plunges over 31% on Thursday
Image: Supplied

Another accounting scandal involving a JSE-listed firm is coming to light with Delta Property Fund’s new management revealing on Wednesday that a forensic investigation into former senior executives has found instances of unsubstantiated payments, procurement irregularities and other unethical business dealings totalling some R46 million.

The group put out a JSE Sens updated cautionary on the matter after the market closed on Wednesday, which also noted that the probe and subsequent forensic report has resulted in the withdrawal of its 2020 annual financial statements (to the end February).

Delta’s share price plunged more than 31% on Thursday as the market digested the news.

Read: Delta rocked by forensic probe into former executives

The group has also further delayed the release of its interim results, ending August 31, 2020, warning that its investment property valuation for the 2020 financial year could decrease by around R1.9 billion due to an assessment of the findings from the forensic report.

Delta reiterated that it has reported the matter to the police and relevant authorities (likely the National Prosecuting Authority), which will be undertaking further investigation.

The completion of the group’s internal but independent forensic investigation follows the sudden resignation of Delta’s top three executives in recent months, including the group’s founder and former CEO Sandile Nomvete.

Nomvete resigned together with the group’s former CFO Shaneel Maharaj on August 24, 2020, which was with immediate effect. Former chief operations officer Otis Tshabalala, who resigned on July 2, also opted not to complete his notice period at the time and also left with immediate effect.

Sandile Nomvete, Delta’s former CEO and the property group’s founder. Image: Supplied

Read: Delta’s founding CEO Sandile Nomvete resigns

“Delta shareholders are referred to the various announcements released by the company on Sens, the latest being on November 27, 2020, relating to a forensic investigation by Mazars [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 release of this announcement, that the auditor has withdrawn its Audit Opinion in respect of 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 continued reliance on the 2020 financial statements is no longer appropriate,” it noted.

“As the 2020 financial statements have a bearing on, and are used as a comparative basis for, the company’s interim results for the six months ended August 31, 2020, the company is not going to be in a position to release the interim results by December 11, 2020, as previously indicated,” Delta said.

Delta’s share price has plunged more than 70% over the last year, with the company currently valued at less than R200 million.

Delta share price

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Well nobody is getting locked up so why would it stop????

LOL — If you see a new, wonderfully empowered company coming to market –
Stay well clear —
You are going to get a financial hiding if you do not!!!

21st century meaning of word Investing:
lose your money/give your money away/burn your money

What we see as empowerment and what the likes of the dude in the photo sees as empowerment, are completely different things. To him, empowerment is the latest Italian super car in the garage, at the expense of his shareholders.

Fraud is fraud. Its a criminal activity. Lock up the CEO immediately.

Even if he resigned as CEO in August, he should still be eligible for an orange jumpsuit. Withdrawing their financials and the JSE is still allowing their share to be traded, am I missing something?

The usual suspects ?

Ladies and Gentlemen, BDO did not see anything wrong.

If you had to withdraw your audit opinion, it means it was wrong in the first place.

In fact their opinion might have been wrong for many years.

Auditors.

End of comments.

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