Ayo Technology Solutions was quick to point out that the directors who were found lacking in their duties served as non-executive directors four years ago and that the company had already acknowledged the shortcomings in their financial reporting procedures in 2018, when the very first set of financial results as a listed company contained several material errors.
A few hours after the JSE published the outcome of its investigation into the matter, Ayo responded with a short statement alluding to the fact that it found the censure of the two directors to be harsh.
“Whilst Ayo does not agree with the severity of the JSE censure imposed on the two directors, the company nevertheless respects the critical role directors (executive and non-executive) play in a company’s compliance and its standing in the business community.
“Ayo had already acknowledged its shortcomings in 2018, and consequently its Audit Risk Committee (ARC) has strict and full oversight in accordance with the requisite regulations,” it said.
Five-year disqualification period
Both were hit with a public censure and immediate disqualification from holding the office of a director or officer of a listed company for a period of five years. This is as a result of their failure to comply with provisions of the listings requirements and for failing to fulfil their duties and responsibilities as directors and members of the all-important audit committee when they were directors of Ayo.
It is noteworthy that both Khoza and Ntsasa admitted that they did not have adequate board and audit and risk committee experience, and had insufficient knowledge of issues concerning the company and the listing requirements in order to properly perform their duties. Nor did they have the expertise to exercise the required level of judgement and care required as members of an audit committee.
The JSE noted that directors of listed companies must ensure that they possess the relevant knowledge, skills and experience to adequately fulfil their duties and to exercise the required level of judgement and care required from directors and/or members of an audit committee.
“This included the positive duty placed on him [referring to Ntsasa] to ensure that Ayo had established appropriate financial reporting procedures in place, and that those financial reporting procedures were operating, so as to mitigate the occurrence of material errors in Ayo’s financial statements and to ensure the integrity and correctness of the 2018 interim results.
“Although Mr Ntsasa was not directly involved in the preparation of Ayo’s 2018 interim results, as an audit and risk committee member, he should have examined the company’s financial reporting policies, the robustness of internal controls and rigorous mechanisms for identification of material financial risks, amongst others, to support quality interim financial reporting in 2018.
“The weaknesses in Ayo’s financial reporting procedures led to material accounting errors in the 2018 interim results which pointed directly to a lack of oversight by the members of the ARC during the period in question,” says the JSE.
“The deficiencies in Ayo’s financial reporting procedures fell gravely short of the appropriate standard required of an audit committee and the actions and/or omissions of the committee in this regard caused Ayo to breach IFRS and the Listings Requirements due to the material misstatements contained in the 2018 interim results.”
The misstatements identified in the 2018 interim results included numerous “material errors” in the statements of financial position, comprehensive income statement and cash flow statement.
“Ayo admitted that at the time the company did not have robust financial reporting procedures and processes to avoid these errors, resulting in the dissemination of financial information that did not comply with IFRS.
“Further, the company did not appear to have staff possessing sufficient historical and technical knowledge of the company in order to produce financial information that would provide a fair presentation of Ayo’s results to the market since its listing on the JSE in 2017,” according to the JSE announcement.
At the time, the JSE imposed a public censure on Ayo and fined it R6.5 million for the publication of a number of incorrect, false and misleading financial results as a result of its failure to comply with IFRS and listing requirements.
While the JSE acknowledged the fact that Ntsasa and Khoza were not directly involved in compiling the interim results for publication, it says the Companies Act requires a director and/or a member of a company’s audit committee to exercise their powers and perform functions in good faith and for a proper purpose, in the best interest of the company, and with the degree of care, skill and diligence that may reasonably be expected of a person carrying out these functions.
It added: “Because interim results are generally not required to be audited or reviewed, significant responsibility lies on the audit and risk committee to provide robust oversight and monitoring of the company’s financial reporting environment and procedures and to satisfy themselves that all financial reporting procedures leading up to the publication of the 2018 interim results would ensure accurate and complete reporting in terms of IFRS and the JSE Listings Requirements, which Mr Ntsasa [and Ms Khoza in the identical statement] did not do.”
The JSE says that neither Khoza nor Ntsasa participated or contributed in the meetings and there was no evidence of interrogation of Ayo’s financial reporting procedures.
“Further, there was a lack of oversight of the financial reporting control environment which would have identified high-risk areas requiring management judgement and scrutiny prior to the committee’s recommendation of the 2018 interim results to the board for approval and dissemination,” says the JSE.
While the censure of five years seems harsh, investors caught with Ayo shares will probably welcome it.
They have seen the value of their shares sink faster than a brick in a swimming pool – by more than 90% from December 2017 to the current R4.10.
Not that the problems for the controversial Ayo are over yet.
The Public Investment Corporation still wants the money it invested at the time of Ayo’s listing back, maintaining that the investment procedure was irregular.
Meanwhile, allegations continue that Ayo is funnelling money to other companies in the African Equity Empowerment Investments (AEEI) group by way of dividends it cannot afford, effectively moving the cash out of Ayo.