Report 68 Business Practices Committee9. The Report of the Auditor |
On 29 September 1998 the GCl's auditor (the auditor) wrote a letter to Botha. The auditor said:
"We advise that we have completed our preliminary assessment of the internal control for the period ended 30 September 1998. We have established a severe lack of financial internal control in operation. Our observations and fundamental concerns established to date are detailed below".
The following is a selection of points raised by the auditor under the various headings which are indicated in bold letters.
Purchases/Payments Cycle (14 points raised)
| 9) | There is no formal policy for the approval of staff loans. |
| 10) | Fringe benefit tax is not applied to the interest free staff loans. |
| 12) | Monthly management information is insufficient to review expenditure. |
Payroll costs and formalities (12 point raised)
| 6) | Certain PAYE payments to the Receiver of Revenue have not been made. |
| 9) | Certain managers who were working as permanent employees are now consulting to the company. No formal contract has been drawn up nor is a labour broking exemption certificate (IRP30) on file authorising the non deduction of PAYE. |
| 10) | Permanent consultants have invoiced the company for motor vehicles, the cost of which has been expensed. |
Fixed assets (5 points raised)
| 2) | It posed problematic to locate the original invoices for certain fixed assets. |
| 4) | Motor vehicles are not registered in the name of the company. Registration papers of the motor vehicles are not kept. |
| 5) | Land and buildings that are in the books of account are not registered in the name of the company and should be reversed out accordingly. |
Subsidiaries (3 points raised)
| 3) | Inter-company loan accounts are not reconciled on a monthly basis. |
Secretarial
| 1) | Numerous secretarial information on the subsidiaries is still outstanding. |
Share portfolio held on Stock Exchange
| 1) | Scripts with brokers are not reconciled on a monthly basis. |
| 2) | Losses and gains are not accounted for in the books of account. |
Share capital of the Company
| 1) | The share register and premium is not reconciled to the general ledger on a regular basis. |
| 2) | Certain CM42 transfer documents have not been signed. |
| 3) | Certain stamp duty has not been paid on allotments. |
The auditor concluded the letter by stating:
"in terms or our statutory duties as auditor of the company, we have no alternative but to report to you that we have reason to believe that a material irregularity has and/or is likely to take place. Our reasons for this belief are as follows:
the capital base has been severely eroded and there is a risk of technical insolvency in the near future;
there is a possibility of reckless trading relating to the review of the conduct of subsidiaries and the related safeguarding of the subsidiary assets;
statutory returns are in arrears which can give rise of the imposition of penalties and interest; and
amounts have been paid and expensed for professional consultants to acquire motor vehicles".
De Beer received the letter on behalf of Botha who was at that time on holiday.