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Ram, Farouk take aim at PwC with court action threat

The founding shareholders of Choppies stores, Messrs. Ramachandran Ottapathu and Farouk Ismail are threatening legal action against auditors, PwC Botswana. This follows the renowned auditors’ refusal to complete an audit of some of the Choppies subsidiaries for the financial year 2017/2018, which the two directors ascribe to eventual suspension of the retailer from the Botswana Stock Exchange (BSE) bourse.

The virulent threat of potential court action simmers in Choppies’ latest circular whose purpose is to update Shareholders on issues pertaining to the Group. Reports emanating from the Choppies Distribution Centre (CDC) suggest that the two supermarket gurus want possible compensation of P850 million from PwC. At the time of abandoning site, PwC was citing threatened litigation in an action for damages by the significant shareholders of the Company, Messrs. Ramachandran Ottapathu and Farouk Ismail, who are also directors of the Botswana subsidiaries.

Ottapathu and Ismail’s gripe with PwC is on account of alleged failure by PwC Botswana to act on an actual or perceived threat to its independence; breach by PwC Botswana and/or Mr. Rudi Binedell, audit partner, of rules of the relevant code of ethics in respect of independence; and a unjustifiable delay in the completion of auditor’s report of the Company in respect of the financial year ended June 2018.

These, the two founding shareholders of Choppies posit that – it allegedly resulted in the suspension of and a prolonged period of suspension of the shares of the Company trading on the BSEL and Johannesburg Stock Exchange (JSE). “It should be noted that by virtue of the fact that PwC signed the auditor’s report in respect of the financial statements of the Company and consolidated group financial statements for the financial year ended 2018 on 13 December 2019 PwC must have considered the financial statements of the subsidiaries of the Company,” reads Choppies circular to shareholders.

The circular points out that “PwC Botswana resigned as auditors of the Company in respect of all financial periods after 30 June 2018, thereby creating a casual vacancy, in the office of the auditor to the Company, as envisaged in Section 191 of the Companies Act.”The further states that PwC Botswana, certified public accountants in Botswana, (PWC Botswana), signed off the audit report for the Group and holding company annual financial statements for the year ended 30 June 2018 without signing off the audit reports of the Botswana and South African subsidiary companies for the same period.

“The Company has advised the Botswana Accounting Oversight Authority, the Companies and Intellectual Property Authority and Botswana Unified Revenue Services and the South African regulatory and tax authorities of the situation,” reads the circular. Meanwhile on 16 March 2020 PwC Botswana gave notice of termination of their role as auditors of the Botswana Subsidiaries of the Company, in respect of the Botswana subsidiaries of the Company, on the basis of regulations published by the Independent Ethics Standards Board for Accountants (IESBA) as adopted by the Botswana Institute of Chartered Accountants (BICA) in respect of actual or threatened litigation by an audit client or shareholders or management of an audit client which may constitute a threat to independence.

After PwC declined to complete the audits on Botswana subsidiaries, Choppies promoters had to race against time to find a replacement for PwC: “Immediately, upon receipt of such resignation, the Audit Committee of the Board set about achieving the appointment of a replacement, of PwC Botswana as auditor to the Company, in an effort to comply with the provisions of Section 191 of the Companies Act, and communicated with the firms of certified public accountants in Botswana, BDO, Deloitte, Ernst & Young and KPMG. Each of those firms, for various reasons, declined the appointment.”

After the rejections, Choppies found refuge with international audit firm, Mazars, who indicated willingness to be appointed auditors of the Group for the period commencing 1 July 2018 albeit with conditions. Acceptance by Mazaars of the appointment of auditors was subject to:

the on boarding and risk assessments required by Mazars at country, regional and group level, in respect of the Group being satisfactorily completed; examination by Mazars of the financial statements of the Group as of 30 June 2018, and the auditor’s report in respect thereof;

and consultation by Mazars with PwC in respect of various issues identified on the auditor’s report, and the boarding of financial and accounting information for the year ended 30 June 2018. According to the circular as of 17 February 2020, all the formalities were concluded, and the Board appointed Mazars as auditors to the Group, for the period commencing 1 July 2018 and ending 30 June 2019.

Another standoff with KPMG

In respect of the years ended 30 June 2016, 2017 and 2018, the Choppies Group has a logjam with KPMG, certified public accountants in Botswana, (KPMG). “KPMG signed off on the Auditor’s Report in respect of the Company and consolidated Group financial statements for the 2017 financial year and the Annual Report and such financial statements were approved by shareholders at the annual meeting of shareholders in November 2017 and KPMG was replaced as Group Auditors by shareholders at an extraordinary meeting in February 2018, audit reports for the annual financial statements of the Group’s Botswana and South African subsidiary companies were not signed off by KPMG for the 2017 and, in some cases, the 2016 financial year.”

The circular states that this situation came to light around November 2019 where after the Company engaged with KPMG to rectify the situation but without any success leading up to KPMG refusing to complete such audits and “terminating” all agreements with the Group and its subsidiaries in a letter dated 21 January 2020. “The Company responded to the letter, with particular reference to the so called “termination” of agreements, and reserved its position as against KPMG. However, the situation is that KPMG has refused to complete such audits,” reads the circular.

Sale of SA operations

The circular notes that on the 25 February 2020 the Competition Commission of South Africa issued a Merger Clearance Certificate in terms of which the Commission approved the merger brought about by the acquisition by Kind Investment (Pty) Limited of the shares and claims of the Company in its four South African subsidiaries, without conditions. “The conditions precedent to the agreement for the sale of shares and claims in the South African subsidiaries of the Company have thus been fulfilled. The effective date of the sale is, in terms of the agreement, the 1st of April 2020.

It is now for the parties to meet and undertake the stocktake and valuation of assets and liabilities as at the effective date, in order to calculate any residual liability of the Company to contribute funds to its South African subsidiaries in respect of the net equity value thereof, in order to close the transactions and the sale.” According to Choppies promoters, it is anticipated that this process will take place (as set forth in the agreement) at the end of March 2020 to complete by 1st of April 2020.

Discontinuation of Operations in loss-making markets

In order to stabilise the business and enhance Shareholders’ value, Choppies has exited all the lossmaking markets. In Mozambique, operations closed in September 2019 and majority of the equipment has been moved to Choppies Zambia.As for Tanzania, operations closed in November 2019 and all efforts are being made to sell the equipment and clear the outstanding liabilities. Meanwhile in Kenya operations have since been scaled down to only two stores and negotiations are on-going to sell equipment to local operators and/or existing landlords to clear some of the outstanding liabilities.

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Government sitting on 4 400 vacant posts

14th September 2020
(DPSM) Director Goitseone Naledi Mosalakatane

Government is currently sitting on 4 400 vacant posts that remain unfilled in the civil service. This is notwithstanding the high unemployment rate in Botswana which has been exacerbated by the recent outbreak of the deadly COVID-19 pandemic.

Just before the burst of COVID-19, official data released by Statistics Botswana in January 2020, indicate that unemployment in Botswana has increased from 17.6 percent three years ago to 20.7 percent. “Unemployment rate went up by 3.1 percentage between the two periods, from 17.6 to 20.7 percent,” statistics point out.

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FNBB projects deeper 50 basis point cut for Q4 2020

14th September 2020
Steven Bogatsu

Leading commercial bank, First National Bank Botswana (FNBB), expects the central bank to sharpen its monetary policy knife and cut the Bank Rate twice in the last quarter of 2020.

The bank expects a 25 basis point (bps) in the beginning of the last quarter, which is next month, and another shed by the same bps in December, making a total of 50 bps cut in the last quarter.  According to the bank’s researchers, the central bank is now holding on to 4.25 percent for the time being pending for more informed data on the economic climate.

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Food suppliers give Gov’t headache – report

14th September 2020
Food suppliers give Gov’t headache

An audit of the accounts and records for the supply of food rations to the institutions in the Northern Region for the financial year-ended 31 March 2019 was carried out. According to Auditor General’s report and observations, there are weaknesses and shortcomings that were somehow addressed to the Accounting Officer for comments.

Auditor General, Pulane Letebele indicated on the report that, across all depots in the region that there had been instances where food items were short for periods ranging from 1 to 7 months in the institutions for a variety of reasons, including absence of regular contracts and supplier failures. The success of this programme is dependent on regular and reliable availability of the supplies to achieve its objective, the report said.

There would be instances where food items were returned from the feeding centers to the depots for reasons of spoilage or any other cause. In these cases, instances had been noted where these returns were not supported by any documentation, which could lead to these items being lost without trace.

The report further stressed that large quantities of various food items valued at over P772 thousand from different depots were damaged by rodents, and written off.Included in the write off were 13 538 (340ml) cartons of milk valued at P75 745. In this connection, the Auditor General says it is important that the warehouses be maintained to a standard where they would not be infested by rodents and other pests.

Still in the Northern region, the report noted that there is an outstanding matter relating to the supply of stewed steak (283×3.1kg cans) to the Maun depot which was allegedly defective. The steak had been supplied by Botswana Meat Commission to the depot in November 2016.

In March 2017 part of the consignment was reported to the supplier as defective, and was to be replaced. Even as there was no agreement reached between the parties regarding replacement, in 51 October 2018 the items in question were disposed of by destruction. This disposal represented a loss as the whole consignment had been paid for, according to the report.

“In my view, the loss resulted directly from failure by the depot managers to deal with the matter immediately upon receipt of the consignment and detection of the defects. Audit inspections during visits to Selibe Phikwe, Maun, Shakawe, Ghanzi and Francistown depots had raised a number of observations on points of detail related to the maintenance of records, reconciliations of stocks and related matters, which I drew to the attention of the Accounting Officer for comments,” Letebele said in her report.

In the Southern region, a scrutiny of the records for the control of stocks of food items in the Southern Region had indicated intermittent shortages of the various items, principally Tsabana, Malutu, Sunflower Oil and Milk which was mainly due to absence of subsisting contracts for the supply of these items.

“The contract for the supply of Tsabana to all depots expired in September 2018 and was not replaced by a substantive contract. The supplier contracts for these stocks should be so managed that the expiry of one contract is immediately followed by the commencement of the next.”

Suppliers who had been contracted to supply foodstuffs had failed to do so and no timely action had been taken to redress the situation to ensure continuity of supply of the food items, the report noted.

In one case, the report highlighted that the supplier was to manufacture and supply 1 136 metric tonnes of Malutu for a 4-months period from March 2019 to June 2019, but had been unable to honour the obligation. The situation was relieved by inter-depot transfers, at additional cost in transportation and subsistence expenses.

In another case, the contract was for the supply of Sunflower Oil to Mabutsane, where the supplier had also failed to deliver. Examination of the Molepolole depot Food Issues Register had indicated a number of instances where food items consigned to the various feeding centres had been returned for a variety of reasons, including food item available; no storage space; and in other cases the whole consignments were returned, and reasons not stated.

This is an indication of lack of proper management and monitoring of the affairs of the depot, which could result in losses from frequent movements of the food items concerned.The maintenance of accounting records in the region, typically in Letlhakeng, Tsabong, and Mabutsane was less than satisfactory, according to Auditor General’s report.

In these depots a number of instances had been noted where receipts and issues had not been recorded over long periods, resulting in incorrect balances reflected in the accounting records. This is a serious weakness which could lead to or result in losses without trace or detection, and is a contravention of Supplies Regulations and Procedures, Letebele said.

Similarly, consignments of a total of 892 bags of Malutu and 3 bags of beans from Tsabong depot to different feeding centres had not been received in those centres, and are considered lost. These are also not reflected in the Statement of Losses in the Annual Statements of Accounts for the same periods.

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