South African Express Airline ( SAX ) Draft Report. October Presented by

Transcription

1 South African Express Airline ( ) Draft Report October 2011 Presented by

2 20 Morris Street East, Woodmead, 2191 P O Box 2939, Saxonwold, 2132 Tel / , Fax Ms Matsotso Vuso Chairperson Audit and Risk Committee South African Express Airline P O Box 101 O.R. Tambo International Airport 1627 Dear Madam, Draft Report: Forensic investigation services performed on behalf SA Express Airline ( ) with respect to the receipt of two anonymous hotline tipoffs/allegations dated 04 August 2011 and 05 September 2011 respectively. Attached hereto please find our draft report in respect of the above mentioned matter. The report has been provided to you as a draft in order to allow an opportunity for you to comment on the findings to date. The draft report covers the background, mandate, findings, conclusions and recommendations in respect of the above mentioned above-mentioned matter. If you require any further information or have any queries, please do not hesitate to contact me at telephone or Yours faithfully Lawrence Moepi Director SizweNtsaluba a member firm of Morison International A list of Directors and Partners is available at our registered offices

3 Contents CONTENTS GLOSSARY OF TERMS AND ABBREVIATIONS...4 Page 3 of 28

4 1. GLOSSARY OF TERMS AND ABBREVIATIONS Terms Page 4 of 28

5 2. BACKGROUND 2.1 You informed us that SA Express received two anonymous hotline tip offs/allegations dated 04 August 2011 and 05 September The reference numbers for the calls were T18273 and T18447 respectively. We summarise under the respective heading the allegations made: Hotline reference number T18273 requested that the matter be investigated by the board. 2.4 The caller attached a fax detailing the allegations that need to be investigated. 2.5 The details of the caller s fax have been captured as follows: a) The caller alleges that SA Express has not declared true Annual Financial Statements. This is allegedly supported by R16 million invoiced by South Page 5 of 28

6 African Airways in February 2011 which was allegedly not accrued for the 31 March 2011 financial year end. b) 4.5 The caller also alleges in the fax that an amount of R42 million involving South African Revenue Services was illegally included in the financial statements. This report was prepared solely for the purposes of reporting on our findings to. No part may be quoted, referred to or disclosed in whole or in part, by any party, without our prior written consent. Page 6 of 28

7 5. PROCEDURES PERFORMED 5.1 We obtained and reviewed the following documentation: a) The Procurement Policy of SA Express; b) The submission made to the Tender Committee on 25 September 2009 to deviate from the Tender procedures in terms of the policy; c) The Contractual Agreement signed between SA Express and Merlynn Pty g) h) i) j) k) l) Ms Patricia De Kok (GL/Tax Accountant) Ms Jenean Green (Chief Information Officer) Dave Allanby (GM: Operations) Ms Mamo Ramashamole (Senior Specialist: Supply Chain) Mr. Peter Mashaba (GM: Risk & Compliance) Mr. Mandla Nkambule (Risk Manager) m) Mr Jessie Amond (Revenue Auditor) Page 7 of 28

8 n) o) p) 5.3 Ms Desiree Elliot (Head of Department IT Business services) Mr. Brian van Wyk (Divisional Manger- Business Development & Revenue) Ms Elschke Slabbert (Creditors Clerk) We also performed various CIPRO searches with respect to Ms Welman to ascertain the existence of a formal business relationship between her and Mr Page 8 of 28

9 6. OUTSTANDING MATTERS 6.1 We are still to consult with Mr Ntshanga in respect to his role on the procurement of services from Merlynn. Evaluation of the performance of Merlynn in respect of having met the deliverables of its contractual agreement with for which they already received payment. 6.2 fruitless and wasteful expenditure in terms of Sections 38(1) (g) and 76(2) (e) of the Public Finance Management Act, The Procurement Policy of requires the following key processes and procedures to be followed when procuring goods and services: Page 9 of 28

10 7.5 a) Goods and services between the value of R1 and R500 may be procured through petty cash; b) Goods and services between R501 R299, requires a requisition form to approved and signed by either a GM of the department or the CEO depending on the level the requisition is initiated; Our investigations determined that Ms Este Welman received an invoice for R from Merlynn Intelligent Technologies (Merlynn) for the procurement of Automation of Software and Hand-held Scanners for the Congo Express ( COX ) project. According to the creditor s clerk, Ms E Slabbert, Ms Welman verbally approved the invoice in order to ensure that the payment thereof is fast tracked through the normal payment route. Discussing the invoice with Ms Welman she noted that the process followed Page 10 of 28

11 by her did not deviate from the approve process. Refer to section 7.7 hereunder for Ms Welman s comments. On paper i.e. the expense authorisation form in use at, the invoice was approved by Mr Gandela and Mr Silver, Management Accountant. 7.6 The invoice was dated 27 February 2011 and paid on the 10 March 2011 i.e Inspecting the invoice of R in question it also appears that the invoice entails billing for work not covered by the original agreement between and Merlynn. The original contract was to develop applications for the Operational Control Centre, the Technical Area and Fuel Optimisation area. The invoice represents payment for an application system to be used in the Revenue Management department which is to date not yet in used. Included Page 11 of 28

12 on the invoice is an amount of R2, 500 for the procurement of two hand-held scanners for the Congo Express project. Payment was thus effected for work not yet fully completed We further noted that the contractual agreement between and Merlynn had expired on the 31 July 2010 and was not in force when Ms Welman procured the said goods through Merlynn. The sourcing of these goods telephone application which Mr Carl Wocke of Merlynn was helping her with to find application developers who could wrote a programme for the proposed application. According to her Mr Wocke was helping her to find potential financiers for the project of which he would have been one. Page 12 of 28

13 7.16 The said CC was never registered and the business idea was dropped as Ms Welman and Mr Wocke learned that it would be expensive to make the venture feasible. Our company and directorship searches also confirmed that the CC was never registered and or that Ms Welman and Mr Wocke had no direct business relationship in the form of a partnership, joint membership and directorship in a formally registered enterprise. Comair We were however provided with a report dated 24 July 2009 which appears to be the outcome of a scoping exercise which Merlynn has already completed for. The proposal for the scoping exercise was accepted and approved on the 7 July It therefor appears that the appeal to the Page 13 of 28

14 Tender Committee was done post the fact that work to be performed by Merlynn had already been done and accepted by represented by Mr Inathi Ntshanga Investigating the anomaly further we determined that Merlynn had already invoiced on 31 August 2009 for the scoping exercise performed, while had effected a payment to Merlynn for R on the 23 September 2009 and January 2010 and the FO Project between February and July We observed that the project work was not completed within 12 months resulting in an alleged extension until end of April The contract extension was however approved on the 6 April 2011 for the period 1 February 2011 until 30 April 2011 after the work has already progressed. We however couldn t find any proof of the existence of a development agreement between Merlynn and until the end of January 2011 which Page 14 of 28

15 means that there was no contract in place between Merlynn and for the period 1 August 2010 to 31 January Therefore we conclude that the extension of the contract to end April 2011 to be invalid. It supports our view that when the payment of the R invoice occurred during March 2011, the procurement happened without there being a valid agreement in place between and Merlynn. Page 15 of 28

16 the invoice relates was not part of the Contractual Agreements signed between and Merlynn (Pty) Ltd. Furthermore there appears to be substance to the caller s allegation that the appropriate procurement procedure was not followed to effect the payment. Page 16 of 28

17 7.32 Reviewing the Contractual Agreements between and Merlynn it appears that Merlynn either exceeded the agreed contract fee and timeline and or was performed out of contract. No evidence has been seen that the exceeding of the contract fee has been approved by appropriately authorised and mandated employees. ACSA service fees as part of the ticket price payments due from SAA and must pay it over to ACSA as soon as the monies have been received. The aforementioned does not result in an expense for and is only money collected on behalf of a third party. Page 17 of 28

18 7.36 SAA is of the view that it makes the pay overs to in good faith after has invoiced them for the Passenger Revenue, Y/R Taxes and other charges and levies due based on the confirmed numbers of passengers carried by. The aforementioned numbers and charges are also calculated based on an agreed formula and the data to be used between SAA and. kept and that the agreements apparently reached are being disputed between the parties. In fact the only minutes available are from SAA which has been recorded on an to Mr. Jessie Amond and the other individuals involved in the said meetings. SAA is of the opinion that Ms Welman in her capacity as CFO for agreed to disagree who is really liable for the debt and that neither party is going to pay the other party. The alleged agreement Page 18 of 28

19 reached and the understanding thereof was that both parties would have to write off the amount and put it the matter in the past We learned from our discussions with the finance staff that they i.e. the Divisional Manager Finance: Ayanda Ntsho, the Senior Management Accountant: Mlindeli Gandela, the Tax Manager: Patricia De Kok and the method applied by SAA to be correct. He however advised that Mr Jessie Amond will be tasked to re-perform the same calculation to ensure there were no errors made by SAA, as well review the method applied by Jessie Amond to compare the results. SAA again is the only party who kept minutes of the meeting and send it off to on 3 March 2011 which did not dispute the order of the discussions held and the agreement reached. Page 19 of 28

20 If was in agreement with the calculation and the result reached by SAA, SAA would have send an invoice on 7 March 2011 to for R16, 266,429 to finalise the matter On 22 September 2011 SAA send a followed up to Mr Jessie Amond to advise that they never came back to SAA to confirm the calculation amount of R16 million was never brought up to them as an issue and that they never audited it specifically as a long outstanding balance within debtors. They now believe it is perhaps material depending on the outcome of the R42m issue. Page 20 of 28

21 Conclusions in respect of the R16 million disputes between and SAA 7.48 The R16 million in dispute between and SAA have been in existence since 2008 and is now longer than 24 months. Prudent accounting requires that the amount should have been provided for Bad Debts for the year ended 31 March 2009 already. The Net Profit for the 2011 financial year appears to the year ended 31 March DESCRIPTION YEAR-END BALANCE 25,843, (53,295, ,617, ,750, VAT CONTROL VAT OUTPUT VAT INPUT CUSTOMS VAT Page 21 of 28

22 WRITE-OFF TO I/S NET BALANCE OF VAT ACCOUNT 7.52 (773,666.93) 64,142, This table explains the outstanding VAT claims totalling R already submitted to SARS DESCRIPTION INVOICE INVOICE INVOICE TOTAL VAT AMOUNT 22,519, , ,844, ,479, Page 22 of 28 DATE OF REFUND:RMB 17 JULY MAY APRIL 2006

23 7.55 At this stage i.e. during the month of May 2011, the Tax Manager, as well as the acting CFO, Ms Welman, believed that the above amount forms part of the balance of the VAT Accounts and that it represents a recoverable amount from SARS. The tax manager however couldn t reconcile the VAT Accounts or find traces that the Customs and Exercise Duty on the 7.59 Mr Wienand then requested Ms De Kok to follow the matter up with VATit to gain a better understanding of the transaction and its tax consequences following the Audit and Risk Committee meeting. She learned that VATit had advised and assisted to submit a claim for the amount of R41 479, to SARS. She also learned that SARS has unfortunately rejected the said VAT claim on 12 August 2008 on the basis that was never a party to the transaction to acquire the aircraft. Page 23 of 28

24 7.60 VATit informed Ms De Kok that the reason the claim was submitted to SARS was because the Bill of Entry, as well as the Bombardier Aerospace invoices, was in the name of. It was then decided to submit the claim while no entries or updates were made to the accounting records of until they have received a response from SARS. VATit however learned that that the amount of R42 million can be divided into two categories with similar characteristics. The one set totalling approximately R32 million represents various items that have been processed as direct journals between the Retained Earnings account and various VAT related accounts on s Chart of Accounts. The table hereunder details the breakdown of this cluster: Page 24 of 28

25 DATE POSTED 30 MARCH MARCH JULY 2010 TOTAL 7.64 NET AMOUNT 11,737, ,619, ,130, ,486, PERIOD IT RELATES TO 31 MARCH MARCH MARCH 2010 The table above represents the net amount of various direct journals that the assessment and the expected refund from SARS, a payment of the said amount was made to SARS. The erroneous payment and receipt of the amount was confirmed with SARS being R exactly There was however still a net balance of R left in the VAT Accounts that was unexplained which the Tax Manager later learned belongs Page 25 of 28

26 to the 2009 financial year representing a Skills Levy Refund claim that was erroneously claimed from SARS. has requested SARS to amend their claim, while the amount has been written-off for Conclusion in respect of the R42 million SARS/VAT issue Page 26 of 28

27 8. RECOMMENDATIONS Based on the findings in the report it is recommended that: 8.1 should consider corrective measure against Ms Welman for the following: 8.8 should not take any action based on this draft report until the investigation is finalised and a final report is issued. 9. MATTERS FOR YOUR ATTENTION AND OR FURTHER INVESTIGATION Page 27 of 28

28 Kindly note that although we highlight the matters hereunder, we have not performed detail procedures on them in order for us to present it as detail findings from which we can make findings and conclusions. a) Our investigation into reference T18273 indicates that some of the developments performed by Merlynn may not be in alignment with the Page 28 of 28