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Report 68 Business Practices Committee

9. 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.




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.