BOSETU knee-deep in sleaze - Auditors
Innocent Selatlhwa | Friday February 15, 2019 18:00
ZHE is a logistics company, which is now on its knees despite BOSETU having injected at least P30 million in it. BOSETU had engaged Pashur Investments to carry out an audit into the company it had bought a 25% stake in three years ago. They wanted the auditors to undertake a review of the current status of business, determine future prospects of business success and whether it could be worthy to continue investing in it.
They were also tasked with establishing whether funds invested by BOSETU have been used appropriately for the purpose of the business.
The audit was specifically done for this company while there is another ongoing audit into other BOSETU investments.
The auditors state that BOSETU was invited to take up 25% shareholding in the company by contributing P10 million. They bought their shares from company directors Joel Baaitse and Ronnie Mojadife.
The auditors labelled this acquisition an illegal transaction as it was done through the political wing of the union without knowledge of the business wing that is mandated to do investments.
The report states that BOSETU paid a total of P25 million from September 2016 with the last payment made on March 10, 2017.
“Conversely, the majority shareholders, Baaitse and Mojadife only contributed towards registration of the company and P1,000 for opening the company’s bank account. It is therefore clear that the whole operation had been funded by BOSETU despite being the minority shareholder,” reads the report.
The auditors further state that at the end of their review, records held by the company and Companies and Intellectual Property Authority (CIPA), indicate that shareholding has not been transferred to BOSETU.
“The Shareholder Agreement was in September 2017 after BOSETU had already paid P30 million. In addition, there are many errors in the agreement, including alteration of signing date by hand. Consequently, it cannot be relied upon as a binding document. In the absence of information to the contrary, the funds that BOSETU contributed towards ZHE legally amount to soft loans and not shareholding,” the auditors wrote.
The report also states that the valuation figure was based on projections, which were unrealistically high compared to those used during the company’s launch and the first financial statements and are far from the current accruals.
They also state that the asset base of the company is far from the amount invested, which means either the BOSETU investment has been impaired or most of the money was channelled towards operational expenditure.
The auditors note inconsistencies in the number of shares in ZHE, which influences the valuation.
“The inconsistent number of shares and their values throughout the process suggest that BOSETU invested in a shell company without any value and whose life would solely depend on the union funding both its capitals and operational expenditure requirements despite being the minority shareholder,” the report states.
On the usage of funds, the auditors found that there have been poor financial management and control over expenditure characterised by lavish spending without prioritisation and due consideration of value for money resulting in lack of working capital, which is crippling the business.
“There has been poor control over cash with no defined petty cash limit resulting in withdrawals ranging between P10,000 and P60,000 under this classification.
We could not be furnished with documents to prove usage of the money and these remain unaccounted for. One employee who has since left the company obtained over P959,400 from October 2016 to June 2017 without accounting for it.
While the business was launched in February 2017, and only started operating in April, the company incurred a huge monthly bill of P244,000 per month from September 2016 culminating in a cumulative figure of P7 million compared to revenue of P457,742 over the same period. This amount includes P65,000 pay for each of the two directors. We find it very unreasonable for the company to pay employees so much money for eight months before commencement of work and could be an indication of ill-timed recruitment,” the report states.
The auditors also bemoaned that significant amounts were spent on marketing and branding, which raises eyebrows as to whether or not the amounts were spent as purported. “The rates at which service providers charged the company were exorbitant in many cases, which raises suspicion of collusion with intent to siphon BOSETU money through ZHE,” noted the auditors.
The company paid P100,000 for a cold room in February 2017, BOSETU executive secretary and ZHE board member, Othata Batsetswe was also paid P30,000 the previous month and P155,756.52 in December 2016 for supplying a cold room.
Batsetswe was later paid P25,000 as refund while there is no detail of what he was being refunded for.
“We find it disturbing that the person who facilitated BOSETU investment in ZHE and sits on the board of the company as BOSETU representative is a supplier to the same company and has been obtaining funds there from. This behaviour suggests that Batsetswe has vested interest in ZHE and did not declare such when advocating for investment in the company.
Consequently, we cannot rule out the possibility of him misleading NATEX to invest in ZHE and obtaining money through other channels under some disguise. We therefore recommend investigation by law enforcement agencies,” states the report.
The auditors state that there is poor record management and system of internal control particularly on the finance and administration side, which exposes the company to risk of fraud.
The company is said to be having a shortage of vehicles forcing the company to outsource, which exposes business to competitors.
This, auditors say result in goods being delivered late to customers. The company is said to be swimming deep in debt due to many legal battles.
Lawyers are said to be refusing to represent the company due to outstanding dues. Despite the challenges, the auditors still believe the company can still do well if proper management can be put in place. They also state that a significant cash injection can help.
BOSETU suspended its executive secretary last year November and the union is expected to finish its internal forensic audit by the end of this month for the whole union. Batsetswe is also understood to be due for a disciplinary hearing in the near future.
BOSETU secretary general Tobokani Rari would not be dragged into comment, stating that there was an internal process ongoing and speaking would prejudice the process. Batsetswe would also not comment stating that he was not privy to the contents of the report.