PwC has flagged to the regulator a loan advanced by Spar to one of its independently owned stores as a reportable irregularity, the latest episode in the governance drama of one of the country’s biggest grocers.
The loan, used for the purchase of an outlet, was repaid by Spar monthly via the so-called marketing subsidy and would have created a small but dishonest distortion of the financial health of a division of the company in its 2018 accounts.
Spar said on Thursday that its auditor, PwC, notified the retailer that it believed a loan was a reportable accounting irregularity, which required PwC to inform the Independent Regulatory Board for Auditors (Irba).
Business Day previously reported on two fictitious loans that Spar was repaying but was recording incorrectly in its books.
Spar’s auditors also received a whistle-blower email from a retailer, Amaan Sayed, in November who had his R8m loan repaid by Spar through what was recorded inaccurately as a marketing subsidy. The loan was used to buy a store. He asked PwC to report the accounting irregularity to Irba.
Following media coverage and whistle-blower revelations, the Spar board assembled a legal team and an accounting expert to fully investigate all loans to retailers. At the end of the process, the board agreed with Spar’s auditors that a reportable irregularity had occurred.
The investigation identified two other transactions of a similar nature that took place five years ago. The combined value of the three loans was R11m, with Spar saying they were “isolated”.
FNB Wealth and Investments Wayne McCurrie said it was “highly unusual” for a reputable listed company to have an accounting irregularity reported to Irba. While the loans are negligible in relation to Spar’s R25bn market cap, McCurrie said “it’s bad news regardless of the rand value”.
Two of these loans were detailed in a report by lawyers Harris Nupen Molebatsi (HNM) that detailed an investigation sparked by eight black retailers who felt unfairly treated.
Details of the two fictional loans and the report were presented to the board in 2021, but BDO audit and advisory firm, which assisted in the HNM investigation, declined to give an opinion on whether the fictitious loans were accounting irregularities or fraud.
Spar’s board has now agreed the loans were incorrect.
It said on Thursday “this arrangement is not Spar practice and there is no evidence to support any allegations of accounting irregularities with any other loan transactions”.
Spar added that it would like to reiterate its deep regret over the allegations of discrimination against black retailers.
According to the findings of the investigation by the law firm, the allegations of discrimination against any retailer were unfounded. Spar said the HNM report contained highly confidential information.
Spar and eight retailers are involved in an continuing mediation process relating to claims lodged by these retailers and every effort is being taken to resolve these issues quickly and effectively, it said.
The report highlighted certain areas of improvement and these areas are being addressed at distribution centres, Spar said.
It said the stepping down of former chair Graham O’Connor from the board at the upcoming annual shareholder meeting and change of directors would address all allegations of a lack of independence.
O’Connor was the CEO before becoming chair, which contradicts recommendations of the King IV code of governance that suggests a three-year gap. He stepped down as chair in December.
His family does more than R250m worth of business a year with the Spar Group in a range of interrelated party transactions.
Meanwhile, Brett Botten will step down as CEO and board member at the end of January.
Spur chair Mike Bosman has replaced O’Connor as chair at Spar. Two new independent directors, Shirley Zinn and Pedro Da Silva, will join after the AGM on February 14.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.