The Land Bank took drastic steps to halt massive losses through fraud, theft and debt write-offs when the Treasury took it over from the Department of Agriculture earlier this year, its caretaker CEO Phakamani Hadebe said.
The bank lifted a moratorium placed on the collection of loans made to black farmers and brought in officials from the receiver of revenue to improve on bad debt-collection practices. Further measures included seconding management staff from the Industrial Development Corporation and the Development Bank to fill credit, risk and internal audit positions. Efforts to recruit a chief financial officer (CFO) were “at an advanced stage,” said Hadebe. He also extended a contract with auditors PricewaterhouseCoopers to expand its forensic audit into suspicious payments the bank made on behalf of the agriculture department’s R100 million agriBEE fund, created to support projects run by black farmers.
The bank’s former CFO Xolile Ncame had supplied investigators with a dossier and supporting documents seen by Farmer’s Weekly, showing funds were disbursed from a special account in the Land Bank to companies that don’t exist. Hadebe also formed a task team assisted by external auditors and investigators contracted for 10 months to follow up on a preliminary investigation that found evidence of a host of irregularities, including in staff recruitment, salary payments, forced suspensions and dismissals, and the appointment of consultants.
Hhe extent of the rot at the bank under land and agriculture minister Lulama Xingwana was officially acknowledged for the first time on 30 September, when the bank tabled its annual report and audited financials in parliament. The report provided a frank account of a breakdown of internal controls, poor lending practices, wasteful expenditure, irregular appointments, fraud, negligence and gross misconduct.
Xingwana was removed as political head of the bank in July and replaced by finance minister Trevor Manuel, who seconded senior officials including Hadebe. The existence of the moratorium on loan collections from black farmers had never been publicly disclosed either. In its report on the bank’s financials, the auditor-general said there was no evidence Xingwana or her board had the authority to approve the moratorium.
Hadebe said the bank had to justify the R700 million cash injection and R1,5 billion guarantee extended by Treasury, which was the only reason it continues to enjoy a high credit rating at a time when impairments and non-performing loans were growing. “The moratorium contravenes the Public Finance Management Act, which stipulates a public entity must take effective and appropriate steps to collect all revenue due to it,” he said claiming steps taken to stabilise the bank were already showing positive results. “We have been able to convince new investors to buy the Land Bank paper and liquidity has improved,” explained Hadebe. The bank was also in talks with farming cooperatives and farmers who had defected to commercial banks. “They have indicated a willingness to return,” he added.
In the financial year 2007/08 the bank lost loans of over R1 billion to commercial banks. The bank expects to submit its turnaround strategy, the latest in a long list it has produced, to its board and to Treasury by early November. As head of its assets and liabilities division Hadebe took part in Treasury’s deliberations on the bank’s turnaround strategy in 2006 which resulted in the R1,5 billion guarantee being approved last year.
Hadebe conceded he was in for a tough grilling when presenting the bank’s annual report to parliament’s finance committee. A date has not been set for the hearing yet. “report was not nice,” he said. “The list of qualifications in the audit was long, but at least it gives me a clear picture of the challenges I’m dealing with.”
Outstanding concerns include the possibility the bank faces further write-offs from a bungled attempt to implement a new IT system. By the end of 2007/08 the bank had spent R145,8 million installing an SAP system that wasn’t operational. Software costs of R35 million were written off and it remains uncertain if the system will even be used. Hadebe said an independent firm would conduct an audit and assessment before it was decided whether to scrap the system.
The auditor-general’s report also couldn’t verify whether Manuel and Xingwana had authorised a R4,7 million severance package paid to former CEO Alan Mukoki, and the salary paid to an acting who replaced him, as required by the Land Bank Act. Further irregularities included the failure to have an audit committee in operation throughout the year, an internal audit unit that didn’t function fully, late submission of financials and significant difficulties accessing information from senior management.
That, alongside a breakdown in controls in disbursing funds, meant the auditor-general couldn’t verify the accuracy of several large disbursements ,including over R70 million disbursed on behalf of the agriculture department; transactions included in personnel costs of R216 million; and operating expenses totalling R106 million. Shortcomings in financial reporting caused deficiencies in loan impairment calculations, the report said. – Stephan Hofstätter
