The Land Bank performs a dual legislated mandate. On the one hand, it’s there to underpin the nation’s food security by lending money to commercial farmers at favourable rates, relative to the risk inherent in the sector. If run efficiently and effectively, the bank should have no trouble doing so. This is because it pays no tax or dividends and can raise funds relatively cheaply on the capital markets because it has a high credit rating as a result of implicit government backing.
Mismanagement at the bank has resulted in an uncompetitive offering, with the result that in 2007/08 commercial farmer facilities worth over R1 billion were transferred to commercial banks. These clients would no doubt return if a lean, well run Land Bank offered better rates. But this depends on the appointment of a suitably qualified, permanent board chairperson and CEO to ensure management performs or is replaced. They must have the guts to take the politically unpopular decisions of slashing staff at non-performing retail branches and scaling up wholesale lending to cooperatives, who could be incentivised to support development lending. Caretaker CEO Phakamani Hadebe, seconded from national Treasury when it took over from the Department of Agriculture in July, is clearly a vast improvement on his recent predecessors. But once he has his house in order, he’ll have to help recruit a suitable replacement from the banking sector.
Financing land reform The bank must also perform a development function by supporting land reforms that seek to reverse the effects of racist restrictions on land ownership and capital accumulation. This can be done through cheap and efficient credit provision to subsistence farmers who wish to become agricultural entrepreneurs, and small-scale farmers who want to expand into commercial production and enter the agribusiness value chain.
These loans carry the same inherent risk of any farming credit, but are amplified enormously through the lack of experience, expertise and market access of new entrants. The high risk of these loans can be mitigated by a thorough analysis of the commercial viability of enterprises applying for credit, if accompanied by a package of support that includes grants, extension services, market intelligence and provision of infrastructure in undeveloped former homelands. This is not an issue for the Land Bank to tackle alone. But as primary lender in this sector, the bank must drive a process of getting all grants available to emerging farmers packaged into its loans. It must also become a prime motivator at cabinet level in getting key departments to do their jobs.
Unless the agriculture department performs the technical, market and research role assigned to it properly, unless the department of water affairs processes water allocations and provides infrastructure, and unless municipalities and provincial governments spend their infrastructure grants effectively, these loans will never be repaid and are best regarded as grants that will continue to drain the fiscus with little reward to taxpayers. The auditor-general’s report tabled in parliament on 30 September contains a long list of expenditure items it regards as irregular, fruitless or wasteful. Among them is R7,8 million paid to Deloitte to conduct a forensic audit in 2007 into financial management at the bank, focusing mostly on its loans to property developers. To date no action has been taken based on its findings.
The report itself, which is in Farmer’s Weekly’s possession, admits Deloitte’s appointment was contested and irregular. It points out the board favoured a far cheaper and less contentious operational review rather than a forensic, which it believed would be considered fruitless and wasteful, and refused to authorise it. D eloitte’s letter of appointment was eventually signed by land and agriculture minister Lulama Xingwana. Two legal opinions seen by Farmer’s Weekly show this violates the Public Finance Management Act, which prohibits a minister from signing financially binding contracts on behalf of a state-owned entity. The report also cautions it should be read with several limitations.
These include that the auditors had only selective access to documentation, often copies rather than originals that could generally not be verified. Correspondence between Deloitte and the bank seen by Farmer’s Weekly supports the theory that the forensic was a witch-hunt by Xingwana against the bank’s then-CEO Alan Mukoki. Several accounts of meetings both of them attended suggested the two had a stormy relationship. The correspondence points out Xingwana insisted Deloitte issue a final report just days after it had interviewed Mukoki for nine hours on 6 August 2007.
“We cannot follow up and control his numerous assertions and incorporate the relevant information into our report before Friday, 10 August 2007,” says a letter from Deloitte. “Without that the report may be branded as one-sided, subjective and contrary to the principles of natural justice.” The letter also points out that should Deloitte’s interim findings be aired publicly, it could be accused of bias and create “the perception of a witch-hunt”.
The emphasis on the report’s findings does indeed suggest Mukoki was its primary target. Apart from interviews with executives and being provided with copious documentation, Deloitte had access to 40 gigabytes of e-mail correspondence, which is an extremely large volume of electronic data. This enabled the auditors to form a detailed picture of the bank’s land development loans. Wasteful expenditure The forensic contains copious evidence suggesting several former bank officials should be charged and investigated for corruption.
The only evidence presented against Mukoki is that he was an associate of directors of property companies that received Land Bank loans, which he admits, and that he had exerted improper influence to ensure these were approved, which he denies. Yet the report recommends a criminal fraud charge should be laid against Mukoki. Other officials against whom more serious evidence is provided should merely face disciplinary action, the report says. The argument for charging Mukoki with fraud is based on his apparent failure to disclose legal opinions that loaning money to property developers violated the bank’s legislated mandate, which confines it to lending money to farmers.
The report suggests Mukoki deliberately withheld this information from the board and land and agriculture ministry and departments. But there is evidence to suggest all these entities supported the bank’s involvement in property development, though perhaps not in the same form envisaged by Mukoki. Mukoki still insists his property loans were the best way for the bank to raise revenue to fulfil its development mandate, but the auditor-general has definitively ruled they fell outside the bank’s legislated scope. Either way, Xingwana has yet to be brought to account for spending R7,8 million on a forensic with the only concrete outcome of further irregular expenditure in the form of a R4,7 million golden handshake for Mukoki.
Massive expenditure on a business accounting system called SAP that was never properly implemented remains unexplained too. By the end of last year the bank had spent almost R146 million installing it for financial, procurement and human resources functions. Sources close to the bank said the Industrial Development Corporation installed a similar system for R60 million. Meanwhile software worth R35 million has been written off because it has not been used. Moreover, the bank has yet to supply figures on how much it spent in the last financial year on several other items the auditor general considers irregular, fruitless or wasteful.
They include subsistence and travel allowances for staff in acting positions for extended periods; paying salaries to suspended staff for extended periods because of a failure to conclude disciplinary proceedings swiftly; and procuring goods and services without proper contracts, authorisation or tender procedures. It must also still explain personnel costs of R216 million disclosed in its financials, and operating expenses of R106 million, neither of which the auditor-general could find a full account of. Reckless lending The Land Bank has a long history of lending to creditors who are unable to repay debts. Most prominent among these are R640 million lent to Ushukela Milling, which is clocking up R20 million in interest a year with little attempt to halt or recover losses. The bank must explain whether it signed a moratorium on foreclosing on the loan until March 2009, under whose authority this was done, what benefits could accrue from such an act, and what it cost the bank.
The bank must also quantify losses it suffered by a moratorium placed on collecting loans from black farmers, who at the bank approved the moratorium, and what purpose it served. A host of investigations into tens of millions of missing funds had either unaccountably gone cold or were still inconclusive at the time of writing. They include: Bills and promissory notes worth R27 million stolen from a locked safe in the bank’s dealing room because of a lapse in internal controls. These are still in circulation and could be used to defraud farmers. The bank has yet to bring anyone to book. R52 million written off when the bank honoured false and duplicated invoices issued by Goodhouse Agricultural Corporation in the northern Cape.
The bank liquidated Goodhouse in 2005, but sources close to it say no attempt has been made since to recover the money or go after the alleged perpetrators. A R35 million pilot for the Micro-Agricultural Finance initiative of SA (Mafisa) in Limpopo was halted after R18 million had been disbursed, when it was found money destined for black farmers had been pocketed. The agriculture department has disbursed R588 million to the Land Bank for Mafisa, but the programme ground to a halt because of the fraud. In Limpopo, internal forensic investigators recommended criminal prosecutions of bank officials who colluded in manipulating loan applications; a full-scale probe into micro loans disbursed in the province; compelling the NTK cooperative to disclose its financial records to determine if its employees should face prosecution; and attempting to recover losses.
Scorpions investigators say cases have ground to a halt with a private forensic company hired by the agriculture ministry. Suspicious payments totalling R80 million made by the Land Bank on behalf of the agriculture department’s R100 million AgriBEE fund created to support black farmers in various agricultural projects. The fund is administered by agriculture deputy director general Dr Phil Mohlahlane, who heads its black farmer-support section. Dr Mohlahlane was acting CEO of the bank when the payments were made and the department has reportedly suspended him. The AgriBEE transactions provide the most compelling grounds to act against perpetrators.
The bank is in possession of documents seen by Farmer’s Weekly showing funds were disbursed from a special account to companies that don’t exist. The documents include names of legal firms who held monies in trust. The Scorpions are understood to be investigating, but no criminal charges have been laid or arrests made. |fw
