Delta Property Fund chose to keep a forensic report into dodgy bookkeeping practices secret, hiding behind the cloak of the so-called legal privilege. 

Delta, which rents out its vast real estate portfolio mainly to government departments, stunned investors last week with a statement that a forensic investigation had found holes in its accounts.

The probe found evidence of “governance failings and wrongdoing” including “unsubstantiated payments, procurement irregularities and other business dealings” that resulted in a more than R40m fraud. 

Delta, one of a handful of black-controlled companies in the sector, said it had reported the practices to the police and other authorities for further investigation, and that the board was taking legal advice on any civil claims that may arise.

Among important issues identified in the summary of the report were payment of commission by the company totalling R43.9m for the three financial years up to February 2020, which resulted from invalid, lapsed or no-broker mandates; fraud resulting from unethical dealings worth R2.1m; and nondisclosure of related or connected-party transactions to the board.

The failure to recognise commission and property management expenses in its property valuations is likely to result in a decrease in the valuation of Delta’s investment property by nearly R2bn.

That was enough to spark a selling frenzy in the company share price, crashing by nearly a third and destroying millions of rand  of shareholder value, and conjuring painful memories of painful scandals involving companies such as Steinhoff, Tongaat Hulett and EOH. The company is now worth just more than R200m, with its shares having dropped nearly 60% in 2020.

For shareholders, whose money was used to pay Mazars Forensic and Investigation Services, a European-based audit, tax and advisory firm to conduct the investigation, it inflames their pain to learn that the full investigation report will never be made public.   

Here’s why: It is subject to legal professional privilege, meaning it had been commissioned for purposes of obtaining legal advice and for use in litigation. And it means there might be information in the document that could potentially expose embarrassing details about how the company operates.   

That is not good enough. It flies in the face of transparency under the King IV Code, the latest non-legislative guidelines for corporate governance, at the time when investors are reeling from a slew of shady practices in some of the country’s biggest companies.   

Exactly three years ago, Steinhoff shocked investors who had backed its transformation from a small local retail outfit into a R200bn multinational behemoth straddling four continents with the abrupt resignation of CEO Markus Jooste and revelations of multibillion rand fraud.  

Like Delta, Steinhoff enlisted the help of an outside, independent party, PwC, to untangle a complex web of fraudulent accounting practices that all but wiped out shareholders’ equity.  

It took PwC just over a year and tens of million of rand of shareholder money to come up with a report showing that a select group of senior executives ran a complex scheme that inflated assets and profits. That was based on an 11-page summary of a 7,000-page report that, for reasons also cited by Delta, has remained locked away. 

Worryingly, there are several other companies that chose to smear their windows with legal privilege. EOH is one of them. The once high-flying tech outfit is in the midst of cleaning up its image and fixing its lopsided capital structure after a report by  law firm ENSafrica, whose full investigation report is also hidden from shareholders. 

Tongaat Hulett pulled out the same playbook a year ago when it kept investors in the dark about the full contents of a report by PwC that found crooked bookkeeping practices at the former blue chip.   

It is hard to stand behind companies that choose opacity in the pretext of legal privilege at the time when corporate SA should be trying to rebuild trust with the broader public and investors. 

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