Choppies has recently informed its shareholders that fraud allegations leveled against the company hold no water and cannot be sustained in a court of law.
The retail chain supermarket had engaged the services of its legal advisor, Neill Armstrong to undertake a focused investigation of the facts and provide an opinion of whether the allegations of fraud in respect of stock losses were true or whether they can be sustainable in the court of law.
It was alleged in the forensic and legal reports released late last year that the Choppies management had been involved in questionable business dealings in both Zimbabwe and South Africa.
Regarding the South Africa business, it was alleged that management had orchestrated an elaborate scheme to hide stock losses ostensibly identified by the internal auditor, by using a stock management system called “Rebate SKU” and then pretending to sell 129 million rands worth of non-existent stock to a purchaser identified in the Report.
It was alleged that Choppies received money from the purchaser then sent the money back to the Purchaser in exchange for the acquisition of four retail stores at artificially inflated prices, the result of the scheme being that the Purchaser pretended to sell the stores at the inflated price of R146 million.
The allegations were that while the purchaser pretended to sell the stores at the inflated price of R146 million, but in reality sold the stores at the price of R55 million the artificially inflated portion of the sale price (R91 million) being compensated for with R129 million worth of non-existing stock and another R38 million in smaller fictional transactions.
However, Choppies contends that evidence suggests that the prices in respect of the purchased stores were not artificially inflated based on the fact that the target stores were producing an annual turnover of R500 million.
Furthermore, Choppies whose suspension from the Botswana Stock Exchange (BSEL) was lifted on Monday, says it had recently purchased eight similarly well-performing stores using the same “three times average monthly turnover” based price determination.
Choppies has told its shareholders that after the bulk sales of the allegedly missing stock, the external auditors at the time, PwC, confirmed that no stock was missing and that all money had been received for the stock.
Armstrong is said to have concluded that these facts are inconsistent with the purely circumstantial case of fraud in respect of the stock and therefore the assumption that fraud in respect of the stock took place cannot be sustained.
The legal advisor is of the view that even if the allegations were true, no single party would have benefitted from the fraud and it appears the only tangible result thereof would have been to conceal a fractional stock loss of approximately 0.8 percent of the turnover of the Company which would likely not have affected the share price thereof.
Regarding the fraud allegations that took place in Zimbabwe, Choppies is alleged to have sold 4.5 million US Dollars worth of non-existent stock over March and April 2018 to various entities without ever receiving money in return.
Just like the alleged South African fraud, Armstrong is of the view that the internal auditor was mistaken.
It is reported that the internal auditor appears to have identified USD7.3 million worth of missing stock but only USD6 million of that “missing” stock was sold in March and April 2018.
The remaining USD1.3 million worth of missing stock is said to have been accounted for by auditors PwC, post the bulk sales.