‘NSSA prejudiced of millions in underhand transactions’

TWO companies under the directorship of a National Social Security Authority (NSSA) board member allegedly accessed a US$3 million loan without following procedures.

The authority was also prejudiced of more than US$2,6 million in underhand transactions, a report compiled by the Comptroller and Auditor-Genera’s office has shown.
The report, prepared in August this year covering the year ending December 31 2009 and subsequent events to March 2010, revealed that there was no evidence to show that board members, executive management and personnel in the investments sections declared their interests in structured deals which were undertaken by the authority.
“Loans amounting to over US$3 million were accessed by two companies that were under the directorship of one of the board members who was also chairman of the risk and investment committee,” reads part of the report, which is now before NSSA general manager James Matiza.
“The investment settlement supervisor had a close relationship with MMC, the stock-broking company which the authority engaged to purchase Star Africa shares. The shares were purchased at a price that was higher than the price quoted at the stock exchange and the authority suffered a loss of US$1,6 million from the transaction.”
The report added that the authority paid US$1 million more for the purchase of Dominion House, than the US$2 million that Bard Real Estate had advised them to offer for the property. There was further controversy over the purchase of the property as another company, Sunbeach, was suing NSSA for agent’s fees arguing that they had linked the authority with the seller of  Dominion House.
Management at NSSA, in response to the issue of failing to declare an interest, defended their position saying all investments in structured deals were done following the authority’s procedure manual which stated that “all investment deals under US$5 million were treated as money market deals that do not require MIC or BIC (investment committees) or full board involvement”.
The report also stated that when NSSA purchased Ballantyne Company in August last year for US$2,2 million, they received 10 000 shares, a third of the total shareholding, meaning that they had bought unquoted shares for US$220 each.
“In the agreement of sale, the current shareholder of 20 000 shares, would continue to hold these shares as redeemable preference shares, but the conditions, period and the price at which the shares were to be redeemed were not stated,” reads the report.
“The transaction was not carried out in a transparent manner in that what the committee approved is not what the authority acquired. The reason for the change in the item might have been to avoid capital gains tax. Hence where the authority is part of the transaction that has tax avoidance there is a risk of exposure to penalties and reputation risk.”
The office of the Comptroller and Auditor-General recommended that the transaction be further investigated.
In their response to the allegations that the purchase of the Ballantyne company was not done appropriately, the management said it was not correct to say the 20 000 shares would continue to be held as redeemable shares.
“Indeed the authorised shares were 30 000 and 20 000 issued shares were converted into redeemable preference shares and these remained with the then shareholder,” said the management. “NSSA purchased 10 000 shares which were subsequently issued.”
The management at the social security authority said the shares were redeemed in August last year with no financial loss to NSSA.
The report also observed that the authority entered into structured deals with unregistered companies  including a US$3 million collaterised deposit in July last year at a rate of 3% per month when the market rates were above this figure.
The interest rates were negotiated with ReNaissance Merchant Bank through its associate ReNaissance Trading and it was meant for the importation of wheat.
Importation of wheat was expected to increase capacity utilisation of industry, resulting in employment creation which would translate into increased levy contributions to NSSA.
“I however observed that ReNaissance Trading was not a registered company although the name was reserved at the Registrar of Companies,” reads the auditors report. “There was no evidence to support that NSSA checked this as part of their analysis. NSSA did not also check the subsequent importation and delivery of wheat, since this was the motivation behind the deal and also to safeguard its reputation by not financing speculative tendencies.”
Management rationalised on the interest rates saying during the first few months of dollarisation, the Reserve Bank of Zimbabwe directed that banks should quote London Inter Bank Operating Rate plus 1 to 6% depending on the consumer.
“This resulted in most banks quoting flat rates or rate per month as opposed to the usually rates per annum,” argued the management.
However, the management in its defence, was mum on the registration of ReNaissance Trading.
NSSA was also accused of a weak underwriting arrangement in December last year when it agreed to sub-underwrite CFX rights issue.
The authority entered the agreement before the acceptance of agreement was signed and it was only inked two months later after funds had already been deposited as commitment.
“The sub-underwriting agreement states the return and the nature of instrument to be obtained,” the report said. “Hence it was important that the agreement be signed first before the release of funds. The authority was not also aware of the underwriting fees income receivable until April 23, 2010 when external audit made inquiry of the income accrued from the deal.”
It said the decision to sub-underwrite CFX’s rights issue was not supported by technical and fundamental analysis of CFX that had a history of losses but a mere instruction to purchase shares by the executives.
Matiza could not be reached at the time of going to print last night on what course of action NSSA would take to remedy the issues raised in the audit.

 

 

Leonard Makombe

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