DEBT RIDDEN COTTCO SPLURGES $2M ON BOSSES CARS

Senior officials at the Cotton Company of Zimbabwe unilaterally adopted a car policy without board approval and splashed almost US$2 million on new wheels, while suppliers were paid US$250 000 in advance but failed to deliver anything, it has emerged. This was all at a time when Cottco owed US$51 million.

These details are contained in a forensic audit by Deloitte and Touche, which was signed off on August 4, 2015. According to the report, management changed the company car policy to a vehicle loan scheme.  Cottco entered a lease agreement with African Century Limited without board approval.

ACL paid US$265 000 to Cottco at 15 percent interest per annum for 18 head office managers’ vehicles. These cars were then leased back to the company. Cottco then bought the cars and subsequently gave them to the managers after four to five years. Part of the report reads: “The total cost of retaining the vehicles and adhering to the replacement policy is approximately US$1 061 964 for the four years subsequent to the disposals.

Allowances paid out to the employees for the same period will amount to US$998 400.  “It was also noticed that the vehicle purchased by the sales manager Mr Kenny Zvihwati was previously allocated to Mrs Dacyl-Ray Rambanepasi (former head of finance) and on the date of signing the lease agreement, had a carrying amount of US$0.

“This vehicle was ceded to Ms D Rambanepasi as per the company car policy only for it to be bought for US$22 500 by Mr K Zvihwati under the car loan scheme through ACL. “This particular transaction effectively returned into Cottco books, a fully depreciated asset deemed to be costly in terms of repairs and maintenance and ideally supposed to be disposed of as per the company policy.”

The Deloitte auditors said they were unable to obtain any documentation authorising the motor vehicle scheme either by the board or its remuneration committee. Former company secretary Mr Pious Manamike told auditors the policy did not have board approval. Company treasurer Mr Maduviko Mubaiwa also acknowledged there was no specific board resolution approving the car scheme.

However, he had initially written on May 13 2014, to ACL head of business development Ms Lorraine Ndlovu, saying the board had approved “our capex budget as a whole including the vehicle scheme”. But Deloitte and Touche concluded: “Significant savings would have been achieved had management opted to delay the purchase of new vehicles and continued using the current fleet.”

It was also exposed that Cottco paid about US$258 750 to Brown Engineering and Universal Wire for supply of bale ties which were never delivered. A review of management schedules and internal audit reports determined that bale tie prepayments were made on September 16, 2014 (US$51 000), May 7, 2014 (US$100 000) and June 17, 2015 (US$107 750). While money was paid to suppliers who failed to honour their obligations, Cottco was failing to pay US$250 800 for 38 000 wool packs and 581 400 grain bags held by customs officials for non-payment of duty.

Cottco’s internal audit committee slammed its own systems for “a general lack of appropriate management and governance of the firm, lack of inventory control systems and adoption of the ineffective motor vehicle scheme”. “Further mentioned was the lack of sound accounting objectives and poor reporting and recording systems, leading to an overall weak control and accounting background as it related to the management of inventory.”

Cottco head of operations Mr Petros Piki controversially obtained a mortgage guarantee dated August 9, 2012 without board approval. Mr Piki wanted a loan from BancABC to buy a house in Greendale, Harare. Mr Manamike (former company secretary) wrote to Deloitte and Touche on April 17, 2015 clarifying that Cottco’s board never discussed or approved guarantees to employees who would have secured mortgage loans.

“Prior to this, it was company policy that it did not give housing loans or assist employees to get housing loans. I for one approached the then chief executive officer for the Cottco group in 2007 requesting for a housing loan or company-assisted housing loan scheme with banks and was advised that it was company policy that the company does not give housing loans or assist employees in that regard,” he wrote.

Contacted for comment, Mr Piki denied obtaining the mortgage guarantee and said he even abandoned the loan application because he could not afford it. In many instances, auditors said, Ms Rambanepasi (former head of finance) instructed finance controller Ms Nyaradzo Mushangwe to conceal critical information from the board. In an email to Ms Mushangwe on April 17, 2014, Ms Rambanepasi said,
“Thanks, I suggest we delete the row on inputs scheme cost in the assumptions page as that does not tie up with our budget balance sheet. I hope they do not request a balance sheet and cash flow statement.” Ms Mushangwe responded that same day saying, “I will remove it.”

Cottco management failed to pay US$2,6 million in taxes and owed 11 local and two foreign banks US$46 million. Cottco executive chairman and acting MD Dr Douglas Ncube said: “I am sorry I can’t comment on internal issues.”  sunday mail

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