In a stock exchange news service (Sens) announcement, the listed retailer noted that it has sought legal opinion on the fraud allegations. In a previous statement in December, the company denied that the incident was symptomatic of “dodgy accounting” practices, while hastening to add that it was an “isolated matter” and is neither its accounting policy nor practice.

The company auditors, PricewaterhouseCoopers (PwC) notified Spar that the loan in question was a reportable irregularity that should be reported to the Independent Regulatory Board of Auditors. Following consultation with external auditors, the board agreed that an “irregularity” had occurred.

A written loan agreement was entered into “between a willing lender and borrower through a commercial bank, at normal interest rates”. However, the board conceded that the loan did not seem to have served any real commercial or economic purpose and should not have taken place. The board has confirmed that an extensive review of all loans arranged by Spar for retailers identified two other transactions of a similar nature, with the combined value of all three loans standing at R11-million. However, the loans were “isolated and occurred five years ago”.

Katharine Childs of BusinessLive reported in December that back in 2018, Spar sold a corporate-owned store with a book value of R11-million to a group of Vaal-based independent merchants. However, the transaction was structured so that Spar gave the merchants an R11-million loan to buy and refurbish the store. Franchisors do that kind of thing all the time. The problem was that the merchants only paid R8-million, while Spar recorded a receipt of the full R11-million. This disingenuous arrangement meant the company would not have to write off the remaining R3-million. This was the second such fictitious loan highlighted in the HNM report.

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The financial headache was compounded by a governance one when it came to light that the particular Spar division responsible for these creative accounting practices, was headed by Brett Botten, who was later appointed as chief executive in December 2021. Earlier this week, Botten announced his resignation effective at the end of January. Chairman, Graham O’Connor stepped down last month amid various allegations of corporate wrongdoing and fraud charges.

The board has come under severe criticism for appointing O’Connor as chairman less than three years after he gave up the position of chief executive. Best corporate governance practice dictates that there should be an interim period of three years at least before a chief executive can take on the role of chairman.

Changes to the board include the appointment of Mike Bosman as an independent non-executive director and the new chairman. Bosman has previously served as chairman of the Spur group. Dr Phumla Mnganga, who served on the board for 17 years, will step down with effect from 14 February. Dr Shirley Zinn and Pedro Manuel Pereira da Silva will join the board at that time as independent non-executive directors. BM/DM