Former Turnall bosses accused of fraud

turnallTinashe Makichi Business Reporter
Turnall Holdings had to restate its 2013 accounts after an internal audit carried out at the company unearthed fraudulent transactions alleged to have been perpetrated by the previous management.

The previous management was led by Mr John Jere who was the managing director, the human resources executive Elizabeth Mamukwa and the finance director Mr Robert Dube who passed on.

Fraudulent activities unearthed included compromised systems and control, fraud among other corporate governance issues.

Turnall managing director Mr Caleb Musodza told an analysts briefing this week that an audit was carried out last year and it revealed disturbing issues.

“An internal audit carried out in the second half of 2014 revealed disturbing issues ranging from compromised systems and controls, financial reports to governance issues. Further relevant work is continuing under the Board Chairman’s office,” he said.

Mr Musodza said the consolidated financial statements have been restated for prior period after errors were identified which arose as a result of systems deficiencies in the processing and posting of production orders within the manufacturing module.

“These errors became apparent after a systems upgrade. The effect of this was a duplication of inventory values and unaccrued expenditure that was erroneously omitted from the cost of purchase of the raw materials,” he said.

Other issues include duplications in the processing of a purchase of raw materials, deficiencies in the setting up of the manufacturing accounting module for Nutech product at inception.

“This resulted in the over-capitalisation of costs to inventories and deficiencies in the internal control processes around investigation of sales returns and processing of related credit notes,” Mr Musodza said.

Going forward the company plans to set up a non-asbestos business unit while efforts to implement a turnaround strategy following FBC Holdings exit from the company are ongoing.

He said a new management team has been put in place (with vast business experience). Mr Musodza said the 2014 half-year results, shareholding changes and the management changes which all took place in a short space of time, resulted in a confidence crisis with key stakeholders which new management had to attend to urgently.

“The company underwent a clean up and is now objectively looking forward for success. We are working towards the creation of a non-AC revenue and profit stream for the company. This is the future of Turnall, and already we had a good starting point with Nutech, GCIS and concrete products,” said Mr Musodza.

He said building blocks for the new venture are firmly in place driven by concrete products, galvanised iron sheets products and non-asbestos fibre cement products.

The company will scale up the contribution of this non-asbestos portfolio to diversify risk, with both domestic and export markets being targeted.

The company is looking at increasing the production of non-AC roofing sheets for export markets. Traditionally, the company was involved in the production of asbestos products, fibre cement proofing, piping and accessories.

Turnall invested in anon-asbestos plant in Bulawayo which was commissioned in 2011 following a global ban on asbestos use which South Africa enforced in 2008.

As a result, exports fell from 24 percent of total sales in 2008 to 6,1 percent in 2009.

In 2014, exports contributed only 2,7 percent to sales down from 4 percent in prior year.

Turnall’s revenue for the year end to December 2014 went down to $33,8 million compared to $42,3 million recorded in the prior year with exports contributing three percent.

A loss before tax of $14,9 million was recorded leading to a tax credit of $3 million and a loss after tax of $11,9 million

An analysis of the expenses charged against the consolidated statement of profit or loss and other comprehensive income indicates that a total of $11,5 million were non-recurring expenses in terms of their size nature and incidence which were recorded in the second half of the year.

According to the financial statement current year revenues were predominantly cash following the change in business model.

Mr Musodza said focus on cost containment resulted in selling and administration expenses being 11 percent lower than prior year.

For the period under review, balance sheet was thoroughly reviewed resulting in a number of impairments particularly on inventories and accounts receivables

The clean up exercise within the company saw the provision for credit losses increase by $4,4 million resulting in a rise in administration expenses by 45 percent.

These together with low margins stemming from production challenges experienced, and stock impairments’ resulted in an operating loss of $13,4 million against an operating loss of $22 million in prior year.

Net finance charges for the period amounted to $1,5 million which was a 52 percent reduction due to lower borrowings .