Far from accountants being to blame for irregular entries, court hears Shaik explained misallocation' as development costs

Nkobi Holdings' auditors, David Strachan & Taylor (DS&T), accepted fraud and corruption-accused businessman Schabir Shaik's explanation that R1,2m had been misallocated, which justified reworking his company's 1999 financial figures.

DS&T audit partner Ahmed Paruk told the Durban High Court yesterday that during a meeting in November 1999 Shaik said "the accountant had misallocated" the R1,2m development costs. The auditors had accepted this explanation, writing off the costs as expenses in the financials.

The state alleges Shaik bribed Deputy President Jacob Zuma by making payments to him, or on his behalf, of R1,2m. Shaik has pleaded not guilty to two counts of fraud and one of corruption.

DS&T audited the Nkobi books after Shaik dismissed the previous auditors *1, Desai Jadwat, in September 1999.

DS&T finalised the financial statements for the year to February 1999 by December that year.

This revelation punches holes in arguments offered by Shaik's defence counsel. Advocate Francois van Zyl alleged Shaik's auditors and accountants were to blame for the irregular entries and that Shaik became aware of the write-off only after receiving former Nkobi financial manager Celia Bester's letter of resignation.

Bester tendered her resignation on December 14 1999, triggered by the write-off as "development costs" in three loan accounts. She testified these were bribes paid to "a lot of ministers" in cash, including Zuma.

Shaik allegedly wrote off this money via the Nkobi books as "development costs" related to expenses incurred in securing new contracts for subsidiary Prodiba. On Monday, Anthony Gibb, DS&T's audit clerk on the 1999 review, said his bosses had instructed him to make the journal entries.

In November 1999, Paruk, Shaik, Nkobi financial director Colin Isaacs and DS&T tax partner Paul Geiring had met to resolve issues around Shaik's loan account, Paruk said. Shaik signalled the R1,2m had been wrongly debited to his account and argued it should be transferred as "development costs" to the Nkobi books.

Paruk added that DS&T discovered the identity, shareholding and directorship of two entities, Floryn Investments and Clegton Investments, only after a 1999 audit. The forensic audit by KPMG auditor Johan van der Walt earlier showed Shaik was the sole director of the companies and used them to facilitate payments to the African National Congress.

Part of the R1,2m transferred to the Nkobi books reflected loans to Floryn and Clegton.

Paruk continues his testimony this morning.

Meanwhile, Armscor assistant GM for arms acquisitions David Griesel told the court there was no policy for the foreign acquisition of arms when government embarked on the multibillion-rand arms acquisition process. A policy had to be tailor-made.

He said Shaik's brother, Chippy, headed acquisitions for the defence department. "(Chippy) Shaik was to a very large extent driving the process," he said.

Tenders for the arms deal were awarded on a valuation system *2. The German Frigate Consortium achieved the highest points on the corvette tender.

With acknowledgements to Nicola Jenvey, Sapa and the Business Day.

*1 Great timing to terminate a leg of the accountability trail.

*2 This is clearly untrue. What is true is that :