Durban businessman Schabir Shaik was adamant that R1,2-million in loans written off as "development costs" in his company's books were expenses he incurred to "land contracts".

This was the evidence on Tuesday of Ahmed Paruk, a chartered accountant and partner at the auditing firm David Strachan & Taylor.

Shaik has pleaded not guilty in the Durban High Court to two charges of corruption and one of fraud.

Paruk's evidence dealt with the fraud charge. The state says Shaik is criminally responsible for the write-off of loans worth R1,2-million in his company's annual financial statements for 1999.

These allegedly included money paid to Deputy President Jacob Zuma. It also included the loan accounts of Floryn Investments, a company which Shaik said was a vehicle for paying donations to the African National Congress, and Clegton Investments, through which payments for a flat occupied by Zuma were made.

Shaik's counsel, Francois van Zyl SC, said earlier that his client would tell the court that he did not know about the write-off when it was done. He said Shaik would tell the court that he had only found out about it in the middle of December 1999 when Nkobi's accountant, Celia Bester, resigned and mentioned this to him in her letter of resignation.

In his plea explanation Shaik said he had been advised that there was nothing irregular about the write-off. He also said that when he found out that it was a mistake, he asked that it be rectified.

Paruk told the court he joined the auditing firm David Strachan & Taylor in 1992, and in 1999 was made a partner. He was also the partner overseeing the auditing of Nkobi's books for the 1999 financial year.

He was alerted to the loan accounts Shaik, Floryn Investments and Clegton Investments had with Nkobi. This led to a meeting facilitated by another partner at David Strachan & Taylor, Paul Gering. Paruk said Gering was also a friend of the Shaik family. He testified that his main concern about the loan accounts were whether the debts could be recovered.

"We had no idea who the other two debtors (Floryn Investments and Clegton Investments) were. He said Shaik told them at the meeting that there was 'no way' he owed all that money to the company and that it was expenses he had incurred to land contracts. He said it must have been an accounting mistake."

Paruk also testified that Shaik said the amounts ostensibly owed by Floryn and Clegton were "clear errors" as well.

"His belief was that these were expenses," Paruk said. "I accepted his explanation."

The court also heard from the Assistant General Manager of Armscor, Dawie Griesel, on the procedures followed during the 1997/1998 arms deal.

Griesel said there had been no specific procedure in place for "acquisitions of that nature" and Shaik's brother Chippy, at that stage the defence force's chief of acquisitions, had made the procedure up as they went along.

"As far as I am concerned, Chippy Shaik decided what the next step would be. He was driving the process," Griesel said.

The leader of the prosecution, advocate Billy Downer SC, explained to the court that the state was leading the evidence to put the progression of the formal acquisition process on record, as it believed that a similar, "informal" and allegedly corrupt process was taking place parallel to it.

In cross-examination Griesel was shown a letter stating that Chippy Shaik had withdrawn from deliberations because of his "family connections" to African Defence Systems. ADS had tendered for one of the subcontracts.

Griesel said the board from which Chippy Shaik had recused himself was not directly involved in the final decision-making process that led to the arms deal. "He did not recuse himself. He was still the chairman of the management committee when the results of the deliberations were consolidated," he said.

The trial continues.

With acknowledgements to Estelle Ellis and The Mercury.