The high court here has heard that R2 million given to Deputy President Jacob Zuma by Nelson Mandela for an education trust was used by businessman Schabir Shaik to reduce his companies and Zuma's overdrafts.

In his plea explanation, Shaik has said although he transferred R900 000 to corporate accounts, he gave the money back when he realised what it had been intended for.

He has pleaded not guilty to two counts of corruption and one of fraud. The corruption charges relate to his relationship with Zuma.

Forensic auditor Johan van der Walt referred to the Mandela money yesterday, his fifth day in the witness stand.

He said it was evident from a cash flow analysis that the Nkobi group "came under pressure during 1999 to 2001*".

Payments made to and for Zuma had a fundamental effect on the business**. As the cash of the Nkobi group decreased, the payments made to Zuma and on his behalf increased.

Were it not for the payments to Zuma, the group would have remained in the black.

According to van der Walt's report, the payments to Zuma increased steadily from January 1995 and by the beginning of 2002 added up to around R1,2m.

By March 1999, van der Walt explained, a note from Nkobi's auditor, Desai Jadwat, had made it clear that three of the companies in the group were technically insolvent and should not be continuing to trade. A letter from a group accountant for Nkobi warned Shaik to watch his ANC expenses***.

Following the paper trail of the Mandela money, van der Walt found that:

On October 2, 2000, Mandela endorsed a cheque of R2m to Zuma. "We don't know the source of Mandela's funding," van der Walt said.

On October 17, 2000, Zuma paid the Jacob Zuma Education Trust R1m. This money went to the kwaZulu-Natal RDP Education Trust, from which it was paid to an unknown beneficiary.

"I assume the money was used for its intended purpose," van der Walt said.

The next day, Shaik transferred R900 000 from Zuma's account to Floryn Investments, one of the companies accused in the case.

Between November 3 and November 30, 2000, a number of payments to companies in the Nkobi group and the legal firm Ditz Incorporated were made from this money.

On December 4, 2000, Zuma wrote a cheque of R1m to pay for Nkandla, the traditional homestead he was having built in rural kwaZulu-Natal. Shaik stopped the cheque.

Shortly afterwards, Shaik began putting a "service provider agreement" with arms company Thomson-CSF in place.

Shaik has said in his plea explanation: "These funds were given to Zuma by former president Nelson Mandela. I transferred R900 000 to Floryn Investments. I later established the R2m was intended for the Jacob Zuma Education Trust and the Development Africa Trust; R1m was in fact paid to the education trust."

"I had no knowledge of the Development Africa Trust, but understood that Dr Zweli Mkhize was a trustee. He explained to me that the money was intended for confidential ANC activities. I made arrangements with Dr Mkhize to repay the funds transferred from Zuma's account to the account of Floryn Investments, to the Development Africa Trust."

According to the state the trust is not registered as a fund-raising institution and has not been registered for tax purposes.

"I have since learnt that the object of the Development Africa Trust was to raise funds for the care and welfare of tribal leaders and the Zulu royal family."

"It had nothing to do with a scheme to disguise payments form (sic) [from] Thomson-CSF International Africa."

The court heard that Shaik had been confronted by his auditors about the irregular "writing off" of loans in Nkobi's books.

According to a letter handed to court, Shaik said that the money was used to accommodate IFP politician Walter Felgate when he defected to the ANC in 1999.

Shaik said he had considered it his company's social obligation to fund the peace process in that "volatile environment".

The trial continues today.

With acknowledgements to Estelle Ellis and the Cape Times.

* Is it because the Occult Shareholder wanted his dividends in advance (of ADS paying such dividends)?

** The Occult Shareholder wanted his dividends in advance.

*** More bribes.