Durban : Schabir Shaik instructed his auditors to write off R1,2m in Nkobi Holdings' financial statements as development costs three weeks before the businessman said he had any knowledge of the irregular payments, the Durban High Court heard yesterday.

David Strachan & Taylor (DS&T) audit partner Ahmed Paruk drew the battlelines for the trial yesterday when he detailed a meeting between Shaik, himself, DS&T tax partner Paul Geiring (sic Gering) and Nkobi financial director Colin Isaacs held in November 1999.

Shaik's defence counsel, Francois van Zyl, alleges the auditors and accountants were to blame for the irregular entries and that Shaik became aware of the R1,2m write-off only after a resignation letter from former Nkobi financial manager Celia Bester.

Bester tendered her resignation on December 14 1999, triggered by the write-off as "development costs" in loan accounts.

She testified these were bribes paid to ministers including Deputy President Jacob Zuma.

Shaik has pleaded not guilty to two counts of fraud and one of corruption. T he state alleges the R1,2m expensed as development costs in the Nkobi financial statements to February 1999 hides bribes paid to Zuma.

Yesterday Paruk insisted a meeting took place in November at which Shaik ordered the writeoff. The agenda also included reducing Shaik's directors' fees and revaluating Nkobi subsidiary Kobitech ahead of an acquisition in the group by electronics group Symbol Technologies.

DS&T became aware Shaik was making payments for Zuma only in 2000.

Paruk said the auditors had accepted Shaik's explanation that the money was for legitimate business expenses relating to securing new contracts .

"I don't owe the company any money. All the expenses were for the benefit of the company," Paruk quoted Shaik as saying .

However, after the Scorpions began investigating Shaik, DS&T senior partner Alec Moodie wrote to Shaik demanding further information. Shaik had never itemised the expenditure beyond "travel and accommodation".

The auditors also acknowledged "a fundamental error" in the 1999 financial statement when consolidating the 2002 accounts. A note to the accounts says Shaik had expensed "certain payments as development expenses" and R964868 had to be reversed into the earlier financial figures and interest charged.

Judge Hillary Squires questioned why Paruk had not investigated the expenditure further and whether he "accepted everything every director tells you".

Shaik's explanation that he had used his personal loan account for company business because the Nkobi overdraft had reached its limit did not absolve DS&T from checking the information, Squires said.

"With hindsight we should have done ," Paruk responded.

Van Zyl said Shaik would deny Paruk's testimony, and would claim he never attended the meeting and did not authorise the change in his director's fees that meant he reduced his personal income tax due for the year.

Earlier Paruk said Shaik did not pay personal income tax because Nkobi had sustained losses. Geiring had made the decision to reduce Shaik's director's fees, and Paruk and Shaik had accepted the suggestion.

With acknowledgements to Nicola Jenvey and the Business Day.

*1 Paying money to ministers of government to secure new contracts is not legitimate in terms of Section 217 of the Constitution of the Republic of South Africa Act of 1996, nor under the Prevention of Corruption Act of 1994, nor even under the common law of most countries - except France.