The Scorpions and the Department of Transport are probing allegations of illegal actions by Imperial, the transport and logistics giant, in its multibillion-rand contract to manage government car fleets.
The has independently received allegations that Imperial did not give the government its fair share of the contract, which is worth R2-billion over six years. The Scorpions are particularly interested in a R4-million transfer from one Imperial entity to another.
Imperial has rejected the allegations as ”unfounded”, saying they were disseminated by a ”disgruntled former employee”. It also said it was cooperating fully with investigators and had offered the Scorpions access to documentation.
Imperial is one of South Africa’s largest transportation concerns, with operations in Europe and the United Kingdom. It reported a R16,5-billion half-yearly revenue this week.
Imperial won the government fleet tender in 1999 through Rentals to Government (RTG), a consortium it majority owns. Imperial holds 75% of RTG, empowerment entity Kagiso Investment Trust 20% and Ukamba Trust 5%.
Notable in the contract is the provision for a profit-sharing agreement in terms of which the government receives 50% of RTG’s net profit.
At the heart of the allegations is that Imperial stripped profits from RTG and transferred them to entities within the Imperial group that are not subject to profit-share with the government, effectively depriving the government of its share.
Medrad Rwelamira, acting director general at the transport department, told the M&G the ”gravity of the allegations leveled against Imperial was such that it warranted an investigation”.
In a written response this week, Dan Pretorius, the department’s chief financial officer, confirmed the probe, which, he said, was preliminary. ”I must stress that, at this point, no proof exists of any irregularities or illegal actions by [Imperial]. However, certain information was obtained by the department that compels the department to find out whether irregularities or illegal activities were or are pursued by the [Imperial or Imperial staff].
Pretorius said his department had recently appointed an auditing firm, CVMP Ramathe Forensic Accounting Services, to conduct the probe, and that the firm would work closely with the Scorpions. Asked to disclose specific allegations, he said the department could ”not go public with something that may be completely unsubstantiated”.
Gauteng Scorpions head Gerhard Nel confirmed there was a ”pre-investigation” into the allegations. While neither the Scorpions nor the department would say exactly what they are investigating, there are some indications what the probe is about.
The M&G can confirm, from correspondence provided by Imperial, that the Scorpions have requested a number of documents from it. These include financial statements, returned cheques and audit files.
A transfer of R4-million from RTG to Imperial Fleet Services (an Imperial subsidiary that is not subject to the profit-share agreement with the government) seems to specifically interest the Scorpions. They want books of record relating to that transfer, as well as any agreement between RTG, Regent Insurance and Imperial Fleet Services pertaining to the transaction.
The M&G has independently received information alleging a number of irregularities involving the contract. Again, the R4-million transfer features prominently. The information provided to the M&G on the R4-million transaction does not necessarily prove the transaction was irregular or illegal. However, some questions can be legitimately asked about the transaction, which arguably had a negative effect on the financial position of RTG, but which had a positive effect on the financial position of a subsidiary that did not have to share its profits with the government.
Other allegations received by the M&G relate to ”cost-loading”. Imperial Car Rental, another Imperial subsidiary, allegedly charged RTG excessively high prices for the rental of individual vehicles that RTG then provided to the government at lower cost.
The M&G has seen invoices confirming there have been individual instances of such charges, but, as pointed out by Imperial/RTG, that does not necessarily imply that over a ”basket” of transactions RTG would have paid excessively.
Imperial denies the allegation, saying that on the balance of all similar transactions, RTG got a fair deal — and that in fact Imperial Car Rental often supplied to RTG at below its market rates. Although documents in this regard were sought by the M&G, these were refused by Imperial on the basis of a ”confidentiality clause” in its contract with the government.
Before 1999 the government suffered major losses running its fleet of vehicles. A decision was taken to outsource the function, and Imperial, through RTG, won the tender. The deal is worth up to R500-million a year. From the government’s side, the transport department oversees the contract.
As part of the deal, Imperial bought 3 200 vehicles from the government for R80-million. Imperial Fleet Services supplies the cars to RTG, which, in turn, leases them back to the government at set rates.
Some time after the contract was signed, a fund was set up to compensate Imperial, as owner of the vehicles, for any damage to the cars that is not covered by ordinary insurance. The idea was that when vehicles are returned to Imperial once they are no longer needed for the contract, and Imperial sells them off, it should not suffer a loss over-and-above normal devaluation.
The fund is managed by Regent Insurance, another Imperial subsidiary, while the premiums come out of RTG’s budget and impact on the government profit-share.
Last year Imperial disposed of a large portion of the fleet and, according to a written answer to the M&G, put in the R4-million claim to Regent. It was paid across to RTG — ”mistakenly” according to Imperial and Regent — and subsequently transferred to Imperial Fleet Services.
The allegation received by the M&G is that the R4-million was in fact properly due to RTG, and not to Imperial Fleet Services, which is not subject to the government profit-share. Evidence tending to support this version is that RTG pays the premiums.
In response Imperial said: ”Of course RTG should pay the premiums to offset the risk”. Imperial said Imperial Fleet Services was duly entitled to the R4-million. The group confirmed that RTG made monthly payments towards the fund or provision. But, the group maintained, the fund actually belongs to Imperial Fleet Services. In support of this the group provided the M&G with three documents.
The documents comprise minutes of the RTG board on November 8 2000, a copy of an insurance policy issued by Regent Insurance to Imperial Fleet Service and a record from the books of Regent for the period July 1 2000 to June 30 2001.
Included in the documents is an e-mail from Imperial Fleet Services’s financial director Chris du Toit requesting a refund of R4-million from Regent to be paid out in three cheques. Imperial said these documents, including the e-mail, provide proof that in fact the R4-million paid to RTG by Regent belonged to Imperial Fleet Services.
Scrutiny of the policy document between Imperial Fleet Services and Regent Insurance indeed confirms Imperial’s assertion that the fund legally belongs to Imperial Fleet Services. However, there are some questions.
The Regent policy document specifies that Imperial Fleet Services can only claim to the extent of real losses when it sells vehicles. In this case there were no real losses. According to other documents provided by Imperial, the company in fact made ”a considerable profit” when it sold off the vehicles and calls the R4-million a ”refund”, as the fund held at Regent was, after the sell-off, much larger than needed to cover risk on the remaining fleet.
Either way, the question remains whether Imperial Fleet Services was entitled to the R4-million. The documents provided by Imperial do not show a clear contractual agreement between RTG and Imperial Fleet Services. It is not clear on what basis RTG was injecting funds, which are subject to profit sharing with the government, into a fund belonging to Imperial Fleet Services.
Imperial said the RTG board minutes provide the answer to this question. The minutes read: ”Provision for cover on vehicles, in terms of re-bills, at the end of the contract: Investigation has been carried out to transfer risk from RTG. The provision has been increased to take the lease period into consideration”.
Imperial’s legal representatives, Moss Morris, said: ”Our client presumes the error [the transfer initially to RTG] on the part of Regent arose from the fact that the insured was described as ‘Imperial Fleet Services — RTG warranty and maintenance’ — the latter being a description of the nature of the contract — not the insured as the policy makes clear”.
The empire strikes back
RTG, a subsidiary of Imperial Holdings Limited, wishes to react to the Mail & Guardian article by outlining the facts surrounding the allegations. The article alleges that there were certain irregularities in a RTG government fleet management contract. RTG strongly denies this and believes that the unfounded allegations are made by a previous employee.
The employee resigned after management confronted him about his poor performance. Upon resignation, he demanded a two-year severance package and a bonus, which the company rejected. He then threatened to ”create problems for RTG, if his demands were not met”. These threats were repeated at mediation meetings with the CCMA [Commission for Conciliation, Mediation and Arbitration]. The CCMA recommended that the employee refer the matter to arbitration, which the employee has not done.
The employee took his grievances to the Scorpions and the Department of Transport, claiming he was in possession of documents outlining fraudulent RTG transactions. Although these allegations were completely unfounded, RTG has agreed to cooperate fully with the Scorpions and the transport department. Neither party has lodged any formal proceedings against RTG or Imperial. The transport department and the Scorpions have confirmed investigating the matter based on the individual’s allegations, as is standard practice whenever allegations are brought to their attention.
The statements in the article that there were irregularities surrounding the transfer of R4-million from RTG to Imperial Fleet Services, excessively high prices charged by RTG in relation to the contract and the transfer of profits from RTG to other Imperial entities are incorrect. The facts are:
Payment of R4-million:
The payment of R4 million was incorrectly receipted into RTG’s account. This mistake was made by the same employee whom RTG has reason to believe is the person making the allegations. The employee was the only person who had access to the information regarding the government contract and the only individual who had threatened to ”create problems for RTG”.
Following the inaccurate payment of the R4-million in mid-2002, the employee was instructed by RTG’s chairman to correct his mistake. The employee proceeded to co-sign the transfer of funds to Imperial Fleet Services, the correct beneficiary. The financial statements of RTG, which contain evidence of the transfer, have been audited by independent auditors.
Transfer of profits from RTG to other Imperial entities and excessively high prices charged by RTG:
Each division in Imperial acts independently and RTG is a decentralised division. RTG has no incentives payable by Imperial.
If prices charged were not commercially correct, RTG would not be able to operate. RTG also sources prices from entities other than Imperial Fleet Management to ensure the best price options are given to clients.
Since management of RTG are incentivised based on the profits of RTG they have reason only to maximise its profits.
RTG adhered to the terms of the government contract and acted with the highest degree of corporate and ethical responsibility. Government is part of the steering committee that oversees the implementation of the contract on a regular basis, and is fully aware of all transactions that relate to the contract.
RTG and Imperial deny any allegations of improper conduct or impropriety in terms of, or relating to, the government contract. RTG and Imperial believe all these allegations emanate from a single employee whose stated motive was to extort a financial settlement from RTG.
Imperial drops gag bid
Imperial and RTG tried to gag the Mail & Guardian from publishing a story about the probe into its multibillion fleet management deal with the government.
The logistics and transport group launched the broadside last week, applying to the Johannesburg High Court to suppress publication on the grounds that the allegations the M&G intended to publish were untrue and defamatory.
The group decided to settle out of court this week after the M&G filed its answering affidavit, which included the salient features of the proposed article.
Imperial and RTG’s interdict application, first brought in the late hours of Wednesday last week, was, by agreement, postponed to Thursday this week to give Imperial and RTG a full opportunity to respond to the allegations the M&G intended to publish. The agreement was that the M&G would decide whether to publish after meeting with Imperial and RTG management and the companies’ attorneys.
The meeting was held last Friday. On Monday this week the M&G decided that it was publishing anyway, and on Tuesday the paper filed an answering affidavit opposing the interdict application.
In a dramatic move on Wednesday Imperial and RTG offered to settle the matter out of court and provided the M&G with a written response to the proposed article.
The interdict application came after the M&G contacted Veli Mokoena, a director of RTG, the Imperial consortium that won the R2-billion government contract.
Mokoena told the M&G that the allegations against RTG and Imperial were ”baseless”. He said the allegations, if published, ”would cause enormous damage to Imperial”.
Mokoena said the company was awaiting results on 12 fleet contracts and the publication would affect the company’s bids.
Shortly after the contact with Mokoena, Imperial and RTG’s attorneys, Moss Morris, slapped the M&G with an ultimatum: ”Unless we receive by 1pm today your written undertaking that you will not publish the proposed article, our clients will have no alternative but to bring an urgent application for an interdict.”
The M&G did not give the undertaking.