Deloitte qualifies Swiss miner’s accounts over potential charity ‘misappropriation’
24 Apr 2019
Auditors from Deloitte have issued a qualified opinion on the annual results from Ferrexpo, a Swiss headquartered iron ore company with assets in Ukraine, over concerns about possible ‘misappropriation’ of corporate social responsibility (CSR) funds
24 Apr 2019
As part of the FTSE 250 company’s CSR programme in Ukraine, since 2013 it had donated to a charity called Blooming Land which funds activities including diabetes prevention, eyesight care and support for the elderly.
For the year ended 31 December 2018, the charitable contributions totalled $9.5m, compared to $24m the previous year, bringing the cumulative CSR payments made to Blooming Land to approximately $110m (£85m).
Donations to Blooming Land ceased in May 2018, a decision Ferrexpo said followed continued delays in receiving additional information it had requested, which related to concerns about the use of the donations, information provided on copy bank statements given to the auditors, and also whether or not there were related party transactions involving the company’s CEO.
Ferrexpo’s board set up an independent review committee in February 2019 to review the circumstances, and it continues to work with advisers in the UK and Ukraine over the matter.
The company said the independent review committee has made some progress in receiving explanations regarding the inconsistencies contained on the copy bank statements and has received some third party evidence and explanations that could explain bank statement inconsistencies as well as some of the possible discrepancies in the application of funds by the charity. It is is undertaking further work to corroborate and verify the evidence and explanations.
The interim conclusion found that the charity was not a related party of the group, its CEO (the majority shareholder of Ferrexpo or its executive management, as defined under applicable accounting standards.
At this stage, the board said the independent review committee cannot yet conclude as to the ultimate use of the funds by the charity, however, there are indications some could have been misappropriated
In a note to the accounts, Deloitte stated that it had been ‘unable to obtain satisfactory audit evidence or explanations to conclude whether the $9.5m of CSR donations advanced to Blooming Land in the year ended 31 December 2018, and $24m in the year ended 31 December 2017, was expended by Blooming Land on legitimate business payments for charitable purposes.’
In August 2018, Deloitte received from Blooming Land additional copy bank statements and inconsistencies were identified between those and copy bank statements received previously in July 2018, which the auditors said, ‘raised concerns as to the credibility and reliability of all other information and documentation previously provided by Blooming Land.’
The note added: ‘To date, Blooming Land has not provided the original or certified copy bank statements to Ferrexpo, citing confidentiality constraints. Blooming Land has provided explanations for these inconsistencies, including the cyber-attacks against Ukrainian financial institutions in June 2017 which they stated caused these irregularities in the copy bank statement data.
‘Our knowledge of the effects of the cyber-attack on other companies and the systems by which bank statements are generated raised concerns whether these explanations are credible.’
While the IRC had come to the interim conclusion is that charity operated independently of Ferrexpo and it is not a related party of the CEO or of the group’s executive management, Deloitte said it had been unable to conclude as to whether the CEO does or does not have significant influence or control over Blooming Land.
In its annual results announcement, Ferrexpo stated: ‘The board has formed a unanimous view, based on a lack of clear evidence to the contrary and unambiguous representations given to the board by the CEO over many years, that the CEO does not have significant influence or control over Blooming Land.
‘The board together with the independent review committee are committed to understanding the full extent of any issues arising from the review and will continue to update shareholders as appropriate.’