Monday, March 30, 2020

Choppies settles for none of the top 4 Auditors

Botswana’s biggest retail chain, Choppies Enterprises, has finally appointed a new external auditor, five months after it was ditched by its auditor which refused to express an opinion on its messy financials which had plunged the company in the country’s biggest corporate scandal.

On Thursday, the new Choppies board of directors announced that it has selected Mazars as auditors to its shrinking empire, paving way for Choppies to finalise its financial results which are overdue. Interestingly, Mazars has close ties to Choppies co-founder and chief executive officer, Ramachandran Ottapathu, who has been at the centrepiece of Choppies’s rapid decline, marred by shoddy accounting work and a boardroom brawl.

Ottapathu left his native country India as a young man on the prowl for new opportunities, arriving in Botswana in the early 1990s to join Mazars, a small accounting firm in Gaborone, as an auditor. As fate will have it, Mazars was doing accounting work for Wayside supermarket, a predecessor to Choppies,  founded by Farouk Ismail in 1986, which by then was a struggling enterprise with one store in Lobatse.

Ottapathu handled the Wayside’s account, and by the end of the contract there was visible improvement in the financial position of the struggling store. Impressed by his accounting tricks, Ottapathu was recruited to the retail business in 1992, and seven years later he became a shareholder, and led the company on aggressive expansion, that would later nearly cost him his job.

The first real expansion happened in 2000 when Choppies opened a superstore in Gaborone, a decision that proved to be wise as the company’s finances improved drastically. In the same year, Ottapathu was appointed the CEO of Choppies, a position he has held ever since. From there on, Choppies became a sensation, opening branches in small villages across Botswana, and after it listed on the Botswana Stock Exchange (BSE), the budget grocer embarked on a costly expansion outside the country, and this has been blamed for much of Choppies’s fall from grace.

In June 2018, the budget grocer failed to publish its full year financial results after its newly appointed auditor, PricewaterhouseCoopers (PwC), found a financial system riddled with errors, made worse by byzantine transactions that obscured Choppies’ true financial health. When the public finally caught a glimpse of the results, which were more than a year late, they were shocked at the massive losses: a P445 million loss compared to a loss of P170 million in 2017, which had been restated after it was previously booked as a profit.

The retailer’s net asset value (NAV) shockingly reduced to P576 million, which was a decrease of P458 million or 44 per cent from P1 billion in previous year. The 2017 NAV was also a further reduction from P1.5 billion, a 32 percent reduction mainly due to restatements of 2016 results.

The overdue results were accompanied by a disclaimer. PwC, which dropped Choppies as a client a year after it was appointed, refused to express an opinion of the financials, explaining that there were several matters which prevented the PwC team from obtaining sufficient and appropriate audit evidence as required by International Standards on Auditing  to form an opinion.

Choppies’s two-member audit and risk committee (ARC), appointed last year September during a tumultuous Extraordinary General Meeting (EGM), has revealed that the retailer lacks the governance and financial hygiene standards expected from a listed public company. Mazars is expected to speed up the remaining audit work at Choppies, to allow the retailer to release the full year results for the year ended June 2019, which are five months overdue. Choppies’s shares remain suspended on both the BSE and Johannesburg Stock Exchange (JSE), for failure to comply with listing requirements that require listed companies to release audited results within three months of the reporting period.

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