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Cabinet to tackle dairy crisis

Caswell Tlali


MASERU — Cabinet is studying an investigative report into the alleged corporate malfeasance at the Lesotho National Dairy Board (LNDB) and Lesotho Dairy Products (Pty) Ltd, the Sunday Express can reveal.

Cabinet’s decision came after an investigation by a South African firm, Gobodo Forensic and Investigative Accounting, which was commissioned by the Ministry of Finance to look into the problems that have hamstrung Lesotho’s dairy industry.

Gobodo’s investigation centred on the LNDB’s board, its operations, financial management and dealings with LDP.

The LNDB was established by the Ministry of Agriculture in 1991 to prescribe standards of production, storage, packaging, processing and distribution of dairy products.

The LNDB is also empowered to issue permits to companies that produce, process and distribute dairy products.

LDP was established earlier in 1987 as a result of the bilateral economic ties between Lesotho and Canada.

Growth in the dairy industry has however stagnated amid allegations of mismanagement, power struggles and continued marginalisation of dairy farmers’ associations which are the main producers of milk for LDP.

LNDB secretary Selematsela Monts’i, who also sits on the LDP board, confirmed cabinet is now dealing with the matter.

Monts’i said LNDB and LDP issues were “very delicate and sensitive”, adding “even people involved do not talk about it”.

“It is now in the hands of cabinet,” Monts’i said. “I am not in a position to give you an interview.”

The Sunday Express is in possession of documents showing that the LNDB and LDP are facing a serious governance crisis.

The report by Gobodo alleges that the “LNDB could be abusing the levies (it) collected”.

The move to launch investigations came after local dairy companies and associations complained about the LNDB’s governance and the monopoly of dairy products distribution by Denmar Dairies Enterprise which they suspected was South African-owned.

The local dairy farmers wanted to have a stake in the running of LDP which they said should be passed on to them after the Canadian government’s support stopped.

The most vocal of the local dairy farmers was the Matsibolo Dairy Farmers Association (MDFA) whose secretary, Tseliso Tsenoli, argued that upon the establishment of LDP it was promised that after some time the company would be handed over to the dairy farmers.

The MDFA presented its complaints to Assistant Agriculture Minister Ramootsi Lehata.

The MDFA also complained that LDP had not held an annual general meeting since 1987.

The LNDB has been there for the past 20 years, they said.

“LDP is supposed to be a public enterprise according to the memorandum of understanding between the government of Lesotho and CIDA (Canadian International Development Agency),” Tsenoli said in an interview this week.

“We are aware that there are some individuals who are prepared to do anything to stop it being passed over to the dairy farmers’ associations.”

Gobodo released its final report in February, concluding that the LNDB and LDP were mismanaged.

The report said Gobodo’s team had been denied crucial documents that would show how the two bodies were managed or mismanaged.

For example, the team was not privy to the accounting records of the LNDB because “Monts’i refused to grant us access to such documentation”.

They said they did not have accounting records “supporting any income and expenditure. We also did not obtain access to the LNDB’s bank statements.”

Gobodo Forensic says in terms of audited financial statements, the levy income of the LNDB was M1 222 480 in 2006 and M1 258 181 in 2007.

This, according to investigators, constituted 98 percent of the LNDB’s total income for 2006 and 2007.

They also found that the LNDB incurred M209 782 in development expenses in 2006 and M386 465 in 2007.

“It is unclear what the said development expenses entailed,” reads the report.

“There are allegations that the amount of levies collected was understated by the LNDB and that the LNDB could be abusing the levies collected.

“Due to Monts’i not granting us access to the documents of the LNDB, we are unable to either confirm or dispel the allegations.”

The investigators say it was wrong that the LNDB was a shareholder in LDP because of possible conflict of interest issues that may arise.

“The perceived conflict of interest of the LNDB vis-à-vis the LDP resulted in the LNDB’s failure, in our view, to take the normal business steps to recover this debtor (LDP), namely the institution of legal action or finally applying for the LDP’s liquidation,” Gobodo said.

“We conclude that the LDP views the LNDB as its financial custodian, as on request the LNDB supplied the LDP with financial assistance on more than one occasion.”

The investigators say there is no evidence that there was a MOU indicated that the LDP would be transferred to the dairy farmers’ associations.

It was also found that in 1990 CIDA and Lesotho government representatives transferred their 500 shares to Monts’i and five others instead of the dairy farmers.

“The transfer may have been invalid due to other considerations.”

They also found that in 1998 eight dairy farmers’ associations were issued with share certificates.

“We are of the view that the aforesaid shareholding may have been invalid.”

The shares were later increased to 2 400 and investigators say it was unlawful.

On September 11 2001 there was an extraordinary general meeting where a new body called the National Dairy Farmers Association (NDFA) was allocated those 2 400 shares.

The LNDB got 800 shares while LDP employees were given 400 shares.

Investigators say this was fraudulent.

Minutes of that meeting were signed by the former agriculture minister, the late Rakoro Phororo.

“We conclude that the shareholding of LDP is clouded in mystery and contradiction and may be totally invalid,” says the report.

One-hundred-and-sixty-one shares were allocated to an unknown Morekisi whom MDFA lawyer Tankiso Hlaoli asked LDP legal representatives Du Preez, Liebetrau & Company to identify.

Hlaoli also wanted to know why LDP was monopolised by “Denmar Dairies of South Africa”.

Gobodo’s damning report says LDP held only two AGMs in 20 years, because it had resolved “not to hold any AGMs until the share issue has been settled”.

LDP, it has been found, failed to appoint an auditor in terms of the Companies Act.

“We conclude that for a period of time LDP employed its commissioned accountant to audit the books of the LDP in contravention of the best practice and mockery of the principle of independence.”

Investigators also found that there was a “misdirection of money collected from farmers in respect of dairy meal repayments”.

Denmar Dairies’ shareholding in LDP has also been found to be invalid.

Denmar Dairies is the sole distributer for LDP’s products in a contract that started in 2002 and will end in 2012.

Its shareholding, according to investigators, “would in all probability entrench their monopoly indefinitely”.

Denmar Dairies, it has been found, received a commission of M2 790 107 in 2008 and M1 998 648 in 2007 from the LDP.

Denmar Dairies bears no risk of production, transportation and processing of raw milk.

Its only risk is in finding a market and distributing packaged milk to retailers.

The company collects revenue from sales to retailers and then subtracts its commission before paying the balance to LDP.

Investigators recommended, among others, that Trade Minister Popane Lebesa should compel LDP to co-operate in investigations and that the High Court should be approached for an order to force the company to release needed documents.

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