Discuss the Circumstances Under Which Ukweli’s Fraud Was Exposed.

1. Discuss the circumstances under which Ukweli’s fraud was exposed.

What do you think were the reasons for the fraud?

Could this fraud have been prevented?

Ukweli fraud was exposed at a rather unfortunate time for the company.

The circumstances that Ukweni fraud was exposed were rather unfavorable on their part.

Circumstances under Ukweni Fraud was exposed:

Financial Situation

Deep in the midst of intentionally misstating the company’s financial position and falsifying information to investors the fraud was exposed.

Whilst truthfully the company was not doing well and in order to resolved or help initiate the gap between this mispresented financial Assets and Actual Assets an acquisition was put in place.

The intention merge of Maytas Infra and Maytas Properties resulted in investors reacting negatively and therefore the acquisition was not followed through.

This resulted in other measures like bribery for lucrative contracts as a resort to restore investors confidence.

During this time Ukweni had to deal with the resignation of the independent director.

R 4.41 million Ukweli Ltd shares were sold at ZAR139.83 in the open market

Ramaphosa and his family had pledged these shares in lieu of the loans obtained from IL&FS Trust.

Ramaphosa and his family’s stake in Ukweli Ltd diluted to 5.13 per cent by late December, from a high of 8.65 per cent in September 2011.

Ukweli Ltd’s market capitalization eroded by 40 per cent in just two weeks in the latter half of December 2011.

Political situation:

Ukweli Ltd was growing politically in the domestic market by opening new offices and facilities in different parts of South Africa.

At the time the fraud had been exposed Ukweli Ltd had subsidiaries in South Africa namely, Ukweli Mining Ltd, Ukweli Consulting Ltd, Ukweli Ltd Mining Solutions and Ukweli Technology Ltd. and had opened mining schools.

The South African Institutes of Mining Studies were a result of public-private partnership, with several of these schools being promoted by global corporation such as Harmony, Anglo and BHP in different parts of South Africa. In 2000, Ukweli Ltd became the first South African Manganese Mining company to receive an international certification for mining excellence.

Economical situation:

Ukweni financial statement displayed the company’s financial position at its peak, thriving in profits.

A well renowned corporate governance structure was presented.

Inflated financial assets and profits resulted in Ukweni been the forefront and one of the largest manganese mining company at the time the fraud was exposed.

The company was recognized as a well-established and successful mining business and one of the leading companies in South Africa.

During the time of economical onslaught of the companies fraudulent activity someone claiming to be a former senior executive in Ukweli Ltd wrote an anonymous email to one of the board members: the email had details about financial irregularities and fraud at Ukweli Ltd. The letter also mentioned that Ukweli Ltd did not have enough liquid assets that could be confirmed with its bankers. The email was forwarded to all the board members along with the chief executive officer (CEO), Benjamin Ramaphosa.

Three independent directors Albert Kruger, who headed the board meeting that approved the acquisition, Krishna Singh and Petrus Koen resigned from the board.

All in the duration of the year the fraud was detected.

Social situation

In prior years to the fraud being exposed they were seen as a pioneer of excellence of governance. South Africa and the world were all under the impression that Ukweni was one of the best examples of good corporate governance. A few months prior to the fraud the company received award and were reputable and held in high prestige.

Ukweni group was known to be the company with high social morale establishing schools and being affiliated with government projects in the mining sector.

Reasons for the fraud:

- The company had to upkeep with the ‘’alleged’’ companies promising future.

- The directors and governing body continued to manipulate the financial statement and profits to benefit the company in financial and social standings.

- The company had to portray inflated assets and a thriving net profit with growth being shown to attain lucrative contracts.

- To keep investors satisfied, misrepresentation of the company’s governance and financial affairs was inevitable considering the companies actual status.

- The mining industry of South Africa and international markets are highly competitive thus creating pressure for Ukweni to remain in the forefront and continue growing exponentially.

- When the company was under financial duress directors were trying to cover ad correct a situation that had becomes unstainable.

- Ukweni needed to uphold cash commitments to sustain their financial position and contracts.

Could the fraud have been prevented

-Yes it could have been prevented.

If the Company acted in the best interest of the shareholders.

-the company aligned themselves with the corporate structures they displayed to the investors and public.

-the auditor were reputable, paid a reasonable fee according to other companies and acted with professionalism and skeptism.

-if auditors conducted the Audit with Integrity and honesty, adhering to certain standards of conduct and moral behaviour consistently.

-Company gradually increased their size paying careful attention to their business and the appropriate resources at their disposal.

- The governing body should