Fight­ing fraud

Finweek English Edition - - INVESTMENT -

Medi­clinic has re­vealed that it s uc­cumbed t o R5.3m “ma­te­rial in­ci­dents of fraud and cor­rup­tion” by staff and third par­ties dur­ing the 2014 fi­nan­cial year. While not one se­nior man­ager stole from or de­frauded the group un­der CEO Danie Mein­t­jes in ei­ther 2013 or 2014, as Medi­clinic puts it, staffers caught loot­ing were red-carded. Oth­ers could end up with crim­i­nal records or time be­hind bars.

Stel­len­bosch-head­quar­tered Medi­clinic – which, to­gether with Life Health­care and Net­care, con­trol a re­mark­able three quar­ters of the South African mar­ket – is val­ued at R73bn on the JSE. Thus, the mil­lions snatched from Medi­clinic in­vestors’ pock­ets is a drop in the bucket that can barely bank­rupt this health­care ti­tan. But that’s not the is­sue. The in­ci­dents, amid Medi­clinic’s claims of ex­ten­sive con­trol sys­tems and poli­cies in place, are hardly an ad­ver­tise­ment for ethics.

“Staff found guilty of theft or fraud af­ter thor­ough in­ves­ti­ga­tion are man­aged ac­cord­ingly, ex­am­ples of theft cases are theft of ve­hi­cles and com­puter equip­ment,” ac­cord­ing to Medi­clinic’s Tertia Kruger.

In the Mid­dle East, Medi­clinic’s lat­est records show that a huge R40m, which van­ished tem­po­rar­ily in Dubai, was a case of “ex­ter­nal bank fraud”. The mat­ter was im­me­di­ately taken up and duly in­vesti- gated by Medi­clinic’s un­named bank, which sub­se­quently re­funded the listed group ev­ery dirham. “No Medi­clinic staff mem­bers were in­volved,” ex­plains Kruger in a state­ment sent to Fin­week.

That is not to say that the com­pany evaded swindlers in Dubai dur­ing the year. Medi­clinic Wel­care Hos­pi­tal fell vic­tim to staff fraud in the re­gion of al­most R500 000. The JSE-listed group – which earns R3.4bn or 11% of its rev­enues from there – claims to have jacked up its checks in the wake of this case that saw two cor­rupt staff mem­bers in the Mid­dle East dis­missed while a fur­ther three were re­ported to the “lo­cal au­thor­i­ties for fur­ther prose­cu­tion”.

The Dubai num­bers sim­ply pale next to those of Switzer­land’s Hirs­lan­den sub­sidiary. In this aff lu­ent part of Europe where the group is splurg­ing a huge R1.5bn to buy a hos­pi­tal in Geneva, Medi­clinic is bat­tling a big­ger headache. Not only is Hirs­lan­den’s nor­malised EBITDA (earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­sa­tion) mar­gin go­ing south – al­beit slowly – and thus buck­ing the trend, but the scale of fraud in­ci­dents and the time it is tak­ing to solve these is be­com­ing wor­ri­some. Medi­clinic notes that “no new in­ci­dents of fraud” came to Ole Wiesinger-led Hirs­lan­den’s at­ten­tion in 2014, but ex­plains that the yet-to-be re­solved case of theft has bal­looned from just un­der R2m pre­vi­ously to R3.2m now.

Why is it tak­ing so long to solve this case? How ex­actly was Hirs­lan­den de­frauded and who is be­ing in­ves­ti­gated?

“The Swiss case is sub­ject to a ju­di­cial process and, as such, the time­frame is not in our con­trol. The in­creased amount is due to fur­ther mis­ap­pro­pri­ated funds that were dis­cov­ered dur­ing a po­lice in­ves­ti­ga­tion, the ju­di­cial process will de­ter­mine the re­cov­er­abil­ity of the amount,” Kruger ex­plains, but gives no in­di­ca­tion on how the com­pany was de­frauded.

Now churn­ing R12bn in rev­enues, the Swiss unit is the sin­gle largest con­trib­u­tor in this ti­tan. On the other hand, the South­ern African sub­sidiary, which last year made R10.1bn (or 41% of group rev­enues), re­mains the star per­former by way of prof­its. This sub­sidiary, which, like other health ser­vice op­er­a­tors, is in the throes of a mar­ket in­quiry into pri­vate fees, op­er­ates in Namibia and South Africa – where it boasts al­most 8 000 beds and more than 250 the­atres in 52 hos­pi­tals.

While the amount in­volved is nowhere near its Swiss peer, the South­ern African sub­sidiary was also swin­dled of in­vestor funds dur­ing the year. Here, Medi­clinic lost R1.6m in eight sep­a­rate in­ci­dents of theft and fraud but Kruger seems to take some so­lace in the fact that “there is no sig­nif­i­cant up­ward trend in losses in South­ern Africa”. Still that’s cold com­fort for de­frauded share­hold­ers.

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