Schools fraud hits share price

Shares in Advtech, the owner of private schools such as Crawford, fell 7.4% on Friday after the company said it had uncovered fraud that had taken place in its schools division since 2015.

CEO Roy Douglas said a financial manager who had been with the group since 2014 had allegedly inflated revenue and understated costs in the unit through a number of transactions. The employee allegedly embezzled the money with the help of an external provider.

The misstatements and cash loss amount to about R48-million, resulting in a R35.5-million after-tax impact on the financial statements from 2015 to 2017. This will be accounted for in the 2017 annual financial statements, Advtech said.

Douglas said the fraud was discovered during the restructuring of the finance and administrative functions in the schools division. A new person who had been appointed to the business unit as part of restructuring had spotted transactions that were relatively small, but found the full extent of the fraud.

Advtech said the financial manager had stolen R5-million with the help of the external service provider, which was not named. R2-million had been recovered. The company said the remaining amount would be recovered through its insurance.

Brian Pyle, fund manager at Old Mutual, commended Advtech for revealing the fraud and its extent. Others might have tried to hide it, he said.

“Credit to them for giving us the numbers and telling us what they know,” said Pyle. But added the discovery of fraud in a company was never a good thing.

Advtech shares ended the day 4% lower, closing at their weakest level in almost two weeks.

Douglas said it had been difficult to identify the fraud because of the period over which it had been committed and the size of the transactions.

“The aggregate amount, though it isn’t material or even that large in terms of our overall business, aggregated to a significant amount,” he said.

The fraud was possible because the company’s schools operated in a “decentralised” way with separate sets of accounting books for different schools, which made it possible to hide the transactions, Douglas said.

Restructuring of the finance and administrative functions in the schools division, he said, would now standardise the group’s systems across schools and the consolidation of accounting processes would make it easier to identify any issue more readily.

Douglas said that there was no impact on the schools.

Criminal charges had been laid against the financial manager and the colluding external service provider. The group said that the charges were being “vigorously pursued”.