The Johannesburg High Court has upheld an audit report finding that the CEO of non-profit organisation, The Tears Foundation, made an irregular payment of R2-million to a firm she owns using the NPO’s funds.
In an electronic judgement handed down by judge Denise Fisher recently, Fisher dismissed an application by Mara Glennie, the director and CEO of the Tears Foundation, in which she sought a declaratory order to compel the auditors to amend the audit report findings.
Challenged audit findings
In March, Glennie, on behalf of Tears Foundation (the applicant) brought an application in the Johannesburg High Court against the respondents which are the Independent Regulatory Board for Auditors, VBS Chartered Accountants and Burton van Staaden.
The oral arguments in the matter were heard on March 18, 19 and 20.
During the evidence presented in court, it was revealed that Tears Foundation is a non-profit organisation registered with the Department of Social Development. Tears Foundation is known for combatting gender-based violence.
Glennie has been director and CEO of Tears since its establishment on October 9 2012.
The application by the Tears Foundation arose after its major donors suspended funding pending an independent audit, which revealed financial mismanagement concerns raised by a former employee.
Payment flagged
VBS Chartered Accountants and its auditor Van Staaden issued an audit report that identified an irregular R2-million payment. The payment was from Tears to Fireworx Management Solutions (Fireworx), a company owned by Glennie. This irregular payment was made in July 2023.
The transaction was flagged as violating the Companies Act 71 of 2008 prohibition on loans to directors’ related entities.
Tears then sought a declaratory order to compel the auditor respondents to amend the audit report.
Tears argued in court that the payment was a legitimate loan for a property purchase. The purchase (the “Joy Cottage project”) was made in the ordinary course of business.
The Independent Regulatory Board for Auditors (IRBA) had joined the case due to its statutory oversight role.
In court, the matter was analysed through the lens of auditors’ statutory duties under the Auditing Profession Act 26 of 2005 (APA), which mandates reporting of suspected irregularities to IRBA. Auditors must act independently. And they are not bound by management’s explanations when statutory reporting obligations are triggered.
Inconsistencies identified
Glennie’s explanation for the payment was scrutinised during the court arguments. Inconsistencies in the documentary evidence were noted. These include the absence of contemporaneous loan documentation and implausible justifications for fund movements between accounts.
Fisher found that the auditor respondents in the matter had properly discharged their duties. They did so under the Auditing Professions Act (APA) by identifying the payment as irregular. Particularly given the clear conflict of interest (Glennie being both Tears’ CEO and Fireworx’s sole owner). Also the lack of commercial rationale for Tears to make an interest-free loan while maintaining its own interest-bearing accounts.
Moreover, Fisher expressed serious concerns about the financial controls at Tears. Particularly regarding regular large “consultancy fee” payments to Fireworx and unexplained transfers between entities controlled by Tears’ directors.
The salient transfers of substantial funds between Tears and Fireworx were of grave concern, the court heard. They seem to be outside of any normal consultancy agreement.
Even on Glennie’s version, the allegation that the R2-million was paid as a loan for a project in waiting, and not drawn down on, was demonstrably false on an analysis of the bank accounts.
Transactions unbridled and inexplicable
The court concluded that the movement of funds back and forward and into different accounts seems unbridled and inexplicable.
After listening to all arguments, Fisher said the Tears foundation’s application is dealt with as one of urgency.
Fisher ruled that the Tears Foundation application is dismissed.
“Mara Glennie is to show cause, by the filing of an affidavit within 30 days of this order, as to why she should not be ordered to pay all the costs of this application in her personal capacity on the scale as between attorney and client and on scale C. And the determination of the costs of the application is thus postponed sine die,” said Fisher.
“The first respondent is directed in terms of section 45(3) of the APA to notify any appropriate regulator in writing of the details of the reportable irregularity to which the report in issue relates and provide them with a copy of the report. This should include notification to the South African Revenue Services,” added Fisher.
