National Union of Metalworkers of South Africa (NUMSA) General Secretary Irvin Jim scored a R40 000 birthday party, and his daughter a laptop, thanks to a life insurance company owned by NUMSA’s Trust.
These transactions were among a host with “unclear” commercial benefit in 2018 alone, according to a 2020 investigation report by Deloitte, an auditing firm.
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COMPANIES LINKED TO 3SIXTY LIFE
This report has come to light as part of the court record in a bitter tussle for control for embattled life insurer 3Sixty Life.
In December 2021, after a year of operating in an insolvent position, 3Sixty Life was placed under curatorship by order of the Johannesburg High Court, following an application by the Prudential Authority, a financial regulator.
3Sixty Life is wholly owned by the National Manufacturing Workers Investment Trust (NUMSA Trust), albeit through three layers of umbrella companies.
The NUMSA Trust owns the NUMSA Investment Company (NIC), which owns the 3Sixty Global Solutions Group (3Sixty Group), which owns the Doves Group, which owns 3Sixty Life.
Khandani Msibi is the Acting CEO of 3Sixty Life, appointed after the resignation of CEO Leo Makgamathe in 2021.
Msibi is also CEO of the NIC, and the 3Sixty Group, as well as board member of effectively all NIC-owned companies. He is understood to be the central strategist behind Jim’s ascension to General Secretary of NUMSA, back in 2008.
DELOITTE’S AUDIT ON 3SIXTY LIFE
In his 21 January answering affidavit to the court, challenging the decision to place 3Sixty Life under curatorship, Msibi claims that allegations of mismanagement at 3Sixty Life by the Prudential Authority have been shown to be unfounded, according to an audit by Deloitte.
“In 2020 the applicant [the Prudential Authority] appointed an independent auditor, Gerdus Dixon of Deloitte, to investigate the affairs of 3Sixty [Life] for the 2017, 2018 and 2019 financial years. There were no material adverse findings from this investigation,” said Msibi.
Msibi does not include the report as an annexure in support of this claim. The only problem is that this isn’t what the report says at all, according to the Prudential Authority.
In their reply to Msibi, Suzette Vogelsang, a senior official overseeing insurers at the Prudential Authority, says that it is “surprising that 3Sixty seems to suggest that the Deloitte report exonerated it”.
Contrary to Msibi’s claim, there were a number of material adverse findings in the Deloitte report, said Vogelsang.
The Prudential Authority had ordered this report because they were concerned about the movement of funds between 3Sixty Life and other companies in the 3Sixty group – so-called “intra-group transactions”.
On 5 May 2020, Gerdus Dixon, an audit partner at Deloitte, was appointed by the Prudential Authority as an investigator in terms of the Financial Sector Regulation Act (FSR Act).
According to the FSR Act, the Prudential Authority can appoint an investigator if they suspect that financial sector laws have been breached or are at risk of breach.
Deloitte’s scope of investigation was to examine all intra-group transactions (between companies that fall under the NIC or 3Sixty Group umbrella) for 2017, 2018, and 2019, to see if everything was above-board.
On 10 November 2020, Dixon presented his findings to the Prudential Authority. He reported that the investigation had raised a number of findings that required attention.
“With its access to liquid assets, 3Sixty Life … acted as de facto treasurer for the 3Sixty group,” writes Dixon.
3SIXTY LIFE FUNDS USED FOR ‘NUMSA SUPPORT’
Dixon’s investigation found evidence that NUMSA had been using 3Sixty Life to pay for things that had no commercial value to the company.
In the operating expenses in the company’s 2018 audited financial statements, 3Sixty Life lists R20 million in sponsorship expenses.
One line item is “NUMSA support”, worth R358 000.
This NUMSA support included:
- R15 578 for laptop for Irvin Jim’s daughter;
- R40 430 for Irvin Jim’s birthday party;
- R114 425 for a NUMSA gala dinner;
- R10 000 to cover transport costs, purportedly for a NUMSA delegation visit to the 3Sixty Life offices;
- R48 300 for a 2-day event for NUMSA’s Wits region branch.
Dixon euphemistically calls the commercial benefit of these costs “unclear”.
He worries about how SARS would view them, since “only expenses incurred in the production of taxable income may be deducted in determining a taxpayer’s taxable income” – and Dixon feels these items did not meet this bar.
3SIXTY LIFE EXPLAINS NUMSA INVOICES
3Sixty Life’s management gave explanations for these invoices.
They said that it was correct that the laptop was given to Jim’s daughter, but that “it was used for office work at 3Sixty Life’s offices”.
The justification for paying for Jim’s birthday, NUMSA events and the transport was that these fell under “marketing initiatives”.
These events “allowed 3Sixty Life access to NUMSA events where it could further its brand and strengthen relationships”.
Also included in sponsorship expenses where the commercial rationale was “unclear” were monthly payments of R200 000 to the “NUMSA Benevolent Fund”.
According to Dixon, no such fund exists, and instead, these payments were sent to NUMSA itself.
3Sixty Life’s reasoning behind these payments was that they were for NUMSA to endorse “NIC companies and subsidiaries” and to allow the company access to NUMSA members. No contract existed for these monthly payments.
Dixon does not buy this reasoning, finding that 3Sixty Life should consider recouping these payments.
NUMSA is not a registered financial services provider. Dixon notes that if NUMSA was an intermediary, as the explanation for the payments implied, then it would run into trouble with the Financial Sector Conduct Authority (FSCA).
The Financial Advisory and Intermediary Services Act demands that if an organisation connects a supplier to a client directly such that a financial transaction is entered into, as appears to have been the case here, then that organisation must be registered with the FSCA as a financial services provider.
Dixon was told by 3Sixty Life’s sitting management team that these kinds of invoices, from 2018, were no longer being submitted since the sitting management had a “different philosophy to sponsorship expenses and payments than the management in place during the 2018 financial year”.
Dixon’s report also looked at a large number of unusual transactions between 3Sixty Life and other companies in the 3Sixty Group stable.
New leadership, old practices?
In February 2020, 3Sixty Life announced that Leo Makgamathe was appointed CEO.
On 2 February 2021, the Prudential Authority handed over the Deloitte report to Makgamathe, asking him to give it to the chair of the board, the head of control functions, and their external auditor.
It also asked to meet later that month to discuss the investigation and its remedial actions.
But by May 2021, Makgamathe had resigned, accused of fraud, theft and dishonesty by the board. They found him guilty of those and other charges, in absentia, at a disciplinary hearing.
Charges were laid against Makgamathe, but prosecutors declined to pursue the case, on 21 November 2021.
GroundUp sought comment from Jim and Msibi but received no responses.
The details of 3Sixty Life’s crumbling business, of its dramatic curatorship, and of other strange happenings elsewhere in the NIC will be described in articles to come.