Exclusive: Elders live export fraud revealed

However, the major Australian agribusiness never disclosed the alleged fraud within its Live Export Services division a decade ago to the Australian Securities Exchange or publicly, and has not done so since.

And it is believed none of the 11 employees named in the investigation ever faced sanctions.

The alleged scam, involving pedigree breeding cattle and sheep exports from 2010 to 2013, was the subject of an external forensic audit investigation, with a detailed report submitted to the company in February 2014.

This investigation and the events surrounding it was separate to an alleged financial fraud of $24.2 million in the same export division to the ASX in late 2013, which Elders announced publicly at the time.

ACM Agri understands senior Elders executives were told to keep the pedigree certification fraud issue quiet, with some executives at the time not even aware of the allegations or investigation.

According to the external investigation report, dated February 6, 2014: "In October 2013, the Elders Internal Audit division discovered several suspicious emails that indicated employees of the Elders trading team had forged documents relating to the export of cattle and sheep".

Subsequently, the external forensic audit by PPB Advisory discovered:

The external audit named three managers "that appear to have implicitly approved the manipulation of certificates".

It named another eight employees and one contractor it said had knowledge of certificate manipulation or who "participated in producing the certificates".

The investigation found evidence "the improper behaviour was occurring from at least 2010".

According to the audit, the conduct ranged from instructing staff "to behave improperly," purchasing a stamp to be used on false certificates and preparing "documents with false information under the instruction of supervisors".

The audit said in the case of New Zealand cattle exports, more than 2000 certificates were altered to ensure the livestock met the contract requirements or export to China.

The PPB investigation found this often involved changing the F status of cattle to F12 or better (The F score is an indicator of cattle quality.)

"We understand that for the customer to receive a tax benefit, the MOA (Chinese Ministry of Agriculture) require imported cattle to have a minimum F12 status," the PPB report said.

Other changes were made to add missing dam or sire information or to change the age of cattle to meet customer requirements.

The investigation found a software program was used to alter PDF documents issued by NZ's LIC.

In a separate case, one Elders employee admitted "improperly inserting" the electronic signature of a shipping company representative on two documents submitted to the Commonwealth Bank to obtain letters of credit for a contract.

In this instance, the signatures were discovered by the shipping company representative, who then emailed an Elders manager asking: "Can you please expain(sic) why my signatures show on the certificates, I haven't signed any documents for Elders except selection list since November 2012".

The manager then emailed another Elders manager and asked "Where did you pull this signature from?" This manager responded: "A selection list from (company name withheld)".

In another instance, in relation to the export of breeder bulls to Indonesia, an Elders manager emailed two senior Elders managers stating: "Just letting you know I am going to forge 120 documents".

In another case, an employee is believed to use a "random number generator" to populate certificates with dam and sire data.

The audit said two employees admitted to "making up" sire and dam information, which was then provided to the Holstein Australia Association for animals to be registered and certificates produced. This included cases where the required three generations of pedigree data were not available for cattle. This was solved by "identifying sire or dams that were on the same property with the correct age".

The investigation discovered a file titled "fake" in the pedigree certificate file for a shipment of Jersey cattle to China. There were 1089 certificates in this folder. According to PPB Advisory they were identical to the certificates found in another file "Pedigrees sent for MOA approval".

"This would indicate that the certificates have been produced and sent to the customer," the report concluded.

These 1089 certificates were for a shipment that totalled 3224 certificates.

The investigation found sheep pedigree certificates were stamped "to give the appearance they had been issued from a breeder society" as required by Chinese contracts.

Two Elders managers told the investigation there were several stamps in their office "prior to their involvement in sheep contracts," with a stamp later purchased by a senior manager "as they did not have a stamp that represented the Australian Dorper and White Dorper Association".

In one email from an Elders manager he stated: "If we don't have the pedigree info back from some of the vendors then we are going to have to make them up ourselves".

In a further email, the manager wrote: "Please get stamp made up".

According to the PPB investigation, "possibly" six stamps were used in one sheep shipment to China in September 2010 "to give the appearance that the animals are registered with a breed society".

In the case of another sheep shipment to China, in July 2013, the investigation found seven stamps were used to falsely give the impression the sheep were registered with a breed society.

PPB found that with both shipments Elders employees had "populated certificates with misleading sire and dam data".

PPB Advisory said the Chinese Ministry of Agriculture required the pedigree certificates in order for the customer to receive a 30 per cent duty rebate.

The key reasons PPB Advisory identified for altering or creating certificates was due to pressure to present certificates to China's MOA 10 days after cattle had entered quarantine, and also due to Elders' agents purchasing cattle or sheep outside specifications, such as the age of the livestock or without certificates that had three generations of sire and dam details.

The PPB report noted: "We understand that there have been no claims regarding the quality of cattle sent to China."

One manager named in the certification investigation report was also named in PPB Advisory's investigation report into financial discrepancies in Elders' live export division around the same time.

One senior Elders manager from the time, who was not involved in the alleged fraud, said it was "almost laughable" that no one faced any consequences for the alleged fraud.

Another former Elders executive said the failure to disclose the certificate fraud issue to the ASX was a major concern.

"That's serious," he said. "I would be interested to hear more about it, because there was nothing said at the time".

Another former executive said he presumed it was kept quiet over concern about what clients would say if they knew they were involved in a fraud.

ACM Agri put a number of questions to Elders, but in a statement yesterday, the company said "due to the decade-old nature of the enquiry we are not in a position to provide a response".

The allegations in the PPB Advisory report have never been tested in court.

Got any information? Email: ed.gannon@austcommunitymedia.com.au