Digging under way after Steinhoff collapse
After a long silence over the Steinhoff International saga, which cost investors R200-billion after reports of alleged fraud emerged, investigators are now kicking up the dust.
The Hawks are investigating and are bringing in Interpol, the Financial Services Board (FSB) has three investigations underway and the Reserve Bank is looking at whether exchange control laws were breached.
The Government Employees Pension Fund (GEPF) told a parliamentary hearing that it had lost more than R20-billion because of the Steinhoff collapse.
The company this week failed to submit its accounts to the Frankfurt Stock Exchange, where it has its primary listing, and now faces suspension, but only after a long process. It will continue to trade on both the Frankfurt Stock Exchange and the JSE.
On Wednesday, Steinhoff’s acting chairperson, Heather Sonn, told a hearing held by Parliament’s finance‚ public accounts‚ and public service and administration committees that it had reported former chief executive Markus Jooste to the priority crime investigation unit, the Hawks, on Tuesday night. Jooste was suspected of breaching the Prevention and Combating of Corrupt Activities Act.
Hawks spokesperson Hangwani Mulaudzi said the unit was roping in Interpol to assist with the investigation into Steinhoff’s activities overseas but, besides the complaint laid by Steinhoff, the acting national head of the Hawks, Yolisa Matakata, had opened a case on behalf of the state in December.
Sonn said Steinhoff was aware of the negative effect the scandal has had on investments, pension funds and businesses in South Africa and was committed to working with regulators to uncover the truth and to fix what went wrong.
The FSB said it was investigating two cases of possible insider trading in relation to Steinhoff and one case of possible false, misleading or deceptive statements.
Addressing the parliamentary hearing, Steinhoff’s former chairperson, Christo Wiese, and its biggest shareholder, said reports of accounting irregularities “came like a bolt in the blue”. He said he only became aware of the problem three working days before the company’s accounts had to be finalised for a board meeting in December.
He seemed to lay the blame for the board’s lack of oversight on the company’s complicated structure and its auditors. He said Steinhoff was a complex group, with operations in 33 countries and a multitude of companies and subsidiaries, all run in a decentralised fashion. All these companies had their own boards, management and audit structures.
Asked why the board had not picked up the irregularities, Wiese said he could only refer to global examples where companies of a similar or bigger size had experienced similar cases, which showed how difficult, if not impossible, it was to detect fraud.
“And it becomes more difficult where, as is alleged in this case, the CEO [chief executive officer] is directly involved,” said Wiese.
Referring to Deloitte, Wiese said the auditors who raised questions about Steinhoff’s financial statements last year were the same auditors who had audited the company for more than 10 years.
“They are your first line of defence as a company board. They are there and paid very handsomely to ensure that things do not fall through the cracks,” he said.
Deloitte chief executive Lwazi Bam said there appeared to be some misunderstanding regarding what is considered an effective risk management framework.
“The combined assurance model as articulated in King III refers to the first line of defence as being those who own and manage risk [that is, the management of the business].
“The second line of defence as being those responsible for monitoring and oversight of risks [that is, risk management, compliance and legal] while the third line of defence as independent assurance providers [internal and external auditors],” Bam said.
The South African Reserve Bank told the parliamentary hearing that it had conducted a detailed analysis of the risks posed by the retailer and found that the company’s collapse would not result in financial instability. But it said it was investigating whether Steinhoff breached any exchange control laws or regulations.
In November, the GEPF, managed by the Public Investment Corporation, owned about R28-billion in Steinhof shares. After news of Steinhoff’s accounting irregularities, their value had plummeted to R1.8-billion by the end of December.
Olano Makhubela, the deputy executive officer for pensions at the FSB, said 948 other pension funds surveyed had a combined exposure to Steinhoff of R25-billion at the beginning of December. This fell to R7-billion on December 8 after the accounting scandal broke.
Tebogo Tshwane is an Adamela Trust trainee financial reporter at the Mail & Guardian