STEINHOFF

STEINHOFF

To detect fraud in a company is extremely difficult

DETECTING fraud within a company was hugely difficult for board members‚ especially if the chief executive was allegedly involved‚ Steinhoff shareholder and businessman Christo Wiese said in parliament yesterday.

He was addressing three parliamentary committees – the standing committee on finance, the standing committee on public accounts and the portfolio committee on public service and administration – on the Steinhoff scandal, which has seen investors and pension funds lose billions of rands.

The Steinhoff management, board and shareholders all appeared at the hearing.

Presentations were also made by the Johannesburg Stock Exchange (JSE), the Treasury, Financial Services Board (FSB), the Independent Regulatory Board for Auditors (Irba), the Government Employees Pension Fund (GEPF) and the Public Investment Corporation.

Questioned by MPs as to why the Steinhoff board had been “asleep at the wheel” while alleged accounting irregularities were being committed and had failed in its fiduciary duties, Wiese said: “I can only say that cleverer people than this board have been duped before by people committing fraud.

“I can only refer to many instances around the world of companies of a similar or bigger size where this has happened.

“To detect fraud in a company is an extremely difficult if not impossible task and it becomes more difficult when‚ as is alleged in this case‚ the CEO is directly involved‚” he said.

He was referring to former Steinhoff chief executive Markus Jooste, who has been reported to the Hawks for alleged contraven- tions of the Prevention and Combating of Corrupt Practices Act.

Hawks spokesman Brigadier Hangwani Mulaudzi confirmed receipt of the report, but said the details were confidential.

Wiese said until the report of forensic investigators PricewaterhouseCoopers was finalised‚ it was not possible to say how the alleged accounting irregularities had occurred.

Earlier, director and chairman of Steinhoff’s audit committee and former Absa chief executive Steve Booysen recounted the dramatic discovery on December 5 of the alleged accounting irregularities which led to the resignation of Jooste.

Booysen told the hearing that he had got confirmation of alleged accounting irregularities only at 9.45am on that day. The auditors had raised issues on September 20 for management to resolve.

Management engaged with the external auditors and the result of this work was presented to Booysen on November 14.

From then on‚ Booysen worked full-time with the company until December 14.

As soon as the confirmation of the accounting irregularities was received on December 5‚ Booysen told MPs, Jooste was called in to explain the transactions‚ accounting entries and‚ more importantly‚ the cash flow of certain transactions.

Jooste sent an SMS to Booysen‚ which led Booysen to conclude that it was confirmation of the accounting irregularities.

Steinhoff executives waited the whole day for Jooste to make a presentation about the alleged irregularities‚ but he did not pitch up.

Jooste then offered his resignation to the group’s chairman at 7.45pm that evening.

Booysen said the time period in which the allegations were investigated might seem long‚ but this was because there had been collusion – not only inside the company but also outside it.

“That makes it complex because you need to go through legal processes to obtain information in these havens such as Switzerland

where there is a lot of protection for external parties.”

The MPs were frustrated yesterday by the failure of Steinhoff representatives to answer questions directly, who said they were constrained by ongoing investigations.

The MPs were also dissatisfied with the lack of rigorous action by the regulators.

It emerged from the hearing that the FSB was investigating two cases of insider trading in Steinhoff, which allegedly took place in August and November/December.

It was also investigating one case of false and misleading reporting related to accounting irregularities, which are under investigation by PricewaterhouseCoopers.

The head of the FSB’s directorate of market abuse, Solly Keetse, said the insider trading cases did not concern Wiese, who was cleared.

The Companies and Intellectual Property Commission has served the Steinhoff board with a compliance notice requiring the directors to identify the individuals involved in the falsification of accounting records and to institute criminal action against them within six months.

Meanwhile, Irba was investigating the role of Steinhoff’s auditor, Deloitte.

The hearing also heard that Steinhoff International has applied to the South African Reserve Bank for permission to take money out of the country to assist with its challenges abroad.

The GEPF reported that it had held 428 million shares in Steinhoff with a market value of R24-billion at the end of November, a week before the startling revelations led to the collapse of the retailer’s share price.

As of January 23, the GEPF held 392 million shares with a market value of R3-billion.

Between the end of November and January 23, the share price fell from R56.26 to R7.84.

FSB deputy executive officer for pensions Olano Makhubela said 948 of the 1 080 pension funds surveyed – excluding the GEPF and pension funds of state-owned enterprises – had exposure to Steinhoff to the value of R25-billion on December 1 before the scandal broke.

This represented 1.43% of total sampled assets. By December 8, this exposure had dropped to R7-billion, representing about 0.42% of total sampled assets.

Pension funds that responded to the survey and had exposure to Steinhoff suffered an R18-billion loss, or 1% of total assets.

Individual fund exposure ranged between 0.01% and 6.04%. – Business Day