Tongaat goes after former CEO
Sugar company names 10 people implicated in the PwC investigation that flagged ‘undesirable accounting’
Tongaat Hulett has put executives including former CEO Peter Staude, who was paid R176m in the decade to 2018 in the firing line over an accounting scandal that threatened the collapse of a once-iconic SA company.
Tongaat Hulett has put executives including its former CEO Peter Staude, who was paid R176m in the decade to 2018, in the firing line over an accounting scandal that threatened the collapse of a once-iconic SA firm.
In one of SA’s biggest scandals since Steinhoff disclosed accounting fraud in December 2017, the sugar producer with a history going back to the 1850s, asked the JSE in June to suspend trade in its shares after an investigation flagged accounting practices that undermined its financial statements.
By then, the collapse in the company’s share price for 2019 had reached almost 80%.
A PwC investigation identified 10 executives, including Staude, who were allegedly involved in the “undesirable accounting” and the firm will consider civil claims and criminal charges against them, it said on Friday. Attempts to reach Staude were unsuccessful.
Tongaat said the PwC investigation identified practices that led to revenue being recognised in earlier reporting periods than it should have been and expenses being inappropriately recognised as assets. It also identified a “culture of deference” that contributed to “undesirable” accounting practices not being identified or acted on.
The report said the company had recognised revenue from the sale of land too soon and overstated the value of Zimbabwean assets and sugar sales.
“Key senior people at Tongaat who have left the organisation appear to have been involved in perpetrating these undesirable practices,” the company said.
Staude, who was the subject of a scathing report by an Investec analyst questioning his stewardship of the company, one of the biggest employers in KwaZulu-Natal, stepped down in October 2018 after 16 years at the helm. That report came as Tongaat released results that came in well short of its own guidance.
When it announced Staude’s departure in August 2018, which had initially been set for April 2019, the company also said that then CFO Murray Munro would leave immediately on health grounds.
The extent of the trouble that the company was in began to emerge after Gavin Hudson, a former SABMiller executive took over as CEO in February 2019 and embarked on a comprehensive strategic and financial review. “It soon became clear that, over and above the operational difficulties facing [Tongaat], there was insufficient internal accountability, governance and financial oversight,” Tongaat said.
Earlier in 2019, law firm Bowmans roped in PwC to conduct a forensic review to uncover whether the misleading financial information was deliberate. At the time, Tongaat said its 2018 financial statements might have been inflated by R3.5bn to R4.5bn.
The company said it will be taking civil action to recover bonuses paid to former executives and will apply for some of the people to be declared delinquent directors.
“From a criminal law perspective, the board is engaging with the SA Police Services and the National Prosecuting Authority,” the company said.
Bloomberg reported in June that the company had said police were investigating an unnamed former executive for his role in an accounting scandal.
Chris Logan of Opportune Investments said the findings were worse than expected. “It’s not surprising that Tongaat appears to be expecting litigation ... given the widespread wrongdoing and the fact everyone appears to have been sleeping at the wheel or deferring to the implicated CEO.”
A CULTURE OF DEFERENCE CONTRIBUTED TO UNDESIRABLE PRACTICES NOT BEING IDENTIFIED OR ACTED ON
TONGAAT APPEARS TO BE EXPECTING LITIGATION ... GIVEN THE WIDESPREAD WRONGDOING AND EVERYONE SLEEPING AT THE WHEEL