‘I FELT UNSAFE’

Deloitte auditor Patrick Seinstra was in the dock this week for the flawed Steinhoff audit. The tale he told the Dutch regulator was horrifying

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On Monday, a remarkable thing happened in Zwolle, about 80km from Amsterdam — and it’s perhaps the closest we’ve come to getting any accountability for the mammoth R106bn fraud at retailer Steinhoff. There, in the Accountantskamer, Deloitte’s former auditor Patrick Seinstra choked back tears while defending himself in a disciplinary case brought against him by the Dutch Authority for the Financial Markets (AFM) for signing Steinhoff’s deeply rotten 2016 accounts.

Dutch newspaper Het Financieele Dagblad (FD), which covered the hearing, described Seinstra as “visibly emotional” during the hearing. When it was his turn, Seinstra spoke of himself as a “defeated accountant” who did his best, in the face of immense odds, to uncover the “hard lies” of a triple-A fraud which ultimately “cost me my career”.

The hearing is a big deal — and not just because it’s the most significant reckoning yet for SA’s largest corporate scandal. It also puts Deloitte firmly in the line of fire, despite the fact that it agreed last month to pay €70m to Steinhoff, without admitting liability, “in exchange for certain waivers”.

As much as burnt investors may want to see Deloitte cop heat too, there is vital nuance to this story. For a start, the truth is that the Steinhoff fraud largely took place in Europe — and the retailer’s European accounts were audited by a small German firm known as Commerzial Treuhand (CT).

Seinstra’s job, and Deloitte’s responsibility, was to review the working papers and check that CT got it right. This, the AFM claims, he conspicuously failed to do.

The AFM’s argument is that Seinstra was not sceptical enough, and didn’t carry out “additional checks” to verify

CT’s audit of Steinhoff’s European business — despite several “signals that cannot be ignored”, including a very public fraud investigation by German prosecutors dating back to 2015.

In a nutshell, AFM spokesperson Daniëlle de Jong told the FM, Seinstra is accused of “failing to obtain sufficient and appropriate audit evidence” for the 2016 financial results. As a result, investors couldn’t “justifiably rely” on the accounts.

There’s no dispute that the accounts were wrong. As a PwC forensic probe found, more than R106bn in “fictitious or irregular” transactions found its way into Steinhoff’s profits.

Still, the way Seinstra told it, he was more hero than villain: it was only after he refused to sign off Steinhoff’s year-end results in December 2017 that the fraud was discovered, and CEO Markus Jooste resigned on December 5.

It wouldn’t have been easy either. In the high-octane days before Steinhoff’s collapse, insiders told the FM there was immense pressure on Seinstra to sign the accounts. Jooste was openly mocking Deloitte for having no courage, while the board was eager to present the results the next week.

For the first time, Seinstra described just how scared he was at the time, even barricading his hotel room door. “I felt physically unsafe. For my own safety, I had to get out of SA before the bomb burst,” he said.

Perhaps fearing Jooste’s wrath, it was only after Seinstra had boarded the plane back to Amsterdam that Deloitte announced it wouldn’t be signing those accounts.

However, in the maze of turns that is Steinhoff, there was yet another intriguing twist which emerged from Seinstra’s testimony: the possibility that CT, the European audit firm, is far more culpable than many people suspected.

In particular, Seinstra reportedly spoke of how Steinhoff’s management (the implication being Jooste) conspired with CT’s accountants to keep him in the dark. “They knew about the serious charges against the Steinhoff management. But when I asked about it, they were silent,” he said.

According to a report on Dutch website Accountancy Vanmorgen, Seinstra’s lawyer argued that he did his job “to the best of his knowledge and conscience”. But, the lawyer argued, Seinstra “was unlucky to have encountered longterm fraud — his German colleagues deceived him straight [to his] face [and] there is no control against such fraud.”

It’s a remarkable suggestion, because while there are numerous allegations of audit negligence (such as Wirecard and Tongaat Hulett), there are few instances of auditors being intentionally complicit in these failures. The only other instance that comes to mind is that of VBS Mutual Bank, where KPMG auditor Sipho Malaba has been criminally charged, accused of benefiting to the tune of R33.9m to sanctify the bank’s accounts as R2.7bn was stolen.

Seinstra’s suggestion — that it wasn’t just auditing ineptitude, but possible connivance — cast a rather more sinister cloud over the affair. Eight individuals, including Jooste, have been named as suspects, but no auditors are among them.

While CT is staying mum (it didn’t reply to questions from the FM this week), it may be tempting to brush off Seinstra’s claims as a predictable deflection.

Yet, there is some truth to what he says. After all, had Seinstra signed off those 2017 accounts, the fraud may have stayed under wraps for longer. In that case, it could have got a whole lot worse, had former Steinhoff chair Christo Wiese merged Shoprite with Steinhoff, as he wanted to do.

“Because of our steadfastness, the fraud has been discovered. After 23 years, I left this beautiful profession with my head held high,” Seinstra said, according to FD.

But he shouldn’t get a free pass either: Seinstra did sign off Steinhoff’s 2016 fraud-ridden accounts, after all.

It may also seem like Deloitte is getting off lightly. Marcel Pheijffer, a professor of forensic accountancy of Nyenrode Business University, was quoted in the FD as saying the assignment “is certainly not only the responsibility of the accountant who performed the audit”.

The judges will only come back with their verdict some time in the next 15 weeks, but it’ll be interesting to see which version they buy. Saviour or sinner: Seinstra’s truth probably lies somewhere between these extremes.

The lawyer for former auditor Seinstra argued that his German colleagues had deceived him