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Now Deloitte faces double probe

Dec 17 2017 06:00
Justin Brown

Johannesburg - Deloitte South Africa is facing a double whammy of being probed for its role as Steinhoff International’s auditor and a disciplinary hearing for its work at the time of African Bank’s failure.

This makes it the second of the Big Four auditing firms to come under scrutiny, following similar action against KPMG over its role in state capture and compiling a controversial SA Revenue Service report.

CEO of the Independent Regulatory Board of Auditors (Irba) Bernard Agulhas said their disciplinary advisory committee had decided to refer the matter of Deloitte’s involvement in African Bank’s failure in August 2014 to a disciplinary hearing.

Irba regulates local auditors.

“We await the setting down of a date for the disciplinary hearing. We are aiming for the first quarter of 2018. The legal teams are currently working on preparation,” Agulhas said.

Lwazi Bam, Deloitte Africa CEO, said that Irba had informed it would face a disciplinary hearing relating to the 2013 audit of African Bank Investments Limited (Abil) and African Bank.

In addition, Irba would investigate the auditing work the company did on Steinhoff’s 2014, 2015 and 2016 financial statements, following Steinhoff’s share price collapse and allegations of accounting irregularities that saw Markus Jooste resign as Steinhoff CEO last week Tuesday.

Bam said Deloitte received an Irba letter this week requesting a written response to allegations of improper conduct in relation to Steinhoff.

Jooste banked a total of R121.8m in earnings in 2017 for services he provided to Steinhoff International, Fin24 reported on Friday.

On Thursday, Steinhoff stated that its financial results for 2016 would have to be restated.

Local auditors have been under great pressure. Since June, Irba has been investigating KPMG’s audit of Gupta-owned Linkway Trading, which was allegedly involved in diverting public funds from the Free State provincial government to pay for a lavish Gupta family wedding at Sun City in 2013.

In addition, 13 000 Hlumisa and Eyomhlaba shareholders are suing Deloitte and Abil directors for R2.1bn.

The former Abil empowerment partners also filed a complaint against Deloitte with Irba. In court papers, they blame the loss of R41bn on the bank’s directors and Deloitte.

Steinhoff and another seven companies associated with billionaire chairman Christo Wiese lost as much as R282bn in market value in the first week of December. This was prompted by concerns about accounting irregularities and possible fraud at the furniture and household goods retailer.

Agulhas said Deloitte South Africa had confirmed it would cooperate with Irba during the Steinhoff probe. Irba said that it had received a notification of a reportable irregularity from Deloitte Pretoria related to Steinhoff.

The auditing firm had 30 days to discuss the matter with Steinhoff and get back to Irba with a response.

Meanwhile, Irba announced this week that its board would implement changes to bring its sanctions in line with those imposed by other regulators.

Finance Minister Malusi Gigaba held a meeting on Friday at the JSE with a number of parties, including the CEO Initiative, the JSE and Irba.

“We are determined to ensure that any individual or company that has committed fraud is held accountable,” he told reporters.

“We want to minimise the impact on jobs and investment.”

Gigaba said a regulatory task team would be assembled to have a look at Steinhoff. It would consist of the Financial Services Board (FSB), Irba and the SA Revenue Service to deal with the matter decisively, he said.

Treasury director-general Dondo Mogajane expressed concerns that any stumble in Steinhoff’s performance could affect the government’s revenue collection, which was already below forecast.

On Friday, Steinhoff said it had sold R4.7bn worth of PSG shares in an effort to bolster its financial position.

Following the sale, Steinhoff cut its stake in PSG from 25.5% to 16%.

Steinhoff announced that Wiese, who held a 23% stake in the company before the news about accounting irregularities broke, was forced to sell 98.4 million shares. This was because various banks that provided funding to an entity held and controlled by Wiese, had enforced their security rights over the shares and sold them.

On Thursday, Wiese stepped down as chairman to resolve questions about any possible conflict of interest between his position and his being the largest shareholder in Steinhoff.

His move followed a statement by the Government Employees’ Pension Fund (GEPF) and the Public Investment Corporation (PIC), in which they expressed their discomfort about the lack of independence of the Steinhoff board. They questioned the conflict of interest related to Wiese’s role as interim executive chairman.

The GEPF and the PIC insisted that they be allowed to appoint two independent nonexecutive directors to the boards of Steinhoff and Steinhoff Africa Retail.

Bloomberg reported that Steinhoff had gained some support from key lenders as it sought extra time to repay more than €1bn (R15bn) owed on a revolving credit facility.

Steinhoff shares were down 7.7% by about 4pm on Friday, at R8.23, off the R6 low the share hit on Friday, December 8, but off the level of about R56 before the accounting irregularities were made public.

Earlier this week, the department of trade and industry and the Companies and Intellectual Property Commission said they would launch investigations into the allegations regarding non-compliance with the Companies Act and other regulations.

Other entities probing the Steinhoff debacle are PricewaterhouseCoopers, the JSE, the FSB and German authorities.

This week, three parliamentary committees – the standing committee on public accounts (Scopa), the portfolio committee on public service and administration, and the standing committee on finance – demanded that action be taken.

“This crass greediness of senior executives in the private sector is an indicator of the pervasiveness of immoral conduct among South Africa’s elite,” Scopa said.

Finance committee chairman Yunus Carrim said they would work with Scopa and call regulatory bodies, Treasury, the PIC, the GEPF and Steinhoff officials to account to Parliament when it reconvened in January.

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steinhoff  |  deloitte  |  african bank  |  irba  |  accounting fraud
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