Now for the Steinhoff post-mortems

As investigators begin to pick through the ruins of Steinhoff International in the wake of the global retailer’s dramatic collapse over accounting irregularities, various post-mortems loom for the embattled company, with MPs among those baying for blood, writes Legalbrief. It will take a while to unravel the mess left behind by CEO Markus Jooste who stepped down last week. In the meantime, the Steinhoff accounting scandal is likely to be seized upon by those bruised by allegations of state capture – to show that business is not immune to ethical lapses and blatant corruption – when the governing ANC’s elective conference starts this weekend.

The Independent Regulatory Board of Auditors (Irba) has confirmed a notice of a reportable irregularity was filed with it in the past week regarding suspicions of fraud in relation to the accounts of Steinhoff. A Moneyweb report says this is notable because a reportable irregularity is filed by an auditor of a company when an ‘unlawful act or omission’ is committed by an executive in charge of an entity that has caused, or will cause ‘material financial loss’ to the company, including other providers of capital. It can also be filed for more serious breaches, including events that are fraudulent or amount to theft, as well as for material breaches of fiduciary duty by those in positions of responsibility.

The Department of Trade and Industry and the Companies and Intellectual Property Commission (CIPC) plan to launch an investigation into allegations of non-compliance by Steinhoff with the Companies Act and its regulations, says a TimesLIVE report. In a statement this week‚ the department said it and the CIPC had noted with ‘great concern’ allegations of governance failures and financial irregularities at the retailer‚ which led to Jooste's resignation. ‘The Department of Trade and Industry will further suggest that the Independent Regulatory Board for Auditors also consider the circumstance with regard to the role of auditors in this instance‚’ the statement said.

The Treasury needs to be more ‘strident in its condemnation of the Steinhoff scandal than it has been’, the chairperson of Parliament’s Scopa, Themba Godi, says, according to a BusinessLIVE report. The scandal has wiped off as much as R215bn of Steinhoff’s market value in the space of a week. Godi called for investigations by SARS‚ the Reserve Bank and the Financial Services Board. He said Scopa sought ‘urgent‚ firm and decisive action to deal with the wrongdoers’, adding it would call Steinhoff executives‚ the PIC‚ the Hawks‚ SARS and the SA Reserve Bank to account in the new year. Meanwhile, according to a second BusinessLIVE report, the JSE has launched an investigation to determine whether Steinhoff International breached its listing requirements. This included any breaches in relation to previous financial disclosures the company had made to the public. The local bourse operator also said it would stick to its original decision not to suspend trading in Steinhoff shares, indicating that the company had disclosed as much price sensitive information as it was able to. Another reason for not suspending the shares was that investors trading on the JSE would be disadvantaged since Steinhoff was not suspended on the Frankfurt Stock Exchange, where it has its primary listing.

The issue is bound to be aired at the ANC's national elective conference. The party’s David Mahlobo fired a shot across the bows this week, saying corruption cases in the public and private sectors must be treated equally. The Energy Minister said corruption was a cancer that affected all facets of life but that private sector corruption was treated with less severity by the legal system, notes a TimesLIVE report. He said delegates attending the 54th ANC conference would discuss the issue of corruption and strategies that could ensure that both public and private sector corruption cases were successfully prosecuted. ‘The only thing we want as the ANC is that corruption must be corruption. It can’t be given different names where others instead of being brought to jail you just give them a small whack on their knuckles and give them a fine. And these fines are not actually even proportionate to the issues they have done‚’ he said. ANC delegates will also reflect on the recent behaviour of big institutions like Steinhoff and KPMG to determine how they negatively impact on the lives of the poor. ‘Government led by the ANC cannot be a spectator in this new phenomenon‚’ said Mahlobo.

Where did the luminaries on Steinhoff’s board go wrong? This is a question posed in Business Times by award-winning columnist Bruce Whitfield who notes that the market has long been awash with concerns about debt levels and opaque accounting at Steinhoff. He says there were plenty of red flags. Legae Securities warned in May it was concerned about leadership and said the company might be vulnerable to ‘key-man risk’ – overdependence on a dominant individual, according to Whitfield who says that fear was realised last week as CEO Markus Jooste resigned amid concerns of fraud. Whitfield notes that the Steinhoff board is made up of some of the country’s smartest business minds, six of whom, including Jooste, are chartered accountants.

The meltdown of Steinhoff International has again called into question the health of the auditing profession in SA, according to a Business Times report. It says while Deloitte may be praised for ringing the alarm, it is not yet clear whether it should have acted sooner. To have another auditing firm’s integrity called into question would not bode well for the profession or the economy, said Tim London, of the University of Cape Town’s Graduate School of Business. ‘These auditing firms are key cogs in overall corporate governance and when they fail it’s scarier for the whole system than when the average full-profit company fails,’ London is quoted in the report as saying. Khulekani Dlamini, executive director at KD Capital, said unsavoury practices in the profession were driven by paying clients. Deloitte Africa CEO Lwazi Bam said the firm will co-operate with the regulators and investigative bodies probing the Steinhoff matter.

The DA says it is concerned that Deloitte Germany, the auditing firm responsible for signing off the financial statements, may have turned a blind eye to accounting irregularities at Steinhoff International Holdings. According to a report in Business Report, the DA’s David Maynier said in a statement: ‘I have, therefore, formally requested an investigation into whether Deloitte Germany or Deloitte South Africa complied with international audit standards in its audits of Steinhoff International Holdings.’ Maynier said, because the matter traverses a number of jurisdictions, he has requested investigations by the following regulators; the Dutch Authority for the Financial Markets (Netherlands), the Auditor Oversight Body (Germany) and the Independent Regulatory Board of Auditors (SA).