PwC finds fraudulent accounts of more than $7 billion at Steinhoff
Having been appointed in December 2017 to conduct a review of Steinhoff International’s finances, Big Four accounting and advisory firm PwC has released some of the discoveries from its investigation, which includes accounting fraud that amounts to just under $7.5 billion.
Retail giant Steinhoff International made the headlines in late 2017 when an accounting scandal came to light, what was described as one of the largest accounting scandals in South African history. The firm, which ranked as the highest valued retailer in South Africa by some distance, over-stated its revenues substantially.
The amount under consideration was approximately $6 billion, and the firm’s market value dropped in subsequent months by as much as 85%. As new information came to light, the firm appointed global professional services firm PwC to conduct a forensic review of its finances to identify the malpractices.
PwC has now released some of its findings, which include a series of fabricated transactions being reported for nearly a decade between 2009 and 2017. According to PwC, the transactions were fabricated by a number of executives who were previously associated with Steinhoff.
This allowed these individuals to dissociate the transactions from Steinhoff. As was first revealed in the scandal, the fabricated transactions exaggerated the firm’s earnings and assets, allowing it to fraudulently expand its revenues over nearly a decade. Broadly, the transactions were placed by PwC under the brackets of profit and asset creation, asset overstatement, reclassifications, asset & entry support, and contributions.
A statement from Steinhoff on the scandal said, “The transactions identified as being irregular are complex, involved many entities over a number of years and were supported by documents including legal documents and other professional opinions that, in many instances, were created after the fact and backdated.”
Since the scandal broke in 2017, Steinhoff has been engaged in consolidated efforts to rebuild its operations in South Africa and across the world. Early last year, the firm pulled Richard Heis – former Global Head of Restructuring at KPMG – out of retirement to play the role of Chief Restructuring Officer at Steinhoff.
South Africa has an exceptionally high rate of economic crime, and reports of financial malpractice have become increasingly frequent in the country. PwC is currently also engaged in reviewing the accounts of agri-business firm Tongaat Hulett after a number of “issues” were reported in its finances.
