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PwC investigation finds $7.4 billion accounting fraud at Steinhoff

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The deals, orchestrated over several years, enabled Steinhoff to artificially boost profits, puff-up property values and inflate cash and so-called cash equivalents.

Sunday 17, March 2019

(Bloomberg) --Steinhoff International Holdings plans to dig deeper into the accounting misdeeds that brought the retailing giant to its knees as it seeks to get to the bottom of some $7.4 billion in fictitious or improper deals.

A forensic probe by PwC found that a small group of former executives, with the help of others outside the company, structured phony transactions that substantially inflated earnings and asset values.

In a report, Steinhoff stated that there are still a number of unanswered questions, particularly in relation to the identification of the true nature of the counter-parties or the ultimate beneficiaries to various transactions.

“These matters will be the subject of further investigation in order to assist potential recoveries for the group,” added Steinhoff.

The findings of the PwC investigation are finally giving shareholders some insight into the scope of the wrongdoing. Yet the brief summary provided few details, and may disappoint investors who have been waiting for 15 months since the South African retailer announced it had found a hole in its accounts. Steinhoff said the full PwC report runs to more than 3,000 pages and will remain confidential.

The discovery of accounting issues and the departure of Chief Executive Officer Markus Jooste in December 2017 erased more than 95 per cent of Steinhoff’s market value, forced billions of dollars in asset sales and unleashed a flood of regulatory probes and lawsuits.

No executives involved were identified in the summary of the exhaustive PwC probe, but Steinhoff did say Jooste hasn’t made himself available for interviews with investigators.

The phony transactions were entered into with parties that were made to appear independent of Steinhoff and its executives, but it now appears that these deals were with entities closely related to or having “strong indications of control” by the same small group of ex-executives and outsiders, according to the report. Irregular transactions with eight firms from 2009 and 2017 amounted to EUR 6.5 billion ($7.4 billion), it said.

Steinhoff also intends to seek recovery of the bonuses paid to certain individuals.

Jooste, who built Steinhoff into a global player through acquisitions from France to Britain to the US, has been in the sights of South Africa’s anti-graft police force since the scandal erupted. But the special unit, known as the Hawks, has delayed action against him while waiting for more details.

TAGS : Steinhoff , PwC

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