Steinhoff was in effect just a giant Ponzi scheme. Fictitious receivables were ‘settled’, in a merry-go-round, by increasing property valuations, trademarks & goodwill. These inflated values were then supported by intergroup rentals/royalties & orchestrated intergroup ‘payments’,” she tweeted on Sunday.
So how did they do it? PwC explains what happened in broad terms, but the publication of more or less an executive summary of the report by the existing board of Steinhoff leaves some of the nitty-gritty a little bit hazy. So, reading between the lines a bit, it seems whenever one of Steinhoff’s operating companies started underperforming, a bunch of companies’ debts were effectively exported to an entity outside the group. The operating company got cash or “contributions” in return, making it look as if the main body was performing better than it actually was.
It actually names a bunch of suspect companies and tabulates their contributions to the dodgy schemes. The big one was something called the Talgarth Group, which is registered in the British Virgin Islands, and it was through this group that €4.2-billion was channelled starting way back in 2009 or longer. The money channelled through the group began in large dollops, but just got bigger until 2016, when the amount suddenly dropped, and another company, TG Trademarks, began to get the big bucks.
The one group specifically exonerated is Pepkor and its associates, which will come as an enormous relief to its majority owner Christo Wiese. The industry scuttlebutt is that everyone knew Jooste was dodgy, but they revised their opinions when Wiese teamed up with Jooste and were somewhat comforted by Wiese’s oversight.
Deloitte’s defence, and it has some basis in truth, will probably be that auditors are reliant on the honesty of their clients. If a client sets out to fix the books, it’s very hard for an auditor to pick that up, especially in a very large group with other auditors checking the books of the satellite entities. The counterargument will be, yes, but you saw nothing wrong in over 10 years? Really?
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