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Steinhoff scandal: a three bucket wonder

Former CFO Ben la Grange provides three ‘buckets’ of reasons for what went wrong.

Steinhoff’s former CFO Ben la Grange absolved himself of responsibility in the group’s fraud and irregularities and said there was a “limited sharing of information from Mr Jooste [former CEO Markus Jooste] to myself.”

Speaking at a parliamentary portfolio committee meeting, he also said he did not believe that former chairman Christo Wiese or audit committee chair Steve Booysen knew about the fraud being committed.

He divided what went wrong into three “buckets”:

Firstly, profits were inflated. The main source of inflated profits was from what he was led to believe was an external buying group, which payed additional rebates to operating entities, which recorded a profit. “The buying group appears to be nonexistent and funded by loans from Steinhoff,” he said. These contributions flowed into all divisions, with the bulk being in Europe.

Secondly, there were transactions where assets were acquired at inflated values.

Thirdly, there were a number of transactions where La Grange thought the parties Steinhoff was dealing with were valid third parties, but in fact they were related to or influenced by Jooste.

His testimony before the committee was welcomed by chair Yunus Carrim, who effectively told Steinhoff chair Heather Sonn to stop talking as Steinhoff had provided parliament with no substantial information since being summoned for the first time in January and for essentially obfuscating, “wriggling” and engaging in a PR exercise and “not fully appreciating the gravity of what is happening here.”

According to La Grange, he only became aware that something was wrong on the weekend of December 2 2017, when – for the first time – Steinhoff was given a report by auditor Deloitte flagging issues and asking for comment. La Grange told Deloitte that they needed to wait for the CEO, who was en route to South Africa, to comment. “He landed on the Monday morning and never showed up for the audit committee meeting,” La Grange said.

Various committee members remained unconvinced that extensive fraud committed in such a large company could have only been the work of one individual, or that no one picked up red flags which were raised since 2015.

La Grange said the fact that there was not a single set of auditors for the group was “where things got difficult.” He claimed that he did raise the issue of the use of small audit companies in various operating companies. “The CEO convinced the head of the audit committee and myself that we should retain them” because of the language barrier and because of the relationship they have with staff.

La Grange claimed that while there were red flags, including “lots of press last year”, the first flag was waved in 2015 around Steinhoff’s German tax information. While this did shock him, Steinhoff immediately appointed specialists in Germany to help evaluate the claims and their merits. La Grange took comfort from their report back to the board and “got comfort from my verbal engagement with the CEO on those matters.”

He believed negative press and reports during 2017 on structures and transactions were based on misinformation released by Steinhoff’s joint venture partners. “Queries were answered to an extent, I thought it was plausible.”

Asked why he did not feel a moral obligation to resign, La Grange said he did, in January. “I did step down due to moral implication, giving the new team the possibility to speak to creditors,” he said. People were so angry – “seeing my face, they wanted to hit it.”

La Grange also said that pension funds and shareholders would not recover what they have lost. He said the company needs to focus on restructuring, and its debt is still there, and that will – in all likelihood – have to involve subsequent restructure. “I believe the losses will, in all likelihood be permanent losses, I cannot see the share price going back to levels before December.” 

Committee members remained skeptical that La Grange could have been unaware, asking why there was no oversight of subsidiaries and whether the CFO function was just to consolidate financial statements. La Grange said finance at head office level is presented with detailed information and it ran ratios. It did not re-audit.

He said that companies can’t really prevent the risk of someone being out there trying to manipulate the numbers if they have the means to do it. He said the practice of inflation of profits using a “dummy company” in Europe commenced a number of years ago. “False profit was in the system. If you grow it year after year, no one will pick it up.”

Sonn and Steinhoff’s commercial director Louis du Preez revealed little, other than to say that actions to date include the suspension of two people, that Steinhoff was in regular interaction with regulators and with PwC, which is carrying out the investigation into what went wrong.

Sonn said Steinhoff had released unaudited interims in June, changed its board, made a debt standstill arrangement with creditors, and that PwC was starting to show Steinhoff the extent of misstatement.

Meanwhile, JSE CEO Nicky Newton-King told the portfolio committee that the JSE will, within days, issue a consultative paper on possible changes to listing requirements. These include changes to initial listing requirements, compulsory training of audit committees, additional levels of disclosure on directors’ dealings and strengthened regulatory oversight on secondary listings. 
 
The JSE will ask for expanded powers relating to companies with primary listings elsewhere. 
 
A representative of the Companies and Intellectual Property Commission (CIPC) said that the CIPC knows the identities of four people who have been implicated, and their names have been passed on to the regulators, saying later that the Hawks have these names.  He said legislation precludes the CIPC from instituting criminal action as CIPC has no jurisdiction of directors of external companies. 
 
The Financial Sector Conduct Authority’s head of market abuse Solly Keetse said the FSCA has four investigations underway, including insider trading of  foreign company trading in August 2017, insider trading of numerous trading accounts selling between September and December 5, false and misleading accounting and insider trading with elements of false information on 7 December relating to the Viceroy report

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And Parly believe this!!?? A man and his auditors at this level cannot see that the Bank balance is way below the (over)stated profit, year after year, and without a proportional reduction of debt! Ben, change profession immediately, however you may clearly get a job with your auditors! Not that you need one with all the siphoning thats been done!!!

The rise in the value of your share-options tend to suppress the urge to speak up about the obvious overstatement of revenue.

Sometimes the first duty of intelligent men is the restatement of the obvious.

George Orwell

Maybe I’m dumb but how Can a company continue to misrepresent profits without eventually running out of cash or have the cash pile not substantiate the historical profits? Cash is often the best indicator for a company’s / business’s health.

You do realize that there was an accounting scandal rifht.

And that running out of cash is why this articles exists in the first place.

So to your question, a company cannot continue to operate while inflating profits. Yikes.

what does he mean by ‘external buying group?” Does he mean buying activities were outsourced? In other words, the companies didn’t employ any buyers?

Guys, don’t say I haven’t warn you, watch KAP. They are doing the exact same thing as Steinhof, cut from the same cloth.

Proof? Literally any proof?

Yip – that’s a pretty big statement.

As a CFO he displays a total lack of understanding of the companies financing or what was going on in the company. Seems he was more interested in drawing huge emoluments each month and turning a blind eye to what was really going on. As a shareholder I think his ethics, competency, knowledge and ability are seriously lacking

Graham, exactly!

A 24y old CA would have spotted all three buckets a mile off. The man should be disbarred for stupidity and incompetence – maybe SAICA is paying attention?

Ben, feel free to sue me, my name is right here. I can show how 30 minutes on google and 10 minutes of Excel would prove my argument.

I honestly cannot make up my mind if this man’s comments are brilliant or the single most stupid presentation to Parliament. Mr Le Grange was a CFO who was paid R 50 million per year by Steinhoff. His obvious devotion to Mr Wiese and Mr Booysen in my opinion show the degree of co-operation between them. One of them had a “bolt from the blue moment” and now Mr Le Grange wants us to understand how this outrageously highly paid CFO missed the fact that what he says was nothing short of a clumsy scam by Steinhoff to inflate the profits . His claim that Steinhoff loaned money to pay funds into its own accounts to mimic a buying group who was dealing with the company is astounding. How did he, as the CFO miss the fact that the company had raised these loans ? What did he think the money was for? Did he not notice the flow of funds out of these accounts into their own accounts in another division ? To then go on and openly state that he was concerned about the auditors which had been appointed but could not do anything to change it is a clear indication of his total lack of understanding of what his position entailed. It is not an acceptable excuse to state “I knew what the problem was but was bullied”. He is, in essence, admitting that his R 50 million a year salary was nothing short of money paid to silence him. It was his duty to look after the interests of shareholders and other investors. These are basics that Directors have to follow. Stupidity is not an excuse for Financial Directors and neither is what he implies is a lack of backbone. In my opinion all of the directors need to be charged. Pension funds lost BILLIONS.

Neither … just crooked. he committed fraud, why shouldn’t he lie too?

On an aside, the picture shows him presenting results, with his top button undone, like he were at a polo tourney. Arrogance of the very highest degree! I saw Jooste sporting same a few times, I felt like shaking him VERY hard, can’t quite explain that

Ben, alluded that these fraudulent acts started before he joined Steinhoff, so why then are only the 15/16 and 16/17 FY being scrutinized? Clearly, the “rot” started the year Jooste was made CEO so start restatements from that point or the full truth will never be revealed, and these crooks will get away with billions.

Secondly, it has become very clear from yesterdays Parliament session that Heather Sonn and her “Merry Men” are protecting themselves and others who were party to and knew about Jooste’s scheme.

He is admitting one of two things.

Either he was a weak hire that Jooste organised because he wanted a patsy in this position so that Jooste could keep doing what he was doing without any major interference (incompetent), or La Grange was grossly negligent in not spotting basic symptoms because of being influenced by big package/”celebrity” businessmen.

Either way La Grange comes out looking as a big contributor to the problem because his job title meant he should have spotted and done something about the accounting fraud.

Secondly, there were transactions where assets were acquired at inflated values. Such as the Tekkie Town deal. Wonder how many horses were bought overseas together with the actual seller/partner?????

The typical statement used by Company Directors, Polititians and Gangsters…”It wasn’t me!” Yislaaik…anyone with half a brain and bit of accounting knowledge could have seen this coming at least 3 years ago. The warning shot was fired when the successive rapid acquisitions started and making it all blurry from there onwards. All three buckets into one large bucket of s**t

End of comments.

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