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.