Frances Ball 18 Mar 2019 02:14pm

PwC finds $7.4bn accounting fraud at Steinhoff

The South African retailer recorded inflated or fictitious transactions totalling $7.4bn (£5.6bn)

A forensic probe by PwC has found that Steinhoff, which owns Poundland, recorded false transactions between 2009 and 2017, an accounting gap which the company first disclosed at the end of 2017 in a shock to its investors.

PwC found evidence that transactions made to seem independent of Steinhoff had in fact been constructed by a small group of former executives.

The transactions inflated earnings and asset values, and meant that over several years Poundland-owner Steinhoff could artificially boost profits.

In December 2017, South Africa’s audit regulator announced a probe into Deloitte over the scandal. The investigation of the Big Four firm, which has audited Steinhoff for almost 20 years, concerned the financial years ended 2014-2016. Shareholders at Steinhoff then launched legal action against Steinhoff and the auditors.

In a summary for investors, Steinhoff 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.”

PwC didn’t name the specific deals under investigation but said that they fell into four categories – profit and asset creation; asset overstatement and reclassification; asset & entity support, and contributions.

Steinhoff said it would fully cooperate with any criminal investigations, and pursue claims against those responsible for fraud. The full 3000-page report will remain confidential for legal reasons.

Steinhoff’s market value has lost 216bn rand (£11.3bn) since 2017 – more than 95% of its value – and several senior executives have resigned. Among them is chief executive, Markus Jooste, who denies wrongdoing but has not yet made himself available for PwC’s investigators.

The group owns Poundland as well as 6,500 retail outlets and 40 brands worldwide including Bensons for Beds and Harveys in the UK