Nicola Mawson
Through a series of paper inter-company transactions, millions of dollars were moved around Steinhoff entities, with fake transactions having been signed off by the now deceased CEO, Markus Jooste, resulting in non-existent income being recorded in the company’s books.
In the chapter on accounting adjustments in the 7 000-page investigation, which Business Report secured through a Promotion of Access to Information Act application, PwC recorded how a fake transaction was created that resulted in $200 million (R3.7 billion at today’s exchange rate) being accounted for against “other income” in Steinhoff’s books, artificially inflating its income.
Steinhoff was South Africa’s biggest corporate scandal when it collapsed after Deloitte confirmed there were accounting irregularities in 2017. The fallout included Jooste’s reported suicide, while several executives were charged and, in some cases so far, have been found guilty of fraud.
A lengthy PwC report into the wrongdoings at the company, which was officially liquidated on October 13, 2023 with some of its previous holdings such as Pepkor now being held by Ibex Holdings, lays bare the complexity of the fraud, with money moving between various entities.
One particular fraud was perpetrated through a contribution of $162m from one Steinhoff subsidiary, SEAG Austria, to another, Mattress Firm, referred to throughout the investigation as MFRM. This amount, contained in the full-year 2017 results, was to be used to, among other things, cover MFRM’s rebranding costs from Tempur Sealy to Serta Simmons.
Steinhoff purchased US-based Mattress Firm for $3.8bn, including debt, in 2016 until it was sold to Tempur Sealy in 2023 for $4bn in a bid to pay down some of what the defunct company owed.
In a separate transaction PwC drew attention to, it noted that a company called Tulett, which PwC says was “allegedly [acting] on behalf of private equity company Advent, was to contribute $200m to SEAG Austria towards the rebranding costs.
Advent was one of the companies that was looking at buying Poundland discount chain some four years ago, with Steinhoff seeking to value the business at more than $4.5bn.
However, it was subsequently uncovered that “neither Advent nor Serta Simmons has any knowledge of Tulett or this agreement,” the PwC report stated. In addition, neither of those two companies knew what Tulett was, and it was not affiliated with Serta Simmons.
In addition, “Serta Simmons did not, directly or indirectly, agree to reimburse $200m to Steinhoff,” PwC’s investigation revealed.
When called out by Deloitte, Jooste apparently said he would provide the auditing firm with a copy of the signed agreement, which had yet to materialise.
PwC quoted Jooste as saying in November 2017: “I then have my joint venture with Serta Simmons, Serta Simmons will pay the $200m back for the cost reimbursement and it will pay the €600m for the brands of GT which Serta Simmons in future wants to use for America”.
The GT reference is to the sale of the rights to use Steinhoff manufacturing brands (owned by GT Branding Holding) in US, Canada, Mexico and China to Tulett. Approximately €600m is worth R11.6bn at today’s exchange rate.
This so-called reimbursement agreement never happened and had to be reversed, or derecognised. However, the reversal was processed by a deletion of the original journal and not through a reversal of the original entry, with the latter being what PwC said “would be expected in a normal accounting system”.
PwC noted that there were design deficiencies within and surrounding the European consolidation in that journals can be deleted and changed after having been posted. “These deficiencies created an opportunity for manipulation. They also increase the risk of error within and surrounding the consolidation,” its report stated.
BUSINESS REPORT