Former Steinhoff Chief Financial Officer Ben la Grange presented evidence before a joint sitting of four Parliamentary committees on Wednesday. Here are the key things you need to know from his testimony.
1. Steinhoff has several layers of reporting
La Grange explained the multiple levels of reporting within the Steinhoff group. Each business unit (Steinhoff Europe, Africa and the US Mattress Firm) has its own audit committees, both internal and external, which scrutinise numbers. At holding company level, these reports are consolidated.
"At no point […] does the group on a holding company level re-audit the numbers," said La Grange. The group relies on the processes of the institutions conducting the audits.
"Having a single set of auditors would have decreased the risk of what happened at Steinhoff," said La Grange.
2. Steinhoff’s downfall was three-pronged
"First of all, there were inflated profits," La Grange told Parliament. The main source was contributions from an external buying group.
The external buying group would take volumes of products purchased by different brands and negotiate with suppliers to give additional rebates (contributions) to the group, reflected as profits on the income statement.
"But the buying group seems to be non-existent and funded with loans from Steinhoff."
Essentially, Steinhoff made a loan to the buying group and the buying group paid profits to Steinhoff, which is why a profit was reflected in the income statement and a loan was reflected in the balance sheet, he explained.
Secondly, there were Steinhoff’s transactions regarding its assets, acquired at inflated values.
Thirdly, there were several transactions, thought to be valid transactions with valid parties. They were, however, found to have been influenced by former CEO Markus Jooste. La Grange said he believed there was "limited sharing of information" from Jooste to himself and certain relationships between Jooste and third parties were not disclosed to him or the company.
If he had known that transactions were influenced by Jooste he would have accounted for the transactions differently, he said.
3. PwC report gives reasons for La Grange’s suspension
La Grange was suspended earlier this month. La Grange said his suspension was not given in writing, but was linked to the buying group.
"I was not given written suspension notice. I do not have all the detailed reasoning and I am not privy to the PwC report.
"I was given the reasoning that the issuance of this invoice from the African group of companies which I implemented and authorised to the buying group was the reason for my suspension."
Current Steinhoff executive Louis Du Preez said the company could not share what the PwC report explicitly stated, and Steinhoff would seek legal advice before responding to Parliament.
DA MP David Maynier asks if contracts with Ben la Grange were suspended because he may be implicated in the accounting irregularities currently being investigated. @Fin24 @TeamNews24 #Steinhoff pic.twitter.com/lK5O6PpsnP— lameez omarjee (@LameezOmarjee) August 29, 2018
4. La Grange was shocked at Deloitte’s findings of fraud
La Grange said he became aware of the fraud at Steinhoff on the weekend of December 2, 2017. He was called into a meeting with the audit committee and was given the Deloitte report. "I was shocked at what is in the report," he said.
La Grange said he wanted CEO Markus Jooste to comment, but at the time the CEO was on a plane to SA. The following Monday morning, when Jooste did not show up to the audit committee meeting, La Grange knew something was wrong.
PwC was then appointed to conduct an investigation and Jooste resigned.
5. La Grange and Jooste were strictly business colleagues
Responding to a question about his relationship with Jooste, la Grange said that they were business colleagues and were not friends who socialised outside the business environment.
6. Overstating of Steinhoff profit happened over years
La Grange also believes the practice of stating false profit at Steinhoff dates way back.
"It started so long ago; each year it increased a little bit. It's not just a huge jump in profits," he explained. "In my view, the practice started a long time ago."
7. Losses to pension funds are permanent
La Grange said the losses to pension funds were permanent. He is also doubtful that the share price will ever climb back to what it was before December 2017.
Sonn said it was difficult to make assurances regarding pension funds, but that the company was committed to giving shareholders "some form of return". "There are so many circumstances beyond our control," she said, adding that Steinhoff had committed not to "jump ship".
Steinhoff is determining how to use its resources to service existing debt and consider the business' future growth. This strategic decision is better than a decision to do a wind down and sell all assets, Sonn said. "We are convinced that we can achieve some form of return for shareholders."
Steinhoff is considering what form restitution will take, the scale and possible costs to stakeholders – for example if employees may have to take pay cuts. "The first priority is to attempt to save it (the company) and attempt to grow it," Sonn reiterated.
La Grange did not stay for the remainder of the hearing and he will respond in writing to additional questions from MPs which may arise from presentations by regulators.
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