PwC probe: R125bn in fictitious and irregular revenue flowed through Steinhoff’s accounts

Nicola Mawson 

Some €6.5 billion – or R125bn – flowed through Steinhoff's books between 2009 and 2017 when the lid was on what is South Africa’s biggest corporate scandal to date was blown.

This information is contained in a PwC investigation into the company, which Business Report secured through a Promotion of Access to Information Act application.

Overall, eight companies are listed in the report as having been used by Steinhoff to artificially inflate its revenue. PwC stated that this income was recorded by the now defunct company for the financial years between 2009 and 2017.

Then external auditors, Deloitte, raised issues with Steinhoff’s accounting practices in 2017, which resulted in Steinhoff losing 97% of its market capitalisation between August 2017 and March 2019 as investors reacted to the news.

PwC explained that the fictitious or irregular income was distributed from Steinhoff entities to other business units through a method known as contributions. These contributions should have typically been eliminated from the books when they were consolidated at holding group level but weren’t.

This, the advisory company said, had the effect of “inflating the Steinhoff Group income”.

Other instances in which Steinhoff artificially inflated its income included a 2013 decision by entity JDG Trading to sell JDCF, which provided unsecured lending to consumers shopping at JD Group outlets – at the time including names such as Joshua Doore.

A decision was made to sell JDCF to BNP Paribas’ South African subsidiary, RCS Cards, in January 2014, a move that was approved by JDG Trading’s board a few months later. And approved by the Competition Commission in May 2015, subject to conditions.

That deal was, in September of the same year, scuppered because of “onerous conditions”. Yet, Steinhoff Europe – a subsidiary of the overall Steinhoff Group – booked revenue of €335 million, or R6.4 billion at current conversion rates, despite this deal being “ultimately abandoned” and did not reverse this amount, as it should have done.

Another example is that of when Steinhoff created a company called Van den Bosch Beheer in conjunction with the latter’s holding company in 2006. Van den Bosch Beheer is a Dutch logistics company.

Each party was set to own 50%. However, Steinhoff concluded that Van den Bosch Beheer should be consolidated into the Steinhoff Group despite Steinhoff’s own external auditors pointing out that consolidating the entity would be problematic.

BUSINESS REPORT