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Tongaat to pursue executives for fraud
Tongaat to pursue executives for fraud
Published Date: 2019-12-02 | Source: Stephen Gunnion | Author: Stephen Gunnion
A probe has found that some senior executives fiddled the books at the sugar producer and land owner, resulting in an overstatement of profit.
Tongaat Hulett plans to pursue claims against some of its former executives after a probe into the group's affairs uncovered dubious accounting practices. It says 10 executives, including former CEO Peter Staude, inflated profits to boost their own financial incentives.
Releasing the key findings of a six-month forensic investigation by PricewaterhouseCoopers Advisory services, the embattled sugar producer and land owner said some senior executives initiated or participated in undesirable accounting practices that resulted in revenue being recognised earlier than it should have been and in expenses being inappropriately capitalised to assets. This resulted in profits in the respective years being inflated and in the overstatement of certain assets in the group's financial statements.
Tongaat's problems were brought to the fore after the group warned of a big loss for the year to end-March. Gavin Hudson, who took over as CEO in February, said a strategic and financial review had unearthed practices that required further examination and remedial action. It called in PwC to assist so that management could focus on the strategic review.
In June, it asked the JSE to halt trade in its shares due to mounting concern over the state of its financial accounts, saying that it would have to restate its 2018 results, which would hinder the release of its 2019 numbers. They should have been reported by the end of March and have yet to be released. It said the trading suspension was intended to protect investors.
Apart from reviewing vast amounts of information and data, PwC interviewed a significant number of past and current employees. Its mandate was to investigate alleged undesirable business, accounting and other practices and the potential impact they had on its financial accounts for the past two years.
The PwC Investigation identified major historical shortfalls in governance practices, delegation of authority, decision-making, oversight, financial discipline, record keeping, systems usage and financial reporting, amongst others. It also identified areas in which financial restatements were required. For example, in Tongaat Hulett Developments, which owns vast tracts of land that are being developed and sold, it said a numbers of methods were used to recognise sales before zoning and subdivision approvals had been obtained. The values of sugar cane-related assets were also overstated.
Tongaat said it was considering civil actions against the ten executives it named, as well as other individuals, to recover bonuses and benefits paid to them. It was also considering a court application for an order declaring some of the accused to be delinquent directors. And it would provide relevant information and necessary support to the SA Police Services and the National Prosecuting Authority to help them pursue those who should be prosecuted. It said it would engage the authorities in Zimbabwe and Mozambique as well.
The findings of the PwC report and the financial impact would reflect in its 2018 and 2019 annual financial statements.
Tongaat's shares were trading at R13.21 when they were suspended on 10 June, following a 76% decline since January.
Interestingly and admirably, Tongaat names all senior executives involved in the accounting fraud:-- Karin Richards (@Richards_Karin) November 29, 2019
Peter Staude (former CEO)
Tongaat's Peter Staude and other executives committed fraud, PwC report finds. Criminal charges to be pursued. Another black mark for the SA corporate sector.-- Dave Hazelwood (@hazelwood_dave) November 29, 2019