By Reon Janse van Rensburg
At a recent annual meeting of Tongaat Hulett, the chairman of the company, Louis von Zeuner, assured shareholders that the board will take action where they believe it is necessary, but he did not mention that they immediately intend to take action against the external auditor, Deloitte.
Much of the two-hour meeting, however, was aimed at discussing Deloitte’s role in the impending collapse of the company.
One of the company’s shareholders, Chris Logan, who had already noticed problems with the sugar group in 2014, asked if the board had realised how badly Deloitte had let the company down.
“If Deloitte had done its job properly and noticed the major misrepresentations well in advance, they would have warned shareholders three, four or five years ago that the company was being mismanaged and shareholders could have changed management.” − Chris Logan
According to Logan, in the failure of their duties, Deloitte caused R12 billion to be written off from the company’s capital. He further mentioned that the issue is not about the refund of audit fees only.
Von Zeuner responded by saying that the board fully understands this. He further mentioned that the board has approached the JSE as well as the Financial Sector Conduct Authority (FSCA) and that they are in ongoing discussions with the Independent Regulatory Board for Auditors (IRBA).
Solidarity’s Guild for financial professions earlier expressed their concerns about the controversial appointment of Irba’s new CEO, Jenitha John, former Tongaat director and chair of the audit committee.
IRBA is supposed to be able to act independently as watchdog and must investigate scandals and failures in auditing in corporate South Africa. It is an organisation that must act strongly against fraudulent activities and fulfill its obligation to take effective action against companies that violate the law.
Deloitte has been Tongaat’s auditing firm for more than 15 years. Solidarity’s Guild for financial professions is concerned about John’s position and the role she will be playing as supervisor of IRBA’s investigation into Tongaat Hulett’s audit cases, especially because she was involved in Tongaat’s audit process which is now being scrutinised.
The write-off of capital led to the share price of Tongaat falling early in 2018 from more than R100 to a minimum of R2 in April this year. The share price recently rose to R5.95.
Tongaat paid R88 million in fees to Deloitte in the 2020 financial year, which is equivalent to 10.5% of the company’s current market capitalisation.
According to Linda de Beer, currently heading the Tongaat audit committee, the rising tariff increase of the audit process is due to the massive amount of additional work that had to be done (in 2019 the amount was R30 million).
In addition, the company has faced difficult and large asset sales, as well as other debt restructuring initiatives. Tongaat was also of the opinion that it needed an auditor with knowledge of the company.
On the issue of whether Tongaat will be taking action against Deloitte, De Beer said that the board could not conduct these discussions while Tongaat still has to work with Deloitte. Deloitte will remain as auditor this year, but is expected to be replaced in 2022.
De Beer indicated that the preparation of a strong lawsuit was a complicated matter. The different approaches appear to be a joint effort to settle a watertight case against the auditing firm.
According to Accounting Weekly, a news agency specialising in financial news, Tongaat’s misrepresentation of its financial results is one of the most serious accounting scandals in recent South African history. It is only overshadowed by the multi-billion-rand accounting fraud at Steinhoff.