We do not often see details of how companies are committing $ 7.4 billion of fraud.
Steinhoff International Holdings, a former empire of retailers and other companies in Europe, Africa, Australia and the United States – including the now bankrupt mattress firm – collapsed in December 2017 when it announced it had found "accounting irregularities "Without mentioning amounts or methods. She then hired PricewaterhouseCoopers (PwC) to investigate.
The company now publishes a 11-page review of PwC's Forensic Investigation Report. The actual PwC report remains under lock. I suppose he appoints heads by name, while this summary does not. The amount of accounting frauds found so far amounted to 6.5 billion euros, or 7.4 billion dollars.
But they still do not know it fully. According to the review, "there are still a number of unanswered questions, especially with regard to identifying the true nature of counterparties or final beneficiaries under different transactions."
However, we are not often "
Here are the key narcotics I distilled from the report :
"A small group of former Steinhoff Group executives and other executives who are not Steinhoff, led by Senior Chief Executive Officers, structured and executed various transactions" from 2009 to 201
The PwC investigation found a communication model which shows senior management instructing a small number of other Steinhoff executives to follow these instructions, often with the help of a small number of non-Steinhoff . Fiscal and / or irregular transactions have been entered into with parties alleged to be and appear to be third parties, regardless of the Steinhoff group and its executives, but which now seem to be close connected and / or have strong indications of control by the same small group of people mentioned … above.  Generated and / or Irregular Revenues were in many cases created at the intermediary level of the Steinhoff Group holding company and then assigned to Steinhoff's ineffective operations as . "Contributions" which took many different forms and increased income or reduced costs in those operating enterprises. In most cases, operating entities have received cash contributions from another Steinhoff Group or Steinhoff-funded companies, which leads to in-house loans and receivables.
" transactions identified as irregular were for many years and were backed by documents, including legal documents and other professional opinions, which in many cases were created after this fact and were backed up. "
" The PwC report identified three main groups of legal entities [Campion/Fulcrum Group, Talgarth Group, TG Group] who were Steinhoff's counterparties to the investigated transactions. Other corporate entities were also identified along with a finding that it has practice to use similar business names and changing company names, leading to confusion between legal entities . through four categories of transactions, with some transactions being made "to overshoot the degree of asset overdraft":
1. Profit and Asset Generation
"The PwC report found that some companies in the Steinhoff Group had registered sales to or received benefits or revenues from companies that were independent of the Steinhoff group but which now appear to be either closely related to and / or have strong indications of control by the Steinhoff Group or some of its former employees and / or third parties or previous management. "
The revenue from fictitious and / or irregular transactions established during the 2009-2017 investigation amounted to € 6.5 billion ($ 7.4 billion) in years:
"The income from these transactions was in many cases not paid by the so-called independent entities of the Steinhoff Group, which led to loans or other receivables due to Steinhoff Group, which had little or no economic content and which as such never has been settled. "
2. Impairment of assets and reclassification
"Uncollectible claims arising out of the fictitious or non-regular income created by the described transactions … above or subsequently settled in offsetting agreements or reclassified into different assets."
In the cases uncollectable receivables were offset by intergroup payments and debt transfers. This led to the transfer of loans between enterprises, both in the Steinhoff group and around the allegedly independent subjects. These offsetting and / or debt transfer arrangements have led to the movement of loans that are accounted for as repayments from the original party. "In other cases, often by presumably independent enterprises, non-recoverable receivables are reclassified into different classes of assets, such as cash equivalents, increases in the value of long-term property, increases in the value of trademarks or increases in the value of the acquired goodwill. These reclassifications have created the impression that the uncollectible receivable is settled and has led to an increase in the value of other assets. "
3. Support for assets and legal entities
"The resulting value of overvalued assets was supported, for example, by:
- increasing the rent to be paid in respect of inter-group rental agreements on the basis of estimates, which may not be reliable;  increase in the remuneration to be paid under agreements for inter-group trade royalties; and / or
- arranging inter-group payments and debt assignment to demonstrate the settlement of cash equivalents. "
" These overpriced costs were included in the performance of the operating companies, increasing the cost bases and, in some cases, the losses incurred by these entities. This had the following consequences:
- The losses incurred by operating companies could not support the acquired reputation; and
- units did not contribute positively to the results of the Steinhoff Group. "
"Losses in operating companies were mitigated by the Steinhoff Group, then made a further breakdown of fictitious or irregular income, which in some cases was created in the Steinhoff broker holding companies for the various Steinhoff operations by contributions . In many cases, these contributions to operating companies were settled in cash by other companies in the Steinhoff Group, creating the impression (internal and external) that they had content. "
" These contributions have had the effect of:
- the operating enterprises potentially appear to be more profitable than they actually were (in circumstances where the contributions were greater than the overheads granted to that undertaking)
- which allows the projections for support of the price paid for the acquired enterprises to be fulfilled; and
- to allow the implementation of the budgets of operational entities (although budgets often include contributions).
"Contributions by Steinhoff Group legal entities to Steinhoff Operations would normally be removed during consolidation; but before the elimination of these contributions, they supported the profitability, liquidity, solvency and the value of the reputed goodwill of the operating company.
In contrast, the fictitious or irregular income described [above] and recorded in the brokerage holding companies did not abolish the consolidation
So, dear reader, this is the way a remote company can committed fraud on a large scale, for nine years in a row, for the benefit of its leaders, apparently in the sentence that this is not a problem until a problem arises.
In the US, the FDIC publishes its 2018 summary for the 5000 banks it regulates. And there are juicy banknotes. Read on … Banks in the US report $ 251 billion From "Unrealized losses" on investment in securities in 2018, at most since 2008: FDIC
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