Embattled agroprocessing business Tongaat Hulett said on Friday that a probe by advisory firm PwC into the company’s past financial activities had revealed that certain senior executives had initiated or participated in “undesirable accounting practices”.
In turn, this resulted in revenue being recognised in earlier reporting periods than it should have been, and in expenses being inappropriately capitalised to assets. This then resulted in profits in the respective years being overstated, and in the overstatement of certain of Tongaat’s financial statements.
PwC also found that “there was a culture of deference and lack of challenge” at Tongaat that resulted in employees following instructions on accounting practices without questioning the basis for these.
There were also a number of governance failures pursuant to which internal policies, guidelines and frameworks were not followed, thereby creating an environment in which senior executives could initiate or participate in the financial reporting misstatements.
The PwC investigation also identified major historical shortfalls in a number of important areas, including, among others, governance practices, delegation of authority, decision-making, oversight, financial discipline, record keeping, system use and financial reporting.
Following its review of the PwC report, Tongaat’s board committee intends to pursue claims against individuals who may have been either responsible for, or party to, the undesirable activities outlined in the report.
The senior executives who were allegedly involved, according to the investigation, include Hippo Valley Estates FD John Chibwe, former Tongaat Hulett Developments MD Michael Deighton, Triangle FD Shelton Nhari, former Tongaat Zimbabwean operations MD Sydney Mtsambiwa and former Tongaat Hulett South Africa Sugar finance executive Les Munro.
Other executives who were allegedly involved are former Tongaat CFO Murray Munro, Zimbabwe sugar sales finance executive Raphael Pfunye, former Tongaat finance executive Sean Slabbert and former Tongaat CEO Peter Staude.
According to the report, disciplinary action has been or is being taken in relation to these senior executives and other individuals.
The board is also considering the institution of civil action against the executives and other individuals, including action to, besides others, recover bonuses and benefits paid to specific executives or individuals for the relevant periods, and applications to court for orders declaring relevant people to be delinquent directors or otherwise incapable of occupying fiduciary positions.
From a criminal law perspective, the board is engaging with the South African Police Services and the National Prosecuting Authority of South Africa.
The investigation follows the appointment of Gavin Hudson as the new Tongaat CEO, in February, after which the board gave Hudson the mandate to conduct an immediate and comprehensive strategic and financial review with the objective of stabilising the business, addressing the debt levels and setting the path towards acceptable returns for shareholders.