Deloitte in the news again; Join me on this journey

Dear Professionals:

                               A little over a year and a half ago, I wrote two articles in two days about my concerns with companies audited by Deloitte based on my numerous experiences as an independent investment analyst. I will post both articles below.  In response to this article, some partner from Deloitte South Africa started chasing me around the internet with threats; he was obviously not thrilled with my truth telling which he deemed misleading lies. I always tell you readers, "posterity is never prejudiced."  Just as light and darkness will always reveal themselves, so also will the truth no matter how obfuscated it may initially appear.  

Over the past month, Deloitte has been sanctioned by regulatory bodies in two different countries over poor audit oversight of its clients.  

1. Deloitte has been hit with a record four million pounds fine by the Financial Reporting Council (FRC) after a five-year investigation into Deloitte's work for an AIM-listed aircraft parts maker called Aero Inventory.  A Deloitte partner (Mr. Clennett) was also fine 150,000 pounds.  I quote the FRC: "Deloitte and Mr. Clennett fell significantly short of the standards reasonably to be expected of, respctively, a member firm and a member of the Institute of Chartered Accountants in England and Wales (ICAEW).  

2. The US auditing watchdog has just fined Deloitte's Brazilian arm a record $8m for "falsifying audit reports, altering documents and providing false testimony during an investigation that unearthed what it described as its most serious finding of misconduct."    

Let us take a quick trip back to Africa and go back in time.  The former auditor of Forte Oil was Deloitte in conjunction with a smaller firm: Aminu Ibrahim & Co.  A former Executive Director, Finance for Forte Oil became a whistle blower of sorts and was terminated under acrimonious circumstances in September 2010.  He even went public to state his life was in danger.  He accused Deloitte of aiding and abetting accounts misrepresentation.  He was also on the audit committee of the board up until the half-year mark of 2010.  Immediately after the furor, the company changed its name to Forte Oil from Africa Petroleum and removed Deloitte as its auditor.  

Ironically Tesco of UK who was indicted and exposed for overstating its profit in excess of 263m pounds using PWC as its auditor, has gone ahead to now select Deloitte as its new auditor.  Based on noted antecedents, I do not know whether to laugh or cry; pondering in progress.    

The other big three have their issues to along similar lines.  I learnt in elementary school: Bad, worse and worst.  I am dealing with the worst in my opinion first.  

Find below my Deloitte articles written in May 2015:

 I was about analyzing the refined sugar production industry in Africa while honing in on Omnicane of Mauritius, ILLOVO of South Africa, Mumias of Kenya and Dangote Sugar of Nigeria.  I came across some recent unsavory developments at Mumias Sugar in Kenya; this brought to the fore a disturbing situation that I have noticed since 2006 on multiple occasions and feel it is time to speak out without fear or favor.  

Mumias Sugar is currently plagued by an accounting scandal with Deloitte at the center.  It is alleged that Deloitte connived with top executives of Mumias to conceal accounting flaws at the company.  Mumias is alleged to have declared false profits by taking 2.6B Kenyan shillings from a different but related company and declared it as part of its profits.  In addition, the executives have been accused of secretly importing sugar into Kenya which they repackaged and sold under the Mumias brand.  The allegations have already led to the sacking of the CEO, Commercial Director and Company Secretary of Mumias after a separate KPMG audit found them culpable of wrongdoing.  

I have had numerous mental agonies reviewing audited reports of companies in multiple industries in Nigeria with one common denominator: Deloitte & Touche.  In 2006, Deloitte & Touche was sanctioned (just a fine) in Nigeria for also declaring false profits on behalf of Cadbury over multiple years. It is very difficult in Nigeria to be sanctioned for wrongdoing which is likely why this has not happened again and not because auditing has become more transparent.  Where applicable, I have expressed concern over shenanigans in some audited financials of companies audited by Deloitte & Touche in Nigeria (locally known as Akintola Williams Deloitte) in some of the research reports I have written.  

Another interesting note is the spike in yearly audit fees for some of the companies audited by Deloitte which is in excess of reality in my opinion in some particular instances.  The last year Deloitte audited UBA before the change to PWC (2009), audited fees paid increased from 86 million naira ($573,000) to N196 million naira ($1.3m).  The question that will forever linger is was this a payment to Deloitte for the 2009 15 month audit only or in addition a parting gift for a job well done over the years?  Of course PWC refused to take a "haircut" and charged N222 million in 2010.  PWC Nigeria has its own ongoing and past drama but we we will leave that for now...  

A few of the companies audited by Deloitte at the time that quickly come to mind based on the Mumias Sugar 2015 accounting shenanigans story above are:

1. Continental Reinsurance 2009

2.  Dangote Cement 2010

3.  Fidelity Bank June 2007

4.  Dangote Flour 2010

Is Deloitte in Africa as a company's auditor now a liability?  A cloud of suspicion now hangs over its clients on the continent.  What are shareholders going to do about this?  Deloitte is now the third most prestigious accounting firm in America behind PWC and Ernst & Young with KPMG coming in fourth.  Deloitte was 1st when I was in college.    

I keep wondering why multinationals and individuals come to Africa to do business and suddenly lose their values all for a buck.  I know money is important and useful.  I was also taught that a good name is worth more than riches.  I guess that world has gone into oblivion and I am now living in the past...

 In continuation of our article on audited reports on some companies in Africa by Deloitte & Touche and the attendant fallout, we state some large companies current or recently audited by Deloitte & Touche in Africa.  

South Africa (listed companies):  

Bidvest Group

Illovo Sugar

Angloamerican (Deloitte LLP and not Deloitte & Touche which is a subsidiary)

Vodacom (just changed to PWC for fiscal year ended 3/31/15 after a request for proposals)

Two top South African banks are audited by Deloitte & Touche in conjunction with another major audit firm as required.  

First Rand Bank (PWC and Deloitte & Touche)

NedBank  (KPMG and Deloitte & Touche)

Kenya

East Africa Portland Cement (nominated by the Auditor-General of Kenya)

Mumias Sugar

Zimbabwe

Delta Corporation

Nigeria

Dangote Cement (in conjuncton with a non-major audit firm based in Kano)

Dangote Sugar

Skye Bank (the only listed Nigerian bank left to release its audited 2014 financials after acquiring a troubled Nigerian Bank in Q4 2014)  This bank's board has been taken over by the Central Bank of Nigeria in 2016. I

Wema Bank

Flour Mills of Nigeria

Custodian & Allied Insurance (disturbing mental experiences in 2009 & 2011 while reviewing)

Why are three of the prominent sugar companies in Africa being audited by Deloitte & Touche?

Interesting...

The largest companies by market value in Zimbabwe and Nigeria are audited by Deloitte & Touche.  What does this portend for these markets going forward?    

Overall, we see PWC consolidating, Ernst & Young gathering more market share at a faster rate and Deloitte & Touche losing clients as far as Africa is considered if not beyond.

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Being a 'STAR' used to mean you were good at what you do and your 'moral compass' still worked properly.  Nowadays, being called a 'STAR' in your profession means ,you will do whatever you need to do to get paid.  

The TRUTH will set us free; I will keep telling it and posterity will always never be prejudiced.