The Steinhoff Assets Misappropriation Scandal

The Steinhoff Assets Misappropriation Scandal
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The Steinhoff Assets Misappropriation Scandal
Introduction
Asset misappropriation refers to the use of client or company assets for personal gain. It occurred when people entrusted to manage an organization's asset use their power and access to steal from the company or the company's clients through fraudulent activities. According to the ACFE report, asset misappropriation is the most common type of occupational fraud representing 83% of all the reported fraud cases with a median loss of $125,000 for affected companies (1). Common examples of asset misappropriation include misuse of assets and inventory, fraudulent disbursement, and theft of cash on hand and receipts. According to the ACFE report, the more the number of people involved in an asset misappropriation, the larger its losses. Furthermore, the size of the loss is directly proportional to the perpetrators' levels of authority (1). Therefore, the higher the authority, the more a company stands to lose. An example of an asset misappropriation scandal involving top management leads to the loss of billions in South Africa's Steinhoff Plc.
About the Steinhoff Scandal
The company was found to have recorded irregular transactions amounting to $7.4 billion between 2009 and 2017. The fraudulent transactions were done by a group of former senior management executives working with individual third-party outsiders. The said deals substantially inflated the company's asset values and profits, causing it to mislead investors and, in turn, the few individuals earning significantly from their fraudulent actions. As a result, the fraud wiped out all the shareholders' equity and galloped 216 billion rands of its value since December 2017 (2,3).
Types and Causes of Misappropriation
Types of Asset Misappropriation
Two main types of assets fall prey to fraudulent employees and third parties. These include cash and inventory (and all other assets). Often, crooked employees favor cash over inventory (or other assets), with studies indicating that 9 out of 10 cases involve cash-related fraud (4). Apart from cash and assets, fraud can extend to intellectual property or company data. While such fraud can involve limited and isolated cases, such as fiddling of expenses, it may also involve employees or top executives' organized crime. The Steinhoff scandal took advantage of weak internal systems and control processes. Therefore, the two main types of asset misappropriation revolve around inventory and cash. Fraud involving cash may include larceny, skimming, and fraudulent disbursements. Under inventory, the types include misuse and larceny. In the Steinhoff scandal, misuse of inventory was only possible because of the involvement of the company's top executives.
Causes of Misappropriation
There are two major causes or risk factors of asset misappropriation. They include the susceptibility of assets to misappropriation and the strength of internal controls.
Susceptibility of Assets to Misappropriation
These refer to the nature of an entity's assets and the degree to which they can be subjected to theft. As mentioned earlier, cash is the most susceptible of ...