Home Financials Deloitte Faces Scrutiny for Overlooking Alleged $462 Million Fraud at Tingo

Deloitte Faces Scrutiny for Overlooking Alleged $462 Million Fraud at Tingo

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US short seller Hindenburg Research uncovered a $470 million corporate scam in Nigerian firm Tingo, certified by the global arm of auditing firm Deloitte. As per a Forbes Africa report titled “Fake Farmers, Phones, and Financials – The Nigerian Empire That Isn’t,” Hindenburg revealed that Deloitte provided Tingo, a fintech company, with a clean, unqualified audit for its 2022 accounts.

Forbes Africa reported that Hindenburg shed light on Deloitte, a major Big Four accounting firm, which approved Tingo’s financials. Hindenburg questioned Deloitte’s competence and willingness to uncover the truth, stating that the issues in Tingo’s financials were significant and should have been noticeable even to a semi-conscious finance undergrad with severe vision loss. Despite these issues being apparent, Deloitte seemingly didn’t catch them during the audit process.

In November, Forbes Africa reported that as Tingo’s stock plummeted 80%, losing over $700 million in market value, the Securities and Exchange Commission (SEC) intervened, halting Tingo’s stock trading. CEO Dozy Mmobuosi faced ‘massive fraud’ charges from the SEC in December, and the situation escalated with criminal securities fraud charges later.

According to the SEC’s civil complaint, despite Deloitte certifying $461.7 million, Tingo’s actual cash balance was just $50, a stark and astonishing discrepancy noted by accounting professor Ed Ketz. The oversight raises questions about how Deloitte Israel missed such a critical detail.

Auditors, considered the financial world’s most trusted sources, often fall short in their scrutiny due to inherent challenges. Paid by the clients they examine, auditors may overlook inconsistencies and problems, merely rubber-stamping financial statements. Matthias Breuer, an accounting professor at Columbia University, notes that auditors, lacking a mandate for fraud detection, typically don’t adopt an adversarial mindset. The responsibility to uncover issues often falls on insiders and short-sellers. Deloitte’s Indian arm faced controversy five years ago over auditing practices during the collapse of the indebted IL&FS Group.

Forbes Africa highlights auditing failures, citing a 2020 study revealing auditors uncover less than 4% of frauds. The report emphasizes that Deloitte’s Tingo case is not dismissible with usual excuses. Notably, Hindenburg and internet detectives independently exposed Tingo’s issues without insider help. Tingo paid a substantial $1.6 million in audit fees in 2022. The revelation suggests a concerning dynamic where auditors, reliant on fees from the companies they audit, may avoid probing questions to maintain client relationships.

The Tingo case isn’t the only recent incident where the global network of firms has dealt with regulatory issues. In September 2023, the US Public Company Accounting Oversight Board (PCAOB) penalized Deloitte & Touche S.A.S. with a $900,000 fine for quality control violations, targeting the Colombian affiliate of the Deloitte global network.

The question arises: how did Deloitte overlook a scam that Hindenburg, an outsider, easily identified? It turns out that Tingo, operating between Nigeria and the Nasdaq in New York, wasn’t audited by Deloitte’s team in Nigeria. Instead, Deloitte’s Israeli branch, Brightman Almagor Zohar & Co, audited its books. Forbes Africa reported that it’s unclear why they scrutinized Tingo’s accounts, as the firm didn’t have significant business in Israel. Forbes suggested that this might have been a strategic move to keep auditors at a distance, preventing them from stumbling upon sensitive information.

However, when Forbes sought comments, a spokesperson for Deloitte Israel declined, citing professional standards that prohibit commenting on client matters. Tingo also did not respond to a request for comment.

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