Hindenburg Unearthed $470-Million Scam By Nigerian Firm That Auditor Deloitte Failed To Notice: Report

The discrepancy between what Deloitte certified, $461.7 million, and Tingo’s actual cash balance of $50 was ‘astonishing,’ said Ed Ketz, an accounting professor at Penn State’s Smeal College of Business

US-based short seller Hindenburg Research sniffed out a $470-million corporate scam in a Nigerian firm Tingo that a global arm of auditing firm Deloitte that had certified. According to a report published by Forbes Africa, Hindenburg Research in a report titled, "Fake Farmers, Phones, and Financials – The Nigerian Empire That Isn't", mentioned that Tingo, a fintech company, Deloitte had given the fintech a clean, unqualified audit for its accounts in 2022.

As per Forbes Africa, Hindenburg also threw a light on Deloitte, behemoth Big Four accounting firm, who green-lit Tingo’s financials, challenging its competence, and perhaps its willingness, to see the truth. “The issues in Tingo’s financials are glaring enough that we’d expect they could have been spotted by any semi-conscious finance undergrad with severe vision loss,” Hindenburg wrote. “These issues were apparently not glaring enough for the company’s auditor, however.”

Forbes Africa stated that in November, after Tingo’s stock had already plunged 80 per cent wiping out more than $700 million in market value, the Securities and Exchange Commission (SEC) stepped into the fray, slamming the brakes on Tingo’s stock trading.

Dozy Mmobuosi, CEO at Tingo was slapped with charges of ‘massive fraud’ by the SEC in December. Later, things took an ugly turn this month when the regulator tacked criminal securities fraud charges onto the bill of consequences. SEC in its civil complaint stated that Tingo, whose audited books boasted a $462 million treasure chest socked away in Nigerian banks, actually had only $50.

The discrepancy between what Deloitte certified, $461.7 million, and Tingo’s actual cash balance of $50 was ‘astonishing,’ Ed Ketz, an accounting professor at Penn State’s Smeal College of Business, told Forbes. “The cash account is the most important balance sheet account and one of the easiest to audit,” he said. "One wonders how Deloitte Israel could have missed that."

Auditors are supposed to be the financial world’s most trusted sources of information. However, a flip through history tells a different story. Often auditors, who are paid fees by the clients they are examining, fail to dig below the surface, and essentially rubber stamp seemingly obvious inconsistencies and problems in financial statements, as stated by Forbes Africa.

“As outsiders, we’d like to think that auditors are looking for fraud, but fraud detection isn’t one of their mandates,” Matthias Breuer, an accounting professor at Columbia University’s Graduate School of Business, told Forbes Africa. "Auditors don’t go into their work with an adversarial mindset. Their mandate isn’t to be a whistleblower, and because of that it’s usually insiders and short-sellers that uncover these issues."

Five year ago, Deloitte’s Indian arm has also been in controversy as its auditing practices came into the limelight after the collapse of indebted Indian infrastructure financier IL&FS Group.

Forbes Africa has listed out some auditing failures. A 2020 study by the Association of Certified Fraud Examiners showed that auditors uncover less than 4 per cent of frauds, which is a dismal track record. It said that Deloitte’s Tingo case isn’t one that can be brushed off with the usual excuses. It stands out because Hindenburg, along with a crew of independent internet detectives, managed to cut through the smoke and mirrors without any insider help.

As per the report, Tingo paid a hefty $1.6 million in audit fees in 2022. This exposé on Tingo, echoed by the SEC allegations, hinted at a more unsettling issue. Auditors get their paychecks from the companies they’re supposed to keep honest. This set-up can lead to auditors playing it safe, avoiding the hard-hitting questions that could upset a paying customer.

The Tingo case is not the first recent instance where the global network of firms has faced regulatory issues. In September 2023, the US Public Company Accounting Oversight Board (PCAOB) sanctioned Deloitte & Touche S.A.S. for its quality control violations and imposed a $900,000 fine on the Colombian affiliate of the Deloitte global network.

However, the question arises that how did Deloitte miss a scam that Hindenburg, an outsider, called out as painfully obvious? It was revealed that Tingo, balancing its act between Nigeria and the Nasdaq in New York, wasn’t checked by Deloitte’s team in Nigeria. Instead, it was Deloitte’s Israeli branch, Brightman Almagor Zohar & Co that audited its books. Forbes Africa reported that it was not clear why they scrutinized Tingo’s accounts as the firm didn’t really do much business in Israel. Forbes noted that it almost seems like a move to keep the auditors just far enough away so they wouldn’t stumble upon anything they shouldn’t.

However, in response to questions from Forbes, a spokesperson for Deloitte Israel declined to comment, saying “professional standards prohibit our commenting on client matters.” Tingo also didn’t respond to a request for comment.