CMA fines former Chase Bank bosses and Deloitte over Sh10bn loan

Capital markets

CMA fines former Chase Bank bosses and Deloitte over Sh10bn loan

Duncan Kabui, former CEO of Chase Bank. FILE PHOTO | NMG

The capital markets regulator penalized three former Chase Bank executives, five board members and reporting accountant Deloitte and Touche for their alleged role in the 2015 shilling 10 billion medium-term bond issue .

The Capital Markets Authority (CMA) has fined former Chase Bank chief executive Duncan Kabui 5 million shillings and disqualified him from being a director or key staff of any Kenyan capital market issuer for a period of 10 years.

Former CEO Paul Njaga was fined 5 million shillings while the former CFO was fined 5 million shillings and banned for five years from participating in the Kenyan capital market.

The regulator also fined 2.5 million shillings to board members Anthony Gross, Laurent Demey, Muthoni Kuria and Rafiq Sharrif each for their role in issuing and using the bond.

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All four were members of the Audit and Risk Committee. Mr. Gross was also invited to take a training course on corporate governance for at least five days.

Another board member, Richard Carter, was fined 1 million shillings.

“Deloitte and Touche, the reporting accountant of CBKL at the material time, was fined Sh10 million. Further, the Committee recommends that the conduct of the accounting partners during the respective audit periods be referred to ICPAK,” the CMA said in a statement.

CMA investigations earlier this year found Chase Bank auditors Deloitte failed to inspect the defaulting lender’s computer system during annual audits, creating a loophole used by bank management to hide details of billions of shillings embezzled from the bank.

A 14 billion shillings hole created by the loophole was only discovered in 2015 after the Central Bank of Kenya (CBK) ordered an IT audit.

Deloitte reported 14 billion shillings in interest receivable after a specialist IT team carried out work in response to the CBK directive in 2015.

This was odd considering that the interest receivable from the banks was not to exceed one month’s worth of interest.

Monthly interest from Chase Bank was 1.2 billion shillings, indicating that the huge debt stemmed from inherited issues, was overstated and could represent invalid and unsupported bank balances.

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Investigations revealed board member Ms. Kuria accused Deloitte of errors that sank the bank, saying auditors omitted interest when communicating directly with clients to seek direct confirmation of outstanding amounts to confirm accounts receivable balances.

She said a dispute then arose over how to deal with the error and that Deloitte had asked the bank to pay the interest receivable or it would qualify the accounts.

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