Conflicted audit firm KPMG should refund Shs921.7mto tax payers

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By Kagenyi lukka

KPMG, a former reputable audit firm is battling yet another scandal despite having a chain of many in the past.

The current scandal has pit KPM against tax payers of    Uganda who had to pay ugx 921.7 million for work that wasn’t completed or not done at all because no report has been seen up to now despite the fact it’s over two years since KPMG was contracted. KPMG was hired to audit the books of the formerly glorious Crane Bank for the period starting 1st January 2016 to 25th January 2017 by the statutory manager, Bank of Uganda.

Bank of Uganda had contracted KPMG at a total cost of UgX921.7 million to provide a variety of IT support services related to the Tememos T24 software because the BoU team did not have a competent and experienced resource with requisite expertise regarding CBL’s core banking system (T24).   There is also evidence that KPMG failed to integrate the systems.

Without this KPMG’s report, it remains doubtable as to how UGX270 billion out Ugx478 billion that was injected into crane bank for liquidity support was spent Bank of Uganda. This money was unlawfully approved by the deputy governor of BoU Dr. Louis Kasekende.

In a February 2019 special audit report on the ugx 478.8 billion injected into crane bank to the speaker of parliament, the auditor general noted that “the Statutory Manager (BoU) prepared CBL’s annual report and financial statements for the year ended 31st December 2016 and engaged KPMG to audit the financial statements for that period. Further the BoU Board of Directors approved extension of KPMG’s coverage to 25th January 2017.”

The auditor general further added, “According to BoU management, the audited CBL annual report and financial statements for the period starting 1st January 2016 to 25th January 2017 were not submitted to BoU by KPMG, hence I was unable to rely on the accounts to confirm the receipt and expenditure of the liquidity support and other intervention costs amounting to UGX478.8bn injected into CBL between 20th October 2016 and 25th January 2017”.

The Committee on Commissions, statutory authorities and state enterprises (cosase) in December 2018 requested the auditor general to among others; establish whether the Statutory Manager Prepared Financial Statements in line with Section 90(4) of the Financial Institutions Act 2004, ascertain the liquidity position of crane bank limited during statutory management period and to establish whether the liquidity support of UGX466bn was used to settle obligations of bonafide customers. The special audit also sought to establish the extent of recovery of funds injected in cbl.

According to the auditor general, the final destination of USD53.1m sent by Telegraphic Transfer from BoU’s Citi Bank Account and UGX77.5bn in cash from CBL currency centers to CBL’s 46 branches, altogether an equivalent of UGX270 billion couldn’t be traced.

Was this money given to KPMG?

According to the auditor general BoU officials approved and remitted the usd 53.1M to the Nostro account 3582025085001.Bank of Uganda claimed that it had been requested by undisclosed cbl customers.

Shockingly, the AG noted that the Nostro account that didn’t indicate the beneficiary account names, account numbers and beneficiary bank.

Also, the Auditor general noted that, BoU has out of the alleged UGX478.8bn, recovered UGX157.9bn from dfcu and CBL non-performing assets, leaving a balance of UGX320.8bn.

KPMG was too conflicted and not competent to audit crane bank

Conflict of interest arises when one exploits the relationship they have with the other for personal benefit, typically pecuniary. In this case, KPMG audited crane bank from 2004-2007 and 2013-2015 and thus couldn’t be the same firm to audit cbl after its reported troubles.

“In our opinion, the consolidated and separate financial statements give a true and fair view of the financial position of Crane Bank Limited as at 31 December 2015,” the external auditors, KPMG, read at the time.

If crane bank had anomalies (though exaggerated) in its operations that were not detected by KPMG then, how could they be relied on as true auditors after cbl got troubled as BoU wanted the public to believe in since 2016?

In the same vein KPM was too incompetent and damaged to audit crane bank if the true picture was to be established. This is because KPMG had suffered a series of reputational damages in as recent as 2018.

For instance, KPMG was embarrassingly dropped by one of its big clients, Barclays Africa group Limited in May 2018. The decision to write off KPMG came after the Barclays board learnt that two top KPMG auditors failed to disclose loans from VBS Mutual Bank, which they were auditing, prompting South Africa’s Auditor General to say that he would terminate all government contracts with KPMG.

More Reputational risks also haunted KPMG because of its close working ties with the Gupta family which is accused of capturing the South African State during the time of embattled former President, Jacob Zuma.

Also, worth noting is that, KPMG was punished for its incompetence and fined more than $6.2 million (£4.8 million) by the US Securities and Exchanges Commission (SEC) for failing to properly audit an energy company that grossly overstated the value of its assets. Here, KPMG had issued an unqualified opinion (good opinion).

If there were no deals of enrichment between BoU officials, namely Kasekende, Bagyenda and Katimbo Mugwanya, there is no way KPMG would have been contracted to audit cbl yet there was gross evidence of incompetence and conflict of interest.

Now that the report wasn’t produced, it’s high time that KPMG refunded Ugx 921.7 Million that it was contracted for.

Lukka.kagenyi@gmail.com

The author is the next Ikiiki MP in Budaka.

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