Audit pins BoU on Shs23 billion, missing land titles

A forensic audit report by the Auditor General has cited irregularities in the liquidation and selling off of five commercial banks by Bank of Uganda (BoU) dating back to 1993.
The draft report, a copy of which Sunday Monitor has seen, shows that at least Shs23b from the sale of only Global Trust Bank (GTB) is unaccounted for, 25 land titles are missing, and customer loans inherited from closed banks were sold at an undervalued rate. GTB was closed in July 2014.

The other defunct banks whose closures were audited are International Credit Bank Ltd (closed September 1998), Greenland Bank (closed April 1999) and The Cooperative Bank, closed in May 1999.
The draft audit report indicates that BoU refused to cooperate with the Auditor General regarding the sale of Crane Bank, National Bank of Commerce (NBC) and Teefe Bank on grounds that there are cases in court regarding the closure of the three banks and any inquiry would offend the law on subjudice.

The Auditor General forwarded the draft report to BoU Governor Emmanuel Tumusiime-Mutebile on March 23, requiring him to respond to the queries raised in the audit by March 30. We were unable to establish whether the Governor had responded to the queries, and our efforts to access BoU’s responses to the same were futile.

The audit
The audit was solicited by the Parliamentary Committee on Statutory Authorities and State Enterprise (Cosase) to guide a wider investigation the committee intends to carry out.
There has been some rope-pulling in Parliament over the matter, however, with Budadiri West MP Nandala Mafabi favouring a select committee of the House to inquire into the matter of how closed banks were sold off or liquidated.

Sunday Monitor reported the fallout last week, with Mr Mafabi accusing fellow legislators, including Cosase chairperson Abdu Katuntu and Deputy Speaker Jacob Oulanyah of frustrating the probe. Mr Oulanyah had stopped the probe into the matter pending the disposal of the court cases referenced above, but it emerged this week that Speaker Rebecca Kadaga had overruled him and directed that parliamentary investigations into the matter can proceed.

Ms Kadaga and MPs have directed BoU to furnish auditors with files touching on the sale of the three banks and forensic experts on Thursday raided the central bank to kick-start an audit into the closed banks.
BoU Deputy Governor Louis Kasekende had petitioned the Attorney General in an attempt to block the audit of the closure of Crane Bank, but Ms Kadaga has directed that advice from the Solicitor General for the audit not to be carried out be ignored.
A final audit by the Auditor General is expected to guide a wider investigation into the operations of BoU by Cosase or a Parliamentary Select Committee.

The draft report
The preliminary report tackles the closure of International Credit Bank, Cooperative Bank, Greenland Bank and the July 2014 closure of Global Trust Bank (GTB).
BoU sold GTB to dfcu on grounds of insolvency. Auditors discovered that assets worth Shs23b that were formerly owned by GTB were not transferred to dfcu in the purchase and assumption agreements when the bank was taken over in July 2014.
The assets included cash balances (Shs6.6b), amounts due from other banking institutions (Shs2.3b), other assets (Shs5.1b), amounts due from group companies (Shs 9.3m), property and equipment (Shs5.6b), intangible assets (Shs758m) and deferred tax (Shs2.4b).

Missing money
The auditors say they failed to trace Shs9b that was taken from other banking institutions as indicated in the inventory report, but was not reflected on the recovery account.
“The schedule of property and equipment auctioned revealed that Shs427m was realised from the sale of property and equipment and the proceeds transferred to the recovery account. However, in the absence of the statement of affairs, I could not determine the status of the property and equipment not auctioned out of a total of Shs5b retained by BoU at closure,” the Auditor General states in the report.

The report also lists 25 certified land titles that had been taken over by GTB as collateral by the time it was closed in 2014 but were not transferred by BoU to dfcu. The status of the titles remains unknown. The missing titles are for land in Kampala, Wakiso, Mukono, Mbale and Mbarara.
“BoU did not transfer these titles to the purchaser (dfcu) contrary to the agreement. Management should place caveats on all the lost titles to protect the property and ensure that the titles are recovered and handed over to dfcu,” the audit recommends.

Unsettled debts
By December 2017, BoU had also not settled claims to former GTB shareholders worth Shs1.2b even as Shs226m was verified, while Shs1b is pending verification.
“Failure to settle verified claims delays the winding up process, hence BoU incurring liquidation and management costs, thereby reducing residual benefits due to the shareholders,” the audit report warns.

The Financial Institutions Act (FIA) requires that assets that remain after the payment by the liquidator of all the claims against the financial institution be distributed among the shareholders.
Regarding International Credit Bank, Cooperative Bank and Greenland Bank, auditors found out that the three banks had assets worth Shs117b in cash, loans, property, equity investment, amounts due from related parties and balances due from other banks at the time of closure.

More queries

Loans. The report also questions why BoU sold 79 per cent of the loans it acquired from International Credit Bank, Cooperative Bank and Greenland Bank in 2007 despite having moved on the banks in 1998 and 1999.
“Best practice requires that the primary goal of the banks forced [into] liquidation is to sell off the assets and meet the claims of liquidated banks’ creditors in a short period of time. Due to delays, it was difficult to track the debtors and also recover the maximum realisable amount from the portfolio,” the report says.

Money in foreign banks. The audit further notes that BoU has also failed to recoup money worth Shs6.6b that the three banks held in foreign banks, 17 years since the banks were closed.
By June 2016, International Credit Bank had Shs44m in foreign accounts, while Greenland Bank had Shs6.5b.

The Auditor General reports: “I was not availed with details of the type of foreign accounts held and their respective certificates of balances and as such, I could not establish the reconciled balance as at June 30, 2016.”
Loan sales. Loans worth Shs135b from the three banks were sold to M/S Nile River Acquisition Company at $5.25m (Shs8b), leading to a loss of Shs126b, the report notes.

The Shs135b loan portfolio included Shs34b of loans that had valid, legal and equitable mortgage supported by proper legal documentation.
The report says BoU failed to furnish auditors with bid documents that guided the procurement of M/S Nile River Acquisition Company, meaning that it could not be established the process that was followed in the awarding of the debt selling deal to this company.

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