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Audit reveals further rot in Uganda Development Bank

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The offices of Uganda Development Bank located on Clement Hill, Kampala.

The offices of Uganda Development Bank located on Clement Hill, Kampala. The bank is faulted for having caused losses in bad loans, more than double the Shs10 billion feared to have been lost earler. Photo by Stephen Otage 

By Eriasa Mukiibi Sserunjogi

Posted  Saturday, January 5  2013 at  02:00
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The losses suffered by Uganda Development Bank (UDB) as a result of alleged mismanagement and fraud that resulted in bad loans are more than double the Shs10 billion earlier feared, a draft report of a special investigation by the Auditor General (AG) says.

The report, a copy of which the Saturday Monitor has seen, reveals widespread internal rot and collusion by bank officials with borrowers, many of whom failed to pay back money lent to them.

For example, the report notes that some bank officials generated project proposals and financial projections for potential borrowers, wrote replies to them on behalf of the bank and then deleted computer files to destroy evidence.

The fraud, coupled with weaknesses in the management and supervision of the bank, had resulted in non-performing loans – which the bank is unlikely to recover – of Shs21 billion by the end of August 2012, representing 25 per cent of the bank’s total loan book.

SPECIAL REPORT BELOW

Report finds that bank officials wrote proposals for borrowing clients at a fee, replied letters on their behalf, then tried to destroy the evidence.

The losses suffered by Uganda Development Bank (UDB) as a result of alleged mismanagement and fraud that resulted in bad loans are more than double the Shs10 billion earlier feared, a draft report of a special investigation by the Auditor General (AG) has revealed.

The report, a copy the Saturday Monitor has seen, reveals widespread internal rot and collusion by bank officials with borrowers, many of whom failed to pay back money lent to them.

For example, the report notes that some bank officials generated project proposals and financial projections for potential borrowers, wrote replies to them on behalf of the bank and then deleted computer files to destroy evidence.

The fraud, coupled with weaknesses in the management and supervision of the bank, had resulted in non-performing loans – which the bank is unlikely to recover – of Shs21 billion by the end of August 2012, representing 25 per cent of the bank’s total loan book.

The new board and management of UDB requested for the special audit by the Auditor General after an internal audit and another by the audit firm, PricewaterhouseCoopers, expressed a disclaimer of opinion on the bank’s financial statements for the year ended December 31, 2011.

Warning signs
Trouble started when on assuming office in May 2012, the new board headed by Dr Samuel Sejjaaka found no audited accounts of the bank five months after the end of the 2011 financial year.

When PricewaterhouseCoopers gave a disclaimer of opinion and refused to pass the bank’s books citing possible fraud, the board attempted to institute disciplinary proceedings against the members of management cited in the alleged fraud but they went to court and blocked the process.

The board reacted by terminating their employment, prompting the sacked officials to demand for Shs580 million in compensation. Those sacked were chief executive officer Gabriel Etou, head development finance Stephen Opeitum and company secretary Priscilla Mugisha. Others are Anne Muguluma (head of finance), Wilber Naigambi (head of management information systems) and Florence Mirembe (head of human resource).

Audit findings
The report details acts of omission and commission, some bordering on blatant fraud by different individuals. The audit is especially critical of the conduct of Mr Etou, Mr Opeitum and Ms Mugisha on various grounds.

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