How Uganda Development Bank lost Shs10 billion to internal company fraud
Posted Wednesday, September 26 2012 at 00:00
An internal audit conducted on the bank’s accounts in 2010 found that a net loss of Shs10bn had been made on only one component- trade finance, meaning the figure could rise if the other components were subjected to further investigation.
Top managers of Uganda Development Bank (UDB), who have been sacked and are now demanding for Shs580m in terminal benefits, were implicated by two separate audits over incompetence and fraud.
In one of the audits, an internal investigation found that the bank had lost Shs10b and that the figure could rise to Shs30b out of an estimated capitalisation of Shs80b.
Daily Monitor broke the story yesterday that as the Auditor General probes the “true extent of the loss” suffered by the bank, the former top managers, who the new Board of Directors sacked over the loss, are pursuing a Shs580m compensation package.
Mr Gabriel Ekou, the former chief executive officer, who is among those sacked, simply hung up once he found out that the call was from Daily Monitor.
Mr Stephen Opeitum, the former head development finance, when contacted, said he needed to first meet his lawyer before deciding on the way forward.
The other officials, who were sacked are, Ms Priscilla Mugisha (company secretary), Ms Anne Muguluma (head of finance), Ms Wilber Naigambi (head of management information systems) and Ms Florence Mirembe (head of human resource).
In 2010, the final books of UDB had a provision for a net loss of Shs5.756b, meaning that the bank was at risk of not recovering all this money that had been lent out. To make matters worse, the Shs5.756b net loss provision was on only one component of the bank’s activities - trade finance.
Given that UDB also deals in other areas like development finance, cash management, investment activity and procurement, it is safe to conclude that the loss could be much bigger.
UDB was founded in 1972, first to provide trade finance to Ugandan businessmen, who were trying to fill the void left by the expelled Indians. The bank later expanded into long term financing in such areas like agriculture and tourism. It is fully government owned.
In light of the loss, the Board of Directors ordered an internal investigation into the trade finance component, which submitted its report in January this year. The findings indicted members of the top management, whom they accused of complicity with some of the companies to which money was lent
Some top managers were accused of collusion with borrowers to give out bad loans which were unsecured and sometimes not recoverable.
Mr Etou, who was the then CEO, was accused of “single-handedly” approving variations in loan terms and conditions after the loans had been approved by management.
“He did not have any approval authority and did not have any mandate to approve loan variations,” the report said.
Mr Etou was also accused of committing the bank to the tune of Shs5bn in excess loans to Karlson without the approval of management.
Along with Mr Opeitum, Mr Ekou is accused of approving a request in which the former challenged a proposal that was assessed by the current senior trade finance officer, Mr Charles Orwothun. Mr Orwothun had objected to selling off 210 drums of bitumen at $119 each instead of $148, arguing that if it were done, the bank would not fully recover its money.