Failure of a bank’s newly installed internal financial control system might have led to massive multi-million fraud paid by clients, which has been either untraceable or misappropriated.
Pan African banking corporation, Eco bank, with operations in thirty six African countries, could have lost over five hundred million shillings following confusion that reigned after it undertook core banking system change in October 2010.
The confusion that marred the changes to Flexicube and Chequepoint systems led to the bank to accumulating unclaimed funds amounting to over nine hundred million shillings, which were locked in its suspense accounts with no possibility of identifying either the source or intended recipient.
The uptake of the new system was very slow so clients would still come for manual tax filing, which is what exposed the bank and its clients.
In the ensuing confusion, the bank couldn’t differentiate between its assets and what belonged to clients. In the process, it breached the fundamental fiduciary banking responsibility, writing off losses and keeping the unclaimed credits in what is commonly referred to as zerorizing or netting its accounts.
Most of the funds were paid in by clients as tax to the Kenya Revenue Authority (KRA) and The Ministry of Interior but ended up in the suspense account numbers 11210003 and 11210004, from which they were transferred to accounts in other banks within the country.
Many customer instructions were unprocessed and there were several instances of duplicate processing, leading to a large number of entries remaining outstanding in several of the bank’s processing ledger accounts 113210004, 113210003 and 23400008, amongst many others which were Outward Clearing, Inward Clearing, Sundry, Bankers Cheques Suspense accounts.
In one instance, a client paid Sh209,071 vide cheque number 1792 to KRA on April 7, 2015 but only Sh159,051 was processed through processing reference FT15098PBNIT, Branch code 43024 to credit account 1000009877 from the originators reference 998PAYE1509700.
Another client paid in Sh272,500 vide cheque number 00053 but only Sh222,480 was processed vide branch code 43005 into account 1000009877.
The outstanding entries consisted of both debit and credit entries. Operation managers then applied unrelated credit entries mainly from KRA and Interior Ministry to settle debt entries.
Consequently, many customers who self-assessed their tax obligations and wrote cheques to pay up may now have unknowingly defaulted KRA obligations in this scheme that seems to have been abetted by Ecobank management.
A perusal of the payments made by clients shows a systematic reduction of Sh20 from every cheque as processing fee. The payments were in many instances then either split into two or just partially paid to KRA. The list of affected clients is long. The statements show regular and consistent electronic transfer of funds.
Ecobank Kenya managing director Samuel Ashitey Adjei, who took over the company from April 1 2016, when contacted initially said that the bank would investigate the matter and file a report. Three auditors from Angola and Togo were quickly flown into the country to conduct an emergency forensic audit to ascertain the extent of the fraud.
Three weeks after the initial inquiry, Ecobank communications manager Vincent Musumba said the Bank would not comment because the matter was in court.
“I refer to our telephone conversation earlier today regarding the attached brief received from you in addition to two other correspondences. I wish to inform you that all the thirteen issues you have raised in the attached document touch on ongoing court cases and as such responding/commenting on them would be sub judicial. The bank reserves the right to seek legal redress should any publication arising from the same proceed and be deemed injurious to the bank,” the statement by the communication manager reads.
The bank was unwilling to confirm whether its clients were informed of the fraud and what action it took to rectify the tax non-compliance position, some of its clients might find themselves in owing to the fraud.
It suspected that senior internal controls officials conspired with other staff and compromised the password and conceal the identity of the perpetrators the auditors and fraud managers’ findings in the well-coordinated vice that spanned six years between 2011 and 2016.
Although a senior manager was notified of the suspicious movement of money from Ecobank by fraud managers in October 2015, he took no action, and allowed the siphoning to continue.
Some bank staff members then took advantage of the unidentified and unclaimed credit entries amounting to over Sh500 million, mainly KRA payments and stale bankers cheques in favour of the Interior Ministry, to process and siphon the entries for their personal benefit. The scam involved staff from the Audit, Internal Controls and Compliance, IT and Operations and branches departments.
Meanwhile several Ecobank staff have been charged in court for stealing from the bank, as in Criminal Case Number 610/2016, where two of four former employees were charged with theft by servant of Sh50 million. In another case, Ecobank Gikomba Branch manager Kevin George Kathurima, teller Norman Njuguna Karungo and businesswoman Eucabeth Nyambeki Booko were charged with stealing Sh55.6 million from the bank on March 27 2017.