Monday, July 17, 2017

Ernst & Young suspended by #Uganda government over fraudulent audits - #CraneBank




Bank of Uganda has suspended audit firm Ernst & Young Uganda from auditing any commercial banks this year.
Its suspension, according to reliable sources, is related to the collapse of Crane bank, The Observer can reveal. An impeccable source told us that the decision to suspend Ernst & Young was taken after a forensic audit showed the firm’s staff had helped the bank hide critical information from other auditors and the regulators.
“This was multilayered fraud,” said the source. “It had been organised for a long time and deliberately to defraud. And someone had to take punitive measures,” the source added.
Therefore, Ernst & Young is not allowed to audit any commercial bank, credit institutions, microfinance and deposit-taking institutions (MDIs), forex bureaus and money remitters in Uganda this year.
Ernst & Young Uganda is a member of the London-headquartered EY Global, which brands itself as “a global leader in assurance, tax, transactions and advisory services.” It says each of its member entities operate independently.
Ernst & Young is one of the big four audit firms in the country. Geoffrey Byamugisha, the EY country leader, told The Observer on Saturday:  “Our suspension is not connected to Crane bank.”
“The issue is that we were suspended because we submitted our pre-qualification documents to a wrong office at Bank of Uganda,” Byamugisha said, without explaining how they came to appear on the first list of the pre-qualified external auditors published on December 31, 2016.
“It has nothing to do with Crane bank,” he said.
“In any case, we have never audited Crane bank.”
Available information shows that Crane bank was audited by KPMG from 2004-2007 and 2013-2015; PricewaterhouseCoopers (PWC) in 2008-2010; Deloitte and Touch 2011-2012.
But our source confirmed that the firm, which provides many services beyond auditing,  was penalised by the central bank because it helped the defunct financial institution hide some critical information.
The central bank is required by regulation 4 (2) of the Financial Institution (External Auditors) Regulations, 2010 to publish a list of approved auditors by the 31st of December of each year, from which financial institutions are required to nominate for appointment their respective external auditors.
In the first pre-qualified list of external auditors, which was published on Page 2 of Saturday Vision of December 31, 2016, EY appears on the list. This was when the Crane bank forensic audit was ongoing.
On January 7, 2017 – right about the time the audit was completed – the central bank issued another notice recalling the earlier notice, and saying “the previous one published on Saturday December 31, 2016 had an error.”  It was only EY that was omitted from the second publication.
Last week, BOU said in a statement that it had instructed its lawyers to file a case at the Commercial court in order to recover $93.8 million (Shs 337.6bn) and Shs 60.3bn from former Crane bank proprietor Sudhir Ruparelia and his real estate company Meera Investments respectively. 
“The Bank of Uganda as a receiver of Crane bank limited and regulator of the banking sector sanctioned the filing of a suit against Sudhir Ruparelia and Meera Investments Limited to recoup funds that were fraudulently extracted from, as well as losses that were caused to Crane bank,” said BOU in its statement on Friday.
The central bank argues in court documents that Sudhir used several companies to transfer money from the bank. The bank also found that Sudhir owned almost 100 per cent of the bank, contrary to local regulations that require no single individual to wholly own a financial institution.
Earlier in November, just a month after Crane bank was placed under receivership, a top official at BOU told this newspaper: “Remember the Enron scandal in the USA; Crane and Uchumi are in the same bracket.”
He was referring to Arthur Andersen, one of the world’s big five audit firms, which was found to have understated Enron, then one of the biggest energy firms in the USA. The financials covered up billions of dollars in losses.
Arthur Andersen collapsed after the scandal. Ernst & Young’s sister firm in Kenya is battling litigants in court after its audits of struggling retailer Uchumi were used by the latter in its 2014 rights issue to generate Kshs 1.6bn.
Kenya Capital Markets Authority and Jamii Bora Bank, which was the single largest shareholder in Uchumi, are some of the firms that have sued Ernst & Young.
THE OBSERVER

BOU suspends Ernst & Young over Crane bank audit mess

Bank of Uganda has suspended audit firm Ernst & Young Uganda from auditing any commercial banks this year. Its suspension, according to reliable sources, is related to the collapse of Crane bank, The Observer can reveal.

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