Accountants’ watchdog to probe Chase Bank’s internal auditors

The Institute of Certified Public Accountants of Kenya (ICPAK) chairman Fernandes Barasa. PHOTO | FILE 

Posted  Thursday, April 14   2016 at  20:42

The accountants’ watchdog plans to investigate auditors at the collapsed Chase Bank in what could see senior financial managers prosecuted and stripped of their practising certificates.

The Institute of Certified Public Accountants of Kenya (ICPAK), which is the body that regulates accountants, says it will hold to account any of its members who may have been involved in professional misconduct.

“Auditing is a legal process and as such any established misconduct (by internal auditors) will attract prosecution,” ICPAK chairman Fernandes Barasa said in an interview, insisting that the conduct of external auditors of the bank, Deloitte, was above board.

Chase Bank was last week placed under receivership of the Central Bank of Kenya (CBK) following a run on deposits by customers after the management restated insider loans to a higher figure in its financial statements.

ICPAK has 18,000 members and has cracked the whip on five rogue accountants in the past one year while 10 others are under investigation, according to the chairman.

If the probe proceeds, the watchdog will scrutinise Chase Bank’s internal audit report and the management letter — a confidential note prepared by external auditors directing the attention of a company’s directors to concerns or weaknesses in their statements.

Should they be found culpable of cooking financial statements, the auditors will pay a cash fine, currently fixed at Sh100,000 in the Accountants Act. The accountants’ watchdog, however, plans to raise the cash penalty to Sh5 million as a powerful deterrence alongside a 10 year jail term.

Proposed penalties

“The current Accountants Act is weak, and that’s why we want to make it more punitive. We will present the proposed penalties in Parliament through the Treasury,” said Mr Barasa.

External auditors have been accused of sleeping on the job or colluding with rogue directors to manipulate financial statements and hide weaknesses.

This has partly been attributed to the sudden collapse of three banks — Dubai, Imperial and Chase — in the past nine months.

The auditors have, however, defended their conduct saying that their scope as external auditors is limited to the information presented by the company and that their role is to make an opinion based on the material provided as opposed to forensic auditors who dig deeper to investigate fraud or theft.

Deloitte has been accused of professional misconduct in handling the books of Kenyan companies, including loss-making Mumias, CMC Motors, Tuskys Supermarket and lately the collapsed Dubai Bank.

But ICPAK has given the audit firm a clean bill of health. “Deloitte did their work in a proper way. They issued an adverse opinion to the directors and management of Chase Bank, warning of discrepancies in their statements,” said Mr Barasa, adding that the lender failed to act on the warning note.