The Lying and forging bankers

April 20, 2017, 4:07pm

 

VILLAGER REPORTERS

An audit report compiled by Deloitte & Touche on the SME Bank shows that there was massive understating of figures by millions of dollars, while an affidavit deposed by the reserve bank governor Ipumbu Shiimi says the managers at the beleaguered bank lied about the money invested in South Africa.

The Deloitte & Touche report dated 16 December 2016 is one of annextures submitted to the High Court by the Bank of Namibia as proof that the dismissed SME Bank managers were dishonest and misrepresented figures.

Three of the dismissed SME Bank managers – the chief executive officer Tawanda Mumvuma; the finance man- ager Joseph Banda and the general manager treasury Alec Gore – are suing the Bank of Namibia over what they call unprocedural dismissals.

They were, together with Enock Kamushinda, the minority shareholder and vice board chairperson; George Simataa, the board chairperson; and board member Ozias Bvute, relieved of their duties in February this year.

Their dismissal came after the central bank had discovered irregular in- vestments involving more than N$200 million that were made with two South African financial institutions – the Venda Building Society Mutual Bank and Mamene Capital.

The report, signed by Deloitte & Touche managing partner Erwin Tjipuka and addressed to Mumvuma, says weaknesses around the physical and logical access control areas were identified.

In addition, the report says that non-performing loans for the 2016 were understated.

“The Deloitte & Touche total balance for non-performing loans is N$123,6 million, and the SME Bank balance is N$28,4 million in 2016, which means the Deloitte & Touche non-performing loans balance is higher than SME Bank’s balance by N$95,2 million.

“In 2015, the Deloitte & Touche balance was N$25, 7 million and the SME Bank balance was N&6,5 million, thus the difference is N$19,2 million,” the report says.

Deloitte & Touche also noted that SME Bank managers overstated the capital position of the bank for both 2015 and 2016 and this increased the losses and reduced the capital.

“The capital adequacy for 2016 reduced from 31% to 20% and for 2015 from 111% to 45%. The revised capita; adequacy ratios for both 2016 and 2015 are still above the regulatory minimum of 10%,” Deloitte & Touche said.

There were inaccuracies, Deloitte & Touche further found, between the re- turns submitted to the Bank of Namibia and the documents used by SME man- agers.

The differences are:

• Incorrect classification of the line items, for example an overdraft included as part of the personal loan line item

• Changes made on one return after the returns have been reviewed that affect the other returns but the corresponding returns were not adjusted

• Source from which the information used to prepare the returns is outdated or relates to the wrong period

• Incorrect completion of the returns, for example portions of the returns are not completed or they are completed

using the wrong amounts due to a lack of knowledge on how to complete the returns or parts of the returns

• Typing errors on the returns

• Inability to complete some lines items on the returns due to the system generated reports not providing the information needed to complete the re- turns

• Due to system constraints, complex calculation are sometimes required to determine the values required to be recorded on the returns, which also in- crease the chances of human error

• Inadequate reviews of the returns.

Furthermore, Deloitte & Touche found that the SME Bank could not, in some case, provide loan agreements, founding statements and proposal for debt limit.

According to Deloitte & Touche, some of these problems were caused by poor filing system, something that could point at the employment of people who were not qualified to work in a bank.

“We recommend that management should improve the filing process to en- sure that all the documentation relating to the customers are easily accessible, especially the proposal for limit and loan agreements.

“The loss of the loan agreements will have a negative effect on the recovery of the loans in the case of defaults whilst the lack of signed proposal for limit might result in the breach of approved limits and other terms of the customers’ facility which in turn increases the cred- it risk of SME Bank,” the report said.

Apart from this, the report also said that the five-year management agreement between SME Bank and MetBank that was signed on 20 March 2012 was not enforced although it remains a legally binding document that could impact on the SME Bank’s financial performances.

The banking system used by SME Bank – the T24 R10 – belongs to Kamushinda’s company World Eagle. This system is not transferrable.

Deloitte & Touche said that although the Temenos banking system sub-licence expires in 2021 and will be automatically be renewed for five years, the SME Bank might be affected in the event that the company decides to terminate its contract with World Eagle.

Temenos is a Swiss company that prides itself as a market leading soft- ware provider, partnering with banks and other financial institutions to trans- form their businesses and stay ahead of a changing marketplace.

The system is an open, integrated and real-time platform providing real-time, complete customer information that enables financial institutions to offer their customers the right products at the right time.

Deloitte & Touche recommended that SME Bank should engage Temenos and World Eagle to ensure that the licence of the core banking system can vest in the SME Bank directly instead of having a sub-licence agreement.

In his affidavit, Shiimi said that the managers chose not to disclose to the court “certain pertinent matters relevant to the adjudication of this application”.

He said the situation at SME Bank was brought to his attention by their external auditors, BDO, in August 2016 who complained that they were not get- ting certain information regarding in- vestments made with Mamepe Capital.

 

 According to Shiimi, the central bank’s director for banking supervision Romeo Nel attended a meeting called to discuss the issue of documents on the investment on 12 August 2016.

Matters discussed, Shiimi said, included: lack of persuasive audit ev­idence for the recoverability and ex­istence of investments amounting to N$196m accounted for in the provi­sional annual financial statements of SME Bank as at 29 February 2016 as well as the non-disclosure of key infor­mation by the SME Bank management to the auditors, BDO.

BDO, Shiimi said, wrote to SME Bank management concerning the non-disclosure after a meeting held be­tween them and the bank management on 9 September 2016.

The governor also said soon after BDO’s letter, finance minister Calle Schlettwein contacted him regarding failure by the SME Bank to pay Nam­Water’s investment of N$140m that had matured.

When the SME Bank failed to pay NamWater, Shiimi pointed out, the bank’s liquid asset ratio also fell below the regulatory threshold of 10% to 8, 9% on 7 September 2016.

Liquid asset ratio is calculated using the average total liabilities or money owed to depositors over a period of time, usually 30 days.

Shiimi said as a result of the liquidity challenges, on or about 8 September 2016, he met the SME Bank manage­ment regarding the liquidity challenges.

At the meeting, according to Shiimi, the SME Bank management argued that the liquidity challenges were re­lated to N$340m they needed from the government as capital.

“When asked about their investment portfolio in South Africa, Mumvuma indicated that it was a fixed deposit of N$156m with maturity of three to six months,” Shiimi said, adding that the investments should have matured by now.

Shiimi said he told Mumvuma that depositors’ calls on their money will have to be honoured and instructed him to comply.

Ultimately, according to Shiimi, SME Bank managed to pay NamWater N$90m after the government had in­jected N$78m into the bank.

The Bank of Namibia noted at the time that there was a mismatch of N$384m within one to seven days be­tween the SME Bank expected inflows and outflows, which meant that if any large depositors called their money, the SME Bank would not be able to pay out.

“As a general rule, the money that is supposed to flow out during any period

 of time should match the funds expect­ed to flow in. Should there be a shortfall between the inflows and the outflows, the SME Bank is expected to have other contingency funding sources to cover the shortfall,” Shiimi further said.

A meeting held on 9 September 2016 between BDO and the central bank re­solved to notify SME Bank managers telling them that their annual financial statements should not be relied on since they had not submitted persuasive au­dit evidence for the recoverability and existence of the investments in South Africa.

The SME Bank made three deposit with Mamepe Capital and VBS Mutual Bank between 12 August and 6 Sep­tember 2016, Shiimi pointed out.

These deposits, he said, were: N$10m and N$150m made to Mamepe Capital on 22 August and then another deposit of N$25m that was transferred from Mamepe Capital to VBS Mutual Bank on 31 August 2016.

“The total investment purportedly made during that period, being from 12 August to 6 September 2016, was N$185m, which exceeded the approval limit of the chief executive officer and therefore required the SME Bank board of directors’ approval,” Shiimi said.

Although the SME Bank’s internal controls state that the chief execu­tive officer can authorise investments amounting to N$150m, it also states that the amount should not be split and or paid over a period of time.

VBS Mutual Bank provided one ac­count for SME Bank, while the maturi­ty sheet provided by Banda to the Bank of Namibia showed three different ac­counts.

“On 30 September 2016, Mr. Ban­da explained to the Bank of Namibia’s examiners [Karin Elago and Immanuel Hawanga] that the alleged investments placed with VBS were apparently treat­ed as one call account with different placement and maturity dates,” Shiimi said.

According to Shiimi, both Mumvu­ma and Banda submitted conflicting information regarding the inflows and outflows.

On one hand, Mumvuma told the Bank of Namibia on 12 September 2016 that there had not been any with­drawals from large depositors and that the top depositors’ balance was N$779,7m as at September 2016.

On the other hand, Banda said that there was an outflow of N$172,8m compared to inflows of N$102,1m since 31 July 2016 to September 2016.

Banda, Shiimi further said, mis­represented to the examiners during a meeting held on 26 September 2016

 that VBS Mutual Bank would pay N$50m by 30 September 2016 but by 11 October when he met the examiners again, the funds had not been paid.

“Mr. Banda then indicated that a no­tice was only given on 30 September. However, on 14 October 2016, the Bank of Namibia received an email from Mr. Banda confirming that only N$37m as opposed to N$50m was received from VBS and deposited into the SME Bank account held at FNB Namibia,” said the governor.

He added: “In view, inter alia of the above conflicting information emanat­ing and in some cases, the lack of provi­sion of information upon request, from the SME Bank, a real possibility exists (and existed at times material hereto) that the funds purportedly invested with VBS and Mamepe are likely to be lost.

“By mid-December 2016, no confir­mations could be established of the in­vestments allegedly made by the SME Bank at Mamepe and VBS. This situa­tion remains. In fact, preliminary infor­mation gathered by the Bank of Namib­ia since its statutory intervention on 1 March 2017, bolsters the concerns re­garding the risk of loss of these funds.”

To confirm the impact of a possible loss of the N$196m on the SME Bank, Shiimi stated, the Bank of Namib­ia calculated the solvency position of the SME Bank considering that as of 20 September 2016, it had N$178m. The result, he said, was that the SME Bank would have a negative capital of N$17m.

“As of today, and as far as the Bank of Namibia is concerned, the alleged investments are still under investiga­tion and which funds remain in doubt and have not been returned to the SME Bank.

“Further, it is likely that those amounts are lost (based on information at hand, presently and at times material hereto) and the Bank of Namibia is and was, at times material hereto, satisfied that the SME Bank is insolvent or likely to become insolvent, since the capital funds would – in that event – be deplet­ed and the liabilities will exceed the as­sets,” Shiimi explained.

In this regard, Shiimi further ex­plained, the Bank of Namibia’s statuto­ry intervention was merited, especially considering that some of the SME Bank management fled the country before they were informed of the takeover of management.

He said when Bryan Eiseb, the Bank of Namibia director for exchange con­trol and legal services went to deliver the letters of removal, Banda, Mumvu­ma and Gore had left.

“Mr. Banda wilfully absented himself from office and Namibia, in which ab­sence he persists. The current precise whereabouts of Mumvuma and Gore are presently unknown. It is suspected that they left Namibia to avoid answer­ing questions to the [ongoing] investi­gations being conducted by the Bank of Namibia.

“Curiously, their affidavits are all deposed to in neighbouring countries, with no explanation being proffered for the deponents having left Namibia in the above circumstances,” he added.

Eiseb, said Shiimi, found out that some of the SME Bank’s critical infor­mation was not served on the bank’s main server but was on some of the managers’ laptops.

In addition, on the day Eiseb arrived, he also found out that the T24 had been

 shut down remotely and he could not lo­cate the keys to the server room.

Mumvuma, Banda and Gore, accord­ing to Shiimi, took along company lap­tops that contain vital information.

Despite the managers going away with laptops that contain information, Shiimi said, the Bank of Namibia man­aged to get information regarding the investments at VBS.

The statement, according to Shiimi, was dated 23 March 2017 and showed deposits made between 1 January 2014 and 22 March 2017.

Nhlanhla Mduduzi Nkuna, an em­ployee at VBS as a financial officer, provided the account statement that showed that only N$10m was invested with them on 11 August 2016 and that the money was then withdrawn on the same day.

“No other amount was deposited into this this account for that period. This means that the account was only active for one day,” Shiimi said, adding that this information is different from the one submitted to BDO that showed that the same account had N$185,3m.

He said there was another account sent by VBS to SME Bank dated 10 Jan­uary 2017 which showed that there was N$153,8m as at 31 December 2016.

No such amounts, said Shiimi, are ev­ident in the latest statement received on 23 March 2017.

In view of this, he said, the informa­tion presented by Banda, Mumvuma and VBS to BDO “is contradictory, un­reliable, highly questionable and suspi­cious”.

Furthermore, Nkuna, Shiimi said, told an SME Bank employee, Venencia Olobilwe that as of 23 March 2017, the SME Bank investment account with them had N$458,855.

VBS head of treasury Phopi Muk­hodobwane, according to Shiimi, told Olobilwe that the account statements presented earlier by Banda and Mum­vuma as issued by VBS appear different from their normal system-generated statements.

“In addition to the alleged invest­ments with VBS and Mamepe, the preliminary findings of the Bank of Na­mibia also uncovered an investment of N$10m with Tulive Capital.

“About N$6,7m of this amount is al­legedly invested in a speculative equity investment in South Africa and the rest with a local bank.

“According to a report provided by Tulive Capital, the funds invested in South Africa have allegedly suffered significant losses such that the balance now stands at N$48 000 as compared to the initial investment of N$6,7m,” Shiimi said.

Bank of Namibia’s findings show that funds invested by the SME Bank as of 28 February 2017 was N$207,6m, ex­cluding N$3,6m interest.

According to Shiimi, this amount was arrived at by compiling date from differ­ent sources such as bank statements, the general ledger, trial balance and cash flow assessments.

“There is reason to believe that at least N$150m (if not all) of the alleged VBS and Mamepe investment may not be recoverable because the funds were paid into various accounts belonging to other beneficiaries namely Asset Move­ment Financial Services, DMA Consult­ants, Moody Blue and Transparency. com,” Shiimi revealed, adding that the nature of the businesses for these com­panies is not known.