Regulator to rely on court, CMA in probing Imperial auditors

The accountants’ watchdog will use evidence coming out in court and the Capital Markets Authority probe on Imperial Bank owners to determine guilt or otherwise of the lender’s auditors.

Institute of Certified Public Accountants of Kenya (Icpak) said external auditors of the failed mid-tier bank are under investigation by its disciplinary committee to establish what they knew of the alleged fraud that forced the closure of the bank.

The firm also cleared the bank’s book of accounts used by the capital markets regulator to approve a Sh2 billion bond in October last year.

Icpak Chief Executive Patrick Ngumi said in an interview: “Those will be part of the input but remember for the institute, we handle professional negligence and misconduct but if anything is criminal legally, that is a court process. But you know even that professional misconduct is criminal, so we will look at it from that point of view and that will be used as input.”

The Kenya Deposit Insurance Corporation (KDIC) recently told the High Court that Imperial Bank shareholders induced its auditors with a $5 million (Sh500 million) low-interest loan to turn their attention away from a Sh34 billion embezzlement scheme at the collapsed lender.

Senior partners at PKF Kenya apparently received the loan through East Africa Property Holdings and were to repay the amount in seven to 10 years at an interest rate of 19 per cent a year.

Imperial Bank was also to buy out a $2 million (Sh200 million) loan the auditor took from Habib Bank AG, Zurich.

CMA last week said it would institute charges against the bank owners for misstating details in their Sh2 billion bond issue just before the bank sank in 2015. Bond and share prospectus heavily rely on audited accounts.

PKF Kenya earned Sh1.8 million in fees as reporting accountants for the bond issue, while the CMA received an approval fee of Sh2 million or 0.1 per cent of the cash raised.

CMA said it had collected all the necessary evidence in the eight months since Imperial Bank was put in receivership by the Central Bank of Kenya.

The Icpak CEO said the process of investigating the auditors was still ongoing, with no timelines for conclusion. “I cannot say there are timelines, you know how cases go. This is a case where there’s new evidence every day,” he said.

CMA Chief Executive Paul Muthaura has pledged to speed up talks with the National Treasury and the Icpak to establish an independent audit oversight authority.

Mr Muthaura said that until there is a second eye looking at auditing standards, there will always be room for improvement.