The Kenya Deposit Insurance Corporation (KDIC) management has by-passed its board and paid Sh1.5 billion to FTI Consulting, the American firm that was contracted to conduct a forensic audit at collapsed Imperial Bank, it has emerged.
The payment, which has been made using the collapsed bank’s funds, is not only illegal but also raises questions on the management of assets belonging to companies in liquidation.
People familiar with the matter said the board of KDIC had declined to approve the extension of FTI Consulting’s contract and instead demanded a new tendering for the job after it became clear that the extension would increase the contract fee by more than the legally approved 25 per cent.
KDIC had initially hired FTI Consulting to interrogate Imperial Bank’s books at a price of Sh350 million – making the Sh1.5 billion payment nearly five times the contract amount.
KDIC’s management, however, side-stepped the board and extended FTI’s contract terms in a move that has consumed a significant portion of the cash that was available to pay depositors of Imperial Bank in receivership. Mohamud Mohamud, the acting chief.
executive of KDIC, did not respond to questions on the subject by the time we went to press. Julius Kipng’etich, the corporation’s acting chairman, declined to comment on the issue insisting that the CEO was the right person to respond to queries.
Attorney- General Githu Muigai, who is a member of the KDIC board, had on Monday promised to respond by 10am yesterdayt, but had not done so by the time of going to press. “I sit at the board, but I have an alternate so I may not have these things at the top of the mind,” Prof Muigai said on Monday while promising to respond yesterday.
The Central Bank of Kenya (CBK) has previously defended the pricing of the audit, arguing it was building a tight case against perpetrators of the multi-billion shilling scam at the bank. FTI was initially hired by directors of Imperial Bank, who claimed to have used their initial findings to self-report to the CBK.
The multi-billion shilling payment to the forensic auditors against the wishes of the board raises questions on whether a high quality job could have been done at a lower cost.
Disclosure of KDIC’s executive decision to pay the consultant without a proper pricing mechanism or subjecting FTI to competitive bidding comes at a time when statutory managers in the financial services sector have come under heavy criticism for mismanagement and asset stripping during receivership.
The statutory managers of Blue Shield Insurance have, for instance, been recently faulted for spending Sh491.4 million in the five years they managed Blue Shield, which is higher than the Sh477 million they collected in rent from the underwriter’s Upper Hill tower.
FTI, a specialised forensic accounting consultancy, was being paid £338,000 per week, broken down as £155,000 (Sh22.7 million) for on-site investigation, £45,000 (Sh6.5 million) in other expenses, a retainer of £100,000 (Sh14.6 million), and £38,000 (Sh5.5 million) for strategic communications.
The consultant was also allowed to levy separate charges for data processing at the rate of £170 (Sh24,909) per gigabyte.
“The objective of the audit is not to save money nor make the country look better, but to help recover the assets of the depositors,” CBK governor Patrick Njoroge said at a past Press briefing in response to questions over the pricing of the contract. “We don’t want to have a charade like Goldenberg investigations – everyone was excited, but where are those people now?” he posed.
Credit: Business Daily