The Ksh14 Billion Hole That Was Used To Steal From Chase Bank

At least Ksh14 billion marked as outstanding interest was lost before Chase Bank collapsed, a Capital Markets Authority (CMA) investigation report has revealed.

According to the CMA report, an IT audit commissioned by the Central Bank of Kenya (CBK) in 2015) discovered a loophole in IT system that the bank managers could have used to siphon the billions.

Initially, the bank audit did not cover the IT system, which made it safe for executives to hide theft in the lender.

“Most of the issues surrounding the reporting of interest receivable were discovered during the IT Systems audit during the audit of 2015 financial statements which was conducted in line with CBK’s directive,” said CMA.

“We note that IT systems audits are not usually conducted as part of the annual audit of financial statements the same audit procedures seem not to have been undertaken in the year 2014 which would have brought to light the overstatement in the year 2014 financial statements.”

The Ksh14 billion was more than Chase Bank’s monthly interest of Ksh1.2 billion, meaning the huge difference could be an overstatement or bank balances that were not supported.

“Deloitte’s specialist IT team reported to the general audit team that in the course of testing the application system supporting interest receivable, the Flexcube system, a manual override had been identified in instances where client accounts did not have sufficient funds. This resulted in a significant unsupported interest receivable balance,” the CMA said.

In 2016, former chairman of Chase Bank  Zafrullah Khan revealed that Ksh3.1 billion that had previously been stated as interest receivable was misappropriated by a former chief of finance.

According to the investigation report by CMA, Mr Khan paid himself a Ksh1 billion bonus for his 18-year-service to the lender, which was later shared among top directors.

The bonus was to be paid for a period of five years (Ksh200 million each year), but in 2016, Mr Khan received the amount in lump sum.

Among the beneficiaries of the amount include Balst Holding Limited, a company associated with former board member Rafiq Sharif (Ksh174 million) and companies associated with former finance director Ken Obimbo.

Chase Bank was placed under receivership by CBK in April 2016 due to under reporting of insider loans and not meeting the statutory banking ratios.

Read: Chase Bank Set for Liquidation to End 5-Year Saga

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