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Deloitte to earn Sh5.2m for Shelter Afrique audit

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Shelter Afrique managing director James Mugerwa. PHOTO | SALATON NJAU

Summary

  • Deloitte’s terms of reference for the audit, which will be completed by December 8, include probing claims of creative accounting and subprime lending.

Deloitte will make $52,000 (Sh5.2 million) in professional fees in a six-week assignment as the forensic auditor of the accounts of pan-African housing lender Shelter Afrique.

The audit firm’s terms of reference include probing claims of creative accounting and subprime lending. It is expected to complete the report by December 8, 2016.

The allegations were authored by former Shelter Afrique head of finance Godfrey Waweru in a petition addressed to the mortgage financier’s board of directors and financiers.

“Our fees are directly related to the level of expertise of the staff utilised on the assignment and the time it takes to complete it,” reads the engagement letter seen by the Business Daily.

“Litigation support services may include such activities as presenting our report in court. If these services are required they will be evaluated separately.”

Deloitte will undertake the twin roles of external auditor, replacing Ernst & Young, and forensic auditor to unearth the scam, raising concern of possible conflict of interest.

“There are no threats to independence through the provision of our services to this client. We are unable to comment further,” said Deloitte East Africa chief executive Sammy Onyango.

Queries over Shelter Afrique’s financial health saw Moody’s last week downgrade its long-term issuer rating to Ba3 from Ba1, and placed the rating on review for further downgrade.

“Shelter Afrique has experienced a persistent deterioration across most of its credit fundamentals, which appear to reflect structural, rather than cyclical drivers,” said Rita Babihuga assistant vice president at Moody’s.

Shelter Afrique managing director James Mugerwa is accused of dishing out subprime mortgages resulting to 59 per cent of Shelter Afrique’s $246.3 million (Sh24.63 billion) loan book being non-performing as at February 2016.

READ: Bad loans put Shelter Afrique boss in eye of a raging storm

Further, he is accused of restructuring overdue loans by rescheduling such facilities to appear as performing, thereby suppressing the volume of toxic mortgages, reads the whistleblower letter.

Nairobi forensic audit market is currently recording increased activity, thanks to a pipeline of creative accounting scandals and governance queries in corporate Kenya.

The Central Bank of Kenya has hired Washington, DC-based FTI Consulting to carry out a forensic audit of Imperial Bank, which was unexpectedly placed under receivership in October last year.

KPMG undertook an in-depth study of Uchumi’s books including the flawed rights issue held in 2014. The forensic audit helped CMA punish former Uchumi Supermarkets directors and managers including ex-chief executive Jonathan Ciano with penalties totalling Sh21.7 million.

Other forensic audit assignments underway or done recently include KPMG at troubled Chase Bank, Deloitte at loss-making Kenya Airways, East African Portland Cement Company (EY), Mumias Sugar (KPMG), Safaricom (KPMG), Communications Authority of Kenya (KPMG), Britam (KPMG), and CMC Motors (Webber Wentzel).