MPs now seek special NBK audit

The National Bank of Kenya (NBK) #ticker:NBK, which is in buyout negotiations with the KCB Group #ticker:KCB, could be subjected to a special audit if MPs have their way.

Parliament last week directed Auditor-General Edward Ouko to conduct the special audit on the NBK accounts, which has always been audited by private firms.

The Public Investments Committee (PIC) took NBK chief executive Wilfred Musau to task over his nine-page document justifying why the lender cannot be subjected to an audit by Mr Ouko’s office.

“The view of the bank is that National Bank of Kenya is not a State corporation and as such, the Auditor-General has no legal right or basis to seek to audit the books of the bank,” Mr Musau, who was accompanied by company secretary Habil Waswani, told parliamentarians when he appeared before them.

Mr Musau was forced to change tune after MPs threatened to recommend that all government entities including State corporations withdraw their accounts from National Bank.

The government, through the Treasury holds 22.5 percent shares while the National Social Security Fund (NSSF) owns 48.05 percent of ordinary share capital in the bank.

“We have not refused to be audited,” Mr Musau told the committee chaired by Mvita MP Abdulswamad Nassir. “The last request came in 2013 and the matter was handled by the committee and our position has remained that the bank is not a State corporation but a private entity incorporated under the Companies Act.”

Committee member Mohamud Sheikh warned that MPs would not hesitate to pass a resolution requiring all State agencies banking with NBK to withdraw their accounts unless the Auditor-General audits its financials. Mr Musau said the bank has nothing to hide in its books of accounts and that he will consult the banking sector regulator if it receives a request for audit from the Auditor-General.

Mr Nassir directed the Auditor-General to write to NBK formally on the special audit and ordered Mr Musau to respond within 14 days of receiving the request in line with the Public Audit Act. The committee relied on Article 229(5) of the Constitution that requires the Auditor-General to audit any entity that receives public funds.

It also cited Section 70 of the Public Audit Act that overrides all other provisions of any law that is inconsistent with it and the government and NSSF shareholding to order the audit.

Mr Musau defended the bank, saying it is a limited liability company incorporated under the Companies Act, whose affairs and operations and those of its board are governed by its Memorandum and Articles of Association.

He said the bank is listed in the Nairobi Securities Exchange (NSE) and therefore regulated under the Capital Markets Act and has not been receiving any exchequer funding for its operations. He told MPs that the bank has continued to be audited by a statutory auditor recommended by the Central Bank of Kenya under the banking sector regulations.

He argued that the board of NBK adopted a resolution that NBK is a private entity following advisories from its legal team, the Attorney General and the Presidential Task Force on Parastatal Reforms. According to him, the task force analysed the status of NBK and that of its majority shareholder, NSSF, and observed that the NSSF shareholding in NBK and East African Portland Cement Company are not government investments.