An American consulting firm that was hired to conduct a forensic audit into the collapse of Imperial Bank may have earned more than Sh1 billion so far, according to leaked contract documents showing the professional charges agreed for the service.
The Central Bank of Kenya (CBK) hired Washington D.C.-based FTI Consulting to review troubled Imperial Bank’s books — a job the American firm has been doing for the past 32 weeks.
Imperial Bank collapsed in October 2015, and the CBK immediately asked FTI, which had been invited by the bank’s board to conduct a forensic audit of the lender, to continue with the job under a wider mandate.
“Our fees will be charged on the basis of a combination of time spent conducting the engagement and volumes of electronic data collected, extracted, analysed, processed, searched and reviewed,” the contract document says, adding that the fee rates may be varied from time to time and “we reserve the right to charge for our time at the amended rates”.
FTI, a specialised forensic accounting consultancy, is 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.
FTI is also allowed to levy separate charges for data processing at the rate of £170 (Sh24,909) per gigabyte.
The auditors have already unearthed about 1.2 terabytes of electronic data at Imperial Bank, according to the CBK, meaning analysing this mountain of information will cost the fallen lender’s owners £204,000 (Sh29.8 million).
All fees quoted by FTI do not include value-added tax or any other relevant levies, which must be borne by their clients — in this case the shareholders.
“We will continue to provide invoices on a weekly basis which will be payable on delivery. The retainer will be offset against our final invoice and we will either seek payment of the outstanding balance or will repay any unused amount,” says the letter signed by David Morris, a senior managing director at FTI.
Mr Morris, who is based in London, is the forensic auditor responsible for the Imperial Bank’s forensic audit while Chris Osborne, FTI’s co-chairman in charge of Europe, Middle East and Africa (EMEA), is the overall man in charge of the Kenyan project.
Mr Osborne is co-chairman of the EMEA region and the global head of FTI’s Economic and Financial Consulting practice.
Based on the above rates, FTI has earned at least £9.8 million (Sh1.4 billion) for the seven months it has been on the Imperial Bank job.
The Sh1.4 billion fee note excludes the strategic communications fee which was dropped in favour of the CBK handling the media relations segment of the assignment.
CBK governor Patrick Njoroge declined to reveal the actual amount so far paid out to FTI for the Imperial Bank audit and how much longer it will take. Dr Njoroge also refused to state whether the central bank is picking the tab for the audit or payments are being drawn from Imperial Bank’s reserves.
Kenya’s banking regulator had in March said FTI’s work was “progressing at a good pace” and needed three more months to complete.
“It is expected that the current team will make significant progress on this work in the next three months,” the CBK boss said in an update dated March 31, 2016.
The CBK on Friday said the Imperial Bank investigation was still under way, and that findings would be used to determine the next course of action, the viability of resuscitating the distressed lender, and as evidence in court to recover the stolen cash.
“Forensic auditors and relevant investigation agencies continue to investigate the fraudulent activities in Imperial Bank Limited and unsound business practices,” said the regulator.
“The findings of these investigations will allow an informed determination of the resolution of IBL, and will be critical for the forthcoming court proceedings.”
Imperial Bank directors initially called in the American firm to investigate allegations of massive fraud at the lender following the death of its long-serving chief executive.
It was on the basis of FTI’s preliminary report that the CBK decided to close down Imperial Bank and broaden the auditor’s mandate to carry out a comprehensive forensic audit of the lender.
The FTI document shows that hourly rates payable to the auditors are based on the grade of staff and their length of experience. For example, Mr Morris’ position as senior managing director entitles him to a fee of £570 per hour while a managing director would earn £460 hourly, excluding all taxes applicable.
The hourly rate for senior directors is £415, director (£375), senior consultant (£315), consultant (£255) while research analysts at FTI take home £150 per hour in professional fees.
FTI key findings
Some of FTI’s key findings as at end of March include 700 suspicious accounts and 22,520 doubtful transactions at Imperial Bank.
Imperial Bank had Sh87 billion in deposits at the time of collapse, but its managers had suppressed Sh39 billion in the bank’s balance sheet, Dr Njoroge told lawmakers in February.
Initial payments to Imperial Bank depositors capped at Sh1 million was stopped on April 19 following a court order.
Mombasa-based billionaire Ashok Doshi and his wife moved to court, saying the payments needed to be stopped until the findings of the FTI forensic audit are made public.
The CBK on Friday said that 39,875 depositors — about 80 per cent of depositors — had been paid out a total of Sh6.9 billion. Imperial Bank had a total of 49,942 deposit accounts, 5,578 of which were considered large accountholders with more than Sh1 million.
High Court judge Fred Ochieng in April declined to allow Imperial Bank shareholders to join a case in which the lender, through the CBK and the Kenya Depositors Insurance Corporation, is seeking to recover Sh34 billion looted from the bank.
Imperial Bank’s head of credit, Naeem Shah, chief finance officer James Kaburu and three directors of W.E. Tilley Limited — the Nairobi-based fishmonger that confessed to receiving Sh10 billion from the lender — were in March charged in court and are out on bail.
The financial malpractices at Imperial Bank burst to the fore following the death of its co-founder and long-serving group managing director, Abdulmalek Janmohamed, on September 15, 2015.
This article was originally published in the Business Daily