UDB saga: The IGG's side of the story [Daily Monitor, The (Uganda)]

(Daily Monitor, The (Uganda) Via Acquire Media NewsEdge) Kampala The way Uganda Development Bank (UDB) is run and supervised needs to be changed to enable the bank better facilitate development activities, an investigation by the Auditor General has recommended.

Unlike commercial banks which are supervised by the Bank of Uganda under the Financial Institutions Act, 1997 and the Bank of Uganda Act, the report says, UDB does not have a specific independent oversight body to monitor and regulate its activities. "This exposes the development bank to the risk of public and government interests not being sufficiently served and protected," the report says.

BackgroundUDB has been in the eye of the storm in recent months following the sacking of the former management by the new board of directors over the loss of more than Shs20b which was lent out as trade finance loans. The former board of directors chaired by former Auditor General James Kahooza, concerned about the poor performance of trade finance loans, instituted an internal investigation in January 2012.

The internal investigation, which was done by Ms Patricia Ojangole, who was then chief internal auditor and is now CEO of the bank, unearthed rot in the management of trade finance loans and implicated a number of officials. The board discussed the report on April 20, 2012 and resolved to caution the then CEO, Mr Gabriel Etou, suspended him for 15 days and warned the director development finance, Mr Stephen Opeitum.

But when a new board chaired by Dr Samuel Sejjaaka was appointed in May 2012, it found the action taken by its predecessor board inadequate and reopened the case. It sought to investigate the matter further and when the officials went to court and blocked the internal disciplinary process, the board reacted by terminating them. Mr Etou and Mr Opeitum were among those terminated.

The others were Ms Priscilla Mugisha (company secretary), Ms Anne Muguluma (head of finance), Mr Wilber Naigambi (head of management information systems) and Ms Florence Mirembe (head of human resource).

The board also asked the Auditor General to carry out a special investigation into the management of UDB's loan portfolio and issued the final report on March 1, which shows that the bank is at a risk of losing Shs21b in trade finance loans which are non performing.

Battle for controlThe sackings kicked off a battle for control within the bank, with the terminated officials accusing in particular Dr Sejjaaka of firing them to fill the positions with "his people". The battles became particularly intense when Ms Ojangole, who authored the internal audit report that blew the lid off the scandal, was appointed CEO. Critics claimed that her original intention was to have the others fired and eventually take the CEO's job and they accused her of lacking the experience required to run a development bank.

Working relations within the bank became strained with those hoping to have the sacked officials reinstated being accused of sabotage and leaking bank secrets.

A number of the old workers have since been fired and said "there is a list of people to be fired". In the recent past, every decision that has been taken in UDB, including moving offices, approving loans and hiring workers, has been publicly queried.

UDB's management and board have faced inquests from the police, Inspectorate of Government and the Public Procurement and Disposal of Public Assets Authority (PPDA).

For example, the police and IGG, acting on a whistle-blower's report, last month spent days in the bank investigating a decision by the UDB board to lend out $11m to a Kampala businessman yet UDB would ordinarily lend up to $2.5m. A police source told us that a planned arrest of one of the officials in the bank over the loan was called off in the final stages.

In a letter IGG Irene Mulyagonja wrote to Dr Sejjaaka notifying him about the investigation, she said among the complaints the inspectorate would investigate was a claim that Dr Sejjaaka received "kickbacks" to okay the loan.

So what does Dr Sejjaaka have to say to that He says the complaint about the loan amount was "misconceived by people who know nothing about how boards work." "The board of directors is empowered by the shareholders to make policies for the bank," he said, "If the board approves a loan exceeding the value that the bank has been lending, it is in effect changing policy." Dr Sejjaaka says they are rebranding the bank to enable it to better provide development finance. After all, he says, the board has the backing of the relevant authorities. "If I had done something wrong why didn't the minister (of finance who appointed him) sack me " Uganda Development Bank is a limited liability company owned by the government. The Minister of Finance, Planning and Economic Development owns 35 per cent shares and Minister of State for Finance, Planning and Economic Development (privatisation) owns 35 per cent shares, while the remaining 30 per cent shares is unallocated.

But even this, though agreed upon by the Auditor General and by the Privatisation Unit spokesperson, Mr Jim Mugunga, is contested by some of the sacked officials. They say the bank is still run under the UDB Act of 1972. If the bank was still run under the UDB Act of 1972 as the officials claim, they would have grounds to appeal against their sacking. For instance, under the Act, the board has no powers to sack the CEO.

Battle over terminal benefitsThe sacked officials we talked to hoped that the Auditor General's report would exonerate them and, according to them, create new problems for the board.

For example, one of them told us before the report came out, how would the board handle a situation where a sacked official is cleared by the investigation and would like to return to his former job yet all the positions had been filled "We will pay off the terminal benefits of those who will be cleared by the investigation," says Dr Sejjaaka.

The board held on to the terminal benefits due to the sacked officials, awaiting the final report. Dr Sejjaaka says they were constrained to pay out terminal benefits to individuals who were accused of causing loss of taxpayers' money.

The sacked officials in turn appealed to different authorities, including the Minister of Labour, to have their benefits cleared. Dr Sejjaaka says they asked the police to also investigate the matter but "nothing has happened several months later." Ms Ojangole declined to be interviewed for this article.

Implicated officialsThe final report maintains many of the accusations against some of the sacked officials and other individuals as were contained in the draft report the contents of which we published on Jan. 5. (see Audit reveals further rot in Uganda Development Bank). But it does not name three of the sacked officials – Ms Muguluma, Mr Naigambi and Ms Mirembe.

Mr Opeitum, who was senior trade finance officer and later director development finance, is accused of failing to supervise Mr Bosco Olyeny, a consultant who is also accused in the report. Mr Opeitum is also accused of failing to put in place proper procedures for the management of the trade finance product. He is also accused of mismanaging a number of loans which eventually became non performing.

The legal department under Ms Mugisha's watch, the report notes, was marked by inordinate delays to recover loans. In a number of cases cited, the legal department took over a year, in some cases almost two years, to send demand letters to recover loans that had been consigned to it for recovery.

The report also names Ms Mugisha of failing in her duty of ensuring that all securities offered to the bank were genuine and proper for purposes of securing the loans. In one case, it was discovered that one of the land titles offered as security was forged.

Ms Mugisha told the Auditor General's team that she would take long to take action to recover loans referred to her department in order to first exhaust other methods of recovery. Regarding the forged security, she said this problem is real in all banks but that she brought it to the attention of the board immediately she discovered it and "measures were put in place to mitigate the risk." Others implicated include Dr A. K. Appiah, a former CEO who has since left the country, Ms Susan Nangwale, who was employed as a principal project analyst and Mr Moses Kiyimbye, who was at some point manager development finance.

Mr Charles Orwothwum, who was then manager development finance and still works in the bank, is also named. The accusations against the officials range from generating project proposals and financial projections for potential borrowers, writing replies to them on behalf of the bank and then deleting computer files to destroy evidence, like in the case of Mr Olyeny.

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