The Uganda Development Bank case is more than conflict of interest

Uganda Development continues to be in the news for all the wrong reasons. The person at the Centre of all this is the CEO,

Uganda Development continues to be in the news for all the wrong reasons. The person at the Centre of all this is the CEO, Patricia Ojangole, who joined the bank as Head of Internal Audit department.

Patricia is being prosecuted by the IGG on grounds of conflict of interest. Prosecution states that during the recruitment process of the new CEO, Patricia Ojangole, then head of internal audit, influenced the process in her favor to the top position of the bank. She is said to have worked closely with Vincent Kaheru of the recruitment firm, Profiles International.

A fact which the consultant denies. Testifying before court, Vicent Kaheru explained that “Patricia Ojangole did not influence her recruitment. The recruitment was carried out in an extremely hard way for any candidate to get favor or influence. And that he [Vicent Kaheru] did not do the short listings but provided guidelines.” Harriet Omoding another witness (UDB Board member) said she “was tasked to get three consultancy firms and the decision to hire Kaheru was a board directive.”

Information available indicates that the Board hired the services of an external recruitment firm, Profiles International, to search for a new CEO after the termination of the incumbent following fraudulent loan disbursement allegations. It is the recommended practice for Boards to recruit the CEO with the help of an external consultant.

According to the bank’s published annual 2012 report:

“UDB registered a profit after tax of Ugx 3.674 billion in 2012, marginally lower than the previous year’s profit after tax which was Ugx. 3.697 billion. This fall in profit was a result of a write off of loan register of assets totaling Ugx 7.9 billion that were being carried in the accounts…

During the year the bank undertook a vigorous review of its loan book for impairment.

This culminated into recognition of additional impairment against the 2012 income of Ugx 7.9 billion. The impairment provision grew by 47% in 2012 from Ugx 15.0 billion to Ugx 22.1 billion. We expect that with the restructuring of our Development Finance Department to allow for separation of duties, establishment of a credit function as well as a monitoring and recoveries unit and establishment of credit governance and risk management structures, loan impairments will be managed within set benchmarks and a significant portion of the losses will be recovered.”

You need to first understand how the new Board and Ojangole ascended to the top of UDB to appreciate the genesis of the current court battles.

As indicated in the above extract from the bank’s annual report, about Ugx. 7.9 billion was written off as bad debt in a year!

That is a lot of money by any measure. An investigation into how and when this amount came up, who is responsible and actions taken to ensure the loss never reoccurs should be some of the top issues on agenda by the IGG.

The concern is if the IGG wins the case for conflict of interest against Ojangole, what next? The bottom line is to follow the money instead of the power struggles. If the current management, based on the key performance indicators expected of the incumbent by the Board or the stakeholders (Ugandan tax payers) is better than the previous management in terms of oversight, risk management and increase in the bank’s net worth, with the IGG be acting in the best interest of the people of Uganda who happen to be the key stakeholders of the bank?

As it is, we are yet to hear about critical accountability issues against the current CEO. These are issues that matter.

Conflict of interest or no conflict of interest has the IGG found massive fraud and loss of bank money in insider lending and other such schemes since the new management took office?

In Uganda, conflict of interest is one of the biggest challenges in the country, and it is surprising that the IGG has taken up this case as a special one.

People in government are allowed to own private businesses – engineering firms, medical practices, consulting/ audit firms, shops, etc which in turn obtain big government contracts. The standard and “acceptable” excuse is full disclosure, in which case the concerned officer gains a diplomatic passport to influence.

You will hear words like “since I’ve an interest in this company, I will not participate. I am making full disclosure so that Mr. Chair you take note of this as I will not be part of the evaluation.” Now if the person making the disclosure is the boss of the person assigned to chair the procurement committee, will the disclosure help save money? That is why you have a lot of money spent, and no quality work done. And many Ministries and government institutions now prefer to keep showing in their annual reports “artistic impressions” of the dam, road, hospital, satellite city, etc.

At the end of the day, Ugandans need a bank that is profitable and supports local businesses to grow the economy.

Is it true the bank is worse off than it was before the new CEO came on board?

Why focus on the case of conflict of interest instead of the Ugx. 7.9 billion written off? Many people would be interested in for example how the Ugx. 7.9 billion arose, who the money was advanced to, how was it advanced and possible conflict of interest between the people who took the loan and the members/ staff who approved the loan.

We must follow the money. Not doing so is avoiding the big picture.

Copyright 2014. Mustapha B Mugisa, CFE. All rights reserved.

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