Defunct Intercontinental Bank Ghana feeds BoG with wrong financial accounts – Report

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After officials investigated the books of Nigeria’s defunct Intercontinental Bank Plc, it has been revealed that the bank’s subsidiary in Ghana manipulated its financial accounts and submitted it to the Bank of Ghana (BoG).

Spanning a period of two years (2008 and 2010), the accounts presented to the central bank by the Intercontinental Bank Ghana (IBG), according to investigators were masked to deceive the BoG. The bank was making loses but turned them into profits, documents obtained and released by Nigerian media outfit BusinessDay have showed citing investigators who worked on the books of the subsidiary.

From the documents, it emerged that for more than two years, between January 2008 and April 2010, IBG which has now merged with Access Bank suffered a “revaluation loss of about GH¢49.4 million in foreign exchange transactions that was covered up and later presented to shareholders and the BoG as profit.”

Quoted in the documents, investigators said “This loss was claimed to have been largely due to FX (foreign exchange) transaction losses and non-revaluation of FCY (foreign currency) accounts for over two and a half years.”

For instance, from January 2008, according to investigators, “the auto-revaluation feature was not enabled for all the Nostro Accounts. The implication of this was that no revaluation was being done on the Nostro balances.” A Nostro account is an account at a foreign bank where a domestic bank keeps reserves of a foreign currency.

The BusinessDay reports that as at December 31, 2008, IBG made a revaluation loss of GH¢110,596.68 on all foreign currency assets and liabilities that were revalued. When the next revaluation was done on October 9, 2009, it resulted in a loss of GH¢11,969,914, but this was manually reversed, the report added.

The bank’s general ledger (GL) No.340000009 after a review, indicated a revaluation loss of GH¢42,586,790.45 by end of December 2010, a situation which is said to have resulted in a loss for the year.

“This should have resulted into a loss of GH¢32,937,790.45 instead of a profit of GH¢9,649,000 declared by the bank as at December 31, 2010,” according to an investigative audit report the news publication claimed to have seen.

The change of loses into profits by the bank was believed to be deliberate as management of the bank in an effort not to disclose the revaluation losses in the 2010 audited financial statement, transferred the loss into a fixed deposit liability GL (I-Cash 210500001) “with an alleged intention of writing it off over two-years.”

After covering up the loss and presenting the financials to show profits, staff were paid bonuses totaling GH¢965,000 (or $644,493) out of the fictitious profit, with the erstwhile managing director of the subsidiary, Albert Mmegwa collecting $100,000 as his share, the BusinessDay reported.

When the story was reported by the BusinessDay in early May 2012, efforts to get a response from the Bank of Ghana proved futile when ghanabusinessnews.com contacted the office of the Head of Banking Supervision.

The BoG’s failure to  detect these ‘anomalies’ in the financial accounts of the IBG has raised some questions about the capabilities of the BoG’s Banking Supervison unit.

The 2009 financial audit report of the Auditor-General which was recently discussed by the Public Accounts Committee of Parliament (PAC) indicted the BoG of poor monitoring over delayed tax transfers by Ecobank and the Ghana Commercial Bank (GCB).

These two commercial banks were cited for unduly delaying the transfer of indirect taxes into the Consolidated Fund which deprived the government of Ghana of prompt access to tax revenue compelling it to borrow money to finance its budget.

Under an arrangement between the BoG and the two banks, they (Ecobank and GCB) are to collect on behalf of the Customs Division of the GRA’s, “indirect taxes on goods and services and transfer same into the consolidated fund within three working days on receipt”.

But in spite of the agreement, the audit report indicated several instances of delays some of which “exceeded 500 days” in transferring monies promptly into the consolidated fund.

A recent Institute of Economic Affairs’ (IEA) Petroleum Transparency and Accountability (P-TRAC) Index report said it was negatively impacted by the lack of information on the performance of the Heritage and Stabilisation Funds, which was supposed to be published semi-annually by the Bank of Ghana.

But commenting on the Intercontinental Bank issue, Bright Simons of policy think-tank IMANI Ghana, told ghanabusinessnews.com that “Similar to the accounting fraud scandals that brought down some major international financial institutions during the recent global financial crisis, this incident highlights two dimensions of equal ethical significance but posing different technical challenges.”

In an email, Mr Simons said “The blatant fraud represented by the decision to misreport foreign exchange trading losses was clearly pursued with such calculation and energy that even with a near-perfect inspection regime, Central Bank authorities could still have missed it.”

On the issue of the non-revaluation of foreign currency accounts, Bright Simons noted that it will be more difficult not to channel more blame to the central bank.

He argues that most standard banking software packages are pre-set to conduct such activities automatically, such that any banking IT audit, carried out with ordinary skill, should lead to clues about tampering early enough for preventive action to be taken.

“To what extent is the central bank investing in electronic banking and electronic forensic expertise in order to be able to detect suspicious patterns and signals in good time?” Simons questioned.

By Ekow Quandzie

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