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CMC report on secret fund audit ready [Business Daily (Kenya)]
[September 17, 2014]

CMC report on secret fund audit ready [Business Daily (Kenya)]


(Business Daily (Kenya) Via Acquire Media NewsEdge) The accountants' regulatory agency, ICPAK, will next month make public the findings of a two-year enquiry into how consulting firm Deloitte and Touche handled the financial statements of CMC Holdings, whose directors were accused of maintaining a secret overseas slush fund that cost shareholders up to Sh1.2 billion.



The disciplinary committee of the Institute of Certified Public Accountants of Kenya (ICPAK) says it has finished a forensic audit into allegations of financial malpractices at CMC, previously an NSE-listed company until its purchase by Dubai-based Al-Futtaim Group this year.

The Capital Markets Authority (CMA) in 2012 filed a complaint with ICPAK regarding the conduct of Deloitte as CMC's external auditors, who ordinarily ought to have pointed out the financial malpractices including a secret account held in the island of Jersey.


"The report will be presented at our full-board meeting next month. We will then make it public," said ICPAK chairman Benson Okundi in an interview with the Business Daily.

"It has taken very long due to the nature of the inquiry and also the delay by Treasury in appointing the disciplinary committee." The massive allegations of legal and regulatory breaches at CMC Motors were unearthed following boardroom wars at the motor vehicle dealing company that led to revelations of accounting fraud at the firm.

A forensic audit by South African firm Webber Wentzel, which was commissioned by the capital markets regulator, confirmed the allegations.

Mr Okundi said the disciplinary committee had already completed investigations into the conduct of Deloitte and the final report will be tabled at a board meeting slated for the last week of October.

Al-Futtaim acquired CMC Motors in a Sh7.5 billion deal equivalent to Sh13 per share, a transaction that will culminate in de-listing of the company from the Nairobi Securities Exchange (NSE).

The findings of the ICPAK inquiry will mark the second time one of the "Big Four"audit firms was being investigated by the watchdog after the investigation of PwC in the wake of Uchumi Supermarkets' near-collapse in 2006 on whether its opinions were in step with professional standards.

The probe concluded that PwC had operated above board in handling the accounts of the listed retailer.

ICPAK's seven-member disciplinary committee is chaired by Uchumi chief executive Jonathan Ciano.

Treasury secretary Henry Rotich in January reconstituted the disciplinary team after a long lapse, which had stalled investigations into cases of professional misconduct among auditors.

If Deloitte is found culpable of accounting fraud, the audit firm may be hit by a financial penalty and the practising certificate of its partners suspended.

Mr Okundi said there was no threshold for the fine payable as it is determined at the discretion of the disciplinary committee.

Deloitte is accused of failing to unearth a secret offshore account — funded through over-invoicing of CMC's vehicle imports.

The Jersey account is said to have received commissions totalling £8.6 million (Sh1.2 billion) between 1977 and October 2013.

Those who benefited from this secret account include Joshua Kulei, who served as private secretary to former President Daniel Moi, former Attorney-General Charles Njonjo, billionaire Jeremiah Kiereini, former managing director of CMC Martin Forster and CMC founder (deceased) Jack Benzimra.

Deloitte was accused of mis-stating CMC's accounts by abetting the booking of undelivered vehicle sales as revenues and not capturing interest payments for cars sold on credit, thereby inflating its earnings.

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