Wednesday, March 20, 2013


Last year's rising lending rates led to a build up of bad loans in the banking system.  But that was not all.

A leading multinational bank discovered to its horror that when their borrowers started defaulting the properties that were mortgaged to secure these loans were grossly overvalued.

Banking officials would connive with valuers and borrowers to over value properties to be mortgaged allowing the bank to lend more money than the borrower qualified to.

So for instance your house would be fairly valued at sh100m but for purposes of the scam it is valued at sh150m. The bank lends you the Sh150m the officials get their cut and you get your millions. The trouble begins when the borrower goes into default and the bank tries to sell off the property and the values don’t add up.

This bank had to write off in asset values more than sh50b  or the amount budgeted by government to treat the 140,000 in patients expected at Mulago this year for two years.

The bottomless greed of our civil servants continues to capture the headlines but the private sector has its fair share of fraud, breathtaking in the audacity of the scams and mindboggling in its frequency.

It is estimated that at least sh160b of civil servants pensions have gone missing due to officials in the Public Service Ministry. The officers including permanent secretary Jimmy Lwamafa have been charged in relation to this.

Another sh50b has also slipped between the cracks at the Office of the Prime Minister. A lot of this money was intended for northern Uganda rehabilitation.

Stories of the substandard road construction, school buildings and unequipped health centers are not unusual, no longer headline grabbers.

However it is an open secret among service providers and suppliers that private companies are bleeding billions of shillings in underhand payments annually.

But the nature of the crime makes it hard to get any hard and fast numbers.

“CEOs don’t want the extent of the problem to come out,” Mustapha Mugisa, a certified forensic investigator said. “A lot of these businesses are built on trust like banks and talk of fraud can cause a run on the banks, so many of them write them off as losses and keep quiet.”

Mugisa said that globally companies lose at least five percent of annual turnover to fraud.

“But in Uganda where controls are weak it can go as high as 15 to 20% of turnover,” Mugisa said.

Put another way our 25 banks which in 2011 reported a total turnover of about sh2 trillion  would lose at least sh300b between them.

Telecom giant MTN is in court in a case in which it is alleged some of its staff and a local clearing and forwarding firm are supposed to have connived to fleece the company of $3.8m (sh10b).

Bankers Stanbic earlier this year unearthed a Sh600m pension related scam and the alleged perpetrators are being prosecuted.

“I look at the margins that allow for this circus to go on and I just laugh,” one service provider speaking on condition of anonymity said.

“A tenders value can amount to sh800m but the officials doing the procurement demand sh250m, leaving the service provider with sh550 to do the work and make some profit. And the work gets done. But the companies have to pay VAT on the sh250m. It means companies would cut down costs significantly if they could rein in their procurement, logistics and marketing departments,” he said.

He said the channels of fraud are basically three.

The “kickback” can be factored into the tender price or one has to pay someone to become a listed supplier and in addition contracting officials can ask for advances ahead the deal being commissioned.

“What we see in the civil service is nothing. It is happening at a frightening level in corporate Uganda,” a top executive at a leading company said.

“It’s so bad that our company has at least 12 people on remand in Luzira as we talk.”

The official said out of desperation, “we are seriously considering hiring people whose background we are familiar with, from families we know, which sad because there are hardworking, honest, young people out there who will miss out on opportunity because a few bad ones.”

“Going forward corporates also have to do lifestyle audits, how does a man earning sh800,000 a month buy his girlfriend a sh100m car and no eyebrows are raised?” the official asked.

“And of course the law has to catch up. The laws on IT fraud are extremely weak to none existent. We need not only harsher punishment but that cases be expedited, let’s have an IT court martial.”

He said the punishment meted out to four Bulgarians recently who were sentenced to ten years each for hacking into ATMs could have been stiffer.

“We need harsher punishments, let’s make an example of these people.”

The NGOs have not been spared the scourge.

“The scams are many and range from sourcing multiple funding for one project, exploiting vulnerable communities, who derive no benefit from the funds solicited in their names, funding workshops and trainings whose outputs are dubious … it easy money, it’s the biggest racket going in town,” a former NGO worker said.

It’s not clear whether the funding agencies are complicit in the fraud but the implementing officers – often Ugandans are making money  hand over fist.

“NGOs are in tatters. The money is made in logistics, procurement, marketing and communications,” another supplier said.

“These are not a few thousands here and there – beer money. In total its billions of shillings gushing into the economy on a monthly basis unsupported by production. It has a destabilizing effect on the economy. What do you think the property inflation of recent years is about?”

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