Kampala. Bank of Uganda governor Emmanuel Tumusiime-Mutebile has asked bank managers to cooperate with the Central Bank to mitigate fraud in their institutions.
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution.
Mr Mutebile, while addressing the Uganda Bankers’ Association (UBA) during an informal dinner held at Kampala Serena Hotel recently, said fraud involves committing and concealing of bad behaviour from relevant authorities.
Normally, bank supervision depends on the cooperation of the management of the supervised bank with the regulator.
“The regulator must trust the integrity of the management team at a supervised financial institution to provide accurate data to the regulator; unless the regulator has evidence for suspecting that vital information about the institution has been falsified or concealed,” he said.
Mr Mutebile, whose address focused on fraud in banks and clarification on the Crane Bank, said when fraud is committed, it is not easily detected in the normal course of bank supervision or the external audit procedure.
“That unavoidably means that in some cases, which are relatively uncommon, fraud is carried out undetected over a period of time,” he said.
He explained that undoubtedly, bank regulators could enhance their ability to detect frauds sooner if bank supervision were much more intrusive; for example, by undertaking forensic audits on a routine basis, even when there is no suspicion of fraud.
But that would be costly and infringe on the rights of most bankers who are honest and do not commit fraud.
Additionally, these costs would be passed on to bank customers.
In this regard, Mr Mutebile said: “The fact that a bank’s management has successfully concealed fraud from the regulator as well as its own external auditors does not, per se, imply that either the regulators or the external auditors are negligent, let alone that they must have colluded with the fraudsters.”
Crane bank issue
On Crane Bank, Mr Mutebile stated that the problems in the bank were first detected by Bank of Uganda (BoU) through an on-site inspection in May 2015. He said that inspection and an audit report at the end of 2015 revealed that the extent of its bad loans was worse than had been reported by the bank.
He further stated that through its on-site inspections, BoU also began to detect suspicious transactions, related to ownership of buildings in which bank branches were situated.
Mr Mutebile said given the scale of the losses, to the extent that they were known at that time, it was necessary to call for Crane Bank to be recapitalised and when the owners failed to provide sufficient capital to restore Crane Bank to solvency, the BoU was left with no alternative but to take over the bank and place it under statutory management.
“Had we not done so, the losses would have continued to mount and this would have further eroded depositors’ funds. Only after Crane Bank had been taken into statutory management did it become possible to uncover the full scale of the alleged fraud in Crane Bank, through a forensic audit,” he said.
Mr Mutebile added: “With that in mind, I strongly reject the claim made in some quarters that the BoU was too hasty in taking over Crane Bank and failed to give its owners sufficient time or help to rescue the bank by lending it money.”
On what banks are doing to curb fraud, UBA chairman and managing director Centenary Bank Fabian Kasi told Daily Monitor that: “We are sensitising our clients and staff about the risks of fraud but also ensuring that we have zero tolerance, if anybody is caught, they are disciplined instantly and of course technology to install security systems within our banks, We are issuing ATM cards which are PIN and CHIP so those are the initiatives that banks are doing to curb fraud .”