KQ shareholders want cartels brought to book

The shareholders of Kenya Airways (KQ) have beseeched Board Chairman Michael Joseph to help uncover graft cartels understood to be responsible for the airline’s woes.

“Mr. Chairman watch your back. This airline is being controlled by cartels who are well known to the company and are serving with you at the Board. They are the reason we cannot earn dividend each year we show up for AGMs.

We are yet to be told who was responsible for the Sh25billion loss KQ made in 2015. We are trusting you with the task to help expose them and end corruption in this company,” an angry shareholder confronted Mr. Joseph last month during the company’s Annual General Meeting in Nairobi, amid cheers from fellow investors, in what majority of them now believe is a recurring leitmotif every year they show up for AGMs.

Perhaps it was a subject KQ Chairman had expected but not in a fashion spat out at him.

“We are aware of the cartels, we are determined to deal with them and if we haven’t tried to address it already, I believe we could do more,” said Joseph while responding to questions from his disgruntled shareholders, who despite being pleased with the streamlining evolution thus far, demanded that he look out for their interests.

The shareholders want prompt inquiries into theft of the company funds as well as gross malpractice after declaring a net loss of Sh26.2 billion in 2015.

Kenya Airways shareholders overwhelmingly voted at a special meeting last month to approve a financial restructuring plan, christened Operation Pride. The plan which also includes creating new shares and converting the debt it owes local banks, into equity, a strategy the former Safaricom Chief executive confirmed that, “all the banks are fundamentality are in agreement in what we are doing.”

But Shareholders in September demanded assurance from Mr. Joseph whom they compelled to make known the restructuring progress on ‘when’ the airline will return to profitability and activate dividend payouts.

“We are nearly there, in three months we will know where we are when we will announce our half year results,” was his response to another shareholder. The restructuring process began 18 months ago which affected several Kenya Airways employees as well as the exit of its immediate former Chairman Dennis Awori and former Ceo Mbuvi Ngunze, now on a reduced role as the company’s financial advisor.

But it’s the report by audit firm Deloitte which is expected to release findings on the ‘exact’ value loss of KQ’s fortunes that would gratify most shareholders.

Other players like Kenya Airline Pilots Association (KALPA) had last September called for speedy conclusions into forensic audit on the airline which it hopes will unearth the deep-rooted corruption in the company.

Details of that report seeped into the public several months ago, revealing a damning graft scheme coordinated by Kenya Airways employees who colluded with suppliers, ticketing agents, bankers and oil companies to snip from the airline through forgery and manipulation of the aforementioned accounts, as reported in the local media.

In one instance, the leaked report found that a KQ staff in charge of treasury received several payments from the collapsed Dubai Bank totaling $220,000 in eight transactions that involved his wife, while other employees in the accounts department conspired to loot the airline $5.2million in dubious transactions with the bank.

The report which gives various instances where money exchanged hands amongst KQ employees also found that, the airline lost $74million in 2015 on fuel-hedged contracts while some employees colluded to steal from the company from ticketing, fuel and accounting to the baggage and cargo departments. The full audit report is yet to be shared publicly.

 

Below  Excerpts from The East African which reported on the story in October, 2016

The East African:

A senior accountant in KQ’s treasury is accused of back office and online sales and initiating forex transactions with Dubai Bank without the board’s approval.

The accountant is accused by the auditors of exploiting forex weaknesses for his own personal gain of $230,000, through fraudulent transactions that cost KQ $5.2 million.

A supervisor of funds management is recommended for criminal and disciplinary action; he is accused of presenting altered bank statements to the airline’s audit department, and approving an excess payment of $140,000 in fees for the bank guarantee from Dubai Bank. Deloitte said that his negligence cost the airline $3.5 million in losses.

“We recommend that the KQ board consider initiating disciplinary proceedings of gross negligence and abuse of authority against the funds management officer for failing to exercise due care and diligence when he failed to take up his duties as the acting supervisor funds management, allowing another officer in charge of back office and online sales to exploit the weakness to his advantage,” the auditors recommend.

Another manager in KQ’s treasury has also been recommended for disciplinary action for failing to exercise due care and diligence when she approved an excess payment of $140,000 in fees for the bank guarantee obtained from Dubai Bank.

“The employee is said to have approved erroneous bank reconciliations that were prepared based on altered bank statements; gave contradictory statements on the opening and existence of the Dubai Bank account; allowed her subordinates to deal with forex transactions contrary to the Board resolution; oversaw the sale of ZAR and AED to Dubai Bank at below market rates while serving as the treasury manager; and failed to ensure that a cash book for the KQ account held with Dubai Bank was being maintained,” the auditors said.

The report also makes recommendations for disciplinary action upon the manager for inflight and fuel procurement, for disclosing bid results and recommending changes in documentation for an energy company which had been tendering for a contract at KQ.

He also failed to declare that he owned a fuel station. Another employee who headed the supply chain, will also face the disciplinary panel for allowing a supplier to supply fuel as a broker through another fuel company contrary to procurement policies.

The auditors have also recommended third party entities for further investigation and possible prosecution. Dubai Bank is accused of not remitting $5.2 million belonging to the airline, and Chairman Mr Zubedi is accused of aiding the officers to defraud KQ and later facilitating payment of the forex proceeds to an officer.

Former operations manager of Dubai Bank Deeraj Baghel is accused of aiding at least two officers of KQ to defraud the airline. An energy company is also recommended for prosecution for making a payment of Ksh1 million ($10,000) to an employee of KQ, being proceeds of forex transactions between KQ and Dubai Bank.