Fraud rocks CFX


Chris Goko

CFX Bank Ltd, the retail arm of CFX Financial Services, recorded a $115 billion loss as of October this year and has approached the Reserve Bank of Zimbabwe (RBZ) for permissi

on to recall its statutory reserve funds to cover the yawning capital gap.


The solvency crisis, exposed by both internal and external probes, could claim the scalps of several top managers at the former Century Bank and exposes inherent weaknesses in the merged entity.


CFX Financial Services, in correspondence to hand, alleges that management at Century Bank withheld information on bad accounts. CFX was thus lured into marrying a dishonest partner.


CFX, whose merger with Century was sealed in mid-May, took out profit warning statements this week saying “profitability of the commercial bank will be significantly below expectations”.


It did not elaborate on the reasons for the financial haemorrhage, giving assurances, however, that corrective measures were being taken. The cautionary said other group associates would perform satisfactorily.


Information gleaned from financial sector sources indicates that CFX Bank incurred an accumulated loss of $115 billion in the year to October 31 and the company’s board blames the former owners for the mess at one of the few surviving banks.


CFX’s board, chaired by respected banker Isaac Takawira, is begging the central bank for a capital adequacy refund, which it will reinvest as treasury bills held by the regulator in a bid to save the bank from collapse and thus save about 9 000 small shareholders.


The proposals would see the RBZ refunding CFX’s current $10 billion statutory reserve obligations and exempting the stuttering bank from capital adequacy subscriptions for a year.


“A preliminary audit undertaken by PriceWaterhouseCoopers (PwC) confirms that CFX Bank Ltd has incurred an accumulated loss of $115 billion to 31 October 2004,” a source said.


“Basing on some workings they could recover this loss if the RBZ allows them to use statutory reserves to generate income.”


Papers signed by Takawira confirm the fraud. “. . . the loss was fraudulently withheld from shareholders of CFX Merchant Bank at the time of the merger and subsequently from the Reserve Bank at the time of determining capital adequacy of the commercial bank,” the papers say.


Although the implementation of the proposal would not immediately curtail losses, it would mitigate monthly losses and enable the bank to fully recover by June next year.


Takawaira, who was in Harare earlier this week, promised drastic action against “culpable CFX Bank management”, and the new shareholders are threatening to reverse the deal with the former Century Holdings citing fraud.

Takawira’s call was prompted by internal investigations, concluded on Monday, which indicate that bank accounts “were computer-engineered” by a key accounting manager (name supplied), who has since taken leave effective yesterday.


CFX, using the Equation banking system, fell victim to the crafty managers who tabulated a pre-tax profit of nearly $873 million in October yet the software records a near $20 billion loss.


PwC, in correspondence to the merged bank’s chief executive Wilson Gwatiringa, corroborates the software tampering at the bank, urging the firing or suspension of culprits who were identified in the internal report.

The report further notes discrepancies linked to “inflation of interest expense”, saying the new interest figure as reflected in the management accounts did not match client statements.


The internal audit particularly targets the information and technology department for aiding the creative accounting scandal.


As of October 31, the management accounts and Equation reflected a cumulative management account profit of $9,5 billion, while aggregated loss as given by the banking software is $115,2 billion, meaning there was a $124 billion gap.


The balance sheets also gave total assets at nearly $259 billion, while liabilities are $374 billion.


“I strongly feel that the adjustments noted above are done on an Excel spreadsheet and they are adjusted backwards from the management accounts back to the Equation system, ie the management accounts showing desired results are prepared first, then adjustments to tie up to Equation are made,” the report says.


CFX boss Gwatiringa did not return calls from this paper and PwC acting boss Tinashe Rwodzi was unreachable for comment. RBZ officials flatly refused to comment.


Apart from the accounting fallout, CFX’s forerunner is not new to governance-linked shortcomings. It was plagued by allegations of inadequate banking law compliance and enforcement flaws at a time it traded with the failed ENG Capital.


The latest problems, though, contain grave ramifications for its stock exchange listing and have seen Innscor Africa backing off from further capital injections.