Massive fraud at Premier Finance

CAMELSA, a firm of Chartered Accountants, has uncovered fraud allegedly involving top management at Premier Finance Group, a holding company of Premier Banking Corporation (PBC), businessdigest can reveal.


The fraud was allegedly committed by the then group chief executive officer, Barry Hounsel, managing director of the bank, Raymond Chigogwana, and one Prisca Nyamupachitu.

The audit uncovered that the three sold to themselves two brand new Mercedes Benz vehicles and a second hand one bought by the bank for its employees, thereby prejudicing the bank of US$124 000. Chigogwana and Hounsel were last week relieved of their duties.

Premier this week issued a statement advising its shareholders that “there are certain significant corporate developments at shareholder level that are taking shape with Premier Finance Group. These have resulted in changes at management level.

“Pursuant to the negotiations that are taking place, an interim management team comprising Mr George Manyere (an investment banker) as acting group chief executive officer and Mr Walter Kambwanji (a chartered accountant) as acting executive director Operations and Finance, has been appointed,” said Premier’s company secretary Maureen Gula Ndebele in a statement released on April 2.

Douglas Mamvura, a marketing professional, has been appointed acting managing directorof PBC. The company bought cars for use by its employees. The foreign currency that was used to pay for the cars was sourced at parallel market rates between April and July last year. But when they sold the cars to themselves, they used the very cheap interbank rate in local currency.

Two of the cars, Mercedes Benz C220 CDIs which were bought by the bank at US$61 243 each last year on June 19 were taken by Barry Hounsel and Raymond Chigogwana at a price of Z$1,2 quadrillion each or about US$6 716.

They funded the purchase of the cars through loans they allegedly advanced to themselves in July 2008 and then immediately paid back in September after they had been wiped out by the removal of the 10 zeros in August 2008 and had lost value due to hyper-inflation.

The external audit reported that these two executives allegedly sold these cars to themselves at a price of US$6 716 which was then the equivalent of Z$1,2 quadrillion at the obtaining parallel market rate then of US$1:Z$189 billion, which was the rate at which the Bank had sourced the currency.

The resultant prejudice to the company’s shareholders on both cars was US$109 055 which arose from under pricing of the cars through the manipulation of the exchange rates.  

The cars were bought using foreign currency sourced at the open/parallel market but taken by management in the local currency equivalent using the much depressed and controlled interbank exchange rate of US$1:Z$32 billion instead of $1:Z$188 billion that was obtaining on the market then.

The external auditors reported that although the contract of employment of the CEO Barry Hounsel provides for assistance with the purchase of a motor vehicle for his spouse, that of  Chigogwana did not, meaning that he was not entitled to that benefit.

The external auditors noted with concern the failure by the bank to adhere to employment contract terms for executives. The audit report also revealed that a second hand (five year old) Mercedes Benz C320, was sold to one Prisca Nyamupachitu, at a price of Z$846,8 trillion, which was equivalent to US$4 488 at the then prevailing open market foreign currency price.

The market price of the car could have been anything in the range of US$20 000 – US$25 000. The auditors noted that all cars that were sold to members of staff before, during the same period, and thereafter, were all sold at market prices except these three.

“This particular transaction prejudiced the company of about US$15 000 and in total, the three transactions prejudiced the company of US$124 055,” the audit said.

The auditors also highlighted glaring corporate governance problems at the group. The audit report revealed that the sale of vehicles to the three executives was not properly authorised by the board at the time they were executed. Only an email approval from the board chairman Sengi Mlambo was done after the transactions had already been executed.

It is not clear from the audit report whether the chairman was aware or not that he was ratifying transactions that had already been executed.

Sound corporate governance regulations as required by the Reserve Bank of Zimbabwe require that remuneration packages for executives must be approved by the board or its remuneration committee and not a single member of the board or its chairman on his own.

On July 8, Chigogwana only sent an e-mail to the board chairman requesting authorisation of the transaction. The same e-mail also requested that the gesture (assistance to acquire personal vehicle) be extended to the PBC managing director for steering the bank through difficult times.

The group chairman consented to the request in his reply via e-mail on July 9 2008, at a time when Reserve Bank authorisation for payment had already been granted.

The audit said based on the foregoing, it was apparent that management sought retrospective board-level authorisation for a transaction that was already at an advanced stage.

“The finance department could not furnish us with the requisition and purchase orders for verification of ratification of this transaction by the Premier Banking Corporation board,” the audit said.

At the time the vehicles were purchased, the bank was sourcing foreign currency at “open market” rates whereas the loan repayments were done in Zimbabwean dollars based on the July 11 mid-rate interbank exchange rate of $32 065 761 703,73.

This resulted in a total loan amount of Z$1 266 982 376 437 780 (that is Z$126 698 after the removal of 10 zeros on August 1 2008). The Zimbabwe dollar loan amounts were repaid on September 15 2008.

The auditors were confounded by the absence of the requisition and purchase orders from the finance department or the bank supporting the authorisation of the purchase of the vehicles, a situation that made it futile for the auditors to verify if the purchase of the motor vehicles was approved or ratified by the board of directors. 

BY PAUL NYAKAZEYA

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