Probe panel suggests involvement of staff

  • Blames the top management of the bank for poor internal control system
  • H&B development bank scandal
Probe panel suggests involvement of staff

Sep 22, 2014-

A team of experts formed to investigate the good-for-payment cheque scandal at H&B Development Bank have hinted at the involvement of the suspended employees, and blamed the top management for poor internal control system, sources at H&B and Nepal Rastra Bank (NRB) said.

H&B has been under financial stress since the swindle when good-for-payment cheques worth more than Rs 800 million were issued illegally with bank staff and two traders working in collusion two years ago.

Following the scandal, the bank suspended  eight employees, including main fraudster Niraj Nepal, then chief of Kuleshwor branch and Chief Operating Officer Mahesh Bhusal. The cheques were issued from the Kuleshwor branch.

A probe team headed by former chief judge of Appellate Court Keshav Prasad Mainali, which launched the investigation two months ago, submitted its report to the bank recently, and the bank forwarded the report to the central bank.

Other members of the probe team include former Additional Inspector General of Police Nawaraj Dhakal and senior chartered accountant Bal Mukunda Dhungana.

“The report has not directly stated that staff were involved, but it is suggestive about their involvement,” said the sources, adding the report has not shown any involvement of the chief executive and board members, but blamed the top management for poor internal control system.

Another weakness of the management, as pointed out by the report, is the lack of system (software) integration after the merger of Himchuli Development Bank and Birgunj Finance to become H&B Development Bank in 2011. “Due to different systems at the headquarters and the Kuleshwor branch, the top management failed to notice fraudulent activities there,” said a bank source, citing the report’s finding.

The report has also hinted at the need for payment to the holders of the good for payment cheques, with the bank’s annual general meeting (AGM) approving payment of 60 percent of the claims. The claims under such cheques stand at Rs 810 million, according to the bank.

The H&B source said following the AGM’s decision, the external auditor advised to put Rs 390 million in provisioning, citing a possible need for payment to the cheque issuers.

“We also sought advice from our internal audit, and it approved the external auditor’s remarks. We have provisioned the amount,” said a member of the management committee.

According to the NRB source, the report has remarked the “AGM decision is not inactive”, suggesting the provisioning  the bank has made for the possible losses must be continued. As per the current law, the is the supreme body.

It has been around four months since the central bank took over the H&B management, citing the previous management’s failure to act as per the NRB directive.

Particularly, the central bank has directed the management team to identify genuine good for payment cheque holders and make payment to them.

“We identified the root causes of the problem six months before the deadline,” said Gyan Krishna Adhikari, coordinator of H&B management team assigned by the central bank. “It is now up to the central bank to decide whether to continue to look after the H&B’s management.”

A senior NRB official said the board would take necessary decision on the matter. As per fourth quarter of the last fiscal year, bank’s financial condition looks sound, with its capital adequacy ratio remaining at 15.42 percent.

Published: 23-09-2014 09:44

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