Kenya Post Office Savings Bank, popularly known as Postbank, is in deep financial distress that has seen its management use investors' money to the tune of more than Sh10 billion.
A newly-released audit report of the state-owned savings banks’ books of accounts shows the bank cannot account for Sh1.7 billion in customers’ savings and deposits.
Among other issues pointed out by Auditor General Nancy Gathungu in the audit tabled in Parliament recently is that cashiers may have stolen more than Sh35 million customers' savings.
The report paints a bleak future for the bank, saying its dependence on government support is untenable.
“The bank's dependence on the government to defray these losses is uncertain and the bank’s ability to continue as a going concern is doubtful,” Gathungu said.
The audit further revealed the bank made a loss of Sh1.4 billion in the year ending December 2019, pushing its revenue reserves downwards to negative Sh14 billion.
What’s worse, according to the audit, is that the customer savings and deposits have exceeded the bank’s assets by Sh7.3 billion.
The auditor said the situation shows the bank has a cash flow crisis, hence technically insolvent.
“This reflects a low liquidity ratio of the bank, thus rendering it technically insolvent unless the government supports their operation by extending credit facilities,” Gathungu said.
She said the situation may not change unless the government assists the bank in managing its fixed costs, “which the management has not been able to manage in the past.”
Gathungu said the bank management failed to explain a variance of Sh1.7 billion in customer savings and deposits.
Whereas the financial statements reported a balance of Sh21.8 billion, the supporting schedules reflected a balance of Sh20.1 billion.
There was also a reported variance of Sh26 million in comparison with the reported balances in the financial systems.
The auditor concluded the unreconciled variances point to weaknesses in the internal controls on the accuracy of data maintained by the bank.
“Consequently, the accuracy of the customer’s savings and deposits balance reflected in the statement as of December 2019 could not be confirmed,” she said.
On the lost Sh35.2 million customers’ savings, Gathungu said the bank should have recovered the cash shortages in 48 hours as spelt in its human resource policy.
“Under the circumstances, the board and management have not implemented the policy to safeguard the customer’s savings and deposits,” she said.
At the same, the report reveals Postbank was defrauded of Sh81 million during the year under review.
“The money – indicated as fraud customers – was lost through fraud and no meaningful efforts have been undertaken by management to recover the money so far,” the auditor said.
“This is a failure on the part of the management to recover the lost money,” Gathungu added.
The audit reveals Postbank was overstaffed by at least 64 employees. As of the time of the audit, there were 674 employees, exceeding the staff establishment of 610.
“This has contributed to the high cost of compensation to staff and hence, the bank continued to record operating deficits. The management failed to comply with the approved establishment for the year,” the auditor said.
Postbank has also been flagged for failing to collect some Sh47 million that it is owed by tenants, who have since vacated the bank’s premises.
There was no recourse exercised on the tenants as provided for in the lease agreements, the audit reveals.
“The likelihood of the amount being collected is doubtful, and adjustments necessary by way of provisions for the uncertainty have not been incorporated in the financial statements,” Gathungu said.
Informal settlers have also invaded the bank’s parcel of land in Dandora phase two, with the auditor querying why the asset has been neglected.
A physical visit to the land, she said, revealed that it remains unfenced and there was no evidence management made efforts to secure the land.
“The bank’s ability to access the land in future as its rightful owner is doubtful. In the circumstances, the security and ownership of the parcel of land by the bank could not be confirmed,” the audit reads.
The auditor is also concerned that the bank did not report the potential loss in a suit over its disputed land in Nairobi’s Upper Hill, Mara Road.
The land valued at Sh550 million is registered in the name of Postbank, but has an encumbrance following a suit by a developer.
“The management has not disclosed this through contingent liability in the financial statements. The ownership of the two parcels of land – add the one in Dandora - could not be confirmed,” the report states.
