"There\u2019s a Plot to \u201cLoot\u201d Ghana\u2019s Top Development Bank, Say Insiders"

" There\u2019s a Plot to \u201cLoot\u201d Ghana\u2019s Top Development Bank, Say Insiders \r\n\r\n A trove of evidence of shady dealings \r\n\r\nI recently\u00a0 wrote a piece \u00a0on a fierce battle raging inside Ghana\u2019s leading development finance institution (DFI),\u00a0 Development Bank Ghana (DBG) , pitting various risk, audit, and compliance officers against senior management, as the board seemingly looks on helpless. Two independent directors have already jumped ship due to sheer frustration.\r\n\r\nThe insights in my essay came from a thorough analysis of a trove of evidence made available by a group of insiders and whistleblowers whose efforts to push for governance reforms internally have been rebuffed or ignored. The evidence spans critical remits across the bank, from general counsel and risk management to treasury and internal audit.\r\n\r\n An internal push for governance reforms at DBG flounders \r\n\r\nThe insiders explain their motive for reaching out to civil society activists such as myself as one of pure desperation in a bid to stop a hugely vital national institution from becoming a basket case like all of Ghana\u2019s previous development banks, from the likes of ADB and NIB, still on life-support, to the likes of BHC and GCOB, which have collapsed.\r\n\r\nEarly indications suggest that the governance reforms being pushed by these insiders in the areas of procurement, vendor onboarding, international financial controls, treasury management, sanctity of the disciplinary process, and sound accounting are simply not on the cards for the leading stakeholders of the bank at present.\r\n\r\nThe World Bank, which nominally has observer status on the board of DBG; the Ministry of Finance, which hired the board in its capacity as 100% shareholder; and the Bank of Ghana, which is the regulator of DFIs in Ghana, all appear united in a kind of \u201cplot\u201d to deny the systemic failures that have resulted from their own poor oversight. It is the classic \u201ccover your behind\u201d situation.\r\n\r\n Was there a plot to loot? \r\n\r\nSome insiders say that things appear to have been arranged from the outset to make the Bank ripe for \u201clooting\u201d. They talk, for instance, about the Kulana deal, described in detail in my\u00a0 previous piece .\r\n\r\nKulana was founded by the same entrepreneur whose other company was flagged by government auditors in 2018 for benefitting from large contracts with the Ministry of Finance without any tender whatsoever,\u00a0 in total breach of the public procurement laws of Ghana . But it is worse than that.\r\n\r\nFinance Ministry mandarins did not just flout the public procurement law. The Auditor General found that the \u201csmart workplace\u201d system they claimed to have procured from the company at $1,388,814 was actually meant to do the exact same thing as a solution already developed by NITA, the national ICT agency, and E-Solution, a well known vendor in Accra.\r\n\r\nGiven that DBG was incubated at the Finance Ministry, it is not difficult to see how the same actors with whom the bosses at the Ministry had connived to circumvent procurement safeguards in other contexts would be brought along to persist the same patterns at DBG too. A veritable \u201cconspiracy to loot\u201d, as one insider described their view of the situation.\r\n\r\nIt is not surprising, then, to learn that Kulana, according to assurance records at DBG, withheld $925,000 they had demanded as part of a $2.425 million payment to Temenos SA for a Temenos Transact (formerly \u201cT24\u201d) core banking platform,\u00a0 and reportedly pocketed the money ! When they were asked to send over invoices direct from Temenos, they waived their hands, whistled a tune, and then rolled their eyes.\r\n\r\nCompliance officers have, furthermore, flagged a major risk to holding Kulana to account. Even though its main contract with DBG makes Ghana the legal forum for all disputes, the company and the Chief Executive Officer (CEO) of DBG entered into a separate agreement in which arbitration in London was selected as the sole dispute resolution mechanism. What is worse, this agreement was made to supersede the main contract signed with the company.\r\n\r\nIn a 3-year $4.27 million contract signed between DBG and Asamoah and Williams Consulting (AWC), also mentioned in the\u00a0 earlier essay , the consultants\u2019 business class flight tickets and top-class hotel bookings are the responsibility of DBG. Curtailment of the agreement in the event of a change of DBG\u2019s leadership immediately makes the full sum payable immediately\u00a0 regardless of actual work done . Quarterly payments amounting to more than $576,000 are paid in advance\u00a0 before any time and materials sheets are submitted , and, oh, there is no performance bond or guarantee. Recall again that AWC\u2019s stated capital is less than $6000.\r\n\r\nThe same practices of making advance payments and failing to demand and review any time-and-materials sheets have also characterised the relationship with Kulana which has been paid\u00a0 more than $2.7 million \u00a0for consulting-manhours and reimbursables without a single auditable timesheet until flagged by auditors.\r\n\r\nLike these Kulana and AWC contracts, 77.5% of all 2022 and 2023 contracts, amounting to\u00a0 508 million Ghana Cedis, \u00a0awarded by DBG were\u00a0 sole-sourced , with 85% of contract value going to Portuguese boutique IT firm, Linkcom, and Mauritius-domiciled Kulana.\r\n\r\nThe abuse of the bank\u2019s procurement function is evident in the fact that for more than a year since it signed a $12.758 million computing contract at a price 70% higher than the original budget, Linkcom has refused to present the required insurance bond.\r\n\r\nIn one hilarious instance, the Head of Procurement completely denied knowledge of contracts awarded to\u00a0 CPM Africa \u00a0to kit out the executive suites of the CEO and Deputy CEO on the 8th floor of the head-office building and asked auditors for copies of the contract and the payment vouchers.\r\n\r\nLikewise, the same senior officer denied involvement in the award of over $186,000 to\u00a0 Russell Reynolds , a global recruitment agency, done as usual outside the annual procurement plan, by claiming that the Human Resource (HR) unit must have paid out of their own budget and categorised the recruitment expense as a\u00a0 training exercise !\r\n\r\nAnd, of course, the General Counsel of DBG, the organisation\u2019s principal lawyer, was kept in the dark about all these agreements, whilst, in a number of instances, the procurement committee has been declared as incapacitated from reviewing agreements because it cannot find a quorum.\r\n\r\n Why Ghanaian civil society activists are intervening \r\n\r\nWhy are civil society activists getting involved in this fractious internal warfare at the DBG at this point in time? For several reasons.\r\n\r\nFirst, we are engaged in an\u00a0 extensive evaluation of the World Bank\u2019s program in Ghana . This work has led to various publications. The World Bank is a major funder of DBG alongside the government of Ghana and European DFIs.\r\n\r\nSecond, we are campaigning to push for the involvement of civil society actors in the direct scrutiny of development finance activities in Ghana as the only way to ensure sound governance in matters involving public money. Read\u00a0 our detailed diagnostic here .\r\n\r\nThird, we are fighting to stop this practice of state-owned enterprises claiming immunity from the public procurement law to give them free rein to spend without scrutiny. Activists have already\u00a0 sued Fidelity Bank and ECG \u00a0in respect of similar conduct.\r\n\r\nFourth, we align with the evolving goal of DBG insiders to stop the international DFIs, especially the\u00a0 European Investment Bank \u00a0(EIB), from disbursing any more money to DBG until the board and senior management commit to root, branch, and stem governance reforms to procurement, vendor onboarding, treasury management, and accounting oversight.\r\n\r\nIt is worth pointing out that in addition to the equity provided by the government, DBG relies heavily on borrowing to pursue its mandate. Continued borrowing without fixing its internal culture represents a major risk to its ultimate shareholders, the people of Ghana.\r\n\r\n \r\n \r\n <img class=\"wp-image-4482\" src=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=800%2C626&ssl=1\" sizes=\"(max-width: 800px) 100vw, 800px\" srcset=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=1024%2C801&ssl=1 1024w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=300%2C235&ssl=1 300w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=768%2C601&ssl=1 768w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=1536%2C1202&ssl=1 1536w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=1200%2C939&ssl=1 1200w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?resize=818%2C640&ssl=1 818w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?w=1932&ssl=1 1932w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?w=1600&ssl=1 1600w\" alt=\"\" width=\"800\" height=\"626\" data-recalc-dims=\"1\" data-attachment-id=\"4482\" data-permalink=\"https:\/\/brightsimons.com\/2024\/11\/13\/theres-a-plot-to-loot-ghanas-top-development-bank-says-insiders\/image-389\/\" data-orig-file=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?fit=1932%2C1512&ssl=1\" data-orig-size=\"1932,1512\" data-comments-opened=\"1\" data-image-meta=\"{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}\" data-image-title=\"image\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?fit=300%2C235&ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-87.png?fit=800%2C626&ssl=1\" \/> \r\n \r\n \r\n\r\nWe had hoped that DBG would convene a forum with civil society organisations and other stakeholders to discuss a fresh new approach to management and oversight. Since there is zero prospect of that happening from the signals we have picked, we aim through this second essay to deepen public awareness of the urgency of the need for governance reforms.\r\n\r\n Treasury Management \r\n\r\nThe business model of DBG is simple: wholesale development finance. They raise money cheaply through the government of Ghana (or directly from the likes of European DFIs,\u00a0 KfW\u00a0 and EIB), pass on the low rates to local Ghanaian banks, who are then expected to give loans to small and medium enterprises (SMEs) at a cheaper rate than the risk involved in doing so would otherwise have counselled.\r\n\r\nThe government of Ghana has pledged to invest $250 million directly and borrowed $250 million from the World Bank at 1.3% to facilitate this process. European DFIs are committed to lending tens of millions of dollars more, and the African Development Bank has\u00a0 offered a ~$40 million grant .\r\n\r\nMany have quibbled about whether the model itself is viable. If inflation and exchange rate depreciation persists at their current rates, even money lent to DBG at 4% (the rate around which even international DFIs borrow at) would be very expensive if that money comes in hard currency like the dollar or euro. For example, the\u00a0 average interest expense rate \u00a0of French DFI, Proparco, is 3.83% (in Euros, mind you). It makes a tiny net interest margin as it lends out at around 5.47%. Development finance is about tightrope calibration,\u00a0 if being done right. \r\n\r\n \r\n <img class=\"wp-image-4473\" src=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=800%2C290&ssl=1\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" srcset=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=1024%2C371&ssl=1 1024w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=300%2C109&ssl=1 300w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=768%2C278&ssl=1 768w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=1536%2C557&ssl=1 1536w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=1200%2C435&ssl=1 1200w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?resize=880%2C319&ssl=1 880w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?w=1896&ssl=1 1896w, https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?w=1600&ssl=1 1600w\" alt=\"\" width=\"800\" height=\"290\" data-recalc-dims=\"1\" data-attachment-id=\"4473\" data-permalink=\"https:\/\/brightsimons.com\/2024\/11\/13\/theres-a-plot-to-loot-ghanas-top-development-bank-says-insiders\/image-387\/\" data-orig-file=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?fit=1896%2C687&ssl=1\" data-orig-size=\"1896,687\" data-comments-opened=\"1\" data-image-meta=\"{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}\" data-image-title=\"image\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?fit=300%2C109&ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/brightsimons.com\/wp-content\/uploads\/2024\/11\/image-85.png?fit=800%2C290&ssl=1\" \/> \r\n \r\n\r\nIf high depreciation and inflation continue to prevail, DBG may well have to lend to banks at around 25% to even hope to breakeven. Given that banks in Ghana obtain deposits at a far cheaper rate, and, thus, for the leading tier-one banks,\u00a0 average cost of funds may well be lower than 8% , at least in the plain vanilla commercial banking business lines, DBG would have no business being in the DFI business if it attempted to do wholesale lending at 25%.\r\n\r\nIn short, therefore, for DBG to be sustainable, it needs to walk a very tightrope and invest its reserves judiciously to support net interest income.\r\n\r\nWhen DBG has funds that it hasn\u2019t loaned out to banks, it needs to park them where it can get the most returns. Depending on liquidity preference, it can target blue-chip corporate bonds (i.e. debt issued by top companies) and short-term government securities, which in Ghana yield over 22% reliably, at least since DBG started operating. Unfortunately, that is not what it has been doing.\r\n\r\nAccording to internal investigative reports, the senior management have been cutting sweetheart deals with favoured banks. So much so that the highly experienced Chief Financial Officer (CFO), a veteran of South African development banks hired in July 2023, remained in a \u201cdesignate\u201d role all the way through April 2024, and eventually stepped down, reportedly, due to frustration!\r\n\r\n Sweetheart deals galore \r\n\r\nWhen internal compliance managers queried why Fidelity Bank, a bank where the head honcho of DBG is one of the top ten shareholders, and where he worked for many years as chief of their Asian unit, was getting sweetheart deals, the response from senior management was that Fidelity Bank is \u201chelping DBG to achieve its mandate\u201d. According to internal records, DBG lost 2.5 million Ghana Cedis on that\u00a0 single placement alone . Fidelity Bank has benefitted from millions and millions of such delicious, sweetheart, private placement deals. Pleas to the CEO of DBG to fully cure this conflict-of-interest situation has fallen on deaf ears, and Fidelity continues to benefit from DBG\u2019s largesse.\r\n\r\nCalBank and GCB have also benefitted from private placement deals to the tune of tens of millions of Ghana Cedis below market rates in the estimation of auditors.\r\n\r\nSome of DBG\u2019s investments have been done at a discount as high as 6.61% to the prevailing treasury bill rate. For just a sample of investments made between January and June of 2023, treasury analysts estimated a loss to DBG of 26.3 million Ghana Cedis due to discounting decisions made to favour selected banks. No open, competitive, merit-based process was used to select investment opportunities in the local market. As much as 98% of all treasury-based investments were placed using this model.\r\n\r\n Mandate violations and assurance failures \r\n\r\nIt is important to emphasise that these investments are not linked in anyway to DBG\u2019s mandate of facilitating credit for SMEs. The lucky banks who got the deals were under no obligation to lend that money to SMEs, as the funds were not part of the wholesale on-lending program that DBG also have with them, and for which they receive additional subsidized funds.\r\n\r\nWhat is worse, the hapless board of directors was sidestepped in approval of the investment policy empowering senior management to take these decisions. The board was also completely sidestepped, in breach of controls, when the head honcho of DBG decided to invest 400 million Ghana Cedis in GCB. When the board found out, there wasn\u2019t even a slap on the wrist.\r\n\r\nOver the four years since it was established, DBG has not been able to hire a fully-fledged treasurer, giving the head honcho even more, unfettered, discretionary control over investment policy and its execution.\r\n\r\nEven when DBG breached Ghana\u2019s DFI laws on risk concentration by awarding too many loans to the same few banks, the Board still failed to apply sanctions. Retrospective notifications to the Bank of Ghana did not attract any serious action by the regulator, either. Insiders say that the Bank of Ghana has been scared to intervene due to the high-level political cover enjoyed by the head honcho.\r\n\r\nSomeone sympathetic to the management argued that DBG has been forced to disburse most of its money to four banks due to how slow other banks onboarded initially. He says negotiations on the lending rate has sometimes dragged in view of the earlier point made about average cost of funds for top banks in Ghana.\r\n\r\nThis argument does not hold water, though, since DBG is not under any obligation to disburse a certain quantity of funds within a specified timeframe or to invest only 2% of its funds in marketable securities, as management chose to do.\r\n\r\n \u201cLooting\u201d before the tides turn? \r\n\r\nIn fact, such arguments give credence to the view that DBG bosses aim to disburse as much money as possible, whether through investments, loans and advances, or contracts, and only to a few sweetheart partners and contractors, before the 2024 general elections. Some readers may also recall the revelation in\u00a0 my earlier essay \u00a0that a consulting company was hired to onboard banks but that they took the money and failed to deliver well after the contract deadline. Was the incompetence deliberate?\r\n\r\nIt is not surprising, therefore, that the contract management, treasury, credit control, internal financial controls, and regulatory compliance functions\u00a0 all failed the bank\u2019s 2023 assurance audits . The two-person treasury desk have been unable to provide voice recordings to enable auditors fully review these deals because they claim they engaged in originating transactions on their personal mobile phones before rounding up on email.\r\n\r\n Management responses \r\n\r\nHow does the management respond? They insist that so long as the policy, which they had approved themselves and for which they sought retrospective ratification by the board a year later after failing assurance tests, allowed them to offer discounts to favoured banks on investment placements, they have the right to do so. They have however pledged that they hope to take all findings into account. Clearly, a case of closing the stable doors after the horse has bolted.\r\n\r\n Something better than \u201cwe will try to do better\u201d is needed \r\n\r\nIn other matters, the management remains defensive, taking refuge in the bank\u2019s greenhorn situation.\r\n\r\nIt is clear to those of us playing our civil society watchdog role, however, that only a complete overhaul of the governance culture of DBG, and a new oversight process involving community activists would yield lasting results.\r\n\r\n \r\n\r\n NOTE: THIS IS A DEVELOPING STORY. "

"There\u2019s a Plot to \u201cLoot\u201d Ghana\u2019s Top Development Bank, Say Insiders"

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