Why embattled boss had to leave Shelter Afrique

Shelter Afrique’s managing director James Mugerwa

Shelter Afrique’s board appears to have got its way after managing director James Mugerwa stepped down from office.

A forensic audit into the Pan-African housing and real estate financier has revealed how Mr Mugerwa was increasingly isolated as he tried to ward off responsibility for the mismanagement at Shelter Afrique.

When news of his exit hit newsrooms last week, the announcement suggested Mugerwa had left the lender on amicable terms.

“Mr Mugerwa offered to resign in order to pursue other interests. The board wishes Mr Mugerwa every success in his future endeavours,” the statement signed by Board Chairman Jean Paul Missi said.

However, this announcement on the managing director’s departure and negotiations for an exit package on the two-and-a-half years left on his contract masked strained emotions and accusations that the board had hang Mugerwa out to dry.

LENDING IRREGULARITIES

The board appointed Deloitte to carry out an independent forensic audit after Shelter Afrique’s former head of finance, Godfrey Waweru, brought up allegations of accounting and lending irregularities at the lender.

Shelter Afrique is owned by 44 member countries, including Kenya, and two institutions – the African Development Bank (AfDB) and African Reinsurance Corporation.

The audit revealed that the management was exploiting gaps in the company’s policies to cover up bad loans, and had set up a fund with a firm that had a clear conflict of interest.

In response to these allegations, however, the management is quoted saying: “It seems obvious that the investigations have not been independent. This is evident from the big attempt of some board members on December 7, 2016 to steer all blame to the management.”

Mr Waweru had also accused Mugerwa, a Ugandan national, of conflict of interest in doing business with the lender he heads, staff harassment and misusing $7,845 (Sh815,000).

Mugerwa is said to have incurred bills of $3,740 (Sh388,590)and $3,325 (Sh345,470) on his two mobile phone lines in two weeks when he was attending an annual general meeting in Cote d’Ivoire, and later while travelling to Ghana.

When the Deloitte team picked the company apart, they confirmed gross misrepresentations of Shelter Afrique’s books to cover up loans that were not being repaid, including restructuring terms and taking back loans that had gone more than six months un-serviced as performing facilities.

A building under construction

The audit firm’s forensic report found that the management had used loan asset swaps for properties that were not valued correctly. Upon getting the properties, Shelter Afrique was unable to sell them, incurring additional costs for maintenance and marketing.

Additional costs

“The minutes of the Eden Beach management AGM dated April 15, 2015, stated the property was dilapidated and exposed ... we confirm that costs amounting to $37,324 [Sh3.9 million] had been incurred to maintain the two properties,” the confidential report reads.

The audit also found that the management may have overlooked procurement procedures at the firm when it invested Sh500 million in Chase Bank through Amana Capital.

The managing director of Amana Capital, Hardwork Pemhiwa, is also an independent director at Shelter Afrique, raising possible conflicts of interest.

However, in his defence, Mugerwa said there was no specific policy on debt swaps, and that Shelter Afrique had previously engaged with Amana Capital.

On his part, the whistleblower was also found culpable of having contravened the accountant code of ethics by preparing 2015 financials in the full knowledge of its flaws.

Further, Waweru had alleged that he was demoted from finance director to head of finance. Upon the end of his term, his position was not renewed. Deloitte, however, said this move was occasioned by a PricewaterhouseCoopers restructuring exercise.

Waweru also claimed he had approved some of the managing director’s expenditures to cover up for his juniors.

Mugerwa had a history of being harsh to employees, and is said to have sacked former assistant administration officer Wendy Kurui for forgetting to pay his electricity bill in December 2015, rather than letting her off with a warning.

In his response, Mugerwa said she had previously been careless about travel bookings, lost shareholder high-table name plates and table flags in Ghana, and lost money through thoughtless proposals of itineraries.

“In other cases of staff victimisation, we could not conclude the allegations ... since most of the cases were verbal in nature and could not be substantiated,” the audit report reads.

Stay afloat

The infamous boss has now left Shelter Afrique – which is struggling to ensure member countries pay up their shares to keep it afloat – exposed to further losses on loan defaults, including Nairobi’s Taj Mall.

The report estimates that an additional impairment provision of approximately $6 million (Sh623 million) may be required on the financial position statement of 2015.

“The board notes this estimate with concern but is confident that it does not, ceteris paribus, fundamentally undermine the financial position of the company,” a report on the Deloitte findings states.

The real estate financier said it has successfully met with member countries, and they have committed to shoring up funding in a resolution to pay arrears.

A call for capital subscriptions was also adopted unanimously, with member countries committing to transmit letters of intent to AfDB immediately.

The members also approved bridge financing from AfDB, and Shelter Afrique expects that an immediate transfer of $8.2 million (Sh852 million) will be made and a subsequent line of $20 million (Sh2.1 billion) will follow to shore up the firm in the short term.

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