Deloitte fined in Kenya after unverified Chase Bank cash helped lure $40.3M of bond money

Kenya's Capital Markets Authority fined Deloitte Sh10 million, about $83,960, in August 2022 over its work as reporting accountant for Chase Bank Kenya's corporate bond (medium-term note) programme. Business Insider Africa, citing a CMA report seen by Business Daily, said bond investors lost $40.3 million (Sh4.8 billion) when Chase Bank collapsed.

The CMA found Deloitte failed to verify Chase Bank's claim that it held an account at the Central Bank of Kenya worth Sh2.1 billion ($17.6 million). The CMA said cash and balances at the central bank were overstated in the published information memorandum by Sh2,152,806,000, which inaccurately enhanced the bank's liquidity position and materially influenced the decision of investors to subscribe.

Deloitte told investigators the miscalculation did not cause the bank to breach its 20% minimum liquidity ratio, and that a downward adjustment of Sh2 billion would have lowered the ratio by about 43.5%. The CMA said the fine would stand.

Deloitte did not verify with the central bank the balance that Chase Bank claimed to hold there.

The overstated balance made Chase Bank's liquidity look stronger in the information memorandum investors relied on.

Deloitte's defence rested on the bank staying above the liquidity minimum, which the regulator did not accept as an answer to the missed verification.

A reporting accountant who accepts a balance without checking it with the counterparty is vouching for numbers it never tested. Investors price the bond on the signature.

Business Insider Africa described the fine as the first of likely penalties. The firm would face a probe by the Institute of Certified Public Accountants of Kenya, then a referral to its disciplinary committee, where it could risk suspension in the market if found liable; the article says analysts believed that outcome would hurt its reputation and client retention. Deloitte is Kenya's second largest audit firm. These further steps were described as possibilities, not outcomes.