Report Finds Ermiyas, Zemen at Fault‎

The audit of Zemen Bank, conducted by the Audit Services Corporation (ASC), hired by the central bank, has brought the eight-month saga that saw Ermiyas Amelga, CEO of Access Capital Services, banned from the board chairmanship of the bank, to an end.

Finding inappropriate actions on Ermiyas, the audit report fell short of citing "conflict of interest," the allegation that prompted the National Bank of Ethiopia (NBE) to investigate him. According to the bank's establishment audit report, some of the expenses incurred might be in conflict of interest, NBE claimed in a letter to Ermiyas, dated March 15, 2011, banning his appointment as a board chairman of Zemen Bank in October.

It was the complaints of irregularities of voting during the general assembly that month that started the whole thing.

Now that the investigation has been completed, the state owned audit firm has reported that there were indeed irregularities in accounting as well as inappropriate actions by Ermiyas while the bank was under formation.

Ermiyas was the promoter of the bank and CEO of Access Capital Services, which also promoted the bank. During the sale of shares, Zemen's sale of shares, amounting to 7.9 million Br, was said to be erroneously deposited in Access Capital's bank accounts.

There was a lack of entry in Zemen's records until September 30, 2008, when the receivable account was debited by 7.9 million Br while the paid up capital was credited by the same amount, the report said.

This led to the bank's balance understatement, affecting the liquidity of the bank, which took two years to recover from Access Capital's account.

The paid up capital of the bank was 150 million Br upon its establishment in 2008.

Although this irregularity has been rectified in subsequent years, the funds should have been used only for the intended purposes, opined the auditors' report.

This was not the only money that was recovered from the accounts of Access Capital. According to the report, Zemen's recovery of 4.7 million Br commission on sale of shares, collected by Access Capital after more than two years, indicated that the money was being used by Access instead of the bank.

During the registration of shares at the Documents Authentication & Registration Office, Ermiyas had registered 800,000 Br worth of shares belonging to Ethio-Investment Plc and Dolphin Shipping and Transit S.C, former shareholders of the bank, as his own while it was kept in a blocked account, the report noted.

Ermiyas had reported his shares as worth 2.2 million Br while he had contributed 1.4 million Br, according to the report.

"Treating ex-shareholders' contribution and overstating the share capital registered at DARO does not appear to be appropriate," declared the auditors.'

The former shareholding companies, established by Abebaw Desta and Menwuyelet Atenafu, had bought 400,000 Br worth of shares in Zemen each. However, during their entanglement with the NBE, they had instructed the names of the companies to be eliminated from the register of the bank.

These individuals have had business relationships on other occasions as well.

Access Capital had bought shares in Meri Real Estate Plc, originally formed by Star Business Group, and Mengistu Mekonnen, with a capital of 2.4 million Br to secure a plot for Access Real Estate, a company it promoted. Following Access Capital Services in joining the company, buying 70pc of the shares, the shares were redistributed.

The plot where Access promised to build apartment blocks within a year's time was as originally given to Tis Abay Plc, another subsidiary company formed in the mid-1990s by shareholders of Star Business Group (SBG), Abebaw Desta, and Menweyelet Atnafu, with a 50-year lease term by the Addis Ababa City Administration, in 2006.

Ermiyas T. Amelga, is known for his daring initiatives. When he came back from the United States in the mid-1990s, Ermiyas pushed the limits to re-establish a share dealing group once operational during the Emperor's time, but with little success. Although that has not panned out as he had planned, he has today's Access Capital Services SC, which has led the birth of embryonic share companies like Zemen.

Zemen was not without its faults as auditors found some irregularities of accounting in the bank as well. Decryptions of goods and services procured from Access Capital and other related parties at the time of formation were not submitted to the NBE as required.

That was not the only requirement of the NBE auditors found to have been breached. Auditors found that Ermiyas had been paid four million Birr, approved by the board of directors, for the costs he had incurred while promoting the bank without the approval of the general assembly of shareholders, as the commercial code requires.

Solomon Desta, bank supervision director of the NBE, declined to give comments on the issue until Zemen Bank comments on the report. Ermiyas declined to comment for the same reason.

"We have found the special audit report to be in line with the initial pre-establishment audit report that was prepared by external auditors three years ago," a statement sent to Fortune by the management of the bank read. "The bank is presenting clearly and transparently the facts of the case to the NBE, and we expect NBE will review our comments on the report and be in the position to give final closure to this issue very shortly."

It is indeed up to the central bank to make a decision on whether the report shows the conflict of interest that started the investigation.
allafrica.com