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Deloitte And Kabul Bank: Accounting And Accountability

Corruption in Afghanistan is back in the news — even if our 100,000 troops serving there are not.

Last month, the U.S. government suspended an auditing team from Deloitte who didn’t flag massive corruption at Kabul Bank before it nearly failed last fall.

This week, Afghan President Hamid Karzai ordered the bank to be dissolved. He also ordered the country’s attorney general to investigate fraud at the bank.

According to the Washington Post, the five-member Deloitte team had been on the audit since 2009. Deloitte billed USAID more than $657,000 a month for the five experts at the bank.

“Some of the Deloitte guys saw signals of corruption and fraud but didn’t tell” USAID, said a senior U.S. official quoted anonymously in the Washington Post. The official said the report concluded that the Deloitte accountants should have known about the problems at Kabul Bank.

In a statement to the Washington Post, a Deloitte spokesperson said, “We were not Kabul Bank’s independent auditor. Our services did not include supervising or conducting bank examinations at Kabul Bank prior to Kabul Bank being put in conservatorship in September 2010.”

After revelations in September that the country’s biggest commercial bank loaned about $900 million in now-missing funds to its own shareholders, including a brother of President Karzai, most Western donor nations stopped all aid to Afghanistan.

Some of the loans to the bank’s shareholders weren’t backed by collateral, the Washington Post said, and were “used to invest in luxury real estate projects in Dubai and other dubious ventures.”

Mark Dillen, a spokesman for USAID in Kabul, told the paper, “The U.S. does not, and indeed should not, have an operational role in supervising Afghan banks. U.S. efforts are appropriately focused on capacity-building, particularly with regard to strengthening the integrity of the financial system.”

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1 Comment

  1. It does seem from personal experience that auditing standards have become less rigorous while service has become more expensive. Twenty-five years ago I seem to remember the major accounting firms as being pretty tough and firm with management as to what they could or could not do with their books. They've become less so as time goes by, a fact often attributed to their desire to obtain more lucrative consulting contracts, for which reason so many accounting firms have had to separate their consulting operations. I do not have a problem, however, with proportional liability; if a company is cooking its books it can be harder to catch than you might think, especially for 23 year old auditors. Also, individual accountants involved in fraud can still be (and should be) prosecuted.

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