Deloitte find financial indiscretions in Abraaj review after KPMG all-clear

14 June 2018 3 min. read

Following news that the UK branch of KPMG would be looking into the network’s Middle East audit exonerating the embattled Abraaj Group of financial impropriety, fellow Big Four firm Deloitte has reported accounting abuses and governance troubles in its follow-up review.

In the latest development in the ongoing Abraaj saga, the Dubai Financial Services Authority (DFSA) has received a report from Deloitte detailing the investment fund’s commingling of roughly $95 million in finances, along with an inadequate governance framework. While the allegations of wrong-doing relate to the misuse of funds, Deloitte has found no evidence of embezzlement or misappropriation on behalf of Abraaj, with all of the disputed investment money accounted for.

Allegations of financial misconduct were leveled at Abraaj by a cohort of investors including the Bill and Melinda Gates Foundation and the World Bank’s International Finance Corporation, who have accused the private equity group of mishandling funds allocated for healthcare projects in South Asia and Africa. Kuwait’s national pension fund has since lodged a petition in the Cayman Islands seeking Abraaj’s forced bankruptcy over outstanding loan-debts, with FTI Consulting requested as joint official liquidators.

Although Abraaj has denied any fiscal wrong-doing concerning the disputed $1 billion fund – stating that the funds remain untouched and were simply unspent due to regulatory delays – Deloitte has found that the firm commingled its business and investment finances, with the money used to pay management fees and other expenses after a cash short-fall. Further to the finding, Deloitte has also concluded in briefing notes provided to creditors that the indiscretion occurred due a “lack of adequate governance, including segregation of duties, and the overall weakness in the control framework.”

Deloitte find financial indiscretions in Abraaj review after KPMG all-clear

Deloitte was brought in by the buyout and investment group following creditor complaints over an initial review conducted out by the Middle East division of KPMG which gave Abraaj the all-clear, with the disgruntled investors contending that the expeditious KPMG audit – conducted in the space of a month and now being internally investigated by KPMG’s UK branch – may have lacked the necessary rigour given the time-frame of its completion. In response, the aggrieved parties hired forensic accounting firm Ankura Consulting to undertake a separate audit, with Bloomberg reporting that the consulting firm has reported preliminary findings of diverted funds.

In respect to KPMG’s internal review of the initial audit undertaken by the accounting and advisory firm’s Middle East division – which found that all Abraaj payments and receipts were in order in terms of agreed procedures – reports have suggested that the examination would extend to potential irregularities in the valuation of assets by KPMG, along with scrutiny over close ties among senior executives at Abraaj and KPMG in Dubai, including the recurring employment history of key personnel between the firms.

The review comes at a time when the UK arm of KPMG itself is facing a probe by the Financial Reporting Council, the UK’s national auditing watchdog, into the Big Four firm’s conduct in relation to the collapse of government outsourcing contractor Carillion. Meanwhile, Abraaj has been attempting to appease creditors through a debt restructuring plan (with debt amounting to $1 billion), and the potential sale of its fund-management unit – although the continued court action by Kuwait’s pension fund has left any potential resolutions in doubt.