Collapsed Dubai Bank chairman Hassan Zubedi and senior Kenya Airways management, mid-level managers and junior employees implicated in the August 2016 Deloitte audit report are expected to face criminal and disciplinary action once the Cabinet approves the auditor’s recommendations.

“We are still looking at the report to determine the next course of action. I can guarantee that we will take stern measures on those who have been named to have participated in the financial woes of this airline. This will include sackings and court action. In about three weeks, you will see us take action based on the findings and recommendations of the audit report,” said Transport Cabinet Secretary James Macharia.

The audit report recommends action against top management from KQ’s procurement, treasury, accounts, ticketing, fuel and marketing departments over a litany of financial and ethical malpractices.

KQ chief executive Mbuvi Ngunze is among those recommended for disciplinary action for contravening the KQ board’s provisions in dealing with Dubai Bank through foreign currency sales, account opening, and obtaining of a $7 million bank guarantee.

Gross negligence

Mr Ngunze is accused of gross negligence and abuse of authority for failing to exercise due care and diligence when he approved the Dubai Bank account opening letter and the bank guarantee letter of $7 million, which was in excess of the board’s approved limit of $5 million, resulting in a loss of $140,000 in excess payment.

A senior accountant in KQ’s treasury is accused of back office and online sales and initiating forex transactions with Dubai Bank without the board’s approval.

The accountant is accused by the auditors of exploiting forex weaknesses for his own personal gain of $230,000, through fraudulent transactions that cost KQ $5.2 million.

A supervisor of funds management is recommended for criminal and disciplinary action; he is accused of presenting altered bank statements to the airline’s audit department, and approving an excess payment of $140,000 in fees for the bank guarantee from Dubai Bank. Deloitte said that his negligence cost the airline $3.5 million in losses.

“We recommend that the KQ board consider initiating disciplinary proceedings of gross negligence and abuse of authority against the funds management officer for failing to exercise due care and diligence when he failed to take up his duties as the acting supervisor funds management, allowing another officer in charge of back office and online sales to exploit the weakness to his advantage,” the auditors recommend.

Another manager in KQ’s treasury has also been recommended for disciplinary action for failing to exercise due care and diligence when she approved an excess payment of $140,000 in fees for the bank guarantee obtained from Dubai Bank.

“The employee is said to have approved erroneous bank reconciliations that were prepared based on altered bank statements; gave contradictory statements on the opening and existence of the Dubai Bank account; allowed her subordinates to deal with forex transactions contrary to the Board resolution; oversaw the sale of ZAR and AED to Dubai Bank at below market rates while serving as the treasury manager; and failed to ensure that a cash book for the KQ account held with Dubai Bank was being maintained,” the auditors said.

The report also makes recommendations for disciplinary action upon the manager for inflight and fuel procurement, for disclosing bid results and recommending changes in documentation for an energy company which had been tendering for a contract at KQ.

He also failed to declare that he owned a fuel station. Another employee who headed the supply chain, will also face the disciplinary panel for allowing a supplier to supply fuel as a broker through another fuel company contrary to procurement policies.

The auditors have also recommended third party entities for further investigation and possible prosecution. Dubai Bank is accused of not remitting $5.2 million belonging to the airline, and chairman Mr Zubedi is accused of aiding the officers to defraud KQ and later facilitating payment of the forex proceeds to an officer.

Former operations manager of Dubai Bank Deeraj Baghel is accused of aiding at least two officers of KQ to defraud the airline. An energy company is also recommended for prosecution for making a payment of Ksh1 million ($10,000) to an employee of KQ, being proceeds of forex transactions between KQ and Dubai Bank.

Meanwhile, the Kenya Aviation Workers Union and its 450 pilots issued a notice of intention to go on strike, demanding the removal of Mr Ngunze and board chairman Dennis Awori.

“The minimum condition is that KQ’s chief executive and chairman leave or else our pilots will not be working on October 18. KQ is still a viable company and several forensic reports have shown that the airline lacks the right people at the top,” said Paul Gichinga, the Kenya Airline Pilots Association secretary-general.

However, the KQ management has termed the intended labour action by the pilots insincere and economic sabotage, claiming that the airline is navigating its way out of financial turbulence.

“We reject Kalpa’s interpretation of the current situation. The threatened industrial action is unjustified and uncalled for. It also has no basis and is outside the scope of their collective bargaining agreement. If Kalpa does not forthwith retract its statement, we will have to immediately stop selling tickets... given the costs associated with selling tickets and not carrying these passengers,” KQ said in a statement.