Ernst & Young bosses at risk of jail in pay row with fired staffer

Ernst & Young public sector boss Laban Gathungu was leading a 2018 consultancy project in Somalia when a whistleblower accused some of his staff of corruption, and the top audit firm opted to fire him.

That decision has come back to haunt Ernst & Young, as 14 of its partners now risk being cited for contempt of court, even as Mr Gathungu seeks over Sh450 million for unfair termination.

The accountant wants all 14 partners fined at least Sh20 million each. He also wants two of the partners — outgoing managing partner Gitahi Gachahi and Herbert Chiveli Wasike — jailed for six months for contempt of court.

Mr Gathungu has also asked the court to issue an order freezing at least Sh16 million in Ernst & Young’s bank accounts, to ensure that some monthly dues the audit firm was ordered to continue paying remain secured.

The audit firm has three bank accounts at Absa Bank and Stanbic Bank, and Mr Gathungu wants the lenders compelled to release to him over Sh16 million in the accrued monthly payments.

Ernst & Young bagged a consultancy tender to oversee the drought resilience and sustainable livelihoods programme in Somalia, a government project funded by several donors including the World Bank, DFID and African Development Bank.

As the partner in charge of public sector business, Mr Gathungu headed the project. Ernst & Young subcontracted the Horn Economic and Financial Institute (Hefi), as it needed assistance from people with good knowledge of realities on the ground.

In October 2018, a whistleblower made corruption allegations against some Ernst & Young and Hefi staff.

Ernst & Young then suspended its Somalia operations and issued Mr Gathungu with a notice to show cause why he should not be kicked out of the audit firm, on grounds of the Somalia accusations.

Mr Gathungu responded by explaining some disputes he said led to the whistleblower claim by a disgruntled individual who had been lobbying to become one of Ernst & Young’s sub-contractors in Somalia.

The response also pointed out that there were no graft allegations against him personally. Ernst & Young nonetheless showed him the door, and he went to court seeking over Sh450 million as compensation for unlawful termination. Mr Gathungu sued arguing that his responses to the allegations and which would have trashed the graft claims went ignored by Ernst & Young.

In court, Justice Maureen Odero ordered Ernst & Young to pay Mr Gathungu half of his monthly drawings — a form of dividends issued to business owners in anticipation of profit — as she determines the dispute.

Mr Gathungu says that he was entitled to Sh1.75 million monthly from 2018, meaning the court’s orders would entitle him to Sh875,000 at the end of every month. Ernst & Young has disputed his calculations.

The accountant says the monthly dues have accumulated to over Sh16 million. Mr Gathungu says that the non-payment by Ernst & Young has left him desolate, and that his bankers Absa have now threatened to auction his only home over loan repayments.

He adds that Ernst & Young has refused to grant him access to records that are crucial for prosecuting his main suit.

“I am apprehensive that Ernst & Young may interfere with and/or alter the records and books of accounts with the sole intention of rendering the audit irrelevant. I have immense financial obligations that I need to meet including payment of school fees for my children, servicing loans as well as maintaining my upkeep and that of my family,” Mr Gathungu says in court papers.

Ernst & Young has been trying to negotiate an out-of-court deal with Mr Gathungu in regards to the monthly payouts, and which would effectively see the contempt of court application withdrawn.

Last Monday, Mr Gathungu declined the latest proposal by Ernst & Young. And on Thursday, Justice Odero ordered that the contempt of court application against Ernst & Young partners continues, as the parties have been unable to reach a deal.

The listed partner are Mr Gachahi, Mr Wasike, Francis Kamau, Julius Ngong’a, Anthony Muthusi, Peter Obondo Kahi, Allan Gachuhi, Catherine Mbogo, Michael Kimoni, Churchill Atinda, Peter Anchinga, Avani Gilani, Joseph Arap Cheborbor and Geoffrey Karuu.

Ernst & Young had asked the High Court to review its order on payment of monthly drawings, but Justice Odero dismissed the application in April. The audit firm has now taken the fight on monthly dues to the Court of Appeal.

In response to the contempt application, Ernst & Young chief operating officer Mr Muthusi now says that execution of the order on monthly payments to Mr Gathungu was suspended between December, 2019 and April this year when the audit firm was seeking a review of the court’s decision.

Mr Muthusi adds that, following Ministry of Health directives, Ernst & Young implemented a work-from-home policy for its staff in March, which has made it difficult to access records and other documents it would need to calculate Mr Gathungu’s monthly entitlements as a partner.

Ernst & Young has challenged the monthly payments, faulting Mr Gathungu for calculating interest on the payments despite the court’s orders not mentioning the additional amounts.

“Mr Gathungu has computed payments from 2018 to date. The order on December 13, 2019 is silent on whether payments should be made from November, 2018 or from the date the order was issued. I am aware that ordinarily orders of the court are not made retroactively,” Mr Muthusi adds.

The audit firm has claimed that the National Council on Administration of Justice (NCAJ) had asked the Judiciary to suspend execution of all court orders issued before March 15, when Kenya’s partial economic shutdown started.

But Mr Gathungu says that the NCAJ’s court order suspension request expired on April 22 and has never been extended. He insists that Ernst & Young are in contempt of the court’s orders and its partners should be punished.

The firm’s legal troubles come as it faces another storm over the sacking of 42 managers, a decision that could open the floodgates for more lawsuits.