We have asked the exchange to review the work of the auditors to see whether they could have spotted some of the malpractices that the special audit by PriceWaterhouseCoopers did, Ramesh Abhishek, chairman, FMC, told FE. Abhishek added that MCX had been advised not to appoint any new auditors till the review was completed, which was expected by the end of the month. We are getting our people to do a similar review, he said.
The FMC chief pointed out that although the nature of audits conducted by Deloitte and PwC were no doubt different, it was surprising that the PwC report had unearthed so many questionable transactions whereas Deloitte had not.
Delloite has been the auditor for six of the last nine years. The PwC report, released on April 29, said MCX had spent about Rs 649 crore over the years for services stipulated to have been rendered by FTIL under various agreements, noting the total paid by MCX to disclosed related parties was approximately Rs 709 crore. The audit summary also raised red flags on known and additional related parties.
It noted that while MCX and the FT group disclosed names of 235 related parties, background checks and public domain checks on these identified 676 additional entities or individuals who could be deemed to be directly or indirectly related to either MCX or the FT group, Financial Technologies (India)(FTIL) key management personnel or their immediate family members.
It alleged that of these related parties, select entities or individuals were identified as being members or clients who traded on MCX platforms over the years. In a reply to FE, Deloitte said a forensic audit differs in scope from a statutory audit. "The fact is, the recorded related party transactions were disclosed in the MCX RHP and in the company's annual reports, for the benefit of all of MCX's shareholders. This is in keeping with accounting standards which require that such related party transactions, which are not necessarily carried out at arm's length basis, should be disclosed. The auditors ensure that recorded related party transactions are appropriately disclosed to the shareholders, which requirement was followed."
The PwC report also identified 15,131 instances of trades aggregating to about R1,856.56 crore where the same party placed buy and sell orders within 60 seconds of each other, resulting in no change in position.
Specific abnormal patterns have been noted in trades performed by these entities as wash trades, PwC observed. On agreements and transactions with National Bulk Handing Corporation (NBHC) and other FT group companies, MCX , it said, was unable to demonstrate or provide documentation to support whether the warehousing requirements agreed upon with NBHC were indeed commensurate with MCXs scale of operations and in line with its business requirements.
MCX has convened an audit committee meeting on Friday to discuss the matter, sources told FE. The exchange's spokespersons were not available for comment. Deloitte has been auditing financial results of MCX for the 2013-14 fiscal. Earlier this year, the ministry of corporate affairs had also sent a show-cause notice to Deloitte for its audit of FTIL.