The spate of bad news for the auditing profession continues. Employees? Provident Fund Organisation (EPFO), the country?s largest retirement fund and the second largest non-banking financial institution, is set to lodge a complaint with the Institute of Chartered Accountants of India (ICAI) against reputed Mumbai-based audit firm, Batliboi and Purohit.
The move would also put India?s largest banker, State Bank of India, in an uneasy position, as the auditor had given a clean chit to the bank, dismissing serious concerns raised by EPFO. When the EPF?s earnings dipped to around 8% by 2005-06, the fund had blamed SBI?s ?sub-optimal investment decisions? for the low returns. EPFO had said that SBI kept funds ?idling? and invested large sums of money in its own term deposits. ?The higher the deposits in SBI, the lower the returns?, it had said. SBI was the sole investment manager of the Rs 2,40,000-crore corpus under EPFO then. EPFO had ordered a ?full-fledged investigation? by Batliboi and Purohit into SBI?s fund management practices, in March 2007.
The audit firm?s draft report had raised a lot of red flags about SBI?s fund management, but its final report submitted in September 2007 was ?significantly modified? to give SBI a clean chit. While the draft report had been apparently submitted without consulting the bank, SBI?s reaction to most observations in the final report was simply ?No comments.?
?During the course of the audit, the CA firm pointed out certain inadequacies in investment management decisions. Those discrepancies were highlighted in the draft audit report, but while finalising the report most observations were dropped. The manner in which the entire audit tasks were taken up isn?t in sync with the mandated objective,? EPFO?s Central Board of Trustees was informed on Sunday.
The board, chaired by minister of labour Oscar Fernandes, approved a resolution to file a ?formal complaint? with ICAI against the audit firm. ?We will lodge the complaint immediately, now that the board has cleared the resolution,? Central Provident Fund Commissioner K Chandramouli told FE .
In March 2008, EPFO?s finance & investment committee found that the audit report was not ?up to the mark? as the auditors ?have not addressed the concerns of EPFO and have rather shied away from quantifying any notional losses.? FIC had referred the audit report to ICAI last year, but the complaint was not taken up by the accounting body, which said such complaints against ?misconduct? by members need to be filed ?formally.? ?ICAI pointed out that any misconduct by its members can be dealt with only when a formal complaint or ?information?is filed.
