Govt Asks CAG Help To Track Down XMC Deals

New Delhi, July 26: | Updated: Jul 27 2002, 05:30am hrs
The department of company affairs (DCA) has invoked the Comptroller and Auditor General (CAG) on whom to outsource the probe against Xerox Modicorp (XMC). Sources said a request was placed last weekend. The move indicates the importance DCA attaches to this case. Usually internal investigators undertake the task of inspecting the records and books of accounts of accused companies.

Senior DCA officials told FE that CAG has already given a list of eight chartered accountant firms empanelled with it. The final choice will be made out of this short-list. The decision was supposed to be taken today evening but was delayed and the name is expected to be finalised on Tuesday.

Sources said the department had earlier considered seeking help from the Institute of Chartered Accountants of India (ICAI) since they represent commercial auditors. The idea was subsequently dropped.

Important to note, though CAG’s help was sought, DCA specifically requested for a short-list comprising private auditors (and not a bureaucrat). This is due to the fact that DCA’s perception that private firms are more adept at cracking the nuts and bolts of complex commercial transactions.

DCA has stated in its petition before the Company Law Board that “from a preliminary inspection conducted under section 209 A of the Companies Act it has been revealed that huge illegal payments have been made by XMC to obtain government contracts.”

DCA had received the company law board (CLB) authorisation for appointing an investigator under Section 237B (II) of the Companies Act on Thursday.

Already, DCA had passed an order on July 3, for inspecting the books of accounts of XMC under section 209 A of the Companies Act. DCA has said in its petition to CLB that the inspection commenced on July 4 and is being carried on. DCA sources said that investigations so far have thrown up names of four companies — Charu Paper Ltd, Chadha Paper Ltd, Pioneer Enterprises and Elite Commercial Services — which were used for routing of money.

Elaborating the modus operandi used for paying bribes, department officials said heads of customer business units authorised payments to concerned persons in government’s procurement departments. The company then arranged invoices from some other friendly companies which were shown as expenses in the books of accounts

With the DCA auditor expected to be in place by early next week, a third track in the audit process of XMC will be rolled out. Already, Price Waterhouse Coopers (PwC) has been placed by XMC’s US parent Xerox to audit the last six years of transactions in India. In a simultaneous move, XMC’s Indian partner SpiceCorp too has announced its own audit process. This is being conducted by Ernst & Young.

Xerox and the BK Modigroup (SpiceCorp) have come under the scanner after global revelations placed before the Securities Exchange Commission of the US brought out that XMC had made illegal payments worth $700,000 in Year 2000 to secure government contracts in India. The Indian operations went through a management swap between Xerox and BK Modi group in Year 2000.