MCA Legal Filing Alleges 22 Auditing Violations By Deloitte, KPMG Affiliate To Aid And Abet ‘Organised Crime’ At IL&FS
[ By Bobby Anthony ]The Ministry of Corporate Affairs (MCA) has detected 22 violations of auditing standards by Deloitte Haskins & Sells and KPMG affiliate, BSR & Associates, while investigating fraud at Infrastructure Leasing & Financial Services (IL&FS) which defaulted on its debt obligations.A recent MCA legal filing has cited the Serious Fraud Investigation Office (SFIO) probe and stated...
The Ministry of Corporate Affairs (MCA) has detected 22 violations of auditing standards by Deloitte Haskins & Sells and KPMG affiliate, BSR & Associates, while investigating fraud at Infrastructure Leasing & Financial Services (IL&FS) which defaulted on its debt obligations.
A recent MCA legal filing has cited the Serious Fraud Investigation Office (SFIO) probe and stated that IL&FS auditors had “miserably failed to fulfill the duty entrusted to them”, and even colluded with a group of IL&FS subsidiary IFIN officials to conceal facts.
The ministry’s filing stated that the fraud committed at IFIN is nothing short of “organized crime”, which was actively aided and abetted by IL&FS auditors on which the government is trying to impose a ban for a period of five years.
Interestingly, the MCA filing also stated that IFIN may only be “the tip of the iceberg”, since investigation into the rest of IL&FS Group companies is yet to conclude.
However, the audit firms named have denied all wrong doing and are in the process of studying the MCA filing.
According to the SFIO probe cited by the MCA legal filing, IFIN extended loans to companies which did not service their debt and in order to avoid classifying them as bad loans it lent funds to group companies of defaulters which were used to repay earlier loans.
Despite being aware of this modus operandi of fraudulently funding of principal and interest to defaulting borrowers, auditors did not report it in their audit report, according to the MCA legal filing.
Other alleged violations that the MCA filing stated citing the SFIO probe included a lack of verification through analytical tools, non-compliance with company law provisions as well as lack of auditing based on RBI inspections of the defaulting company.
The SFIO probe, which included a review of internal e-mails, also found that a Deloitte partner in 2017 had offered an accounting service of Deloitte's consulting arm to IL&FS. In another instance in 2016, a Deloitte partner was found to have been providing management consultancy on a transaction.