As the murky affairs of the ILFS Group continue to be probed and unfold, particularly those related to its financial services subsidiary IFIN, its shocking malpractices and crimes, are coming out in the open. While its directors like Hari Sankaran, Ramesh Bawa etc. who are the kingpins of this huge corporate crime, have been arrested, it is the conscious collusion of the auditors with these white-collar criminals, that make this saga very disturbing. It is the watchdogs who did not bark. As per the forensic audit report of Grant Thornton, the whistleblower letters, and the ongoing investigation by the SFIO, ED etc., it is increasingly evident that Deloitte, the statutory auditors of IFIN for a decade, were in the know of it all, and that they compromised their integrity and kept quiet for the lure of a fabulous fees of about Rs.20 crores, each year, which was paid under the garb of a bogus consulting fees.
They thus did not report any flaws or irregularities in the books of account of IFIN, and let the financial statements be falsified and manipulated. They also did not report the bogus loans given, the violation of the RBI guidelines, the rollover of loans to green them and the non-reporting of NPA accounts. Deloitte thus gave a clean chit to IFIN, to further its own interest. The newspaper reports say that while the partners of Deloitte are being interrogated/questioned by the SFIO, they have also been questioning the partners/audit team members of BSR, a KPMG affiliate, which was the joint auditor of IFIN for FY 2018 and also gave it a clean chit. The very fact that these audit firms reported that a mere 5% of loans of IFIN were bad as at 30.6.18, while the same later turned out to be 90%, shows their collusion and negligence in the IFIN scam. They certified the financial statements as true and fair till June 2018 and soon thereafter ILFS crumbled.
Both these giant multinational accounting firms, which are a part of the mighty and powerful Big Four as they are called deny any wrongdoing. They say that their audit was done as per the prevailing rules, regulations and standards and that their reports were not wrong. The two firms also say that they are duly cooperating with the investigation agencies, which they are anyway bound to.
The Big Four audit firms, consisting of PWC, Deloitte, KPMG and EY are a global monopoly that have the global audit/accounting business in their iron grip. And despite the fact that they have often been found to be negligent and collusive in big-ticket shocking corporate scams worldwide, like in the case of PWC and Satyam, yet most of the audits of large listed corporates are held by them. Merely between Deloitte and BSR/KPMG, they audit more than 250 listed Indian companies, which constitute about 40% of India’s stock market capitalisation and between all four of them, companies with almost 70% of our NSE market capitalisation, are audited by them. These foreign accounting firms have virtually monopolised and colonised the Indian audit/accounting profession and despite their growing misdeeds, they rule the roost by carefully cultivating a scare of concentration risk and a too big to fail syndrome. Their power and domination has also prevented the rise of any big Indian audit firm, so as to compete with them. They sit on and control professional bodies, due to their alarming clout, resources and networking, such that their misdeeds have gone unpunished. They have shielded each other and preempted any action, such that the powers of the ICAI have been decimated by the set up of the NFRA, simply due to lack of public confidence in the ability of the profession to discipline itself.
The interesting part is that the newly appointed Board of directors of ILFS are proposing a punitive action against Deloitte and BSR, for their professional negligence. The SFIO and the MCA too are said to think so, which could debar these powerful firms from undertaking any audit assignments, for a minimum period of five years in India. The SEBI has pertinently already debarred PWC from taking up any audit of listed companies for a period of 2 years, for its role in the dubious Satyam scam. Yet another unprecedented reaction to this collapse of ILFS is that the shareholders and bondholders of ILFS, who have suffered massive losses are planning class action suits against Deloitte, which should help to tame these audit giants and recover their losses.
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