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ILFS – WILL THE CULPRITS BE PUNISHED

ILFS; auditors

The ILFS Group continues to be in the news, for all the wrong reasons. It was Hari Sankaran, the dubious former vice chairman of the ILFS Group, who was in the news, over a week ago, upon being arrested by the SFIO, for having indulged in a massive fraud and misuse of power at IFIN, the financial services subsidiary of ILFS. He continues to be in jail, denied bail. Thereafter Uday Kotak confirmed that 90% of the loans given by IFIN of about Rs.20000 cr. had turned bad, with little chances of recovery according to us and now comes a whistle-blower letter, which categorically alleges that Deloitte, the statutory auditor of IFIN for ten years, until 2018, was fully aware of the massive fraud at the ILFS Group and was handsomely remunerated by it, at the rate of Rs. 20 cr.pa. to keep quiet and issue clear and clean audit reports, which they did upto March 2018, even though the entire financial statements of IFIN by then, were rife with frauds and financial irregularities.

The anonymous whistleblower, who claims to have been a part of the senior management team at Deloitte, claims privy to several internal irregularities, in providing professional services to the ILFS Group and explains the shocking/large scale scams there, which he says that Deloitte was fully aware of, and was paid Rs.20 cr. pa, in the garb of super inflated consulting/advisory fees, to manage the group audit ie, to collude and give a clean/clear report. For this quid pro quo compensation, Deloitte is alleged to have helped the ILFS Group to fudge its accounts, year after year. The extent of the fraud/scam is said to be utterly mind-blowing and that shockingly, even when the RBI red flagged many issues, the statutory auditor ie. Deloitte gave it a clean chit.

The main allegations of the whistleblower are many and are serious and shocking. He clearly says that Deloitte was aware of the financial mismanagement and impropriety by the ILFS group, but chose to keep quiet, for a price. He says that Deloitte benefitted from the fraudulent unchecked growth of the ILFS Group over the years, by earning substantially high fees as a preferred advisor. With the greed of this consideration, Deloitte did not report its unfavourable findings and compromised its independent opinion, by conveniently relying upon management representations and comfort letters and thus did not report the truth. It thus, for a consideration, overlooked the rampant financial irregularities and mismanagement in the ILFS Group and issued clean reports, in an illegal manner. A senior tax advisor was also engaged by Deloitte to design complex tax structures to evade the taxes, thus helping ILFS to perpetrate its illegal activities. While Deloitte flatly denied these allegations of the whistleblower, he further says that there is a massive cover up going on at Deloitte and demanded that the investigation agencies should question members of the audit team of Deloitte, so that they can report upon the misconduct and malpractices of the senior management of Deloitte, in the ILFS case.

These allegations of the whistleblower are not at all surprising. A giant corporate fraud of this kind/size, cannot be perpetrated without the collusion/negligence of the statutory auditors, who were in the know of the state of affairs, but chose to keep quiet, for massive illegal inducements. These allegations are further confirmed by the interim forensic audit report of Grant Thornton, which reveals massive fraud, mismanagement of funds, total disregard for regulators/regulations and capricious criminal actions at IFIN. It reveals manipulation of accounts, tax evasion, money laundering, deliberately giving bad loans, loans to defaulters, lending at a loss, loans without securities and huge siphoning of funds by the directors led by Ravi Parathsarthy and Hari Sankaran, all of them serious criminal charges.    

The shocking crimes have been committed and the criminals are known and so are their accomplices/colluders. The moot question is whether they will be punished or will there merely be scapegoats to be convicted. It looks likely to us that it will be a case of butcher the scapegoats and let the kingpin and their fellowmen go scot free. ILFS has been a giant fraud, created by the senior most bankers, bureaucrats and most well known auditors of India, who are incidentally powerful and influential, being the persons in charge of policy and governance in India. These powerful men are all above the law and thus these influential culprits, including the powerful auditors will all ultimately go scot free.

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