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ILFS; auditors
Business Tit-Bits

ILFS SHAM AUDIT

As more and more investigation agencies, including the likes of SFIO, regulators like the Reserve Bank, together with the newly appointed board of directors appointed by the MCA and their forensic auditors, dig into the fraud-ridden books of account of ILFS and its hundreds of subsidiaries, the facts/truth is emerging in bits and pieces and that too with no certainty about them. While the subsidiaries of ILFS have increased to 348, from the initial official figure of 169, the debt too has ballooned to Rs.1.32 lac crores, from the initial figure of Rs.91000 crores, and there seems to be no end to it. In the meanwhile due to the paucity of funds, ILFS continues to default on its loan repayment commitments, one after another, with shareholders, like LIC, SBI etc. refraining from pumping in any further capital into ILFS.

The multi-layered subsidiaries of ILFS, both in India and abroad, that were set up to conceal this giant scam are being found to have committed large-scale money laundering and siphoning of funds and window dressing of books of account to obtain a bogus AAA rating, to hoodwink its lenders. While loans of ILFS have shot up, it is not yet certain as to what are the assets that ILFS truly owns and the value thereof. In one instance, where an infra asset was sold by one ILFS group entity to another for Rs.31 crores, it was finally sold to an outsider for a mere Rs.1 crore, which raises questions on the very authenticity/accuracy of the assets that ILFS claims to own.

While the dubious role of the ‘eminent’ directors of ILFS is apparent in the entire fraudulent saga, and they cannot escape punishment, it is the role of the complicit auditors of ILFS which includes EY, KPMG and Deloitte, of the Big Four global accounting firms, which is now in focus of the criminal investigators. The entire structure of multi-layered subsidiaries and the façade of credibility was created by the management of ILFS, to show a rosy picture and defraud the lenders, but they were these well known ‘reputed’ auditors, who certified it as true and fair. They were privy to the entire bogus state of affairs and they yet failed to raise loud alarm bells. They are the watchdogs who failed to the bank. They were thus aware that the AAA credit rating of ILFS was a sham and was being used to mislead lenders, but they kept quiet and were willing accomplices in it.

What theses ILFS auditors claim to have done is that they raised objections, through modified audit reports, such that they are seen to have attempted to comply with the law in letter, but not in spirit. They gave their cryptic audit remarks/objections, which neither revealed the truth nor rang alarm bells in the minds of the reader of their reports. Such red flags that they claim to have raised are misleading and meaningless and only establishes their collusion/connivance with the management of ILFS. If ILFS managed to perpetrate a shocking fraud for many years, the auditors have played a key role in it, and they deserve communicate punishment.

 

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