Deloitte refutes whistleblower's revelations on fudging ILFS accounts, eerie similarity with PwC Satyam Scam

Last Updated: Fri, Apr 12, 2019 18:19 hrs

Mumbai:The big revelation reported in Financial markets this week has been a whistleblower's assertion on the inside role, allegedly played by auditing firm Deloitte. This incident has been reported in Infrastructure Leasing and Financial Services. IL&FS has been reported as having debt challenges, and there have been claims referring to its bonds as virus-laden.

On Wednesday, a major revelation had been reported alleging role of Deloitte in fudging IL&FS' books.

The anonymous whistleblower, who claimed to be part of the senior management at Deloitte revealed being "privy to several internal irregularities in providing professional services to IL&FS".

In a revelation made to MoneyLife, the whistleblower has claimed that on several occasions, the IL&FS's top management would meet and "coerce Deloitte partners for a more favourable position or watered down position".

The whistleblower also added that this was in addition to the "watering down of views" that already happened internally at Deloitte.

Outlining how the audit firm benefited IL&FS by helping the failed group fudge its accounts year after year, the anonymous whistleblower said Haskins and Sells LLP (Deloitte) ensured a clean chit to the firm even when the Reserve Bank of India (RBI) claimed to have red flagged a few issues and asked it to reduce its outstanding debt.

The whistleblower further claimed that the "extent of the scam is mind boggling" and hoped that investigation agencies would question members of the audit team, thereby giving him a chance to disclose how "the senior management at Deloitte is aware of the financial mismanagement and impropriety by the IL&FS group" and actively helped fudge facts.

Deloitte has an internal reporting system, but the whistleblower said: "I have no faith in the current leadership and, hence, am consciously not resorting to our internal whistle-blowing mechanism."

Deloitte has audited IL&FS Financial Services Ltd (IFIN), the lending arm of IL&FS, for 10 years and remained the auditor until it completed 10 years in 2018. The audit report had absolutely no adverse findings even in 2017-18.

The new IL&FS management headed by banker Uday Kotak said that 90 per cent of the loans advanced by IFIN had turned bad.

Among other allegations the whistleblower said that Deloitte was a beneficiary of IL&FS's "unmitigated growth" over the decade in multiple ways.

It enjoyed a "preferred advisor role" and was awarded several advisory contracts on a "single sourced basis" at "substantially high fees" as compensation, the whistleblower said.

When audit findings would not show IL&FS in a "favourable light" and Deloitte had to take a position, the auditor conveniently relied on "management explanations and comfort letters by compromising on its independent opinion."

Over the years, says the whistleblower, this led the entire audit to become "susceptible to legacy positions and compounded the financial misreporting".

In many cases, "the language of the management response was agreed before hand by Deloitte to close its internal reviews", he said.

The publication to confirm the accusations made by the Whistleblower, wrote to Deloitte's India CEO Punit Ranjen for his comments. However, in his stead a public relations agency for the audit firm replied.

"Deloitte strongly disagrees with the issues raised in your mail and these seem to be an attempt to malign the reputation of the firm. The statements made are incorrect and misleading.

"As you are aware, there are ongoing investigations by regulators and agencies. Further, given our responsibility to maintain client confidentiality, we are regrettably constrained from providing you with the information you have sought."

"However, we wish to emphasise that our work has been conducted in accordance with prescribed standards and regulations," the PR firm said.

The whistleblower's letter was shared by Moneylife with Claire Hassett, Managing Director, Deloitte Global Communications, but there was no response from Deloitte.

Eerie Similarity with PWC case?

A disagreement coming from a Public Relations company, and no response from the global team, makes for an eerie similarity with the Satyam scam.

On April 9 2015, P Ramalinga Raju and nine others were convicted on charges of criminal conspiracy in the Satyam scam. A special court sentenced Raju to seven years of imprisonment, and asked him pay a fine of Rs 5 crore (Rs 50 million). Former PwC auditors Subramani Gopalakrishnan and T Srinivas, Suryanarayana Raju were also convicted by the court.

For the record, the market regulator SEBI (Securities and Exchange Board of India) banned PwC (Pricewaterhousecoopers) in 2018 from auditing firms in the country for two years. SEBI estimated the valuation of Satyam Fraud at $1.7 billion. The CBI chargesheet filed in 2009 claimed the Satyam scam caused a loss of Rs 14,162 crores to investors.

While the media and general public wonders if there is any correlation between Satyam and IL&FS. the new board at IL&FS has maintained that the two cases were as different as chalk and cheese.

Meanwhile, the big number doing the media rounds related to IL&FS is an amount of Rs 91,000 crores. Rating agency ICRA was among the first to talk of IL&FS's inability to repay debts. The same agency claimed that debts had ballooned to Rs 91,000 crores or ten times of the value of fraud at Satyam.

Meanwhile, there have been several stories on the linkage of money of Pension Funds, including the Indian Army's pension fund having an exposure in IL&FS. Here is the confirmation from the Indian Army on the AGIF exposure.

Disclaimer: This is a developing story. Agency inputs from IANS. You can read the original story on MoneyLife.