Auditors & Bankers as Guilty as Vijay Mallya
The recent political storm over Vijay Mallya is unlikely to abate soon. But going after Mr Mallya alone would be a classic case of missing the wood for the trees.
One striking element continues to elude everyone’s attention. Could Mr Mallya or anyone else allegedly pull off such a heist without the connivance of the famous ABC: auditors, bankers, consultants (co-conspirators).
Funds diversion of Rs2,100 crore during 2010 and 2013 from United Spirits Ltd (USL), the flagship company of UB group owned by Mr Mallya, was detected as far back as in 2014 by a forensic team of PricewaterhouseCoopers (PwC), UK. 
Interestingly, PwC were the auditors of USL till 2010-11. Thereafter the audit was done  for some time by Walker, Chandiok & Co, a member firm of Grant Thornton and then by BSR Raut & Co who finally raised some red flags. 
Apparently, the alleged diversion Rs2,100 crore was not was not significant enough to catch the attention of the ministry of corporate affairs (MCA). In an earlier article, I had reported that MCA has launched prosecution against partners of PwC in nine companies. Surprisingly, the name of USL does not appear in the list, although that of Religare, a recent entrant to this not so illustrious club, does. (Read: Was the Minister given Incomplete Information Relating to PwC?
MCA alone is not the indulgent one. The Institute of Chartered Accountants (ICAI) will beat it hands down any day.
Dr Kirit Somaiya, member of Parliament (MP), wrote a letter on 21 March 2016 insisting that ICAI, MCA, Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Enforcement Directorate (ED), Central Bureau of Investigation (CBI) and bankers  should initiate strong action against PwC who were acting as facilitators to the promoters and scamsters in various scams such as Global Trust Bank (GTB) scam, Satyam scam, Vijay Mallya, Kingfisher Airlines and UB scam. 
Displaying admirable alacrity, the president of the ICAI, replied on the very same day to the MP saying that they are seized of the matter in the USL case. ICAI’s bluff to the MP was exposed by an RTI query by this author. Three months later, ICAI did not even know the names of the auditors of USL, let alone investigate their role. ICAI’s response also exposed that Joint Parliamentary Committee (JPC)’s recommendations for action against PwC in the GTB scam had been pending for implementation for the last fourteen years. 
GTB, and USL are not the only cases languishing with ICAI whose top management is deemed to be public servants within the meaning of section 21 of the Indian Penal Code (IPC). Only last year, prime minister Narendra Modi had lambasted its poor track record; there has been action in only 25 cases over the past decade, and 1,400 cases are pending.   
Giving tough competition to ICAI is CBI.  Recent media reports suggest that it is only now that CBI has started looking at the role of some senior finance ministry officials in the decade-old scam. 
Bankers, on their part, have been guilty of little due diligence: inflated cost of capital equipment through over invoicing is hardly checked, poor monitoring of loans post disbursal, ever-greening of loans to avoid recognition of losses and extension of loans to well-connected promoters, despite a history of defaults.         
These views have been endorsed by no less than Raghuram Rajan, former governor of RBI, who did not mince words on the role of the bankers while recently presenting his views on the non-performing assets (NPAs) problem to the estimates committee of Parliament under the chairmanship of Murli Manohar Joshi.         
Importantly, bankers should not be allowed to go scot-free even if there was political interference. Excuse of political pressure, even if established, is an extremely dangerous theory to propagate.  Every junior, irrespective of the field, would then get away citing directions from his superiors. 
Shouldn’t deterrent and time-bound action be taken against all those who connived in the fraud? The harsh reality is that, despite the obvious staring in our face, hardly anything will change on the ground. As Mr Rajan also lamented, the system has been singularly ineffective in bringing even a single high profile fraudster to book. As a result, fraud is not discouraged. 
The only practical solution therefore lies in daily chanting of the mantra called GSTC—God save this country! 
(Sarvesh Mathur is a senior financial professional, who has earlier worked as CFO of Tata Telecom Ltd and PricewaterhouseCoopers.
Liju Oommen
6 years ago
Everyone from top to bottom is involved. Everyone gets their share. While the PM only opens his mouth while some election rallies are announced.
Ramesh Jaradhara
6 years ago
The nexus among bankers, auditors, businessman, politicians and lack of accountability of regulators create hey days for fraudsters in Indian banking system. The article rightly depicts the system that is going on. If the persons responsible for taking action against frauds is psychologically impure, all sorts of treatment will go in vain. Purify yourself first with love for the country and a zest for a clean system.
6 years ago
Perfectly right observation, as made in the title of the article. Frankly speaking, I could not read the article, but the compelling title of the article made me to post my practical experience based comments. Inefficient management recruits mostly the inefficient, favourites, pampers or touts, as internal auditors. They would also prefer to propose some statutory auditors, who prefer to support corrupt practices to help hide the sins of the management.

6 years ago
The writer has succinctly summed up the accountability of all stakeholders.
Why this? Simple. All of them are being taken care of by the company. Company knows that all of them are cheap stuff and can easily be bought over. Any unheard voice or revolting will be dumped.

One aspect that seems to have been left out in the write up :
Faulty appraisal by lenders. In fact, their skill set is obsolete and does not get marked up with time.
Lender rely upon the project reports, which again are
prepared by the so called
expert financial consultants.

Bankers have never been good at appraisals and it's an open secret. One simple question to lenders: How do you know all lines of business? Financing airlines, software, foundry,textiles, and a list of every business activity.

Deepak Narain
6 years ago
Why PM Modi is not doing anything in the matter? Very sad, really! All politicians, past and present, are equal culprits and it is our misfortune that we have them.
Replied to Deepak Narain comment 6 years ago
@ Mr. deepak Narain,

You seem to have very narrow thinking! You are completely mistaken to hold a Prime Minister of the country accountable for all the ills, irregularities, and crimes committed in the country.

You should know that PM Modi is not holding post of a Board Director in any of the Banks' Board. If everything a PM of the country has to handle in each and every of the millions of the organizations of the country, there arises no need of establishing full fledged Departments and the Boards of Directors in various organizations. Moreover, if every task of the PSUs are meant to be accomplished by an incumbent of a Prime Minister, the public of the country should forget about development of the country as whole.

About politicians, may they be honest, culprits or criminals, they are elected by the public only. That way, the public can also be held responsible for the debacle of the country's economic conditions, as to why not they used their wisdom to send the right candidates to the Parliament and the State Assemblies. You and me are also among those voters, who would have elected one or more of the politicians every five years or even earlier than that period.

Moreover, politicians have nothing to do with the corrupt practices of the managements of the PSUs. Moreover, you must have noticed that they more or less fight for their own empowerment.

In fact, it is the failure of the Vigilance Departments established within the PSUs and the CVC, as the monitoring body over and above them, which failed to adopt preventive vigilance measures in discharge of their genuine duties and responsibilities towards curbing the events of frauds and money laundering that happened down below their noses.

On the part of the Central Vigilance Commission, as per my practical experience in handling various departmental inquiries for the past 38 years, they were found doing the only job of tainting the honest employees belonging to the lower cadres by labeling them as dishonest and unfit employees on recommendation of the corrupt employers. They may perhaps be feeling themselves satisfied only with the manipulated statements about the numbers of the vigilance cases cropped and settled, as are sent by the Vigilance Departments of the organizations just to fill the files of the CVC every month.

So, better try to understand the structure of the Government, its departments and the autonomous bodies as well as the roles and responsibilities of various functionaries of the Departments, Boards, Vigilance Wing and the Auditors before making any comment on the issues.
Govinda Warrier
6 years ago
Why no one is taking cognizance of the game the hostile country playing host to refugees from India? There their Lordships are whiling away time discussing about toilet facilities in India (admittedly, the cleaning up was not taken up seriously post-independence) and adjourning cases by weeks and months.
Suketu Shah
6 years ago
When people at the top lack integrity and let VM leave,they are the real culprits.Agree auditors also involved but Jaitly is the main culprit here.
Vasant Kulkarni
6 years ago
Joseph Pereira
6 years ago
I fully agree,that the Internal audit dept and the External auditors are EQUALLY RESPONSIBLE.for all the frauds and large loans ( without proper appraisals),besides the sr management team involved in sanctions.Look at all this-mostly from Nationalised banks( involving our tax payers money)
I can speak with iwas a full proffessional ( also head and later Executive director on the boards) in aarge
Being in a largenMNC
Dayananda Kamath
Replied to Joseph Pereira comment 6 years ago
But non support the internal auditor who brings out irregularities,and harassed and punished for bringing out irregularities by the executives misusing their administrative powers. Even judiciary supports such actions " since the officer is stickler for rule he can be given compulsory retirement"
Non of the Govt authorities including PMO and Presidents office least bothered to initiate action against the culprits for their irregularities, forget giving justice to victimized officer. If this is the condition why blame an auditor.
6 years ago
Vijay Mallya? How about Bankers, Auditors, AND the politicians and bureaucrats who anointed "brand equity" as suitable collateral and bankrupted Kingfisher by buying egregiously excessive capacity for Air India?
Govinda Warrier
6 years ago
GSTC mantra is one option. But the rich and the powerful have separate accounts with Gods, Godmen and law makers. Some of them have special connections with media houses also. The way in which nature is responding, God is not keen to "Save" any country, though some countries claim the ownership of God!
Krishnan Hariharan
6 years ago
Well said Sarvesh Mathur! GSTC is the only mantra every poor citizens of this country is left with to chant. Life will never change in this country, we fondly call Saare Jahan se Achcha, ye ............
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