Grant Thornton India LLP (GT), the forensic auditor of IL&FS Engineering and Construction Co Ltd (IECCL), has found anomalies pertaining to accounting related with sub-contractors in the company's Kiratpur Ner Chowk (KNC) Road in the states of Punjab and Himachal Pradesh. IECCL was doing this project for its sister concern IL&FS Transportation Networks (ITNL).
In the report, GT, says, "The responses given by the representative of IECCL provide clarification on recording the cost for the KNC project. However, our anomaly highlighted that the excess recording of expenditure on the KNC project based on email evidence, was not addressed by the representatives of IECCL."
During its review, the forensic auditor says, it identified an email dated 19 May 2014, which was sent by Rajesh Sunkaraveera to Suguna Mudundi, both from IECCL, noting that there was a mismatch of Rs3.37 crore in the value of the materials as per the amount recorded in the books (Rs3.97 crore) vis-à-vis the amount as determined based on physical verification of Rs0.60 crore with respect to the sub-contractor Maccafem in the four-laning of Kiratpur Ner Chowk.
"Thus, from the above, it appears that there might be a potential difference of Rs3.37 crore in the value of inventory in the FY14-15," it says.
Further, GT came across another email sent by Krishnaprasad Rayi to Surjit Singh and Thakurprasad Singh on 4 May 2015, stating that its sub-contractor Mythri Projects expressed their disinterest to execute the contract for the four-laning of Kiratpur Ner Chowk project.
"It was also stated that there was a difference of Rs9.00 crore between the amount recorded in the books of accounts of IECCL vis-à-vis the actual work done by the said sub-contractor.
Thus, from the above, it appears that there was a potential mismatch in the value recorded in the books of accounts and work completed by the sub-contractor in FY15-16," the forensic auditor says.
GT also came across potential anomalies in subcontractor expenses recognised in the books of account of IECCL. It came across an email sent on 29 June 2015 by Ashutosh Chandwar, senior vice president and north regional head at ITNL to Mukund Sapre (who was with ITNL at that time), noting that IECCL had pre-recorded the sub-contractor expenses in the books of accounts for the four laning of Kiratpur Ner Chowk project.
Further, GT says, "the email mentions a list of 36 subcontractors of project four laning of Kiratpur Ner Chowk against whom subcontractor expenses had been booked till June 2014 amounted to Rs215.87 crore in comparison with the value of the actual work done up to May 2015, which amounted to Rs112.30 crore executed by these sub-contractors.
"The amount of excess expenditure that appears to be recorded was Rs103.57 crore. Thus, it appears that there were potential anomalies with regards to transactions recorded in the books of accounts with the identified sub-contractors," the forensic auditor says.
In its response, IECCL told GT, "KNC Project was a cost, plus fixed margin project for IECCL. All the cost in the project was booked with the consent of ITNL and IECCL was paid a fixed margin of 6% on the cost incurred. As regards the email referred, it pertains to 2015 when Mukund Sapre had no connection with IECCL. It was an internal mail exchange of ITNL."
GT says it noted the responses of representatives of IECCL in relation to its observations on data limitations; however, it requested representatives of IECCL to refer to its comments for ‘limitations with regards to data shared’ to avoid reiteration of data limitation in the forensic audit report.
"Further, representatives of IECCL have not commented on the observations stated in the report. Based on our findings and response received from the representatives of IECCL, our assessment remains unchanged," GT, the forensic auditor says.
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