Grant Thornton India LLP (GT), the forensic auditor of IL&FS Engineering and Construction Co Ltd (IECCL), found several anomalies in the many projects undertaken by the company. In fact, for the Patna Gaya Dobhi project, the forensic auditor found unbilled revenues when there was no construction activity at the site for almost four years.
In its report, GT says, "Unbilled revenue of Rs133.04 crore was recognised in the books of accounts of IECCL during FY2017-18; however, there were no construction activities on the Patna Gaya project. There were potential lapses in the internal controls at the project in terms of onboarding and payments made to subcontractors."
Based on a review of the workings provided by the representatives of IECCL, GT says it was noted that the project was launched during FY13-14 and was expected to be complete by FY18-19. However, there was no significant progress on the project till 31 March 2017. Further, as on 31 March 2018, the project was about 15% completed.
According to the forensic auditor, Mukund Sapre managing director (MD) of IECCL, in his mail communication to K Ramchand from IECCL, had stated that "there were no construction activities in the past three years on the Patna Gaya project for FY2014-15, FY2015-16, and FY2016-17, which appears unusual as IECCL had incurred a cost of Rs185.38 crore until FY2017-18."
There was one more email GT came across which was sent by Umang Mohan to Pavas Agarwal, both from IECCL. In the email, Umang Mohan stated that "the situation of the project site required immediate attention of the management. He further highlighted that unethical activity, including selling of materials without the permission of the head office in collusion with subcontractors, employees of IECCL and vendors, is being carried out at the site, and all the major transactions at the site are required to be verified by the internal auditor," GT says.
Based on the aforesaid emails, the forensic auditor says, it appears that significant construction activities were not undertaken on the Patna Gaya Project till December 2018, and "there was a lack of control over the project site by the IECCL head office."
For the Patna Gaya Dobhi project, the Infrastructure Leasing & Financial Services (IL&FS) group company had incurred a cumulative cost of Rs79.23 crore and Rs185.38 crore for the FY2016-17 and FY2017-18, respectively.
So, the question is if IECCL had shown money incurred on the project, why there were no construction activities, GT asks.
Further, the forensic auditor says, "There were potential lapses in the internal controls at the project in terms of onboarding and payments made to subcontractors. During FY2018-19, the management of IECCL has written off unbilled receivables (UBR) of Rs150.18 crore pertaining to the Patna Gaya project."
GT says this was nothing but pre-recognition of the revenue before completion of the work. It says, "Based on the review of the cost to the company (CTC) working for the quarter ended 30 June 2018, we noted the profit of Rs6.03 crore was recorded however, the UBR working provided for the same quarter shows the loss of Rs139 crore. Hence it appears that there are potential mismatches in the CTC working and UBR working provided to us."
"During FY2018-19, it was noted that the unbilled revenue of Rs150.18 crore pertaining to the Patna Gaya project was written off from the books of accounts, including unbilled revenue recognised during FY2018-19 and written off in the same year," it says.
During its review, the forensic auditor came across a whistle-blower complaint alleging that the site employees were corrupt and unethical. The email was sent by whistle-blower Rajni Sharma, an employee of IECCL to MD Khattar.
It says, "The local staff was involved in carrying out other business activities like property dealings as well as made use of company resources like vehicles and manpower and invested the resources towards the property dealing work. A few site employees indulged in corrupt practices and used to seek unethical favours from the contractors."
Responding to this, IECCL told the forensic auditor, "Anonymous email is not to be considered under whistle blower policy (WBP) at the time of receiving this anonymous email."
During the review of the internal audit report of the Patna Gaya Dobhi project, GT noted that there was a revenue deficit of Rs130.43 crore (contract revenue Rs103.33 crore – total expenses Rs233.76 crore) as on 30 June 2018. The internal auditor further highlighted that the said deficit was on account of abnormally high direct expenses of Rs169.50 crore out of total Rs233.76 crore.
"We further cross verified the figures as mentioned in the aforesaid internal audit report with the UBR working provided by IECCL, it was noted that there was a difference of Rs135.67 crore in the revenue figures," GT says.
The forensic auditor also found that diesel expenses accounted for in the project were not commensurate with the project execution rate resulting in abnormally high diesel consumption of Rs12.74 crore.
"Direct work order (WO) was awarded to SKS Construction amounting to Rs3.44 crore without carrying out the bidding process as per the policy of IECCL. Further, it was noted that there was no retention clause in the WO. Payment worth of Rs1.78 crore was made to the subcontractor without the submission of invoices. Further, authenticated supporting documents were not found by internal auditors during the bills verifications," it says.
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