Auditors more corrupt -- a fine how di do

FOCUS

By Amrit Muttukumaru

Is it not axiomatic that by and large the first line of defence against corruption and abuse of power in business entities are the auditors? Should not auditors be the initial whistleblowers? Sadly, the chartered accountants in Sri Lanka have wretchedly failed in this task. For example, would not the timely warning by auditors have mitigated the trauma of particularly the smaller depositors in the alleged multi-billion rupee scams of failed finance companies? Would it be any surprise if such scams continue to occur?
This writer states with responsibility that the Institute of Chartered Accountants of Sri Lanka (ICASL) makes no small contribution to the apparent systemic corruption in this country, if its disgraceful handling of its ‘Investigation’ into my ‘Complaint’ made as far back as 8 August 2005, of the alleged ‘Professional Misconduct’ by the local affiliates of Price Waterhouse Coopers and Ernst & Young vis-a-vis the scandalous privatisation of the Sri Lanka Insurance Corporation (SLIC) resulting in the colossal losses to the poor people of this country is anything to go by.

The ‘Investigation’

The ‘investigation’ has still not been duly concluded after the lapse of almost five years! This violates with impunity Section 17 (2) (b) of its Act of incorporation.
This is in spite of its 10 member ‘Ethics’ Committee more than three years ago endorsing the findings of its Investigating ‘Panel’ that a prima-facie case of ‘Professional Misconduct’ had been established amongst others against PwC and its Senior Partner- Deva Rodrigo (now retired), E&Y and its Senior Partner - Asite Talwatte and all their partners.
The Act of incorporation of the ICASL as per Section 17 (2) (b) clearly stipulates that when an ‘Investigating Committee’ appointed by the ‘Council’ “reports to the Council that a prima facie case of professional misconduct has been made out against a member, the Council shall appoint a disciplinary committee for the purpose of inquiring into the conduct of such member” (emphasis mine).
The professional misconduct of PwC and E&Y even being confirmed by the ‘Supreme Court’ has not prodded the ICASL to fulfil its statutory obligations! The ‘Supreme Court’ in its landmark judgment delivered on 4 June 2009, held the SLIC privatisation to be “illegal and invalid ab initio” and had ordered the removal “forthwith” of the auditors, Ernst & Young.
The ICASL is apparently under the delusion that like other instances of egregious wrong doing in Sri Lanka, this too will be permitted to be relegated to the limbo of forgotten things! The role of auditors is far too critical an area to be allowed to flounder in this manner.
Would not the refusal of the ICASL to hold chartered accountants accountable for misdemeanors, compromise ethical business practices and thus the future of this country?
The COPE Report to Parliament dated 12 January 2007 as recorded in the ‘Hansard’ inter alia states as follows: (emphasis mine):
i) “Ernst & Young auditors and PwC Consultants were directly involved in the said fraudulent conduct.” ii) “The said sale has taken place on unaudited accounts and thereby it was not possible to enter into any kind of share transaction. It also appeared the accounts have been surreptitiously and intentionally adjusted.” iii) “Deva Rodrigo, Senior Partner of PwC has been a member of the Steering Committee selecting PwC as Consultants to the Government, and continuing thereafter as a Steering Committee member supervising the work of PwC and approving payments to PwC.” iv) “Director, PERC and Secretary Steering Committee, who handled this transaction for PERC, Aneela de Soysa joined PwC as a Partner in March 2003.”
It is outrageous that Sujeewa Mudalige was allowed to be the new President of the ICASL, not withstanding that apart from being a Partner of PwC, he was a part of the Sri Lanka Team that comprised the PwC Indonesia Team that played a pivotal role in the fraudulent SLIC privatisation!
Incredibly, the “Chief Guest” at his induction in March this year was none other than Dr. P.B. Jayasundera who had amongst others been severely castigated by name by the ‘Supreme Court’ in its judgment on the SLIC privatisation!
The judgment inter alia stated:
“It is sufficient to say that the conscience of this Court is shocked by the manner in which the senior public officers had handled the sale of a pivotal asset of the state which belongs to the people of this country.” (Page 59)
“In fact it was the respondents who suppressed the material facts. The failure of P.B. Jayasundara and N. Pathmanathan (6th respondent) to produce a copy of the letter dated 29.7.2002 sent to the Secretary to the Treasury regarding the appointment of a Tender Board is an example.” (Page 59)

Deception

1) The ICASL continues to renege on its written undertakings given to this writer which include: i) “to complete the investigation early and transparently.” (Ref. e-mail of 13 March 2006) ii) “The determination of the investigation will be notified to you after the investigation is completed.” (Ref. e-mail of 13 March 2006) iii) “After investigation is completed you will be informed of the determination.” (Ref. e-mail of 18 March 2006) iv) “The rationale for the determination would be given” (Ref. e-mail of 18 March 2006)
2) There is not even a cursory reference to this investigation pending for almost 5 years in its ‘Annual Report 2009’ presented for approval at the ICASL Annual General Meeting held on 30 April 2010!
3) The cynical use of the words “Trust & Dependability” in its logo to commemorate its 50th year and have as its theme ‘Leading a new beginning’ for its thirtieth National Conference.
4) Subsequent to the ICASL ‘Ethics’ Committee endorsing the findings of its Investigating ‘Panel’ which included a prima-facie case of ‘Professional Misconduct’ being established amongst others against E&Y and its Senior Partner Asite Talwatte, he was appointed to the ‘Council’ of the Institute, after the unlawful removal of an existing ‘Council’ Member - Preethi Jayawardene.
Another scandal apparently tolerated by the Chartered Accountants of this country is in respect of ICASL Vice President - Sujeewa Rajapakse being the Treasurer of Sri Lanka Cricket (SLC). SLC has been described by no less a person than the newly appointed Minister of Sports as the third most corrupt public sector entity in the country. Irrespective of the ‘pecking’ order of corruption, it is apparent that SLC is widely perceived to be a very corrupt entity with transparency being a major casualty.

Conclusion

Another scandal being ignored is the alleged “within 24 hours” BOI approval for the controversial ‘Mihin Lanka’ airline given by former ICASL and OPA President - Lakshman Watawala not withstanding his reported admission to COPE “that under normal circumstances it would take six to eight weeks at least”! These allegations in the public domain have not been refuted by Watawala. This ill-conceived state venture has so far incurred losses exceeding Rs. 3 Billion.
The absence of moral outrage (with a handful of exceptions) from ICASL’s over 4000 membership is deplorable. It is noted that its membership includes two senior Chartered Accountants who are directors of the local affiliate of Transparency International - Chandra Jayaratne and Ms. Anushya Coomaraswamy!
It is amusing to note that at various public and professional fora on corporate governance, the presenters are in total denial of the rot at our own door step and incessantly refer to corporate scandals such as - ‘Enron’, ‘Global Crossing’ and ‘Worldcom’! The crucial point being glibly glossed over is that in these cases there was unrelenting media expose‚ with ‘naming and shaming’ being a feature and punitive measures including jail terms meted out after due judicial process - conspicuously missing in this paradise isle!
One wonders what it will take for the ICASL to merely fulfil its statutory obligations let alone upholding the integrity of the profession?