Central Vigilance Commission (CVC) has initiated inquiry into a complaint alleging that Bank of Baroda’s (BoB) CEO and MD P S Jayakumar had twisted audit rules for favouring four big MNC audit companies.
Taking cognisance, the CVC wrote to the complainant on June 6, 2016, asking him to provide some procedural inputs “to enable the Commission to proceed further”. The complaint alleges that Jayakumar’s decision in issuing the tenders for audit firms was “mala fide”.
Jayakumar, the complaint alleges, initiated a process to terminate all the existing arrangements with Concurrent Audit (CA) firms, as soon as he joined BoB in October 2015. He then set new rules for tenders for audit firms. According to the new rules, only those audit firms which have a turnover of Rs 150 crore or above can apply for the tender.
On April 1 2016, BoB issued a new tender document.
“The Bidder should have minimum revenue/income of INR 150 crore from audit services in the last financial year (2014-15)”, it said. “For the purpose of eligibility criteria, credentials of ICAI registered firms as network firms of the Bidder engaged in providing statutory/ concurrent audit and credentials of Indian member firms of global network of the bidder shall also be considered,” according to a note in the tender document.
This, the complaint says, almost ensured exit of all the Indian audit companies. The complaint says that Jayakumar was earlier with Citibank, which was audited by the same big four audit firms.
Further, the bank did not inform or deliberate the matter with RBI and ICAI before making changes in the audit tender rules. But now abruptly BoB has put the matter on hold.
The complainant, V Venkata Siva Kumar, who has also filed a writ petition in this regard with the Madras High Court, told dna: “It is a case of corruption involving a public servant and hence CVC took cognisance of the complaint.”
BoB officials, however, maintained that “the bank has not received any such letter from CVC.” “We are not aware about any investigation initiated by CVC in this regard. The bank wishes to clarify that the Appointment of Concurrent Auditors was made in accordance with the approval by the Audit Committee of Board covering the period of Financial Year 2015-16,” the officials in a mail to dna said.
In its defence, Bank of Baroda said, “Their (concurrent auditors) period of engagement had come to end upon completion of the term, that is, April 1, 2015 to March 31, 2016. Considering the evolution of technology, bank intends to leverage the use of analytics as well as a ‘hub and spoke’ model for the conduct of concurrent audit.
Besides this, in view of business volumes and the large number of auditable entities, it was proposed to have a leading firm having large presence in India with good experience and expertise in handling concurrent audit of the entire Bank so as to ensure meaningful and effective technology driven audit system in place, with uniform reporting and accountability. It is a decision taken by Board of Directors and all the Board members are aware of the decision of the bank. As such the decision does not involve any individual. All stakeholders have also been kept informed on this”.
What is concurrent audit?
After Harshad Mehta scam, the Reserve Bank of India (RBI) came up with a rule that certain branches of banks should have concurrent audit. As the money transaction takes place, there should not be too much of time gap between the audit and the occurrence of transaction. Banks not to appoint such auditors at every branch, for which the criteria include volume of business or advances of particular branch. This is crucial and real time monitoring system and key informant about potential NPAs account or fraud.