By Kumar P. Chandran –

Kumar P. Chandran

“To steal you don’t need a mask and a gun- just a three-piece suit and a briefcase” ~ the motto of the new mafia.

In my early years as a public accountant in Los Angeles, I noticed a high degree of compliance by taxpayers who came to see me between February and April year after year to prepare and file their tax returns before the Internal Revenue Service. in the U.S. tax laws call for self-assessment – which requires one to self-declare income earned and pay any taxes. I noticed this compliance anxiety among young taxpayers. Upon further inquiry, I learned that parents and grandparents have handed down this tax compliance fervor. The story behind this compliance anxiety goes back to the 1930s when a notorious criminal from Chicago, Al Capone, terrorized the region from 1925 to 1931. With all the evidence of bootlegging, illegal gambling, prostitution, and several murders attributed to Capone, law enforcement and the FBI could not win a conviction. This was until an accountant, Frank Wilson, entered the scene and helped the prosecution team establish that the amount of wealth Capone acquired during his reign of terror in Chicago and the corresponding self-declared income by Capone during the same period did not match. Capone was convicted on tax evasion charges and sent to Alcatraz prison in San Francisco for 11 years.

Frank Wilson, accountant – makes all accountants proud!

Arthur Andersen LLP, one of the largest accounting firms founded in the 1900s with revenues exceeding $ 9 billion in 2002, was forced out of business, debarred from practicing public accountancy, and surrendered their licenses. Andersen was the auditor for Enron Corporation, an energy giant engaged in systematic accounting fraud amounting to hundreds and billions of dollars. Enron filed for bankruptcy following the discovery of fraud in 2001. Anderson was convicted of obstruction of justice – for their criminal conspiracy in the Enron fraud. David Duncan, lead partner at Andersen, oversaw the destruction of relevant documents relating to their Enron engagement.

David Duncan, accountant – puts all accountants to shame!

I am pleased to note that CA Sri Lanka celebrates 65 years as the premier professional accounting body that formulates Accounting and Auditing Standards in Sri Lanka. Its vision, mission, and core values are upholding integrity, safeguarding, and protecting the public interest. I remember my student days at the Institute of Chartered Accountants Sri Lanka during a lecture on an auditor’s duty – the words still ring in my ears: In Kingston Cotton Mills Co. (1896) case, the learned judge Lopes summed up auditor’s duty by stating, “Auditor is a watchdog, not a bloodhound.”

A few days ago, I watched with great interest the pomp and pageantry of the 45th National Conference of CA Sri Lanka.

The cameo appearance of the three past presidents on that occasion and the banter back and forth with the moderator made me wonder if they were brought in to break up the monotony of the serious technical sessions as comic relief – or to stick it to the accountants – to reflect if they did their duty as a watchdog to safeguard and protect the public interest with integrity. Notably, one of the presidents during whose long regime the economy suffered the most was a no-show. It irritated me that CASL would invite the four presidents during whose regime most corruption occurred, caused a financial crisis, and failed to prevent the easter bombings.

Since leaving Sri Lanka a few decades ago, I have seen the country spiral down and crash as a failed state. As an accountant, I wondered what role members of CA Sri Lanka had played in safeguarding and protecting the public interest of citizens. I know that both in the public and private sectors, members of CA Sri Lanka played a vital role as accountants, controllers, directors of finance, internal and external auditors, and auditor general. When the entity, whether privately or publicly held corporation or a government-owned enterprise – the accountants at ground zero would be the first to feel the tremor before the foundation gives way, leading to the entity’s collapse. The question is, what did you do about it?

In the past 30 years, several finance companies in Sri Lanka have crashed, causing depositors to lose their savings and retirees to lose their nest eggs. What actions did accountants take to identify the impending doom, prevent the losses to the depositors, and safeguard public interest? How many auditors of these finance companies sign off on their financial statements?

Several export and import trade businesses undervalued or overvalued invoices, draining the country’s foreign exchange reserves. What did the accountants of these businesses do about it? Did the auditors give these businesses a clean bill of health by signing off on their financial statements?

For the past several years, government-owned business enterprises have recorded colossal losses. SriLankan Airlines is a case in point. Terminating a viable partnership with an internationally acclaimed and successful airline and opting for solo operations proved to be a disastrous business decision. What did the accountants do to advise against such a decision? Did the auditors question the debt-ridden national airline’s ability to continue as a going concern under those circumstances?

While the 45th National Conference was in full swing, the story of Arjun Aloysius broke. Aloysius, director of W.M. Mendis Distilleries, was sentenced to six months in prison for evading Rs. 3.5 billion in Value Added Tax owed between 2016 and 2019. One wonders if VAT is collected at the source and if the tax has been overdue for at least five years what did the accountant do about this situation? How did the auditor report this flagrant tax evasion?

While I watched the country decline over the past twenty years, actions by two CA Sri Lanka members caught my attention.

Just days before the commencement of the 45th National Conference of CA Sri Lanka, Ajith Nivard Cabraal was indicted on charges that he caused a loss exceeding Rs. 1.8 billion to the Sri Lankan Government by investing government funds in Greek bonds during a period of economic downturn in Greece. Ajith Nivard Cabraal was appointed as Governor of the Central Bank from 2006 to 2015 and then from 2021 to 2022. This was clearly a political appointment, and his tenure as governor coincided with the political party in power then.

While at the Central Bank, Cabraal was also implicated in his role in an oil hedging deal, due to which the country had reportedly lost over $ 200 million

Nihal Sri Ameresekere, president of the Chartered Accountant Student Society from 1968 to 1969, became a public accountant, a World Bank consultant for several years, and an anti-corruption authority globally. He authored several books, many of them identifying at an early stage the cancer that was slowly creeping into Sri Lanka’s public administration and corruption destroying Sri Lankan society. His books are reference materials in several U.S. universities in the areas of political science, public administration, political corruption, privatization, and expropriation law. His publications include Fraud on Sri Lanka Government- Colombo Hilton Hotel Construction; Privatization- Pillage of the Plantations; Fiscal Mismanagement – Lack of Public Accountability; Derivative / Hedging Deals.

I am not naive to ignore that, as accountants, we face pressures from all corners in our discharge of professional duty and responsibility. Apart from the strict accounting and auditing standards, we are also guided by Professional Ethics. When facing pressures from politicians, stakeholders, or outsiders in discharging your duty, your go-to place is the ethics guidelines. My experience has been that if you stick to these guidelines, you are staying on the straight and narrow. If not, you are knowingly violating the law!

Conclusion

In its sixty-five-year history, CA Sri Lanka has emerged as the sole authority that formulates Accounting and Auditing Standards in Sri Lanka. In that period, CASL members functioned at the forefront of every facet of the nation’s private and public sector accounting, finance, taxation, etc. Still, the country faced a debt crisis repeatedly and had to be bailed out by the IMF seventeen times. The IMF has cited in its evaluation and findings, rampant corruption, mismanagement of public finances etc. The members of CASL bear some responsibility and are complicit in creating this situation. Whether as accountants or auditors, some members dropped the ball, compromised on ethical conduct, and strayed away from the mission, vision, and core values of integrity and safeguarding and protection of public interest. Among the present seven thousand members of CASL are members who pursue the Cabral path and then there are others who take the Ameresekere path of high integrity and safeguard and protect public interest.  Every CASL member must decide the type of accountant he or she wants to be – Watchdog or Facilitator of Financial Crimes?

*Kumar P. Chandran is a Chartered Accountant and was elected to the Council at CASL in 1974/1975. He is with The US Department of Defense as a Financial Crimes Investigator.