Colombo Telegraph

Unaccountable Accountants Mock Good Governance: Activists Not Interested

By Amrit Muttukumaru

Amrit Muttukumaru

It is baffling why good governance activists purportedly battling corruption steer clear of demanding accountability from Chartered Accountants faulted for egregious professional misconduct by the Supreme Court, Parliament’s watchdog COPE, the Attorney-General and CA Sri Lanka ‘Ethics Committee’ itself in the scandalous privatisation of the Sri Lanka Insurance Corporation (SLIC) causing major loss to the people of this country. This is bizarre since chartered accountants/auditors are the first line of defence against corruption in all entities dealing with financial resources. Although they talk the hind legs off a donkey on the evils of corruption and some get paid for doing so, they fail to bite the bullet by ‘naming & shaming’ errant professionals and bigwigs in the corporate sector complicit in the corruption of politicians. It cannot be over emphasized that all allegations must be substantiated.

It is this reluctance to ‘name & shame‘ that emboldens wrongdoers in isolated instances of ‘naming & shaming’ to make pathetic attempts to ‘shoot the messenger’ as a diversionary tactic.

The integrity of the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) is heavily compromised due to its shameful conduct after my ‘complaint’ made as far back as 8 August 2005 of the ‘Professional Misconduct’ by the Sri Lanka affiliates of PwC and Ernst & Young (EY) in the fraudulent SLIC privatisation. To date it has not concluded its investigation, has reneged on its undertakings given to me and kept me the complainant in the dark. This is notwithstanding several written reminders. The undertaking includes “to complete the investigation early and transparently.” (Ref. CA Sri Lanka e-mail of 13 March 2006)

This is also of no interest to the ‘Young Turks’ in parliament who made a hue and cry about corruption and abuse of power in the run-up to the 2015 Presidential and General elections notwithstanding CA Sri Lanka being a statutory body established by Parliament by Act No.23 of 1959. They are now for the most part muted.

An excellent example of their outrage with a slew of files in tow is the link

While PwC (Indonesia & Sri Lanka) functioned as Consultant, ‘Investment Banking and Legal Advisory Services’ to the Government of Sri Lanka, EY (Sri Lanka) were the ‘Auditors’ to SLIC.

Professional Misconduct

1) Supreme Court

The professional misconduct of PwC and EY even being confirmed by the ‘Supreme Court’ has not prodded CA Sri Lanka to fulfil its statutory obligation! The ‘Supreme Court’ (SC FR Application No: 158/2007) 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, EY. The judgment is also signed by incumbent Chief Justice Hon. K. Sripavan.

2) COPE

Parliament’s watchdog COPE under its then Chairman and incumbent Minister of Justice Hon. Wijeyadasa Rajapakshe in its Report dated 12 January 2007 inter alia stated: (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) “Chairman, PERC who handled this SLIC transaction and later Secretary to the Treasury, Dr. P.B. Jayasundara has been a Senior Policy Advisor to Ernst & Young, and had failed and neglected to act in the interest of the Government in this matter.”

3) Attorney-General

The Attorney General by his letters dated 11 April 2005 to PwC (Sri Lanka & Indonesia) and EY (Sri Lanka) served notice of instituting legal action for professional negligence in relation to the SLIC divestiture.

4) ‘Ethics’ Committee

The CA Sri Lanka ‘Ethics’ Committee more than nine years ago endorsed the findings of its Investigating ‘Panel’ of a prima-facie case of ‘Professional Misconduct’ by PwC and EY and all their Partners.

The Act of incorporation of CA Sri Lanka 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).

CA Sri Lanka must disclose whether the said “disciplinary committee” was appointed and if not why? If appointed it must forthwith disclose its findings.

It is appalling that CA Sri Lanka has been dragging its feet on this issue for more than nine years after its ‘Ethics’ Committee endorsed a prima-facie case of ‘Professional Misconduct’ by PwC and EY and all their Partners.

Impunity

Impunity appears to be a standard feature in the manner CA Sri Lanka conducts its affairs. This includes:

1) The Senior Partner of EY at the time of the SLIC divestiture (Mr. Asite Talwatte) being appointed to the key decision making CA Sri Lanka ‘Council’ subsequent to my ‘complaint’!

2) The Senior Partner of PwC at the time of the SLIC divestiture (Mr. Deva Rodrigo) being appointed by CA Sri Lanka subsequent to my ‘complaint’ to its ‘Quality Assurance Board’ purportedly designed “to maintain and enhance the credibility and high standards of our profession.”! (Ref. CA Sri Lanka Circular to members – 6 September 2010)

3) Mr. Sujeewa Mudalige subsequent to my ‘complaint’ being allowed to be the President of CA Sri Lanka notwithstanding 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 was Dr. P.B. Jayasundara after he was castigated by Parliament’s COPE and the ‘Supreme Court’ in relation to the scandalous SLIC privatisation!

4) Another member of CA Sri Lanka ‘Quality Assurance Board’ is Mr. Ajith Ratnayake who was Director General, Sri Lanka Accounting & Auditing Standards Monitoring Board (SLAASMB) at the time it sent me its farcical response at the conclusion of its purported ‘investigation’ of this same privatization – ref. e-mail dated 28 November 2005: “Whilst we appreciate the contribution made by the complainants, we are not in a position to keep the complainant informed of the progress of the investigation and the outcome of the investigation, as it would undermine our policy on releasing information to the public.

His spouse was a partner of PwC (Sri Lanka) during the period leading to the SLIC divestiture!

5) It is laughable that CA Sri Lanka “is planning to introduce a programme in forensic auditing for its members, in a bid to fight corruption and fraud in public and private sector organizations.” (Ref: ‘Daily Mirror’ Mirror Business 8 February 2016)

Other Cases

(1) It was a Past President of CA Sri Lanka and the OPA (Mr. Lakshman Watawala) who was mainly responsible for the alleged “within 24 hours” BOI approval of ‘Mihin Lanka’ not withstanding his reported admission to COPE member Hon. Ravi Karunanayake (now Minister of Finance) “under normal circumstances it would take six to eight weeks at least“! (‘The Sunday Leader’ 10 December 2006)

(2) At the time of the alleged wrongful purchase of TFC shares by the NSB, the CEO of the NSB (Mr. Hennayake Bandara) and the Chairman of TFC (Mr. Preethi Jayawardena) were senior chartered accountants who were former members of the CA Sri Lanka governing ‘Council’.

(3) The alleged financial profligacy at ‘Sri Lanka Cricket’ in the run-up to the 2011 Cricket World Cup which Sri Lanka co-hosted took place when the Treasurer of ‘Sri Lanka Cricket’ was chartered accountant (Mr. Sujeewa Rajapakse) who subsequently became President of CA Sri Lanka!

(4) Could not chartered accountants/auditors have blown the whistle long before alleged frauds were ‘discovered’ in the failed finance companies? Why have auditors still not been made accountable?

(5) Could the alleged Treasury Bond scams have taken place without the complicity of professionals in the hierarchy of the Central Bank and Bank of Ceylon? Why are activists avoiding naming those concerned? Have activists filing a case in the Supreme Court on this issue which was dismissed given a fig leaf to apologists to hoodwink the masses?

(6) One is compelled to pose the question whether there is collusion among the larger audit firms in this country which enable influential auditors from such firms soon after retirement to be ‘invited’ to sit on the boards of leading companies while ‘technically’ avoiding companies being audited by them? Should there not be a mandatory period (say 4 years) during which retired auditors cannot hold any office of fiduciary responsibility in ‘quoted’ companies?

SriLankan Airlines

Why did Prime Minister Ranil Wickremesinghe not identify EY as the long standing auditors of Sri Lankan Airlines when he stated at a news conference: “Most of Mihin Lanka’s losses had been hidden in the Sri Lankan Airlines balance sheet thereby inflating its debt burden to USD 3.2 billion” ( ref: ‘The Island’ 27 April 2016)

From all indications, the publicly funded J C Weliamuna report which confirmed allegations of corruption and abuse of power in SriLankan Airlines neglected to give due attention to the fact it took place under the watch of the airline’s long standing auditors – EY and its Board of Directors comprising of leading corporate personalities – many of them also in its Audit Committee – some even as Chairmen!

‘Partnership’ Law

Under the ‘Partnership’ law in Sri Lanka, all ‘Partners’ are ‘Jointly and severally’ liable for any wrongdoing. All Partners are well aware of every audit and assignment. It is unethical for any ‘Partner’ to plead ignorance. In the context of the fraudulent SLIC privatization taking place on 11 April 2003, all those who were ‘Partners’ of PwC and EY prior to 11 April 2003 are liable.
It is the responsibility of CA Sri Lanka to forthwith disclose in the public interest the identity of those who were ‘Partners’ of PwC and EY prior to 11 April 2003 which is the date on which the scandalous SLIC privatization took place while also indicating for how many years they were ‘Partners’. It is reprehensible that some ‘Partners’ falling under this period have been appointed ‘Directors’ of ‘quoted’ companies and Banks. Some have even been appointed to the ‘Quality Assurance Board’ of CA Sri Lanka!

Right to Information

It is interesting to note that EY are also the auditors of Transparency International Sri Lanka, Centre for Policy Alternatives and the Press Complaints Commission of Sri Lanka – all of them receiving foreign donor funds on claims of promoting good governance, probity in public life and combating corruption. Apart from Sri Lankan Airlines, EY are also the auditors of John Keells Holdings – arguably the country’s leading conglomerate.

My simple urging to NGOs to include on their otherwise elaborate websites “project based donor information (inclusive of amount and source) together with concomitant expenditure appropriately broken down to also reflect administrative and personnel costs and payments to individualsdoes not appear to have yet materialized. (ref. e-mail of 27 August 2007)

Although those concerned are fighting tooth and nail to avoid having the proposed ‘Right to Information’ (RTI) applicable to them, it is crucial (i) professional regulatory bodies such as CA Sri Lanka, BASL, PCCSL (ii) NGOs (iii) corporate sector (iv) media are brought under the ambit of RTI. After all, do not all of them claim to act in the public interest?

Conclusion

What rational reason could there be for inaction by CA Sri Lanka other than a blatant ‘cover-up‘?

Demanding accountability for this ‘open & shut’ case of grave professional misconduct by PwC and EY in the fraudulent SLIC privatization is an acid test for the credibility of civil society entities such as – Transparency International Sri Lanka, Friday Forum, Centre for Policy Alternatives, Citizens’ Movement for Good Governance and the private Media. If these entities act in unison this case can surely be cracked. This will be a major breakthrough in combating the scourge of corruption in this country. After all chartered accountants/auditors are the first line of defence against corruption in all organisations dealing with financial resources.

While holding no brief for anyone, I ask whether any of the alleged terrible corruption and abuse of power under the Rajapaksa administration could have taken place without the complicity of professionals – particularly chartered accountants, lawyers, economists and corporate bigwigs? How come good governance activists have missed this?

Those reluctant to ‘name & shame’ and hold professionals, corporate and NGO bigwigs accountable for wrongdoing have clearly lost the moral authority to speak of good governance and any pretense to combat corruption. This is probably why successive governments do not take them seriously.

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