RBI ORDERS SPECIAL AUDIT OF BANK OF RAJASTHAN

Deloitte was appointed to do a special audit at Bank of Rajasthan under the authority of the Reserve Bank of India (RBI). This audit was ordered as a result of anomalous operations by BoR.
Deloitte has to audit the bank’s lending policy and the information security system.
Knowing that special audits (ordered by RBI) are uncommon, Bank of Rajasthan must have done very irregular transactions.

Last week, BoR was already under fire because of breaking the law on different occasions, such as anti-money laundering, not supplying some documents to RBI, …
Besides, management of BoR is not always reliable so the RBI imposed a special audit.

Furthermore, Bank of Rajasthan has only one committee to accept loans. This approach is different compared with other commercial banks, who have more committees. For instance, a local office can accept loans up to Rs (Indian Currency Unit) 250 millions, the credit committee at the head office can approve loans between Rs 250 and 500 millions and only the management committee can accept loans above Rs 500 millions.
The RBI is afraid that at BoR, the directors largely decide in the credit delivery system.

Deloitte Haskins & Sell’s will control if BoR has observed all the statutory regulations. The auditors will also take a look at the pension contributions given to the bank’s employees.
The majority of the bank’s 4,000 employees has a pay which is in accordance with the agreement between the Indian Banks Association and the BoR, but 10% of the employees in the mid to senior level receive a different pay and pension contribution.

In my way of thinking, it’s was a good idea to audit this bank. But I also think it would be good if banks were audited every two years, so the government would discover earlier if banks are doing irregular dealings.

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Absolute power corrupts absolutely

After writing 7 blogs and reading the other blogs, I notice already that the big 4 are not as objective as they should be, moreover they have been carelessness in some cases. In my last blog, I would like to highlight that audited cases are not always trustable.

Due to the financial crisis, the High Court dealt with 13 negligence cases last year. This is a record, in comparison with the previous 5 year, there were only 4 cases. The main raison is that shareholder lost their invested money when companies collapsed. I definitely understand that investors are targeting the wrongdoer and in most cases the accountant can be blamed for not warning investors for possible problems.
But this is nothing compared with the 61 claims for audit firms, which participate in corrupt scandals as Enron and WorldCom. Lawyers think that this is just the beginning: the crisis could provoke a storm of scandals. Investors had always had faith in audit firms, the big 4 gives hope in a certain way. If they give the books of a company approval, investors can use the fact that everything happened above board. But nowadays, I completely understand that the confidence in audit firms is gone because they are not always copper-bottomed.
They are plenty of examples of corrupted cases: Equitable life audited by E&Y sued for £700 million in 2005, KPMG sued for $1 billion by New Century, doubts about the impartiality of PwC in the case of Satyam, the role of E&Y by the collapsed Lehman Brothers, … These are a few examples, but as you notice we cannot ignore these problems. An ostrich politics will only worsen the problem.

I definitely think that there must be supreme control on the audit firms, a kind of an upper hand. It is their job to control objectively the companies so investors can know if they should invest. If we can’t have trust in them any longer, how can we possible know whether a company is worth to invest in or not? In my view it is drastic times call for drastic measures.

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'Big four' maintain hold on UK audit market

The Big four is composed of Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. The share of these four auditing companies has not changed the latest four years. Even tough, regulators are taking measures to promote competition of smaller firms. Moreover, there is only one company in the FTSE100, the most important stock exchange, that does not use one of the auditors of the Big four namely the business Randgold Resources which is audited by BDO.

As I said regulators are promoting smaller companies, Steve Maslin, partner of Grant Thornton, also wants to give smaller firms a chance to execute a big audit. As a result of some misunderstandings, the Big four are thought to be the only auditors that furnish services at the biggest public companies.

In 2006, the report of FRC and the Department of Trade and Industry declared that large companies did not have any alternatives other than the Big four to do their audits. This report also explained that it was impossible for small firms to enter at these big audits because of high barriers. Consequently, the makers of this report started a working group with the aim to become a concurrent of the Big four. The latest report showed that there is a small growth compared to 2006.

You can wonder whether it is necessary to bring some competition for the Big four or not, regulators want this because they are afraid that a mistake of one of the Big four could eventually lead to a catastrophe in the British Business. However, this has already happened after a downfall of Arthur Andersen, which used to be one of the Big five. As you know the Big five became the Big four after the Enron scandal.

In my view, I really think it is essential that the working group of any other competition of the Big four become more important. As you have read in some other blogs, for example the blog: ‘Cooperation of E&Y in beer fraud’, Ernst&Young is having some big issues and maybe they end like Arthur Andersen. This can lead to a downfall of the Big four, companies can lose their thrust in it because this had already happened once. Therefore, they would not tolerate a second decline.

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Spontaneous actions by Belgocontrol are not excluded

This week the subject of my blog deals again with the problems by Belgocontrol. Last week, I was blogging about the audit who was executed by Belgocontrol and that was very negative for the company. This audit brought lots of consequences with it and that’s what I’m blogging about now.

Caused by the bad results of the audit previous week, there’s no confidence between the staff and the management at all. Possibly, there will be still spontaneous actions of the staff the coming days.

Recently, it was said that Belgocontrol had a bad management for years and it suffered from structural financial problems. The conclusions have been confirmed now. The staff has no longer confidence in the management. They also disagree with the reaction of CEO Jean-Claude Tintin. He demolishes the audit, but it would be much better if he should search for measures to solve the problems, according to Tourlamain of the syndicate.

Now, there is a presentation of a plan for Belgocontrol. It consists of 5 action points that have to be concluded by July 1. The first point is preparing a new management contract. The second point consists in working out synergies with the military air traffic controllers. A proposal of the financial problems would be presented soon to the board of ministers. Concerning the international position, they think about alliances with other countries. At least, there will be probably a replacement for the Board of Directors, says Tourlamain.

I understand the staff lost its confidence in the management of the company. It’s really important the staff is good informed about the exact problems and especially the measures the company will take to solve them. Everyone in the firm has to know his task. Only in this way the objectives can be achieved. It’s good there is already an actionplan, hopefully it will bring Belgocontrol again on the right track.

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Audit destroys reputation Belgocontrol

Belgocontrol, the public company that’s responsible for the control of the Belgian air traffic, isn’t on the right track concerning its financial aspect. An external audit shows us there has been a bad management in the company for years and the financial situation isn’t good at all.

Etienne Schouppe (CD&V) gave the command to KPMG to execute this audit. The review was very negative. All the decisions and executions the firm took the last 10 years, were evaluated as negative. The top of the company is reproached of misguided management.

According to the audit, the board of directors of Belgocontrol isn’t informed sufficiently aware of the activities of the company. Furthermore, the board members would possess too less technical knowledge.
Because of a lack of strategic vision, the firm has a bad assets and liabilities structure. For years, the costs are too high while the productivity is too low.

There’s a lot of negative comment for the executive board committee. The Chief Executive Officer takes all the decisions himself, so we can’t say there is a team. In the company there are some indignant findings, for example, the absenteeism is remarkably high, 114 of a total of 1320 employers, aren’t able to work.

On the picture, we see Jean-Claude Tintin, CEO of Belgocontrol. In his view, the audit is only meant to cause damage to the company.


Presently, Belgocontrol has to work free of charge for the regional airports in our country, such as Charleroi or Deurne. That’s a reason why the costs are so high. Probably there will be extra revenues from the regional airport, in the future. According to Europe, the free work by Belgocontrol is an unjustified state support, and in the future the regional airports will have to pay for Belgocontrol.

I think the bad communication in Belgocontrol is a big problem, it’s necessary that they work in team. Only in this way, it can be possible to take good measures to solve the problems, I suggest.

I hope for the company that Europe has the right statement, and that the revenues will come soon.

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FIVE TELECOM FIRMS UNDER GOVERNMENT AUDIT SCANNER

Last week, Isabelle has written her blog about an audit at Bharti Airtel’s (the biggest telecom operator of India) which was ordered by the government. Apparently, it is not the only company where there were stated irregularities because India’s Department of Telecommunication (DoT) wants to put the five biggest telecom operators (including Bharti Airtel) of their country through an audit.


A federal audit panel is necessary to control if the companies had been swindling the government by misreporting revenues with a view to pay lower licence fees. For example, a company can account revenues with higher licence fees to services with lower licence fees to dodge taxes.
The companies concerned are Bharti Airtel, Reliance Communications, Bharat Sanchar Nigam Ltd, Tata Teleservices and Vodafone Essar.

The Comptroller and Auditor General of India (CAG) will audit the books for the last three financial years. Generally, the CAG only examines the books of government departments and state-run companies. But when there is a suspicion that a private company is swindling the government, CAG can control the books of the private company concerned.

Reliance Communications has already been under fire in December last year, when the special auditor showed that the company didn’t declared all revenues to government for the financial years 2006-07 and 2007-08. But the company said that the report was prejudiced.

According the DoT, the department has sent a letter to the companies in which was asked to supply the needed details to the CAG.
The spokesman of Tata Teleservices affirmed that the company get a letter from DoT and he said that they will supply the needed information. If needed, they are ready to assist the auditors. In contrast with Tata Teleservices, the other four companies were not reachable for a reaction.

Besides, if the CAG is not fulfilled with the results, it is willing to do an extra audit, the Economic Times reported last week.
I think it’s good that the CAG will do an extra audit, because if it’s true that (some) companies have paid less licence fees, it would be normal that they have to pay a fine.

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Most audits in the catering industry

The Belgian State Secretary of fraud control, Carl Devlies of the Democratic Party, announced the fraud figures. The report shows that the catering industry is still the most audited sector, followed by the building states and the cleaning companies. In fact, I find this obvious: How smaller the company, how easier it is to commit fraud. My blog, which I wrote two weeks ago (about how we can avoid an audit), proved already that companies who receive lots of cash money (as the catering industry), have more opportunities to swindle.
As a consequence of the increased controls on fraud in these industries, the amount of charges gets higher too. In case of the building states, we notice that the fraud is increased. But we have to nuance these figures: more efficient controls make it easier to detect fraud. However, Carle Devlies is expecting recuperations due to the reduction of the VAT-rate and the implementation of an electric cash register (but this will be obligated in 2013).
The government is working on better fiscal and social standards that can cause more targeted controls. This is not a bad idea, on the contrary in my opinion it was high time to take action.
The report of Carl Devlies shows also that the largest group of foreign illegal workers were Polish and Brazilian. Nevertheless, we can also see improvements as a result of a new system which made it possible to legalise easier Polish workmen. This new system is, in my opinion, good but there will be always fraud. The top 10 countries where illegal workmen come from (and who are employed illegally in Belgium), is given below on the map.

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