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Monday, May 13, 2002

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Seamen: Between the devil and deep sea?

N. K. Kurup

What is amazing about the Rs 100-crore loss suffered by the Seamen's Provident Fund in gilts trading is that even the government auditors did not verify whether the investments were backed by corresponding securities. The fund's Commissioner was vested with the powers to deploy large funds. And, those responsible for overseeing such investments believed him blindly. Result: Huge loss to the fund.

LAST Friday, the board of Seamen's Provident Fund (SPF) held an emergency meeting from two in the afternoon to nine in the night. This is probably the longest meeting the SPF board has ever had in its 35 years of existence. The marathon meeting was marred by an hour-long power failure — symbolic with the gloomy and tense atmosphere — at the Kripanidhi building, at Bellard Pier, overlooking the Indira Dock of Mumbai Port, that houses the SPF office. The board of trustees, who were already tense after hearing reports about the Rs 100 crore loss the SPF suffered in the gilts trading, decided to `relieve' the SPF Commissioner, whom, they believed, was responsible for the huge loss.

To their shock, the trustees found that government securities worth Rs 92.78 crore was missing from the SPF office. The SPF Commissioner was taking independent decision on investments. He was reportedly routing them through brokers who were not officially appointed by the Trust.

As expected, the SPF board took some remedial measures. The Commissioner was relieved and the Deputy DG of Shipping, a member of the SPF board, was asked to take additional charge of the fund. It was decided that all investment decisions would be taken only by the board, an external auditor would be appointed to undertake concurrent audit of the SPF accounts; all cheques issued by the fund would have signs of two authorised signatories and the board will meet once in every quarter as against twice in a year.

The DG Shipping, who is also the chairman of SPF, lodged a complaint with the CBI, which is understood to have begun a probe. Though it remains to be seen whether the loss could be recovered, individual seamen will not lose his money as the SPF has around Rs 334 crore under special deposit with the RBI. The SPF board has assured that it will meet all its obligations under the scheme. But the loss has been incurred and Rs 100 crore is no small amount.

SPF was set up in 1966 under the Seamen Provident Fund Act to provide retirement benefit to seamen. Seamen employers (only ratings not marine officers) will have to pay 12 per cent of the basic wage as contribution to the SPF.

SPF is managed by an 11-member tripartite board of trustees with three members representing the government, three from seamen's unions and three from shipowners. The DG Shipping is the ex-officio chairman of the board. The SPF Commissioner, who is the chief executive of the board, is appointed by government.

The SPF Mumbai office maintains accounts of 25,900 seamen who are part of the general roaster of seamen. As on March 2001, the total investments made by SPF in government securities and in special deposits amounted to Rs 423.33 crore.

According to reports, the Commissioner has been investing the funds in securities since 1998 through brokers. This is allowed but under the prescribed guidelines governing investments of SPF in approved securities. The Commissioner allegedly violated the prudential norms.

It is understandable that the board of trustees, which trusted the government-appointed Commissioner, may not have done a physical verification of the securities in possession of the Trust when they met once in six months. Going by the normal practice, they would have, at best, examined the rate of return on such investments. But what is amazing is that government auditors (CAG) who are supposed to audit the accounts annually did not verify whether the investments were backed by corresponding securities. The single individual was vested with the powers to deploy large funds. Those responsible for overseeing such investments believed him blindly. And the auditors totally failed in their duty. Result: Huge loss to the fund.

The brokers swindled the Provident Fund — the hard-earned money of employees deposited in trust with the government. There is a lurking fear that the SPF episode may be just the tip of the iceberg.

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