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D. Murali

EVEN as the country's major number-crunching exercise is gathering momentum in the North Block, there are some new and hot entries into the slick and slime of accounting scams. Such as Fannie Mae's failed disclosures in the US, and the United Nations' problem of accounting for the ``Oil-for-Food Programme'' in Iraq.

L'affaire GTB may qualify as a desi entry into the hall of suspect honour, but its Rs 172 crore that the CBI is probing is piffling compared to $10 billion (Rs 50,000 crore) that seems to have been misappropriated from the $60-billion Oil-for-Food Programme (OFFP), and the $9-billion (Rs 45,000 crore) that Fannie Mae is talking of as corrections to previously reported profit. In the case of OFFP, an Independent Inquiry Committee headed by Mr Paul Volcker has been studying the allegations made by the CIA and the Governmental Accountability Office (GAO). On February 3, Mr Volcker brought out an interim report, available on www.iic-offp.org.

It runs to a daunting 246 pages, but Chapter 6 is a must read; it is titled `Forensic Analysis of the Programme's Administrative Expenditures', though, queerly, the contents page cuts out the `forensic' part. Chapter 6 is about how forensic techniques were applied to take the shroud of opaqueness around the 2.2 per cent of programme money (adding up to $1.5 billion) that went the UN's ESD Account (an internal identification), maintained on accrual basis as per the UN System Accounting Standards or UNSAS. The Committee sought answers to questions such as: "Did the UN spend the ESD funds for purposes or programs other than the Programme, or did it otherwise use the funds to enrich itself? And, was the ESD Account ever audited?" And it examined transfers to and from the account, and evaluated "how these flows of funds were accounted for and reported."

That the problem is because of cutting costs in wrong places is evident from this significant observation in the report: "The Committee finds that additional funds should have been expended on inspection and audits, notwithstanding the request of the Security Council to minimise the cost of the United Nations activities associated with the implementation of Resolution 986 (1995) as well as the cost of the independent inspection agents and the certified public accountants."

There are two crisp recommendations at the end of Chapter 6, and these are on transparency, and controls and oversight. On the first, the Committee suggests: "Increase transparency of the administration of funds and programs, especially in relation to the need to review, based on detailed financial reports, budgetary, disbursement, and cost allocation processes and decisions. Provide more detailed and descriptive financial statements and reports. Consider making such reports publicly available." And on the second recommendation — `controls and oversight' — the report emphasises the importance of `high standards of documentation' so as to "preclude any doubt regarding the UN's costs and questions as to whether it profits from such projects." These are useful lessons to our organisations too.

Fannie Mae scandal

The day's news from CBS MarketWatch.com talks of analyst readings that Citigroup's first quarter earnings could fall by about $490 million, because of the fall in the value of its 6.3 per cent stake in Fannie Mae. A recent issue of Student Accountant from ACCA, London, devotes a page to this scandal, and notes that when Fannie Mae gets pneumonia, "a lot of other people expect at least to get a bad dose of the flu." Because, "Fannie Mae owes or guarantees over $4,000 billion (Rs 2- crorecrore) of home mortgage debt in the US. And yes, that is billions — it is no misprint."

While KPMG, the former auditors of the company, and ex-CEO Franklin D. Raines have claimed that accounting rules at issue are highly complex and require interpretation, the chief accountant of the Securities and Exchange Commission has told a House subcommittee that the standards are workable and are being followed by other companies. The man to watch is Richard H. Baker, chairman of the House Financial Services Committee's subcommittee on capital markets, insurance and government sponsored enterprises. He is planning to introduce a Bill next month to create a robust regulator for Fannie Mae and rival Freddie Mac. That could be another SOX-in-the-making.

Never underestimate the new tagline

It is when the going gets tough, you-know-what. So the American Institute of Certified Public Accountants (AICPA) has rolled out a new tagline to accompany the CPA logo: "America Counts on CPAs." Earlier, they used to say, "Never Underestimate the Value," but that is now obsolete, after having served for almost a decade.

"Since the national corporate accounting scandals, the AICPA conducted research that showed Americans continue to trust and rely on their own CPAs as much as ever," reads a communiqué on www.aicpa.org.

As a result of the research, "the Institute revised its image strategy and key messages to reflect this relationship." The new tagline would emphasise "the grassroots image and strength of individual CPAs," believes the AICPA, after having tested it "with business executives and CPAs with very positive responses". If you think that it is time we too thought of a similar image makeover, a research may first be necessary — to find whether Indians continue to trust and rely on their CAs as much as ever.

AccountSpeak@TheHindu.co.in

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