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The audit firm Sarathy & Balu, which served as the statutory auditors of First Leasing Company of India till from 2000 to 2013, has blamed the Reserve Bank of India as well as the internal auditors of First Leasing, Dandeker & Co, for not raising any “red flag” about any wrong doings in the company.
In a reply to The Director Discipline of The Institute of Chartered Accountants of India, Sarathy & Balu has pointed out that the Reserve Bank of India had been carrying out annual inspection of First Leasing Company, a non-banking finance company, for “at least two decades”. Also, a stock auditor of the State Bank of India had also been there.
“However, no red flags/major discrepancies were reported in any of the reports to raise any suspicion for us to follow up or verify in detail,” the firm’s letter to the Institute said.
The Institute had earlier issued a notice to the Chennai-based audit firm seeking its reply to allegations made by a shareholder of First Leasing, Mr Trideep Raj Bhandari. Mr Bhandari wants the Institute to take action against the audit firm because it was on the basis of the accounts certified by them that he took a decision to invest in the firm.
Sarathy & Balu has also noted that the internal auditor of First Leasing never raised any issue. (The internal auditors were M K Dandeker & Co.) “The internal controls/checks are evaluated by them. In none of the reports for any of the years the internal auditors expressed any qualificatory remarks nor raised any reservations. Therefore, as statutory auditors we had nothing to suspect in the normal course,” the firm’s reply to the Institute said.
Blame game
Earlier, the Institute had sent a notice to M K Dandekar & Co. In its reply to that notice, the firm had said that “we are only the internal auditors” with a limited mandate. “We would like to inform you that the irregularity in the accounts, if any, are attested only by the Statutory Auditors, Sarathy & Balu. Therefore, we are in no way involved in criminal conspiracy as alleged.”
On its part, Sarathy & Balu stresses that the position of a statutory auditor “is only that of a watch dog and not an investigator nor an insurer.”
First Leasing Company of India, a company founded in 1973, was told to cease operations by the RBI in 2013 after an inspection of RBI discovered a Rs 1,000-crore fraud in the accounts.
While Mr Bhandari and other shareholders find fault with the RBI for not having sniffed out foul play in the company despite its annual inspections, the RBI, on its part points out that it was only its inspection that finally brought the fraud to daylight.
In a reply to a writ petition filed by Mr Bhadari, the RBI said that it was its own inspection that found out First Leasing was to declare a dividend on “fictitious profit”. Whereupon, the RBI initiated immediate action to “prevent further fraud”.
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