standard operating procedures (SOPs)

The Securities and Exchange Board of India (SEBI) recently shortlisted six entities – including three of the Big 4, i.e., Ernst & Young, KPMG and PwC – for implementation of a “custom-made governance policy”.

The other three shortlisted bidders are RSM Astute Consulting, BDO India and ANB Solutions.

The stated purpose of the exercise is to have in place policy documents, standard operating procedures (SOPs) and other information technology (IT) documents as per the best industry standards and practices. This is expected to reduce operating costs and enhance performance by establishing clear criteria for computer network, hardware, software, information security, and IT vendor management.

The purpose of this exercise cannot be faulted. What deserves further debate, and what should ideally raise eyebrows, is the inclusion of EY, KPMG and PwC amongst the short-listed bidders. Let alone being shortlisted, they should not have been allowed to even bid in the first place. All of them have been linked to various controversies and scandals over the last decade and have at different times been probed by SEBI itself and various other law enforcement and investigative agencies.

A fundamental issue begs an answer. Why does “Atmanirbhar Bharat” not apply to the Big 4 (including Deloitte)? These multinational companies operate in India through their ‘network firms’, although allegations have always been made out that they are controlled directly by their overseas parents in contravention of Indian law.

Is there so much scarcity of pure Indian talent that we need MNCs to execute such simple projects. If so, we should collectively hang our heads in national shame. And then all the more reason to vigorously pursue “Be vocal, go local”. Only then will the dream of Prime Minister Narendra Modi to have at least four Indian CA firms in the list of Big 8 by 2022 fructify.

But first, a quick refresher at the rather poor credentials of some of the shortlisted bidders.

The latest controversy to besmirch EY is the “Wirecard” scandal that is unfolding in Germany. The payment company has filed for insolvency admitting that 1.9 billion euros (approximately Rs 17,000 crore) of cash probably never existed. EY had been Wirecard’s auditors for almost a decade. However, for the last three years, EY allegedly failed to properly check Wirecard’s bank statements, an elementary audit procedure.

Also read: Is the Modi Government Serious About Stemming the Rot in India’s Audit Industry?

The Wirecard scandal bears a striking resemblance to the Satyam scam. Some Rs 5,000 crore of bank balances of Satyam were found to be fictitious. Satyam’s auditors for several years, PricewaterhouseCoopers, had also failed to obtain direct confirmations from the banks despite multiple proddings from one of its overseas partners.

KPMG and Deloitte

A few months ago, the Ministry of Corporate Affairs (MCA) had sought to levy a five-year ban on BSR & Associates LLP, a KPMG affiliate and Deloitte Haskins & Sells LLP (Deloitte) in connection with the Rs 90,000 crore scam at Infrastructure Leasing and Financial Services (IL&FS).

The ministry’s action came on the basis of a report running into more than 30,000 pages prepared by its investigative wing, SFIO. MCA believes both KPMG and Deloitte were guilty of professional misconduct.

The Bombay high court, however, found gaping holes in the MCA’s action and struck down its efforts to ban the two firms through an order dated April 21, 2020. The matter is currently subjudice before the Supreme Court.

The logo of KPMG, a professional service company, is seen at the company’s head offices at La Defense business and financial district in Courbevoie near Paris, France. May 16, 2018. Photo: Reuters/Charles Platiau

PwC

It is rather challenging to recount PwC’s chequered track record in a few words.

For their role in the Satyam scam, SEBI had issued an order on January 10, 2018, banning for two years 11 firms that belong to the network of PwC from auditing listed companies. In addition, it had also ordered disgorgement of wrongful gains of approximately Rs 26 crores (including interest) by PwC.

In September 2019, the Enforcement Directorate (ED) slapped a Rs 230 crore penalty notice on PricewaterhouseCoopers Pvt. Ltd. (Pwcpl), the consultancy arm of PwC India. Other notices were sent to its current chairman, two past chairmen and some of its directors.

ED found that Pwcpl had received investments of Rs 230 crore from Pricewaterhouse Services BV, Netherlands, but had falsely shown them as “grants” to avoid attracting provisions of the Foreign Exchange Management Act, 1999 (FEMA) which required prior approval of the Reserve Bank of India (RBI).

The RBI’s approval could not have been granted since the extant legislations did not permit PwC to receive investments from overseas. The ED’s probe, which is yet to be completed, had started only on the directions of the Supreme Court pursuant to a public interest litigation (PIL) filed before it.

Also Read: India Can’t Clean up its Financial System Without Breaking the Business-Auditor Nexus

The latest controversy to engulf PwC is the Kerala gold smuggling case. A key figure in the controversy is Swapna Suresh, who was working as the operational manager at the Kerala State IT Infrastructure Ltd. She is stated to be facing a crime branch probe for fabricating a false report against an Air India official.

Opposition leader Ramesh Chennithala has expressed surprise over the way the government appointed a person in a key post. Chennithala said that there are also reports that she got the job through PwC, which makes it even more suspicious. “We have witnessed several scams connecting PwC with the LDF government. The IT secretary was the key person in all these deals with the state government,” he said.

To be fair, PwC has contested the allegations and reportedly said that the concerned individual was on the payroll of a third party agency which provides specialised short-term resources to them.

“The agency has done necessary background verification,” officials said.

Need a closing chapter, one way or the other

Many of the allegations and controversies surrounding the Big 4, especially in India, are yet to reach their logical conclusion. But it is equally important to appreciate another dimension. Projects like the one initiated by SEBI take a long time to complete. Frequent interactions with internal staff and consultants are both necessary and inevitable, both during and after the project completion until such time that it is fully streamlined. The casualty is independence. In such a scenario, the client or regulator cannot be expected to take action against its consultant whom it is otherwise supposed to regulate.

The core of SEBI’s mandate is investor protection. To avoid conflict of interest, those who are supposed to be regulated should not be allowed to devise or be involved intimately with the very systems that will regulate them. An examinee cannot decide the syllabus, frame the question paper and be the evaluator also.

The Big 4 not only audit but also render consultancy services to at least 60-70% of the companies listed on the BSE and NSE.

The Big 4’s defence

A defence often put forth by the Big 4 is that their consultancy arms are independent and separate legal entities from their audit firms, which may come have come under some cloud.

This smokescreen rests on thin ice and deserves to be more closely examined.

Also Read: PWC Quits as Statutory Auditor of Anil Ambani-led Reliance Capital, Reliance Home Finance

Incidentally, SEBI is not alone. PwC, EY and KPMG have also qualified the technical evaluation round for assisting the Department for Promotion of Industry and Internal Trade (DPIIT). This project is for effective and on ground implementation of initiatives for startups.

Civil society’s recommendations

The Citizens Whistle Blower Forum (CWBF), formed under the chairmanship of Justice A.P. Shah, former Chief Justice of the Delhi high court and a former Chairman of the Law Commission, had since 2017 recommended more than once to the PM and finance minister that PwC should not be awarded government contracts given its involvement in various scams.

The core of CWBF’s recommendations, in my view, was to uphold the rule of law, avoid conflict of interest and maintain the sanctity of independence. This is feasible only when a Chinese wall is maintained at all times between the regulator and the regulated.

The Big 4, who render audit and consultancy services, should not be granted contracts involving the Regulator who is expected to regulate them. Any involvement in a scam must be first properly probed and brought to a conclusion before they are allowed to secure government contracts.

Every effort must also be made to include pure Indian companies who possess the necessary expertise and experience. There is no dearth of talent. Projects like the one initiated by SEBI and DIPP can we well handled by companies like TCS, Infosys and Wipro in conjunction with some pure Indian but relatively small audit firms. The expertise of retired SEBI officials, stock market intermediaries, sector and industry experts should also be leveraged.

Only then can PM Modi’s dream of seeing at least 4 Indian auditor firms in the ‘Big 8’ by 2022 be realised.

Sarvesh Mathur is a senior financial professional, who has worked as CFO of Tata Telecom Ltd and PricewaterhouseCoopers.

New Delhi: The Central Reserve Police Force (CRPF) has decided to tweak the standard operating procedures (SOPs) framed to secure its convoys, in the wake of a ‘new threat’ where an explosives-laden vehicle was detonated by a terrorist alongside the force’s bus in Pulwama, killing 40 personnel, the chief of the paramilitary force said Sunday.

“We have decided to add new features to our convoy movement to and from Kashmir,” CRPF Director General (DG) R.R. Bhatnagar told PTI after undertaking a two-day tour of the Valley in the wake of the February 14 attack, the worst against security forces in Jammu and Kashmir in three decades.

“Apart from traffic control, there will be changes in the timings of the convoy, their halt locations and movement in coordination with other security forces like the army and the J-K police,” he told the news agency.

He said two convoys have been run after the attack at Latoomode in Pulwama and these new measures are being tested and implemented as part of the SOPs.

Home minister Rajnath Singh, after his tour to the Valley post the blast, had said it has been decided that movement of civilian vehicles will be restricted when convoys of security forces move in J&K.

The DG said that over the last two days, he and his commanders in Kashmir have ‘discussed and laid down a new strategy’ to not only secure the movement of convoys but also to enhance security measures for regular operations.

“I would not like to go into the specifics but we are formulating some strategies. This is something that we have done in the past and these things are dynamic.”

“In view of this new threat, where a suicide bomber is suspected to have come close to our vehicle and detonated explosives, strategies are being worked upon,” Bhatnagar said.

The CRPF chief said there was no ambush on any CRPF convoy in the last two years and the effort is to neutralise such threats as much as possible.

Asked if there was an intelligence input suggesting that a vehicle-borne improvised explosive device (IED) could be used by terrorists in Kashmir to hit the forces, Bhatnagar said that he would not talk about things related to operations and intelligence.

A senior official, however, said there was no ‘specific input’ and such an attack was completely new for the security forces in the Valley.

The DG, when asked about sending all troops from Jammu to Srinagar on aircraft to avoid the vulnerability of road movement, said there is ‘no alternative’ to convoys.

Air courier service for the Central Armed Police Forces (CAPFs) has been increased by adding flights from Delhi to Srinagar via Jammu and back in 2018, he said.

Many times the helicopters and planes of the Border Security Force (BSF) and the Indian Air Force (IAF) are also used to airlift CAPF troops to the Kashmir Valley, the DG said.

“As the Jammu-Srinagar highway was closed due to landslides, the convoy operated on February 14 after a gap of ten days and there was a large backlog of personnel who were to be transported to Srinagar from the transit camp of the CRPF in Jammu,” a CRPF official based in Srinagar said.

“Thus, running of the convoy has very little to do with the availability of air effort, which can only supplement the convoys and not replace them,” Bhatnagar said.

The proposal for introducing Delhi-Srinagar-Delhi flight (seven days a week) and a separate Jammu-Srinagar-Jammu flight (four days a week) has also been sanctioned by the home ministry and would soon be operational, the DG said.

This would more than double the present capacity to 1,892 seats per week for the forces deployed in the Kashmir Valley, he said.

During his visit to the Valley, the CRPF chief also met his troops at various units in and around Srinagar and also went to the blast site, about 20 km from Srinagar.

The CRPF is the lead counter-terrorism force in the state and has deployed about 65,000 troops as part of 61 battalions there.

Tag: standard operating procedures (SOPs)

The Atmanirbhar Bharat Spirit Should Extend to the Way We Look at the Big 4 Auditors

Pakistan Calls Back Envoy to India for ‘Consultations’

CRPF to Add New Features to Secure Convoy Movement to and From Kashmir