Why is Auditor Corruption Ignored?

Open Letter to Chandra Jayaratne



In recent times you have written ‘Open Letters’ almost on a weekly basis to the President and Prime Minister of Sri Lanka, urging a credible investigation into the alleged Central Bank Treasury Bond scams and stressing the need for accountability for any wrongdoing. Your focus has been on the role of then Central Bank Governor, Arjuna Mahendran, despite other parties such as the Bank of Ceylon also said to be involved. The mere replacement of Mahendran with a new Governor by no means closes the chapter on this saga. One would have thought the first order of priority of the new Governor - Dr. Indrajit Coomaraswamy said to be a ‘respected economist with integrity’ would have been to restore the battered credibility of the CB by initiating a credible in-house investigation to determine whether due process on Bond issues had been breached and by whom and the public duly informed. Maybe, he has done so except for the fact the public are unaware. I trust he will set the record straight in the public interest and for his own credibility.


However, the focus of this ‘open letter’ is on a much larger issue - the systemic corruption in this country primarily due to the complicity or negligence of professionals – particularly chartered accountants/auditors and lawyers. After all, chartered accountants /auditors are the first line of defence against corruption in all entities dealing with financial resources. Unless this is meaningfully addressed, scams will be galore as we witness on a regular basis. Current, examples of credible allegations of wrongdoing apart from the Bond issues relate to (i) purchase of coal (ii) road construction contracts (iii) import of luxury vehicles and (iv) construction of 65,000 houses in the North and East.


One could even question whether the abuse of power relating to nepotism and cronyism in key appointments to state institutions could have occurred if professionals had stood their ground on principle. An example is the senior chartered accountant with impressive management experience as executive chairman of a leading state institution tolerating two ‘Joint Managing Directors’ one of whom is said to be closely related to a key cabinet minister.


In a similar vein could the alleged terrible corruption and abuse of power under the Rajapaksa administration have taken place without the complicity or negligence of professionals?


Let me emphasize that this by no means justifies wrongdoing by politicians. They must be held accountable for their command responsibility.


 


Baffling


It is baffling why you, Friday Forum, Transparency International Sri Lanka and others purportedly battling corruption steer clear of ‘naming & shaming’ and demanding accountability from Chartered Accountants faulted for grave professional misconduct by the Supreme Court, Parliament’s watchdog COPE, the Attorney-General and CA Sri Lanka ‘Ethics Committee’ itself in the scandalous privatisation of the Sri Lanka Insurance Corporation (SLIC), causing huge losses to the people of this country? It is in this context that unbridled corruption flourishes with impunity.


This is amazing since you are a senior chartered accountant yourself. What is holding you back? Although activists talk the hind legs off a donkey on the evils of corruption and some get paid for doing so, they fail to bite the bullet by ‘naming & shaming’ errant professionals and bigwigs in the corporate sector complicit in the corruption of politicians. Of course, all allegations must be substantiated.


 


CA Sri Lanka


The integrity of the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) is heavily compromised due to its shameful conduct after my 'complaint' made as far back as 8 August 2005 of the 'Professional Misconduct' by the Sri Lanka affiliates of an international firm in the fraudulent SLIC privatisation. To date it has not concluded its investigation; it has reneged on its undertakings given to me and kept me, the complainant, in the dark. This is notwithstanding several written reminders. The undertaking includes "to complete the investigation early and transparently."


 


Professional Misconduct


1) Supreme Court


The professional misconduct of the aforesaid firm, even confirmed by the 'Supreme Court', has not prodded CA Sri Lanka to fulfil its statutory obligation! The 'Supreme Court' (SC FR Application No: 158/2007) in its landmark Judgment delivered on 4 June 2009, held the SLIC privatisation to be "illegal and invalid ab initio" and ordered the removal ‘forthwith’ of the auditors.


2) COPE


Parliament's watchdog COPE, under its then Chairman and incumbent Minister of Justice Wijeyadasa Rajapakshe, in its Report dated 12 January 2007, inter alia stated that the ‘consultants were directly involved in the said fraudulent conduct."


ii) "The said sale has taken place on unaudited accounts and, thereby, it was not possible to enter into any kind of share transaction. It also appeared the accounts have been surreptitiously and intentionally adjusted."


iv)"Chairman, PERC, who handled this SLIC transaction ... failed and neglected to act in the interest of the Government in this matter."


3) Attorney-General


The Attorney General by his letters dated 11 April 2005 to the firm concerned served notice of instituting legal action for professional negligence in relation to the SLIC divestiture.


4) 'Ethics' Committee


The CA Sri Lanka 'Ethics' Committee more than nine years ago endorsed the findings of its Investigating 'Panel' of a prima-facie case of 'Professional Misconduct' on the part of the aforesaid firms.


The Act of incorporation of CA Sri Lanka as per Section 17 (2) (b) clearly stipulates that when an 'Investigating Committee' appointed by the 'Council' ‘reports to the Council that a prima facie case of professional misconduct has been made out against a member, the Council shall appoint a disciplinary committee for the purpose of inquiring into the conduct of such member’. 


CA Sri Lanka must disclose whether the said "disciplinary committee" was appointed and if not why? If appointed, it must forthwith disclose its findings.


It is appalling that CA Sri Lanka has been dragging its feet on this issue for more than nine years after its ‘Ethics’ Committee endorsed a prima-facie case of 'Professional Misconduct' of the firm concerned and its partners.


What rational reason could there be for inaction by CA Sri Lanka other than a blatant 'cover-up'? Why are you tolerating this?


 


Conclusion


Under the ‘Partnership’ law in Sri Lanka, all ‘Partners’ are ‘Jointly and severally’ liable for any wrongdoing. All Partners are aware of every audit and assignment. It is unethical for any ‘Partner’ to plead ignorance. In the context of the fraudulent SLIC privatization taking place on 11 April 2003, are not all those who were ‘Partners’ of the said firm at least for five years prior to 11 April 2003 liable? 


It is outrageous that some ‘Partners’ falling under this period are appointed ‘Directors’ of ‘quoted’ companies and Banks. Some have even been appointed to the 'Quality Assurance Board' of CA Sri Lanka!


Mr. Jayaratne, as a senior chartered accountant and good governance activist should you not in the public interest:


1) In the context of CA Sri Lanka being a statutory body established by Parliament by Act No.23 of 1959 write an ‘Open Letter’ to Karu Jayasuriya – Speaker of Parliament urging him to demand that CA Sri Lanka forthwith credibly conclude its investigation of my 'complaint' of 'Professional Misconduct' of the said company in the fraudulent SLIC privatisation confirmed by (i) Supreme Court (ii) Parliament’s COPE (iii) Attorney-General (iv) CA Sri Lanka ‘Ethics Committee’ and report to Parliament through the Speaker?


2) Write an ‘Open Letter’ to President, CA Sri Lanka, demanding that it disclose forthwith the identifies of those responsible for the scandalous SLIC privatization.


 


Amrit Muttukumaru


(Public Interest Activist)


 
 
 
 
 
 
 
 
 
 
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