Case Law Details
1. This is a reference under sub-Section 5 of Section 21 of the Chartered Accountants Act, 1949. It has reached for hearing today. Mr.Rakesh Aggarwal Advocate and Mr.Pulkit Aggarwal Advocate have appeared for the Institute of Chartered Accountants. None has appeared for Sh.Uma Shankar Jha, the Chartered Accountant who has been indicted.
2. We have heard Sh.Rakesh Aggarwal who has very ably and painstakingly taken us through the record culminating in the report of the Disciplinary Committee constituted to look into a complaint dated July 05, 2005 lodged with the Institute of Chartered Accountants by the Assistant General Manager (Inspection) of the Punjab and Sindh Bank Ltd.
3. M/s.J.S.Bedi and Co., Chartered Accountants of which Sh.U.S.Jha was a partner/member, he being a Chartered Accountant, were appointed concurrent auditors to audit the account of the Branch of Punjab and Sindh Bank New Delhi at Chandani Chowk for the period July 01, 2003 to June 30, 2004. As per the terms of appointment the audit spanned the entire working of the branch and shortcomings observed to be reported to the Branch Manager in the form of short notes for necessary rectification. If a fraud, fraudulent activity or foul play was noticed or detected it was to be reported to the General Manager (Vigilance) as also to the Zonal Inspectorate and the General Manager as well. Guidelines issued for the concurrent audit required to check the new accounts opened and particularly the current accounts and see whether the operations therein were unusual. To verify that the loans and advances were duly sanctioned as per guidelines of the bank. To verify the securities and documents received and in particular whether they were entered in the register. To check reconciliation of entries in the suspense accounts. To report any noticeable unauthorized use of discretionary powers. To report whether users had been made aware of the confidentiality of passwords. It was specifically brought to the notice of the auditors that recently a fraud allegedly committed by a staff member had been reported by the branch and a special audit conducted by the bank revealed that the fraudulent activities had continued to take place. The indictment was for carrying out the audit negligently while working as the concurrent auditors in not detecting fraudulent transactions details whereof were enclosed with the complaint received.
4. The respondent admitted that the firm J.S.Bedi & Co. was charged with the concurrent audit for the period in question and that it had carried out the concurrent audit under his supervision but denied any fraud perpetrated for the period of the audit. But surprisingly it was also simultaneously pleaded that the purported frauds began in July, 2002 and continued till April, 2005 and went undetected. A defence wherefrom we can only gather that the respondent intended to highlight that the frauds were of a kind which could not be detected during routine audits. Unfortunately we have no assistance from the side of the respondent and therefore do not have the benefit of what was intended to be said by the respondent because in the same breath it is pleaded that there was no fraud committed for the period covered in the audit and in the same breath it is pleaded that the fraud commenced much prior to the period of the audit and continued a little beyond.
5. The respondent also pleaded that a subsequent special audit report which unearthed the fraud had acknowledged that there was no control on the branch by the branch incharge and that the Chief Manager and the Senior Manager perpetrated the fraud in a manner that a normal audit could not detect the same. The respondent also highlighted the observations of the special audit report that vouchers were prepared to falsify certain entries. The respondent also highlighted that the special audit report brought out that most of the fraudulent entries pertained to the period pre and post July 01, 2003 to June 30, 2004. It was pointed out that the periods spanning the fraud was four financial years and neither year routine audit could detect the same. It was followed by an explanation, with reference to the vouchers and documents of the bank for the period in question, as to how during normal audit the frauds could not be detected.
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