The attention of Institute of Chartered Accountants of India (ICAI) has been drawn to various media reports highlighting the irregularity happened in Punjab National Bank (PNB) revealing that the Bank has detected a $1.77 billion (about Rs.11,400 crore) wrongdoing where a Jeweller Nirav Modi allegedly acquired fraudulent Letters of Undertaking (LOU) from a branch of PNB in Mumbai to secure overseas credit from other Indian lenders. These reports further reveal that CBI has since registered a case against Nirav Modi and others on the basis of the complaint filed by PNB. It has also come out that Enforcement Directorate (ED) is also conducting various raids and investigations in the matter.

In this regard, ICAI in consonance with its role as regulator considering the mammothness and modalities of the irregularity that has been perpetrated on the Public Sector Bank, has suo-moto triggered its disciplinary mechanism by writing to the Bank concerned and also all other investigating agencies i.e. SEBI, ED and CBI requesting them to provide requisite details of their investigations in PNB matter.

The ICAI has on its own also constituted a High Power Group in this matter to study the systemic issues in the PNB matter and suggest remedial measures and improvement in the banking system to ensure preventive measures to avoid such type of incidents.

It needs to be emphasised that ICAI would be actively pursuing the issue with the concerned agencies and stakeholders so as to examine the matter in detail to suggest improvements.

About ICAI

The Institute of Chartered Accountants of India (ICAI) is a statutory body established under the Chartered Accountants Act, 1949 for regulating the profession of Chartered Accountants in India. ICAI is the second largest accounting body in the world with a strong tradition of service to the public interest and to the Indian economy. During its more than 68 years of existence, ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for maintaining highest standards in technical, ethical areas and for sustaining stringent examination and education standards.

Since 1949, the profession has grown leaps and bounds in terms of membership and student base. Starting with a handful of about 1700 members, today, the strength of Chartered Accountant fraternity has grown to more than 2.70 lakh members. On the education front, the ICAI began with mere 259 students and today about 8.00 lakh active students are a part of ICAI. The Institute functions under the Ministry of Corporate Affairs, Government of India. It has its headquarters in New Delhi and 5 Regional offices in Chennai, Kanpur, Kolkata, Mumbai and New Delhi. It presently has 163 branches spread all over the country. In addition, it has also set up 31 chapters outside India and an overseas office in Dubai.

Also Read-

No instructed PNB to meet its commitments under LOU: RBI

PNB clarifies on alleged Scam by Nirav Modi and Gitanjali group

The Punjab National Bank (PNB) Fraud

PNB issue Caution Notice in Suspected Fraud case

What is the Nirav Modi scandal?

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63 responses to “Steps initiated by ICAI on Punjab National Bank Matter”

  1. Khaja Abwar Nohiuddin says:

    The auditors should be allowed to work independently, by giving proper accommodation, system to each member of the audit team withe an employee of Bank allotted daily (employee to be changed daily to control leakage of audit observations) to assist the audit team. The concurrent audit team to be taken care as statutory audit team and monthly remuneration is paid at par with statutory audit payment This will enable the concurrent audit team to work with ease and comfortably. The system should have attendance recorded like log to know the presence of members

  2. CA Sanjay H Shah says:

    The Process with which the Audits are alloted to handful of members need to be changed. Merit based allotment of Bank Audits should be given. Fees structure should also undergo change and reporting should be more strict. A presentation by Concurrent Auditor as well should be mandatory. Complete overhauling of the CA’s conducting Audits be looked into.

  3. jitendra thacker says:

    I agree with you the joke is CA is doing compilation work based on the books and documents produced . As the audit part the ca may be knowing and reporting and might qualify the audit report but banks need to keep records in public and the RBI rules may not permit the disclosure and the benefit is been taken by the scammer. Now the ICAI issue the guideline is wondering ! ICAI should wake up as every scam is indication of failure of Audit and need to improve without the scam but only from the audit they need to improve. Now issuing the guide lines is very late and the banks has lost faith of public, daily new rumour or scams comes and that definitely spoiling the name of public sector bank.

  4. CA Sanjay agrawal says:

    for the audit work it must me essential the CA involved in only audit assignment. He should not be involved in Taxation work , project finance work etc.. If ICAI take this type of step quality of audit will improve.

  5. harinatha babu says:

    This type of scams occured in india due to changing of hands with their commitments and satisfaction. Because corporates or big deals handle the large trasnactions and fulfill the commitments to everybody.
    Nobody support to Farmers or agriculturists, because farmers are unable to fulfill or satisfy to bank people or top level management. due to elections some of the political parties announced for waiver of crop loans for getting their benefit. In india 95% of Crop Loans used for Agriculture. for Waiver of Crop loans, RBI Chairman, SBI Chairman and fenominal persons are refused the crop loans.

  6. CA Prakash says:

    It is gross failure on the part of the bank as well as auditors (RBI/OTHERWISE).. But no banker can simply act upon a LOU without checking whether the borrower has been sanctioned sufficient limit to avail the facility. Obviously if every banker has ignored sense of caution and procedural requirements, it amounts to collusion. The banker in charge may have deleted transaction history or destroyed evidence.. But it amounts to weak supervisory controls. Also the bankers should have suspected misdeed when they would have noticed extraordinary movement of funds disproportionate to the Credit limit sanctioned. Shetty’s political connections and mobile conversations should be checked. Is it a tit for tat by Nirav to Narendra modi for Demo.. loss suffered by Jems and Jewellery industry

  7. Raman Hariharan says:

    The checking mechanism failed – and failed miserably. The RBI guidelines were flouted – nobody noticed? How come? What were the auditors doing ?? Its their job to have noticed such serious violations years ago. Catch the auditors.

  8. Rudrappa Basappa S says:

    It is an utter failure on the part of Banker.
    If a banker can follow up for 100 times for poor Agriculture loans and SME’s, how one can assume that 11700 CR is detected now. Unless the top management involvement, this kind of fraud would have not possible.
    It is an eye opener for all the Nationalized and Private bankers to have their systems cross checked.

    With the kind of translations commercial banks carryout, it is necessary for the bankers as well as statutory bodies like RBI, SEBI, NSE., etc to lay down the strict SOP’s on working of the banks in the interest of customers.

    • CA Prakash says:

      Banks have a good control systems in place. This is a clear case where evidences were destroyed in collution may be under political influence.. Such magnitude alleged fraud is not possible unless some one highup in the mangement winked…

      • CA.Suresh says:

        I have visited several different type of industries from Heavy engineering industries to Chemical Industries to Video Game manufactures, Cement to Fabricators, Textiles etc. etc. as an employee, buyer, supplier, consultant or part of audit team before and after automation of record keeping, data mining etc.
        In my opinion, it is has become now very easy for a handful of people in any of the organisation to commit a fraud then the ease which was there earlier and it is also true that the system of detection of abnormal transactions have not been updated with the invent of new technology nor the ICAI necessary changes in the curriculum or training. Almost every audit person will agree with me that the most of the audits are not only conducted but also finalised by the articled assistants without and they are put on to the job without proper training and guidance. The articles feel their duty discharged by ticking the vouchers and superficial ledger scrutiny. Moreover, it was not the duty of the auditors as such to duty of the Auditors to act as a blood hound or even to detect and report siphoning of funds or use of the funds other than the purpose for which the same were received. The situation is the same irrespective of the size of the firm. Every big corporate house has series of Companies and a web of subsidiaries and holding company whether it is entity A, B, T, K, F, J, S, R or some other alphabet.
        Bigger the size the bigger is desire to grow and no hesitation to adapt to the means to reach the target and result, twisting the system is the same proportion. The thing do not come to fore until it becomes difficult for the Company to finance its losses or there is stoppage to act of “Topi Gymana”.
        Corruption was always there from the era of Adams and Eve and would always be their.

  9. A L Chaudhary says:

    ICAI should examine what was role of concurrent auditors, Internal Auditors, Statutory Auditors and fix their reponsibility for failure to report fraud which cannot escape their notice if they perform duty honestly.

    • CA George A. Kurian says:

      Concurring with your views. However considering the magnitude of the scam, the role of bankers, political parties, auditors and regulatory agencies itself, will come under the scanner. In particular those who will be proven to have acted in cahoots with the unscrupulous businessmen, who use bribe and honey traps to ensnare the greedy and dishonest.

      Such investigations take some time to get to all aspects of the wrongdoing and bring the guilty to book.

  10. Krishnamoort Gopalan says:

    Shows lack of internal checks and controls. The Operating Management of the Bank up to the MD are morally responsible. The ICAI should do it’s own independent investigation and act to protect/ salvage the reputation of the profession.

    • CA Prakash says:

      question is whether the branch was subject to Concurrent audit.. also such transactions are required to be reported to RBI on periodical basis. There is political backing to this fraud.. who are the beneficiaries. who are the real owners of Nirv modi business empires…

  11. ca sk chhabra says:

    Please teach strong moral values as part of syllabus to all professional.This is the clear case of collusion of auditors with the bank employees.

    • CA George A. Kurian says:

      Ethics is being taught as part of our curriculum, and students have to learn this even to pass the tough exams. It is possibly the case in all honorable professions.

      The hallmark of professionalism in any field of knowledge, is to be upright and ethical in the practice and not be influenced by greed or instant gratification and be socially responsible. If this is not followed in the spirit, human beings degrade themselves to lower than animals in the evolutionary hierarchy.

  12. s kadel says:

    When a LOU has a maximum period of 90days and the same was issued fraudulently for a period of 1 year still indigestible part is that how can a scam to this extent went unnoticed for such a large span of time and that too the Bank was engaged in a series of meetings only in January 2018 with the defaulters in order to repay the dues.

    • CA George A. Kurian says:

      Your query is very crucial. Reflects the extent of deliberate violation, blatant disregard for regulatory norms and overall level of corruption within these banks’ internal control and risk management systems. Such contraventions could have been easily picked up by bank officers, internal auditors, statutory auditors and the regulatory agencies. Why was this not done, is a question that will have to be answered in this investigation. Basel III norms are purportedly in place, and how PNB expected to stay risk free without interfacing its SWIFT and CBS, is incomprehensible.

  13. C R Shetye says:

    Who are the auditors of PNB? Why not the company and all the auditors who audited them should be barred from auditing?

    • CA George A. Kurian says:

      The ICAI is a regulatory body and is empowered by Government and the Chartered Accountants Act, to probe this scam and take action against erring members who signed off unqualified reports, especially as the scam encompasses several years and several banks. This scam seems to be on the lines of Harshad Mehta scam of the early nineties, as a result of which several top audit firms were debarred from bank audits for several years.

  14. Mohan says:

    The fraud has been crept in due to utter disregard of compliance of bank’s guidelines. With such high portfolio of credit, definitely the branch would be under concurrent audit, either by internal/retired officials or by external CAs. If these concurrent auditors are not in a position to detect these type of frauds reveal, the Con. auditors are either casual or not knowing the job. With such high portfolio of credit and FEx exposure the Bank should post an experienced and well exposed person as Con. auditor. As per RBI instructions at the time of introduction of con audit system in banks, the person with top ranks in promotion process only to be posted as Con. Auditor. But nowadays a person not fit to work in the field is posted ad Con. Auditor in total disregard of RBI’s instructions. If policing is not effective it becomes easy for the fraudsters to loot. The management to take a view about the branch’s volume and type of business and post suitable person as Con. auditor. But nowadays everything has become formality. Besides, the Branch incumbent HSS clear controlling mechanism of scrutinising the daily transactions. If he also fails in performing his duty or joins the culprit these type of mega scams will become order of the day. With FRDI bill is in the offing, the depositors to take a clear view of all these incidents to safeguard their hard earned money. With mounting NPA situation, these type of frauds will certainly reflect on survival of banks

    • CA George A. Kurian says:

      These are indeed serious matters of concerns to be promptly addressed to prevent recurrences and safeguard the interests of deposit holders and exchequer money intended for welfare of the poor masses. Within the bank itself, there are both established procedures of both manual and I.T internal controls especially on high value transactions [including those having contingent and off balance sheet impacts], approval hierarchy based authorization also operates based on transaction size. Hence there is likelihood of involvement and connivance at various levels of management. The auditors of course had a distinct role too which they will have to answer for.

  15. Ca K. K. JHA says:

    Previously Bank has right to appoint Con-current and Internal Auditors and now about 8 years ago, It got right to appoint Statutory Central and Branch Auditors with information type approval by RBI. This is the first and foremost failure for non detection of fraud. The LoU or LoC are off Balance Sheet Items are also main factors of fraud.

    • CA George A. Kurian says:

      True. Such appointments, have the risk of independence issues creeping in and impairing professional judgement and discretion.

      The statutory auditors may perceive their reappointment at risk from bank’s management side, if the reports highlights irregularities.

  16. Priyaranjan Maurya says:

    Where is the Proud system of Cross checks maintained by Bank whenever any huge payments are made.
    Why no-one cross checked with PNB when payment was made just one the basis of one document.

    When the whole banking system runs on an online platform, why there is no online system for issuing Letter of Credits or confirmation received from the payee bank when huge sums are withdrawn.

    Though fake documents were issued by one bank, why the same was not cross-checked by the payer bank when the amount involved is huge.

    Why the said transaction was missed during the audit(Concurrent/Statutory) of bank from which the payments were made.

    Time now for ICAI to revisit the audit procedures for Banks, as everyone knows what happens during the statutory audits, they are allotted only a period of 10 to 15 days to audit the banks whole year transactions, and they are left only with attestation functions instead of actual audit.

    • anonymous says:

      Who knows the auditor might have taken money from the dgm setty to ignor the scam

    • Vishnu says:

      The statutory bank audit by CA is a joke … it is undertaken for 2 days ( in the case of most of the branches) what can the CA review or verify. The reports like LFAR is completely outdated and redundant. ICAI should wake up and stop living in denial. The auditors will say the report is based on the information given by the bank this look is stupid. We do t require a CA to call you a report based on the information given by the branch any accountant can do that

    • CA George A. Kurian says:

      Our present process of appointment is fraught with the risk of overlooking due to time pressures. The role of central auditors however, is far more onerous in this matter as major transactions whether on and off balance sheet have to be filtered and checked for authorization, genuineness etc. as the risk of fraud and material misstatement is high. Lack of time, can never be an excuse and interim audit procedures including control testing and selective substantive tests have to be planned and carried out commensurate , to avoid omissions of this magnitude, notwithstanding the paucity of time.

  17. T.RAJARAJA N says:

    scrutiny of swift transactions and interbank transactions are required.not only auditors of pnb but also auditors of banks like axis bank should have done more.The auditors of banks who disbursed loan should have crosschecked lou independently especially when it got extended.,
    ANYWAY NEW MANUAL OF INSTRUCTIONS HAVE TO BE WRITTEN BY ICAI AND RBI.
    Also simple rotation of staff as per manual could have avoided crores of rupees.Time that this also finds place in reports

  18. sujeet kumar says:

    Reallyyyyy, Institute of chartered accountants of india’s role is to do post mortem, and really they are doing the same.

  19. R. Balasundaram says:

    What is the role of concurrent auditors, Internal Auditors, Statutory Auditors. Whether any point has since been raised in this regard by the auditors. Why this suo-moto trigger by ICAI.

  20. csmidha says:

    It is really appreciative thtt ICAI will analyse and suggest preventive measures to avoid such irregularities/scam in future.

    I shall suggest that ICAi/Tax
    Guru must make aware of its subscribers/stakeholders, who have FDs/Saving accounts/business dealings with PNB, about the impact of the scam. Will their investments be safe or they will also suffer? What measures should the stakeholders take to safeguard their interests?

  21. CA Sathyanarayan says:

    In order to improve the quality of concurrent audit, the fee component has to be revised considerably based on the advances mix. Efficiency has to be inculcated in the scheme of things.

  22. SMC says:

    it seems that the same is only an iceberg. There are many more and bigger also. The practice of loot has inculcated in the blood. even a paltry sum borrower mis-utilises the funds borrowed and is scot free. The system is itself in questionable?. Am soory to say that the persons with brain and power at more at fault than others?

  23. Suman Jhakal says:

    Lapses in audit , leniency of auditors to retain clients , assignments and actual audit works by semi-qualified trainees and staff and generic callousness in system towards ethics are seriously undermining credibility of the entire process of auditing….if such massive scams go undetected for numerous years.

  24. Ulaganathan, Advocate says:

    This is the right time to equip the CAs and instruct the banking sector to give sufficient time for audit and also the Government shoudl also fix the responsibility to CAs for their audit. If any fraudlent activities burst out after completion of audit, the firm audited the bank should take responsibility and that firm should be black listed and the concerned signed auditer shoudl also be disqualified. The CAs take advantage to put their signatures on the audit report as below ” We have submited the audit report on the basisi of the “BOOKS OF ACCOUNTS PRODUCED BEFORE US” instead of writing these type words, they should ask / digout the records from the institution. Accordingly the ICAI should modify the rules.

    • Vishnu says:

      I agree with you the joke is CA is doing compilation work based on the books and documents produced . They say random checking that is another joke. ICAI should wake up

  25. Pawan Nathani says:

    One can understand that LOUs were not recorded in Bank’s books. But when huge payments were made, has any internal / concurrent / statutory/ RBI auditor tried to find out the on what account such withdrawals were made. The fraud which continued since 2011 came to light after 6 years when deputy manager retired which shows that he was handling that particular table all these years and bank did not rotate him as per banking norms.

  26. Pawan goyal says:

    It is great concern for all of us. Auditors appointment must by third party with equal distribution of work. It will improve the audit quality. Tender system must be stopped by issue direction by GOI.

  27. Pawan goyal says:

    To avoid such type of incidence, the appointment of auditor must independent. The assignment should be on the basis of equal distribution of work among members to feel secured. This will definitely improve the reporting of wrong doings.

  28. Ajay Gupa says:

    Accountability should be borne to each and every concerned people like PNB officials from RM to Dy. M. including the official looking transfer (Two junior officers working at the same position and place since 7-8 years) and Internal auditor, Statutory auditor and so on. ICAI should also issue guidelines to their member to check these type of checks during their audit.

  29. the indian financial system is lacking one serious lapse that is of legal audit/legal complainces of documents. it is for the profession of law to raise their standards to international level and come with legal audit/ check list of all transactions above certain limit I think compared to accountants the legal back ground persons audit of complaince checking of provisions and procedures and legal validity of documentation with check lists etc must be incorporated in audit system instead of over dependance of ca/cma certification. the professional of law needs to come with its new course decision to tackle the financial and tax high value transactions and like tax/gst/bank audits their must be legal audit also in place which can not only detect but also initiate legal process at once instead crying after split milk. corruption will any way be common factor – being human, and applicable to all -ca,cwa,cma,banker,accountant, engineer,lawyer, bureaucrat, netas & their chumps
    media should provide feed back on recovery from niravmodi and co.process&update to public.

  30. CA Kondal Reddy Y says:

    It is unaccounted transaction and not done within the system of bank, how an auditor go and detect that. It is system design failure of not only PNB and should check from RBI and other funded banks

    • Vishnu says:

      You are talking like a CA …. you will say based on the information given by the branch the report is prepared.. if the bank has to give all the details of discrepancies then CA is not required

  31. VINOD KUMAR GUPTA says:

    Now the times come when whole banking system require overhauling.

  32. Easwaran says:

    Auditors are given less than 2 days to complete one branch. This is waste of time and money. With concurrent audit such lapses should be prevented by giving job description to those involved in checking/vouching/auditing etc.Unscrupulous businessmen loot the country through this corrupt methods

  33. Nanda Kumar Madathil says:

    On a preliminary analysis of the modus operandi of the fraudlent people involved in the crime , it becomes clear that 1) One guy was handling the file for pretty long time and how he was kept in the same position for so long a time … 2) What the internal auditors of the bank were doing all through the years or the internal auditors were silenced by top 3) How the DGM was able to operate through NEFT route without the detection of other officers 4) How the Branch auditors ( CAs) could not detect the unsettled LCs and the loans thereon while doing their audit is again a question requiring professional enquiry and reply . 5) How the interbank transactions were not analysed and got confirmed is another grey area… It all points out one thing … collussion of different people either obtaining gratis in the form of wealth , wine or women or under political pressure … Keeping the nation again in the shadown of corruption and shame

    • rajiv mangrulkar says:

      good analysis -since the scam is more than decade old, people living high profile life style, independent high spending habits on pleasures on fashion, dressing, sharab, shabab, kababs etc with high fi show rooms, glitterati-filmy links, with high spending habits be always kept on raddar along with their tax returns etc

    • Ravi says:

      Even if non-compliance is detected, given the VIP status of the clients , it will see daylight only after the scale of Fraud becomes unmanageable. No harm is done to the big ticket fraudsters, as they know how to loot leisurely over an extended period of time and scoot before the vigil is blown.

  34. RADHESHYAM MODI ADVOCATE says:

    It is high time that the Institute devises a system and train the auditors to find such fraudulent transactions and report them in their audit reports.
    Updating the training in view of such fraudulent activities is the call of the day. Otherwise audit shall loose its sanctity.

  35. vswami says:

    OFFHAND
    As personally viewed, the contextual relevance or the need for an oft repeated,- especially in recent times, – of the long-winding narration ‘About ICAI’, is not appreciated; but makes for a disjointed reading, as out of context !

  36. VATSAL SHAH says:

    I suggest Strong Concurrent audit of each transaction should be implemented so that this kind of issues never will repeat. Also Working Hours of bank should be restricted. This kind of scam related employees always do after evening hours.
    Each Transactions cross check by other independent auditor is only effective solution

  37. ramjiyahoo says:

    who is the branch concurrent auditors, CA firm or retired bank officials.

  38. G D GOYAL says:

    We All knows that most of the CA’s auditing either there relative or refereed by the relative, friends. that’s why they always hide serious matters.

  39. ROHIT KUMAR says:

    After this event one thing which I understood about various audits be it statutory Audits, Secretarial Audit or Internal audits that basic purpose of Audit is to give employment to professionals. Otherwise so far I have never seen any auditor has raised any alarm before happening such frauds.

    जब सब कुछ हो जाता है, then the professional (Auditor)show their expertise to do post mortem analysis and make list to whom they can blame.

    Now Seminars will held through out the countries to discuss this issue and train the members how to tackle such issues so that when again such frauds happen how to shrug off the duties and blame system.

  40. srikanth.vn says:

    The time given to Auditors are very less to conduct audit thoroughly.
    Granting of LOU without margin money would be a commercial decision,

  41. Madhusudan says:

    Contingent liabilities recorded in CBS system can be audit. But if it is not in CBS didn’t come in scanner.

  42. Rachna says:

    Trade finance operations team needs to be questioned as to how were these LOU issued without sufficient credit criterion that need to be fulfilled. Further why was it not declared that the import transaction is with related parties hence it’s a case of accommodation.

  43. Venkata Ramana Rao Cherala says:

    Sir
    I wonder to see the ICAI’s credibility.
    By reading the good history of ICAI, I am doubly wondered
    how all these scams went on unchecked and still going on without the real culprits booked, and the root cause problems not attended by this esteemed system.
    With due respect only I want to know from ICAI that
    what stringent measures are proposing to the needy.
    Thank U
    Regards
    Ramana Rao

  44. CA J V BHANU PRAKASH says:

    In our opinion the branch audit reports are need to be verified to ensure was there any lapses from the end of the auditors

  45. prasanth says:

    Sir, will the ICAI takes any action against the auditors involved, espesially concurrent auditors

    • Agam bhasin says:

      As far as I read the matter, this fraud was done by collusion of employees which means that it is a deep laid fraud done by critical planning and if auditor proves by their working that he exercise appropriate audit procedure and such fraud cannot be detected through this checking then he will not be liable for it. Further SA 240 said that auditor is not responsible for deep laid fraud

      • P K Sundaresan says:

        Technically, one can defend the Auditors. But iall the different audits ( internal. concurrent, forensic, system) have failed to detect this massive fraud. Of what avail these new measures by ICAI now

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