CMA Rakesh Bhalla
CMA Rakesh BhallaFinancial Scams/Frauds in the last few years

We have seen many financial scams during the last few years from Satyam, Saradha, Kingfisher (Mr. Vijay Mallya), NSEL to PNB where public money running into thousands of crores of rupees has been involved. There may be many such scams which still hidden in dark room. These scams have shattered the faith of investors, citizens & other stake holders.

Satyam scam is about corporate governance and fraudulent practices. Satyam’s case has been widely regarded as the debacle of the Indian Financial System. Similarly other scams have put many control systems in suspicious including the internal financial control system & auditing mechanism. Recently, Rs. 11000 crores fraud detected at Punjab National Bank has given the low level of depositors’ insurance & even a fraud of this magnitude has implications for the safety of bank deposits.

Reasons for these Scams/Frauds – One of them is Audit Mechanism Collapsed

Looking at the reasons for all these scams/frauds, one thing is evident that audit mechanism has not only been failed rather collapsed. May it be Statutory/Financial audit, Internal audit, Concurrent Audit & other audits. The continuous failure to disclose the big corporate frauds puts a big question on present auditing mechanism.

Apart from failure of audit mechanism, other reasons for financial & banking frauds may be – -Poor Internal Control mechanism,

– Non adherence to KYC guidelines as prescribed by RBI,

– Lack of oversight by Bank officer’s w.r.t. deviation management,

– Lack of tools to identify Potential Red flags,

– Failure of information technology etc.

It is pertinent to mention that in many of the audits like financial/direct tax/concurrent audit, the monopoly of one of the finance professional Institute is there. We do not doubt the capability/integrity of this Institute or its members but one thing is clear from some of these scams that inspite of charging high remuneration, auditors have failed to discharge their duty/responsibility in a fair & transparent manner & allowed to happen various irregularities/deviations which has resulted into happening of scams/frauds involving thousands of crores of rupees & may affect the economy of our country.

About the recent PNB scam, our honourable Finance Minister Sh. Arun Jaitley ji has said it to be the failure of Auditors & PNB Management. Sh. Jaitley ji questioned about the role of auditors.

Relevant abstract of their statement is given below:

“What are our auditors doing? Both internal and external auditors really have looked the other way or failed to detect… And, of course, there is also an important challenge where the supervisory agencies have now to introspect what are the additional mechanisms they have to put in place to make sure that stray cases don’t become a pattern and it is nipped in the bud”.

(Source: NDTV dated 20th February 2018). 

Even during last year in July 2017, our Honourable Prime Minister Sh. Narender Modi ji while addressing the gathering on Chartered Accountant’s day said to the Chartered Accountants to ensure healthy financial system without any malpractices, to take a command to eliminate corruption.

Some of the relevant abstract of his speech dated 1st July 2018 are given as under:

“Dear friends, you shoulder the responsibility of ensuring that the economic and financial system remains healthy and is not plagued by any malpractices”. 

“It is the moral responsibility of all of you engaged in the profession of Chartered Accountancy to guide one towards righteous conduct and practice”.

“I request you again to take your clients to the path of honesty so as to end corruption. To eliminate corruption, you have to take the command”.

Solution for preventing these Scams/Frauds-Involve Cost Accountants in Financial Audit Mechanism

There may be many other solutions to prevent these scams/frauds. One of the solutions may be to change the monopolistic right of one Institute for financial/direct tax audit and other professional bodies like The Institute of Cost Accountants of India should also be given the equal right to do the financial/direct tax audit work. Cost Accountants have the equal capability & already doing the Cost Audit & other jobs quiet efficiently as assigned by the Government of India. Further, Government has given due recognition to CMA profession in the Companies Act 2013 keeping it at par with other accounting professionals in many assignments.

It is beyond doubt that Government has given equal responsibility in many fields for both the professions (CA & CMA) e.g. it has kept both the professions at par in the GST related work though indirect taxation was earlier in the domain of Cost Accountants. So the Government should act fast & take a decision to give the right of Financial/Direct Tax Audit work to both the professions & stop the monopoly of any one Institute & keep the financial/direct tax audit field open to CMA professionals also for a healthy competition. Moreover, the authority for appointment of auditors should be changed. Government Authorities should appoint the auditors so to give them independence & free hand to do their duty more effectively.

Other solutions for preventing the financial & banking frauds are

 – Strengthening the internal control mechanism,

– Strict punishment for committing fraud,

– Adherence to all the guidelines of RBI w.r.t. KYC and loan proposals,

– Dedicated cell within each bank to monitor the company/firm to which they are lending and the macro-economic environment of the concerned industry or market where products are marketed,

-Triggers should be designed for all transactions having deviations,

– At every regular intervals, RBI should ensure that the process of reporting Red Flagged Accounts (RFA) is being tested considering the parameters that whether a fair balance between Type-1 and Type-2 errors is being adopted by the banks in this process,

– Holistic review has to be done by the Ministry of Corporate Affairs (MCA) i.e. they must review the reporting disclosure standards of corporate, including banks etc.

Steps to be taken by the CMA Institute

The Institute of Cost Accountants of India should also take up the matter with the Government on this issue & also at the same time gear up the young professionals/students of CMA Institute by modifying the syllabus and providing the necessary training to the members.

Steps to be taken by the Government

Government at their end also review the prevalent Auditing mechanism where financial transactions are involved and issue the necessary amendments to various acts so as to have better control & transparency.

Hence, it is the right time for the Government to take some drastic steps so as to prevent these types of scams/frauds in future by improving the internal financial control system & revamping the auditing mechanism.    

With Warm Regards & Jai Hind 

CMA Rakesh Bhalla 

*Member-ZAC Chandigarh, Service Tax, Govt. of India, Member-RAC Chandigarh, Central Excise & Customs, Member SIAM – Indirect Tax committee , Member-ASSOCHAM National Indirect Taxes Committee, Chief General Manager Finance- SML Isuzu Ltd., Winner Achievers Award 2015 by ICAI (CMA).

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96 responses to “From Satyam to PNB -Audit Mechanism Collapse Is Evident”

  1. TVG says:

    Friends ,

    The issue here is not about which accounting profession is better than the other. The issue is about repeated failure of accounting professionals who have been assigned the audit jobs on a large scale. This is what the author is pointing out as well as by our prime minister himself. Speak to your heart and do self introspection. No one is saying do not earn money. It is only expected that you will not cheat for earning money. Cheating includes gross negligence and failing the people of India who repose great respect and faith in your accounting profession even today.

  2. S.Malleswara Rao says:

    Mr. Bhalla, you have neglected to highlight the role of Black Sheeps in the scam i.e employees of the PNB. Had they be cautious and vigilant the scam could have been detected at the early stage. Their negligence and involvement in fraud led to this situation.

  3. CMA/CS Sridharan says:

    Whether it is CA,CMA or CS unless the professional’s mind is not only corrupt free but also free of corrupt ways to bag assignments, the position will not change.

  4. Niku says:

    Basicinternal control required but ignored by one & allwas non rotation of employee having sweeping powers to misuse.

  5. naresh k gupta says:

    with due apologies, writer does not appear to be aware that as the transactions are not recorded in the books of bank to be caught during audit or the knowledge is too shallow and unwanted and avoidable claims are made

    wd avoid to suggest that not being full time course, CMA level vis-a vis CA is known to one and all an lets avoid mud slinging

    • Rakesh Bhalla says:

      Boss
      Bank charged bank charges on these transactions & these charges are included in income of bank. Rest you are professional can better understand
      Jai Hind

  6. FCA Devang says:

    The root cause of system failure and fraud is the culprit state of mind of the group of people. Unless, that state of mind changes, frauds are going to happen. As, Laws and Systems are implemented by MAN, unless something is done for change in MAN, no good output can be expected further.

  7. Sandeep Goel says:

    Thanks Bhalla ji for putting your concern to stop continued fraud in the country. India ranked 81 in corruption and its ranking has increased by each passing year.

    Corruption can be curved by strong value system among citizens and specially among auditors. Time and again PM/FM is also pointing on the same.
    There should be Role of Professional to curve the scam, however, it has become…
    ‘There is role of a professional behind every scam’

    If we as professionals are determined towards value and commit to deliver such frauds may be averted.

    I don’t want to undermine the work done by our sister profession, however, advocate that CMA role should be supreme to develop the Indiam Economy with optimizing the scare resources.

    A management and system audit is a tool to judge the performance of Management and strengthen the system.

    In various cases from Satyam to PNB it is failure of a) Good Management Practice b) Failure of System c) Integrity of Professionals/auditors

    We have to incorporate all the three in our Management Audit and it should be over and above financial audit to optimze the resources and avert such malpractices/ Frauds.

  8. Bhalla says:

    Bhallaji you go to Narendrabhai and beg for removal of monopoly of ICAI. You ll definitely succeed and India shall progress by inputs of Mr Bhallaji in audit profession.

  9. R S Murthy says:

    Frauds in India are perpetrated by well qualified professional like chartered accountants and Lawers. Senior bankers are also equally responsible. Political leaders are not serious to punish the culprits.Money is the factor that decides all all outcomes.Admissions into colleges or prestigeous institutes is decided only based on money power. Medical facilities are available if one has money. Professional whio aquired the qualification with money power arfe looting the nation.

  10. Sanjeev Nair says:

    I think that there should be a cross verification system between countries using SWIFT facility. If i am transferring “X” amount from one country to another “Y” country, before the beneficiary is getting a credit it should be cross verified between “X” and “Y”

    Tighter controls on audits, even though some are saying that audit has collapsed, i do not think so, the corruption’s’ has really collapsed to a bottom

  11. iidreddy says:

    Hi All our Indian political system is corruptive..always spread its corruption from pin to piller..below ground to sky..even not left the foetus in the womb try to destroy for the sake dirty hunger for power even they were in death bed.. think of having an other 5 years in power.our political system or politicos always cheat and usr tax payers..funds because our law makers always keep loop holes ..provisions not to punish any culprits..no law is made 100%proof n punish the wrong doer..hang him n family person who encourage wrong doing and get fraud funds to enjoy lavish life at the cost blood money of others..first of finish the culprit then n there with in 3 months..not more than Harcourt cases will take 20 to 25 years..by the time many may not be exists.any wrong or fraud consider as serious case..Like molestation..man handled n make hang with in 3 months with out any mercy ..rule for all equally whether common man or cm /pm..who ever did wrong is wrong punish..no exemption to any one..change all laws nn bring all laws..rules to punish any wrong doer..with in 3 months.unless strict punishment ..India can not escape from this scams..no end .no need of blame each other..make punishment of wrong doer fraudsters..attender to cm/pm..then every one is care full for his life n others life..can eliminate for next 1 to 2 years.change 100 to 500 years old laws..an act strict laws to punish with hanging the culprit or fraudsters n save India n Indian’s.

  12. Sumegh Agarwal says:

    Dear Sir

    Your concern about failure of indian banking & financial system is good but how it took shape of crticising a particular profession is not appreciated.

    Instead of pointing & focusing on inherent weakness in system, you are only focusing towards accountability of auditors.

    What about the corrupted officers/management of victim entity, the regulators etc? Do their functioning and governance do not require reforms?

    And further, what guarantee can you give that ” inclusion of so called other professionals is one of the solutions to prevent such scams and these persons will be work with 100% integrity & independence” ?

    Also other professionals should not be too proud that they have been kept at par with CAs, as those work do not require high expertise and thus can be done by others if CAs are busy handling expert work.

    Thanks.

  13. Purvi says:

    Good article . Sir, In banking industry also for each bank one Compliance Officer should appoint and he will take care and do all the internal check. Like broking industry there should be one dedicated role for compliance officer.

  14. K.LAKSHMAN. says:

    If all the arms of the Audit Mechanism have failed,it cannot but lead one to the conclusion that money power is ruling the roost and professional integrity is a thing of the past,needing to be unearthed from the history of past cases that have brought the auditors’ clan into limelight – perhaps long forgotten and crying for being baled out now from the abysmal depths it has been consigned to.

  15. Sanandan Kukde says:

    Sir,

    I can see this article inspired not from concerns over auditing community; but out of jealousy and inferiority towards CA community. You have mentioned concern about monopoly exercised by ICAI. However, it is because of this monopoly that ICAI has guided and controlled this highly respected profession and because of which the profession has not become a bureaucracy, where corruption and anarchy. We have seen from previous incidents too, that unprofessional members have to face dire consequences in form of cancellation of membership by the Institute. It is in the best interest that ICAI keep its monopoly. I agree that functioning of ICAI needs reforms; but in no case is ICAI’s monopoly over Auditing Profession to end.

  16. Venky says:

    Sir
    Good Article . But i fail to understand how involvement of other profession will detect fraud. I feel entire audit exercise should be scrapped world over as it has failed to protect the interest of Stakeholders.
    Audit industry may be a trillion dollar industry world wide but what value it adds to the Industry Government and stakeholder is often a straight question that is ducked BIG 4 and Small 400 thousand.
    We need to strengthen internal mechanism empower CFO for independance and accountability who will report only to audit committee and regulators and we need to strengthen audit committees by making them answerable only in AGM and EGM.
    We need lay the parameters of audit as a cross functional exercise and an internal one specially on processes propriety cost Risk and Systems area with deregulating mandate of audit in companies act and resting with the board specially for listed companies.For private enterprise Audit exemption and freedom for management to engage and disengage an audit inspection by choice.CFOs and audit committees should be regulated and audit to be done away with in many cases and de regulated for listed companies.

  17. Pramod Ralkar, CMA says:

    Isn’t it a generic erosion in our value system? With open market economy, market valuations and fat performance bonuses…. there are disproportionate gains to make. We have redefined the success over last 2-3 decades. Measured by a few material and social parameters. So, the ends matter and not the means [anymore]. Everyone wants more in less. Quickly.

    This is then coupled with laggard dispensing of the justice. We have more laws, more lawyers and very little justice. The mightier and connected can get away with anything…. whereas the underprivileged have to live with whatever they can fetch. In fact, the top 1% is garnering more n more year-after-year. We have top SC lawyers fetching 25L for a single appearance. If one was to believe that they were helping dispensing justice… then we are only fooling ourselves. We have Tax Consultants and Fund Managers earning in Crores. If we were to think that they were doing any great service to the nation, they we are only fooling ourselves. Great service to their Clients n themselves? Yes!

    So, if we were to think that Vijay Mallya [MP], Satyam Raju or Nirav Modi… were some isolated cases, then it would be a shame. There are thousands and lakhs of them around us. They know how to manipulate the system. The big brains are helping them synthesise new ways of defrauding the just n fair incomes. And, in turn, get a share of that sin-money. The Law-makers are a part of it all, and use that sin-money to keep coming back to power. So, let’s not single out CAs. They are also human beings and part n product of this very same society. The Law has granted weight to their signature and they monetise it. Most often wrongly. But, then, who is to define what’s right n what’s wrong.

    I’m a CMA. But, I would hate to suggest that any CMA could be any better. Defrauding is a personal choice. A part of your value system. A result of the evolving society. It is not taught in any CA curriculum. If u were to grant the same power to CMA, then they as well will be equally eager to claim a share of that sin-money.

    I don’t see any end to this. You see Lalu’s Chara Ghotala and Rajiv’s Bofors, Advani’s Babri, Bombay Blast and Salman’s Road-kills cases dragging for years. Most of the accomplished in our Society NOW are some kind of cheat. They have a Celebrity status still they are found out. Suddenly the media wakes up…. keeps beating the drum… silently makes money out of the 24’/Hr advert income. Naive public wants to relish flavour of the day. then something new happens… and we all forget these so-called earth-shattering soul-search moments… and get on with our same old life.

    This is all a mere temporary entertainment to the public. The momentum in the erosion of our social standards, purity, probty, accountability will only hasten with passage of time. No Auditor is a safeguard… because as a human… he is also sucked into the lure of making a quick success. So, he is happy to share the booty.

    I am sure, that my views are divergent to the most and will receive loads of flak. But idea is to see it as it is… without making any excuses.

    • Spr says:

      Your views are perfect. These audit authorities and lawyer s are more concerned about their fee. Frauds mainly occures due to some loop holes and some inevitable gaps in systems which are misused by a few unscrupulous people having access to the systems in doing frauds. The same can be checked/controlled by strengthening internal controls only which are part of continuous monitoring machanism of the institution. Further, the people who instigate them in some cases to commit the same should also be punished equally.

  18. Anonymous says:

    I think the author is indirectly soliciting professional work for him through this article. Don’t you follow professional ethics prescribed by your institute? This article itself is violation of provisions.

  19. Sunil verma says:

    The question is whether CA fails to detect or something else………

  20. Sunil verma says:

    Different set of audit should be conducted by
    different set of people, tax audit by C. A, Statutory audit by CMA, concurrent audit by CS
    and all should be directly appointed by govt, again govt machinery should be competent enough to distribute the work. Only preventive way left with the govt.

    • Anonymous says:

      Sir,
      do you think that distribution of work among different professional bodies will control fraud. Never.

    • shubham says:

      Question has no relevance who appoints him. CA and their appointing authorities have nexus. Those CAs who have connection they get Big Branches where work is less volume of business is more. Sometimes they ask favour for their clients. All Chartered accountants be given some confidential number may be by Govt or ICAI and appointed authority should not know to whom they are appointing for quality audit.

  21. CA. S.C.Podder says:

    I think the author is possessing all the material facts to rescue those culprits brought under the net by the the Regulators ( Fin Min. CID , ED. RBI Banks and others as reported in the leading dailies and web-sites )
    You should not comment when the matters are under Investigation .

    • shubham says:

      Mr. Podder you are wrong. Actual culprits are CA Auditors who audit quaterly of big branches and finally annual inspection, RBI Auditor who audit under section 35, Concurrent Audiotor, Top management of the bank who cannot analye increase in foreign exchange busines, exchange, commission and advances, Govt is also culprit as they are not taking action against Top Officials of the bank who sanctioned the loan and subsequently became NPA. Only junior officers are hanged.

  22. Shahane says:

    To prevent such Frauds, the foremost step required is Auditor should be appointed by the Authority whose interest is at stake i.e.Banks who have given loans, Panel of Auditors of the Bank should be formed & they should be assigned Auditing work of the Company who has borrowed funds from the Bank. Auditor’s fees must be paid by the appointing Authority and not by the Company. The Bank should charge to the Company. Auditor should never receive fees from the Company whose audit is assigned to him otherwise he is at the mercy of the Company which is the present situation. If Public deposits are accepted by the Company, another Auditor should also be appointed by SEBI or RBI . Audit Fees should be paid by the SEBI / RBI.
    In short, Auditors should be appointed by the Authority like Bank, SEBI, RBI and em-paneled Auditors be assigned work for whole year with monthly/Qtly. reporting The shlould be paid by the Authorities & never by the Audi tee entity

    • shubham says:

      Dear sir, It is not correct as AUDITOR is the class which is not welcomed by any person,institutions they are always unwelcomed guest. So when miscreants (sorry for the word used) appoints themselves A policeman than what u can expect them. Actual stake holders are not banks but shareholders whose money is wiped out. The fees is paid by the nodal authority in banks but Auditors have upper hand .They send their articles for audit of banks and come last day for signing. They want 5* facility. Bank top management sometimes give more remuneration in the shape of boarding and lodging by excercising their deviation authority. Unless and untill they are made accountable and their licences are not cancelled or fined heavily they will not work honestly. I have seen one of CA stating bank audit is Bonus. When this approach what u can expect. You check all STATUTORY AUDITORS boarding and lodging at MUMBAI they were boarded , dined,in 5* hotels and all auditors given SEA FACING ROOMS. IT IS THEIR CHOICE. THEY SOMETIMES ANGRY ON THIS POINT.So strict action by Govt making stringent laws is necessary

      • CA George Kurian says:

        What you mention about taking perquisites like higher priced hotel rooms and facilities, is indeed a matter of concern and can impair independence of the auditor and clients are likely to misuse this to influence an auditor who is drawn in by such perqs. This is the situation not only with auditors, but with all other external officers or professionals, including RBI regulators, ministry officials, consultants of whichever profession, who interact with these banks in a statutory or fiduciary role. A dividing line of what is the eligibility for an official in such visits/tours should be laid down by the regulators and not left to be negotiated between the banking clients and auditors [or others professionals mentioned above]. An acceptable level of honesty and integrity is the hallmark of any professional taking on such critical role involving public interests and this should be strictly regulated to ensure minimum compliance, so that independence and quality of professional work is not compromised.

  23. Anil Kumar Jain says:

    Independence of Bank Auditor has to be restored. When they are appointed by the Auditee, how there reports on the acts of their masters can be unbiased. The auditors appointees are appointed by the government. The government must change the appointment system of Auditors not only for banks but for other entities including large corporate.

  24. Vaibhav Mago says:

    Maybe one scam is waiting to get unearthed in his own organisation. Blaming CA’s only , this man has erupted a so called fight of words between the two professions i.e CA and CMA.
    And even if he is so careful of his profession, he has not even talked once about CS in his article.

  25. naresh says:

    Blaming each others is not the correct now. If you see that when normal person ex.farmers seeks loan from bank are they getting the amount easily ?. How many hurdle they are facing and if they are not paying the loan amount in time how the bank treats the poor people. But big shorts getting the loans easily from the banks and cheated the amount. All the amounts are belong to our poor peoples savings. They are easily escaped from the law and finally they are enjoying their life in abroad. The main reason for such frauds is supporting from the bank officials and political preasures. This is a tip of the iceberg, unless strict the law this will be happend regulary and everytime such news comes out we will argue in newspapers and tv channels and forget it. Honestly please tell how many CAs and ACA are doing their jobs correctly, very few only doing their jobs honestly. This is common men’s anxity.

  26. subramanian ganesan says:

    All the failed corporates , big and small, have Statutory auditors. .The the problem is that Auditors , instead of honestly reporting to the stake holders, in true spirit, discuss with the directors the draft audit report and prepares his final report based on the advise of the directors. thus what the stake holders receive as audit report is , most cases, is directors report named as Audit report.

  27. vsnmurty says:

    What had happened is regrettable.Just pause and think what would have happened had there been no Audit.Knee jerk reactions are un professional like.DONT blame the GOD for creating human beings.Present outbursts are akin to that

  28. Anonymous says:

    Those who are given negative comments against CAs(including the author specifically), you first understand that ICAI is the pioneer in performing audit right from independence and it is one of the toughest exam in the world to pass it. Course is structured in a manner to produce quality professionals. That is why it is monopoly till now. Instead of blaming the premier accounting body, better you people are focus on the scope given to you by the govt. or else you want to do tax audit and financial statements audit, better you join the course and pass it if you have capability to pass the course.

    • Praful Sheth says:

      CA auditors have failed in PNB fraud case and proved that borrowers and lenders are more intelligent than Chartered Accountants.

    • Vijay says:

      Sir, CMA is also one of the premier institute in India and our exam also cannot be passed easily as yours. If we see, our passing ratio is much lower than CA. We are also same competent as you are. But due to limited scope awarded by Govt to us, we are not able to show our caliber to the public. We are ready to compete with all of you. And moreover, if you think our institute is incapable for this then is your omission.

      • Anonymous says:

        People like the author and others against CAs, acting like politicians to gain benefit. Because of limited scope only CMA’s errors are unearthed. what assurance you people can give that you can prevent these kind of incidents.

      • Rashid Mulla R.E.M says:

        In that case why are you not a CA

      • Vijay says:

        Assurance is not even by CA also. But many cases have proved that many CA are doing misconduct and someone (CMA) must control these issues.
        But your post clearly shows that your are becoming defensive. Instead of defensive, guide your people to control the scams otherwise no one can stop us to come into the picture.

    • shubham says:

      Sir passing of tough papers does not mean that CAs have become more competent. It is not true that who failed were incapable. There are so many slips and luck also plays a vital role. See the auditors who are interested in their comforts only like sea facing rooms in 5* hotels, the best lunch dinner, airport to destination taxi service and all articles behave like they are THANEDAR (SHO). I HOPE you know about banking where in Statutory Audit is conducted quarterly in big branches and annually. So how many such toughest passed exam failed in their duties. Sir with due respect to profession at least accept it that it is pure failure of Audit by CAs Statutory Auditors, Concurrent Auditors, Internal Auditors, System Security Auditors and RBI Auditors. This is apart from failure of top managements of all the banks.

  29. Ajay says:

    Some intellectuals don’t know the subject but still want to participate. And thinks they have the authority on all the subject. Before commenting on CA”s one should ascertain the facts. Till date PNB has not yet disclosed exact modus operandi. And so called high calibre intellectuals start blaming auditors.

    • shubham says:

      Sir whatever may be the modus aprendi but bank was aware of the increase of foreign exchange business, exchange, commission on foreign exchange, advances in that particular branch so much so CAs also failed in their duty to check that.

  30. R L Kaura says:

    Frauds are the result of connivance of two individuals for personal benefit, only and only if they understand the loopholes of the system.
    Frauds do take place when the person at the helms of the affairs either relies too much on the subordinate or provides too much of the comfort to the subordinate.
    Frauds do take place when persons like SG, MMS, RG, PC,and their paltu are in command with an apprehension that there is none to question us.

    • shubham says:

      Mr.——- Banking and daily routine banking is not done by the persons who are you commented. You may belong to a particular party but that does not mean that for the failure of present govt., Regulator RBI,CAs and other control system you will charge others. If you understand banking system than you shall be aware that fund based ,non fund facilities are renewed annually and terms loans are reviewed annually. So for the last four years what the present Govt doing. Dont try to blame anyone. Actual culprits are the top management and auditors of the bank.

  31. M ujir says:

    Dear friends , blaming each other profession will not resolve the issue , first of all you have to understand when and how a fraud is happened , it a tree angle – 1. opportunity, 2 pressure 3. rationalization

    opportunities leads to weak internal control systems,weak internal check system etc
    Pressure – may be social / political / family etc
    rationalization- unless and until a person justify himself to make crime he can not do so

    unless and until such triangle is present fraud can not be happened
    Present Sanario

    1. Bank auditors are appointed by bank itself
    2. political people are appointed as Board members
    3. when a business organisation takes loan normally the promoters contributes 25 % margin and bank finance 75% but ones the loan sanctioned , no control or auditing or joint involvement of bank about the expenditure made by borrower , not a single rupee is spend for management of banks assets what borrower says or gives bank is bound to accept / and bank runs behind borrower to collect dues ———
    4. low remuneration to auditors even if less than banks 4th class employees get —
    so on ————–
    Now my friends you can understand that where is the problems
    regards
    M Ujir

    • shubham says:

      Mr Ujir In corporations there are also political board of directors, after giving loans banks keep watch through cash flows and fund flows, here also sometimes banks say to introduce capital and CAs give certificate that the money has been introduced as capital and banker believes on that. You might not be aware of the remuneration as it is the highest. They are given remuneration on the basis of business of that particular branch. It is slab system. In addition to that they have all facilities equivalent to DGM,GM like entitlement for staying in hotel, they get lunch and dinners in 5*,3* or the best available hotel in the city, their 2-3 articles work and they get certificates for more than that and comes only last day to sign in Statutory Audit and sometime even called in their office to come and get signed, stamped statements.

  32. R L Kaura says:

    Concurrent Audit, Statutory Audit as well as the Tax Audit need be assigned to different set of people.

  33. RV says:

    Dear Sir,

    The modus operandi of the scam not studied by the author and started throwing stones on professional body. If internal audit carried out retired officer, CA’s role is nothing to play. Instead of being opportunist to get audit work for CMAs, the author should have thrown some light on areas to be strengthened in the banking internal system.

    • shubham says:

      Sir I do not agree that work should be entrusted to retired officers.It is very difficult for Junior officers may be serving or retire to point out glaring irregularities in Audit because it they do so they have to face the consequences. Retired person will be shown exit door if they will point out big blunders.So Audit should be from professionals. For strengthening the system there should be penalties which we have heard that these have been proposed to be imposed on auditors. But action should be swiftly.

  34. L.Veeraraghavan says:

    Authenticity and veracity of transactions is the responsibility of internal audit who report to the top management. Internal inspection will look into Board level policy implementation and adherence to corporate instructions. External audit and inspection will work on the premise that authenticity of the transactions is already verified and given and they will look for violations of relevant laws, banking policy and regulations. Where they get reasonable doubt they will ask for internal audit reports and random scrutiny of authenticity. It is not done routinely. This case appears to be a failure of internal control mechanism.

  35. Anonymous says:

    The point is this the auditor is supposed to state an opinion on the true and fair view of the state of accounts. That is the scope. The auditor is not supposed to detect frauds and errors. The internal control system needs to robust. It was a complete failure of the internal control system of the bank. If all the employees collude and do a fraud, there is nothing anybody can do about it. That is why frequent job rotations are done to ensure there is no collusion. Actually this actually came out because the employees involved had retired. To the author, the specializations of both the professions are different, that is exactly the reason why cost audits are only done by cost accountants and statutory audits by chartered accountants, the government knows this. That is why there are two institutes.

    • R L Kaura says:

      Not fair on your part to stand for auditors responsibility. Do you intend to say that the facilities availed by the fraudsters were not recorded in the books of account? Had the auditors asked for a certificate from the bank for the facilities availed, it would hv been unearthed long back.

      • CA Nishant Palan says:

        As far as the PNB case is concerned, the transactions were not recorded in the books. It has been stated over and over that the SWIFT system of that branch was not linked to the CBS. Blaming the auditors is a very easy thing to do for everyone.
        The author is being opportunist an
        d trying to make the best use of the situation by putting the blame on auditors.
        The only solution is to appoint auditors independently to maintain their integrity. If any one has carried branch audits of banks, they must be aware that very little system access is available to the auditors.
        If transactions are not recorded in the books, there is little room for auditors to unearth any irregularities

        • shubham says:

          SH.Nishant G you are professional and aware of double entry system. SWIFT is just transmitting message only and the rest is done through CBS, So how foreign exchange transactions, commission, exchange, advances increase did not come to their focus. It is agreed that little acess is given but they can demand and see each and everything and none officer even the MD,CGM can refuse to produce the document or share information sought by auditors. Auditors are appointed to read between the lines and if they cant do then Audit system should be withdrawn.For the last 7 years the profitability of the branch must have increased due to such type of business which fraudster was providing.

    • Praful Sheth says:

      If this is the approach of Auditors, they will never ever use their intelligence and smartness and the frauds will continue to happen and auditors will continue to give excuses.

      Then what is the use of audit?

  36. Amit says:

    Respected Sir
    We understand your frustration. it seems, it is a fashion in these days that anything happens in the corporate world Chartered Accountants are responsible.My friend we are not bloodhound. I would suggest you please read the facts before blaming any professional body.
    Secondly, What was the contribution of so called other professional bodies during implementation phase of GST? it was ‘ZERO’.
    ICAI is the only body who has conducted countless seminars and sessions on GST.
    kindly acknowledge our contribution in the implementation of GST. Only we are the people who have helped the people to understand and implement the new law.
    I believe you can not digest the above statements but it is true.

    • Niraj says:

      So called professional body is CA and not others.Just check how many seminars and how we as CMA institute and professionals have helped people common man to understand gst without charging heavy fees.recently a minister also said that ca profession is a loot as 500 work they take 5000.We understand your frustation. Satyam scam, lalu prasad yadav ca held last year for big scam are all indicators that profession of ca is looting since 1949.Give all powers to cma and cs of tax and financial audit for the betterment of the nation.
      Secondly, What was the contribution of CA during implementation phase of GST? it was ‘ZERO’.
      ICMAI is the only body who has conducted countless seminars and sessions on GST.
      kindly acknowledge our contribution in the implementation of GST. Only we are the people who have helped the people to understand and implement the new law.
      I believe you can not digest the above statements but it is true.Ya all the above is seriously true and you wont be able to digest it.

      • Amit says:

        Stay Cool my friend….
        Truth can not be changed with your hue and cry.
        How many of you are in Practice? How many People have know your profession?How many of you have been invited for any financial/economic discussion on budget or other important laws?
        Again “ZERO” Your identity is ZERO.
        You people jealous from our profession that’s why other professional always try to jump in our areas.
        My Friend we have earned this degree and that’s we get respect and importance from the society. CA is only profession where We get 3 years of practical training compulsory.
        Now Come to your GST Seminars points and I believe ICMAI organized all seminar only to give training to CMA, not for common “MAN”.

        You are follower and better follow us as you have done in the past.

      • Baburaj says:

        it is CMA not the govt. implemented GST

    • ANIL BHATEJA says:

      Well said Amit Ji.

  37. MKD says:

    A balanced person should always compare what somebody has done and what he could not do. Then only you can declare somebody as failure. Half truths are biggest lies….. may God help you

  38. MKD says:

    One sided article. Please do some research and find out how many frauds have been averted by auditors.

  39. Harsh Ghorawat says:

    Dear Professionals,
    CA’s declare in their audit reports that they have verified the documents presented before them during audit and they do not take any responsibility of any transaction not recorded in books of account. Thus, in the present case of PNB, if bank personnel issue LoU from uder the table for commission without recording them on their sysytem how can one blame the auditors.

  40. CA Shirish J Vinchurkar says:

    I am not agree with this statement. The author has brought his professional demand of getting bank and other audits to CMA on this occassion. What is guarantee, that CMA will be able stop this frauds or scam which is mainly because of banks itself. Considering the constrains imposed by the RBI and other Government agencies, it is really possible any professional to stop such frauds ? If the Monopoly of CA is the only remedy, then why auithor has suggested n number of remedy to prevent such frauds ? It simply shows that the problem of not in auditing profession but it somewjhere in boards of directors, in bank, and so on.

  41. B Nandan says:

    Dear Bhalla Ji,

    It appears that you have main issue with the monopoly of ICAI on the profession of Audit. What i can understand is that you had not done bank audit ever. I would suggest you go and conduct bank audit sometime then comment on our profession.
    I agree with you on the part that it’s a failure of auditor (RBI and Internal/concurrent Auditor) if the auditors have not highlighted the issue in the audit report.

  42. Mahesh SV says:

    Auditors are not doing their job properly and are not honest in their duties and responsibilities.

  43. CMA ANIL SHARMA says:

    In all commercial organisations, systems run the organisation not an individual……. but in case of PNB it seems that an Individual run the organisation.
    It is clear cut case of gross negligence and management of the PNB is wholly responsible for such negligence. It shows how PNB is playing with public money without any fear.
    Auditors, who are suppose to check internal controls, especially with respect to transactions which are out of CBS, but never checked or pointed out.
    In other transactions like working capital DP, valuation of stock or stock statements as submitted by the clients never being challenged or crossed checked by the bankers which is also a grey area and client withdraw excess amount.
    Systems need to be a reviewed in all public sector banks and proper valuation of stocks is need of the hour.

  44. VINODKUMAR BANSILAL MODI says:

    auditor has not access to Swift system or swift log of banks also swift not integrated to CBS. in PNB internal audit have been done by retired bank officer in scale iv and above branches
    Who did Management Audit?
    Who were the internal auditors?
    Who was concurrent auditor?
    Were they rotated as per RBI guidelines?
    Were they working like oil bell who moves on and on?
    Who analysed various audit reports of the branch and audit reports of foreign branches when received since 2011?
    These are the cases of collusion and conspiracy.

    • shubham says:

      Dear Modi G, I do agree that Auditors have no access to SWIFT but no officer if called by Auditor can deny to Auditor to show all SWIFT messages alongwith its hard copy comparing with the system.Management Audit is done by RBI who is also responsible for the lapses. Second Management Audit is at Zonal office level/ Circle level but their the questionnaire dose not provide information of each branch. The internal auditor and concurrent auditors are responsible to some extent as Branch Appears to beheaded by GM so junior auditors dares less to comment upon their bosses however they are personally liable and accountable. Audit reports are generally analyses by next Auditors. Statutory Auditors ,RBI Auditors are responsible because they are not paid employees and supposed to work fearlessly. System Auditor is also responsible for this.

  45. T.SUNDARAM says:

    TOO MUCH OF DEPENDENCY ON CHARTERED ACCOUNTANTS AS WELL AS ON IASs IS making all the problems.

    The Govt , Banks, Income Tax and other agencies are forgetting that the CAs are also human beings and they also work for money and not charity.

    So wherever money consideration is involved, there some sort of compromise will definitely take place

  46. Ndk says:

    YES
    ICAI is a supplier of ARTICLED CLERK bonded labour supply to Practising CAs in the country.

    In their early and tender years, unknowingly, these students learn the basics of falsifying financial statements and filing false returns, manipulating MCA e-form attachments, including signature forgery of company directors.

    ICAI is guilty of this kind of bonded labour supplying.

    ARTICLE STUDENTS SYSTEM shall ended for preventing youngsters from being educated for this kind of false practice preaching by Practising CAs.

    For example, concurrent is done by 1 articles student full time sitting at the Bank and CA never attends the Bank at all for the full 3 year allowed term, as it happened in one Bank in Ernakulam (Kerala),

    What is this.

    Put these CAs behind Bars for 5 years, and i am sure it will yield result in better reporting of frauds and scams and lesses frauds and scams in future.

  47. M V KAMESWARA RAO says:

    Cost Accountant can also study CA course and pass CA examinations.

  48. JAYESH JOSHI says:

    This in my opinion will go a long way in bringing in necessary CHECK AND BALANCES IN place.an as expert gaurdian of National resources ,have been doing so since inception

  49. Ravi says:

    Tum CMA ko nh milega fir b yh audit work…or auditor insan h koi bhagwan nh…

    • Niraj says:

      Milega and tum ca se sabh audit chin ke milega
      Fir ill say Tum CA ko nh milega fir b yh audit work…or auditor insan h koi bhagwan nh…Government and ITAT are fed up of ca’s and now its time for cmas to overcome these fraudster cas.

  50. Ndk says:

    YES,
    i as a CA still feel ICAI is monoplising the filed of Auditing and ICAI has failed to regulate the CA profession and the practising CAs in the country. ICAI has no or puke mechanism in practising CA committing fraud cases like False Audit Reports, False Certificates and even when reported to ICAI, ICAI still not taking action on these CAs.
    ICAI disciplinary mechanism is another PUKE (if not a JOKE) .
    CMA and CS shall also be equally allotted Bank audits and company and Tax audits and not CAs alone.
    CA is a fraud community responsible for all these past scams, with irresponsible audit reports and puke certificates.
    All the CA responsible for PNB, BOB and OCB scams of 2018 shall be put behind bars and ICAI shall be penalised Rs.100 Crore penalty for failure to regulate the CA profession as warranted by times.

  51. d srinath says:

    as long as greed persists all mechanism fail..a thief always looks for ways and means to rob ….irrespective of any controls…

  52. Vivek shah says:

    Sir with due respect would like to keep my view on your note:

    This could have been a wonderful note but sir u just made it as a request letter for your profession to get the recognition and made it complaint letter. Great sir what grabbed amazing opportunity.

    Instead of throughing dirt on the ICAI and promoting your specific profession you should have stick to the topic and provided with the solution that what should have been done by you if you or any person of your profession would have been there as an auditor.

  53. VINODKUMAR BANSILAL MODI says:

    There is another area through which the banks have been defrauded.
    Advance remittance
    There are no imports whereby the banks have been defrauded. The banks/RBI should have followed up for Bill of Entry and should have put a stop for such remittance. The amounts are in billions. I had reported this in 2015.
    Another area through the banks are cheated is export packing credit. These loans were obtained against accommodation LCs which were defaulted. These loans also are in billions. In Gujarat there are about 10000 crores lost by the banks particularly nationalized banks.
    Who is responsible as no one is accountable?
    Who removed these activities from selective credit control which was primary function of RBI?
    Our prudent bankers were fool who thought if public money and never allowed these activities to be financed.
    Think over.

    • shubham says:

      Sir I would suggest that all these should be reported to CBI and other agencies which are investigating in the matter. If 10000 crores lost by banks than provide details to agencies as well as opposition parties to take necessary steps.

  54. VINODKUMAR BANSILAL MODI says:

    Dear sir,
    In the case of Satyam the culprit were the auditors who presume the bank balances in various forms as true picture but none of them obtained quarterly as well as yearly certificate of balance from them. This non reconciliation was the modus operandi.
    In case of Nirav Modi too the basic instruction that whenever a future or contingent liability is created by the bank in any form the contra or proforma entry must Br created for various controls. This basic instruction was violated. These must have been reported in various reports either in India or Indian banks working abroad. This is the clear case of collusion and conspiracy.

  55. m g raman says:

    no council member should stand for re-election. also in future during lifetime icai council & central or regional ) membership should only be for one term ie.4 years.

  56. Manoj Kumar Agarwal says:

    Dear Friends

    auditor has not access to Swift system or swift log of banks also swift not integrated to CBS. in PNB internal audit have been done by retired bank officer in scale iv and above branches

    • Rashid Mulla R.E.M says:

      Auditors have powers to call for all books and material required for the Audit. If SWIFT was used then you the Auditor reporting to the Public should have used a magnifying glass.

    • shubham says:

      I do agree that SWIFT system cannot be accessed by CAs.But they have full authority to call an officer and sit in front of him and show all the SWIFT messages and compare the same with the available record. Do not shun the responsibility. Retired officer of Scale-IV is helpless pointing the irregularities of GM headed branch. However CAs Stattutory Auditors, RBI Auditors are independent and it is their failure.

  57. S K Gupta says:

    searching for job Mr. Rakesh Bhalla, this is not the correct platform.

  58. R. Balasundaram. says:

    Retired CAG officials, Company Secretaries, CMAs MBAs from Big Bs may be included in the definition Accountant. Monopoly maybe the cause for all these frauds.

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