PNB Fraud And Auditors

Text of the complaint filed with ICAI.
                                                                                                          To
The Competent Authority.
The Institute of Chartered Accountants of India,
New Delhi

Sir,

Subject - Complaint against Central Auditors of Punjab National Bank for financial year 2016-17, for their act of professional misconduct.

Following persons, acting as central auditors of the Punjab National Bank , audited and certified the annual accounts of the bank.

Sh, Sudesh Punhani...  M No. 017222

Sh. Neeraj Golas…….  M No. 074392

Sh. Manish Gupta…...  M No. 092257

Sh. R. Mahesh…....…...M No.024775

Sh..Satish Chander....   M No.087562

In the auditor’s report , the auditors concealed and failed to highlight the misappropriation of trust funds of  “ Employees’ Pension Fund Trust”  by the management of the Punjab National Bank during the financial year 2016-17.

During this period (2016-17) Punjab National Bank transferred a sum of Rs. 2026.60 Cr. ( Rs.1800.84 Cr from Employee’s Pension fund & Rs.225.76 Cr from Employees Gratuity fund) to Profit & Loss account of the bank under the Sub - head  “Payments to and Provisions for Employees - Employee Cost” with consequential impact on the financial results of the bank for the year, showing Net Profit of Rs.1325 Cr.

My present complaint is limited to the unauthorized transfer of funds  of Rs.1800.84 Cr from Employees Pension Fund to Profit & Loss account Sub-head “Payments to and Provisions for Employees- Employee Cost” to show net profit of Punjab National Bank of Rs.1325 Cr. during the year 2016-17

Following are the facts & extracts from the various documents.

1. Extracts of the annual report of the  Punjab National Bank for the year 2016-17 .
" Significant Accounting Policies , (Page -128 to 140)

8. Employment  Benefits

● PENSION: (Page -138)

Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a  separate trust.

C. Changes in Fair Valuation of Plan Assets (Page -160)

In accordance with AS-15 issued by ICAI, during the year while considering the fair value of plan assets relating to pension and gratuity fund being long term benefits of employees, interest accrued on investments has also been taken into account as against principal amount in earlier years. Consequent to this, employer contribution to pension and gratuity funds representing excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores has been credited to “Payments to and Provisions for Employees- Employee Cost ” during the year. Figures of previous  year are not comparable to that extent.

Financial Statements (Solo) - Independent  Auditors’ Report  (Page.183-185)
Emphasis of Matter  (Page -184)

7. Without qualifying our opinion, we draw attention to Note no. 15 C regarding valuation of Plan Assets of long-term benefits , resulting in excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores credited to “Payments to and Provisions for Employees- Employee Cost ” with consequential impact on results for the year.

Consolidated Financial Statements - Independent Auditors’ Report ( Page. 238-240)
Emphasis of Matter (Page -240)

10 Without qualifying our opinion, we draw attention to Note no. 4.5 C regarding valuation of Plan Assets of long-term  benefits ,resulting in excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores credited to “Payments to and Provisions for Employees- Employee Cost ” with consequential impact  on results for the Year."

2. Extract  of “Punjab National Bank (Employees’') Pension Regulation, 1995”

Regulation No. - 7.    Composition of the Fund.

The Fund shall consist of the following, namely,

(a) The contribution by the Bank at the rate of ten per cent per month of the pay of the employee;

(b) the accumulated contributions of the Bank to the Provident Fund and interest accrued thereon upto the date of such transfer in respect of the employees;

(c) the amount consisting of contributions of the Bank along with interest refunded by the employees who had retired before the notified date but who opt for pension in accordance with the provisions contained in these Regulations;

(d) the investment in annuities or securities purchased out of the moneys of the Fund and interest thereon;

(e) amount of any capital gains arising from the capital assets of the Fund;

(f) the additional annual contribution made by the Bank in accordance with the provisions contained in Regulation 11 of these Regulations;

(g) any income from investments of the amounts credited to the fund;

(h) the amount consisting of contribution of the Bank along with interest refunded by the family of the deceased employee.

Regulation No. - 10.    Books of accounts of the Fund.
(1) The accounts of the Fund shall contain the particulars of all financial transactions relating to the fund in such form as may be specified by the Bank.

(2) Within one hundred and eighty days from the closing of each financial year, the trust shall prepare a financial statement of the trust indicating therein the general account of assets and liabilities of the trust and forward a copy of the same to the Bank.

Within sixty days from the date of publication of the “Balance sheet of the Bank”, the trust shall prepare a financial statement of the trust indicating there in the general account of assets and liabilities of the trust and forward a copy of the same to the Bank. (AMENDED WITH NOTIFICATION IN GAZETTE ON 13/11/2010)

(3) The accounts of the fund shall be audited in accordance with the provisions of Section 10 of the Act.

Regulation No. - 11.   Actuarial investigation of the Fund.

The Bank shall cause an investigation to be made by an Actuary into the financial condition of the Fund every financial year on the 31st day of March, and make such additional annual contributions to the Fund as may be required to secure payment of the benefits under these regulations:

Provided that the Bank shall cause an investigation to be made by an actuary into the financial condition of the fund. As on the 31st day of March immediately following the financial year in which the Fund is constituted.

Regulation No. - 13.    Payment out of the fund:

The payment of benefits by the trust shall be administered for grant of pensionary benefits to the employees of the Bank or the family pension to the families of the deceased employees of the Bank.

Punjab National Bank Employees Pension Fund Trust is an independent trust established  under regulations [Punjab National Bank (Employees’') Pension Regulation, 1995] notified in the Gazette by the Govt. of India,

From the Regulations mentioned above it is clear that assets of the Pension Fund Trust  are not the part of the assets of Punjab National Bank as evident from Regulation 7,10 & 11. This fact is again confirmed in the annual report  under the head " Significant Accounting Policies >

8. Employment  Benefits > ● PENSION   (Page -138) reading as under-

“ Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust.”

As per regulation no 11, the purpose of annual Actuarial investigation of the Fund is solely to make such additional annual contributions to the Fund as may be required to secure payment of the benefits under these regulations:

There is no regulation in the Pension Regulations which could be construed to authorize the Management of the bank (Punjab National Bank) or the Trust (Employees Pension Fund Trust) to write back the trust fund  to the bank ,on any pretext whatsoever .  Trust funds can  be utilized only for the  purposes mentioned & defined in Regulation 13.

In the absence of any  provision authorizing such write back, the action of the management of the bank / trustees,  amounts to misappropriation of the  Trust Fund (Punjab National Bank Employees Pension Fund) , and auditors by failing to expressly point out this misappropriation of trust funds in  their audit report, the  auditors had connived in the act, with  the management of the bank and are thus equally guilty of the misappropriation of the trust funds.

The auditors in their audit report on page 184 & 240 under the head “Emphasis of Matter” smartly failed to mention that “Plan Assets” are actually assets and the property of Pension Fund Trust, which is a separate & independent entity , of which Punjab National Bank is only a  contributor of the trust.

Misappropriation of trust funds / assets is an economic offence, and  it was on the part of auditors’ professional duty to prevent & report any economic offence, which comes to their knowledge during the course of the audit.

The AS15 (Accounting Standards 15) is a financial tool  to ascertain adequateness of the provisions of plan assets ( in-house) for employees benefits, devised by ICAI. It can’t override the provisions of Law and / or Regulations promulgated by the Govt. of India through Gazette notifications.

The act of auditors of not reporting of misappropriation of trust funds amounts to professional misconduct , for which suitable disciplinary action can  be initiated against the auditors.

Thus the auditors are guilty on two counts.

Misappropriation of trust funds.

Professional misconduct

I, being one of the beneficiary of the trust funds , a pensioner of Punjab National Bank, has locus standi , to file the complaint.

Submitted

Arvind Mangla
Enclosures / Attachments

Copy of annual accounts of Punjab National Bank is being  attached for ready reference please. Copy of the annual accounts have been downloaded from the site of Punjab National Bank.

PDF  copy of the this complaint

Copy to..
Secretary,
Department of Financial services, Ministry of Finance , New Delhi.- He is requested to kindly-
Reconstitute  the Board of Trustees of Punjab National Bank Pension Fund with the representatives of, GOI, RBI , Bank & retirees organisation, with suitable amendment  in the Pension Regulations.

Bring Pension Funds of Public Sector Banks under the regulatory control of PFRDA.

2.       Comptroller & Auditor General of India. - For information  &  request to order                 Special audit of the the “Punjab National Bank Employees Pension Fund, in light of unauthorized transfer of trust funds to show profits in the financia accounts of the bank .  Misappropriation of Pension Trust Funds directly has a bearing on the sustainability of  life  of thousands of pensioners in their advanced age.

3.       Chief General Manager, RBI  Mumbai, for
information and necessary action in the matter.


_____________________________________________

Sri Jagat N Shukla writes

I Am No More Sensible !
A PLAIN TRUTH THAT I ADMIT !
----------------------------------------------------

The Leaders of certain Unions of Banking seem to have had lost the sense of good or bad impacts that their actions leave on the prospects on workforce which they represent.

We have seen the era of doyens of bank employees movement like late Com H.L.Parwana, late Com.Prabhatkar, late Com. D. P. Chadha, late Com. Tarakeshwar Chakravarti. We observed the political nexus between CPI-Congress in late Mrs Indira Gandhi time, and how CPI mentored/ tutored Mrs. Gandhi to impose Emergency on nation with a view to shut dissent, led by J.P. movement. But, despite a member of CPI, we never saw these leaders toeing CPI dictate in organisational affairs. We saw them unfazed of any fear of repressions. AIBEA, though not affiliated to CPI or AITUC, leaders have been  CPI member. We saw, how CPI membership was taken as super qualification to qualify for leadership in AIBEA clan. How the intelligentsia was driven out from the leading role by pseudo communists. We saw many with loaded bearded look, seasonally, to disguise and pretend as very progressive and different to others to further-en their prospects in leadership.

However, the aforesaid leaders maintained equidistant principle and never allowed CPI meddling in AIBEA's organisational operatus. We had the opportunities to hear from them that AIBEA didn't need them (CPI), but it is they who need AIBEA. We never found them succumbing to any political pressures or pulls, or taking any organizational decision to please the said political outfit. These leaders tried their best to remain independent, apolitical and appreciated the views of people opposed to them as well. They were tried upon to intimidating, but bravo to their mettle, they emerged more powerful.

We always saw a very considered decision behind any bank employees' actions. In 1970s Mrs. Gandhi let loose reign of terror on Railway employees, who went on indefinite stroke. It was AIBEA which came in support and gave a nationwide bank strike call in support of fighting railway men, unmindful of threats that loomed large. It speaks their tenacity & timid-free style of functioning. Houses of Com. DP Chadha & Com. Prabhakar were raided by Income Tax department to frighten them in emergency days.

Today the whole concept is changed. Now leaders sit in the lap of their political masters. There are 9 outfits. Earlier, AIBEA was alone crusader. NCBE was in few pockets. SBI union was quite confined to SBI alone. AIBOC was not conceived. There was tough opposition & division within AIBEA on political lines. There was no BEFI. All CPI(M) elements were in AIBEA and they were arch political enemies of AIBEA leaders, having allegiance with CPI. We remember, after hours of debate on GS report in Amritsar Conference of AIBEA, two Comrades having allegiance with CPI(M) Com. Shanti Bardhan & Com. Naresh Paul raised their hand in dissent against GS report. They were demanding re-write of Report and further they wanted not it passed unanimously. One can imagine the strength of dissent, how little it be of just 2, but the spirit of challenge was taken as guiding principle in organization spheres.

In today's context can you imagine about such dissents? Not at all. It may be General Secretaries themselves picking up dissenters & throwing them out of meeting venues. Now, fear prevails. Now in organizations dissents are taken as revolt & dissenters are taken as terrorists. The leaders caution their henchmen to take care of such elements and keep at bay. The leaders take them as threat to their existence, how small may they be! We find, how right calls are silenced. And, when in any organization, autocracy reaches to such levels, it ushers  into dictatorship. Our leaders are matured dictators now, and members are just innocent subject under their monarchy.

It's not new at all that some special confronting situations have arisen now, warranting protests from civil society, be it labourers, workers, farmers, trading communities etc. There were many Bharat Bands, Hartals, Marchs, Morchas in past, but aforesaid leaders worked with foresightedness all the time and decided what was opportune in the interest of Banking,  it's stakeholders like customers & working people. Not like today, where in all Bands/Hartals, bank employees are pushed, unmindful of disruption of banking service, public inconvenience, business & trade losses, wage cuts etc., it happened in past. Earlier, Leaders were very careful and always evaluated their gains or losses. Today, bank employees/officers wages & service conditions are under negotiation. All we know that 2 days strike had taken place. All we had to bear 2 days wage cut. All we know still the situation is at precarious dimensions, we may be required to agitate further and face wage cuts. But, our Unions have decided to join Nation wide 'general' strike on 8/9th January, 2019 as called by Central Trade Unions. Like Kumbhas at Haridwar, Ujjain, Nasik, Prayag, Ganga Sagar Yatra or Haz Yatra, Central Trade Unions resort to Hartals every year. Earlier it were used to be for one day, but keeping in view inflationary trend, they have expanded it now to 2 days. This is just a ritual, but costly for bank men. These Unions just pretend to be still live through such 2 days Strikes.

Sordid affair is that in a scenario of existing uncertainty with regard to wages & service conditions and IBA taking such tough stand as disclosed on 29th Sept. 2018, Unions decision to 2 days strike in January is just their adventurism. But, at whose cost is a landmark question? Retired leaders are not going to loose anything. They shall please their political masters at the expense of Bank employees 2 days wage cuts and ensure their further continuance. They are not worried of peoples' sufferings & losses that the econony, trade, commerce & industry shall bear. They have in vengeance decided just to punish all including employees, officers and banking communities. They haven't thought of adverse impacts that this strike might cause on wage negotiations. Was it not fit & proper to tell Central Trade Unions that at moment bank men are already under confrontation with Bank management/govt in their wage & service conditions matter and they had already resorted to two days strike, a couple of months back, resulting in wage cuts, and as such, further joining the ensuing strike will not go down well with the workforce & industry. Best way was to give moral support and join demonstrative actions. On many occasions in past such stands had already been taken. But, who can advise captive King Emperors to listen to senses?

So, now get ready to TWO DAYS WAGE CUT DRIVE to please political masters to ensure further continuance of your leaders. Bank employees/officers should Pay to buy their organizational heads.

Take me as no more sensible, a plain truth that I admit.