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Auditor – Be Cautious: PNB filed complaint with ICAI
Text of the complaint filed with ICAI.
The Competent Authority.
The Institute of Chartered Accountants of India,
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)
2. Employment Benefits
3. 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.
4. 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.
I, being one of the beneficiary of the trust funds , a pensioner of Punjab National Bank, has locus standi , to file the complaint.
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
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.
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