Amrit’s open to letter Chandra

Auditors, Sri Lanka’s credibility and public interest

In reference to Chandra Jayaratne’s open letter titled ‘Can your Conscience be reconciled if an avoidable economic calamity strikes Sri Lanka?’ which was published in Daily FT on 5 May, reader and good governance activist Amrit Muttukumaru had responded with an open letter to Chandra Jayaratne with a copy to the Daily FT. Here are excerpts of Muttukmaru’s letter:

You need to be commended on your recent ‘Open Letter’ at the core of which is the need for ‘good governance’ in which transparency and accountability are crucial.

It has inter alia been copied to (i) Chairman, Ceylon Chamber of Commerce (ii) Executive Director, Transparency International Sri Lanka (iii) President, Institute of Chartered Accountants of Sri Lanka (iv) President, Organization of Professional Associations. It is noted that you are director of TISL, a senior member of the ICASL and a member of ‘The Friday Forum,’ which is said to have as its objective the promotion of ‘good governance’. It has among its membership – Jayantha Dhanapala (Spokesperson), Dr. A.C. Visvalingam and J.C. Weliamuna.

You propose a ‘series’ of ‘intellectual debates’ to be held ‘closed door’ under ‘Chatham House Rules’. While a case could possibly be made initially for ‘Chatham House Rules,’ how could the ‘closed door’ and ‘inviting selected leaders’ be justified?

Key issues raised by you include – (i) the commitment of regulators and professionals to ‘international best practices’ with specific mention of ‘auditors’ (ii) the need for genuine ‘independent directors’ on boards of companies (iii) ‘conflicts of interest’ (iv) the role of the ‘media’.

Your specific mention of auditors is most relevant since auditors/chartered accountants are the first line of defence against corruption and abuse of power in all entities dealing with financial resources. In spite of this, there appears to be a reluctance to hold auditors responsible wherever necessary.

A good example of this is the reluctance to even mention that the Treasurer of ‘Sri Lanka Cricket’ is ICASL Vice President – Sujeewa Rajapakse, in the context of the alleged terrible corruption articulated even by a former Minister of Sports.

Fraudulent SLIC privatisation and the role of auditors

I am constrained to pose the question whether there is any limit to the apparent deception of the Institute of Chartered Accountants of Sri Lanka (ICASL)? I am doing so in the context of the ICASL deplorably not concluding its purported investigation of my ‘complaint’ made as far back as 8 August 2005 of the appalling ‘Professional Misconduct’ by the Sri Lanka affiliates of PwC and Ernst & Young in relation to the fraudulent privatisation of the Sri Lanka Insurance Corporation (SLIC), causing immense losses to the people of this country.

A feature of this ‘conflict of interest’ ridden divestiture which took place under a UNP-led administration is the absence of accountability under a SLFP-led administration!

You cannot be unaware that both firms have been faulted for ‘Professional Misconduct’ by (i) the Supreme Court (ii) the Attorney-General (iii) Parliament’s COPE and (iv) ICASL’s ‘Ethics’ Committee itself.

The ICASL’s ‘Ethics’ Committee almost four years ago endorsed the findings of its Investigating ‘Panel’ that a prima-facie case of ‘Professional Misconduct’ had been established amongst others against PwC and its Senior Partner- Deva Rodrigo (now retired), E&Y and its Senior Partner – Asite Talwatte and all their Partners.

The professional misconduct of PwC and E&Y even being confirmed by the ‘Supreme Court’ has not prodded the ICASL to fulfil its statutory obligations! The ‘Supreme Court’ in its landmark Judgment delivered on 4 June 2009, held the SLIC privatisation to be “illegal and invalid ab initio” and had ordered the removal “forthwith” of the auditors, Ernst & Young.

This violates with impunity Section 17 (2) (b) of its Act of incorporation which clearly stipulates that when an ‘Investigating Committee’ appointed by the ‘Council’ “reports to the Council that a prima facie case of professional misconduct has been made out against a member, the Council shall appoint a disciplinary committee for the purpose of inquiring into the conduct of such member”.

While PwC (Indonesia & Sri Lanka) functioned as Consultant, ‘Investment Banking and Legal Advisory Services’ to the Government of Sri Lanka, E&Y (Sri Lanka) were the ‘Auditors’ to SLIC and continued in this capacity even after the divestiture!

The SLIC divestiture is a ‘classic’ case of outrageous corruption at the centre of which are auditors. It inter alia demonstrates the ‘unholy’ nexus between key sections of the political, corporate, bureaucratic, professional and regulatory establishments of this country.

Impunity

A feature of the conduct of the ICASL is its apparent deception and impunity. This includes:

1)Sujeewa Mudalige being allowed to be the current President of the ICASL, notwithstanding that apart from being a Partner of PwC, he was a part of the Sri Lanka Team that comprised the PwC Indonesia Team that played a pivotal role in the fraudulent SLIC privatisation!

2) The appointment of Asite Talwatte (Senior Partner, E & Y) to the ICASL key decision making ‘Council’ after the unlawful removal of an existing ‘Council’ Member – Preethi Jayawardene, notwithstanding its ‘Ethics’ Committee endorsing the findings of its Investigating ‘Panel’ that a prima-facie case of ‘Professional Misconduct’ had been established inter alia against Talwatte!

3) Notwithstanding the ‘Professional Misconduct’ being confirmed by (i) the Supreme Court (ii) the Attorney-General (iii) Parliament’s COPE and (iv) ICASL’s ‘Ethics’ Committee itself, the ICASL has the audacity to:

i) Appoint Deva Rodrigo and Tissa Bandaranayake (now retired Partners of PwC and E&Y) to ICASL’s ‘Quality Assurance Board’ purportedly designed “to maintain and enhance the credibility and high standards of our profession.” (Ref. ICASL Circular to members – 6 September 2010).

ii) To include Deva Rodrigo as a ‘resource personnel’ in the “highly edifying Company Directors Course” initiated in partnership with the Ceylon Chamber of Commerce affiliate – Sri Lanka Institute of Directors! (Daily FT 7 January 2011)

iii) To nominate Deva Rodrigo as a panellist at the ICASL ‘National Conference’ held in October 2010.

4) The COPE Report to Parliament dated 12 January 2007 as recorded in the ‘Hansard’ inter alia states:

i) “Ernst & Young auditors and PwC Consultants were directly involved in the said fraudulent conduct.”

ii) “The said sale has taken place on unaudited accounts and thereby it was not possible to enter into any kind of share transaction. It also appeared the accounts have been surreptitiously and intentionally adjusted.”

iii) “Deva Rodrigo, Senior Partner of PwC has been a member of the Steering Committee selecting PwC as Consultants to the Government, and continuing thereafter as a Steering Committee member supervising the work of PwC and approving payments to PwC.”

5) Another member of ICASL’s ‘Quality Assurance Board’ is Ajith Ratnayake – Director General, Sri Lanka Accounting & Auditing Standards Monitoring Board (SLAASMB). At the conclusion of its purported ‘investigation’ in relation to this same privatisation, I received the following farcical response as per its e-mail dated 28 November 2005:

“Whilst we appreciate the contribution made by the complainants, we are not in a position to keep the complainant informed of the progress of the investigation and the outcome of the investigation, as it would undermine our policy on releasing information to the public.”

His spouse was a partner of PwC (Sri Lanka) during the entire period of the SLIC divestiture!

Can impunity get any worse?

Conclusion

In the absence of accountability, is it any surprise that impunity flourishes? What chance has this hapless country when professionals such as auditors, behave in this disgraceful manner?

Is not making those concerned accountable for this fraud, an acid test for the integrity of this country?

In this instance, I trust you will strongly take up the outrageous case of the ICASL not duly concluding its purported investigation of my ‘complaint’ made as far back as 8 August 2005:

1) In your proposed ‘intellectual debates’

2) At Transparency International Sri Lanka of which you are a Director

3) At ‘The Friday Forum’ of which you are a member, set up ostensibly for the promotion of ‘good governance’

4) At any other appropriate forum including the ICASL, OPA and Ceylon Chamber of Commerce

The ICASL must be pressured to duly conclude its investigation in a transparent manner without any further delay. It continues to renege on its written undertakings to me which include:

i) “To complete the investigation early and transparently.” (Ref. e-mail of 13 March 2006)

ii) “After investigation is completed you will be informed of the determination.” (Ref. e-mail of 18 March 2006)

iii) “The rationale for the determination would be given” (Ref. e-mail of 18 March 2006)

The bottom line is that ICASL’s ‘Ethics’ Committee itself has endorsed the prima-facie case of ‘Professional Misconduct’ established by its Investigating ‘Panel’! Hence, there can be no rational reason for inaction.

I am glad that you have made reference to the role of the ‘media’. A powerful ‘tool’ to combat corruption and abuse of power in high places is responsible ‘naming and shaming’ based on facts. Would you not agree that it is the reluctance to ‘name and shame’ in the more serious instances of corruption that significantly contributes to the impunity we witness?

In your ‘Open Letter’ you have appealed to the “conscience” of those concerned. I am now kindly asking you whether as a senior chartered accountant your “conscience” will permit you to allow the Institute of Chartered Accountants of Sri Lanka to continue to flout with impunity its moral and statutory responsibilities to the detriment of this country?

Most of the mainstream English media have published your ‘Open Letter’. I am making available my ‘Open Letter’ also to the media and trust they will publish the same.