Business Times

SLIC case petitioner says auditors should return fees

Counsel for the petitioner in the Sri Lanka Insurance Corporation (SLIC) fundamental rights case is demanding that the two auditing firms embroiled in the annulled privatization, PricewaterhouseCoopers (PWC) and Ernst & Young, give back their consultancy fees. In a letter by petitioner Vasudeva Nanayakkara to the Auditor General S. Swarnajothy dated November 24, 2009, Mr. Nanayakkara’s legal counsel writes that consultancy fees, free of tax of around Rs.170 million had been paid to PWC on the SLIC privatization which was adjudged by the Supreme Court to be illegal, invalid, null and void.

The letter goes on to say that funds had been provided as per the Steering Committee Minutes by SLIC. This also includes a success fee of around Rs.40 million. In the context of the adjudication by the Supreme Court, the letter states, ‘...ought not these fees be recovered from PWC and they be charged for gross professional negligence?’

Likewise, the letter says that Ernst & Young, auditors of SLIC had re-prepared the SLIC accounts contrary to what had been required by the conditions in the sale and purchase agreement, purporting to be according to International Accounting Standards (IAS). The Steering Committee Minutes reveal quotations from Ernst & Young for carrying out IAS audits.

However, the letter states that it was disclosed in the Supreme Court that Ernst & Young had retrospectively materially changed the SLIC investment classification, without disclosing any explanation, thereby paving the way for the purported buyers to claim a refund of over Rs.2 billion from the state. The letter also raises the question of whether these fees should be recovered and the auditing firm be charged for gross professional negligence.

Another letter dated 23 November 2009 addressed to Auditor General Mr. Swarnajothy from the petitioner states that as per the proceedings of June 26, 2009, the Treasury Secretary was to make arrangements for the Auditor General to compute the profits/losses of SLIC from the dated of privatization (11 April 2003) up to the date SLIC reverted back to the state (4 June 2009). The Supreme Court also ordered that the Treasury Secretary may seek further directions from the Court, which may deem necessary from time to time, with regard to the administration of SLIC.

The letter states that in view of the judgment which revealed that SLIC had been undervalued, the entirety of the net profits of SLIC from 11 April 2003 to 4 June 2009 could not be attributable and paid in respect of a purported purchase consideration of only Rs.6050 million when SLIC’s value as at 11 April 2003 is reckoned to be over Rs.20,000. In this context, the letter says that only a pro-rata of the net profits after tax would be attributable to the Rs.6050 million, in the context of the real value of SLIC having been very much more. This matter would need to be reviewed and rectified by the Supreme Court for which an application could be made by the Attorney General.

The letter states that as per the judgment, the academic and professional qualifications of the new SLIC Board of Directors require verification.

The letter notes that the present Treasury Secretary P.B. Jayasundera, had been a castigated party who had carried out the privatization of SLIC and also a consultant of the Treasury who is now dealing with the matter. Dr. Jayasundera was one of themembers of the Steering Committee which carried out the privatization.

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