Two Auditors Implicated In India Fraud Case

India has implicated two auditors working with Leasing & Financial Services (IL&FS) with 22 auditing violations that the country called “organized crime,” according to a report by Reuters.

The two auditors, Deloitte Haskins & Sells and a KPMG affiliate, are both facing a five-year ban. The alleged fraud was detected as part of a probe into IL&FS, a company that defaulted on its debt in 2018 and stoked fears that other companies would follow.

The Indian government took over the company and probed into a main financial unit known as IFIN, which was audited by Deloitte between 2008-2009 and 2017-2018. The KPMG affiliate, known as BSR & Associates, audited IFIN from 2017 through 2018. Both auditing firms say they did nothing wrong.

The firms are accused of “deliberately” failing to report fraudulent activity, and the Serious Fraud Investigation Office (SFIO) said that both “miserably failed to fulfill the duty entrusted to them,” and also colluded with IFIN to perpetrate the malfeasance.

“Simply put, the fraud committed at IFIN is nothing short of organized crime, actively aided and abetted by the statutory auditors,” the ministry filing said.

Deloitte told Reuters that “it has been thorough and diligent” and looked forward to clearing its name. “The firm stands fully for its audit work, which has been conducted in full compliance with the professional standards in India,” Deloitte said.

Deloitte and the KPMG affiliate were asked by The National Company Law Tribunal to file responses by June 21, the next hearing date in the case.

The investigation in IFIN showed that the organization loaned money to companies that didn’t repay the debt, and then instead of calling those bad loans, IFIN loaned money to the defaulters’ group companies that they used to repay earlier loans.

“The auditors, despite being aware of this modus operandi of fraudulently funding principal and interest to the defaulting borrowers, had not reported the same in the audit report,” the government alleged.