Rs 114-bn scam: PNB says will not appoint PwC India as forensic auditor

Punjab National Bank (PNB) said it would not appoint PwC India to conduct a forensic audit into the Rs 114 billion scam, though the latter was the lowest bidder.

Three other audit and accounting firms had also participated in the bid, according to sources.

In a statement, PNB on Friday denied news reports that PwC had been appointed. “There are media reports that the bank has engaged PwC to conduct an investigation into the alleged fraud and PwC has been asked to gather evidence that can be used against Nirav Modi and his associates in court. The news is totally incorrect,” it said.

The second largest public sector bank found itself in a fix after PwC emerged lowest bidder for the audit, as concerns were raised “because of their past”, a senior bank executive said.

The Securities and Exchange Board of India had last month banned Price Waterhouse, auditing arm of consultancy firm PwC India, from conducting any statutory audit of listed firms for two years from the next financial year. This was after finding the audit firm guilty in the Satyam Computer Services scam. In 2009, Satyam founder Ramalinga Raju had admitted to overstating earnings and assets for several years, in a fraud of more than $1 bn. Price Waterhouse was Satyam’s auditor during the period of the fraud.

Who offered what

PwC quoted around Rs 2.1 mn

BDO quoted Rs 7.5 mn

EY quoted Rs 8.5 mn

KMPG wanted Rs 21 mn

Deloitte did not participate

When contacted, a PwC spokesperson did not comment.

Sources said PNB had invited financial bids from five companies — Deloitte, KPMG, PwC, EY and BDO — last Saturday. All these firms are empanelled by the Indian Banks’ Association to conduct forensic audits of banks. The firms were asked to bid by Thursday. They were later told PwC had emerged the lowest bidder, sources in one of the accounting firms said. The bank said it would finalise a forensic auditor from among the remaining bidders.

The scope of work for the auditor would include identifying the manner in which Letters of Undertaking were misused by Nirav Modi’s group of companies, including Firestar International, Firestar Diamond, Diamonds R US, Solar Exports and Stellar Diamonds. The auditor would look into the accounts of these firms since 2011 and establish the money trail.

Sources said PwC quoted around Rs 2.1 million as fee for the audit — less than a third of BDO’s Rs 7.5 million. While EY quoted Rs 8.5 million, KMPG wanted Rs 21 million, sources said. Deloitte, statutory auditor of Firestar International, did not participate, they added.

Auditors say forensic audit of such a “huge magnitude” cannot be decided on the basis of only the lowest bid. “The scope of work is so huge that it will require at least 5,000 man-hours. Banks usually ask for forensic audit for periods ranging between three and five years. In this case, the firms were asked to look into accounts of the past seven years,” an audit firm professional said.