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pnb scam

Anshu Phogat (CHARTERED ACCOUNTANT) (30 Points)

16 March 2018

How could auditor trace the pnb scam while the LOU's transactions were missing from bank's record as the SWIFT was not integrated with CBS?

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Rahul Prasad (CA Student) (1683 Points)
Replied 16 March 2018

that's really tough as we can think from here that which transcation is not present in CBS . document are not available . Even the auditor has not any little bit of knowledge How can an audit can be conducted on that area. Inspite of all the it's matter of investigation may be some other thing come out which we are also not knowing now.

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Vivek (CA ) (2368 Points)
Replied 16 March 2018

1. Loans given by the foreign branches of the Indian banks were transferred into PNB's NOSTRO acccount. Transferring the money to Nirav Modi was the contingent liability for PNB. All the auditors are responsible to reconcile the transactions into the NOSTRO account.

2. All the LoU's were communicated through SWIFT. If the SWIFT transactions were not automatically captured into Finacle, manual checks (i.e. manual reconcilition) were necessary.

The statutory bank branch auditors and the central auditors of PNB are guilty of gross negligence becuase they failed to apply the SA and Guidance Notes of ICAI in their audit work.

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Anshu Phogat (CHARTERED ACCOUNTANT) (30 Points)
Replied 16 March 2018

Thank you vivek and rahul prasad for your response. my further question in this context is..
maximum maturity of LOU in case of import of non capital goods and capital goods is 1 year and 3 year respectively. minimum tenure of lou is 6 months means further it has to be extended/rollover in multiple of 6 months. Apart from this RBI approval is also required for issuing lou for the amount above $20 million. then in case of pnb scam how the amount reached to 11000 crore without awareness of RBI. Does it mean RBI officials were also involved in this scam?

Vivek (CA ) (2368 Points)
Replied 16 March 2018

On the basis of the information avaiable in the public domain so far, this fraud is an example of classical "ponzi scheme" fraud, where new LoUs were sanctioned to cover the amount and the charges of the previous LoUs.

The external auditors and RBI officials don't appears to be the accomplice in the crime, but they are prima facie guilty of the gross professional negligence.

Rahul Prasad (CA Student) (1683 Points)
Replied 17 March 2018

there are many aspect which keep us in dark. after knowing the technical aspect even outside the inspection team can not make sure that how it happen.

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Vivek (CA ) (2368 Points)
Replied 17 March 2018

PNB fraud is exactly similar to Satyam fraud where the statutory auditors failed to perform the basic audit procedures according the ICAI's auditing standards and applicable guidance notes. It is immpossible to continue a fraud of such a magnitude without getting detected.

It was only due to the arrogant brother of Nirav Modi, i.e. Neeshal / Nishal Modi (Ambani's son-in-law), this fraud came into limelight.