Asha Javeed

A year be­fore the Cli­co In­vest­ment Bank (CIB) col­lapsed be­cause of liq­uid­i­ty chal­lenges, au­di­tors Price­wa­ter­house Coop­ers (PWC) had warned the bank's man­age­ment about its risky prac­tices. Un­der the cov­er of "con­fi­den­tial­i­ty," PWC re­leased a man­age­ment let­ter, writ­ten in 2008, to the au­dit com­mit­tee of CIB. El­e­ments of the lett­ter were read in­to ev­i­dence by PWC's at­tor­ney Rus­sell Mar­tineau, SC, as he ad­dressed Ernst & Young's se­nior part­ner Maria Daniel on her third day of cross-ex­am­i­na­tion, dur­ing the third ev­i­den­tial hear­ing at the Cli­co/Hin­du Cred­it Union (HCU) com­mis­sion of en­quiry yes­ter­day. Among the "45 pages of flash­ing red lights" were PWC's con­cern that there was a non-func­tion­ing in­vest­ment com­mit­tee, no for­malised pol­i­cy for as­sess­ing the com­pa­ny as a go­ing con­cern, prob­lems with the cheque reg­is­trar, cred­it qual­i­ty re­ports, in­cor­rect post­ing of in­ter­est ex­pense and late re­port­ing to the Cen­tral Bank.

Mar­tineau point­ed out that PWC's let­ter had rec­om­men­da­tions to man­age­ment for mon­i­tor­ing and con­trols.

How­ev­er, when sole com­mis­sion­er Sir An­tho­ny Col­man asked Mar­tineau to ac­count for PWC's "whol­ly un­sat­is­fac­to­ry de­lay" in pre­sent­ing up-to-date au­dit­ed ac­counts, Mar­tineau cit­ed a num­ber of rea­sons such as time, in­for­ma­tion and staffing is­sues for the de­lay in au­dit­ed ac­counts. Min­istry of Fi­nance at­tor­ney Fyard Ho­sein, SC, in­ter­ject­ed the PWC should have done the au­dit­ing of the ac­counts with the knowl­edge that the Cen­tral Bank "might" have re­quest­ed the ac­counts. Mar­tineau put this ques­tion to Daniel on whether she be­lieved the ac­counts were not pre­pared with the "eye" to the Cen­tral Bank. Daniel said she could not com­ment on that mat­ter.

She said dur­ing her time at CIB com­pil­ing the state­ment of af­fairs for the Cen­tral Bank, she'd nev­er come across the let­ter but con­tend­ed they bore sim­i­lar con­cerns to the re­port which she com­plied on be­half of E &Y. She said she'd had ac­cess to PWC's 2006 re­port which they'd used be­fore sign­ing off which al­so bore sim­i­lar con­cerns. The au­di­tors, she sug­gest­ed, should have had a check­list with the com­pa­ny to en­sure com­pli­anace with their con­cerns be­fore sign­ing off. Mar­tineau said the let­ter proved that PWC "was on the ball and talk­ing to man­age­ment about get­ting their house in or­der." Fur­ther, he sug­gest­ed that it was the au­di­tors' job to work with the com­pa­ny to re­duce the prob­lem to an ac­cept­able stan­dard. He put it to Daniel there was noth­ing in her E&Y re­port to sug­gest that at the end of 2007 when the au­di­tor gave their re­port that the ac­counts were not in a sat­is­fac­to­ry or­der.

Daniel made no com­ment around the au­dit work. Col­man ques­tioned whether the let­ter left her in doubt on the prop­er val­u­a­tion of as­sets in her re­port. She said the warn­ing sig­nals iden­ti­fied in the re­port re­sult­ed in some of the write-downs which E&Y un­der­took in their re­port. A E&Y re­port ti­tled-A High Lev­el Plan for the Home Con­struc­tion Ltd (HCL) Group-re­vealed that One Wood­brook Place had a project loss of $1 bil­lion for the CL Fi­nan­cial sub­sidiary. This re­port was al­so au­thored by Daniel on be­half of E&Y. Mar­tin Daly, SC, at­tor­ney for An­dre Mon­teil, had asked Daniel to quan­ti­fy the dev­as­ta­tion to the CLF Group by HCL's One Wood­brook Place project dur­ing his cross-ex­am­i­na­tion of Tues­day.

Daly ques­tioned Daniel whether the $1 bil­lion loss was ex­clu­sive of CIB loans to Michael Fi­fi, for­mer HCL man­ag­ing di­rec­tor and his com­pa­ny Pre­mi­um Man­age­ment In­ter­na­tion­al Ltd. Daniel con­firmed the loss was ex­clu­sive of Fi­fi's loans. Daniel E&Y re­port had put Fi­fi's loan at $25.9 mil­lion. It re­vealed that "fa­cil­i­ties were ad­vanced for var­i­ous rea­sons, in­clud­ing the pur­chase of prop­er­ties and ve­hi­cles as well as oth­er in­vest­ments. "In 2008, all loans un­der PMI were trans­ferred to HCL," the re­port stat­ed. "How­ev­er, there was no ev­i­dence found on file to con­firm HCL's ac­cep­tance to as­sume PMI's loans."