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Depositors in dark about $31m loss (with CNC3 video)
British barrister Marion Smith has suggested that auditor Chanka Seeterram colluded with the Hindu Credit Union (HCU) to pull the wool over the eyes of its members by not disclosing its financial weaknesses to them. Smith yesterday suggested to Seeterram that weaknesses he identified in the HCU’s financial accounts were not disclosed to members.
She was cross-examining the auditor at the Clico/HCU commission of enquiry at the Winsure Building, Richmond Street, Port-of-Spain. Seeterram was approached by the HCU in October 2003 to audit its accounts as a replacement for Madan Ramnarine, who had found serious discrepancies in the credit union’s financial statements.
Giving an example of how Seeterram withheld critical information from the general membership of the HCU, Smith said there was a $25 million gain in appreciation in certain properties in 2005. At the same time losses were incurred amounting to $31 million, the commission heard.
However, Seeterram did not show that loss in the auditor’s 2005 report. However, he included it in a separate statement in September 2006, Smith said. Seeterram, responding, said reports of the $31 million loss were indeed left out of the HCU’s 2005 financial statement and agreed with Smith that was deliberately done by HCU managers.
“You are the auditor. Part of your task is to assess this approach,” Smith told Seeterram. He said it was a very delicate matter he had to decide upon and he had to make a compromise. He added: “People were demanding funds. I was thinking about the members, investors. It was a compromise in that it would buy some time for the HCU to get its act together. If it was put in the 2005 report, the HCU would not have been able to face the impact.
“I felt the managers needed some time to get external help. They agreed to my suggestion to go to the Government for help.” Smith again suggested to Seeterram that it was a difficult decision and one that was made behind closed doors. “Only you and the HCU directors,” she said. “How would the average member begin to pick up what this meant? That the $31 million should not be there. It should be here,” she said.
At the HCU’s 2005 annual general meeting, Seeterram made no reference to the fact that the treatment of the $31 million was wrong, Smith said. In the president’s address contained in a booklet to members at the 2005 annual general meeting, HCU president Harry Harnarine told members there was a 15 per cent profit in shareholders’ returns.
Seeterram agreed with Smith that information was erroneous but admitted he did not seek to correct it in his auditor’s report. More vital information was withheld from the membership at the 2006 AGM, Smith said. A management letter in October 2006 disclosed the HCU was losing $2 million a month and had incurred a consolidated loss by September 2006 of $150 million, Smith said. There were grave problems in repaying depositors, she said.
“This piece of information was not reported to the AGM in 2006. None of the matters discussed today (in the enquiry) were raised,” she told Seeterram. Smith said all HCU managers were made to undergo eight-hour training sessions to explain to members what had happened. Seeterram said he was not a part of those sessions.
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