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UN probe on tsunami auditors Attorney General accuses Pricewaterhouse of misconduct; PERC/Sri Lanka Insurance clash over sale price in 2003 Senior
United Nations investigators are due in Sri Lanka next week to probe
a major complaint by the country's chief law officer, the Attorney
General, among others, that the world agency's specially picked
auditors for the huge sums of tsunami donor aid funds have engaged
in negligent acts and wilful professional misconduct. Paula
Sadler, Chief of UNDP's Investigations Department (Audit and Performance
Review) and Louis Marano, Internal Audit and Oversight Service in
UN Secretary General Kofi Annan's own office, who are due in Colombo
on Tuesday (April 26) have scheduled meetings with Attorney General
K.C. Kamalasabeyson, Central Bank Governor Sunil Mendis and PERC
Chairman Nihal Sri Ameresekera. The
investigation over the professional conduct of Pricewaterhouse Coopers
(PwC), the well-known international audit firm, does not relate
to the audit of tsunamy funds, but to its role in the sale of one
of Sri Lanka's major public sector ventures — Sri Lanka Insurance
Corporation Ltd., two years ago. Pricewaterhouse
Coopers-Sri Lanka and the firm's Indonesian branch were both involved
in the privatisation process of the Insurance Corporation on behalf
of PERC (Public Enterprises Reform Commission), the Government body
supervising the sale of public institutions to the private sector.
Another audit firm, Ernst & Young, acted on behalf of the new
owners, the Aitken Spence conglomerate that purchased more than
90 per cent of the shares of the profit-making state institution
at a price exceeding Rs. 7 billion. Recently,
the new owners of the Insurance Corporation, who go by the name
of Sri Lanka Insurance had made a claim for Rs. 2 billion (Rs. 2,059,436,000)
from the Government, but PERC has resisted the claim saying it wants
to make a counter-claim against the new owners because the Corporation
ran at a profit at the time of sale, and therefore an outstanding
sum was due from Sri Lanka Insurance to the Government under the
sale agreement. The
Attorney General, consulted by PERC, has called for the audited
accounts from the audit firm Pricewaterhouse Coopers to ascertain
if PERC's position is correct. A letter sent by PwC explaining the
position has been rejected by the Attorney General, dealing a heavy
blow to the integrity of the audit firm. In
a strongly-worded letter to PwC, the Attorney General has said that
he is compelled to take legal action to recover damages from the
reputed audit firm for 'negligent acts and wilful misconduct'. The
Attorney General's letter to PwC further refers to the fact that
the audits have not been provided despite such high fees of US $
1.1 million (Rs. 110 million) being paid for professional services
to the audit firm's Sri Lankan and Indonesia offices together with
Rs. 45 million being paid as disbursements. The
Attorney General also reminds the audit firm that it was contracted
to render the Government of Sri Lanka 'investment banking services
and legal advisory service ' on the privatisation of the Sri Lanka
Insurance Corporation. The threat from the Attorney General to sue
Pricewaterhouse Coopers comes in the wake of a separate issue where
a staffer at PERC involved in the privatisation of the Corporation
later joined PwC as a partner. Last week, The Sunday Times learns, UN headquarters in New York had expressed concern at these developments and telephoned Attorney General Kamalasabeyson for clarification, following which they decided to send a high-level team of investigators to make further inquiries on the audit firm handling millions of US dollars in tsunami aid to countries like Sri Lanka and Indonesia. A spokesperson
for Pricewater-house Coopers contacted by The Sunday Times for their
version said "it is not our practice to respond publicly on
client-related matters as they are entirely confidential. If there
are any matters to be addressed, then we will do so with our client
(and their representatives) at the appropriate time. We have no
further comment to make at this time ". But the Attorney General has stated that despite several reminders on behalf of their client, PERC, which was also Pricewaterhouse Coopers' client during the privatisation process, the audit firm had not provided the accounts in order that PERC make a counter-claim against Sri Lanka Insurance.
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