Financial Times

SLPA assets inflated by Rs 12 bln

By Quintus Perera

A senior official of the Sri Lanka Ports Authority is under investigation for fraudulently inflating the organisation's current assets in its balance sheet by almost Rs 12 billion.

The alleged fraudulent actions of the officer in the Finance Department had resulted in non-existent current assets of Rs 8,130 million and Rs 18,424 million appearing in the 2002 balance sheet as a "Special Levy Recoverable" and "Loan Redemption Reserve".

If the accounts were properly prepared, these current assets would turn into liabilities, according to sources.

Some officials who detected this highly irregular move by the official that distorts the SLPA's 2002 final accounts, have accused the Internal Audit Unit of SLPA of not adequately investigating the matter in which its assets had been inflated by book entries.

In accordance with Budget proposals, the SLPA has been remitting funds to the Treasury as a "Special Levy" since 1996.

Up to 2001 the amount thus paid was Rs 11,953 million. This amount had been treated as expenditure when preparing taxable income of the SLPA.

However, when this amount was remitted to the Treasury, the Inland Revenue Department did not allow the amount to be treated as expenditure when preparing the taxable income but treated it as dividend payment to the Treasury.

Inland Revenue has been taxing the SLPA net profit before deducting the "Special Levy" and the SLPA has been paying tax on its total net profit.

When the 2002 final accounts were being prepared, the official, is alleged to have fraudulently entered a wrong journal entry indicating that the Special Levy remitted to the Treasury should be received by the SLPA from the Inland Revenue Department.

However, investigations have found that this journal entry was baseless and that an asset non-existent under Current Assets in the Balance Sheet had been created.

There is no arrangement for the Inland Revenue to reimburse the amount remitted by the SLPA to the Treasury.

The amount, Rs 11,953 million, was credited to the SLPA's "Loan Redemption Reserve Account". The officer is alleged to have tried to show that this amount was due back to the SLPA from Inland Revenue.

In addition to the special levy, the SLPA also pays income tax to Inland Revenue.

After creating the non-existent asset of almost Rs 12 billion, the officer is alleged to have deducted Rs 3,823 million - the amount due to be paid to the Inland Revenue as income tax on net profit accumulated up to December 31, 2002 - and shown the balance Rs 8,130 million as a "Special Levy Recoverable" under current assets.

Under government financial regulations, when an organisation defaults paying income tax, a default levy of 50 percent on the amount can be charged. This default charge has to be paid by the person who is responsible for the lapse.

By these actions, the officer inflated the "Loan Redemption Reserve" in the Balance Sheet to Rs 18,427 million in the 2002 financial year from a balance of Rs 6,474 million as at 31/12/2001. (Rs 11,953 million + Rs 6,474 million).

This journal entry normally must be counter-signed by several other officials but as it appeared fraudulent the other officers had all refrained from counter-signing it.

Hence, the entry had been sent to the Accounts Division with only the signature of the official and the final accounts were prepared accordingly.

The SLPA is one of the government's main income generators, as it earns foreign exchange for its cargo handling operations, and has for long been treated as a cash cow.