A probe on the affairs of Merchant Bank of Sri Lanka (MBSL) carried out by its parent Bank of Ceylon (BOC) after which the board decided to suspend its CEO, A.P.G.. Karunatillake pending an inquiry, has accused former MBSL Chairman Janaka Ratnayaka of abuse of power, a claim rejected by the former head of the organisation.
“All allegations in the report are false and the ‘people who conducted this audit don’t have any evidence,” Mr Ratnayaka said when asked to comment on the report.
Misuse of powers and unethical transactions were highlighted in the report which was carried out in September 2010 after ‘serious allegations’ made against Mr. Ratnayaka and the then management team by the employees union of The Finance Company (TFC).
This was pertaining to the acquisition of the controlling interest of Ceylinco Investments Company (CIC), attempted disposal of shares of related firms, disposal of company assets below the valuation and undue involvement of granting service contracts to Mr. Ratnayaka’s own firms. TFC, owned by the Ceylinco Group, was taken over by MBSL for management purposes.
The former MBSL chief who is now chairman of the state-owned Export Development Board, angrily rejected the accusations saying BOC has no right to audit the company as MBSL is an independent entity.
“This is only a report done by an interested party. People who are making these false allegations against me are those with professional jealousies who are resentful of the way I managed to restructure the crisis-hit Ceylinco group firms using MBSL as a vehicle. As a socially responsible person I took the challenge to restructure these firms when none of the other state banks or entities was coming forward to solve this financial crisis,” he said, adding that he will be taking legal action against this report and also the parties involved.
Ranjith Munasinghe, President Ceylon Bank Employees’ Union (CBEU) told the Business Times that “an audit was carried by the MBSL’s parent company, Bank of Ceylon (BOC) and the suspension of Mr. Karunatillake was based on the findings of this report.”
He explained that the MBSL branch union and the CBEU both wanted an audit done on MBSL accounts for the past three years, following many complaints from MBSL employees. “Each time this was requested, the MBSL board threw it aside, saying that the BOC board can sanction such an audit, but it has to also be approved by the MBSL,” Mr. Munasinghe added.
The audit report says that BOC received several allegations against MBSL questioning the manner in which MBSL had interfered in the affairs of some of the Ceylinco group companies in its capacity of managing agent. Acquiring 92.7% of CIC by MBSL according to the audit report is an unethical transaction and it also points out that most board decisions which followed this are questionable.
“We have noted several lapses and weaknesses with regards to the internal control process over accounting of management fees, legal authority, execution of the powers vested through the management agreements, safeguarding of the deposit holders interest in companies coming under Ceylinco Consolidated,” the report has said, a copy of which was seen by the Business Times.
It said that there is no valid management agreement between MBSL and Ceylinco Building Society Ltd, Ceylinco Sussex Educational Services Ltd and Fingara Town & Country Club.
“MBSL had intervened and influenced the affairs of these companies and charged monthly management fees from Ceylinco Sussex Educational Services Ltd and Fingara Town & Country Club.” It further says that MBSL has gone beyond the scope mentioned in the agreement by involving the normal operations of the entities managed by MBSL such as recruitment, handling investment in share market and getting service contracts offered to company where Mr. Ratnayaka had a personal interest.
It also says that the basis for management fees and how they have been arrived at is not clear. “The amount approved by the board and the amount mentioned in the agreements are not matched,” it says.
It says that other than the directors’ fee which was disclosed in the audited financial statements as of 31 December 2009, some fees which were paid to the directors directly from companies where MBSL acts as the management agent were made by respective companies on behalf of MBSL but neither this revenue no expenses were recorded in MBSL’s books of accounts.
“Since there was no proper system and procedures in place with regards to raising invoices and recognizing of consultancy income (management fee), we have observed several weakness and lapses in internal control over consultancy income,” the report said.
It has also observed that during Mr. Ratnayake’s tenure, he had used three company vehicles (One is from TFC KE - 5635, Second is from MCSL Hi- 1771 and the third is from MBSL HE - 8881).
“According to the good governance and best practices, excessive usage of company assets for personal usage by non-executive chairman cannot be just,” it said.
Among the allegations against Mr. Karunatillake, which led to his suspension this week are taking two monthly salaries without MBSL board sanction, misleading the chairman pertaining to certain credit facilities, misleading the MBSL board for undue remuneration.
M.R. Shah, Chairman MBSL refrained from commenting on the report or the CEO’s suspension saying an inquiry is yet to take place.
Mr. Munasinghe said that, MBSL had maintained a ‘private ledger’ which none of the auditors was privy to and added that there have been blatant violations pertaining to employee promotions, recruitments etc.
In response, Mr Ratnayaka said: “They should reward me and the CEO for the effort we put to turnaround the Ceylinco firms.” He noted that all brickbats are received by those who do an honest job. |
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