ICAI Reprimands CA concurrent auditor for professional misconduct during Bank Audit

The Institute of Chartered Accountants of India (ICAI) in the matter of The Assistant General Manager, UCO Bank vs CA. V Kandaswamy (M.No. 207573) has held that CA. V Kandaswamy is guilty of professional misconduct falling within the meaning of Item (7) of Part-I of the Second Schedule as well as Item (2) of Part IV of First Schedule to the Chartered Accountants Act, 1949. However the Disciplinary Committee noted that negligence has not caused any huge loss to the Bank. Thus, keeping in view, overall facts and circumstances of the case, the Committee decided to take lenient view in the matter.

The Disciplinary Committee of ICAI was of the opinion that CA. V Kandaswamy (M. No. 207573) was GUILTY of Professional as well as Other Misconduct falling within the meaning of Item (7) of Part-I of Second Schedule and Item (2) of Part-IV of First Schedule to the Chartered Accountants Act, 1949, as being concurrent auditor of the UCO Bank- Chennai Branch, he failed to report serious irregularities committed in advance portfolio of Chennai Main Branch of UCO Bank during the period October 2014 to January 2015. The allegations against the Respondent as per Complainant are of serious irregularities which involved:

• cases wherein loans were reported to be sanctioned on the basis of fake ITR/partnership deeds/ sale deeds,
• non-reporting of gross irregularities committed by the branch officials by not creating EMTD/ MOTD, CERSAI/ PDIR etc. while sanctioning various loan proposals, particularly Home Loans & Car Loans
• failure in verifying the CIBIL reports with respect to home loan as well as car loan or non­availability of PDCs (Post Dated Cheques)

The Respondent appeared before the Committee on 12th April, 2023 through video conferencing and made his oral representations on the findings of the Disciplinary Committee. The Committee considered the oral as well as the written representation dated 7th April, 2023. The Respondent inter-alia submitted that concurrent auditors are not forensic experts and that the Complainant had not given any evidence that concurrent audit reports did not flag the concerns that were raised in the allegations made against him. The Respondent further submitted that assessment of ability and willingness of the borrower was the responsibility of Bank officials and that the concurrent auditor cannot step into the shoes of Bank Officials. He contended that such assessments are not made merely based on documentary evidences produced, but by a thorough scrutiny of proposal and assessment of ability and willingness to pay of the borrower. If such documentary evidences were fabricated, the concurrent auditor could not be expected to verify the same. He further stated that it is a common practice in Tamil Nadu to register the Undivided Share of Land (UDS) and to have a separate construction agreement. In such cases, the registered value of the land would be substantially lower than the total value of the property including construction cost and as a result, there would be a wide difference between the property value, loan value and the value of UDS registration. However, this could not form a basis for deciding that the loan value or the property value was overstated. Any amount of verification of sale deed through certified copy from SRO was not going to give a clue on the total value of the property, including the cost of construction and the concurrent auditor was not expected to be a property expert to find out the actual value of the property.

The Respondent further argued that credit reports could not be error-free and such dues or over­dues indicated therein are considered serious or overlooked, depending on various qualitative factors.

It was noted that whereas former kind of lapses involve huge loss but it was nevertheless true that a concurrent auditor could not be expected to identify fake rubber stamp on ITRs or verifying the genuineness of ITR returns/partnership deeds/ sale deeds. However, a concurrent auditor is expected to be vigilant while conducting audit and expected to report the gross irregularities committed by the branch officials by not creating EMTD/ MOTD, CERSAI/ PDIR etc. while sanctioning various loan proposals particularly Home Loans & Car Loans. However, such negligence has not caused any huge loss to the Bank. Thus, keeping in view, overall facts and circumstances of the case, the Committee decided to take lenient view in the matter.

The Committee thus viewed that the misconduct on the part of the Respondent has been held and established within the meaning of Item (7) of Part-I of the Second Schedule as well as Item (2) of Part IV of First Schedule to the Chartered Accountants Act, 1949 and keeping in view the facts and circumstances of the case as aforesaid, ordered that the Respondent CA. V Kandaswamy (M. No. 207573) be Reprimanded.

For Official Order Download PDF Given Below: