-First Capital MD says February 27, 2015 auction was an unprecedented-Finance Ministry not followed proper accounting standards for years-AG affirms World Bank stance of no formula of calculating losses -Auditor General concludes evidence
By Shehan Chamika Silva
Managing Director of First Capital Holdings PLC (one of the Primary Dealers), Dinesh Schaffter testifying before the Bond Commission said that the bond auction held on February 27, 2015 was an unusual one.
He was of the view that the acceptance of ten time bigger value of bids (10 billion) comparing to what offered by CBSL (1 billion) was unprecedented.
He said such difference between offered amount and accepted was a direct effect to the ‘market integrity’, on which lot of economical aspects were depending.
He also said the decision to accept bids at a higher rate was also concerned as an extraordinary occurrence happened at the auction.
During the Cross examination led by Counsel Romali Tudawe who appeared for the Perpetual Treasuries Ltd, it was explained that the First Capital was informed about the indicative rate as 9.35% by the CBSL before the auction, and thereby they had bid 100 million as a dummy bid considering the amount offered.
However, the Counsel was of the view that the CBSL had not communicated such indicative rate but the rate of which previous 30 year bond was issued using DPM.
When questioned more about the certainty of the indicative rate, he further elaborated that he was not a dealer of the company and the phone call from the CBSL regarding the indicative rate was not received to him but the 9.35 % was the rate what communicated to him by his officers.
It was also revealed that the witness had sent a letter to the Dr Harsh de Silva then Deputy Foreign Minister informing the unusual incident on March 3, 2015.
When further questioned over his losses, Mr. Schaffter was of the view that despite losses he sustained,
Meanwhile, During the re-examination conducted by Deputy Solicitor General Priyantha Nawana, the Auditor General said proper Accounting Standard were not followed for years by the Finance Ministry in maintaining accounts relating to the transactions of Treasury Bonds issued by the CBSL.
In consequence of not adhering to proper accounting standards, the gap amount was approximately up to Rs. 500 billion in Finance Ministry’s accounts comparing to the actual results of the bond transactions, said Mr. Wijesinghe.
He informed the commission that the Auditor General’s Department had continuously requested to adjust the improper accounting standards used in bond transactions from the Ministry, but they never changed the continuing practice.
He also said that he rejected forwarding his opinions in the course of auditing Ministry’s accounts on the last occasion due mainly to not following proper accounts standards.
However, it was revealed that the Ministry has now started adopting the said standards into their accountings subsequent to the AG’s rejection.
Mr. Wijesighe also explained that the Finance Ministry nevertheless had no legal binding to adhere to the Sri Lankan Accounting Standards as per Laws.
Concluding his evidence at the Bond Commission, Auditor General said former Governor Arjun Mahendran had not maintained the professional due care during the two controversial bond issuances held on February 27, 2015 and March 29, 2016, therefore former Governor should be responsible for the losses incurred.
It was also exposed that the Auditor General’s primary focuses and the principles when preparing the report were the’ Value for Money’ principle, whether borrowings achieved at the least cost to the Government, whether officials had acted with due care, transparency of the transactions, and the losses incurred due to cease of Direct Placement Method.
When the Commission questioned referring to a letter received from the World Bank regarding the controversial bond issuances, the Auditor General affirmed the World Bank’s stance that there was no particular method available in calculating losses incurred in such controversial instances.
It was revealed that if in need of computing losses in such incidents, the World Bank had mentioned a requirement of a ‘Counter Factual’, which was the ‘exclusion of Direct Placement Method’ used in the Audit Report.
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