Governor responsible over exclusion of DPM – Auditor General - Mahendran’s lawyer says loss calculations of AG are simplistic - No use of DPM since February 2015

By Shehan Chamika Silva

Former Governor Arjun Mahendran’s intervention largely resulted to deviate from the Direct Placement Method (DPM), which resulted avoidable losses in the process of raising funds to the Government, said Auditor General.

According to the Auditor General, relevant authorities at Central Bank of Sri Lanka (CBSL) were also responsible including governor over the failure to issue treasury bonds at least cost to the state at the bond auction held on February 27, 2015.

Auditor General, Gamini Wijesinghe was of the view that the losses deemed ‘avoidable’ in the report had been formulated by him based on the core ground of ‘deviating from the Direct Placement Method’ in raising funds through Treasury Bonds.

Meanwhile, there were many questions came to light during the end of the cross examination in connection with the loss calculations of the Auditor General over the auction held on February 27, 2015.

The three tables stated in the ‘Audit Report’ were in highly concern during the cross examination, because Counsel Shanaka de Silva who appeared on behalf of the former Governor consistently attempted to demonstrate the undependability of the tables.

Counsel de Silva was of the view that the whole procedure maintained by the Auditor General in calculating was simplistic and unfair; because some of the losses he had calculated in relation to the February 27 auction contained serious miscalculations.

When questioned by the Commission it was revealed that all the acceptances of the bids that were more than the offered amount of bids (advertised amount of bids) at the auction were considered into the formula which Auditor General had used in calculating the losses.

Initially, there was a Rs. 13.5 billion government fund requirement, which CBSL had to raise through bond sales.

Generally, the method to use raise such amount of funds was the hybrid system, where both Direct Placement Method and the Auction used appropriately.

At the February 27, 2015 auction, the DPM was not used in raising funds and solely depended on the auction.

The offered amount of the CBSL at the auction initially was Rs. 1 billion while Public Debt Department’s (PDD) recommendation was to accept only Rs. 2.6 billion.

In the end, CBSL accepted Rs. 10.058 billion through the auction in the absence of the DPM.

However, the Auditor General rejecting the counsel’s allegation said that he had depicted losses in two ways using the cut out point of accepting bids at the auction as the initial offered amount (1 billion) or the recommendation of the PDD (2.6 billion) in the auction.

Questioning the current status of raising funds through bond issuance at the CBSL, Mr. de Silva explained that there was no DPM in use at the moment on Treasury bond issuance since February 27, 2015.

He also said there was no Monetary Board decision yet to continue with DPM as a better way.

In reply, Auditor General said that he was not aware the current status of the Monetary Board in not using DPM because he was required to examine on two previously bond sales.