AUDITOR COOKS THE BOOKS
By Andre Bagoo Wednesday, October 24 2012
CHANKA Seeterram has been an accountant for more than 40 years. He has done about five- dozen audits for credit unions throughout a long career.
But when the time came for him to audit the Hindu Credit Union (HCU) and 24 of its subsidiaries in 2006 – just as the HCU’s troubles were becoming public – he decided he had to do things differently.
Seeterram told the Colman Inquiry yesterday that he failed to disclose a $150 million consolidated loss at an annual general meeting; concealed a $31 million loss among “prior adjustments” in the 2005 accounts; back-dated audited accounts and rushed preparing accounts – represented as fully audited accounts – upon the request of former HCU president Harry Harnarine.
In relation to the $31 million loss, Seeterram confirmed he “compromised” with management after it became clear that the valuations of several HCU properties had been overstated by nearly $60 million in the accounts. For the 2005 accounts, prepared in 2006, the HCU management did not want the $31 million loss to show up. Under cross-examination from Marion Smith, a British barrister from 39 Essex Court, London, who was recently added to the Colman Inquiry legal team, Seeterram admitted that his solution was to have the figure inserted as a “prior year adjustment”. Testifying for a second day at Winsure Building, Richmond Street, Port-of-Spain, he admitted he did this to give the HCU more time to seek Government aid.
SMITH: “Is there any accounting standard that permits deficits on re-evaluation of fixed assets being introduced into the accounts directly to the retained earnings as opposed to going through the income (profit and loss) statement?”
SEETERRAM: “There was a run on the company and the people were not willing to pay what the management thought the properties were valued. Management thought they needed to sell the real-estate to become as liquid as possible and they were sold as a loss: at a reduction price in 2006. Management thought the transaction of 2006 should not distort the transaction of 2005 and included it as a prior-year adjustment. The 2006 losses were properties valued in 2004 and they reflected it in the undivided earnings in prior year adjustments to the valuations done in 2004 since that was where the net result ended up.”
SMITH: “You have not identified the accounting standard that permits this practice.”
SMITH: “Do you know? Did you look at the time?”
SEETERRAM: “No. I think this was done by management probably deliberately in the sense that if that loss was brought into the accounts in the current year the (previous) net surplus of $6 million would have ended up into a $25 million deficit.”
SMITH: “So management deliberately put it where we see it?”
SEETERRAM: “I would have to say yes.”
SMITH: “But what is your opinion? You are the auditor. Part of your role is to assess that decision. And to assess the validity of that approach.”
SMITH: “And so I ask again, did you carry out that formal assessment?”
SEETERRAM: “This was a very delicate matter that I had to decide upon in that the HCU at that point in time was experiencing a run and it was incurring numerous problems where people were demanding funds and whatnot. If this account had reflected a loss, for the current year, I thought they felt that there would have definitely been a run of a magnitude that they could not contain whatsoever.”
“I insisted that it had to be brought into the accounts regardless of the fact that the loss was incurred in 2006. I felt very strongly that it had to be reflected in the 2005 accounts. They felt that the only way to do it was that since there was some retained earning in there that maybe they could show that there was a prior adjustment within there. This was what some would call a compromise in the understanding that this would probably buy some time for the HCU to get their act together to be able to do what they thought was necessary to turn around the company because I felt if this massive loss was shown inside there they could not face the outcome.”
SMITH: “It should not have been there?”
SMITH: “It is not a prior-year adjustment is it?”
SEETERRAM: “Not in the true sense. It is a prior-year adjustment but it should still be shown in the profit and loss account.”
SMITH: “It is not a prior-year adjustment. It is not a mistake, is it? It should have gone in through the statement of profit and loss shouldn’t it?”
SMITH: “And it should have shown a substantial deficit?”
SMITH: “Your concern was that if you insisted upon that, that would have been the end of the HCU?”
SEETERRAM: “I was looking at the bigger picture, yes.”
SMITH: “Yes, well were you thinking about the members’ bigger picture? Were you thinking about the investor who put his money into the HCU? You felt it was better to let it continue?”
SEETERRAM: “Yes. What I felt was that the management needed some time to check their options that were available and the options that were available and the way the HCU was going at the time they could not continue and they needed external help. And they needed to buy some time to get some external help. This is where they agreed according to my advice that they should go to the Government and seek financial advice, financial assistance which they need.”
SMITH: “It must have been a very difficult decision?”
SEETERRAM: “It was.”
SMITH: “And it was a decision made behind closed doors wasn’t it? Nobody knew but the HCU directors.”
SEETERRAM: “I would not say it was hidden. It was in the accounts.”
SMITH: “How would the average member of the HCU begin to pick up what this meant? How would the average member of the population know that $31 million should not be there but should be over here?”
Further, Seeterram, who took up the HCU brief after the previous accountant was fired when he raised queries over the accounts, failed to disclose to an annual general meeting of the HCU, held in 2006, that there had been a later loss of more than $150 million. The figure was not included in a booklet distributed to that AGM, which purported to have a statement of accounts in it.
Smith noted that Seeterram privately informed HCU management, in October 2006, that, “the credit union is losing approximately $2 million per month. This loss excludes interest income charged to the subsidiary companies which is presently not being paid.
Additionally, it appears the consolidated loss at the end of September 2006 was in excess of $150 million. Further, the credit union is having grave problems paying its depositors and their deposits are due.”
SMITH: “That piece of information is not reported to the AGM in 2006 is it?”
The accountant, who founded Chanka Seeterram & Company in 1986, also failed in various accounts to disclose material facts. For instance, he did not note that, “most of the company subsidiaries made substantial losses during the year and also during the previous years. As a result of these losses, some of these companies may be trading in spite of being insolvent.” He did not note that “the losses suffered by these companies have substantially reduced the profitability of the parent company.”
In the main HCU “standalone” accounts for 2005 he noted, “No provisions are made against losses against the subsidiaries as these are shown in the financial statements for the subsidiaries and in the consolidated accounts.” He agreed with Smith that the losses were, “a material matter and could have been and should have been an audit report.” He said the omission was due to a hasty account preparation.
SEETERRAM: “We got a call from Mr Harnarine saying they would like us to just give the parent company accounts. And in a haste and a rush – without trying to review and audit and look at all the implications – you just take out from the file and produce and send to them. Of course it was not sent to the entire public but for the purpose of that request from Mr Harnarine for the Commissioner of Cooperatives. If I was doing the accounts properly like we did the next year it would definitely have happened. It was something that I could not understand why it was being requested.”
SMITH: “The problem is that it ends up as an audited report and it ends up having a weight that you did not intend it to have.”
Though on Monday he told Senior Counsel Deborah Peake, lawyer for the HCU liquidator, that his accounts were dated as at the date of the last site visit to the HCU premises, Seeterram yesterday admitted that the accounts were in fact back-dated. Seeterram confirmed one member of his staff, Jameel Ali, later became a member of the HCU executive.
Under cross-examination from Ministry of Finance attorney Jagdeo Singh, the accountant admitted to not seeing documents proving hundreds of millions in loans to subsidiaries.
Under cross-examination from Harnarine’s attorney Farid Scoon, Seeterram said he was not offered nor did he accept any bribes from Harnarine.
SCOON: “Were you harassed, abused, assaulted or battered in any way?”