By Andre Bagoo Sunday, March 3 2013
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PricewaterhouseCoopers partner in charge of audit plans Nigel Panchoo. P...
THE AUDITOR in charge of reviewing the CL Financial Group’s accounts yesterday said he felt “almost a sense of betrayal” and “anger” after he found out that former CLF corporate secretary Gita Sakal and former CLF finance director Michael Carballo and others had withheld key information which he had requested of them, information which would have changed his audit approach.
PricewaterhouseCoopers partner in charge of audit plans Nigel Panchoo said he inquired of both CLF officials if minutes were available for the September 2008 meeting of the board and both claimed the minutes were not available. However, the inquiry has received documents purporting to be minutes for that month.
The minutes detail that at the September 2008 meeting, the board discussed the disastrous $1.8 billion Green Island Florida real-estate transaction which threatened to bring the entire CLF group down. Panchoo said had he access to these minutes — which record the CLF board’s apparent view that the Green Island deal done by a subsidiary company could jeopardise the entire group’s future — his audit would have been different.
“I personally asked Ms Sakal if the minutes were available,” Panchoo said, testifying at the Winsure Building, Richmond Street, Port-of-Spain, during a Saturday sitting. “She said to me they were not.” Not satisfied with this, and undaunted by Sakal’s blank, Panchoo sought to knock on the door of another CLF official who could help.
“I thought the next best alternative would be to go to a board member who had attended the meeting and a board member who would understand financial matters,” Panchoo said. “That member was Mr Carballo, the finance director.”
The witness continued, “I enquired of him whether there were any matters contained in the board minutes. He confirmed that there were actually no board minutes available that he was aware of. But he also confirmed there was no matter of any significance at that meeting that we should be mindful of. We know, subsequently, that was actually an incorrect representation given to us.” He said Carballo once assured that the board was not concerned about declining cash-flows given the purported stream of dividend income. Panchoo said auditors must rely heavily on management’s representations.
“We have a standard process in every audit where we ask management to confirm. You need to know that you can trust management in representing to you information,” he said.
The witness said he held several meetings with CLF officials, even right up to days before CLF approached the State for a bailout, and key matters were not disclosed. These included: the withdrawal of large sums by State enterprises from Clico Investment Bank (CIB); the worsening Statutory Fund deficit of Clico; the deteriorating CIB loan portfolio as well as trouble with CIB and Caribbean Money Market Brokers (CMMB) and the Home Construction Limited group.
“There were a series of events which we either did not know or were not being represented to us accurately,” he said. “None of these things are being told to us or the gravity of these things were not being told to us.” He said there was no documentation which showed that there were problems.
“Had that information been known it would have changed the approach,” he said. He said when he first heard of the collapse, he did not see it coming.
“First of all I was shocked,” he said. “I was actually at CIB doing the audit. That is how I found out. In hindsight, the kind of information that I have heard now – you know it’s almost a sense of betrayal. You are working with qualified professionals and you expect a certain amount of honesty in terms of what is being represented to you. And that wasn’t the case. It makes one angry as well. I don’t want to say anything else actually.”
Panchoo said he did audits of the group — that is CLF consolidated accounts — not of the CLF company itself. Inquiry chairman Sir Anthony Colman asked if there was a “close process of liason” during the “landslide period” after the date of audited accounts (when subsequent events can bring the house down). “Yes, there is ongoing discussion almost daily,” the witness said.
Panchoo, who in an internal e-mail described the CIB books as a “bomb-site” said “at the time I was trying to explain the frustration that things were literally in disarray.”
Counsel to the inquiry Marion Smith said she was of the view that PwC did not have a plan.
“There was no plan at all. It was just coping with what was there,” she said. The witness disagreed, stating it was a matter of approach.