Senate panel calls for stern action against Hascol auditors

ISLAMABAD: The Senate Committee on Finance has asked the Securities and Exchange Commission of Pakistan (SECP) to conduct a forensic audit of Hascol to ascertain the culprits and initiate action against the auditors of the company for failure in identifying a massive fraud.

The committee also rejected the budget proposal to impose tax on online transactions of Rs25,000 and above.

The meeting of the Senate Standing Committee on Finance was held under the chairmanship of Chairman Committee Senator Muhammad Talha Mehmood.

The committee received a comprehensive briefing from the State Bank of Pakistan (SBP) and SECP on the financial reporting issue of Hascol.

The SECP officials informed the committee that in 2019, the liabilities increased from Rs24 billion to Rs44 billion, compared with 2018. The company was constantly investing in its new projects. Within a few months the company registered a massive loss. A company, which was operating with a profit of Rs956 million in 2018 suddenly went to an enormous loss of over Rs25 billion in December 2019, an official of the SECP said.

The SECP officials told the committee that the commission had issued its instructions to the company.

Two investigations are underway against Hascol, which will be completed in three months. Criminal or civil proceedings against the company will be carried out under the SECP Act, it said.

Senator Saleem Mandviwala said that it seems that the fraud has been planned for years, and a forensic audit should be conducted. “The share price of Hascol declined from Rs300 to Rs7.80 in two years period, which shows that a huge fraud took place in the company because the dynamics of the oil industry didn’t change at all and none of its competitors didn’t showed such a massive loss,” he said.

Senator Kamil Ali Agha said that such a fraud is not possible if the auditing companies fulfil their responsibilities in a true sense.

Senator Musaddiq Malik asked why the SECP did not take action, as the company had taken illegal steps on such a large scale. The stock exchange should protect the capital of the shareholders.

The committee directed the SECP to take action against the company auditors FY Ford Rhodes and Grant Thornton Anjum as to how they couldn’t identify such irregularities in the financial statements of the company.

SECP chairman Aamir Khan informed the committee that as a regulatory body, the commission does not intervene in the business decisions of any company. The energy giant Vitol has a 40 per cent stake in Hascol and that is why no one was expecting such a massive fraud, he said, adding that the Pakistan Stock Exchange had already put the company on a defaulters’ counter.

Saleem Mandviwala and Musadiq Malik pointed out that just like previous frauds it seems that the small investors will be the biggest losers.

State Bank of Pakistan Deputy Governor Jameel Ahmad said that the banks lent Rs56 billion to Hascol. As per the central bank rules and regulations to any company or institution, a bank can lend 20 per cent of its total credit and in case of Hascol no bank crossed even 10 per cent of its credit limit.

The SBP official informed the committee that the central bank had already instructed the banks to do provisioning of Rs39 billion and put them in the category of nonperforming loans (NPLs) of their balance sheets.

On a query, they admitted that the National Bank of Pakistan lent Rs18 billion to Hascol and it hurts the most.

The committee chairman sought the statements of 18 banks from the SBP in three weeks. The committee chairman asked the SBP to provide the list of those who have given guarantees to these banks.

The committee also discussed the issue of charges on transactions of funds by banks. Senator Saleem Mandviwala said that the proposal to transfer money from banks was rejected in the budget.

Charges have been levied on transactions above Rs25,000. The SBP deputy governor underlined that the charges of 0.1 per cent or Rs200 were levied on the transactions above Rs25,000 or whichever is less. He said 82 per cent of the transactions took place in July without any charges. Only 18 per cent of the people were charged on the transaction.

Committee Chairman Senator Talha Mahmood objected to the levied charges on the transaction and recommended that either the limit of this amount should be increased to Rs50,000 or it should be abolished at once. These charges are not justified, he added.

Mahmood with the consent of the members, rejected the charges on the transaction by the central bank and directed it to submit a report to the committee within a month.

The issue of the bank account of politically exposed persons was also raised with the central bank. Senator Musaddiq Malik asked the SBP to submit a report of money laundering, terror financing. He stressed the committee should know how many bureaucrats, politicians, and other entities are involved in it.

Senator Kamil Ali Agha said that this issue has been going on for many years and is a source of humiliation for all of us. The committee chairman gave the SBP officials one month to resolve the issue.

He also said that the central bank should play its role in this matter. The committee members said that it takes months for the politicians to open an account, and many questions are asked when it comes to opening an account.

The SBP deputy governor said that it is not only for the politicians, officers above Grade 20 and Army personnel, brigadier and above are also on the list.

The standing committee also sought details of the cases against the politically exposed persons.

The committee also reviewed the issue of hacking of the FBR data in the meeting of the standing committee.

The committee chairman sought a reply from the FBR within three days regarding the data hacking. The standing committee directed the Senate Secretariat to write a letter to the FBR chairman in this regard.

A detailed discussion on the resolution moved by Senator Faisal Sabzwari in the House, “Recommending the government to give special tax exemption to the small traders and salaried class of Karachi and Hyderabad” was also held.

Senator Faisal Sabzwari and Senator Kamil Ali Agha suggested a one-year exemption to small traders and salaried class.

Senator Dilawar Khan suggested one-time relief, while Senator Musaddiq Malik said relief should be given to those earning less than Rs100,000. The committee chairman called for a report from the FBR on the total exposure and how many people were benefiting from the scheme within 15 days and recessed the agenda till the next meeting.

Acting Auditor General of Pakistan Ghulam Muhammad Memon, while briefing the committee, said that the auditor general audits all the institutions of the government and audits the aid received from abroad.

Senator Kamil Ali Agha said that the auditor general had given the most authoritative report on revolving credit. The committee chairman asked the acting auditor general to give details of the government agencies who do not conduct audits with the auditor general.

The acting AGP apprised the committee that the Oil and Gas Regulatory Authority (Ogra), National Electric Power Regulatory Authority (Nepra), Pakistan Telecommunication Authority (PTA), National Database Registration Authority (Nadra), Indus River System Authority (Irsa) and provincial government banks were not audited by the AGP.

According to the law, the National Bank has to deposit the government’s money in the SBP within a day.

The acting auditor general informed the committee that the AGP has completed its audit work, despite the pandemic, and 401 audit reports of the last year have been issued.

He said the AGP had recovered Rs409 billion this year, Rs782 billion has been recovered in the previous five years, while 26,000 audit paras have not been decided yet.

The committee chairman said a report should be submitted to the committee in six months regarding the pending paras