• Governor says working with AG’s Department to get forensic audit initiated
• Says CB will put out a request for proposals to all major accountancy firms in the country
• To ensure independent audit to be led by foreigner

By Chandeepa Wettasinghe

The Central Bank will be calling for proposals from major audit firms to conduct an internationally-led forensic audit into treasury bonds issuances and the Employees’ Provident Fund (EPF) investment decisions during former Central Bank Governor Ajith Nivard Cabraal’s tenure, as recommended in the recent Presidential Commission of Inquiry (PCoI) report.

“One of the recommendations of the report is to conduct a forensic audit into the government securities market and also said that we should have a look at the EPF operations in the stock market. So the Central Bank is in the process of initiating a forensic audit,” Central Bank Governor Dr. Indrajit Coomaraswamy said.

Speaking at a media briefing yesterday, he said that the Central Bank is closely working with the Auditor General’s Department to get the forensic audit initiated, and that they have already worked out the terms of reference for the audit.

“We will put out a request for proposals to all major accountancy firms in the country and we will ask them to put together teams, which are led by somebody outside Sri Lanka, so that we have an entirely independent audit into these operations that the inquiry has asked us to look into,” he said of the next course of action.

Dr. Coomaraswamy said that he did not want to comment on the actions of his predecessor.

The PCoI report on the 2015-2016 bond scandals which occurred under the governorship of Arjuna Mahendran had stated that even bigger losses than the Rs.8.5 billion the public had incurred in 2015 and 2016 had taken place from 2008-2014, when the Central Bank had employed a direct placement method for issuing treasury bonds.

Prime Minister Ranil Wickremesinghe has repeatedly said that most of the bond issuances had occurred without Monetary Board approval as well.
Cabraal, who was the Central Bank Governor during this period, just weeks earlier insisted that his actions in the period in question were as pure as the driven snow.

Further, during this period the country’s largest pension fund, the EPF, which is under the custodianship of the Central Bank, had made questionable investment decisions on the Colombo Stock Exchange, selling off blue chip stocks, and making investments in less reputed, underperforming  firms, one of which is in the process of being wound up.

Mirror Business also revealed recently how nearly all of the EPF’s private equity investments, which were all made during Cabraal’s tenure, have also not generated any returns.

No decision reached on divesting dud EPF investments 

The Central Bank is not yet ready to divest the EPF’s holdings in investments, which are not generating any returns, as further studies and expertise are required in the EPF Department.

“We have not taken any decision on divesting the investments done by the EPF Department. Before we take any firm decision, we have to further study the market as well as improve the infrastructure and decision making framework of the EPF as well. We will take a decision thereafter,” Central Bank Deputy Governor K. D. Ranasinghe said.

He said that it will take a little time to take a decision on if and how to further diversify the portfolio. Over 90 percent of the EPF’s investments are in government securities. 

“We need to revisit and strengthen the investment policy statement. We are currently working with the Asian Development Bank and the World Bank on this. Based on their recommendations, we will go forward and start investing in other areas such as stocks,” Ranasinghe added.
The Rs.2 trillion fund has been generating an average return on investment of 11.3 percent.