Forensic audit on bonds, EPF by external party: CB

The audit into the issuance of government securities by the Central Bank and the alleged losses to the Employees’ Provident Fund (EPF) from 2008-2014 will be undertaken by an external party, the country’s monetary and financial sector regulator said in a statement yesterday.

“The audit will focus on government securities and EPF operations during the period 2008-2014. This would be conducted by an external party. It is not appropriate to make any statement in this regard prior to the conclusion of the forensic audit,” The Central Bank said.

A recent Presidential Commission of Inquiry (PCoI) into irregular treasury bond auctions held by the Central Bank in 2015 and 2016 recommended that a forensic audit be conducted on the bond issuances and EPF activities between 2008 and 2014.

A statement made by President Maithripala Sirisena based on the report said, inside information had been leaked to primary dealer Perpetual Treasuries, which was connected to the then Central Bank Governor Arjuna Mahendran, allowing them to purchase large volumes of bonds at low prices and dump them to the EPF—managed by the Central Bank—at higher prices.

The EPF is the country’s largest public retirement fund, worth about Rs. 2 trillion. The public loss from the bond trades were worth around Rs. 8.5 billion, while Perpetual Treasuries had made profits in excess of Rs. 11 billion, President Sirisena said.

However, he said that bigger losses were incurred by the EPF from the period 2008 to 2014. The period also saw the country continuing to offer government securities on a direct placement method. 

Central Bank Governor during the period 2008-2014, Ajith Nivard Cabraal, defended himself during a recent media briefing, saying that no wrongdoing had taken place on government security issuances while he was governor.

However, the Auditor General’s report which he based his argument on, had said that there were many constraints and missing information that precluded a clearer picture on the issuances between 2008 and 2014.

Meanwhile, the Central Bank last week said that many of the recommendations made by the PCoI report to prevent mismanagement and fraud have already been introduced.

The PCoI report has yet to be made public, or tabled in parliament, with the only other known copy other than the one held by the President being forwarded to the Central Bank.