New Delhi: The Central Vigilance Commission (CVC) on Tuesday made public a detailed report analysing how some media firms submitted inflated and fabricated bills, and siphoned off funds obtained through bank loans to non-existing suppliers and accounts of companies where their own promoters were directors.
“The funds disbursed were got transferred from no lien account to various suppliers and group accounts by way of DDs or RTGS. The funds credited in suppliers a/cs were transferred to other companies where promoters were Directors or authorized signatories”, Central Vigilance Commission said on Tuesday sharing with the RBI, the Enforcement Directorate and the CBI its analysis which runs on 47 pages.
“Funds were diverted through suppliers’ accounts which were the associates/connected accounts of the borrowing companies. Further, there was huge difference in cost of equipments as per investigation report and the invoices submitted by the party”, the CVC report said.
“The Companies had submitted inflated and fabricated invoices which amounted to misrepresentation of facts to the Banks for securing higher limits and misutilisation of the same”, the report said.
The CVC report focused on the methods used, amount involved, type of lending (consortium or individual), anomalies observed and loopholes that led to the frauds, along with recommendations to plug the gaps in the system.
The report in PDF form has also been uploaded on CVC website.
The CVC analysed cases of frauds perpetrated by two companies in business of broadcasting on television channels, printing and publishing news paper and periodicals. Their projects were financed by banks under consortium led by one of the banks and the company also availed other credit facilities from various banks.
“One of the Companies had submitted a certificate from CA regarding infusion of capital. The Chartered Accountant had in writing denied having issued the said certificate. Hence, the company had submitted fabricated certificate to avail loans”, the CVC found.
“Fraud element had been apprehended due to the fact that one of the suppliers was non-existent and in case of 3 major suppliers, the promoters had managerial interest by virtue of being on board of the supplier companies at different times”, the CVC report said.
“Funds were thus siphoned off and re-routed into the accounts of the promoters and their group companies which were further misused”, it said.
“One of the Companies raised loans from various Bank/ FIs through its two balance sheet periods by concealing the information/ details of its borrowers/ names of the lenders. The balance sheet figures were fudged/ fabricated with particular reference to the outside borrowings from Banks/FIs. The company did not give the details of the lender wise exposure in the schedules of the audited balance sheets”, the CVC said.
“The Company effectively prevented the lenders from insisting on NOC/ Confidential opinion from other lenders which otherwise would have revealed the true picture of total borrowings of the company. The funds were diverted to their accounts with other banks and were not utilized for the purpose for which these were given and the company misrepresented the facts and cheated the bank”, the CVC said.
“The Company produced end use certificate issued by an auditor other than the one who audited company’s balance sheet. The company concealed the information on existence of prior charge on one of the machineries offered as collateral security to the bank”, the Central Vigilance Commission found.
The CVC in its report also suggested a number of measures which can be implemented for systemic improvement.
“The main company had formed further companies which were engaged in similar business of post production activities and were actually working in close clusters/premises. Banks should scrutinize the objective of forming different companies for similar activities”, the CVC said.
“At the time of carrying out the review, the past track record of the borrower or the length of his satisfactory association with the bank should be one of the considerations. The status of the borrower should be more critically analysed”, it said.
“The field functionaries should find out the kite flying operations from the nature of transactions and their respective character”, the CVC said.
“The field level functionaries should be advised to scrutinize the financial statements submitted by the borrowers thoroughly and where ever it is observed that the short term funds are used for long term purposes and vice versa, they should be advised to ascertain from the borrower the reasons and purpose of the same and record the same in appraisal notes”, the CVC has recommended in its report.