IL&FS Engg & Const: Forensic Audit by Grant Thornton Shows Improper Handling of Whistle-blower Complaints
Moneylife Digital Team 28 May 2021
Grant Thornton India LLP (GT), which was appointed to conduct a forensic audit of IL&FS Engineering and Construction Co Ltd (IECCL), a unit of Infrastructure Leasing & Financial Services (IL&FS), shows lack of systems and records to handle complaints raised by whistle-blowers. The forensic auditor identified numerous email communications that highlighted whistle-blower complaints with regard to to the business operations of IECCL. 
 
GT says, during its review, it had identified multiple whistle-blower complaints which, which highlighted anomalies in the projects executed by IECCL. 
 
"However, based on the clarification dated 22 November 2019, we were informed by the representatives of IECCL that there were no whistle-blower complaints received by IECCL during the review period. Thus, it appears unusual that even after multiple whistle-blower complaints highlighting various issues in the projects, no documentation such as actions taken or investigation reports are available with the representatives of IECCL," the auditor says.
 
The forensic audit found that there were nine complaints by whistle-blowers raising multiple issues about projects as well as subcontractors. "However, due to multiple data limitations, the claims by the said whistle-blowers cannot be verified," it added.
 
One whistle-blower, Arindam Mukhopadhyay, on 1 December 2017, raised the issue of unethical and improper practices carried out in the Chennai Metro Rail Project (CMRL) by the site management in liaison with their relatives.
 
The complaint sent to Mukund Sapre, managing director (MD) of IECCL, raises four issues, "The excavated earth was sold in large volumes by agencies named Raj Construction and JK Enterprise, which were appointed as excavation and disposal contractor. Reinforcement and steel scrap were sold secretly with the direct involvement of the project director of CMRL. The project director had appointed his known contractors and certain malpractices were carried out for the head office staff at the company guest house."
 
In its response, IECCL told GT that "(the complaint) was not reported to the whistleblower internal committee (WBIC) for further action."
 
The next whistle-blower complaint was about the Kolkata Metro Rail Project (KMRP). In the complaint sent to MD Khattar from IECCL on 30 May 2016, the whistle-blower [email protected] highlighted operational issues in the KMRP project and alleged collusion between employees on the site and sub-contractors.
 
The whistle-blower stated, "An employee of IECCL had certified subcontractor's incorrect bills and acquired land based on funds collected from the contractor(s). Another employee had certified incorrect purchase and maintenance bill of plant and machinery. Low-quality material was purchased for the site."
 
In response, IECCL says, "(the complaint) was not reported to the whistleblower internal committee (WBIC) for further action."
 
Shrikant Dash, another whistle-blower, on 28 March 2012, raised issues about IECCL's Jajpur Project in Odisha, alleging that engineers and officials appointed by IECCL were corrupt and unethical. 
 
In his communication sent to Tarun Udwala and CS Raju from the company, Mr Dash alleged, "Certain officials of IECCL were involved in the issuance of work orders unethically and were earning revenue by providing poor quality materials. The project manager was charging a substantial amount in order to clear the bills of the contractors and to provide service to the villages and the site engineer was corrupt and was potentially involved in the installation and supply of electricity by passing false work orders."
 
However, IECCL provided the same reply on this whistle-blower's complaint as well. 
 
On 21 April 2016, whistle-blower Rajni Sharma raised issues about the Patna Gaya project with Mr Khattar. Ms Sharma alleged, "The local staff was involved in carrying out other business activities like property dealings and also utilised and invested company resources like vehicles, manpower and funds towards property dealing work. A few site employees were involved in corrupt practices and used to seek unethical favours from the contractors."
 
Responding to this, IECCL told the forensic auditor, "Anonymous email is not to be considered under whistle blower policy (WBP) at the time of receiving this anonymous email."
 
One more whistle-blower, [email protected], on 17 September 2012, made serious allegations against an assistant vice president of the power sector. This was about IECCL's projects in Odisha and West Bengal.
 
The whistle-blower alleged that "the assistant vice president of the power sector would collect sums from the corrupted project managers and approve the unfair practices in Orissa and West Bengal project sites." 
 
It was further alleged that "the balance of unused materials or assets at the site were taken by the project managers and were sold in the market with the assistance of the subcontractors."
 
However, IECCL replied saying its whistle blower policy came into existence in August 2014.
 
On 31 December 2012, one more whistle-blower Chetan Krishna alleged potential bribe scam in the Hyderabad office of IECCL. The complaint, sent to Ravi Parthasarathy (IL&FS), Hari Sankaran (IECCL), K Ramchand (IECCL) and Arun Saha (IL&FS) indicated that "there was a potential bribe scam in the sales tax department of IECCL. Further, IECCL had potentially purchased bogus or fake bills in the name of consultants. There was a potential kickback of over Rs0.90 crore from the consultants over a period of two years."
 
In response to this complaint, IECCL told Grant Thornton that its whistle-blower policy came into existence in August 2014.
 
Srinivas Rao, one more whistle-blower and former employee of IECCL, on 26 April 2018 sent his complaint to Sitaraman Ramachandran from IECCL, against sub-contracting of work in the Polavaram Project.
 
In the forensic audit report, GT says, "The email indicates a potential allegation raised by Srinivas Rao, an ex-employee of IECCL, against the key representatives of IL&FS Group regarding subcontracting of work to two agencies. It was mentioned that out of the two agencies to whom contracts were awarded, one of the agencies was involved in a scam in a railway sector project of IL&FS Group in Maharashtra. Further, no questions or enquiries were raised by the key managerial persons (KMPs) of IECCL. There were potential allegations that the said agency had cheated IL&FS group. The complaint email did not specify the names of the agencies involved."
 
In its response a representative of IECCL informed GT that "(the) CEO (chief executive officer) forwarded the email to PKG (Pradeep Kumar Goyal, senior vice president and head of human resources and corporate services) and asked for advice. The CEO took the feedback from the irrigation department. PKG met with the CEO. Since Srinivasa Rao was a termination case, the CEO advised not to take it under WBP for further action. It was not a whistle blower complaint. PKG advised Alak to investigate and report.”
 
GT, however, says, "The response provided by representatives of IECCL does not contain any supporting documents such as an investigation report for the responses provided."
 
On 19 January 2018, Alak Pan, another whistle-blower, alleged potential involvement of employees in a scam. In his email to Pradeep Kumar Goyal from IECCL, Mr Pan mentioned that there were possible scams in the store, procurement, and quality control department of IECCL. "The employees of IECCL had admitted to recording inward entries of rejected materials in the stores for monetary benefits. There were potential issues in the sale of high-speed diesel," the email says.
 
IECCL provided a detailed reply with event chronology to this whistle-blower's complaint to the forensic auditor. It says on 19 January 2018, Mr Pan wrote to Mr Goyal and Rajesh Kumar (SH), senior vice-president of IECCL. On the same day, Mr Goyal wrote to Mr Pan with a copy to the CEO and SH, recommending transfer of the concerned person to another site to start a fair investigation.
 
Next day, SH forwarded the email to company the MD, Mr Sapre, who forwarded this email to Mr Goyal with question marks. On 22 January 2018, Mr Goyal sent a report to the MD on the initial steps taken. On same day, IECCL says, "MD forwarded PKG's email to the CEO with adverse comments on CEO. (The) CEO replied back to MD stating ‘on 19 January 2018 upon getting mail from site, I reported to you and asked your approval for filling first information report (FIR) same day’."
 
Next day, on 23 January 2018, the record says "Call from MD to CEO with an advice 'no further action'", as per the reply provided by IECCL to GT.
 
S Rajesh, former general manager for internal audit at IECCL, on 2 June 2016, sent an email to Arun Saha of IL&FS regarding some findings in the audit report. GT says, S Rajesh had filed a complaint with a member of Parliament (MP) as well. 
 
The complaint pertains to "Accounting for fake bills for work not performed and material not procured and thereby siphoning of funds. Creation of fictitious accounts in the name of non-existent companies, individuals, and other fake documentation. Inflation of revenue and profit margins to show loss-making projects as profitable and accounting for rejected claims for inflation of revenue."
 
GT also notes that "S Rajesh had approached Arun Saha (IL&FS) in relation to the above-mentioned audit findings, but no action was taken. Thus, it appears that there were multiple issues noted in the internal audit of IECCL, and no actions were taken by the then KMPs of IL&FS."
 
Responses provided by the representatives of IECCL stated “Mr Saha called MD Khattar (MDK), MDK called PKG and advised to meet with Rajesh who was seeking reemployment.
 
"Rajesh was GM in internal audit department. PKG wrote email to Rajesh requesting him to meet in office on 15 June 2016. Rajesh did not come. After that no communication with Rajesh.”
 
GT, however says, "IECCL has stated that while senior management attempted to connect with one of the whistle-blowers; however, the whistle-blower failed to meet with the senior management. However, the said response does not address the issues raised."
 
"Based on our findings and response received from the representatives of IECCL, our assessment remains unchanged," the forensic auditor says.
 
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