The CBI suspects that the annual audit reports of Punjab National Bank's internal auditors were either suppressed or ignored by the top brass, resulting in non-detection of the Rs 12,636-crore loan fraud by diamantaires Nirav Modi and Mehul Choksi.

CBI sources expressed surprise that the scam continued from 2011 to 2017-2018 without detection by the top brass of the state-run bank although certain inconsistencies had been flagged in the audit reports.

"A probe has revealed that the audit reports had raised certain inconsistencies in the account books but they were either suppressed or ignored by the top brass. There seems to be a deeper criminal conspiracy which led to issuance of fraudulent LoUs (letters of undertaking) to Modi and Choksi from 2011 to 2017-2018 without detection," said a CBI official.

Had the audit reports been scrutinised properly, the scam could have been detected much earlier, the official added.

Sources also raised concerns that the scam had gone undetected even though the Reserve Bank of India conducts external audit of public sector banks every two years.

"The RBI also failed to notice huge and fraudulent outflow of funds in foreign currency to the companies belonging to Modi and his uncle Choksi," another CBI official said. A fraud of such magnitude, he said, cannot go on for so many years without the complicity of top officials.

The CBI has so far arrested a dozen of the bank's functionaries, including two internal chief auditors. Besides, it has questioned its managing director and chief executive officer, Sunil Mehta, and former MD and CEO Usha Ananthasubramanian. Ananthasubramanian is now the MD of Allahabad Bank.

Mohindra Kumar Sharma, one of the two internal chief auditors arrested, has been accused of deliberately not pointing out the issuance of LoUs to the Modi-Choksi firms. Sharma was posted at the Brady House branch in Mumbai that is the nerve centre of the scam.

"Prima facie it has come to light that the LoUs were not entered in the core banking system and it was the duty of Sharma to verify daily transactions but he didn't," said a CBI official.

On Thursday the agency arrested another internal chief auditor, Bishnubrata Mishra, who was responsible for concurrent audit for 2011-2015 at the Brady House branch. He was responsible for auditing the procedures and practices followed at the branch and reporting them.

"We are interrogating Mishra and Sharma and confronting them with other accused to unravel the entire conspiracy behind issuance of fraudulent LoUs to Modi and Choksi," the official said. #casansaar (Source - The Telegraph India)