Troubled infrastructure developer and lender Infrastructure Leasing & Financial Services Ltd has shortlisted Indian arms of Belgium-based BDO and Chicago-headquartered Grant Thornton to investigate alleged irregularities in its operations, three people with direct knowledge of the matter said. 

The board of directors of IL&FS is set to take a final decision on the forensic auditor within one week, one of the persons told ET. 

The appointed auditors will be mandated to evaluate the audit reports of IL&FS and its 200 plus subsidiaries dating back five years. 

Given voluminous nature of the task, there are chances that both BDO and GT are told to probe possible irregularities, said one of the persons close to the development. The board of IL&FS is also planning to appoint two-three smaller domestic players to help in the audit, the person said. 

Besides verifying the accounts of the holding company and all its subsidiaries, the forensic auditors will also have to examine several other documents, including statements that were submitted by the infrastructure company to its auditors in the past and records of the asset sales undertaken by IL&FS in the last few years, the sources said. “Serious Fraud Investigation Office (SFIO) is already investigating the irregularities and the firm would be required to supplement the investigations,” said one of the persons cited earlier. 

The chosen auditors will be mandated to conduct the audit in an expedited manner and submit a report in less than three months. 

The big four auditors — EY, Price Waterhouse, Deloitte and KPMG — could not be considered for internal investigations due to conflict of interest, said one of the persons cited above. 

People in the know said the internal investigations would include not just a financial part but even the operational aspect. 

“The investigators could look in to past financial dealings, cash flows from various assets, expense patterns of top executives and even scrutinise some of the allegations like kickbacks and bribery,” said a partner with a forensic team at one of the big four. “Such an investigation could take anywhere between three to four months,” the person told ET. 

In this regard, some of the loans that IL&FS doled out will also come under the scanner. SFIO suspects that the infrastructure company had sanctioned loans to shell entities whose end beneficiaries could be the beleaguered management or their immediate family. 

“The audit will also need some of the information to be validated by the foreign regulators. In the current stage, the magnitude of the fraud is still unknown. Once the process starts, the scope of audit could be expanded as deemed fit,” said another person cited above. #casansaar (Source - Economic Times)