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Fund inflow in audit companies like PwC and Lovelock & Lewes against FDI norms
March, 12th 2012

The inflow of funds from Pricewaterhouse-Coopers Services BV, Netherlands, was first shown as 'reimbursement of expenses' - including in representation made to banks - but later invoiced as 'support' and finally as 'grant'. Surprisingly, the books of accounts classified this as 'sundry income' , which again points to misrepresentation of facts.

Alarmingly, the infow of funds into auditing firms like PW and Lovelock & Lewes (LL) is in itself a violation of the country's FDI rules as existing regulations do not permit foreigners to either practice auditing or even to fund audit firms in India. PW and LL are audit firms registered with the ICAI and are thus prohibited from accepting any foreign investment.

When contacted, a spokesperson for PwC India said, "The documents TOI purports to have in its possession , if authentic, are private and confidential business documents. Also, as a policy we do not comment publicly on our internal matters. PwC has complied and will continue to comply with applicable laws, regulations, and professional standards." However, PwC India did not comment on any questions raised by TOI regarding the backdating of invoices and the possible involvement of its senior officials in the matter. TOI has already reported on the inflow of over Rs 200 crore from overseas into PwC India entities that enabled them to remain profitable and not sink in losses. The government had begun an inquiry into the matter.

According to the papers seen by TOI for fiscal 2009-10 and 2010-11, there were several instances of backdating of invoices and fictitious transactions. An amount of $3.93 million came into tax and business advisory services company Pricewaterhouse-Coopers Pvt Ltd (PwCPL) in end of June 2010 (fiscal year 2011), but was shown to have come in FY10 through backdating of invoice to March 31, 2010. This helped the company boost its revenues as this money was classified as sundry income.

Again, an amount of $7 million came into PwCPL in the first week of May 2011 (FY12), but was illegally shown in the books of FY11 through backdating of invoice to March 31, 2011, signed by Kapoor. Similarly, a sum of $7.5 million flowed into PwCPL in the third week of May 2011 (FY12), but was accounted for in the previous fiscal (FY11) by backdating of invoice to March 31, 2011. Another inflow of $3.5 million in PwCPL in end-June 2011 (FY12) was falsely shown in the books of FY11 through the backdating of invoice to the previous fiscal. The papers also showed a similar trend in the books of PW where an inflow of $1 million in end of June 2010 (FY11) was invoiced for in the previous fiscal (FY10).

A thorough investigation of the papers showed that the money from PricewaterhouseCoopers Services BV (Netherlands) came into PwC India entities as part of a broader 'grant agreement' (or addendum thereto) signed between the international company with PwCPL and other audit firms for enhancement of resources and skills, which in itself raises several question marks over why such a funding would be done.

However, in several cases the grant agreement in itself was signed months later than the dates mentioned on the invoice. For example, the payment of $7 million invoiced on March 31, 2011 was based on an agreement that, surprisingly , had been signed by PricewaterhouseCoopers Services BV on April 14, 2011. Importantly, as mentioned earlier, the money had actually flowed in only in May 2011. This clearly points to violations by PwC India and its senior staff to dress up and fortify its sagging books and make them look profitable.

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