Alleged Forgery At A Promoter Entity Adds To 8K Miles’ Woes
The auditor resignation saga in India continues to take interesting twists and turns. An auditor of 8K Miles Media Private Ltd. quit alleging that the company forged his signatures on bank investment certificates to transfer money abroad.
In April, Chennai-based GHG Associates Chartered Accountants tendered its resignation to 8K Miles Media Pvt. Ltd alleging that the company misused the audit firm’s letter head, seal and signature of one of the audit partners, according to the resignation letter that surfaced recently. BloombergQuint has obtained a copy of the letter.
The alleged forgery was done in nine overseas direct investment certificates submitted by 8K Miles Media to Indian Bank Ltd.’s Porur Branch for transferring a total of $7.15 million to the company’s unit in New Jersey. The nine transactions were done between June 21, 2017, and March 28, 2018, according to information in the resignation letter.
8K Miles Media Pvt. Ltd. is connected to publicly listed company 8K Miles Software Services Ltd. Its directors Suresh Venkatachari and Rama Subramani Ramani are promoters of the listed company, with Venkatachari holding a 55 percent stake. He’s also chief executive officer in both companies. The listed company’s annual report shows it made loans and advances of about Rs 107.2 crore to 8K Miles Media Group in 2017-18 and earned interest income of Rs 7.3 crore in the same period.
Shares of 8K Miles Software Services Ltd. hit the 5-percent lower circuit for the fourth consecutive day, after the resignation letter surfaced and was widely circulated on social media sites. The company issued a statement to stock exchanges to contain the damage. It said that 8K Miles Media is not a subsidiary or an associate company of 8K Miles Software Services. And that Venkatachari owns 0.18 percent in 8K Miles Media. “8K Miles Software Services Limited is not involved in any manner to the issues raised by the auditors of 8K Miles Media Private Limited,” the statement said. “The board of 8K Miles Media Private Limited is looking into all the points and comments raised by its auditors and appropriate action will be taken on the same.”
BloombergQuint’s request for an interview with 8K Miles Software Services was declined.
Today’s fall in 8K Miles Software Services continues a deep decline through the year with its share price down 75 percent year-to-date. That’s eroded its market capitalisation to Rs 680.6 crore from Rs 2,711.1 crore at the start of the year.
Interestingly, Ramani, also chief financial officer at the software services firm, sold nearly 6.8 lakh shares earlier this year. He has been selling continuously since 2017 offloading shares amounting to almost 5.5 percent stake, according to exchange disclosures.
Spike In Resignations
Curiously, GHG Associates was also the statutory auditor for the listed 8K Miles Software Services Ltd. till two years ago. The listed company disclosed in Aug. 2017 that GHG Associates resigned due to other professional commitments following which Deloitte Haskins & Sells was appointed as their new auditor.
This is yet another case in the puzzling rise in auditor resignations seen in India. Between January and July over 200 auditors have resigned compared with just seven last year. In some cases auditors resigned just before the end of financial year 2017-18. In most, the explanations offered were sketchy leaving shareholders confused about the implications and doubtful regarding the veracity of earnings.
Amid the companies from where auditors have resigned are some big names too—Price Waterhouse & Co. resigned as the auditors of Vakrangee Ltd. and Atlanta Ltd., while Deloitte Haskins & Sells resigned from Manpasand Beverages Ltd. In fact, thirty-two auditors of listed firms have resigned mid-term between January and May this year, according to Mint report dated June 5.
These auditor resignations are a step in the right direction from a governance perspective, Jamil Khatri, head of audit at BSR & Co—an affiliate of KPMG India, had told BloombergQuint earlier. “It is good that instead of playing along with management, auditors are saying that we will take action. If we're not comfortable with the company, we will move out of the company.”
The resignations came around the time when the banking regulator warned of consequences for auditors. The Reserve Bank of India, in June, had said it's putting a framework in place to take action against statutory auditors of commercial banks if lapses were found in the audit process.
The Ministry of Corporate Affairs, too, is investigating the matter. It has sent queries to audit firms who’ve resigned under the Section 143 (12) of the Companies Act, 2013 based on 15 complaints that the government received. Under this section, an auditor, who during the course of an audit, finds that a fraud has been committed by the company or its employees, must report the matter immediately to the central government.