Audit report slams Entrust Securities for misinformation and missing information
The independent auditors’ report on troubled Entrust Securities PLC has revealed a fresh can of worms highlighting a myriad of discrepancies in the company.
An audit done by Chartered Accountants, Jayasinghe and Company says that Entrust Securities PLC incurred a net loss of Rs. 11 billion during the year ended March 31, 2016 and, as of that date its liabilities exceeded its total assets by Rs. 9.9 billion causing doubt as to the functioning of the company as a going concern.
The March 2016 end financial report, released on Thursday, January 4 to the Colombo Stock Exchange, says that the company couldn’t come up with collaterals for Rs. 7.4 billion repurchase agreements as at March 31, 2016. “After netting the confirmed security values with the total repurchase agreement customers balances, an amount of Rs. 11,035,525,413 has not been confirmed with regard to the availability of underlying securities. In the Local Treasury Bill Ordinance, regulation specified in section 5 (3) schedule III relating to scrip-less treasury bills, indicate that the treasury bills shall be identified as a subject matter of trade, though in this instance, the absence of security not conforming to the regulation.”
Auditors had called 139 investors for confirmations on the repurchase agreements for Rs. 14 billion, and only 65 had responded with Rs. 9.925 billion.
Six parties showed variances, indicating values over the amounts disclosed in the financial statements, the differences cumulating to Rs. 11.86 billion, the report says. “We did not receive responses from the balance 74 counter parties valued at Rs. 4,153,495,229 confirming or disputing the balances.”
Balances owned from three parties cumulating to Rs. 11,063,742,935 inclusive of interest income of Rs. 851.3 billion has been fully provided in the financial statements citing impairment, expressing doubt as to the recovery. “We were not provided with adequate reasons to assess the recoverability of the said amount,” the audit report says.
As per Entrust’s records, the face value of the bonds, owned by them amounted to Rs. 1,566,048,078 and the securities obtained for the reverse repurchase agreements amounted to Rs. 5,854,543,000. The repurchase agreement customers’ confirmations were received only for Rs. 2,338,541,078 security value, according to the report. “Due to lack of information and non-availability of the access to the central server maintained by the parent of the company, we were unable to satisfy ourselves regarding the accuracy and completeness of the security allocations and the ownership.”
The report says as there was no information and access to the central server maintained by the parent of the company. The auditors weren’t able to be satisfied regarding the accuracy and completeness of the capital loss from the sales of government securities amounting to Rs. 107,095,621 reported in Entrust’s financial statements and completeness of the interest income received from government securities for the year under review as well as the realizability of the reverse repurchase agreement interest income of Rs. 851,390,087.
The report said accuracy of disclosures made in the financial statements pertaining to related party transactions could not be quantified and verified due to the unavailable information. “It was also not possible to identify whether the list of names pertaining to related parties disclosed in the financial statements were complete.”
They say that they weren’t satisfied with the effectiveness of internal controls both in design and in operation in the preparation of the financial statements, not provided with sufficient appropriate evidence regarding any pending litigations, and therefore was unable to assess whether there was any impact to the financial statements arising from such litigations and that they weren’t provided with the bank confirmation for the Bank of Ceylon overdraft of Rs. 77,555,805 shown in the financial statements.
“We were not provided with the master repurchase agreements and consequently were unable to assess the impact to the financial statements thereof.”
Auditors had called 139 investors for confirmations on the repurchase agreements for Rs. 14 billion, and only 65 had responded with Rs. 9.925 billion.