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PNB asks BDO to conduct forensic audit of Nirav Modi companies

The Economic Times |

28 February 2018

Books of these entities to undergo scrutiny for seven financial years beginning FY11.

Punjab National Bank appointed BDO to conduct a forensic audit of jeweller Nirav Modi’s companies, according to people directly briefed on the matter. 

The bank issued a formal appointment letter to the Belgium-headquartered audit firm on February 27 that was signed by PNB executive JK Gupta. Modi, his uncle Mehul Choksi and their companies have been accused of defrauding the bank of as much as Rs 12,700 crore.

BDO been tasked with carrying out an audit of five Nirav Modi group entities--Firestar Diamond, Firestar International, Solar Export, Stellar Diamonds and Diamond R US. The books of all these entities will undergo forensic scrutiny for a period of seven financial years beginning FY11, according to sources. 

BDO’s scope of work also entails identifying how the letter of undertaking (LoU) mechanism was misused by Modi and gathering evidence of the money trail and tracking the end use of funds raised through the instrument besides quantifying losses the bank suffered due to the alleged scam.

PNB has also sought a detailed investigation into sales transactions, specifically on sales on return (SOR) basis that were reversed in subsequent financial years, indicating these were fraudulent in the first place. 

PNB didn’t respond to queries. BDO partners Kartik B Radia and Somyajit Sethi will lead the multijurisdictional probe, according to sources. 

BDO was chosen from four auditors invited to place formal bids to conduct the audit. PwC had been the lowest bidder but lost out to BDO, which made the second-lowest offer. KPMG and EY were the others in the race. 

The auditor has also been asked to look at “concentrating transactions” where large volumes of sales were made to the same customer or large volumes of purchases were made from the same supplier. The auditor will also examine stocks, inventory and purchase transactions in particular with related parties and group companies. 

Any evidence will be shared with the Central Bureau of Investigation to help buttress the case against the accused and any accomplices.