Deloitte in eye of storm as SEC investigates Tingo for $470 million scam, experts call for more oversight to protect Indian investors

The US regulator said it has found “billions of dollars” in fictitious transactions through entities controlled by Dozy Mmobuosi, the founder and former CEO of Tingo.

New Delhi: Accounting firm Deloitte has once again found itself in the eye of the storm of regulators.

Deloitte's international audit department said the Nigerian company Tingo – accused of fraud by Hindenburg – had more than $470 million in the bank.

However, reports indicate that the Securities and Exchange Commission found only $50 in the company's accounts. The US regulator said it has found “billions of dollars” in fictitious transactions through entities controlled by Dozy Mmobuosi, the founder and former CEO of Tingo.

Deloitte had given fintech a clean, unqualified audit of its 2022 accounts. This discrepancy came to light when short seller Hindenburg questioned Tingo's accounts and asked whether the company had “missed or rushed through procedures”.

Deloitte's Indian branch has also been mired in controversy for the past five years.

Its auditing practices came into the spotlight following the collapse of debt-laden infrastructure financier IL&FS Group. This led to investigations by several Indian regulators and agencies, including the Serious Fraud Investigation Office and the Ministry of Corporate Affairs.

The quality of Deloitte's audits was also investigated by the National Financial Reporting Authority (NFRA), which found many errors in the procedure.

Hindenburg noted that the problems in Tingo's financial situation are “so glaring that we would expect they could have been noticed by any semi-conscious financial student with severe vision loss,” Hindenburg wrote. “However, these issues apparently were not salient enough to the company's accountant.”

This is not the first recent example of the international network of companies facing regulatory challenges.

In September 2023, the Public Company Accounting Oversight Board sanctioned Deloitte & Touche SAS for quality control violations and imposed a $900,000 fine on the Colombian branch of the global network Deloitte.

The PCAOB found that Deloitte & Touche's Colombian quality control system failed to provide reasonable assurance that audit work would be performed and documented in accordance with PCAOB standards.

On the other side of the world, Chinese regulators have imposed a heavy $30.8 million fine on Deloitte's Beijing office for failing to adequately monitor a Chinese state-owned asset management firm whose former head has been sentenced to death was convicted on charges of corruption.

The Chinese regulator noted that Deloitte did not pay sufficient attention to management activities and that the audit did not meet the required standards.

Similarly, Malaysian accounting firm Deloitte PLT agreed to pay the Malaysian government $80 million to resolve certain claims related to the audit of the accounts of scandal-linked sovereign wealth fund 1MDB and its unit SRC International from 2011 to 2014. That was when the Malaysian government and regulators investigated the company's role in auditing 1MDB's financial statements.

In the IL&FS case, the government, during arguments before the National Company Law Tribunal and the Bombay High Court, alleged that Deloitte's Indian accounting firm that audited the relevant IL&FS entities colluded and colluded with a cabal to conceal information and falsify the accounting records.

It was alleged that the auditors knowingly failed to report the true state of affairs of IL&FS as they failed to report negative net equity and negative capital to risk assets ratio of certain IL&FS group entities.

Petitions filed by Deloitte and some of its partners challenging the SFIO investigation report were dismissed by the Supreme Court by judgment in May 2023, paving the way for the Mumbai court to continue the proceedings arising out of the criminal complaint from the SFIO.

Reports by the Institute of Chartered Accountants, the Reserve Bank of India and the SFIO also noted that the accountant, along with their engagement team, did not perform their duties diligently.

The government alleged that despite knowing the impact of financing defaulting borrowers for principal and interest payments, Deloitte failed to report the same in the audit report of financial year 2013-14 to 2017-18, leading to non -compliance with section 143(1). )(a) of the Companies Act.

The regulators also alleged that Deloitte's audit firm IL&FS had tried to delay provisioning and recognition of NPA by merely transferring the loans through book entry, which resulted in old loans being shown as closed and no new loans being granted.

Two audit quality reports from the NFRA also highlighted Deloitte's failure in auditing certain IL&FS entities. It is fair to say that the NFRA is charged with recommending accounting and auditing policies and standards to be adopted by companies. It also monitors and enforces compliance with accounting and auditing standards, while also monitoring the quality of service provided by the professions involved in ensuring compliance with such standards.

The audit watchdog concluded that Deloitte's accounting firms grossly violated the provisions of Section 144 of the Companies Act, 2013. She notes that the accounting firm seriously violated the Code of Ethics and did not have adequate justification for issuing an audit report. The NFRA notes that shortcomings and violations by the accountant have undoubtedly fatally compromised the independence required of an accounting firm.

Similarly, practices relating to independence have been shown to be seriously inadequate and not fit for purpose, the NFRA said in its report. As a result of these failures, the NFRA has banned former Deloitte Haskins and Sells LLP chief Udayan Sen from auditing for seven years and fined him for audit failures at Infrastructure Leasing & Financial Services Ltd (IL&FS). The regulator found him guilty of professional misconduct and failure to maintain independence and quality in auditing the financial company's accounts. The findings of regulators and NFRA have been challenged by Deloitte and its partners in various forums.