February 2008

Afghanistan's Central Bank numbers crunched by Indian accountant

Eric Ellis

WE ALL know Iraq’s bad but to hear many experts tell it, Afghanistan is the genuine headache of the age, military and economic.

The 9/11 attacks were conceived here but Osama and friends still roam with impunity. Morale-sapping corruption and heroin-growing are again rampant, and a resurgent Taleban advances on Kabul, bombing the capital at will.

Against this grim backdrop, and with the struggling economy as much as a battleground for hearts and minds as the caves of Helmand province or Tora Bora, you’d expect the brightest minds at the International Monetary Fund and World Bank to be poring over the stricken country, keeping vital but fragile institutions like the central bank tightly clasped under their intensive care, right? And, with $30 billion of Western aid – your taxes – sloshing around the place, at least make sure its books are done properly.

Think again.

Step forward P.B Shanthana Krishnan, senior partner at the Chennai chartered accountant Vijayaraghavan and Associates, who may well be Corporate Afghanistan’s most unlikely whistleblower.
Never heard of the firm? Mr Krishnan admits Vijayaraghavan and Associates, which he founded in 1981, is not, well, not Price Waterhouse Coopers or Deloitte. His firm has 50-60 staff and 10 partners, and an associate office in Bangalore, he says.

“No, I’m not Big Five” he admits, “but we are a very competent firm. We have a good number of big companies in Tamil Nadu and Karnataka states as clients and I have 30 years of experience.”

But international obscurity hasn’t prevented Mr Krishnan from snaring one of international accounting’s most challenging – not to mention dangerous - assignments, to audit the Afghan central bank, Da Afghanistan Bank (DAB), where going to work means negotiating massive concrete bollards placed to deter Taleban and Al Qaeda suicide bombers from devastating its central Kabul offices.

Not only that, he also picked up the audit of one of Kabul’s main commercial banks, Azizi Bank, too. A joint venture of a group of traditional hawala currency traders, Azizi claims to have become Afghanistan’s biggest bank in just the two years since it opened for business. Conflict of interest? Not at all, says Mr Krishnan. “I don’t really know what you mean by that.” Indeed, Azizi’s 2006-07 accounts specifically describes Vijayaraghavan and Associates as also DAB’s auditors.

“I heard about the DAB business, I quoted for it, and we got the job,” Mr Krishnan says, adding that he knew of some of the Indian bankers who hail, like he, from the country’s south and who have surfaced in Kabul running local banks like Azizi. He first got to know of DAB, he says, via some work his firm did for the Indian central bank, the Reserve Bank of India, which had run some training programs for emerging Afghan central bankers.

Mr Krishnan may seem obscure to the IMF and the sleek Western consultants paid millions to monitor DAB. But on examination of the DAB accounts, perhaps it’s just as well a backstreet Chennai accountant is monitoring the bank, and the world’s aid-givers aren’t solely relying on IMF bureaucrats and other highly-priced consultants to keep a close eye on its internal workings.

Take BearingPoint, the former KPMG Consulting. Afghanistan’s central bank has had teams of mostly American BearingPoint consultants, installed in its offices since 2002 as part of a USAID-funded contract worth as much as $350 million (one of them fell victim of last month’s suicide bombing at Kabul’s Serena Hotel, across the street from DAB.) But after BearingPoint’s five years at DAB, where its job has been ostensibly to strengthen the bank’s inner workings, Krishnan’s officers found that “based on our audit, we are of the opinion that the internal control systems have to be strengthened further in scope and coverage considering the size and nature of the business of the bank to ensure adequate integrity of balances in the financial statements.”

Ouch.

“Our team of eight spent six weeks there in 2005, but our partners just a week,” Mr Krishnan says. “They did a good job there, but the language was difficult sometimes. I think I made a note of that in the accounts.”

He did. Indeed, it might be that Mr Krishnan’s team were perhaps a little too diligent for some peoples’ taste in Kabul. Relying on records and data provided by DAB, his 2006 report, the most recent published by DAB and addressed as protocol demands to the Afghan President Hamid Karzai, is littered with qualifications. They don’t paint a particularly pretty picture of life at DAB, noting;

*That DAB has maintained an “incomplete” General Ledger.

*That transactions between government departments “were not fully backed/supported by documentary evidence.”

* That DAB’s financial statements are subject to unreliable figures and “cannot be taken as correct.”

*that DAB had been subject to “defalcation.”

*That auditors have been unable to account DAB’s obligations to the IMF, and what it is owed by various ministries because “confirmation of balances have not been obtained.”

*That auditors have been unable to account for cash held in foreign banks.

Mr Krishnan’s accounts are a damning assessment of DAB and may explain rumours that have swept Kabul in recent months that things may not be as they seem in the country’s colourful banking scene, administered by a central bank that has had four governors in the seven years since it was re-constituted after the 2001 fall of the Taleban.

Almost a year after Krishnan’s accounts, an IMF study group in Afghanistan got around to posting red flags at DAB. It couched a November 2007 report in diplomatic language to note the bank’s promise - “to provide assurances regarding the level of DAB’s reserve assets, the DAB will request its external auditors to conduct a special audit of its foreign exchange holdings as at September 22, 2007.”

The IMF recommended DAB file its 2006-07 accounts (by December 31, 2007. But at Euromoney’s time of writing, DAB had failed to meet that request. On January 21, IMF spokesman Neils Buenemann said that “since the external audit of central bank's end-2006/07 balances was not completed in time, the IMF requested a special audit of DAB's by a reputable audit firm to confirm the existence and the availability of the foreign reserves as accounted for by the central bank.

“The audit report has arrived and the IMF will recommend that it be published shortly by the authorities.

“It confirms the existence and the availability of the foreign reserves as accounted for by the central bank. The IMF is working with DAB to improve the accounting system, internal controls, and reporting to prevent such issues in the future.”

Mr Krishnan didn’t audit DAB’s 2007 numbers but, ever the professional, he doesn’t see it as a setback. “Their fees were very reasonable and I hope we will get other business there, though there’s quite a few fellows there now.”