The auditor for the Hindu Credit Union (HCU) Chanka Seeterram had a right to inform the principals of the company about the state of financial affairs at the Harry Harnarine-headed conglomerate.
During the Commission of Enquiry, Seeterram admitted he created HCU financial statements to buy the cash-strapped credit union some time.
Sir Anthony Colman, in his report into the failure of the HCU which was laid in Parliament, International Waterfront Centre, Port of Spain, on Friday by Prime Minister Kamla Persad-Bissessar, noted: “This Commission is of the view that it was Mr Chanka Seeterram’s professional duty to alert HCU management before he signed off the stand-alone HCU Financial Statements for 2004, to the importance of disclosure to him of all material facts occurring since September 2004 and going to the Credit Union’s financial viability. The delay in production of the stand-alone 2004 Financial Statements to October 2005 did not relieve the Auditor of this duty. Nor did it relieve HCU of the duty voluntarily to update its Auditor with regard to the fate of the CLICO Agreement.”
Colman noted that on 3 October 2005, there took place an emergency meeting attended by Harnarine and, representing CLICO, Mr Anthony Mahoney, Mr Claudius Dacon and Mr Afra Raymond of the Chartered Valuers, Raymond & Pierre after the credit union had run into cash flow problems.
CLICO had sought a bailout of the HCU conglomerate by offering it liquidity in exchange for real estate.
“Mr Dacon told Mr Harnarine that CLICO was not prepared to provide any additional monies to HCU. CLICO did not require to exercise its purchase option in respect of some of the properties in Schedule 2 of the CLICO Agreement and did not intend to take over the subsidiaries in the Schedule but would return them to HCU while retaining plant, equipment and materials,” noted Colman.
“The withdrawal by CLICO from major components of the CLICO Agreement meant that HCU could derive from it only a significantly reduced benefit in relation to its liquidity.
Further, the refusal by CLICO to exercise its option to acquire the scheduled subsidiaries and to take over their management, while stripping out the property of some of them, meant that CLICO’s superior expertise in management would not be available to the subsidiaries, which in turn meant that the possibility of further investment in those companies by the majority shareholders and the anticipated consequent enhancement of those companies’ capital to the benefit of HCU as minority shareholder would not be realised. Accordingly, CLICO’s withdrawal from the main terms of the CLICO Agreement left HCU with its loss-making and under-capitalised subsidiaries, most of them with little prospect of survival,” he said.
After this, Colman noted that on October 10, 2005, the Commissioner for Co-operative Development directed HCU to submit audited financial statements to it which complied with the requirements of the CS Act 1971 and the Regulations.
“This specifically involved listing of over-due debts, detailed listing of receipts and expenditure, a profit and loss account and balance sheet of HCU on a stand-alone basis as distinct from consolidated group accounts. This was required by 25 November 2005. Mr Harnarine so informed Mr Chanka Seeterram,” he said.
“Mr Chanka Seeterram then hastened to comply with the CCD’s request by creating stand-alone accounts by arithmetical extraction from the consolidated accounts previously presented. Notwithstanding that work on the consolidated accounts audit had been completed by about the end of August 2005, he did not go back and consider with HCU whether anything material affecting the financial viability of HCU or its subsidiaries had happened since then.
“In particular, he did not require any fresh management representation letters. He therefore knew nothing of the collapse of the CLICO Agreement on 3 October 2005. The existence of that Agreement and the immediate benefit which it appeared to offer to HCU’s liquidity was a factor very material to the assessment which it was the Auditor’s duty to make of events occurring after the end of the accounting year in question (30 September 2004) and up to the presentation of the audited stand-alone accounts of the Credit Union which were material to its continuation as a going concern.
The collapse of that Agreement left HCU in a significantly weaker position from the point of view of liquidity than it would have been in had CLICO provided the funding which was originally anticipated. Mr Chanka Seeterram’s evidence was that if information as to this event had been given to him he would have considered HCU unable to meet its liabilities as they fell due and would have issued a statement with regard to HCU’s continuing as a going concern,” said Colman.