Arjuna Mahendran, the favourite ‘whipping boy’ of our times!

By Janitha Devapriya

Arjuna Mahendran, the former Governor of the Central Bank, has become the favourite whipping boy for Government critics, Joint Opposition and the JVP, now running through the fifth month. 

Ever since the COPE Report on the bond issue of 27 February 2015 was presented to Parliament in October 2016, the former Governor has become the focus for criticisms against the ‘Yahapalanaya’ Government and he continues to occupy prominent space both in print and electronic media, the latest being the charges levelled by the Head of Voice Against Corruption(VAC) Wasantha Samarasinghe at a media briefing on 5 February.

The headlines in print media the next day in bold print said, “Mahendran spent Rs. 66 m for his own purposes: VAC”. Samarasinghe said his “allegations were based on an audit report prepared by the CB’s Internal Audit Department and that the money allegedly embezzled was second only to the infamous bond issue, in which Mahendran is also said to be involved”.

How was the report acquired?

In the light of these disclosures, it is only right that one examines the circumstances, background data and the nature of the allegations made by VAC. Firstly, how did VAC, for that matter the other critics too, acquire an Internal Audit Report of the Central Bank which is said to be a strictly confidential document?

In terms of the oath of secrecy pledged by all employees of the Central Bank, confidential information that employees receive through their employment must not be divulged to anyone other than persons who are authorised to receive the information both during their employment and after they terminate their employment. As well, employees must not use confidential information, or their ability to access such information, for the purpose of furthering any private interest or as a means of making personal gains. 

An internal Audit Report is meant for the Board of Directors or the Audit Committee. One may argue that the report can be obtained under Right To Information Act No. 12 of 2016 but that too under provisions of Clause 5 ( 1 ) ( a ). But the procedure in respect of Central Bank, which is subject to rigorous confidentiality rules, is not clear or operative as yet.

Internal Audit as we understand is, “ frequent or ongoing audit conducted by an organisation’s own officers or accountants (as opposed to independent external auditors ) to (1) monitor operating results, (2) verify financial records, (3) evaluate internal controls, (4) assist with increasing efficiency and effectiveness of operations and, (5) to detect fraud. Internal audit can identify control problems, and aims at correcting lapses before they are discovered during an external audit”.

In this particular matter, the Internal Auditors would have considered internal control aspect and detect or prevent fraudulent aspect in the expenses alleged to have been incurred 163 times by the former Governor during the 21-month tenure, particularly during his travels abroad.

Mahendran’s expenses

Let us have a rough estimate of probable expenses that may be incurred by a person of the stature of Governor Central Bank during an official visit abroad, necessitated by the needs of the country. See the hypothetical example like a three-day visit to London in the table.

These figures are based on usual perks available to heads of key Government institutions. If the Governor undertook say 15 foreign visits on behalf of the Government or the Central Bank, the travelling expenses alone would have amounted to around Rs. 13 million. So he may have had to incur other expenses too in official capacity during his tenure as Governor and overall, the Rs. 66 million highlighted as excessive does not appear to be so. 

In State institutions, all expenses incurred by a State Officer have to be supported by invoices and bills and required to furnish a statement of expenses. All such expenses are then authorised for payment by the Administration Unit only after scrutiny. If some items of expenditure incurred by Mahendran had not been supported by invoices, the administrative officer passing such payments should be called up to explain how he or she approved them and the person in charge of Administration should have looked into such instances before an Internal Audit finds the lapses if any.

Mahendran in his statement refuting the allegations stated that he incurred all expenses under proper procedures and they have been audited by the Auditor General. State Minister of Finance Lakshman Yapa Abeywardene too repeated the same allegations at a media briefing a few days ago.

Usually, in any organisation, misuse of facilities or funds if found by the management through internal audit or other methodology, the officer accused of such misuse or abuse would be asked for explanation and if no satisfactory answers are given, further suitable action is pursued including interdiction, depriving remuneration or allowances and after inquiry, dismissal. It is not known whether such a procedure was followed in respect of former Governor Mahendran and all charges and allegations appear to be made through the media without a right of reply. 

If the allegations are true and supported by documentary and other evidence, why wait for the Presidential Commission? The authorities can initiate criminal action through a complaint to the appropriate Police Division and bring him to justice. It would have been ethical if State Minister Abeywardene refrained from making these allegations through the media as the subject of Central Bank does not come within the purview of his official position and the charges are yet not known to be properly ascertained or proved.

Not a fraud

Even in the COPE report, though its final recommendations included legal proceedings against Mahendran, careful study of the entire report does not indicate that the case against former Governor is firmly established and it was more of a finding on possible losses resulting from abrupt changes in procedure rather than any fraudulent activity. The alleged loss estimated by the Auditor General was also questioned because he based his calculations on the wrong premise of direct placements whereas the recommended legal procedure was Public Auction. 

Fraud as everyone knows should have five elements, namely, a false statement of a material fact, knowledge on the part of the perpetrator that the representation or statement is untrue, intent on the part of the perpetrator to deceive the alleged victim, justifiable reliance by the alleged victim and injury (legal) to the victim. It was not possible for COPE to determine who the perpetrator (former Governor, Perpetual Treasuries or CBSL officials?) is and who the victim (Central Bank, Government or other person?) is by perusal of evidence placed before it. 

There is no apparent person or persons who made false representations at the bond auction in question. Therefore it is not right for anyone to term the alleged bond auction as a fraud unless it is determined by the Attorney General after careful and deep study of the entire process and scrutiny of the evidence submitted. It is also not correct to define the said bond issue as a scam (fraudulent scheme for obtaining money, like the pyramid scheme). 

The COPE Chairman, JVP and Joint Opposition Parliamentarians and commentators in the media defined the bond issue in question as a fraud or a scam. Prof. G.L. Peiris recently stated that Attorney General has proffered the opinion that the findings in the COPE report cannot be pursued as a criminal case but it can only be taken up in courts as a civil matter. If this is true, then the Attorney General may have determined that the bond issue cannot be classified as a fraud.

Perpetual Treasuries 

In the case of Perpetual Treasuries too, it appears that the Central Bank is somewhat helpless because they may have engaged in their trade within the parameters prescribed and the Central Bank had only curtailed their activities without cancelling their Primary Dealership license. The exorbitant profits allegedly earned by the company may need to be investigated but nothing apparently is being done. 

The other allegation of Perpetual Treasuries engaging in bond dealings higher in proportion than the others because of the connection of Aloysius to the former Governor which may amount to insider trading, a serious offence, was not even hinted at COPE proceedings and no evidence in this regard was submitted. Such insider trading could have taken place with the connivance of other Central Bankers instead of Mahendran but such allegations were also not made.

In conclusion, I must say one can only see the truth when the findings of the Presidential Commission on the bond issue of 27 February 2015 are one day published, hoping it would be sooner than later. So, in the meantime, it is not fair to go on beating Mahendran as an unscrupulous individual without the facts being established and proved.