EPF loses billions from direct placements of Sri Lanka bonds: forensic audit

ECONOMYNEXT – Employees Provident Fund, a  state-managed retirement fund of private sector workers in Sri Lanka, has lost 8.7 billion rupees from off-auction direct placements made by the central bank at rates below the market, a forensic audit has estimated.

The report said the EPF had been asked to buy bond below the previous auction average or below the secondary market rates between 2007 and 2015 by the Public Debt Department of the Central Bank.

“In 94 out of 346 instances, the PDD offer yield rate was lower than the Secondary Market yield rate,” the forensic report said.

“There was no previous Auction conducted two weeks prior the placement arranged on date in 346 placements made. Hence the secondary market rate was compared.

“Due to lower yield rate, the EPF had incurred a loss of Rs8,716 million.”

The audit by BDO India was commissioned following a recommendation of a presidential commission of inquiry into so-called ‘bondscams’ in 2015 and 2016.

The EPF had lost 3.68 billion rupees in 2008, 226 million in 2009, 1.8 billion rupees in 2010 and 1.0 billion in 2011.

Between 2008 and 2011, the EPF had also 256 million from bond sold to it below the previous auction rate.

The Monetary Board, of the central bank had asked in 2008 that the EPF be sold bonds either at the last average auction rate or 05 basis points above the auction rate.

“During the period 2008 to 2011, the EPF yield rate was significantly lower in comparison to the Secondary Market yield rate…” the forensic audit report said.

“It is evident that the PDD had not offered the prevailing market rate to the EPF.

A separate forensic audit report said the EPF may have also made gains by getting bond at higher rates (lower prices) than prevailing rates from direct placement.

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The EPF may have received up to 6.4 billion rupees of such gains. (Colombo/Jan24/2020)

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