The Bhutanese Leading the way.
The country’s Central Bank, the Royal Monetary Authority, tasked with minding the health and transparency of the financial sector has not been good at monitoring its own finances and functions according to a Royal Audit Authority (RAA) report.
The RAA report which covers a period from 1st July 2008 to 30 June 2013 has shown inadmissible payments, acceptance of payments in breach of law, overpayment of bonuses, manipulation of documents, discrepancies in licensing of a Fund Management Company, non carrying out of supervision of on-site supervision of financial institutions and others.
Manipulation of Documents
The RAA found that the RMA Deputy Governor Eden Dema had tampered and manipulated an invitation letter for a two day meeting in Japan in 2012 to process for full DSA when she was actually eligible for only 30 percent as the host was providing free accommodation with breakfast.
It was found that the Deputy Governor had removed the benefits available from the letter and claimed a full DSA of 600 USD for two nights. The RAA has asked that the amount be deposited in the Audit recoveries account.
The RAA also says that the removal of such benefits from the invitation letter indicated pre-mediated intent of doing wrong and is not a trifle issue as commented in the management’s response. This particular section has also been forwarded to the Anti Corruption Commission.
Accepting payments in breach of law
Section 69 of the RMA Act forbids the Governor and Deputy Governors from receiving any payments other than from the authority.
The RAA found that in contravention of this clause the Governor Daw Tenzin had accepted Nu 54, 600 and Deputy Governor Eden Dema had accepted Nu 387,600 as board sitting fees from the Financial Institutions Training Institute (FITI) fund. The FITI fund had been contributed by various financial institutions including RMA to set up an institute to train financial institution employees.
Inadmissible Position Specific Allowances
Section 68 of the RMA Act 2010 says that the salary, allowances and other benefits of the Governor and Deputy Governor shall be determined by the government.
Based on this the government on 2nd June 2011 issued a letter detailing out the remuneration package for the Governor and Deputy Governors.
However, the RAA in its report said that the Governor and two Deputy Governors were being paid a special Position Specific Allowance which had not been authorized by the government.
The RAA says that since appointment till 30 June 2014 this amounts to Nu 1.88 mn of which the Governor got a total of Nu 911,068 from August 2010 onwards and the two Deputy Governors got Nu 485,930 each from March 2011 onwards.
The RAA says that this ‘indiscreet payment’ should be recovered and then discontinued.
Non-carrying out of inspections
In what is a serious finding the RAA has said that though section 136 of the RMA Act 2010 provides that the RMA carry out inspection of financial institutions, it has failed to carry out on-site supervision for three years from 2011 to 2013.
The report says this coincided with the emergence of the rupee shortages in the country. It says, “One of the main contributing factors to rupee shortage was due to unrestricted credit growth and lending by financial institutions. Had the authority conducted timely on-site inspections of FIs, the rupee shortage could have been controlled to a certain extent through implementation of policy in curtailing unwarranted credit growth.”
The report says that an inspection carried out as recently as March 2014 covering up to 2011 showed most FIs operated in violation of Prudential Regulations.
It was found that overdraft loans were being given without collateral, loans were going beyond the collateral limit, loans were being given without proper credit appraisal and the prudential limit 30% of total loan portfolio by ten largest borrowers was being violated and in fact stretching into 45.06%.
The report says that all these attributes are the root cause of credit growth that led to increased consumption and thereby draining the rupee reserve.
The RMA in its defense listed out a series of monetary measures it had taken since 2007 to limit liquidity. The RAA while acknowledging this says that it would leave it for the Authority to ascertain why the directives were simply ineffective. The RAA says that formulating directive policy without compliance monitoring is a dereliction of its core duty.
It says that officials responsible should be made accountable for negligence in discharge of their duties and it recommends that on-site supervision should be carried out on a regular basis. Direct accountability has been placed on Director Tshering Dema while supervisory accountability has been placed on Deputy Governor Eden Dema.
Discrepancies in licensing Fund Management Company
The RAA report said that RMA licensed Nubri Capital in 28th November 2012 with a paid up capital of Nu 20 mn to be increased to Nu 50 mn within a period of five years of its operation. It says that preceding this, an in-principal approval letter was issued on 4th July 2012.
The RAA says that there were several deficiencies in the licensing of the company. It says that as per Fund Management Company regulations 2011 a company would be rejected, subject to 30 days grace period for rectification of errors, if any. It says that the RMA had not applied this clause and moreover the bio-data of some promoters were still missing.
Despite not meeting the conditions set out in the in principal approval for appointment of Directors and key post holders the final license was still granted.
The RAA said that final grant of the license was also conditioned on other factors like putting IT system in place by one year, staff regulation to be drafted by 15 December 2012, issuing two prospectus by January 2013 and submission of quarterly reports from December 2012 but it was found that on site inspection to check for all this was not conducted as on date of audit.
The report said that two initial promoters who were disqualified reappeared as shareholders with one holding major shares. It says that this and another major shareholder must pass the ‘fit and proper’ criteria without which they must divest part of their shares.
Overpayment of year-end Bonus
To ensure uniformity in paying salaries and bonus among corporations and state owned enterprises the Finance Ministry in 18th June 2009 had issued a circular saying that the maximum amount that can accrue in the form of bonus is 2 months basic pay.
However, the RMA on contravention to this paid bonuses to its employees inclusive of Central Banking Allowance, Position Specific Allowance, House Rent Allowance and Communications Allowance.
In 2008-2009 the beneficiaries were 169 employees coming to an excess bonus payment of Nu 750,789 and in 2009-2010 there were 160 employees benefitting with an excess bonus payment of Nu 769,700. This comes to a total of Nu 1.52 mn The Management has been asked to recover the overpayment of bonus from its employees.
In a separate case a review of the bonus payment from 2007-2013 showed that bonuses were also paid to employees on study leave and extra ordinary leave aggregating to Nu 715,775 for 15 employees. This also has to be recovered.
It was also found that RMA had made inadmissible payment of Nu 135,215 in Central Bank Allowance to employees on study leave and Nu 295,318 in excess payment for leave encashment.
Advances to government
Section 151 of the RMA Act says that the RMA can make temporary advances to the government subject to repayment within three months following the end of a financial year at rates agreed between RMA and the government.
The RAA report says that a review of the ‘Way and Means’ account revealed that the intent of the provision of the RMA Act has been rendered void as the nature of advances to the government has been more of deficit financing than that of a temporary advance as detailed by the Act.
It was found that whenever the Government Consolidated Account ran into negative balance the deficit was financed through Ways and Means making it almost like cyclical deficit financing.
Rupee Reserve Management
The RMA in its reports also discussed the rupee reserve management issue. It says that though rupee was the most valuable currency for imports, the RMA had failed to take this into account allowing unlimited convertibility of rupee. The report makes several well known and general comments on the reasons and nature of the rupee shortage.
RMA questioned the wisdom of holding the majority of the reserves in dollars saying that the interest earned was very minimal and that instead the RMA could have earned INR 5.5 bn from 2005-2010 if it held INR denominated bonds instead of the lower interest US bonds.
