Deloitte Raises Concerns About Inappropriate Approval of Vendors at BharatPe
- ByStartupStory | June 5, 2023
Deloitte, an auditor and financial advisory firm, has raised concerns about BharatPe, a fintech company, engaging with vendors that were not appropriately approved. BharatPe included the findings of its statutory auditor in its most recent annual report. The auditor stated that BharatPe’s internal control system for vendor selection was flawed. Additionally, the auditor noted that the approval process for invoices related to the procurement of goods and services was not functioning effectively, resulting in purchases at rates that were not appropriately approved, according to PTI, a news agency.
“The company’s internal control system for vendor selection was not operating effectively which resulted in procurement of goods and services from inappropriately approved vendors and/or at inappropriately approved prices,” the annual report said, citing a statutory auditors’ report. It added the company did not have an appropriate internal control system for recording the reversal of GST input credit and for penalty payment to GST authorities, which led to recording reversal of GST input credit and penalty payment without appropriate approvals.
BharatPe’s annual report stated, “there were no instances of fraud reported by auditors to the board of directors.” Also, the firm “did not have adequate controls over period end adjustments including related presentation and disclosure requirements,” it said, adding the auditors stated that they considered these material weaknesses do not affect our opinion on the said financial statements of the company.
In response to the auditor’s note, BharatPe acknowledged incidents of “override of internal controls by certain former employees (in collaboration with both identified and unidentified external parties)” across various aspects such as vendor selection and onboarding, procurements, bill payment processing, personal expenses charged to the company, and transactions involving related parties.
Ashneer Grover, the former Managing Director and co-founder of BharatPe, responded to the report and strongly criticized the media. Grover highlighted that BharatPe’s annual report explicitly states the absence of any fraudulent activities. Furthermore, he disclosed that Deloitte, the auditing firm, received an audit fee of Rs 4 crore, with Grover personally contributing Rs 40 lakh towards that amount.
When users pointed out the preceding page of the recent BharatPe annual report, Grover said the role of the auditor should be checked on Google. He wrote: “The report of forensic audit [into allegations against Grover and his family] by Alvarez and Marsal and PwC, on whom Rs 9 crore was spent by BharatPe, was junked and neither presented to court or police. And question on it should be asked to them and not to him.”
He cited the “innocent until proven guilty” tenet of law but sidestepped concerns flagged by Deloitte. The corporate governance review by Alvarez and Marsal, Shardul Amarchand Mangaldas, and PwC led to Madhuri Jain Grover’s ouster. Madhuri Jain Grover served as the head of controls at BharatPe. Following Madhuri Jain Grover’s ouster, Grover resigned from the company and its board in March last year.
According to the police and court complaints filed by BharatPe, the former Managing Director of BharatPe, along with his wife Madhuri Jain Grover and other family members, allegedly engaged in fraudulent activities. These activities involved fabricating invoices, creating fictitious vendors to provide services to the company, and inflating recruitment costs. BharatPe has initiated legal action and is seeking damages amounting to Rs 88.67 crore.
The damages are associated with various wrongdoing, including deceitful and fictitious transactions, payments for personal expenses, manipulation of GST input tax credit, and attempts to conceal these fraudulent actions. The company claims that these activities have caused significant harm to its brand, reputation, and overall goodwill.
BharatPe has lodged a criminal complaint with the Delhi Economic Offences Wing (EOW) against the former employees involved as well as third parties regarding the matter.
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