Arjuna Mahendran, the favourite

whipping boy of our times!

By Janitha Devapriya-Tuesday, 14 February 2017

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 CBs 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 organisations 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.

Mahendrans 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.
Posted by Thavam