Tshering Palden and Tashi Dema

The Royal Audit Authority (RAA) made observations of fraud, revenue misappropriation, irregularities and mismanagement in State Trading Corporation of Bhutan Ltd (STCBL).

It forwarded its report to ACC recently for further review.

A sales executive under Tata Sales Unit in Thimphu was accused of misappropriating Nu 1.1 million (M).  It was found that although the sales executive collected Nu 1.1M from a client after selling a vehicle in 2016, she deposited only Nu 50,000 to the company’s account.

STCBL’s internal audit report confirmed that the employee agreed to refund the amount.

RAA pointed out that the lapses occurred due to lack of monitoring of revenue collections and deposits.  It was learnt that the case was reported to police in January last year, but police advised the company to settle the case mutually.

Irregularities amounting to Nu 20.1M were found in sanctioning credit purchase of 10 Eicher trucks to a client in 2018. Each vehicle cost about Nu 1.8M.

Although the sales agreement included a provision mandating 30 percent down payment of Nu 6.03M and instalment of Nu 1.6M per month for 12 months, STCBL did not collect the down payment while delivering the vehicles.

The audit report stated that credit under the scheme is to be granted with approval from the chief executive officer (CEO) but there was no approval from the CEO in the case.

The client did not deposit even a single instalment for 26 months after availing the credit. RAA noted that the management had not initiated any legal proceedings even after failure to pay instalment for more than two years.

After the client failed to pay the instalment, a new agreement was drawn on October 27 last year requiring the guarantor, the father of the client, to settle 40 percent of the outstanding instalment along with interest by November 4 last year.  The company, however, did not receive any money when the audit was conducted.

STCBL’s management clarified to RAA that the Eicher division sought verbal approval from the then CEO to grant the credit.

They also stated that the initial plan was to tie up the business through boulder export but it did not materialise. “However, the customer has now agreed to open a letter of credit in the STCBL’s name and started exporting boulders and adjust payments.”

It was stated that although the division did not have written approval from the former CEO, the arrangement or business was done in the interest of the company.

RAA opined that processing and regulating credit under deferred instalment payment policy (DIPP) scheme is fraught with numerous inadequacies in basic controls and exposes the gullibility of the overall system.

RAA stated that they were not in a position to ascertain the legitimacy of the deferral payment granted to the client. “The laxing conditions of the agreement, specifically on 30 percent down payment, overdue instalment for prolonged period, non-renewal of bank guarantee and non-enforcement of renewed agreements appear to be made to extend undue favour to the client,” the report stated.

RAA also asked the management to investigate the circumstances under which deferral payments were approved and leniency extended to the client.  The management was asked to recover the amounts.

RAA also found that the Eicher division sold about 76 vehicles worth Nu 101.7M without the CEO’s approval, although the company’s credit collection manual 2017 states credit facilities should be sanctioned by the CEO.  STCBL justified that verbal approval was sought from the then CEO to sell vehicles on credit as it was secured by bank guarantee.

STCBL’s management also sold nine vehicles on discount invoking full power to offer discounts as per the Delegation of Power 2018.

It was found that, although an announcement of a 30 percent offer was made through mainstream media, two employees took two Toyota vehicles at a discount of 48 percent each.

It was alleged that the sale agreement for an employee was completed on the day the 48 percent discount was uploaded on the company’s website.  The RAA was of the opinion that public had no access to information of enhanced discount offer, as the announcement was made on the company’s website for a day and not through mainstream media.

Audit also found that a Toyota Prius was sold to the company secretary at Nu 1.5M at a discount of 34 percent, and a Toyota Liva to a general manager at Nu 697,523 although the original price was Nu 780,999 without any public offers.

The management justified that the decision was taken to clear old vehicles in stock through discounts since the company’s cash flow was disrupted by the Covid-19 pandemic and keeping the vehicles in stock incurred losses to the company. “The intention of the management was to sell the vehicles at competitive rates, similar to that parallel models offered by Honda, Isuzu and Mitsibushi since the vehicles were lying in stock for almost two years and there was pressure from Toyota also to clear the stock,” the response to audit stated.

Meanwhile, the TATA division in Phuentsholing purchased two 12-wheeler trucks costing Nu 3.2M for a client in 2018, but the sale was not completed since the buyer did not pay 50 percent of the cost.

It was reported to RAA that the trucks were in the stockyard in Phuentsholing, but auditors found the buyer misused the trucks without obtaining legal ownership.  The trucks were engaged for transport of boulders outside the country without completing the sale and formalities for registration of vehicles.

STCBL board members told Kuensel that they had asked the board’s audit committee to study the RAA’s report, which will be discussed in a meeting on March 28.