New Delhi: NBCC, the government’s top real estate developer entrusted by courts to complete various unfinished housing projects to protect home-buyers, is battling financial troubles in one of its own subsidiaries.
The auditors of National Buildings Construction Corporation have flagged financial irregularities to the tune of over Rs 10 crore in its recently acquired firm, Hospital Services Consultancy Corporation (HSCC).
The irregularities prompted the auditors to provide a qualified audit report on the consolidated balance sheet of NBCC — the first time in its history. A qualified report expresses the auditors’ inability to provide an all-clear to the company’s balance sheet.
The NBCC with a net turnover of Rs 10,151 crore in 2018-19 constructs government buildings across India and abroad. It is currently redeveloping old government colonies in Delhi, besides completing unfinished projects of the debt-ridden Amrapali Group on the orders of the Supreme Court.
The NBCC was also in the fray to acquire the Jaypee Infratech, the cash-strapped real estate developer that is under a resolution process as part of the Insolvency and Bankruptcy Code.
What are the irregularities?
The NBCC had acquired the HSCC, a firm under the Union health ministry, for Rs 285 crore in December last year in line with the government’s disinvestment policy. However, trouble came to the fore soon after.
HSCC’s auditor report, part of the annual balance sheet of NBCC for 2018-19, said the amount lying in interest receivable from banks, retention money account, client deposit funds, trade receivables, trade payables, security deposit (receivable and payable both), balances of ministries, client and government dues relating to direct taxes, indirect taxes and other state taxes are “unconfirmed and unreconciled”.
The report also found the internal control system to be weak.
“The internal control system, which requires checking and verification of all transactions, including that of interest on fixed deposits made by the company, interest accrued and liquid funds, and timely accounting and adjustment of secured advances to contractors and professionals, expenses, income and bank transactions in the books of accounts were found to be weak and hence increase the probability of losses, which cannot be quantified,” the report stated.
It further pointed out that there are projects, which have been completed and handed over to the respective ministry/client, but financial closure of their accounts in the books of the company has not been done.
Also, there are projects that have been completed, but handing and taking over process for the same has not taken place.
NBCC has filed an FIR
The NBCC management is in the process of quantifying the financial effects of the qualifications. It has also filed an FIR through HSCC against unnamed people.
An official of the Ministry of Housing and Urban Affairs, under which the NBCC comes, said the construction major has already called for a forensic audit after the irregularities were flagged.
“It’s not an expression of concern, but a qualified audit report. We have asked the NBCC board as to what measure is being taken to contain the impairment,” said the official who did not wish to be named.
Another government official privy to the matter pointed out that the auditors could not trace where the money has gone from the HSCC. “There is no bank reconciliation with respect to seven projects. The unreconciled amount is to the tune of over Rs 10 crore,” the official added.
The recent findings also throw up questions on the due diligence followed by NBCC while acquiring HSCC and are likely to hit NBCC’s balance sheet once the full extent of the fraud comes to light.
“NBCC did not do due diligence before acquiring the company. NBCC is a listed company. It will hit the flight of NBCC,” said the first official quoted above.
NBCC, which takes up construction on a nomination basis, has an order book of Rs 60,000 crore. As against this, NBCC has delivered only Rs 8,500 crore so far.
Also read: Fraud, diversion of funds: Real estate giant Ansal API under the scanner in UP