Reliance Communications May Have Inflated Revenues, Evaded Licence Fee

[Arun 795]

Business Standard & Press Trust of India

October 12, 2009 18:42 IST

A government appointed auditor is understood to have found inflation of revenues by Rs 2,915 crore (Rs 29.15 billion) by Anil Ambani group firm Reliance Communications in 2007-08, besides evasion of Rs 315 crore in licence fee --findings termed as 'biased' by the company.

DoT sources confirmed receipt of the report by auditors Parekh and Co and said that it is yet to examine the findings. DoT would ask for RCom's response later.

"RCom is in full compliance of licence terms and conditions," a company spokesperson said, adding, "auditors' alleged comments are biased and appear instigated by corporate rivals. . . Premature leakage of confidential report to media reflects the Special Auditors' prejudice/bias."

"All revenues for FY'07 and '08 are correctly reported in RCom's audited account. Alleged comments of special auditor do not reflect any under-reporting of revenue... licence fees."

The special audit committee report that has been submitted to the DoT found that for FY'08 actual wireless revenue earned by the company was only Rs 12,298 crore (Rs 122.98 billion) as against Rs 15,213 crore (Rs 152.13 billion) reported to the shareholders, which is an over reporting of Rs 2,915 crore (Rs 29.15 billion).

It also found that RCom evaded licence fee and spectrum fee to the tune of Rs 315 crore (Rs 3.15 billion).

"Some of the revenues accruing to the companies which are liable to be recognized as revenue in accordance with AS-9 has not been recognised so, and in particular, the companies have netted of the discount in the nature of the commission on sale of prepaid cards and accounted only the net realized consideration as revenue which has the adverse impact on the AGR, license fee and spectrum charges," the report said.

The report further added: "The reconciliation of wireless revenue between the revenue reported by the company on a consolidated basis to the stock exchanges and the wireless revenue reported to TRAI reveals that the consolidated wireless revenue earned as accounted in the books by Rcom and its subsidiaries from the provision of wireless servies to wireless subscribers in India under the UAS license is Rs 12298 crore. (Without taking into account the deviation noticed dealt in the report) in 2007-2008 as against the consolidated revenue reported under wireless segment of Rs 15213 crore (Rs 152.13 billion)."

Here's how the report says Rcom committed the alleged fraud:

Rs 617 crore (Rs 6.17 billion) by duplicating revenues in two different accounting years

Explaining this, the report said that Rcom passed off a financial transaction as wireless revenues earned during the period. "The amount would have been already accounted as wireless revenues in the year in which the debtors were created resulting in the same revenues being accounted as wireless revenues twice in two different accounting years."

Rs 379 crore were accounted from expired prepaid cards

"The consolidated wireless revenues reported in the CFS include income booked by RCIL from expired prepaid cards to the tune of Rs 379 crore (Rs 3.79 billion)," the report said.

Rs 300 crore obtained from sharing dealer network which is not per se wireless revenue

"The consolidated wireless revenues reported include booked income by RCIL for sharing dealer network which is not a wireless revenue from its subscribers," the auditors said.

Rs 1352 crore of income from one-time payments

"This ought to have been classified in the 'other' segment rather than the 'wireless' segment," the report said, and finally,

Another duplication of Rs 267 crore

"The sum accounted in RCOM as revenue shared by RCIL from wireless services provided under UAS license of RCOM, the same is included in RCIL revenue as well as RCOM revenue hence adjusted," it said.

In conclusion, the report said that the gap between wireless revenues in the consolidated financial statements of RCom filed with the stock exchange and the revenues reported to TRAI in the year 2006-07 was Rs 197 crore (Rs 1.97 billion).

"The gap which was Rs 197 crore in 2006-07 (1.9 per cent) has increased to Rs 2,563 crore (Rs 25.63 billion) in 2007-08 (25.5 per cent)" the report concluded.

DoT is awaiting the report of four other companies namely Tata Teleservices, Bharti Airtel, Vodafone and Idea from the respective auditors appointed by it, and the government, if warranted, will take necessary action after examining the reports.

The report on RCom would now be examined by a four-member committee of department of telecommunication, headed by member (finance), sources said.

The special audit was initiated to check if revenues by the company were diverted to segments which attracted lower licence fee.

In case of wrongdoings detected during the audit, sources said the operators could be subjected to penalties under the provisions of licences.

[Greatest 55]

welcoming a new era of doing business.... (remember satyam)...

[supernova 47]

is it second satyam in making ?

[vvinayakpai 26]

Are Indian corporates becoming less reliable??????????? After the Satyam scam even Elder Pharma, a listed pharmaceutical company has also come under the scanner of SFIO????

I really hope all this is sorted out at the earliest else foreign investment in out country would be hit. Really dissapointed that a Reliance Group Company has been involved in such activities.

[Saurav 22]

Another Satyam.

Caught in making.

[csmart 472]

reliance is master in tweaking the govt policy. they are highly "educated" to read between the lines and can go to any extent if they can save money at any cost.

they are known for bribing the officers and get the policies tweaked to benefit them. dont be surpise if DOT does not find anything. we all know Mr. Raja.

ever saw any reliance co punished except for monetary fines? monetary fines does not mean anything to them. the benefits that they achieved by twaeking govt policy far exceeds the fines. what happen to rcom for international calls being shown as national?

so, in India, do something wrong on a big scale. if you do it on small scale, then govt. will screw you, if you do it on large scale, you will be in position where govt will not touch you.

[::Hitesh:: 1,763]

reliance is master in tweaking the govt policy. they are highly "educated" to read between the lines and can go to any extent if they can save money at any cost.

they are known for bribing the officers and get the policies tweaked to benefit them. dont be surpise if DOT does not find anything. we all know Mr. Raja.

ever saw any reliance co punished except for monetary fines? monetary fines does not mean anything to them. the benefits that they achieved by twaeking govt policy far exceeds the fines. what happen to rcom for international calls being shown as national?

so, in India, do something wrong on a big scale. if you do it on small scale, then govt. will screw you, if you do it on large scale, you will be in position where govt will not touch you.

Totally Agree with you !

[theking 35]

In general, the thief is the one who is caught!

No comments on this till its proved! The word is still "may"

[savramesh 37]

Govt To Take Action Against Rcom For Reporting Less Revenue

Source

The government on Monday said in the Lok Sabha that a special audit has observed that Reliance Communication and its other subsidiaries under reported revenues during 2006-07 and 2007-08.

There was an under reporting of Rs 1000 crore to Rs 1500 crore by the telecom firms, to avoid payment of licence fee, and the government may have lost about Rs 250 crore due to this, Telecom Minister A Raja said during Question Hour.

The Department of Telecom (DoT) had appointed special auditors to look into financial accounts of five leading telecom companies for allegedly indulging in fudging of accounts and under-reporting of revenue to the telecom regulator TRAI during 2006-07 and 2007-08 to avoid payment of licence fee.

Out of five auditors the one for RCom has submitted the report, the Minister said.

"The auditor has observed that three companies - RCom, Reliance Telecom and Reliance Communications Infrastructure Ltd under reported their revenues to the TRAI during 2006-07 and 2007-08," the minister said.

The observations are under examination of the DoT, he said adding whatever action is needed, it would be taken by the end of January next year.

A committee, headed by Member (Finance), DoT is looking into the nearly 900-page report.

Raja said the DoT shall raise additional demands including interest and penalty, as per licence terms, on the concerned licencees (RCom and others), after examination of special auditor's report.

Replying to a supplementary, Minister of State for Telecom Sachin Pilot said another case has been reported that a private internet service provider Tikona Private Limited was using wireless broadband even as the operator has not been assigned any spectrum.

"This is being examined by the Wireless Planning and Coordination (WPC) wing of the Telecom Ministry," he added.

[vishalmcp 8]

i think again some settings would be done with govt. officals & no penalty to RCOM or they would come up with some minimal amount..... its always have been Reliance strategy. Remember in the beginning after their lauch, they did the similar thing & were charged penalty, which they happily paid.....

[manishag 17]

i think again some settings would be done with govt. officals & no penalty to RCOM or they would come up with some minimal amount..... its always have been Reliance strategy. Remember in the beginning after their lauch, they did the similar thing & were charged penalty, which they happily paid.....

all telcos are doing the same things. only diff between RCOM and others is that RCOM is atleast paying something to customers and others are deep pocketing everything.

[Himanshu Singh 19]

Reliance Communications Asks Ministry To Reject Parakh Audit Report

Reliance Communications (RCOM), India’s second-largest telecom company by subscribers, has asked the communications ministry to reject the special audit on it by Parakh & Co and alleged that the report ‘was issued for malafide purpose, based on uncorroborated facts and done without any discussions with it (RCOM)’. The telco has also told the Department of Telecom (DoT) that ‘the entire report was drafted for the purpose on sensationalising irrelevant matters’.

In October 2009, Jaipur-based Parakh, the auditor appointed by the telecom ministry to examine the books of RCOM, said in a report that the telco had failed to show revenues of Rs 2,799.19 crore, causing losses of Rs 315 crore to the government in terms of licence and spectrum fees. Last month, based on the special auditor’s report, communications minister A Raja had informed Parliament that RCOM had caused losses of around Rs 250 crore to the exchequer by under-reporting revenues.

In a 28-page communication to DoT dated January 13, a copy of which was viewed by ET, the telco had sought that stringent action be taken against the auditors for ‘misconduct in the preparation of the report and their failure to observe their undertaking of confidentiality’. The telco has also alleged that the special auditors had leaked the report to the media.

When contacted, the RCOM spokesperson confirmed having written to DoT on the special auditor having ‘made selective leakages of the audit report to the media even before DoT opened the confidential envelope containing the report’ and said this ‘clearly reflects prejudiced, mischievous, biased and malafide intention and above all acting on behalf of our corporate rivals’. The spokesperson also reiterated RCOM’s stance on the auditors’ along the same lines as reflected in the company’s response to DoT. Further, the email reply from the company said there was ‘no irregularity or discrepancy whatsoever in the accounts of the company’.

DoT had appointed the special auditor after the Cellular Operators’ Association of India had alleged under reporting of revenues by RCOM. The audit was later extended to RCOM’s rivals, including Bharti Airtel, Vodafone Essar, Idea Cellular and Tata Teleservices. These audits are currently underway.

The Mumbai-headquartered telco, in its reply has also said that it has furnished proof to show that the special audit has erroneous facts, erroneous conclusions on matters of law, one-sided computations and had incorporated irrelevant and unnecessary data resulting in disclosure of unnecessary details that caused damage and harm to RCOM.

RCOM has also given a point-by-point rebuttal to each of the issues raised by Parakh.