Delta Life’s accounts riddled with irregularities
Mohammad Zahidul Islam
Delta Life Insurance Company’s premium income was overstated by Tk 244 crore, while liabilities were understated by Tk 124 crore. A tax claim of Tk 317 crore was not disclosed. Cash was withdrawn, but its use remains unknown. Agents were paid commissions without valid licences, while 5 percent of commissions remained unpaid. One-fourth of the company’s shares were held by members of a single family. Vehicles worth Tk 6.51 crore were purchased without tenders. Fifty-one offices operated without licences. There were also irregularities in related-party transactions, two expensive vehicles owned by an associate company, no provision against misappropriated premiums and violations of accounting standards. These findings have raised questions about the reliability of Delta Life Insurance Company’s financial information.
A special audit conducted by chartered accountant firm MABS & J Partners, appointed by the Bangladesh Securities and Exchange Commission (BSEC), identified these irregularities. The special audit examined the company’s operations from 2016 to 2020 and found 67 irregularities and discrepancies. Of these, 42 were classified as high-risk. The audit report said that because of these discrepancies, Delta Life’s financial statements did not present a “true and fair” picture of the company’s actual financial position and performance. The audit raised questions about the company’s premium income, liabilities for insurance claims, use of cash, agent commissions, taxes and VAT, vehicle purchases, related-party transactions, actuarial surplus and the process of preparing financial statements.
Income overstated by Tk 244 crore, liabilities understated by Tk 124 crore
One of the biggest discrepancies identified in the company’s accounts concerns premium income. According to the audit, the company overstated its premium income by about Tk 244.55 crore between 2016 and 2020. A review of daily collection data from various zonal operation centres and service centres showed that some premiums that were supposed to be collected in January of the following year were recorded as income in December of the previous year. As a result, the income and assets for the relevant years were shown higher than the actual figures. Auditors also found a major discrepancy in the calculation of liabilities for insurance claims. As of December 31, 2020, outstanding insurance claim liabilities were shown as Tk 323.63 crore. However, according to data from the company’s IT department, the outstanding claims at that time amounted to Tk 447.66 crore. The difference was about Tk 124.02 crore. The audit noted that the company could not provide an adequate explanation for the discrepancy. This has raised questions about whether the actual liabilities were properly reflected in the company’s financial statements.
Cash withdrawn but use unknown
The amount of cash withdrawn from Delta Life’s head office was not specified. However, between 2016 and 2020, a total of Tk 29,06,31,877 was paid in cash as agent commissions from three service centres. Of this, Tk 8,51,47,247 was paid in Khulna, Tk 12,96,74,304 in Cumilla and Tk 7,55,10,326 in Bogura. Auditors said the payment of commissions in cash caused losses to government revenue because there was no opportunity to deduct tax at source from these payments.
Questions over licence validity, 51 offices without licences
Delta Life did not obtain licences from the Insurance Development and Regulatory Authority (IDRA), the regulator of the insurance sector, to operate 51 of its offices. There were also shortcomings in the audited financial statements and actuarial reports for 2019 and 2020. Auditors also found that commissions had been paid to agents who did not have valid licences. Non-payment of 5 percent of first-year agent commissions was also identified as a high-risk issue. The amount withheld in this manner up to 2020 was about Tk 9.92 crore. However, this amount was not properly recorded as a liability of the company.
Various irregularities involving vehicles
Between 2016 and 2019, the company spent Tk 6,51,28,000 to purchase 30 private vehicles. According to company policy, purchases above a specified limit require board approval as well as a tender process. However, no formal tenders were held for these vehicle purchases. Auditors said this created the possibility that company officials or outsiders could have obtained improper financial benefits. Questions were also raised over the use of vehicles. The company’s then Chief Executive Officer (CEO) Ms. Adiba Rahman used two vehicles between 2016 and 2020. Consultant Mr. Swapan Kumar Sarkar used two vehicles between 2016 and 2018. Their appointment letters did not provide for this benefit, nor was approval obtained from the board of directors.
Auditors also found a lack of transparency in the use of the company’s pool vehicles. The names of users and authorised signatures were missing from the logbooks of several vehicles. As a result, the actual users could not be identified. There were 15 pool vehicles in 2016, 15 in 2017, 16 in 2018, 16 in 2019 and 12 in 2020. Between 2016 and 2018, about Tk 2.71 crore was spent on repairs and fuel for these vehicles. Auditors suspected that the vehicles might have been used by people other than those authorised. Delta Life Securities, a wholly owned subsidiary of Delta Life, purchased two vehicles in 2017. One was a Toyota Premio worth Tk 25.78 lakh and the other a Toyota Prado worth Tk 1.07 crore. However, the logbooks did not show the actual users or purposes of the vehicles. In particular, although Delta Life Securities had had no managing director or CEO since 2017, the two vehicles were still being used. Another Tk 32 lakh was spent on fuel, repairs, insurance and road tax for the vehicles.
Family holds 23 percent of shares, against 10 percent limit
Serious questions have also been raised over Delta Life’s ownership structure. According to the report, six members of the same family collectively held 22.77 percent of the company’s total shares. However, according to the then IDRA directive, a family could collectively hold a maximum of 10 percent of the total shares. The information shows that Ms. Suraiya Rahman held 6.33 percent of the shares. Together with the shares held by Mr. Manzur Rahman, Mr. Ziad Rahman, Ms. Saika Rahman, Ms. Anika Rahman and Ms. Adiba Rahman, the family’s total ownership stood at 22.77 percent. This created significant influence over the company’s board and policymaking activities. The report said several members of the family served on the board at the same time, while another family member served as CEO. This created the possibility of “undue influence” over the company’s decision-making process.
Major questions over tax and VAT
The special audit also raised serious questions over government revenue. The Income Tax Department had raised tax claims of Tk 317.59 crore for different years, including a claim of Tk 55.18 crore for 2019-20. However, these potential tax liabilities were not disclosed in the financial statements. Meanwhile, the VAT authorities initially demanded Tk 35 crore over alleged VAT evasion. Following a hearing with Delta Life, the amount was reduced to Tk 25.34 crore. These matters were also not reflected in the financial statements. No tax at source was deducted from Tk 5.54 crore in premiums paid to foreign reinsurance company Munich Re in 2016 and 2017 at a rate of 10 percent. As a result, Tk 55.42 lakh remained unpaid to the government. Under the law, this amount may have to be deposited into the government treasury along with interest.
By withholding 5 percent from agents’ first-year commissions and keeping Tk 9.92 crore outside the accounts, the company caused an estimated revenue loss of about Tk 49.60 lakh. In addition, tax at source was not deducted from payments of lawyers’ fees, rental income from the company’s own building was not recorded, and about Tk 6.98 crore received from tenants as service charges was not shown as rental income. There was also no provision against Tk 10,11,056 in misappropriated premiums. The transfer of fixed assets worth Tk 17,38,534 from Delta Life to its subsidiary Delta Life Securities was not recorded as a related-party transaction. Benefits received by then CEO Ms. Adiba Rahman were also not documented.
In violation of Section 82 of the Insurance Act, 2010, the actuarial valuation surplus was not kept in the equity section of the balance sheet. Auditors also questioned the reliability of the financial information because international accounting standards were not followed. Assets worth Tk 93.32 crore were incorrectly shown as investment property. According to the auditors, this resulted in misrepresentation of assets in the financial statements and could mislead investors. Of the 67 observations identified in the audit, 42 were classified as high-risk. When contacted for comments on the overall findings, Ms. Adiba Rahman, former CEO of Delta Life Insurance and current entrepreneur director of the executive board, referred Inqilab to Mr. Milton Bepari, the company’s deputy managing director and chief financial officer (CFO).
Later, Mr. Milton Bepari told Inqilab that an administrator had been appointed to Delta Life Insurance when the audit was conducted. He alleged that then IDRA chairman Dr. M Mosharraf Hossain had done this intentionally. He said a special audit could not be conducted on a draft audit before the company’s audit report was finalised. He also said that under the accounting practice, companies were given seven to 15 days after December 31 to record premium income, and that income received after December 31 could not be recognised as income under accounting rules. However, according to an IDRA circular, such income could be recognised. He claimed there were no irregularities on the company’s part and said they had responded twice to the information sought by the authorities and had also provided their clarification.
