In a serious setback to Reliance Communications’ (RCom), the independent auditing agency appointed by the DoT, today alleged that the ADAG owned company indulged in massive over reporting and manipulation of revenues.

The auditor, Parekh & Co says that RCom fudged revenues to over report revenues by Rs 2,915 crore and evading revenue share for licence as well as spectrum fee to the tune of Rs 315 crore to country’s regulator, TRAI. The audit took into consideration revenues for fiscal years 2006-07 and 2007-08.

Findings of Parekh & Co reveal that the company’s actual revenues for fiscal year 2007-08 were Rs 12,298 crore while the company declared revenues of Rs 15,213 crore, an inflation of Rs 2,915 crore. The EBITDA and EBIT earned by the company were much lower than the figures approved by Kotak. BSR & Co (KPMG) and Chaturvedi & Shah are statutory auditors of RCom.  

RCom fudged Rs 617 crore in revenues by way of double accounting of the same revenues in two different accounting years. Rs 379 crore was fudged by way of selling expired prepaid card to two companies namely Macronet Private Limited and Inference Systems Ltd with Inference having registered office within ADAG campus in Navi Mumbai and is an ADAG company. Another Rs 300 crore was inflated through a transaction with Macronet.

The independent auditor alleges RCom violated 9 accounting standards.

It says there are evidences of cross booking between Reliance Communications and its subsidiary, Reliance Communications Infrastructure.

RCom was obviously in a denial mode as the company stated that the auditor never shared any findings with the firm. It alleged that the findings appear to be instigated by corporate rivals as it was also leaked to the media before official disclosure to the DoT.

“All revenues for FY 07 and 08 correctly reported in RCom's audited accounts, revenues correctly booked from securitisation of bad debts received from RIL in 2005, revenues correctly booked from sale of pre-paid cards in line with industry practice, alleged comments of special auditor do not reflect any under-reporting of revenue share/license fees and RCom is in full compliance of license terms and conditions,’ said RCom.   

The auditor’s findings are in sync with a study conducted by Kotak and UBS which pointed out the discrepancy in RCom’s revenue reporting to TRAI and to investors. It was then that DoT ordered independent auditors to audit books of all the major telecom operators.