Economy--CAG looking into performance of EPFO’s fund manager

Government auditor CAG is looking into the performance of the fund managers appointed by the EPFO to manage its huge corpus of Rs 3.5 lakh crore as part of the 5-year ‘performance audit’ of the retirement fund body.

CAG, according to sources, is also looking into the performance of the fund managers appointed by the Employees’ Provident Fund Organisation (EPFO) in managing the corpus.

The Performance Audit Report for 2005-10 is likely to be finalised by June-end and would be sent to the Labour Ministry for comments before being tabled in Parliament, sources said.

“The report is likely to be tabled in the monsoon session,” said a source.

The scope of audit by the Comptroller and Auditor General (CAG) would extend to overall financial management of EPFO as well as adequacy of internal controls and use of IT.

The audit would also look into the basis of declaration of interest rates by the EPFO and whether the subscriber accounts are being updated on a regular basis and claims are settled on time.

EPFO had appointed four fund managers — ICICI, HSBC, Reliance Capital and SBI — for the first time in July 2008, to provide a better rate of return on deposits to its 4.72 crore subscribers. Prior to that, SBI was the sole fund manager for it since its inception in 1952.

Sources said the CAG audit would look into the method adopted for selection of the fund managers and whether proper checks and balances were conducted prior to their appointment.

Last year, the EPFOs apex decision making body Central Board of Trustees (CBT) had announced that the PF fund manager would pay an interest rate of 9.5 per cent for 2010-11, citing a surplus of Rs 1,731.57 crore. The EPFO had been giving 8.5 per cent interest to PF subscribers since 2005-06.

However, CAG had cautioned that the accumulation in the interest suspense account (ISA) of the fund manager was due to “non-updation” of accounts of 4.72 crore members as on March, 2010. There are about 10 crore accounts with EPFO.

The EPFO currently follows a cash basis of accounting for calculating investments, while it calculates the interest liability on the basis of accruals.

CAG had said that EPFO should update all the member accounts, then “it shall determine its interest liability” so that the balance remaining thereafter can be declared as a surplus.