Updated: August 17, 2021 7:38:36 am
BETWEEN MARCH 2020 and June 2021, when the focus of an entire nation was on the surging pandemic and the crippling lockdowns, a nexus of employees at a Mumbai office of the Employees Provident Fund Organisation (EPFO) allegedly siphoned over Rs 21 crore from a common PF pool through fraudulent withdrawals, according to details of an ongoing internal investigation accessed by The Indian Express.
So far, the probe has found that the “mastermind” of the scam is Chandan Kumar Sinha, a 37-year-old clerk at the EPFO’s Kandivali office, who allegedly used as many as 817 bank accounts of mostly migrant workers to fraudulently claim PF totalling Rs 21.5 crore on their behalf and deposit it in their accounts.
The probe has also found that 90 per cent of the money transferred to these accounts has been taken out, sources told The Indian Express.
Sinha, who is absconding, is among five employees of the office who have been placed under suspension for their alleged involvement in the fraud. Sources said that as soon as the internal audit is wrapped up, the EPFO will move to hand over the case to the CBI.
While the probe has focused only on the Kandivali office, the case has sent alarm bells across EPFO, which is “one of the world’s largest social security organisations in terms of clientele and the volume of financial transactions undertaken” — directly and indirectly managing upto Rs 18 lakh crore in savings of individuals. Essentially, an EPF membership is an indicator of formal employment.
The money that was fraudulently withdrawn belonged to the pooled fund of EPFO, which holds deposits made by registered organisations every month. Typically, the EPFO pools the funds received and invests them mostly in government securities.
“No individual PF account has been misused (in the fraud). The money belonged to the pooled fund and it is a loss to EPFO not any individual. It is the equivalent of a bank robbery,” a senior official told The Indian Express.
The scale of the fraud is such that the EPFO is now racing to tweak its processes and secure all withdrawals. The organisation has also expanded the scope of its internal audit to cover at least 12 lakh PF claims approved by the Kandivali office in the two financial years between March 2019 and April 2021.
Officials said the suspects managed to evade scrutiny due to a combination of factors.
They struck at a time when the organisation had relaxed its norms and assigned multiple roles to employees involved in verification and approval to manage the record withdrawals amid job losses triggered by the pandemic.
And, they exploited key loopholes in the system using passwords given to them by superior officers who opted to stay at home during the lockdown. For instance, their PF claims were in the range of Rs 1 lakh-Rs 3 lakh — withdrawals above Rs 5 lakh are flagged by the system and only approved after a second verification done by a senior officer.
“The probe has found that a few section officers at the branch actively helped Sinha siphon funds. It is a bit embarrassing that some of our officials gave their passwords to him and did not bother to change it later. This is negligence,” said another senior official.
Sinha, said officials, is a 2005 philosophy graduate from Magadh University in Bihar’s Gaya. Soon after the fraud came to light in early July, he admitted himself into a local hospital and subsequently went missing.
EPFO officers, who have interacted with Sinha in the past, described him as “affable” and “flamboyant”. “We came to know that he owned high-end cars and multiple sports bikes including a Harley Davidson,” said one of the officers.
In fact, sources said, the investigation was triggered by an anonymous complaint, believed to be from a relative who was “jealous” of Sinha’s lifestyle. Another key figure, the probe found, was Sinha’s colleague Abhijit Onekar, who is also a clerk and allegedly helped source bank accounts.
The probe found that the modus operandi was layered and banked on an intimate knowledge of the systems and processes in place.
The first step was to obtain active bank accounts and Aadhaar details from needy and mostly jobless migrant workers, by paying “commissions” as low as Rs 5,000.
And then, PF accounts were opened in their names as employees of Mumbai-based companies that had shut down 10-15 years ago. This was crucial, say officials, because for “old” PF accounts opened before 2014, there is a provision for the mandatory Universal Account Number (UAN) to be generated at the time of withdrawal.
The probe found that the top five firms used by Sinha were: B Vijay Kumar Jewellers Pvt Ltd, Landmark Jewellery Pvt Ltd, New Nirmal Industries, Sathee Wear Corporation and National Wires. All of them had shut down in 2006.
“He knew the audit processes well, and exploited grey areas in the accounting process used by the EPFO to avoid detection,” said an official.
For instance, the fake credit entries in fictitious accounts were not flagged because EPFO does not maintain double-entry bookkeeping for companies that have shut shop. In a double entry system, every entry to an account requires a corresponding opposite entry to a different account.
Based on the preliminary findings of the probe, all senior EPFO officers have been directed to check if the systems and processes in their domains are intact. Besides, it has been decided to set up a provision where passwords of employees for accessing the EPFO system will be invalid after 15 days unless changed, and stop assigning multiple roles to an employee.
The EPFO has also written to banks for freezing the 817 bank accounts that received the fraudulent withdrawals — a little over Rs 2 crore have been tracked and recovered so far. The organisation is also planning to attach the assets of accused officers that are believed to have been bought from the proceeds of the fraud.
“The organisation is looking to invoke the provisions of the CrPC that allows recovery of money from the salaries of the accused in cases of fraud,” the official said.