Unreported Debts And Circuitous Transactions Deepen Ricoh India Fraud Mystery

A forensic audit of Ricoh India's financial dealings “found anomalies” in transactions between the printing and imaging equipment maker and its vendors and customers.

The preliminary audit report by PwC identified “patterns and issues” in Ricoh India's sales and purchase data involving 18 parties, including two listed companies – Vedavaag Systems Ltd. and Fourth Dimension Solutions Ltd.

As on April 1, 2014, software services provider Vedavaag owed Ricoh India Rs 56 crore, which it failed to pay despite repeated reminders over the next eight months, the report said. A cheque it issued was also dishonoured, giving Ricoh India enough indication that the account had turned bad, the auditor said.

This, however, didn't dissuade Ricoh India from making additional sales worth Rs 46 crore to Vedavaag on December 18, 2014. That too remained unpaid. Nearly nine months later Ricoh India made certain purchases from Vedavaag and paid Rs 25 crore for them despite the pending debts, said the audit report, a copy of which was obtained by BloombergQuint.

Curiously, Vedavaag's FY15 accounts don't reflect the full Rs 102 crore that it has owed Rioch since 2014.

PwC was appointed by Shardul Amarchand Mangaldas, legal counsel of Ricoh India, to conduct the forensic audit of accounts between April 1 and September 30, 2015. At the time, the company's position was that there was nothing wrong with its books before the said period. A whistleblower's testimony and a few documents, however, contradicted this claim, as BloombergQuint reported earlier.

Vedavaag is an e-governance solutions and citizen services infrastructure management services provider. It's listed on the Bombay Stock Exchange and has a market capitalisation of more than Rs 95 crore. Value investor Porinju Veliyath and stock broking firm Anand Rathi own close to 1 percent and 1.2 percent stake, respectively, in the company, according to regulatory filings at the end of June quarter.

BloombergQuint's emails to PwC remain unanswered. Emailed queries to Vedavaag regarding its transactions with Ricoh India didn't elicit a response.

In response to queries, Ricoh India declined to comment on the report saying the matters highlighted by PwC “are subject to legal process”.

‘Circuitous Transactions'

The forensic audit report also said that Ricoh India's dealing with Redhex IT Solutions and Fourth Dimension Solutions indicated the possibility of “circuitous” transactions. Fourth Dimension sold goods to Ricoh India, which in turn sold them to a company called Redhex IT Solutions Pvt. Ltd. The IT company then sold the same set of goods to Fourth Dimension, according to the PwC report.

The auditor spotted these transactions on the basis of the documents shared by the managing director of Fourth Dimension, which mentioned the taxpayer identification numbers of Fourth Dimension and Redhex.

The PwC report also revealed that Fourth Dimension, a supplier and customer of Ricoh India, actively traded in the shares of the office equipment maker.

In the same period when FDS was trading in shares of Ricoh India, they gained more than 300 percent rising to Rs 836, and also hit an all-time high of Rs 1,030.

The company sold its entire holding in Ricoh India on November 20, 2015 when PwC submitted its draft report to the audit committee.

Amalendu Mukherjee, managing director of Fourth Dimension, in response to BloombergQuint's queries on the findings of the report, said: “We cannot comment on any such referred reports of which we do not have any knowledge or about its content.” On its part, Fourth Dimension Solutions has filed an insolvency petition against the company to recover Rs 429 crore for a cancelled contract.

Fourth Dimension, which has a market capitalisation of Rs 100 crore, designs and delivers information technology services including consulting and support. The company is listed on the National Stock Exchange's SME segment.

Also Read: Fourth Dimension Claims Rs 429 Crore From Ricoh India

The forensic audit was commissioned on reports of an alleged accounting fraud at Ricoh India. Last July, the company said that its accounts appeared to be have been “falsified” as it estimated to incur a loss of Rs 1,123 crore for 2015-16. In May, it had approached the Delhi police accusing a few of its employees of committing forgery, falsification of records and criminal breach of trust. The allegations were later rejected by the Economic Offences Wing.