If you happen to be the new boss, you may have to turn detective to unearth the misdeeds of your predecessor —ASAP. Otherwise, your 'honeymoon period' of three months might get over, and then you will not be able to pass off these misdeeds as someone else’s creation, and will have to carry the can yourself.
Although, if you are unlucky, you will land up carrying the can even if you find the goof-ups in time!
It was 30th June, the quarterly 'closing' day. I had taken over as branch manager just a fortnight earlier. To explain, in Indian banks 30th June is not an important closing because it just marks the end of the 1st quarter, not the year-end closure or even the half-yearly closure because the bank year is April-March. But since ours was a foreign bank operating in India, every quarterly closing was important because we had two separate accounting years—April-March for the Indian accounts and January-December for the global accounts. 30th June was the half-yearly closing for the global accounts, and a number of statements had to be sent to head office by 1st July.
When the first cut of the quarterly profit and loss (P&L) statement arrived at my desk, I dived into it eagerly. To my disappointment, the profit was significantly lower than that of the previous quarter. With a deep frown, I went through the statement line by line and spotted the reason for the decline—the interest cost for fixed deposits (FDs) was 12%—much higher than the budgeted cost of 8.25%.
I couldn’t understand the 12% number. The highest interest rate on FDs had not exceeded 8.75% for the past three quarters and, hence, a 12% number was impossible.
I decided to check for myself. I called for the underlying calculations and went through them with a toothcomb. They were absolutely correct. The number was indeed 12%—no mistake at all.
I called for the calculations of FD interest for the previous quarter—ending 31st March. The number looked just right—8.13%. The underlying calculations were perfectly correct, too.
I spent some time thinking about the possible reason for this strange situation. No answer emerged; the only way seemed to be to go back to yet another previous quarter and check those numbers as well. So I called for the data for the previous December ending.
Strangely, the numbers did not arrive at my desk. One hour passed, then two. I called up the concerned officer and asked what was going on. He said that everyone was busy with the closing, the information had to be retrieved from the basement archives and, hence, it was taking some time.
I waited and waited. Finally, after four hours had passed, I went to the officer’s desk and demanded to see the numbers, or else... Tremblingly, he handed them over. I realised that the data had been sitting on his desk for some time, but he had been too scared to give it to me.
I checked the numbers, and sure enough—the interest cost on FDs in the December quarter was just 4.18%, almost 4% below the budget. Clearly, the number had been deflated to boost the profit.
Under intense pressure, the truth came out.
My predecessor had refused to accept the profit number for the Jan-Dec year. He had said that it was too low, and that it must be higher.
The officer had found no option but to comply with the boss’s demand, the only way to do that being understating the interest cost of FDs. He had done exactly that.
I had to report the correct position for 30th June, resulting in a significantly below-budget profit number. My boss, the deputy CEO of the bank, summoned me to explain this downturn, which I did, in detail.
I had expected some degree of uproar at this clear 'book cooking' jaunt of my predecessor. But my boss merely nodded, put the papers away and waved at me to leave. Though the drop in profit was large for my branch, it could be absorbed within the overall profit of the bank, and this matter was heard of no more.
But it was not as simple as that.
I must explain the background. My boss, as well as my predecessor, were members of the Doon school-St Stephens-Sportsman (DSS) gang in the bank. Until a decade earlier, the bank recruited such scions of elite families as management trainees, through a social process that often went like this…
A corporate honcho (or senior bureaucrat, or (retd) army general) would be sipping beer after playing 18 holes of golf with the boss of our bank. He would mention in passing “I say, there’s a nephew of mine, just finished from Stephens. Doon boy, you know and bloody good at tennis. You wouldn’t have an opening in your shop, would you?”
The bank boss would reply “Might have, you know, might have. Seems like a likely lad. Do send him over, will you?”
This is the way management trainees had been recruited for many decades. From the bank’s point of view, this was a very good recruitment strategy. The young man would be none too brilliant, would hold his knife and fork the correct way, speak the right lingo socially and would never rock the boat. Finally, he wouldn’t commit any frauds. There was no pressure to show profits in those days. The watchwords were—no rocking the boat, and no frauds. The Doon/Stephens/Sports type would do just fine in this environment.
Things began to change with the first batch of 'new generation' management trainees, which included me. These chaps had MBA/CA degrees, came from middle-class families, were sons of teachers or mid-level government apparatchiks, but they were smart and ambitious performers. Over the years, the Doon/Stephens gang became wary of these newbies becoming threats to their own existence, and as a result they closed their ranks and began to protect one another.
Word went around about me: “This fellow is rocking the boat. He needs to be watched.”
A few days later, the half-yearly head office returns started arriving at my desk for signature. After the discovery of book-cooking, I was very careful and examined each return closely before signing it. Then came the first clue—something was amiss.
There was one return that listed all the overdue trade bills, namely, bills of exchange which we had discounted. To explain, when a supplier sells goods to a buyer on credit (typically 90 or 120 days), he prepares a bill of exchange which the buyer accepts, thereby promising to pay 90/120 days later. The supplier brings the bill to the bank, and we pay him the amount of the bill (the cost of the goods) up-front, less an interest amount, and get the money from the buyer after the expiry of the credit period. If the buyer fails to pay the amount on the due date, the bill becomes overdue, and is recorded in the ‘overdue trade bill’ account.
This return is usually a computer printout of the overdue bills account, listing all the overdue bills and striking a total which tallies with the total amount of overdue bills in the balance sheet of the branch.
The return presented to me for signature was printed out on plain paper using a typewriter. It was not the usual computer printout.
I asked why the return was typed, and not the computer printout. I was told that the statement had been mis-printed by the computer and, hence, a typed version had to be prepared – a perfectly reasonable explanation.
I checked the total at the bottom of the typed statement, and it matched with the amount in the balance sheet. Everything seemed to be in order.
But I was still suspicious.
Then I did a rather unusual thing. I got hold of an add-listing machine, the type that had a roll attached which printed out each number that was being added, and also the final total of all the numbers. I keyed in the amount of each bill listed in the overdue bills return and hit the total button.
The total didn’t match with the total on the return!
To make sure I had keyed in every item correctly, I tore out the paper roll generated by the adding machine, summoned a clerk, and made him read out every amount in the return while I checked the amount on the paper printout from the machine. Every item tallied, but the two totals were different.
It was clear that a wrong total had been stated in the typed return to make the number match with the balance sheet.
I called in the officer concerned, presented him with the evidence and demanded an explanation.
The officer hemmed and hawed at first, but under persistent pressure he broke down and confessed that he had fudged the return.
I was flabbergasted. Another piece of book-cooking! Was there more?
I harangued the officer, demanding that he come clean. Finally, he broke down and started crying.
I summoned all the officers of the department, locked the door and said, “This is confession time.”
Amid a stunned silence, I went on to say, “I have found one piece of fudging already. Is there more?”
The silence continued.
“Believe me, I will find out the truth, one way or the other. If I hear it from you, right here and right now, I will go easy on you. But, and God help me, if I find out later that there is anything that you have hidden from me, I will come down very hard on all of you. You know what that means.
“So tell me, NOW. What else is wrong in your department?”
Little by little, the full story emerged.
Four months earlier, the bills department of the branch had migrated from a hand-written ledger system to a computerised ledger.
On an aside, I never understood the use of the word ‘migration’ to describe a transition from a manual to a computerised system. To my mind, migration implies a journey with a subsequent return to the origin, like Siberian birds migrating south in winter and returning to Siberia in summer. Perhaps it should be called ‘emigration’, such as when one emigrates to the US, permanently!
The migration process required a lot of work. More importantly, it required a deep understanding of the way both systems, manual and computer, functioned, in order to ensure that some small detail didn’t get overlooked, leading to some glitch appearing when the computer system became operational.
Unfortunately, just two days before the migration started the officer in charge went down with typhoid. His temporary replacement had a poor understanding of how bills worked. He delegated the handling of the migration process to a junior officer.
The operations manager, who should have understood and anticipated the likely problems in such a situation, was a Doon/Stephens chap, too. He was blissfully oblivious of everything that was going on and left it to his underlings to 'carry on, chaps'.
Obviously, glitches occurred in many places. Data wasn’t checked, the structure of the computer program was not understood, and everyone involved just tried to get it over with as fast as possible.
One of the consequences was a glitch in the trade bills area.
Each bill was given a number at the outset by which it was recorded and identified. In the manual system this number was not changed until the bill was paid, so that one could track it at any time. A second way to identify a bill was by the amount, though this method was less reliable because several bills could have the same amount, typically a round figure such as Rs10 lakh.
In the computer system, two things happened when a bill became overdue:
- It was assigned a new number in an ‘overdue bill’ series.
- Additional interest and charges were added, so that the bill now had a different (higher) amount.
Simultaneously, the bill disappeared from the ‘trade bills discounted’ account and appeared in the ‘overdue trade bills’ account, with a different number and a different amount.
There was no way to identify that a bill had become overdue and had been moved to the overdue bills account. Its disappearance from the bills discounted account made it look like the bill had been paid, and there was no way to connect the overdue bill, bearing a different number and a different amount, with the original bill.
This had led to the mess in the overdue bills return. The staff simply couldn’t identify which bill was where. Somehow, they had typed out a return, fudged the total, and sent it for signature.
One by one, more and more skeletons emerged from the cupboard, some big and some small. I started noting them on a sheet of paper. The list ran into three pages.
After three hours, the list ended. I felt a full confession had been made.
Now, it was time to clean up the mess.
I put together a task force. I gleaned 12 officers out of the total of 30 in my branch, and 25 clerks out of 90. They formed two teams. The first team would start at 8am, work up to 2pm, report progress to me, and return to their regular jobs until evening. The other team did the 2pm to 8pm shift, and reported at 9am the next morning.
This process impacted the unionised staff as well. I called in the union leader and had a heart-to-heart on the mess and what needed to be done to clean it up.
The clincher was: “Other branches will laugh at us, call us idiots.”
“Yeh nahi hone denge. Be-fikr raho, Saab. Hum tumhare saath hai”, he proclaimed. (We will not let this happen. Don’t worry, Sir, we are with you.)
With the buy-in from the union, work could move on a war footing. In 17 days every single item was reconciled, all changes and amendments had been done, and everyone was conversant with the computer system.
I reported the whole matter to my boss. He had been anxiously awaiting a possible revelation about the mess the previous manager and assistant manager (both D/S) had created, but I wisely left it unsaid. I knew it would have been hushed up anyway.
Epilogue: Many months later, when my boss showed me my annual appraisal, I was shocked to find that he had rated me as ‘unsatisfactory’ in branch management.
When I protested, my boss reminded me of the mess-up in bills department.
“But I didn’t make the mess! In fact, I found it and fixed it,” I appealed.
My boss shook his head. “You are the branch manager. You have to carry the can.”
That is justice, D/S style, my friends.
(Deserting engineering after a year in a factory, Amitabha Banerjee did an MBA in the US and returned to India. Choosing work-to-live over live-to-work, he joined banking and worked for various banks in India and the Middle East. Post-retirement, he returned to his hometown Kolkata and is now spending his golden years travelling the world (until Covid, that is), playing bridge, befriending Netflix & Prime Video and writing in his wife’s travel blog.)
