EPF Goof-up | Value Research The accounting mistake by EFPO leading to an undetected surplus should raise as much concern as an undetected deficit
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EPF Goof-up

The accounting mistake by EFPO leading to an undetected surplus should raise as much concern as an undetected deficit

 The Employees Provident Fund Organisation (EFPO) has discovered a spare Rs 1,700 crore or so and has decided to distribute it among the poor and the needy. Or something like that, anyway. The news is that the EPFO’s board decided to raise the interest rate for next year to 9.5 per cent. This is an additional outgo of around Rs 1,700 crore but as luck would have it, they discovered that they had exactly the same amount lying around somewhere in their office, probably tucked away safely at the top of a cupboard, and that has neatly solved the problem.

The EPFO must be really lucky because this sort of a thing has never, even once, happened to me. However, it does happen frequently to my 10-year old daughter. Sometimes, it happens that she wants something really badly and her pocket-money is just a little bit short of the correct amount. When this happens, she comes to mummy or daddy for a careful re-calculation of how much of her pocket-money actually remains.

Coincidentally, it always turns out that the original calculation was wrong and there’s just enough money for her to buy what she wants. My guess is that one day, not too far into the future, the EPFO will also have to go back to its mummy and daddy for a careful re-calculation. It’s strange to see this turned into a good news story. Even if one makes the effort to take this whole story at face value, it should be obvious that an accounting screw-up is an accounting screw-up and there’s actually no reason to treat an undetected surplus with any less alarm than an undetected deficit.

I mean, the calculation of interest income is not an activity that is peripheral to the EPFO’s job — this is what the organisation exists for. This is not as if you discovered that your railway dinner was more salty — this is like discovering that the engines are running without trains.

Anyhow, what this episode highlights more than anything else is that the EPFO’s operations are in a shambles, but then you already knew that, didn’t you? What is actually alarming is the casual acceptance of what is to be done with the re-discovered money. This surplus (if it actually exists) was earned over some two decades or so. In all fairness, it belongs, in part, to a lot of employees who are no longer part of the system.

There’s no real way ahead except to run the EPFO as a collective investment scheme where each member gets what his or her money has earned, nothing more and nothing less. But then, that’s what the NPS was supposed to be. I just hope that when the time comes, mummy and daddy have deep enough pockets.

This column first appeared in The Economic Times on September 20, 2010

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