SECP
to streamline provident fund investment
KARACHI, Nov 9: The workers provident fund is essentially the
employee money, deducted at source at 10 per cent of the basic pay. Put together over years of all employees and including an equal contribution by the employer, the aggregate amount runs into tens of millions of rupees. But the figure attracts scarce stakeholders’ attention as the sum is lost among the ‘administrative expenses’ in the ‘notes to the accounts’ in the financial statements of a corporate entity.
Companies are required to seek a separate audit of the provident fund accounts by the outside auditors so as to determine the calculation, the distribution and the compliance with rules for sanctioning sums as loan from such accounts in time of employee genuine needs. But the problem lies in the investment of the hefty amount that accumulates with the company over the years.
Left to the company, most corporates have little inclination to worry over the profit or return that the money earns.
The lifelong savings of employees in the form of provident fund, vested with companies, is known to have been unwisely invested in weaker banks and financial institutions.
Several incidents have occurred where such weaker institutions crumbled and all of the money was lost.
Granted that the board that decides on the utility of such funds comprise equal number of employer and employee representatives. But the latter are in most parts workers who have neither the knowledge over the subject, nor the grit or gumption to face up to the employer representatives’ decisions.
It is thus that increasing number of companies have begun to misuse the employee money. Investment in subsidiaries which sometimes pay no return or are heavily debt-laden has assumed some popularity.
Under the circumstances, it is a good augury that the Securities and Exchange Commission of Pakistan has decided to take notice.
In a recent meeting, the commission discussed amendments in utilisation of provident fund. It was proposed that the disclosures of provident fund investments be made mandatory in the directors’ report. Also, under the proposed
amendments only 10 per cent of the provident fund would be allowed to be invested in the associations/subsidiaries, etc.
The regulation to limit the provident fund investments is expected to be approved in the next commission meeting.
Knowledgeable stakeholders say that it should be made mandatory on corporates to take as much interest in investment of provident fund in the high yield- safe investments, as it does for the company’s own surplus cash.
In the same apex regulator deliberations, the number of board of directors meeting to be held overseas was capped. It was a long time demand of investors to discipline the board and put curb on their wastage of shareholders money.
The habit had caught on fast during recent years with board of directors departing to hold meetings at destinations, which had little or no relation with concerned company’s business or their stakeholders.
The SECP now places restrictions on listed companies (incorporated in Pakistan) with more than 50 per cent foreign shareholding to be able to hold a maximum of four board meetings outside the country, companies with over 40 per cent foreign shareholding three meetings and companies with foreign shareholdings between 30-40 per cent a maximum of two board meetings abroad.
While those listed companies which have less than 30 per cent or negligible foreign holding could conduct only one board meetings outside the country.
What the shareholders’ would gain by the new regulation would be the directors’ loss of an attractive perk. The team of principal corporate officials, who enjoyed trips to the heavenly islands and exotic historical cities: the Bahamas, Paris, Venice
and Istanbul, would understandably sulk.
One such official of a big corporate, who was the part of entourage that mixed work with pleasure, expressed unhappiness over the cap on board meetings outside the country, saying that it amounted to “over regulation”, which was counter-
productive.
A senior retired banker said he saw no objection in holding of meetings outside the country as long as the company showed the total cost incurred on such events separately in the company’s financial statements.
In the absence of such a disclosure, the cost of leisure trips of directors and senior company officials to the companies could be mind-boggling. One of the SECP commissioners present in the meeting, was quoted to have said: “I have been informed
about a Pakistani company which spent Rs600 million at one board meeting held in Venice Italy.”
It was received with disbelief by many shareholders. Some wondered if the figure was accurate or an extra zero had incorrectly crept into the figure!
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