The Financial Reporting Council (FRC) has moved to crack down on irregularities involving the misuse of employees’ provident funds as companies were found forfeiting money from the employees who were leaving and misusing the funds for the companies’ own interest. The FRC has ruled that the companies must pay back the forfeited funds taken from the leaving employees or must count the preserved money as other income and assess corporate tax on the funds. The FRC in its council meeting, held on June 30, adopted a resolution on the issue and issued a circular on Wednesday to stop malpractices involving the employees’ provident funds. Companies pay their employees compensation in the form of salary and allowances, and one of the allowances is employers’ contribution to provident funds. FRC executive director Sayeed Ahmed told New Age that the companies often forfeited the amount from the separated employees (retirees, resignees and employees who were laid off or terminated) and paid it to existing ones, which was a gross irregularity as they could not pay one’s earnings to the other. Besides, the enterprises show these forfeited funds as expenses in their financial accounts and take tax benefit against the expenses, he said. This amount should be either paid to the separated/ leaving employee or revert back to the accounts of the company and the company must pay tax on it, he said. But a large number of employers do not do it and keep the forfeited fund in the employees’ provident funds. The FRC in the new rules also instructed auditors to address the anomalies while submitting the auditor’s opinions so that users of the report could learn about the non-compliance right away. The illegal preservation of the forfeited fund allows a company to show less income in accounts and to pay less tax. The notification said that if any provident fund had any such forfeited fund, its trustee must revert the fund to the employer organisation’s accounts in the same fiscal year. The organisation must treat the reverted fund as income from other sources and charge corporate taxes against it. Employees who were provided additional funds from the forfeited funds must face deduction of the additional amount within December 31, 2020. The companies must try to recover the additional amount of funds from the employees, and if they fail to recover the amount, then the funds must be treated as their operational losses for the accounting year. If any employee receives excess amount from provident fund, the trustee board of the provident fund must be accountable for that. If an auditor firm fails to address and inform such issues, it also will be accountable for allowing the irregularities. Employee provident funds must submit their audited financial reports to the FRC and other regulators and the government offices within 120 days after the accounting year ends. Any person failing to comply with any of the instructions would face up to Tk 5 lakh in fine, or 5 years in imprisonment, or both, said the FRC rules.
