A ban on E&Y company for auditing the fraudulent NDB

Following the certification of NDB Bank's 2025 financial statements, a leading financial institution in Sri Lanka, a large-scale financial fraud amounting to LKR 13 billion was uncovered, leading to significant turmoil in the country's banking and auditing sectors amidst stringent regulatory measures. With this long-standing irregularity coming to light, the Central Bank of Sri Lanka has immediately prohibited the relevant partners of Ernst and Young (E&Y), the firm that conducted the audit, from engaging in audit activities for any other bank in the country.

Ernst and Young (E&Y) is a leading institution that has been involved in auditing activities in Sri Lanka for many years.

Disclosing facts before the Parliamentary Committee on Public Finance (COPF), Mr. R. R. de Silva Jayathilake, Director of Bank Supervision, confirmed that the Central Bank has already taken several actions against the auditors concerned. Accordingly, the stakeholders directly involved in this audit will no longer be permitted to continue bank auditing activities, and the Central Bank has also taken steps to reorganize the Board Audit Committee of NDB Bank.

According to information revealed before the Parliamentary Committee, this massive fraud was orchestrated by a group of staff members connected to NDB Bank's Information Technology division. Over several years, they systematically siphoned off nearly LKR 13 billion fraudulently, creating fictitious asset accounts through the IT system to cover up balance discrepancies at the end of accounting periods. A more striking fact is that those involved in the fraud also worked in the compliance division. Through this, they managed to mislead not only regulatory authorities but, at times, even the auditors, the Committee was informed.

However, the manner in which the auditing firm acted regarding this serious issue has drawn significant attention from regulators. It is noteworthy that although the auditors had marked this matter with an asterisk, it was not reported as a formal qualification or an emphasis of matter.

Meanwhile, the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB), which monitors the maintenance of accounts in accordance with Sri Lankan standards among banks and other specified businesses, has sought legal advice after preparing a detailed report on this incident. Addressing the Parliamentary Committee, Ms. E. H. Mohootti, Chairperson of the Board, stated that the report had been finalized and submitted to the Central Bank and the Securities and Exchange Commission (SEC), with a copy forwarded to the Honorable Attorney General. The primary objective is to determine the legal actions to be taken moving forward.

When Committee Chairman Harsha de Silva inquired whether certain information in the report could be disclosed, Ms. Mohootti stated that it was not possible. The Chairman responded by saying, "That means it's alarming."

The Central Bank of Sri Lanka, which is currently studying the observation report, is also preparing for future actions. Central Bank Governor Dr. Nandalal Weerasinghe indicates that, based on his understanding, there is scope for the Central Bank to take further action against the auditor based on this report.