The Ministry of Labour is set to conduct a detailed analysis of how the significant losses incurred by the Employees’ Provident Fund (EPF) occurred, following recent findings by a private research institute.
While the ministry is yet to receive detailed information, Ministry of Labour Secretary S.M. Piyatissa stressed the need to first obtain data from the private institution that had released the report on the losses – Verité Research – to determine what further information should be requested from the Central Bank of Sri Lanka (CBSL) for analysis.
“No discussions have been held yet regarding the findings,” he stated, adding that the ministry had not been formally briefed on the report by Verité Research.
Piyatissa also referenced a key point raised during the recent parliamentary debate on the Budget, where the Minister of Labour had proposed the inclusion of employee and employer representation in the fund management process.
He revealed that the ministry was preparing a mechanism aimed at improving the management structure of the fund, which would incorporate input from all stakeholders involved.
He stressed the importance of involving experts with professional insight into fund management to ensure that EPF contributors ultimately received better benefits.
Piyatissa further elaborated on the ongoing studies being conducted by the ministry to examine how similar funds were managed in other countries. This research, he noted, would help in the formulation of a suitable framework for Sri Lanka’s EPF.
A report by Verité Research, based on forensic audits commissioned after the 2015 bond scandal, had revealed that the EPF had suffered substantial financial losses due to mismanaged investments in both the bond and equity markets.
According to the forensic audit titled ‘Investigation on Primary and Secondary Market Transactions of Employees’ Provident Fund Involving Treasury Bonds’ (covering the period from January 2002 to February 2015), the EPF had lost Rs. 9,826 million in bond market transactions, the Verité Research report noted.
These losses had resulted from acquiring bonds at unfavourable prices in both the primary and secondary markets, as well as from missed opportunities to buy bonds at lower prices in the primary market.
Additionally, the forensic audit titled ‘Project Diamond Final Report: The Monetary Board of the Central Bank of Sri Lanka (November 2019),’ found that the EPF had lost Rs. 9,859 million in the equity market between January 1998 and December 2017. Verité Research had noted that these losses stemmed from irregular investments in listed companies and purchases of unlisted shares.
The report had also highlighted significant limitations in the forensic audits, which had not fully accounted for the total losses in the bond market. Notably, the audit only covers transactions before February 2015, excluding potential losses that followed the widely publicised 2015 bond scandal.
Furthermore, the report stated: “A full enumeration of losses may never be possible because of missing data as well as the significant latitude and discretion that exists for deciding on EPF transactions – preventing many bad faith and corrupt transactions being identified decisively as irregular from an audit perspective.”