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Scamsters drain out PF accounts with fake claims, EPFO swings into damage-control mode

Written By Admin on Saturday, 19 October 2013 | Saturday, October 19, 2013

NEW DELHI: Nearly 2.5 crore, or 30 per cent, of all provident fund accounts have a negative balance, some of which may be due to fraudsters who faked withdrawal claims to siphon off money by opening bank accounts using forged identity documents.

The PF department, startled by these two separate findings made over the last few days, has swung into damage-control mode, issuing strict instructions to field offices to fix responsibility for these lapses, correct the spectre of negative balances and ensure that no fake claims get through the system.

But the 8.15 crore formal sector employees with PF accounts should be worried, especially if they have switched multiple jobs in recent years but failed to withdraw or transfer the PF balances, or if an ex-employer has shut down in recent years.

Employees' Provident Fund Organisation (EPFO) chief vigilance officer Sanjay Kumar has flagged an internal investigation that has found fraudulent withdrawals, orchestrated in accounts that have not had fresh inflows for years. Such claims managed to evade all checks and balances in the system and PF staffers were pressured using 'all possible means' to clear these fake claims swiftly.

Insiders seem to have colluded with the scamsters in identifying dormant accounts and actively facilitating their loot. This also brings into question the Know Your Customer or KYC norms followed by banks. "The claims were settled by putting pressure on dealing hands/office by all possible means. In all these cases, the amount settled had been sent through NEFT (electronic funds transfer) in the bank accounts opened with forged identity," Kumar has said in a letter warning EPFO's field offices about the scam. "This has been the modus operandi that has been used in the EPF office over the years, but we have said this is unacceptable and initiated action against it," said a senior official.

He, however, said that all such fraudulent withdrawals may not be criminal in nature as some employers often create PF accounts for their relatives showing them as employees.

In April 2011, the EPFO stopped crediting interest on PF accounts that hadn't seen fresh contributions for three years.

At the time, 3.04 crore such PF accounts with nearly Rs 16,000 crore in balances were considered inoperative or dormant. The number of accounts with negative balances is quite close, though officials say there is likely only a partial overlap between accounts with dormant PF savings and negative balances. "We have identified around 2.5 crore PF accounts where the balance is negative, many of which seem to have occurred because accounts weren't updated in a timely manner and claims were often settled even if there wasn't an adequate balance accrued in these accounts," said a senior PF official.

The discovery was made thanks to EPFO's recent drive to clean up its books and bring all members' accounts up to date. The annual interest credited to PF accounts was worsening the hole in accounts with negative balances, he explained. While the cumulative negative balance in these 2.5 crore PF accounts couldn't be ascertained, Central PF Commissioner KK Jalan is learnt to have issued strict directions to rectify the problem at a meeting last week "At least 25 per cent negative balances are to be cleared by this month and a further 25 per cent by December 2013," said a senior official who was present at the meeting. "If these targets are not met, regional PF bosses have been told to treat such accounts as cases of "overpayment" and initiate action against those responsible to recover these 'overpaid' amounts," he said.

A clear message has gone out that a large financial organisation managing Rs 6.5 lakh crore of workers' savings must have credible accounts, said another official. The EPFO is the country's largest retirement fund and the second-largest non-banking financial institution after the Life Insurance Corporation of India. "Recently, this office has come across cases of fraud wherein the PF money has been withdrawn through fictitious claims. Investigation has revealed that the fraudsters submitted fabricated returns and specimen signature cards, and thereafter submitted fictitious claims in the name of original members," said Kumar's missive, sent a day before the meeting to resolve negative balances.

"The fraud was committed in inoperative accounts... mainly in respect of establishments where (PF) remittances had not been received for many years, records not updated and firms had not submitted statutory returns... No claims were received or settled since long," Kumar said, urging field offices to keep 'special watch and remain alert' while processing claims from closed establishments and inoperative accounts
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