Meghna Life Insurance Company Limited, a prominent player in Bangladesh's insurance sector, has recently undergone an audit for the fiscal year ending on December 31, 2023.
The auditor's report, complete with an "Emphasis of Matter" paragraph, has brought several critical issues to light, prompting significant attention from stakeholders and market analysts.
The auditor highlighted concerns regarding the Fixed Deposit Receipts (FDRs) held by Meghna Life Insurance Company, as it reportedly possesses FDRs amounting to Tk 476.23 crore. However, the audit revealed a significant discrepancy in the verification process.
Of the 348 confirmation letters sent to various banks to verify these FDRs, only two responses were received, confirming the holding of a meagre Tk 15 lakh.
This stark difference raises questions about the completeness and accuracy of the reported FDR amounts. It suggests potential lapses in financial controls or communication issues with the banks.
In addition to the FDRs, the auditor examined the company's Short-Term Deposit (STD) accounts, which revealed that Meghna Life Insurance maintains an STD balance of Tk 6.22 crore. Similar to the FDR verification process, the auditors sent 348 confirmation letters to various banks, and only 23 responded, confirming an amount of Tk 2.94 crore.
While the received confirmations cover a more substantial portion of the reported balance of Meghna Life's holdings compared to the FDRs, the lack of responses from the majority of banks is concerning as it underscores potential risks related to the reliability of the company's reported bank balances.
The 'Emphasis of Matter' paragraph in the auditor's report does not imply that the financial statements are materially misstated. Instead, it highlights these significant issues for stakeholders' attention as the discrepancies in FDR confirmations and the limited responses for STD account verifications indicate potential weaknesses in the company's financial management and control systems.
Market analysts suggest that Meghna Life Insurance Company should take immediate steps to address these issues. Enhanced communication with banks, rigorous follow-up on confirmation requests, and improved internal controls over cash handling and FDR management are crucial to restoring confidence among investors and policyholders. Furthermore, the company should consider engaging an independent third party to verify its financial records to ensure transparency.
The auditor's report also drew attention to the company's cash handling practices. Meghna Life Insurance Company Limited has a substantial amount of cash in hand across its branches recorded at the year-end.
However, the auditors faced challenges in counting the closing balances of these branches. They could only verify the head office's cash holdings. This limitation could impact the accuracy of the reported cash balances. Nevertheless, as explained in the accompanying notes, the company has assured that the year-end cash balances were deposited in the banks during the following month.
Notable yet improved deficit
Meghna Life Insurance Company has recently disclosed its financial performance for the first quarter of 2024, revealing a notable yet improved deficit compared to the same period of the previous year.
The company reported a deficit for the quarter ending March 31, with total expenses, including insurance claims, surpassing the total income by Tk 97.49 crore. This is a slight improvement from the deficit of Tk 98.43 crore recorded in the first quarter of 2023.
Despite the deficit reduction, the company's Balance of Life Insurance Fund experienced a decline. As of March 31, the fund stood at Tk 1,577.60 crore, down from Tk 1,693.51 crore recorded on March 31, 2023, marking a net decrease of Tk 115.91 crore.
Moreover, Meghna Life Insurance reported a negative Net Operating Cash Flow Per Share (NOCFPS) of Tk 8.79 for the January-March period of 2024. This metric underscores the company's challenges in generating cash from its operating activities during the quarter.
