COST AUDIT HELPED GOVT FOR PHARMA PRICE CONTROL THEN WHY NOT FOR BANKS???

If the Cost Audit and Cost Record helped the Government to take decision on drug pricing then the same reports should have saved the government and banks to have NPA of RS 14.5 lac cr built over the last several years.  Over the last couple of years or decade industry have asked what the utility of cost audit is and cost records and what benefit it gives to the government and society. Financial audit profession has been hailed very positively by the industry whereas we cost accountants have been deprived from many opportunities. The recent benefit of the cost audit and cost records which have government   implemented is under the category of Central Excise Tariff Act Heading (wherever applicable) 9018 to 9022.

India's National Pharmaceutical Pricing Authority (NPPA) issued an order to fix the ceiling prices for the two main categories of cardiac stents. The order stated that “huge unethical markups at each stage in the supply chain” resulted in “irrational, restrictive and exorbitant prices in a failed market system driven by information asymmetry between the patient and doctors and doctors pushing patients to financial misery. According to the data of National Interventional Council (NIC) . Cardiac stents price were slashed by 85% which is a big boon for the society.

The data also showed a progressive increase from 2010 to 2015 in the number of centers performing the procedures and in the number of coronary interventions made. But the rates charged for stent procedures ranged from Rs.23,000 at Central Government Health Scheme (CGHS) hospitals to over Rs.2 lakh in private hospitals, which put them out of the reach of the common people.

Depth of the benefit of Lower prices to the Society:

Cardiovascular diseases (CVDs) were on the rise and a leading cause of morbidity and mortality in India. Some 25 per cent of overall mortality in India was attributed to CVDs, with coronary artery disease (CAD) the most common CVD, accounting for 90 to 95 per cent of the deaths. In India, the prevalence was higher in the under-70 age group compared with the West. A report of the National Commission on Macroeconomics and Health estimated the number of CAD patients at 61.5 million in 2015; of them, 23 million were estimated to be under 40. Hence the price controls have been a boon.

 National Pharmaceutical Pricing Authority (NPPA) has asked the health ministry to add four more medical devices to a list of products eligible for price controls to reduce costs to patients. The list comprised of more than 350 items, most of them drugs - should include balloons, cardiac catheters, and covered as well as peripheral stents, “as soon as possible”. These devices are used in the treatment of heart ailments or to open blocked blood vessels elsewhere in the body.

All these price measurement was executed based on the cost audit report which the government receives from the cost audit report submitted by the cost accountant. Even the price declaration to be given by hospitals to the patients includes mentioning the cost of the coronary stent along with its brand name, name of the manufacturer/importer/batch number and other details, if any, in their billing to the patients.

Benefit of Attaching Cost Audit Report with Financial Statements

Now if the same cost audit report is attached with the financial statements for getting loans from Banks then the banking management would have been saved from exploitation of funding the weak companies. In most of the cases its being found that exponential prices, extensive mis appropriation of cost  and capital have been one of the prime reasons behind NPA. Today the Banking industry is having NPA of Rs 14.5 lakh corers. This amount should not have grown if cost audit report should have been used as guidance to get an idea about the internal business, industry and its cost competitiveness to pay pay back the banks.

Willful defaulters have judiciously used the expertise of the financial statements certification provider  by cooking number.  Public sector banks (PSBs) have reported 16% rise in number of willful defaulters at 8,167 who collectively owe them Rs76,685 crore. Now these willful defaulters companies comes under the cost audit ambit and hence their cost audit report should have been guide for the industry. The government and banks feel that despite having resources, these willful defaulters have not repayed the loans and have diverted the loan money to other ventures. 

The governments have asked for forensic audit which is executed only when the company comes under default or NPA category. Cost audit report should have warned the banks about its internal process and competitive pricing which along with the financial statements should have given validation to the financial statements.  Many of the willful defaulters have sold assets that were pledged to get loans without knowledge of the banks. Cost Audit report trend should have been guidance to the Banks about their activities as business process and performance was falling down.  

Cost Audit report should be made mandatory along with financial statements to get loan. This will help the Banks management to understand the depth of financial statements cooked and later on is the client is walking down the path of willful defaulters.

The Indian government should now make cost audit mandatory with financial statements to avail loan.  This will safe guard the banks from giving loans to willful defaulters and also saves tax payers money.