To physically verify assets funded under channel financing asset base funding to dealer. The Vehicle Manufacturer has its own NBFC which fund the dealers for procurement of vehicles. All the vehicles funded are hypothecated to NBFC & considered as security against the outstanding loan. The process of monitoring require verification of physical vehicle matching with the chassis number on the vehicle with the chassis number on the invoice, ensuring hypothecation mentioned on the invoice and recorded in the books of accounts. The outstanding loan balance is also required to reconcile with the value of inventory of vehicles, outstanding from other financers, outstanding receivables and report on deficiency, if any.
NHBS LLP team has obtained details of vehicle & invoices funded to dealer and have verified the hypothecation to lender mentioned on the invoice and recording in the accounting system. NHBS LLP have also reconciled the outstanding loan balance with the value of inventory of vehicles & outstanding from other financers and noted no discrepancies in any of the process, except for physically locating 42 vehicles valuing approximately Rs. 35 crores. The dealer was not able to provide the details of locations of vehicles and insisting NHBS LLP to report as vehicles are physically verified. NHBS LLP staff was very determined to follow the process and until & unless physically verify the vehicles, won’t report as verified. The dealer initially tried to convince NHBS LLP staff, than lure for money and finally threaten for adverse consequences if not reported as vehicles are physically verified.
NHBS LLP staff stood firm and have smartly escalated the situation to quality control team of NHBS LLP which in turn reported back to the lender.
The lender took immediate action and has freeze the dealer account, visited the dealer location and recovered the funds in traces in due course. Compliance to standard operating procedures, being ethical, professionally conducting the audit and immediate escalation by NHBS LLP team have unearthed this situation. NHBS LLP have later understood that the dealer had sold those vehicles and had repaid funds to other lender.
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