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NFDC EXPOSE 2: How NFDC thwarted attempts to probe its financial wheeling-dealing

‘Probity’ in public life means ever-willingness to be subjected to any investigation, particularly about matters related to money. Why is it that the National Film Development Corporation (NFDC) top officials resist financial scrutiny by a competent authority and even by the Ministry of Information & Broadcasting (MIB) tooth and nail? NFDC is an entity that lives off government grants and yet its Managing Director does not want the Ministry to probe its financial affairs. She exploits all legal and procedural loopholes to thwart it. But before we go into that, let us first have an idea of how NFDC is funded.

NFDC funding and the fake ‘turnaround story’ tom-tommed by Ramesh Sippy in NFDC’s annual report 2013-2014

NFDC mainly receives its funds as grants-in-aid from the Govt. of India (GoI) and various other grants for participating in film festivals etc. It also gets funds on nomination basis for consultancy and other assignments like putting up tableaus for Republic Day Parade. It’s an interesting ‘cross-funding’ structure whereby one government department funds another.  NFDC generates some revenue through other activities such as providing certain services, charging  licensing fees,  distributing the films in its library and by renting out its properties and equipment. It was a perpetually loss-making entity until the GoI and MIB found a unique and simple way of ‘turning it around’ through yet another kind of cross-funding subterfuge.

NFDC was made an agency, on its own request, to carry out audio-visual publicity work of various GoI ministries / PSUs under what is known as the Eelectronic Media Advertisement (EMA) policy of MIB. This was nothing but a diversion of a part of the business of the Directorate of Audio-Visual Publicity (DAVP), another arm of MIB, to NFDC.

Bureaucratic sleight of hand, the ‘jadoo’ that revives the sick at the stroke of a pen

This is what we call the bureaucratic sleight of hand.  In one stroke of the pen, the Babus in MIB turned NFDC around and made it look financially sound. What’s more, another GoI arm called the Board of Reconstruction of Public Sector Enterprises (BRPSE) promptly gave NFDC a Turnaround Award in 2013. This was trumpeted as a big achievement by the NFDC Chairman Ramesh Sippy in the Corporation’ s annual report 2013-2014. However, he quite ingenuously admitted that 80 to 85% of the gross turnover of NFDC came from this activity that was not even part of NFDC’s original mandate.

Interestingly, as this source of funding was stopped pending an internal financial audit of NFDC by MIB, the much-vaunted ‘turn-around’ comedy ended in a ‘tragedy’. NFDC turned ‘sick’ again. This is what we call the ‘micro-corruption’ of Indian bureaucracy and how these ‘taxidermists’ find ways to fund their profligacies by pumping up the dead with hot air and presenting them as the ‘living’ with healthy red cheeks and bright eyes.

What is the interest of the ‘Babus’ in keeping NFDC alive?

On the face of it, NFDC is supposed to promote and finance ‘good’ cinema. Over a period of time, it has come to mean development, production, and marketing of ‘arthouse’ or ‘festival’ or ‘specialty’ films. It’s very difficult to garner funds for such films through mainstream sources. Freeloading filmmakers need money with no strings attached. NFDC provides it to a ‘select’ few. Are the Babus in MIB concerned about ‘good’ cinema? The fact is many of them won’t know the difference between Asghar Farhadi and Rafique Baghdadi. Yet they will like the NFDC to survive. Why? Obviously because it’s a convenient conduit to disburse public funds that gives the Babus a sense of power, and various attendant benefits thereof. 

Now, since you are familiar with this background, let us return to the main theme of the article.

How NFDC tried to stop the ‘compliance audit’ by MIB

The largely self-serving Indian bureaucracy also has some officers who dare to question prevalent policies in various ministries. This happened in MIB too. A newly appointed Joint Secretary (Films), after having received some complaints about financial wheeling-dealing in NFDC, tried to get a clearer picture of what was going on. The then Secretary of MIB backed him and it was decided to have a special/compliance audit of NFDC to see how it used the money given by GoI under various heads and under the EMA policy of MIB. The audit was first proposed in 2012 but NFDC kept resisting it, raising all kinds of objections though the General Financial Rules (GFC) of MIB clearly stipulated that all ‘grantee institutions or organizations’ of GoI ‘shall be open to inspection by the sanctioning authority’ and audit, both by the Comptroller Auditor General (CAG) of India and internal auditors of the concerned ministries. Since NFDC was a ‘grantee institution’ during the 11th Plan Period (2007-2012), it was also subject to GFC.

NFDC did not allow the special/compliance audit to take place for months in spite of MIB’s best efforts. This further strengthened the doubts of MIB. It was certain now that all was not well at NFDC and its affairs required thorough scrutiny. However, the NFDC officials were unrelenting in their dogged opposition to the proposed probe. This forced MIB to take a rare step and invoke one of the provisions of the Memorandum and Articles of Association of NFDC that left scope for a ‘Presidential Directive’.

The President of India intervenes to order the special/compliance audit of NFDC

MIB was forced to take an extra-ordinary and probably an unprecedented step as the NFDC officials refused to let it conduct the special/compliance Audit.  It sought a presidential directive that asked NFDC to co-operate with the internal audit team of MIB and let the special/compliance audit take place. The directive clearly stated that NFDC must facilitate an ‘immediate and comprehensive internal audit’ into how has it used GoI grants and if it had abided by the provisions of the EMA policy of the Ministry. NFDC was instructed to provide all books of accounts, documents, and relevant papers to the MIB team.

MIB also feared that NFDC may even defy the presidential directive and thus took some other strong measures to force NFDC officials to abide by it.

MIB stops grants, and Electronic Media Advertisement (EMA) support to NFDC

Armed with the presidential directive, MIB advised all ministries/departments of GOIs and PSUs to route their print and electronic media advertisements through DAVP alone, pending the special/compliance audit and until NFDC complied with the findings and suggestions of the audit report. It went even further and ordered a review of its financial arrangements with NFDC, current as well as those pertaining to the 12th Plan Period. Funding to NFDC under the National Film Heritage Mission was kept on hold as well.

MIB had also realized that the Board of Directors of NFDC had played a key role in repeatedly thwarting the special/compliance audit and sought a review of the Board’s composition and probably a change. It is MIB that appoints these directors. Let us remind you of our ‘Curtain Raiser’ story of the ‘amorous NFDC chairman’ and how the NFDC head honcho manipulated him.

These were unprecedented steps that would unravel the goings-on within NFDC leaving no room for its officials to prevaricate with regard to the special audit process. That’s what the MIB officials thought. They were in for a surprise.

How NFDC tried to browbeat the presidential directive

Our readers should know that 99% shares of NFDC are held by the President of India. It’s a wholly owned company of GoI. Since its inception in 1975, NFDC has received grants worth hundreds of crores from GoI, yet its officialdom that rules its roost currently, had the temerity to put hurdles in the way of an internal audit team of MIB mandated by a presidential directive.

As the team began its inspection in June 2013, every attempt was made to make its work difficult. It was denied access to documents and records in spite of repeated requests. It wrote in its report about how the non co-operation of the NFDC officials affected the ‘efficiency and scope of inspection in a significant manner’.  The report indicted NFDC on several counts such as the following: 

1.     NFDC did not have a proper system of records that made the retrieval of information difficult.

2.     The risk management and control systems at NFDC are not sufficiently robust and this leads to overpayments.

3.     NFDC still follows a manual system of accounting, does not use technology solutions optimally.

4.     Weak financial management practices compromise the interest of the organization

5.     The system and practices do not ensure that public funds are managed properly and used in compliance with laws, regulations, policies, and procedures set out for various schemes and projects.

6.     NFDC did not follow the Central Vigilance Commission (CVC) Guidelines regarding tendering process

The report severely censures the way NFDC implemented the EMA policy and mentions instances where overpayments were made to TV channels in defiance of established systems and processes. It also highlights the ad-hocism of NFDC’s decision-makers and how they went out of their way to favor certain individuals and organizations.

Who are the individuals and organizations particularly favored by the NFDC officials? The next installment of NFDC expose will tell you about that. Keep following the story. We have just begun. 

Why must NFDC be run by an ex-bureaucrat and not someone specialized in film-marketing and acquisition?

Why has an ex-Internal Revenue Service (IRS) officer, who had nothing to do with films and their marketing and distribution, been made its Managing Director? This is the question the Minister of Information and Broadcasting should be asking the MIB Babus. NFDC is basically a film production, acquisition, marketing, and sales company for ‘specialty’ films. We have so many of these companies around the world. The best known among them is the American company The Weinstein Company (TWC) founded by two brothers Bob and Harvey Weinstein, both experienced industry professionals.  Major Hollywood studios have their ‘specialty films’ arms like Fox Searchlight Pictures of 20th Century Fox. It distributed SLUMDOG MILLIONAIRE.

If NFDC has to follow a business model, it should be these. Did the MIB Babus ever look at NFDC from this perspective? They obviously did not. Hopefully, the present Minister of Information & Broadcasting will initiate  a review of GOI’s engagement policy in these areas. He should seriously ponder on the question of NFDC’s relevance in the present scenario and whether  taxpayers’ hard-earned money should be wasted in sustaining such organizations.