Caixa accused of inflating balance sheet

Brazil's second largest public sector bank Caixa Econômica Federal was accused of inflating its balance sheet with funds received from the country's employee indemnity guarantee fund (FGTS) within the Minha Casa Minha Vida housing program.

According to a study obtained by local daily Estado de São Paulo, at least 15bn reais (about US$5bn) have been improperly included in the bank's balance sheets since 2009.

The study, entitled Creative Accounting in the FGTS, was conducted by economist Marcos Köhler, a specialist in public policy who previously worked for Brazil's planning ministry and central bank. He has been a legislative consultant since 2002 and is currently on senator José Aníbal's economic team.

While analyzing FGTS's balance sheets, Köhler identified that a large volume of resources were drawn from the fund to pay the so-called financial aid subsidy created to reduce the interest on loans to low-income families in the Minha Casa Minha Vida program. The aid was designed to make monthly mortgage payments cheaper and affordable to buyers eligible for the program.

When examining the documents, Köhler noticed that the volume of subsidies was high because FGTS paid Caixa everything in just one installment, which opened the door for even more problematic practices. The first was that the total amounts were being paid immediately, but then boosted by future interest.

The second was that Caixa was registering everything at once on its balance sheet, which is not allowed by central bank regulations. According to the regulations, banks should record income and expenses in the period in which they occur.

In a note sent to Estado de São Paulo, Caixa denied any wrongdoing, saying the payments it receives from the FGTS are for services rendered, meaning there is no problem with them not being paid in installments and registered on the bank's balance sheet.