The report says scrips delivered to the clearing house are not validated and that brokers are allowed to take away scrips and lodge `unconfirmed' shortages later.

Regarding a random review of vyaj badla shares, the report says: ``The range and variety of errors in deliveries to members (brokers) noted by us, imply serious internal control structure weaknesses and raise doubts about the reliability and veracity of the data and systems of the Clearing House.''

When the delays in delivering shares began to get out of hand, the clearing house simply made them `fungible' so that it was not responsible for distinctivenumbers of scrips delivered. But the inadequacy of other controls only makes this more dangerous. For instance, the clearing house has scrip-wise and broker-wise information separately, but this is never matched or reconciled. Nor were share records in its books continuously reconciled with actual physical stock. Add to this the open vaults and the mess is complete.

The audit team demanded a physical verification of six volatile scrips, including the notorious Pentafour, Sterlite and Videocon. In all six cases, the physical stock did not tally with either the brokers book position or the scrip position or even the BSE badla position on that given day. The BOIS staff could not complete the reconciliation in all three weeks of the inspection. This was because the clearing house system was not even updated for many previous settlements.

Often deliveries are made by giving out manual tokens, these are not reconciled with systems-generated tokens, there were computer system errors. Sometimes excess scrips weredelivered to brokers, sometimes deliveries were delayed for inordinate periods. Often the tokens themselves were missing. There were largescale complaints from brokers about non-delivery and the audit team found that for several settlements certain orders had simply remained unprocessed.

It has pointed out that the clearing house was even unaware of the exact number of non-badla scrips in its possession. While the systems informed the team that it held six lakh non badla scrips on September 1, the manager in charge put the number at a huge one crore based on another report from the systems department. Clearly internal controls are non-existent.

The clearing house is such a mess that the inspection team concludes that its systems and software is inadequate, slow, very cumbersome and often inadequate and is badly in need of review. The bigger problem, however, is managerial experience. Most officers are on deputation from Bank of India (BOI) and often had no clue to the intricacies of managing a clearinghouse or even their specific job requirements.

It says: ``In the current conditions it is difficult not to believe that BOIS as been forsaken both by the BSE and BOI.''

The regulator however seems to be sheltering BOIS and giving it a long rope to decide its own style and pace of clean up, merely on the word of the BSE that it has deputed a director and an official to oversee its functioning.