AUDIT REPORT ON THE ACCOUNTS OF PUBLIC SECTOR ENTERPRISES ... · PUBLIC SECTOR ENTERPRISES AUDIT YEAR 2007-08 ... Karachi Shipyard and Engineering Works Limited ... Audit of the accounts

343

AUDIT REPORT

ON

THE ACCOUNTS OF

PUBLIC SECTOR ENTERPRISES

AUDIT YEAR 2007-08

AUDITOR-GENERAL OF PAKISTAN

344

CONTENTS

Preface

Executive Summary Recommendations

SECTION-I AUDIT REPORT

CABINET DIVISION

1. Printing Corporation of Pakistan (Pvt.) Limited 2. Oil and Gas Regulatory Authority

MINISTRY OF COMMERCE

3. National Insurance Company Limited 4. Pakistan Reinsurance Company Limited 5. State Life Insurance Corporation of Pakistan 6. Trading Corporation of Pakistan (Pvt.) Limited 7. Pakistan Tobacco Board

MINISTRY OF DEFENCE

8. Pakistan International Airlines Corporation 9. Skyrooms (Pvt.) Limited

MINISTRY OF DEFENCE PRODUCTION

10. Karachi Shipyard and Engineering Works Limited

MINISTRY OF EDUCATION

11. National Book Foundation

MINISTRY OF ENVIRONMENT

12. Pakistan Environmental Planning and Architectural Consultants (Pvt.) Limited

FINANCE DIVISION

345

13. House Building Finance Corporation

14. Industrial Development Bank of Pakistan

15. Pakistan Security Printing Corporation (Pvt.)

Limited

16. State Bank of Pakistan

17. Small and Medium Enterprises Bank Limited

18. Zarai Taraqiati Bank Limited

MINISTRY OF FOOD, AGRICULTURE AND

LIVESTOCK

19. Korangi Fisheries Harbour Authority

20. Pakistan Agricultural Storage and Services

Corporation Limited

21. Livestock and Dairy Development Board

MINISTRY OF HEALTH

22. National Institute of Health

MINISTRY OF HOUSING AND WORKS

23. National Construction Limited

MINISTRY OF INDUSTRIES AND

PRODUCTION

24. Export Processing Zones Authority

Pakistan Steel Mills Corporation (Pvt.) Limited

25. Pakistan Steel Mills Corporation (Pvt.) Limited

26. Pakistan Steel Fabricating Company Limited

State Engineering Corporation (Pvt.) Limited

27. State Engineering Corporation (Pvt.) Limited

28. Heavy Electrical Complex (Pvt.) Limited

29. Heavy Mechanical Complex (Pvt.) Limited

30. Pakistan Machine Tool Factory (Pvt.) Limited

31. Pakistan Engineering Company Limited

346

32. ENAR Petrotech Services (Pvt.) Limited

National Fertilizer Corporation of Pakistan

33. National Fertilizer Corporation of Pakistan (Pvt.)

Limited

34. NFC Institute of Engineering and Fertilizer

Research (Pvt.) Limited

35. NFC Institute of Engineering and Technological

Training (Pvt.) Limited

36. National Fertilizer Marketing Limited

37. Utility Stores Corporation of Pakistan (Pvt.)

Limited

MINISTRY OF INFORMATION AND

BROADCASTING

38. Pakistan Broadcasting Corporation

39. Pakistan Television Corporation Limited

40. Associated Press of Pakistan Corporation

LABOUR AND MANPOWER DIVISION

41. Employees’ Old-Age Benefits Institution

42. Overseas Employment Corporation (Pvt.) Limited

OVERSEAS PAKISTANIS DIVISION

43. Overseas Pakistanis Foundation

MINISTRY OF PETROLEUM AND

NATURAL RESOURCES

44. Pakistan Petroleum Limited

45. Pakistan State Oil Company Limited

46. Saindak Metals Limited

47. Sui Southern Gas Company Limited

48. Sui Northern Gas Pipelines Limited

49. Oil and Gas Development Company Limited

50. Government Holdings (Pvt.) Limited

347

51. Pirkoh Gas Company (Pvt.) Limited

52. Pakistan Mineral Development Corporation (Pvt.)

Limited

PLANNING AND DEVELOPMENT

DIVISION

53. National Logistic Cell

54. Pakistan Institute of Development Economics

MINISTRY OF PORTS AND SHIPPING

55. Gwadar Port Implementation Authority

56. Lighthouses and Lightships Department

57. Pakistan National Shipping Corporation

58. Port Qasim Authority

MINISTRY OF SCIENCE AND

TECHNOLOGY

59. Pakistan Science Foundation

MINISTRY OF SOCIAL WELFARE AND

SPECIAL EDUCATION

60. Pakistan Bait-ul-Mal

MINISTRY OF TEXTILE INDUSTRY

61. National Textile University

MINISTRY OF TOURISM

62. Pakistan Tourism Development Corporation

Limited

63. PTDC Motels North (Pvt.) Limited

64. PTDC Pakistan Tours (Pvt.) Limited

348

MINISTRY OF WATER AND POWER

65. National Engineering Services Pakistan (Pvt.)

Limited

66. National Power Construction Company (Pvt.)

Limited

SECTION-II

Comments on Internal Controls

ANNEXURES I. Non-submission of Accounts

II. Companies under liquidation

III. Recoveries made and financial irregularities/losses

of public money etc. condoned or rectified at the

instance of audit

349

PREFACE

Article 169 of the Constitution of the Islamic Republic of Pakistan read

with Section 8 and Section 15 and other relevant provisions of the

Auditor-General’s (Functions, Powers and Terms and Conditions of Service)

Ordinance, 2001 requires the Auditor-General of Pakistan to conduct audit of the

expenditure from the Federal Consolidated Fund, Public Account and that of

Government Commercial Undertakings and of any Authority or Body established

by the Federation.

This report contains the results of audit of the accounts for the year

2006-07 of Public Sector Enterprises of Government of Pakistan conducted during

2007-08. The audit was conducted on a test check basis by the Directorates General

of Commercial Audit and Evaluation, Karachi and Lahore, with a view to report

significant findings to stakeholders.

The findings indicate the need for adherence to regulatory framework and

prudent financial decision making, besides instituting and strengthening internal

controls to avoid recurrence of similar irregularities.

Audit observations included in the report were discussed in various

Departmental Accounts Committee meetings and finalized thereafter.

The report is submitted to the President of Pakistan in pursuance of Article

171 of the Constitution of the Islamic Republic of Pakistan.

Islamabad

Dated: TANWIR ALI AGHA

Auditor-General of Pakistan

350

351

EXECUTIVE SUMMARY

(iii–xiv)

352

353

EXECUTIVE SUMMARY

Audit of the accounts of Public Sector Enterprises (PSEs) of the Federal

Government is conducted by five Circle Offices, each headed by a Director,

of the Directorates General of Commercial Audit and Evaluation (DG, CA&E),

Karachi and Lahore, on behalf of the Auditor-General of Pakistan.

Three Circle Offices (Karachi Circle, PIAC Circle and Pakistan Steel Circle) of

DG, CA&E, Karachi, are located in Karachi whereas offices of the Directors,

Commercial Audit, Lahore and Wah Cantt., are functioning under the

administrative control of DG, CA&E, Lahore.

The Directorate General of Commercial Audit and Evaluation, Karachi carries out

audit inspection and evaluation of PSEs with Head Offices in Sindh and

Balochistan. Federal Government PSEs having Head Offices in Punjab, NWFP and

Islamabad Capital Territory are covered by the DG, CA & E, Lahore.

Audit inspection includes financial audit, regularity audit, compliance with

authority audit, performance audit and special studies. Besides, special audit is also

conducted on the request of auditee formations or their Administrative Ministries

based on importance of issue or nature of complaint. This is carried out in the light

of specific terms of reference duly approved by the Auditor-General of Pakistan.

In this report, 122 out of 377 formations were selected and audit was carried out on

the basis of risks and adequacy of internal control system existing in the auditee

organizations, with specific emphasis on high value items and inherent risk areas.

Audit checks were applied keeping in view the nature of transactions, accounting

procedures, auditing best practices and relevant financial/operational manuals.

It is imperative to ascertain that organization is managed/ operated in accordance

with sound commercial practices and that the canons of financial propriety, general

as well as specific policy directives are being adhered to. Internal control reviews

are carried out in order to identify weak areas and recommend improvements in the

procedures/system.

Moreover, audit comments on the annual financial statements of 58 Public Sector

Enterprises have been offered by using trend analysis and financial ratios, with

354

graphical presentation.

After execution of audit, observations and findings are discussed with respective

management and communicated through Audit Inspection Reports (AIRs). Serious

irregularities and issues of concern worth reporting to Public Accounts Committee

(PAC) are brought to the notice of respective Principal Accounting

Officers/Administrative Secretaries, in the form of Draft Paras (DPs) for taking

corrective measures, which include recovery of losses, fixing of responsibility,

avoiding recurrence and improving internal controls, etc.

In case where there is no compliance, such DPs are discussed in the Departmental

Accounts Committee (DAC) meetings chaired by the Secretary. Those DPs where

no satisfactory action could be taken by the management are included in this report

for the consideration of Public Accounts Committee. Lesser important

irregularities are referred to respective Departmental Accounts Committees for

necessary action.

In view of the findings/recommendations of audit pertaining to special study on

funds utilization by SNGPL under Khushal Pakistan Program, the management

was compelled to revise their accounting procedures. They have opened a separate

assignment account with the bank as well as in their own books. It would result in

better observation of accounting principles and ensure transparency.

In Section-I, PSEs under relevant Administrative Ministries/Divisions have been

arranged in alphabetical order. It includes:-

i. Audit comments on the accounts containing brief introduction/ overview of

the PSEs, operational/working results, trend analysis, and financial ratios for

the year under review as compared to the previous years along with

recommendations; and

ii. Audit paras pinpointing instances of financial irregularities, losses and

violation of procedures/instructions.

Section-II consists of comments on internal controls and annexures.

355

This report contains 107 audit paras involving Rs.33,609.332 million. The

irregularities have been categorized as under:-

S.No. Findings No. of

Paras Amount

(Rs. in million)

1. Misappropriation/Fraud 11 204.226

2. Mis-management 35 9,909.441

3. Imprudent investment 03 216.910

4. Violation of rules/directives 35 2,569.756

5. Non-recovery of loans/

advances & dues 23 20,708.999

Total: 107 33,609.332

An amount of Rs.311.011 million has been recovered by respective organizations

at the instance of audit during the year under review.

Special measures are required to be taken for conversion of the following loss

bearing entities into viable commercial concerns:- (Rs. in million)

S.No. Name of Institution Loss for the

year 2006-07

1. Pakistan International Airlines Corporation 13,398.706

2. Industrial Development Bank of Pakistan 398.342

3. Korangi Fisheries Harbour Authority 40.895

4. Printing Corporation of Pakistan (Pvt.) Ltd. 154.877

5. Pakistan Agricultural Storage and Services

Corporation Ltd.

157.130

6. State Engineering Corporation (Pvt.) Ltd. 43.311

7. Pakistan Machine Tool Factory (Pvt.) Ltd. 52.000

8. National Fertilizer Corporation of Pakistan (Pvt.) Ltd. 2,616.103

9. Pakistan Broadcasting Corporation 73.622

10. Pakistan Television Corporation Ltd. 201.533

11. Pirkoh Gas Company (Pvt.) Ltd. 145.184

Total losses: 17,281.703

356

Significant findings and audit observations are as under:

Cabinet Division

1. Printing Corporation of Pakistan (Pvt.) Limited sustained a loss of

Rs.154.877 million in the year 2006-07 and its accumulated loss as on June

30, 2007 amounted to Rs.1,124.868 million. (Para-2.1)

Ministry of Commerce

2. National Insurance Company Limited (NICL) could not utilize a

building (Shahdin Building, Lahore) even after six years of its purchase

– Rs.219 million. (Para-5)

3. NICL suffered a loss due to sale of damaged aircraft at lower rates –US $

270,000 ( Rs.16.200 million). (Para-6)

4. State Life Insurance Corporation of Pakistan (SLIC) could neither take

appropriate legal action against its employees nor any recovery was made

from them who had defrauded the organization two & half years ago by

drawing cheques on behalf of policy holders and crediting in their own bank

accounts – Rs.0.318 million. (Para-12)

5. Pakistan Tobacco Board (PTB) could not recover cess collection from a contractor – Rs.23.750 million. (Para-17)

Ministry of Defence

6. Pakistan International Airlines Corporation (PIAC) suffered a heavy loss of

revenue due to ban by European Union on its aircrafts in March 2007. The

European Union’s Safety Assessment Foreign Aircrafts (SAFA) Inspectors’

Report dated February 16, 2007 disclosed serious lapses in the flight

operations, safety and maintenance which PIAC could not be rectified

timely – Rs.1.083 billion. (Para-19)

7. PIAC wrote-off outstanding dues without observing rules, appraisal of

defect in the system and investigating negligence on the part of concerned

employees – Rs.131.040 million. (Para-20)

357

8. PIAC appointed officers/consultants on contract for various executive

positions in violation of Government instructions – Rs.97.661 million.

(Paras- 22 to 27)

9. PIAC incurred an unproductive expenditure on printing/pasting of stickers

on the tails of 21 aircrafts. – Rs.8.588 million. (Para-29)

10. PIAC suffered a loss due to misappropriation of 50 bales of uniform cloth –

Rs.3.059 million. (Para-34)

Ministry of Defence Production

11. Karachi Shipyard and Engineering Works Limited (KS&EW) could

not fulfill contractual obligations with Port Qasim Authority (PQA) for

construction of two pilot boats, resulting in withholding of payments by

PQA – Rs.17.776 million. (Para-39)

Finance Division

12. House Building Finance Corporation (HBFC) failed to recover loans from

chronic defaulters – Rs.2.688 billion. (Para-44)

13. State Bank of Pakistan (SBP) could not recover loans and advances from public and private financial institutions identified as stuck up overdue loans – Rs.15.663 billion. (Para-52)

14. SBP created a new post and appointed an executive on contract with hefty salary package in contravention of the Government policy –

Rs.13.766 million. (Para-53)

15. Non-initiation of recovery proceedings against borrowers under Financial

Institutions (Recovery of Finances) Ordinance, 2001 by SME Bank

– Rs. 9.326 million. (Para-55)

16. SME Bank could not recover insurance premium paid on behalf of

employees – Rs.2.349 million. (Para-56)

358

17. Misappropriation of funds by employees of Zarai Taraqiati Bank Limited

(ZTBL) Sohbatpur Branch (Balochistan), by preparing fake documents

– Rs.39.385 million. (Para-59)

18. Redemption of securities without recovery of outstanding dues by ZTBL,

D.G. Khan Branch – Rs.14.582 million. (Para-61)

19. Loss due to non-deposit of collected amount into bank account by MCO of

ZTBL – Rs. 1.007 million. (Para-63)

Ministry of Housing and Works

20. Loss due to non-completion of project within the agreement period by

National Construction Limited – Rs.6.309 million. (Para-69)

Ministry of Industries and Production

21. Pakistan Steel Mills (PSM) sustained loss on sale of galvanized products below the production cost – Rs.127.792 million. (Para-74)

22. PSM did not recover its credit material supplied to NHA because of non- securing of adequate bank guarantee – Rs.39.989 million. (Para-75)

23. PSM suffered a loss due to non-replacement of rejected consignment by supplier – Rs.31.842 million. (Para-76)

24. State Engineering Corporation (Pvt.) Limited sustained a loss of Rs.43.311

million in 2006-07 as against loss of Rs.27.811 million in 2005-06 and its

accumulated loss stood at Rs.1,613.168 million as on June 30, 2007.

(Para-79.1)

25. Pakistan Machine Tool Factory sustained a loss of Rs.52.000 million in

2006-07 as against profit of Rs.9.820 million in 2005-06. (Para-82.1)

359

26. Purchase of commodities without open tenders by Utility Stores

Corporation of Pakistan (USC) – Rs.2,483.518 million. (Para-90)

27. Non-recovery of sale proceeds of empty sugar bags by USC


28. Loss due to defective procurement of confiscated goods by USC


Ministry of Information and Broadcasting

29. Loss due to non-placement of purchase order within validity period by

Pakistan Broadcasting Corporation (PBC) – Rs.1.244 million.

(Para-98)

30. Pakistan Television Corporation Limited (PTV) granted bonus to

employees despite operating loss – Rs. 52.000 million. (Para-101)

Labour and Manpower Division

31. Imprudent investment in violation of set parameters by Employees’ Old-Age Benefits Institution (EOBI) – Rs.176.904 million. (Para-110)

Overseas Pakistanis Division

32. Overseas Pakistanis Foundation (OPF) paid irregular house rent allowance

to an employee residing in government accommodation- Rs.1.082 million.

(Para-115)

Ministry of Petroleum and Natural Resources

33. Pakistan State Oil Company Limited (PSO) suffered a loss due to short

supply of POL by cartage contractors – Rs.48.200 million. (Para-120)

34. Sui Southern Gas Company Limited (SSGCL) could not recover dues from

defaulting consumers – Rs.1.075 billion. (Para-125)

35. Loss due to non procurement within validity period by SSGCL – Rs.7.542

million. (Para-128)

360

36. Sui Northern Gas Pipelines Limited (SNGPL) sustained a loss due to

pilferage of gas by different consumers- Rs.92.174 million. (Para-130)

37. SNGPL sustained a loss due to non-finalization of supply order within

validity period – Rs.6.720 million. (Para-132)

38. Oil and Gas Development Company Limited (OGDCL) sustained a loss due

to non-delivery of two rigs by supplier at agreed rates- Rs.1.291 billion.

(Para-139)

39. OGDCL sustained a loss by accepting foreign bank guarantees in violation

of purchase procedure – Rs.547.120 million. (Para-140)

40. Loss due to delay in finalization of agreement by OGDCL – Rs.544.200

million. (Para-141)

41. Loss due to procurement of damaged carbon steel pipes by OGDCL


42. Non-forfeiture of performance bond by OGDCL – Rs.3.884 million.

(Para-150)

Planning and Development Division

43. National Logistic Cell (NLC) purchased 86 imported vehicles without

approval of competent authority – Rs. 85.716 million. (Para-155)

Ministry of Social Welfare and Special Education

44. Misappropriation during disbursements under Food Support Programme in

District Office Jhang of Pakistan Bait-ul-Mal – Rs.18.861 million.

(Para-171.1)

361

Recommendations

1. The executive machinery of the Government (Principal Accounting

Officers) should take appropriate steps to strengthen the management by instituting

effective internal controls in order to achieve following objectives:

i. Adherence to regulatory framework;

ii. Optimization of inventories and streamlining inventory management

to achieve economy, efficiency and effectiveness in procurement and

utilization of funds;

iii. Ensuring effectiveness of the planning process to confirm that

planning initiatives on investment may not violate government

policy;

iv. Proper monitoring of enforcement of contracts;

v. Avoidance of delay in the process of liquidation of projects to avoid

recurring costs;

vi. Ensuring timely action for recovery of sundry debts, loans and

advances;

vii. Minimizing delays in litigation;

viii. Ensuring timely submission of annual accounts and audited financial

reports to audit authorities;

ix. Ensuring transparency in procurements as required under Public

Procurement Rules, 2004 as well as other applicable regulations;

x. Ensuring timely reporting of loss of public money to audit as required

under the rules; and

362

xi. Conformity between the powers exercised by the Board of Directors of Public Sector Enterprises and Government instructions.

2. The concerned Principal Accounting Officers should take following steps to:-

i. ensure adherence to applicable rules, regulations and instructions issued by the Government from time to time;

ii. effect recoveries of outstanding dues including loans, from the defaulters indicated in the report;

iii. impose/collect liquidated damages from the defaulting contractors as highlighted in the report;

iv. investigate misappropriation and theft cases pointed out in the report, take timely disciplinary action, effect recoveries and strengthen internal controls;

v. improve financial health of loss bearing organizations;

vi. pursue the court cases vigorously;

vii. utilize maximum production capacity of the entities through effective and aggressive marketing strategy;

viii. avoid imprudent investments;

ix. ensure timely execution of contracts; and

x. expedite the process of winding-up of the organizations under liquidation.

363

SUMMARY OF PAC DIRECTIVES

The PAC while discussing this report on 14th

October, 2015, 17th

August 2015. 1st

August 2011, 7th

May 2015 and 14th

December 2015, 9th

August 2011, 19th

July 2011 , 12

th March 2014, 26

th January 2015 and 12

th October 2015, 7

th September

2015, 13th

March 2014, 15th

August 2011, 18th

August 2011, 10th

May 2012, 15th

May 2015 and 10

th August 2015, 17

th March 2015, 25

th February 2014, 27

th

February 2015, 8th

May 2015 issued directions out of which 156 paras were complied with and action taken. Besides an amount of Rs.5884.474 million was recovered. The PAC directives are attached as Annexure-IV.

364

SECTION - I

AUDIT REPORT

(1 – 342)

365

366

AUDIT REPORT

1. This report contains comments on the annual audited accounts of 58 Public

Sector Enterprises (55 current and 3 arrears accounts). A total number of 26

organizations (Annexure-I) failed to submit their annual audited accounts to the

Directorates General of Commercial Audit and Evaluation, Karachi and Lahore, by

the prescribed date i.e. January 15, 2008.

1.1 Ten organizations (Annexure-II) ceased their operational activities during

the years 1986 to 2005. These are still under process of liquidation / privatization.

1.2 The report contains 107 audit paras involving Rs.33,609.332 million. A

number of observations were settled during processing of the report as the requisite

action including recovery of Rs.311.011 million (detailed at Annexure-III), was

taken by the managements.

367

368

CABINET DIVISION

(5 – 9)

369

370

PRINTING CORPORATION OF PAKISTAN (PVT.) LIMITED

AUDIT COMMENTS

ON THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2007

2. Printing Corporation of Pakistan (Pvt.) Limited was incorporated on

January 01, 1969 as a private limited company under the Companies Act 1913

(now Companies Ordinance 1984). The entire shares of the Corporation are held by

the Government of Pakistan. The Corporation is principally engaged in the printing

of Government Publications.

The Cabinet Committee of Privatization Commission had decided to

privatize the Printing Corporation of Pakistan Press at Karachi and Lahore. The

case is under consideration with the Privatization Commission.

2.1 The working results of the Corporation for the year ended June 30, 2007 as

compared with those of the previous years are as under:-

(Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 143.850 (51) 294.517 197 99.146 (40) 165.498

Cost of sales (164.979) (24) (216.313) 68 (128.845) (27) (175.543)

Gross profit / (loss) (21.128) - 78.204 (29.699) 196 (10.045)

Operating expenses

Admn. expenses 90.329 (6) 95.852 21 79.306 (1) 80.146

Selling expenses 0.868 (45) 1.578 343 0.356 (90) 3.670

Operating profit /

(loss)

(112.325) 485 (19.200) (82) (109.361) 17 (93.861)

Other income 12.543 (27) 17.094 53 11.190 3 10.849

Financial charges 54.376 2 53.445 (4) 55.774 11 50.470

Profit / (loss) before

taxation

(154.158) 177 (55.577) (64) (153.945) 15 (133.482)

Taxation (0.719) (51) (1.473) 197 (0.496) (40) (0.827)

Net loss after

taxation

(154.877) 171 (57.049) (63) (154.441) 15 (134.309)

Accumulated loss B

/ F

(969.991) 6 (912.942) 20 (758.501) 21 (626.559)

Accumulated profit /

(loss) C / F

(1,124.868) 16 (969.991) 6 (912.942) 20 (758.501)

Source: Annual Audited Accounts

Sales of the Corporation reduced to Rs. 143.850 million, registering a

decrease by 51%, in 2006-07 as against Rs. 294.517 million of the previous year.

Comparatively cost of sales decreased by 24% during the year under review. Thus

371

decrease in sales and disproportionate fall in cost of sales resulted into gross loss of

Rs. 21.128 million in 2006-07 against gross profit of Rs.78.204 million during

previous year. The Corporation sustained a net loss of Rs. 154.877 million in

2006-07 against loss of Rs. 57.049 million for the year 2005-06. This resulted into

increase in accumulated loss by 16%. Efforts may be made to increase sales and

curtail expenditure in order to make the Corporation a profitable entity.

2.2 Current assets of the Corporation stood at Rs. 353.518 million as against

current liabilities of Rs.970.845 million as on June 30, 2007. The Company’s

current liabilities exceeded its total assets by Rs.568.734 million. During financial

year 2006-07 the current ratio of the Company was 0.36:1 as against the desired

ratio 2:1 which reflected poor liquidity position of the Corporation. Necessary steps

need to be taken to improve liquidity position of the Corporation.

Current Ratio

0.490

0.464

0.364

0.000

0.100

0.200

0.300

0.400

0.500

0.600

2004-05 2005-06 2006-07

Ratio

372

OIL AND GAS REGULATORY AUTHORITY

AUDIT COMMENTS


3. Natural Gas Regulatory Authority (NGRA) was established under Natural

Gas Regulatory Authority Ordinance, 2000 to foster competition, improve

efficiency and availability of natural gas transportation and distribution services in

Pakistan through increased private ownership and improved regulation. Main

functions of the NGRA included grant of licenses for carrying out regulated

activities and regulating such activities.

Natural Gas Regulatory Authority Ordinance, 2000 was repealed vide Oil

and Gas Regulatory Authority Ordinance, 2002 which provided for the

establishment of Oil and Gas Regulatory Authority (OGRA) to foster competition,

increase private investment and ownership in the midstream and downstream

petroleum industry, protect the public interest while respecting individual rights

and provide effective and efficient regulations. To administer or establish prices,

for those categories of petroleum for which the Federal Government establishes

prices and may delegate the function to the Authority.

3.1 The working results of the Authority for the year 2005-06 as compared to

the previous years are given here under:- (Rs. in million)

2005-06

%

Inc/ (Dec) 2004-05

%

Inc/ (Dec) 2003-04

Revenue

Fee income 186.938 43 130.795 19 109.547

Other income 31.473 640 4.255 102 2.108

Amortization of deferred income - - 0.087 (56) 0.197

Total income 218.411 62 135.137 21 111.852

Expenditure 101.593 16 87.473 38 63.476

Excess/(shortage) of income over

expenditure for the year

116.818

145

47.664

(1)

48.376

Excess of income over expenditure B/F

157.095

43

109.855

79

61.478

Accumulated excess of income over

expenditure C/F

273.913

73

157.095

44

109.855 Source : Annual Audited Accounts

The working results of the Authority showed positive trend and efforts are

required to be made to further improve the financial position.

373

374

MINISTRY OF COMMERCE

(11–31)

375

376

NATIONAL INSURANCE COMPANY LIMITED

AUDIT COMMENTS

ON THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2006

4. National Insurance Corporation (NIC) was established under the National

Insurance Act, 1976. Later on, it was registered as a Public Limited Company

under Companies Ordinance, 1984 on March 31, 2000 and renamed as National

Insurance Company Limited.

4.1 The consolidation of financial statements of National Insurance Company

Limited with its subsidiary M/s. Civic Center Company (Pvt.) Limited acquired in

January 2005 was carried out in compliance with the requirement of Section 237 of

the Companies Ordinance 1984.

4.2 The working results of the Company for the year 2006 as compared with

those of the previous years are given as under:-

(Rs. in million)

2006

Consolidated

%

Inc/

(Dec) 2005

%

Inc/

(Dec) 2004

%

Inc/

(Dec) 2003

Gross Premium earned 4,353.429 1.9 4,271.091 17.6 3,630.293 4.3 3,480.595

Reinsurance expenses (2,236.799) 10.2 (2,028.980) (0.7) (2,043.601) 7.2 (1,906.196)

Net premium revenue 2,116.630 (5.6) 2,242.111 41.3 1,586.692 0.8 1,574.399

Net claim paid (380.236) (38.5) (618.646) 79.4 (344.917) 6.5 (323.750)

Management expenses (280.538) 2.2 (274.410) 2.1 (268.646) (25.3) (359.519)

Commission from

Re-insurer 55.464 10.8 50.056 9.9 45.557 (39.0) 74.725

Underwriting surplus 1,511.320 8.0 1,399.111 37.3 1,018.686 5.5 965.855

Investment income 938.213 (22.0) 1,203.291 30.1 923.204 (25.8) 1,244.855

Rental income 93.930 19.4 78.643 18.2 64.267 (1.1) 65.350

Other income 17.296 (5.8) 18.618 (32.1) 27.068 - -

General & administration expenses

(184.181) (21.8) (235.563) 20.7 (181.629) (16.1) (216.388)

Negative goodwill on

acquisition of subsidiary

- - 439.393 - - - -

Profit before tax 2,376.578 (18.1) 2,903.493 33.7 1,851.596 (9.8) 2,052.703

Taxation (837.293) 1.0 (828.443) 144.4 (338.938) (59.5) (838.000)

Net profit after tax 1,539.285 (25.8) 2,075.050 37.2 1,512.658 24.5 1,214.703


377

Profit before tax was Rs.2,376.578 million during the year under review as

compared to Rs.2,903.493 million of preceding year 2005, registering a decrease of

18.1%, which requires attention of the management for remedial measures.

AUDIT PARAS

5. Non-utilization of purchased property – Rs.219 million

Rule 10 (1) of GFR provides that every public officer is expected to exercise the

same vigilance in respect of expenditure incurred from public money, as a person

of ordinary prudence would exercise in respect of his own money.

National Insurance Company Limited (NICL) purchased a building namely

"Shahdin Building" located at 07 Shahra-e-Quaid-e-Azam, Lahore, at a price of

Rs.219 million from official liquidator of Taj Company, on November 03, 2003

against reserve price of Rs.200 million but the building has been lying vacant for

the last six years since the year of purchase. The management is continuously

incurring expenditure on its maintenance and security without realizing its cost

benefit.

The matter was reported to the management on December 12, 2007 and referred to the

Ministry on September 26, 2008. The management in its reply dated November 14,

2008 stated that the property was purchased for the Estate Investment and they had

planned to build a high rise multistory building thereon. The management added that

they had invited contractors through advertisement dated August 16, 2008 and

September 11, 2008. They further stated that the value of the property had increased

to Rs.415 million and overall increase comes to 18% per year since 2003. The reply

was not convincing because despite expiry of more than 5 years, the idea for

construction was at preliminary stage.

The issue was discussed in the DAC meeting held on March 06, 2009. The DAC

directed the management to constitute a Departmental Development Working Party

(DDWP) for approval / execution of the project and get the progress verified from

Audit. However, despite efforts, the latest position was not received from the

management till the finalization of this report.

378

6. Loss due to sale of damaged aircraft at lower rates – US$ 270,000

(Rs.16.200 million)

Para-30 of Manual of Purchase Procedure, Department of Supplies provides that

every case in which a disposal officer records acceptance of a tender other than the

highest regular tender, the case should be submitted to the next higher officer than

the one in whose disposal power of the acceptance of such tenders originally falls.

It also provides that the reason for passing over of higher tender should invariably

be recorded and concurrence of the Ministry of Finance obtained where necessary.

National Insurance Company Limited (NICL) sold a damaged aircraft at the rate

much below than the highest offer.

Pakistan International Airlines (PIA) lodged an insurance claim of US$9.000

million with NICL on November 16, 2001 against accident and damage of the

aircraft at Dubai. Subsequently, NICL settled the claim and made full payment of

US$ 9.000 million to PIA. A Dubai based firm, M/s. GAMCO offered an amount of

US$ 550,000 as salvage value of the aircraft in association with PIA because most

of the parts of the aircraft, i.e., one complete engine, avionics, cock pit, landing

gears and other equipments and installations were in sound condition and PIA was

interested in retaining such parts and equipments.

NICL accordingly abandoned the aircraft to PIA and advised them to pay the value

of salvage US$ 550,000 to NICL. Later on, M/s. CTC, the surveyors working on

survey and disposal of salvage of the aircraft, informed NICL on May 22, 2002 that

M/s. GAMCO had withdrawn. M/s. CTC added that they had contacted

International Air Port (IAP), Australia who had quoted the second highest offer of

US$ 280,000 as salvage of the aircraft and they were then willing to honour their

offer.

The record did not indicate any action against the default of M/s. GAMCO.

However, the management of NICL decided in November 2002 to sell the damaged

aircraft to the second highest bidder at its offered rate of US$ 280,000 and full

payment in installments was received by February 2006. While finalizing the

transaction, the management of NICL had decided to recover the difference amount

of US$ 270,000 (equivalent to Pak Rs.16.200 million) from PIA, but subsequently

no such recovery was made.

379

The matter was reported to the management on December 12, 2007 and the

Ministry on August 20, 2008. The management in its reply dated September 08,

2008 stated that offer of M/s. GAMCO, received at belated stage, was acceptable

being on high side but they (M/s. GAMCO) could not reach an agreement with PIA

and withdrew their offer as such rights of recovery could not be enforced. They

added that PIA had decided not to go for A-300 B4 Salvage Project due to phasing

out plan of the same fleet.

The reply was not tenable because no efforts were made by the management to

implement the decision (dated November 04, 2002) about the sale at lower rates by

recovering the difference of US$ 270,000 from PIA.

The DAC in its meeting held on March 06, 2009 directed the management to get the

proceedings of claim and its non-applicability on the PIAC (as arrived at after the

decision of sale of the Aircraft on November 04, 2002) be verified from Audit.

However, despite efforts, documents were not supplied by the management to

Audit for verification till the finalization of this report.

7. Irregular payment of bonus to the Managing Director/Chief

Executive in violation of Government policy – Rs.0.450 million

In terms of Bonus Policy circulated by Finance Division through O.M. dated March

18, 2002 applicable to all Ministries/Divisions/Departments/ Corporations, the

payment of bonus to Managing Directors and Members of Board of Directors is

inadmissible.

National Insurance Company Limited (NICL) paid a bonus amounting to

Rs.921,600 to the Managing Director in the year 2005 in violation of the bonus

policy.

The irregularity was pointed out to the management on February 03, 2007 and

referred to the Ministry on February 06, 2008 but no reply was received.

The issue was discussed in the DAC meeting held on March 06, 2009. The

management informed that amount of one year only, i.e., Rs.0.450 million was paid

and the provision for payment of subsequent year was reversed. The DAC directed

the management to contact ex-Managing Director for recovery of the amount so

380

paid. However, despite efforts, the latest position of recovery from the management

was not received till the finalization of this report.

381

PAKISTAN RE-INSURANCE COMPANY LIMITED

AUDIT COMMENTS


8. Pakistan Insurance Corporation was reorganized as Pakistan Re-insurance

Company Limited (PRCL) under the Insurance Corporation (Re-organization)

Ordinance 2000, and incorporated on March 30, 2000 under the Companies

Ordinance, 1984. The object of the company is the development of the insurance as

well as reinsurance business in Pakistan and to carry on reinsurance business.

8.1 The working results of the Company for the year 2006 as compared with

those of the previous years are given as under:-

(Rs. in million)

2006

%

Inc/

(Dec) 2005

%

Inc/

(Dec) 2004

%

Inc/

(Dec) 2003

Gross premium

income 4,350.564 (10.9) 4,883.301 (7.7) 5,236.842 61.8 3,236.617

Re-insurance expense (2,935.059) 1.9 (2,878.658) (2.3) (2,947.493) 64.7 (1,789.138)

Net premium income 1,415.505 (29.4) 2,004.643 (12.4) (2,289.349) 58.2 1,447.479

Net claims paid (776.710) (5.6) (822.690) (38.1) (1,329.891) 31.5 (1,011.270)

Net commission paid (367.422) (40.7) (619.893) (19.9) (774.320) 252.8 (219.472)

Management expenses (146.333) (14.2) (170.624) 27.3 (134.026) (4.6) (140.446)

Underwriting

profit/(loss) 125.040 (68.1) 391.436 665.8 51.112 (33.0) 76.290

Investment income

(net) 771.733 66.1 464.695 28.9 360.526 8.3 332.811

Rental income 26.065 (1.8) 26.547 12.4 27.192 128.5 11.900

Other income 11.702 18.6 9.867 48.2 6.659 (39.6) 11.019

Exchange (loss)/gain (6.403) - 40.563 61.2 25.078 153.8 9.879

General and admn.

expenses (25.094) (9.5) (27.722) 40.5 (19.725) 19.9 (16.452)

Provision for doubtful debt (120.000) (2.4) (123.000) 105.0 (60.000) 20.1 (49.976)

Provision/reversal of

diminution in value of

investment - - - - - - 9.175

Net profit before

taxation 783.043 0.1 782.386 100.2 390.842 6.7 366.296

Taxation (111.200) (40.8) (187.959) 187.8 (65.306) (5.4) (69.000)

Net profit after

taxation 671.843 13.0 594.427 82.6 325.536 16.6 297.296


382

The under-writing profit was Rs.125.040 million during the year under

review as against Rs.391.436 million in the preceding year 2005, registering a

decrease of 68.1% due to decline in net premium which requires justification.

383

STATE LIFE INSURANCE CORPORATION OF PAKISTAN

AUDIT COMMENTS


9. State Life Insurance Corporation of Pakistan (SLIC) was incorporated on

November 1, 1972 under the Life Insurance (Nationalization) Order 1972. The

main objective of the Corporation is to engage in the life insurance business.

9.1 The working results of the Corporation for the year 2006 as compared with

those of the previous years are tabulated below:-

(Rs. in million)

2006

%

Inc/

(Dec) 2005

%

Inc/

(Dec) 2004

%

Inc/

(Dec) 2003

Income:

Premium income less

reinsurance 15,991.575 15.7 13,820.107 25.5 11,014.425 11.5 9,880.614

Investment income

(net) 14,678.544 14.0 12,878.128 (4.6) 13,499.455 36.2 9,910.416

Rental income (net) 163.732 7.4 152.518 230.5 46.153 56.3 29.564

Total income 30,833.851 14.8 26,850.743 9.3 24,560.023 23.9 19,820.564

Claims and

expenditure:

Payment to policy

holders ( 8,912.102) 16.4 (7,654.280) 8.4 (7,062.820) 15.4 (6,123.088)

Management

expenses (6,479.571) 29.2 (5,016.714) 12.0 (4,478.615) 17.4 (3,813.496)

Total claims and

expenditure ( 15,391.673) 21.5 (12,670.994) 9.8 (11,541.440) 16.2 (9,936.584)

Excess of income

over claims and expenditure 15,442.178 8.9 14,179.749 8.9 13,018.588 31.7 9,883.980

Policyholder

liabilities at the beginning of year 122,007.611 12.9 108,056.195 13.6 95,120.397 11.0 85,693.275

Policyholder

liabilities at the end

of year (136,719.876) 12.0 (122,007.611) 12.9 (108,056.195) 13.6 (95,120.397)

Surplus before tax 729.913 247.3 228.333 175.8 82.790 81.9 456.858

Taxation (28.918) (20.3) (36.288) 91.8 (18.915) 80.1 (10.505)

Surplus after tax 700.995 265.0 192.045 200.6 63.875 85.7 446.353

Life Fund at the end

of year 137,959.771 12.4 122,775.176 12.8 108,807.90 13.4 95,957.030

384

Percentage of

expenses to total

income 49.9 - 47.2 - 46.9 - 50.1

Percentage of

expenses to premium

income 96.2 - 91.7 - 104.8 - 100.6


Overall working results of the Corporation were satisfactory and progress

needs to be maintained.

9.2 Balance of statutory fund increased by 12.4%, i.e., Rs.137,959.771 million

at the end of year under review as against Rs.122,775.174 million of preceding year

2006. Similarly, policy holders liabilities were to Rs.136,719.876 million as on

December 31, 2006 as against Rs.122,007.611 million as on December 31, 2005,

registering an increase of 12%. It appears from the above, that policy holders

liabilities also proportionately increased with the increase in statutory fund. Need

for investment of policyholders fund in sustainable manner is stressed upon in

order to meet policy holders liabilities, as and when required.

AUDIT PARAS

10. Irregular payment of advance against bonus – Rs.15.841 million

As per Bonus Policy circulated by Government of Pakistan, Finance Division

through O.M. No.F-3(5)R-12/80 R-14 (Vol-II) 2001-544 dated November 30, 2001

followed by O.M. dated March 18, 2002, the payment of bonus to the employees of

autonomous bodies/public sector enterprises is to be made on the basis of

operational profit as reflected in the annual audited accounts with prior approval of

administrative Ministry and concurrence of Finance Division (Regulation Wing).

In State Life Insurance Corporation of Pakistan (SLIC), the payments of Rs.6.513

million and Rs.1.655 million were made as advance against bonus to the officers of

SLIC Principal Office and Real Estate Zone respectively during the year 2006

without observing the conditions for payment of bonus. Moreover, in SLIC

(Peshawar Zone), Rs.3.801 million and Rs.3.872 million were paid as bonus

to the officers and staff during the year 2005 and 2006 respectively without

obtaining concurrence of the Finance Division in contravention of the policy

circulated by Finance Division O.M. No. F-3(5)R-12/80 R-14 (Vol-II) 2001-544

385

dated November 30, 2001.

The irregularity was reported to the management in June and July 2008 and referred

to the Ministry in October 2008 and November 2008 but no reply was received. The issue was discussed in the DAC meeting held on March 06, 2009. The

management informed that the matter had been taken up with Finance Division.

The DAC directed the management to pursue the matter for early regularization.

However, despite efforts, the latest position was not received from the management

till the finalization of this report.

11. Non-recovery of loans and advances from agents/employees

– Rs.2.661 million

Rule 26 of GFR provides that it is the duty of departmental controlling officers to

see that all sums due to Government are regularly and promptly assessed, realized

and credited in Public Accounts.

State Life Insurance Corporation (Western and Central Zone), Lahore, failed to

recover an amount of Rs.5.226 million from agents/employees on account of loans

and advances outstanding as on December 31, 2005.

The non-recovery was pointed out to the management on August 02, 2007 and

referred to the Ministry on March 10, 2008. The management in its reply dated

April 03, 2008 stated that recovery of Rs.2.565 million had been made leaving a

balance of Rs.2.661 million as recoverable. However, no documentary evidence

was provided in support of their reply.


management requested for additional time of 10 days to submit a revised reply.

However, despite efforts, no response was received from the management till the

finalization of this report.

12. Loss due to fraudulent withdrawal of money by employees

386


Rule-13 of GFR provides that every officer must satisfy himself that not only

adequate provisions exist within departmental organization for systematic internal

checks to prevent and detect errors and irregularities in the financial proceedings of

its subordinate officers and to guard against waste and loss to public money but also

that the prescribed checks are effectively applied.

In State Life Insurance Corporation of Pakistan (SLIC), Southern Zone, Karachi,

fraudulent withdrawal of surrendered value of Insurance Policy/Loan amounting to

Rs.0.318 million in case of 10 policy holders by the concerned employees was

unearthed through a departmental enquiry held in the year 2006 after complaints

from policy holders. It was established in the enquiry that a well organized criminal

network of employees and agents of SLIC was involved in defrauding the

organization for several years who managed to obtain cheques on behalf of policy

holders and used to credit the same in their own bank accounts. Upon

recommendation of the Inquiry Committee, the services of contract employees

were terminated and as regards regular employees, action under Removal from

Service (Special Powers) Ordinance, 2000 was initiated. However, the

management did not recover the amount of loss from the responsible officials.

The matter was reported to management on May 2, 2008 and referred to the

Ministry on November 25, 2008. The management in its reply dated October 06,

2008 stated that the action against field workers had been taken and action against

employees was under formal enquiry proceedings.

The reply of the management was not tenable as continuation of enquiry

proceedings, despite lapse of two and half years of unearthing of fraudulent acts,

was unjustified and tantamount to undue favour to the responsible officials.

The DAC in its meeting held on March 06, 2009 directed the management to

expedite the recovery. However, despite efforts, the latest position of recovery was

not intimated by the management till the finalization of this report.

387

TRADING CORPORATION OF PAKISTAN (PVT.) LIMITED

AUDIT COMMENTS


13. Trading Corporation of Pakistan (TCP) was incorporated on July 28, 1967

as a private limited company under Companies Act 1913 (now Companies

Ordinance 1984). It is fully owned by the Federal Government and operates under

the administrative control of Ministry of Commerce. The principal activity of the

Corporation is to engage in trading on behalf of the Government of Pakistan with

the prime objectives to achieve economies of scale by handling bulk transactions

with securing advantages of price, freight and port handling expenses as well

prevention of leakage of foreign exchange; and to stabilize market conditions with

neutralization of effect of high market prices.

In pursuance of Government’s decision in 1996 to merge Rice Export

Corporation of Pakistan (RECP) and Cotton Export Corporation (CEC) into TCP,

the Board of Directors of all the three Corporations passed a resolution.

Accordingly, TCP accepted to perform the functions of RECP and CEC.

Consequent upon the court order dated August 11, 2006 for merger of

Pakistan National Produce Company Limited (PNPL) and Doaba Rice Mills

Limited (DRML), their financial statements have also been merged by TCP in its

accounts for the year ended June 30, 2007.

13.1 The working results of the business operation of the Corporation for the

year 2006-07 as compared to the previous years are as under:-

(Rs. in million)

2006-07

%

Inc/

(Dec)

2005-06

%

Inc/

(Dec)

2004-05

%

Inc/

(Dec)

2003-04

Sales and related

income 13,561.474 (48.1) 26,151.491 17.9 22,183.84 2,718.4 787.110

Cost of sales (13,231.334) (48.0) (25,462.454) 17.8 (21,612.690) 2,882.9 (724.540)

Gross profit 330.140 (52.1) 689.037 20.6 571.150 812.8 62.570

Operating expenses (281.575) 49.3 (188.604) 15.9 (162.750) 15.8 (140.551)

Operating profit/(loss) 48.565 (90.3) 500.433 22.5 408.400 423.7 (77.981)

Other income 429.559 23.3 348.407 131.6 150.430 46.0 103.050

Financial expenses - - - - - - 24.978

Prior period

adjustment (1.229) (97.2) (43.880) 310.3 (10.690) (93.9) (175.180)

388

Profit/(loss) before

taxation 476.895 (40.8) 804.960 41.3 569.520 224.9 175.280

Taxation current year (166.853) (2.3) (170.780) (2.7) (175.460) 181.7 (62.290)

Taxation prior year - - - - (30.460) - -

Profit/(loss) after tax 310.042 (51.1) 634.180 74.2 363.970 222.1 112.292

Accumulated

profit/(loss) b/f (3,891.915) (33.3) (5,833.693) (56.3) (13,338.380) - (13,451.430)

Redemption of Bond (1,089.955) (16.6) (1,307.598) 81.7 (7,140.780) - -

Losses of PNPCL & DRML (232,017) - - - - - -

Accumulated

profit/(loss) c/f (2,723.935) (30.0) (3,891.915) (33.3) (5,833.690) (56.3) (13,338.438)


The Corporation earned operating profit of Rs.48.565 million during the

year 2006-07 as against Rs.500.433 million in previous year, hence a decrease of

90.3% was recorded. The main reason of decrease was decline in sales and related

income which stood at Rs.13.561 billion during the year under review as against

Rs.26.151 billion of preceding year 2005-06. The cost of borrowing increased to

Rs.4.116 billion during the year under review as against Rs.1.652 billion of

preceding year 2005-06, registering an increase of 149.2%, despite substantial

decrease in the sales which needs to be justified.

13.2 There was a substantial increase in the operating expenses which stood at

Rs.281.575 million during the year under review as against Rs.188.604 million of

preceding year, recording an increase of 49.3%. The abnormal increase in the

operating expenses despite significant decline in sales and related income by 48.1%

needs justification.

13.3 Dues from the Federal Government stood at Rs.14.558 billion as on June

30, 2007 as against Rs.2.842 billion of preceding year 2005-06, hence an increase

of 412% was recorded. Strenuous efforts are required to be made to recover the

outstanding dues.

13.4 Stock-in-Trade (Sugar, Cotton, Urea, Rice and Black Mapte) valuing

Rs.17.151 billion was held as on June 30, 2007 as against Rs.16.120 billion in

preceding year with a uniform provision in both years for husk/dust and sweeping

in Rice (Rs.106.065 million), for stock losses (Rs.2.749 billion) and decline in

value of stock (Rs.56.018 million). The external auditors pointed out that the stock

of sugar, cotton and other items requires 100% physical checking in order to assess

losses incurred due to pilferage, shifting and deliveries to buyers. The physical

verification was not conducted, which needs clarification.

389

AUDIT PARA

14. Loss due to shortages in closing stock of cotton and sugar

– Rs.5.448 billion

Rule-151 of GFR provides that "the head of an office or any other officer entrusted

with stores should maintain suitable accounts and inventories and prepare correct

returns in respect of the stores in his charge with a view to preventing losses

through theft, accident, fraud or otherwise and to making it possible at any time to

check the actual balances with the book balances and the payment to suppliers,

etc".

In Trading Corporation of Pakistan (TCP), physical verification of stocks

carried out through a firm of Chartered Accountants revealed a huge difference with

the figures of closing book balances of stock of sugar and cotton valuing Rs.5.448

billion as on June 30, 2006 as per details shown below, whereas the record of physical

verification of closing book balance of urea of 18,538.000 M//tons valuing Rs.278

million was not made available to Audit:-

Commodity Closing

balance as on

June 30, 2006

as per Annual

Report (book

balances)

Stock physically

available as on

June 30, 2006 as

per Physical

Verification

Report

Difference/

shortage

Value of stock

(Rs. in million)

Cotton 193,456 Bales 144,216 Bales 49,240 Bales 640.000

Sugar 393,079.720

M/tons

264,041.54

M/tons

129, 037.000

M/tons

4,808.000

Total: 5,448.000

The matter was reported to the management on January 01, 2008 and referred to the

Ministry on November 25, 2008. The management in its reply dated December 22,

2008 attributed various factors for the difference between closing stock as per

books of accounts and figures reported in the physical verification report. The

management added that no shortages were found in the stock of cotton and urea,

except nominal shortage of sugar as per tolerance limit, upon disposal of total stock

in subsequent years. The reply was not tenable because the management, instead of

waiting for the result of disposal of the stock, should have taken remedial measures

390

upon reported difference in the physical verification. Moreover, the management

did not provide physical verification report in respect of urea stock.


management reiterated its earlier stance and stated that there was no shortage of

stock except a nominal shortage of 901.220 M.Tons sugar which came to 0.09% of

the total imported quantity and covered within the tolerance limits of 0.25%

allowed to the handling agents. The DAC directed the management to get the

position verified from Audit.

However, the management in its response dated April 22, 2009 changed the earlier

stance by stating that the difference in cotton stock was actually 37,678 bales as on

June 30, 2006 which had been lifted by the textile mills against provisional delivery

order; whereas the original delivery orders were issued in the subsequent month

July 2006, hence the sales were recorded in the subsequent year. As regards the

reported shortage in the stock of sugar, the management stated that the procurement

was recorded in the books of account upon establishment of letters of credit,

whereas the consignments had not arrived by closing date of the financial year.

Audit holds the view that the stocks were to be lifted against original delivery

orders by Finance Division of the Corporation after receiving payments as required

under normal procedure. Moreover, the details of such provisional delivery orders

in respect of cotton bales were requisitioned from the management on April 24,

2009 but the record was not furnished till the finalization of this report.

391

PAKISTAN TOBACCO BOARD

AUDIT COMMENTS


15. Pakistan Tobacco Board was established under Ordinance No.1 of 1968,

dated 8th February, 1968 as a semi-autonomous body under the control of Ministry

of Commerce.

The main functions of the Board are to:-

Regulate, control and promote the export of tobacco products,

Fix grading standards,

Undertake and assist research connected with tobacco industries,

Impart training in tobacco testing and generally to take measures in the

interest of tobacco industry,

Render assistance for the development of new tobacco growing areas and

establishment of model farms,

Organize and assist special research connected with tobacco cultivation and

generally render assistance for improving tobacco production,

Collect statistics on any matter relating to tobacco and tobacco industry;

and

Levy and collect cess at the rates prescribed by the Government from time

to time, not exceeding 3% ad valorem.

15.1 The working results of the Board for the year 2006-07 as compared with

those of the previous years are tabulated below:-

(Rs. in million)

2006-07

%

Inc /

(Dec) 2005-06

%

Inc /

(Dec) 2004-05

%

Inc /

(Dec) 2003-04

Income

From tobacco cess 130.192 3 126.014 10 115.039 20 96.147

From farm produce 3.131 17 2.675 43 1.871 7 1.749

Profit on short term

investment 36.953 68 22.044 - - - -

Grant from Ministry of

Commerce - - - - 27.500 - -

Profit on sale of fixed

assets 1.223 - - - - - -

Other 0.701 11 0.633 (12) 0.717 43 0.502

Total income 172.200 14 151.366 4 145.127 47 98.425

392

Expenditure

Administrative 15.229 9 14.007 25 11.176 11 10.037

Development / research 39.112 16 33.649 18 28.624 12 25.517

Marketing research 7.051 34 5.250 52 3.463 24 2.782

Finance 2.344 (3) 2.425 20 2.014 9 1.850

Donation to earthquake

fund - - 5.000 - - - -

Total expenditure 63.736 6 60.331 33 45.277 13 40.186

Excess of income over

expenditure

108.464 19 91.036 (9) 99.850 72 58.239

Accumulated excess B/F 425.709 27 334.673 43 234.822 33 176.583

Less funds from EDF 27.500 - - - - - -

Accumulated excess C/F

to balance sheet.

506.672 19 425.709 27 334.672 43 234.822

Source: Annual audited accounts

The financial position of the Board remained satisfactory during the year

2006-07.

15.2 One of the core objectives of the entity is assistance in special research

connected with tobacco cultivation and rendering assistance for improving tobacco

production, whereas the current ratio is indicative of the fact that less emphasis is

being laid on research. Audit suggests that instead of short term financing, more

emphasis be laid on research function which would ultimately benefit in achieving

the goals of the Board.

393

AUDIT PARAS

16. Non-utilization of grant received for up-gradation of laboratories


Pakistan Tobacco Board (PTB) vide letter dated December 06, 2004 requested the

Ministry of Commerce for release of grant for up-gradation of its Research Station

without preparation of PC-1.

Pakistan Tobacco Board received grant of Rs.27.500 million from Export

Promotion Bureau of Pakistan on June 02, 2005 for up gradation/modernization of

laboratories. The grant was not utilized by PTB since its receipt. PC-I of the

project was under preparation till February 2008 whereas grant was received well

before preparation and approval of PC-I by the competent authority. This indicated

lack of proper planning / management.

The matter was reported to the management on April 19, 2008 and to the Ministry

on June 17, 2008. The management in its reply dated July 04, 2008 intimated that

the department had established planning cell and documents had been prepared for

up-gradation of laboratories. The reply was not tenable as the grant was received in

June 2005 not utilized up till 2008.

The DAC in its meeting held on September 08, 2008 directed the management to

complete the project at the earliest.

The matter was again discussed in the DAC meeting held on May 04, 2009. The

management reiterated its earlier reply that department had established planning

cell now and documents for up-gradating of laboratories had been prepared. DAC

directed the management of PTB for compliance of its earlier directive for

completion of the project at the earliest.

17. Non-recovery of cess collection – Rs. 23.750 million

As per clause-4 of the agreement dated June 29, 2007, one-fourth of amount of bid

was to be paid by the contractor at the time of auction and remaining in three

quarterly installments and as per clause-7, the contractor has no right to claim any

394

compensation for loss from the Board, in case the contractor fails to collect cess

within the stipulated period.

Pakistan Tobacco Board, Peshawar awarded contract dated June 29, 2007 for cess

collection of tobacco from NWFP to M/s. Midrarullah for the period July 01, 2007

to June 30, 2008 at Rs. 45.000 million. The contractor paid Rs.11.250 million at the

time of auction but subsequently did not deposit the remaining amount of

Rs.33.750 million payable in three equal installments of Rs.11.250 million each

after every three months. The contractor stated that due to poor production of

tobacco in the area he was unable to pay installments but continued the work. The

Board did not cancel the agreement under clause-8 and contractor was allowed to

collect the cess on behalf of Board without any payment. Audit was of the view that

despite forfeiting security amounting to Rs 10 million, an amount of Rs 23.750

million would remain unrealized.

Matter was reported to the management on April 19, 2008. In reply it was stated

that the matter was referred to the standing committee for redressing of the

grievances of contractor to which he did not agree. Consequently the matter was

referred to the sole arbitrator on the request of contractor. The arbitrator decided the

matter in favour of PTB but the contractor did not deposit the outstanding dues. The

case had been filed in the court of law for collection of PTB dues. Reply was not

convincing as the management was required to cancel the contract or impose

penalty @ 10% of the installments as the contractor was not entitled to claim any

compensation for loss from the Board.

The issue was reported to the Ministry on June 20, 2008 the management in its

reply dated July 04, 2008 intimated that court has decided the case on

July 31, 2008 in favour of PTB. The DAC in its meeting held on September 08,

2008 directed the management to recover the amount under advice to audit.

The matter was again discussed in DAC meeting held on May 04, 2009. The

management reiterated its earlier reply that the court has given the decision in

favour of PTB and DAC directed the management to pursue the recovery

vigorously.

395

396

MINISTRY OF DEFENCE

(33–62)

397

398

PAKISTAN INTERNATIONAL AIRLINES CORPORATION

AUDIT COMMENTS


18. Pakistan International Airlines Corporation (PIAC) was incorporated on April

18, 1956, under the Pakistan International Airlines Corporation Act, 1956 (PIAC

Act 1956). Its shares are quoted on all stock exchanges of Pakistan. The principal

activity of the Corporation is to provide air transport services. In addition, the

Corporation is engaged in providing engineering and allied services to other

airlines.

18.1 The working results of the Corporation for the year ended December

31, 2007 as compared with the preceding years are given below:-

(Rs. in million)

2007

%

Inc/(Dec) 2006

%

Inc/(Dec) 2005

%

Inc/(Dec) 2004

Revenue - net 70,481 (0.2) 70,587 10.2 64,074 10.9 57,769

Other operating income 999 1.3 986 (20.6) 1,242 (60.7) 3,162

Operating expenses (77,416) (3.3) (80,020) 19.4 (67,042) 15.8 (57,895)

Operating profit/(loss) (5,935) (29.7) (8,447) 389.4 (1,726) - 3,036

Financial charges (7,136) 49.7 (4,768) 71.1 (2,787) 26.7 (2,199)


taxation (13,071) (1.1) (13,215) 192.8 (4,513) - 837

Income tax expense (327) (172.3) 452 347.5 101 (93.1) 1,469

Profit/(loss) after

taxation (13,399) 5.0 (12,763) 189.3 (4,412) (291.3) 2,306

Accumulated losses (37,160) 51.3 (24,563) 108.2 (11,799) (259.7) 7,388

Salient Features:

Aircraft fuel (30,315) (9.2) (33,370) 26.1 (26,463) 47.7 (17,913)

Administrative expenses (5,257) 7.6 (4,887) 12.9 (4,326) 12.3 (3,852)

Liabilities against assets

subject to finance lease (46,524) 9.5 (42,503) 95.8 (21,706) (8.5) (23,724)

Current portion of

long-term financing (5,662) 117.9 (2,599) 60.3 (1,621) - (1,621) Source: Annual Audited Accounts

The operating expenditure has out-paced its revenues thereby having a

net negative impact on its operational profitability which is showing continuous

decline since the year 2005 onward. This adverse state of business needs attention

of the management for remedial measures.

18.2 The accumulated losses of the Corporation were Rs.37.160 billion as on

399

December 31, 2007 as against Rs.24.563 billion of preceding year 2006, registering

an increase of 51.3% which needs attention of the management for remedial

measures.

18.3 PIAC on one hand is surviving on guarantees of Government of Pakistan

and cash credit accommodation, but on the other hand it has been lavishly

providing salaries and other perquisites to its executives. Resultantly "Executive

remuneration and other perquisites" registered an increase of 50.7% over the year

2006 and stood at Rs.2,055.229 million as on December 31, 2007. The number of

executives has also increased from 641 to 929. This position has been summarized

in the following table:-

(Rs. in million)

2007

%

Inc/

(Dec)

2006

Executive remuneration and other perquisites 2,055.229 50.7 1,363.79

7

Number of executives 929 44.9 641

Average remuneration per executive 2.212 8.6 2.126 (Source: Page 80, PIAC annual accounts 2007)

From the above table it is clear that PIAC not only increased the

number of its executives by 44.9% but it also increased the average

remuneration per executive by 8.6%. An organization which is being kept afloat

by borrowings and on Government of Pakistan guarantees and is financially

extremely vulnerable, is expected to refrain from lavish remuneration packages and

increase in number of its executives.

18.4 Current assets as at December 31, 2007 stood at Rs.13.251 billion, whereas

current liabilities stood at Rs.52.050 billion, which casts serious doubts regarding

the Corporation’s ability to meet its short-term debt obligations and to continue as a

going concern. The financial structure of Corporation is highly leveraged and its

current ratio is 0.2 as against standard ratio of 2 which shows that Corporation’s

current assets are not enough to cover its current liabilities.

18.5 Long-term debt of the Corporation stood at Rs.77.656 billion as on

December 31, 2007 and it is the view of Audit that the Corporation is currently

400

very vulnerable to the risk of defaulting on its debt obligations. The position of

increasing trend in the volume of long-term debt since the year 2003 to 2007 is

summarized in the following chart:-

18.6 The Corporation’s short-term debt obligations seem to be spiraling out of

control due to rising trend during the period 2003 to 2007 as summarized through a

chart given below:-

18.7 The current portion of the long-term financing stood at Rs.5.662 billion,

which denotes that the Corporation needs to pay this portion of its long-term debt

within one financial year. On the other hand, the Corporation has registered a loss

(after taxation) of Rs.13.399 billion for the year ended December 31, 2007, which

means the Corporation will have to borrow more debt to pay off the debt servicing

costs of its old debts. The net debt of PIAC stood at Rs.73.1 billion in the year 2007

as against Rs.51 billion of preceding year 2006, registering an increase of 43.3%.

The financial charges increased from Rs.4.768 billion of preceding year 2006 to

Rs.7.136 billion in the year 2007, which will increase even further in the years to

come and have a substantial impact on the financial health of the Corporation

0 10 20 30 40 50 60

2003 2004 2005 2006 2007

Short Term Liabilities (Rs. in billion)

401

which requires attention of the management for remedial measures.

18.8 Trade debts stood at Rs.5.013 billion as on December 31, 2007 after making

provision to the extent of Rs.0.402 billion. Though there was a slight improvement

as the trade debts were Rs.6.130 billion in the preceding year 2006, however,

strenuous efforts are required to realize the dues in time to improve the liquidity

position.

Trend Analysis of key Financial Ratios of PIA Financial Statements for

the period 2003 to 2007

18.9 Liquidity Ratio:

This ratio reflects the ability of an entity to meet its short-term obligations using

assets that are most readily convertible into cash. The liquidity ratio of the Corporation is

presented in a graphic form below:-

Current Ratio

0

0.2

0.4

0.6

0.8

1

1.2

2003 2004 2005 2006 2007

Current

Ratio

The above trend of PIAC's current ratio depicts a gradual decline. Ideally this ratio

should be "2". The larger this ratio, the better the ability of the entity to satisfy its

immediate obligations. PIAC's current ratio in the year 2007 was only “0.2” which

shows that its current assets are not substantial enough to cover its current

liabilities. Such a low current ratio signifies that the Corporation might not be able

to pay its current debts on time and shows that PIAC has negative working capital.

In future, the situation may get worsen according to the trend shown above and

PIAC would have to resort to further borrowings to meet its short-term financial

obligations.

402

18.10 Financial Leverage Position:

The financial leverage ratios are used to assess how much financial risk an

entity has exposed itself by comparing the debt with the assets. An entity may opt

for financing either with equity or debt. Financing through debt involves risk,

because debt legally obligates the Corporation to pay interest and to repay the

principal as promised. Equity financing does not obligate the entity to pay anything;

however, dividends are paid at the discretion of the Board of Directors. The debt to

assets ratio of the Corporation during the period 2003 to 2007 is presented

graphically below:-

Total Debt to Assets Ratio

0

0.2

0.4

0.6

0.8

1

1.2

2003 2004 2005 2006 2007

Total Debt to

Assets Ratio

The above graph indicates that PIAC is relying heavily on debt to finance

its total assets. In the year 2003, 88% of total assets were financed by debt, whereas

in the year 2007 it reached to 109.2%, thus the debt exceeded the value of total assets.

Resultantly, it is vulnerable to high levels of financial risk as the higher the amount

of debt in the capital structure, the higher will be the interest payments on this

debt and since these payments are obligatory, these will burden the already

fragile liquidity position of PIAC, thereby increasing chances of PIAC defaulting

on obligatory payments. In 2007, this ratio had exceeded "1" and the Corporation

thereby had negative net worth. Since PIAC's current ratio is low and its net

working capital for the year 2007 was negative Rs.38.798 billion, which is a

sign of serious financial weakness, and shows PIAC's inability to continue as a

going concern. Such a high debt to assets ratio puts PIAC in the high-risk bracket for

finance lending institutions and as a result they would only lend PIAC finances

at either very high interest rates, or provide them only Government secured

403

loans, hence PIAC is being kept afloat by Government of Pakistan guarantees.

18.11 After a detailed analysis of the Corporation’s financial statements for the

year 2007, it is the opinion of Audit that unless PIAC receives financing, either

from Government of Pakistan or from the market, the Corporation might not be

able to meet its current and long-term debt obligations. For this, the Corporation

needs to:

1. Re-finance its debts by generating equity from the market, as currently the

Corporation is highly leveraged, making the Corporation highly vulnerable

to the risk of default on its debt servicing obligations.

2. Cut down overheads at a micro level so as to have a cumulative affect on the

macro level.

3. Negotiate low interest bearing loans from financial institutions and use

them to retire higher interest bearing loans.

4. Should adopt economy measures and avoid awarding lucrative contractual

packages, as the Corporation’s financial health cannot afford such prolific

spending on executive remuneration.

5. Should strive to cut non-profit routes and make optimum use of its

passenger’s carrying capacity.

AUDIT PARAS

19. Loss of revenue due to ban by European Union on aircrafts Boeing

747 and Airbus A310 – Rs.1.083 billion

Pakistan International Airlines Corporation (PIAC) aircrafts’ landings in Europe

undergo safety inspection under Safety Assessment Foreign Aircrafts (SAFA).

The European Union (E.U.) imposed ban on PIAC in March 2007 under

Category "B". The ban was partially lifted in June 2007 and completely lifted in

October 2007 upon remedial action by the Corporation. The European Union had

404

warned PIAC one year before the imposition of ban calling for removal of the

drawbacks in the safety standards but it failed to get any improvement.

Consequently, the PIAC had to face the ban on its aircrafts Boeing-747 and

Air-bus-A310 resulting into capacity decrease for UK, Europe and America. The

flights for Amsterdam, Athens, Rome, Stansted (London), and Frankfurt were

closed during the period of ban whereas the flights for Glasgow and Milan also

remained temporarily suspended during part of March and April 2007.

The decrease in capacity by 8.2% during the first quarter resulted into a loss of

Rs.1.083 billion. It is worth mentioning that PIAC has been spending billions of

rupees on maintenance of aircrafts every year (Rs.6.377 billion in the year 2006)

but European Union’s – SAFA Inspectors Report dated February 16, 2007

contained a large number of instances of serious lapses on account of Flight

Operation, Flight Safety Department, Engineering & Maintenance and Improper

Aircraft Technical Defect Rectification. A few instances of reported lapses are

quoted below:

a. Quality control checks of simulators required improvement. One

bulb on each landing gear green light was found un-serviceable,

although daily inspection had been signed off as “All Ok” with no

entry made in the technical log by either the flight crew using the

simulator or the simulator maintenance crew.

b. No flight data monitoring and trend analysis was performed which

could help in improving safety performance levels of the pilots

proactively and identifying their critical training needs. Flight data

monitoring program was still not fully functional.

c. Skill level depletion in Engineering, lack of independence of

Engineering Quality System, inadequate organizational processes

within the Engineering Department due to non-updating the

manuals and inadequate division of responsibility between

Engineering, Flight Operations, Flight Services, Engineering

Quality System, Corporate Quality Assurance and Cabin

Maintenance were elaborated as serious problems.

405

d. A sizeable number of instances of improper aircraft technical defect

rectification were pointed out and one of the same was that an A310

aircraft had a multiple repeated series of problems with its landing

gear extension / retraction mechanism using the main hydraulic

system. Alternate hydraulic system (which is an emergency backup

system only) was being used by aircrew for more than fifteen days

which constituted serious safety hazard.

The matter was reported to the management on May 24, 2007 and referred to the

Ministry on February 08, 2008. The management in its reply dated April 29, 2008

stated that inspection of PIA aircrafts continued during the year 2005 and 2006 and

they had also received a couple of SAFA Inspection Reports in the year 2004,

however, a few reports generated by various European authorities were lost during

the communication process and could not be either replied or replied after some

considerable time lapse. The management also questioned the working of loss by

Audit as an impact of the ban.

The reply of management was not tenable as the ban from European Union was not

an abrupt one but it was imposed after several prior warnings spread over the

years giving the management sufficient time period to remove the weaknesses.

As regards the financial impact of the ban, the amount of loss of Rs.1.083 billion

was worked out by PIA’s Product Management/Sales Department as per

Minutes-3 dated April 30, 2007.

The issue was discussed in the DAC meeting held on February 26, 2009. The DAC

observed that the para stands and directed the management to hold a departmental

enquiry to fix responsibility for non-attending the reports of European Union and

loss of the relevant mail in dispatch. However, despite efforts, latest position was

not received from the management till the finalization of this report.

20. Irregular write-off of dues without any proper investigation


As per Para 12.54 of Delegation of Powers in PIAC, the Managing Director is

competent to sanction write-off in any “single case”. Moreover, Rule 47 of GFR

allows a competent authority to sanction the writing-off of irrecoverable public

money provided that:-

406

i. the loss does not disclose a defect of system, the amendment of which

requires the orders of the higher authority; and

ii. there has not been any serious negligence on the part of some employee(s)

which may possibly call for disciplinary action requiring the orders of any

higher authority.

In Pakistan International Airlines Corporation (PIAC), a sum of Rs.131.040

million, recoverable under 12 different heads of accounts, was written-off on

February 20, 2007. The details are as under:-

(Rs. in million) Sl.

No.

Station Description Amount

1 Jeddah Un-recovered/ unadjusted credit of Sana Station

–US$ 72,237

4.389

2 Karachi Default of M/s Khamisani Bros. Ltd. 1.922

3 Karachi Write-off approval of defaulted Cargo Agents 0.896

4 Frankfurt Over due debts of Frankfurt Station 13.930

5 Frankfurt Outstanding debts of Munich, Dusseldor and Vienna

(after adjusting credit balance EURO 2,826 with bad

debts 14,581 of MUC/VIE)

0.190

6 Oslo Long overdue balances- NOK 39,303 0.369

7 New York Credit outstanding against agents 50.419

8 -do- Outstanding against credit card companies 13.825

9 -do- Outstanding credit (Personal & Government)

US$ 18,212

1.106

10 Chicago Long outstanding recoverable balances – US$ 36,230 2.152

11 Interline Old outstanding receivables 36.700

12 Karachi Amount recoverable from Ministry of Religious Affairs 5.142

Total 131.040

407

The management did not observe the regulations and procedural requirements to

investigate each individual case before write-off action; hence the aspect of taking

disciplinary action against concerned employees for any negligence was ignored.

The amounts mentioned against Sr. No. 2,5,6,9 & 10 were recoverable, but the

management preferred to write-off. Hence, neither due process of write-off was

observed, nor failure of internal controls, leading to the write-off action were

identified by the management.

The irregularity was reported to the management on November 27, 2007 and

referred to the Ministry on January 17, 2008. The management in its reply dated

January 04, 2008 contended that the Chairman / Managing Director PIAC was

competent to approve the write-off. They added that a group of senior officers of

the Corporation from Sales and Finance Department had recommended aforesaid

write-off after having inquired into above cases. The reply of the management was

not tenable. Collective write-off order against 12 different heads of accounts was a

wrong action where it was stated that the objectives for the write-off were to settle

the audit observations. Hence merits, in each case, were compromised.


pended the para with the directives to management to get the case revisited by

Audit. However, despite efforts, latest position was not intimated by the


21. Blockage of funds due to unnecessary procurement of spare parts


As per principles of procurement enunciated in the PIAC’s Procurement Manual,

one of the five basic concerns that govern PIAC’s procurement policies, is to

ensure that the funds are used to buy only those Products/Goods, Services/ Works,

Plant and Equipment and Information Systems which are needed to operate and

maintain PIAC.

In Pakistan International Airlines Corporation (PIAC), rotable spare parts

valuing Rs.30.910 million purchased during the period 1976 to 2002 were lying

unutilized in the stock as on December 31, 2005 resulting into unnecessary

blockage of funds. Moreover, a large number of spare parts/stores items worth

Rs.77.592 million were also lying unused/idle at different stores of PIAC

408

Procurement & Logistic Department. Those stores and spares were procured

during 1981 to 2002 but could not be utilized upto June 2008. The heavy

accumulation of inventory indicated that a system analysis of the inventory

management has not been carried out.

The matter was reported to the management in April 2007 and June 2008;

and referred to the Ministry in November 2007 and September 2008.

The management in its reply dated February 14, 2008 regarding rotable spare parts,

disowned the purchase of 30 items valuing Rs.18.176 million. They added that

remaining 40 items valuing Rs.11.339 million were purchased as back as from the

year 1980 onwards as such they could not ascertain the justifications for 30 years

old cases. As regards latter inventory, the management did not respond at all.

The reply of management in respect of rotable spare parts was not tenable because

details of spare parts were taken from the record of its Engineering Department.


directed the management to submit a revised reply to Audit. However, despite

efforts, no response was received from the management till the finalization of this

report.

22. Unauthorized and irregular appointment of officers on contract basis

involving remuneration of Rs.63.105 million per annum

In accordance with Government policy regarding contract appointments for the

posts in Autonomous/Semi Autonomous Bodies, Corporations, Public Sector

Companies etc. circulated vide Cabinet Secretariat, Establishment Division letter

No.06/02/2000 R-3 dated May 06, 2000, the appointment on contract basis can be

made for the maximum period of two years after obtaining standing instructions

from the Administrative Ministry/Division concerned specifying such posts and

parameters governing the contract appointment in consultation with the Board of

Directors of concerned organization.

Pakistan International Airlines Corporation (PIAC) appointed four officers during

the period December 2002 to February 2008 against executive positions on contract

basis for more than 2 years without obtaining standing instructions from the

409

Ministry to specify contract posts and parameters for their appointment and also

without any advertisement. Thus the amount of salary to the extent of Rs.63.105

million per annum paid to them was considered irregular/unauthorized.

The irregularity was reported to the management in May 2008 and referred to the

Ministry in December 2009. The management in its reply dated February 06, 2009

stated that the PIAC Board of Directors had decided to make contractual

appointments for a period of 5 years and the Board was empowered under PIAC

Act 1956 to appoint officers. They added that out of four appointments they had

advertised three posts whereas one post was filled by resorting to Head Hunting.

The reply of the management was not tenable because Section 5(2) of the PIAC Act

1956 provides that directives of the Federal Government on matters of policy shall

be binding on the Corporation, hence the regulations for 2 years contract

appointments were violated in these cases. Moreover, the management did not offer

any comments on the non-obtaining of standing instructions from the Ministry to

specify the posts and parameters governing the contract appointments.

The matter was discussed in the DAC meeting held on February 26, 2009. The

DAC observed that the para stands and recommended for its placement before the

PAC.

23. Irregular appointment of Human Resource Consultant at exorbitant

remuneration involving payment of Rs.13.386 million

The guidelines issued by the Establishment Division through U.O.

No.11-3/2001-MSW-III dated January 25, 2002 regulating the appointment of

consultants for strict compliance by all Ministries/Division/Organizations provide

as under:-

i. Consultants should not be appointed to perform routine functions of an

organization.

ii. Consultancy should be widely advertised indicating the requirement as

specified in the guidelines.

iii. The advertisement shall indicate the range of compensation package.

410

iv. The applicants shall be short listed and prioritized by an in-house

committee of the client organization.

v. For General/Non-development Budget funded Consultancies, a Selection

Board, headed by the Secretary of the Ministry/Division concerned,

including a representative each of Establishment and Finance Division,

will recommend a panel of at least three candidates in order of merit for

consideration of the appointing authority.

vi. Any deviation/departure of the prescribed guidelines shall be dealt with

seriously and defaulting officer(s) shall be proceeded against, under E&D

Rules.

Pakistan International Airlines Corporation (PIAC), Karachi, appointed a person

through an agreement dated September 29, 2005 as Human Resource Consultant to

perform routine functions of Human Resource Development Training. The

management in violation of the regulations neither advertised their requirement of

consultancy service along with proposed compensation package nor observed any

process of short listing by an in-house committee and constitution of the Selection

Board.

By extending undue favour to above person, an exorbitant package of remuneration

was agreed by the management which included Rs.5,000 per hour as Retainer-ship

Fee for three hours per day and Training Charges @ Rs.3,500 per person per day

for a group of minimum 25 participants per session and free return ticket of

Toronto, Canada.

The agreement for consultancy was subsequently extended for further two years

effective September 15, 2007. Thus, an irregular payment of Rs.13.386 million had

been made till March 21, 2008.


Ministry in September 2008, but no reply was received. The issue was discussed in the DAC meeting held on February 26, 2009. The DAC observed that the Para stands and recommended its placement before the PAC. 24. Irregular contract appointment of Chief Internal Auditor at higher

remuneration involving payment of Rs.9.237 million

411

In accordance with Government policy regarding contract appointments for the

posts in Autonomous/Semi-Autonomous Bodies, Corporations, Public Sector



made for the maximum period of two years after obtaining standing instructions

from the administrative Ministry/Division concerned specifying such posts and

parameters governing the contract appointment in consultation with the Board of

Directors of concerned organization.

Pakistan International Airlines Corporation (PIAC), Karachi, without obtaining the

standing instructions from the administrative Ministry for specifying contract posts

and parameters governing such appointments, entered into an agreement on

November 1, 2004 with a person to serve as Chief Internal Auditor on contract

basis for two years but the contract was irregularly extended for another five years

w.e.f. November 01, 2006; thus, violating the Government policy of maximum two

years contract period. Moreover, as per “Clause-3 Emoluments” of the said

agreement, the monthly salary and allowances were fixed as Rs.150,000 p.m. but

the management in violation of the contractual terms, allowed a salary of

Rs.230,000 p.m. from date of extension of contract ( November 01, 2006) which

was further increased to Rs.257,600 p.m. from April 2007.

The management made no mention about extension of 5 years and enhanced salary

package at the time of recruitment on contract; thus not only the transparency and

competitiveness was lost but undue favour was also extended to the incumbent. The

irregular contract appointment at higher remuneration without the approval of

competent authority resulted into payment of salary to the extent of Rs.9.237

million upto March 31, 2008 plus perks.


Ministry in September 2008. The management in its reply dated December 05,

2008 stated that under clause 10 of PIAC Act 1956, the Corporation is empowered

to appoint such officers, advisers and employees as it considers necessary for its

function on such terms and conditions as it may see fit. They added that PIAC

Board of Directors in its meeting dated September 16, 2002 had decided for

employment on contract for a period upto five years renewable to a maximum

period of 10 years. They further added that the salary of the incumbent was raised

on the basis of performance appraisal rating 2006.

412

The reply was not tenable because as per Section 5 (2) of PIAC Act 1956, the

directives of the Federal government on matters of policy are binding on the

Corporation, therefore, the said decision of the PIAC Board of Directors dated

September 16, 2002 was a violation of the Government Policy circulated on May

06, 2000. As regards contention of the management about the increase of salary on

performance rating basis, no such provision was there in the contract agreement,

hence it tantamount to undue favour.


observed that the Para stands and recommended its placement before the PAC. 25. Irregular/un-authorized contract appointment of General Manager

(HR) involving payment of Rs.5.390 million

In accordance with Government approved policy regarding contract appointments

for posts in Autonomous/Semi autonomous Bodies, Corporations, Public Sector



made through open advertisement for the maximum period of two years by

obtaining standing instructions from administrative Ministry/Division concerned

after consultations with the Board of Directors specifying such posts and the

parameters governing appointment on contract basis.

Pakistan International Airline Corporation (PIAC), Karachi appointed a General

Manager (HR) on June 22, 2006 for 5 years (instead of 2 years) on contract basis at

a remuneration package of Rs.0.270 million per month plus other benefits. This

appointment was made without observing the approved Government policy for

contract appointments. There was no justification of her direct appointment on the

post of General Manager as she possessed simple MBA degree without any

extra-ordinary qualification, however, her salary was fixed by the management as

higher than her senior officer, i.e., Senior Vice President. Moreover, her salary was

also irregularly increased from Rs.270,000 p.m. to Rs.290,400 p.m. w.e.f. January

1, 2007, whereas the increase was applicable to only regular employees.

Due to this unauthorized contract appointment, an amount of Rs.5.390 million

towards pay and allowances was paid to her upto January 31, 2008. The actual

payment could have been more than this amount if gratuity and other perks are

413

calculated further on actual basis.

The irregularity was reported to the management in February 2008 and referred to

the Ministry in December 2008. The management replied on March 10, 2008, that

Section 10 of PIAC Act 1956 empowers the Corporation for appointment of

employees; and the Board of Directors had fixed five years period for contract

appointments.

The reply of the management was not tenable because Section 5 (2) of PIAC Act

1956 provides that the directives of the Federal Government on matters of policy

shall be binding on the Corporation.

The matter was, therefore, again referred to the Ministry on November 05, 2008.

The management in its response dated November 19, 2008 reiterated its earlier

contention but could not offer comments over the reported violation of Section 5

(2) of PIAC Act 1956.


observed that the Para stands and recommended its placement before the PAC. 26. Irregular contract appointment of SVP (Commercial) involving

payment of Rs.3.227 million and non-recovery of Rs.1.150 million

against notice period salary

In accordance with Government approved policy regarding contract appointments

for posts in Autonomous/Semi autonomous Bodies, Corporations, Public Sector



made through open advertisement in press for the maximum periods of two years

by obtaining standing instructions from administrative Ministry/Division

concerned after consultations with the Board of Directors specifying such posts and

the parameters governing appointment on contract basis.

Pakistan International Airlines Corporation (PIAC), Karachi, appointed a person

without advertisement as Senior Vice President (Commercial) on contract basis on

July 06, 2006 for 5 years (instead of two years) at a monthly salary of Rs.575,000

p.m. plus other benefits without obtaining the standing instruction from the

414

Ministry to specify such contract posts and parameters for governing the

appointment. The incumbent tendered his resignation on December 25, 2006 which

was accepted at the end of January 2007, i.e., after one month. A total payment of

Rs.3.227 million was made to the incumbent during the above period on account of

salary which was irregular. As per clause 1(XI) of agreement dated June 26, 2006

the contract can be terminated by three months notice period or salary equal to three

months in lieu thereof by either side. As such the salary of two months was due to

be paid by the employee but he was relieved of without recovery of Rs.1.150

million on account of 2 months notice period and the resignation was accepted.

The irregularity was reported to the management in February 2008 and referred to

the Ministry in September 2008. The management in its reply in May 2008 stated

that the Board of Directors had allowed the appointment of officer on contract

initially for a period upto 5 years and they added that the Board of Directors under

PIAC Act 1956 was empowered to appoint such officers as it considers necessary.

Moreover, a copy of an irrelevant advertisement dated December 31, 2006 was also

furnished by the management in its reply to support their contention that

advertisement had been made.

The reply was not tenable because Section 5 (2) of PIAC Act 1956 provides that

Federal Government may, as and when it considers necessary, issue directives to

the Corporation on matters of policy and such directives shall be binding on the

Corporation. The action of the management was, therefore, in violation of the

policy framed by Government. Moreover, the amount of notice period salary for 2

months also remained un-recovered in this case without fixing of responsibility.


observed that Para stands and recommended for its placement before the PAC.

415

27. Unauthorized re-employment of retired officers/instructors involving

remuneration of Rs.2.166 million per annum

In accordance with clause 34.12.04 Chapter No. XXXIV of Personnel Policies

Manual of PIAC, the officer after retirement on superannuation can be appointed

with the approval of Prime Minister of Pakistan.

Pakistan International Airlines Corporation (PIAC) re-employed two retired

officers as Chief Instructor and Senior Instructor (Grooming) after their

superannuation on contract basis for a period of one year without approval of Prime

Minister of Pakistan during June and September 2007. Thus, the remuneration of

Rs.2.166 million per annum paid to both re-employed officers was considered

unauthorized / irregular.


Ministry in December 2008, but no reply was received.

The DAC in its meeting held on February 26, 2009 observed that the para stands

and recommended for its placement before the PAC. 28. Non-recovery of old outstanding dues from various defaulting agents

amounting to Rs.20.062 million

As per Para No.2.01 of credit policy of PIAC, all dues from private organizations

are required to be recovered within 30 days.

In Pakistan International Airlines Corporation (PIAC) Lahore, an amount of

Rs.20.062 million was outstanding against defaulting sales agents since long as on

April 30, 2007 as detailed below:- (Rs. in million)

S.No. Name of agent Date of default Amount

1. House of Travel January 1995 0.394

2. World Travel October 1997 0.689

3. Askari Travel July 2001 0.324

4. The Traveler February 2001 0.082

5. Pameela Travels March 2007 8.592

6. Madni Travels April 2007 1.977

7. National Express 1987 8.004

Total: 20.062

416

The management neither took proper action to recover the amount nor the

encashment of Bank and IATA guarantees were made within prescribed time of

one month.

The non-recovery was pointed out to the management on June 08, 2007 and

referred to the Ministry on June 10, 2008. The management in its reply dated

August 31, 2007 stated that the cases at Serial 1, 2 and 4 above were referred to

NAB for recovery. They added that case at Serial 3 pertained to balance amount of

inadmissible passengers and the recovery under the case at Sl.5 above was in

progress as net recoverable was Rs.7.462 million. They added that entire amount at

Serial 6 had been received and last item was sub judice.


directed the management to get verification of the recoveries made and pursue the

recoveries of the balance amount. However, despite efforts, no latest position was

intimated by the management till the finalization of this report.

29. Unproductive and irregular expenditure on printing/pasting of stickers on

aircrafts tails – Rs.8.588 million

As per principles of Procurement enunciated in the PIAC’s Procurement Manual,

one of the five basic concerns that govern PIAC’s procurement policies, is to

ensure that the funds are used to buy only those Products/Goods, Services/ Works,

Plant and Equipment and Information Systems which are needed to operate and

maintain PIAC.

In Pakistan International Airlines Corporation (PIAC), a decision was made by

the management in the year 2005 to design and paste province-wise tail livery on

each aircraft. Consequently an expenditure of Rs.8.588 million was incurred on

total 21 aircrafts (which included direct purchase of one sticker costing Euro

29,500), though the airline was already suffering from heavy losses which stood

at Rs.13.399 billion as on December 31, 2007. The designing work on the tails of

aircrafts failed to bring any impact on its profitability. Moreover, the same work

was carried out without obtaining competitive rates through tendering for design

and purchase of stickers, which was a violation of PPRA Rules 2004.

The matter was reported to the management in August 2007 and referred to

417

the Ministry in July 2008. The management in its reply dated October 15,

2008 stated that PIAC had embarked upon a journey of corporate identity

transformation highlighting uniqueness and character to increase its appeal to the

customers, which would be worthy of its legacy and heritage as National Flag

Carrier.

The reply of the management was not tenable because the standard of services of

the airline and not the design of the tail could appeal to the customers. Moreover,

the management did not provide any data / follow up study report on increase in the

number of passengers as a result of pasting of expensive stickers on aircrafts tails.


observed that the para stands and recommended its placement before the PAC.

30. Loss due to allowing credit sales more than the security value


Para-3-03 of credit policy of PIAC provides that no credit will be extended without

satisfactory credit rating and/or sufficient bank guarantee. Moreover, Para-2 of the

policy provides that all outstanding dues are required to be recovered within 30

days.

Pakistan International Airlines Corporation (PIAC), Multan allowed credit sales to

a travel agent, M/s. Somi Travel (Pvt.) Limited to the extent of Rs.15.767 million

against a security deposit of Rs.5.000 million. The agent defaulted to clear the dues

of sale proceeds since 1995.

The matter was reported to the management in January 2008 and referred to the

Ministry in November 2008. The management in its reply dated April 09, 2008

stated that Rs.10.182 million had been recovered upto December 31, 2007

including forfeiting of security deposit of Rs.5.000 million and further proceeding

for recovery of balance amount of Rs.5.586 million was under litigation.

The reply of the management was not tenable because allowing the credit beyond

the security deposit was repugnant to the policy of the PIAC. Moreover, it was also

indicative of loose internal controls.

418

The matter was discussed in the DAC meeting held on February 26, 2009. The

management informed that a decree in favour of PIAC had been received on 4th

June 2008. The DAC decided settlement of the Para subject to full recovery against

the decree. However, despite efforts, latest position was not intimated by the


31. Irregular free of cost transfer of cars to employees – Rs.5.163 million

Under Section 30 of Pakistan International Airlines Corporation (PIAC) Act 1956,

the Board with the previous sanction of the Federal Government may make

regulations not inconsistent with the Act. Moreover, Rule 10 (i) of GFR provides

that “every public officer is expected to exercise the same vigilance in respect of

expenditure incurred from public money, as a person of ordinary prudence would

exercise in respect of expenditure of his own money”.

In Pakistan International Airlines Corporation (PIAC), Head Office, a total No. of

19 vehicles having book value of Rs.5.163 million were transferred to the

employees during the years 2005 and 2006 free of cost which included a new

Toyota Corolla car valuing Rs.969,000 within its first year of purchase. The

transfers of cars were made by the management in pursuance of Car Policy dated

October 18, 1993 circulated by Policies and Remuneration Division of PIAC which

provided transfer of cars to the allottee officers two times during service after

completion of life span of car for 6 years and 4 years respectively. However, no

previous sanction of the Federal Government was obtained by the management for

making such regulation of generous transfers of cars to the officers at the cost of the

organization which was running with heavy losses.

The irregularity was reported to the management in January 2008 and referred to

the Ministry in March 2008. The management in its reply dated April 02, 2008

stated that all the 19 cars had been transferred in the name of allottee officers,

which conform to the Car Policy of PIAC.

The reply of the management was not tenable because sanction of Government was

required before implementation of regulation for free of cost transfer of cars which

was framed by the management to accord undue favour to the officers without

considering the losses suffered by the organization.

419

The DAC meeting was held on February 26, 2009. The standpoint of both Audit

and PIAC was at variance, therefore DAC deferred the para.

32. Irregular splitting up of tender and charging capital works of

Rs.5 million to minor maintenance works

Rule-9 of PPRA Rules 2004 prohibits the splitting up of proposed procurement and

provides that a procuring agency shall announce through an appropriate manner all

proposed procurements for each financial year.

Pakistan International Airlines Corporation (PIAC), Works Department floated

tenders in piecemeal for renovation and refurbishment of Head Office Canteen in

the year 2005 which were initially charged as maintenance works. The Minor

Works Committee in its meeting held on December 09 and 13, 2005 despite

receiving various summaries on a single objective, viz, “improvement of

environment of staff canteen” approved all split up civil works for award to a single

firm, M/s. Shafqat Associates, who were declared lowest in each of the 15 split up

works. The same firm subsequently was paid a total amount of Rs.3.742 million.

The remaining works were awarded to other two firms and a payment of Rs.0.537

million was made.

Subsequently, after completion of works, the management capitalized the same

split up works in August 2006 with the following description.

(Amount in Rupees)

Civil Works 3,639,310

Furniture 800,400

Contingencies 560,290

Total: 5,000,000

The competitiveness in the price was not achieved as well as the forum for sanction

of capital expenditure was also avoided by splitting up the capital works and by

misrepresenting the same as minor maintenance works.

The irregularity was reported to the management on January 17, 2008 and referred

to the Ministry on August 25, 2008 but no reply was received.

420


directed the management to obtain ex-post facto approval of the competent

authority for regularization of this case. However, despite efforts, no latest position

was intimated by the management till the finalization of this report.

33. Loss due to excess expenditure than earning of Speedex – Rs.3.147

million

Rule-10 (i) of GFR provides that “every public officer is expected to exercise

the same vigilance in respect of expenditure incurred from public money, as a

person of ordinary prudence would exercise in respect of expenditure of his own

money”.

In Pakistan International Airlines Corporation (PIAC), Multan, a total expenditure

of Rs.7.077 million was incurred by Speedex (Marketing), for the year 2005 &

2006 against the total revenue of Rs.3.930 million resulting into net loss of

Rs.3.147 million.

The matter was taken up with the management on January 10, 2008 and referred

to the Ministry on July 5, 2008. The management in its reply dated August 12,

2008 stated that the revenue of whole Multan territory had not been included

while working out loss by Audit. They added that the total revenue was Rs.4.324

million as against the reported Rs.3.930 million. They further added that

measures to reduce the loss were being taken.

The reply of the management was not tenable because despite accounting for the

whole revenue of Multan territory, the expenditure was still higher than the

revenue.

The issue was discussed in the DAC meeting held on February 26, 2009. The

management informed that remedial measures had been taken. The DAC directed

the management for submission of a revised reply within one week and

recommended for settlement of para subject to verification by Audit. However,

despite efforts, no response was received from the management till the finalization

of this report.

421

34. Loss due to misappropriation of 50 bales of uniform cloth valuing

Rs.3.059 million

As per PIA Supply Manual (Chapter 11-A), the Incharge of Store Room is

responsible for safe custody, proper accountability and serviceability during

storage of all Airline property in the stock room(s) under his functional and

administrative control. Moreover, as per Chapter-11 of Job Description Manual,

the Incharge Security Department is responsible to adopt preventive measures for

security of PIA moveable and immovable property against damage, arson, theft,

pilferage and misappropriation.

In Pakistan International Airlines Corporation (PIAC), a quantity of 4,978 meters

(50 bales approx) of uniform cloth valuing Rs. 3.059 million was reported as

misappropriated from Stock Room No.39 in July 2005.

The matter was taken up with the management in June 2008 and referred to the

Ministry in September 2008. The management in its reply dated July 14, 2008

stated that an FIR was lodged and five persons were apprehended by the Police

with recovery of some stolen property. However, after protracted proceedings, the

court acquitted the accused persons by giving them benefit of doubt. The

management also added that as per departmental inquiry, five officials of Stores

Department were blamed for negligence and they were “censured” as a

punishment.

The reply of the management was not convincing as a huge quantity had been

stolen despite heavy spending on staffing and networking of stores as well as on

Security Department. The issuance of only warnings against such a level of

misappropriation of stores without recovery of the loss was an inadequate action on

the part of the management.


directed the management to hold a fresh enquiry to fix responsibility and the

findings may be submitted to the DAC by April 01, 2009. However, despite efforts,

no latest position was intimated by the management till the finalization of this

report.

35. Loss due to theft of multimedia projectors valuing Rs.0.388 million

422

As per Chapter-11 of Job Description Manual of PIAC, the Incharge, Security

Department, is responsible to adopt preventive measures for security of PIA

moveable and immovable property against damage, arson, theft, pilferage and

misappropriation.

In PIAC Training Centre, Karachi, two Multimedia Projectors valuing Rs.0.388

million were stolen from class rooms in the year 2005. The management could not

produce a copy of FIR to Audit in respect of one of the stolen items. Moreover, no

results of departmental inquiry were furnished to Audit.

The matter was reported to the management on July 25, 2008 and referred to the

Ministry on November 11, 2008. The management in its reply dated August 21,

2008 stated that the matter had been reported to DGM Security which was under

investigation.

The reply of the management was not tenable because despite lapse of two and half

years of theft incident, the continuation of investigation depicted casual attitude

towards assets of the organization.


expressed its concern over non-conducting of a departmental enquiry and directed

the management to hold an inquiry in the matter to fix responsibility on the persons

at fault. The DAC also directed that the enquiry report may be submitted to the

Ministry by March 28, 2009. However, despite efforts, no latest position was


423

SKYROOMS (PVT.) LIMITED

AUDIT COMMENTS


36. Skyrooms (Pvt.) Limited was incorporated as a Private Limited

Company on May 20, 1975. The Company is a wholly owned subsidiary of

Pakistan International Airline Corporation (PIAC). Until June 30, 1999 PIA

Holdings (Private) Limited was holding Company. The Company owns and

manages Airport Hotel at Karachi.

36.1 The working results of the Company for the year 2006 as compared

with those of the previous years are given hereunder:

(Rs. in million)

2006

%

Inc/(Dec) 2005

%

Inc/(Dec) 2004

%

Inc/(Dec) 2003

Revenue 174.251 27.9 136.234 22.9 110.838 226.1 33.994

Cost of goods sold and

services (146.112) 20.5 (121.261) 20.7 (100.467) 156.5 (39.186)

Gross profit / (loss) 28.139 88.0 14.973 44.4 10.371 - (5.192)

Administrative & selling

expenses (29.105) 79.7 (16.190) (12.9) (11.526) (91.5) (6.019)

Operating profit/(loss) (0.966) (20.6) (1.216) 4.3 (1.155) (39.7) (11.211)

Effect of change in Accounting Estimate 1.934 - - - - - -

Financial charges (0.029) 38.1 (0.021) (425.0) (0.004) 33.3 (0.003)

Other income 3.275 13.4 1.390 3.7 1.342 184.5 0.470

Profit/(loss) before tax 4.213 27.1 0.153 (16.6) 0.183 - (10.744)

Taxation (35.082) - (0.680) - - - -

Profit/(loss) after tax (30.869) - (0.527) - - - -

Accumulated losses (100.706) 44.2 (69.837) 0.8 (69.309) (3.6) (67.449)

The accounts for the year 2003 and 2004 do not reflect the amount of taxation Source: Annual Audited Accounts

Administrative and selling expenses increased by 79.7% during the year

under review as compared to preceding year 2005, which indicates that the

management had inadequate control over the expenditure. Effective steps are

required to be taken to control the expenditure in order to make the company

self-sustaining.

36.2 The Company had accumulated losses of Rs.100.706 million as on

December 31, 2006 as against the paid up share capital of Rs.40.000 million which

424

leaves a negative share holders equity of Rs.60.706 million. The Company’s ability

to continue as a going concern is dependent upon the financial and operational

support from PIAC.

36.3 Other receivables increased to Rs.2.376 million during the year under

review as against Rs.1.838 million of preceding year 2005, registering an

increase of 29.3%. The reasons for non-recovery of the dues required to be looked

into.

AUDIT PARA

37. Loss due to allowing private guests to stay in hotel free of cost for an

abnormal period – Rs.0.299 million

As per clause-3 of the procedure circulated on June 14, 2005 regulating the entry

and exit of guests in the Airport Hotel, the advance payment is required from the

guests at the time of check in and no credit is to be accepted unless authorized by

the competent authority.

In Airport Hotel, Karachi, owned by Skyrooms (Pvt.) Limited (a subsidiary of

PIAC), two private guests were allowed to stay at Hotel for 320 days (July 21, 2005

to June 06, 2006) and 51 days (April 02, 2006 to May 23, 2006) without receiving

advance payment. The first guest made partial payment and the second guest did

not pay a single penny at all. Both the guests left hotel without clearing their dues

and no one from the management of hotel could check them when they were

leaving the hotel with their belongings. Consequently, the dues of Rs.196,875 and

Rs.102,000 remained outstanding against them and the organization had to sustain

a loss of Rs.298,875 on this account.

The matter was reported to the management in February 2008 and referred to the

Ministry in August 2008. The management in its reply dated September 11, 2008

stated that they unfortunately failed to realize the amount and the same was

provided as doubtful debts which would be presented to the Board of Directors for

approval.

The reply of the management was not tenable as the management of the hotel was

425

bound to implement the policy of obtaining advance payment at the time of entry of

guests.

The issue was discussed in the DAC meeting held on February 26, 2009 which

observed that the para will stand till recovery. However, despite efforts, no latest

position was intimated by the management till the finalization of this report.

426


(63–67)

427

428

KARACHI SHIPYARD AND ENGINEERING WORKS LIMITED

AUDIT COMMENTS


38. Karachi Shipyard and Engineering Works Limited (KS&EW) is an

unquoted public limited company incorporated under the Companies Ordinance,

1984. The major activities of the Company are shipbuilding, ship repairs and

general engineering.

38.1 The working results of the Shipyard for the year 2006-07 as compared with

those of the previous years are as under.

(Rs. in million)

2006-07

%

Inc/(Dec)

2005-06

%

Inc/(Dec)

2004-05

%

Inc/(Dec)

2003-04

Net Sales 636.123 6.3 598.381 10.8 540.000 (0.9) 544.871

Cost of sales (412.854) (5.5) (436.969) (3.3) (451.900) (14.5) (528.710)

Gross profit/(loss) 223.269 38.3 161.411 83.2 88.100 445.2 16.161

Administrative, selling & distribution

expenses (115.191) (13.5) (133.234) (2.8) (137.167) (3.3) (141.888)

Operating profit/ (loss) 108.078 283.5 28.178 - (49.067) (61.0) (125.721)

Other charges (67.318) - (0.164) -

Financial charges (117.821) (10.5) (131.621) 18.2 (111.377) 26.2 (88.260)

Other income 159.426 938.5 15.352 15.0 13.345 47.4 9.051


taxation

82.365 - (88.256) - (147.099) (28.2) (204.940)

Taxation (3.369) 9.8 (3.069) 10.9 (2.767) 0.07 (2.770)

Net profit/(loss) after taxation 78.996 - (91.325) (39.1) (149.866) (27.8) (207.709)

Accumulated losses

beginning (3,315.591) - (3,224.266) (3,274.400) (3,066.691)

Government grant - - - 200.000 - -

Accumulated losses

ending (3,236.595) (2.44) (3,315.591) 2.8 (3,224.266) (1.5) (3,274.400)


The overall working results of the Company were satisfactory during

the year under review.

38.2 The Company had accumulated losses of Rs.3,236.595 million as on June

30, 2007 against the paid-up capital of Rs.2,384.231 million which left net negative

shareholders equity of Rs.852.364 million. Current liabilities of the Company as on

429

June 30, 2007 stood at Rs.2,032.632 million which exceeded its current assets of

Rs.1,281.542 million by Rs.751.090 million. Due to this adverse liquidity position,

the Company was unable to discharge its liabilities.

38.3 Trade debts stood at Rs.370.300 million as on June 30, 2007 as against

Rs.274.043 million of preceding year, registering an increase of 35.1%. Early steps

are needed to recover/adjust the outstanding dues of the company to improve its

liquidity position.

AUDIT PARA

39. Loss due to non-fulfillment of contractual obligations for construction

of pilot boats – Rs.17.776 million

A contract agreement dated September 20, 2001 signed by Karachi Shipyard and

Engineering Works (KS&EW) with Port Qasim Authority (PQA) for construction

of two pilot boats at the cost of Rs.128.200 million made liable KS&EW for the

following obligations:-

Completion of the construction of boats within 8 months of effective date of

contract (Article 18.1).

Compensation to PQA for deficiency in the speed of boat @ 0.5% of contract price

for each half knot or part thereof (Article 17.1).

Payment of liquidated damages for each day beyond first 30 days of delay @ 0.11%

of contract price subject to maximum of 10% (Article 9.1 (b)).

Reimbursement of amount spent by PQA on the supervision of boats, in case delay

exceeds 120 days (Article 9.1 (c)).

Proceeds of Performance Security/Bank Guarantee (10% of contract price) payable

to PQA as compensation for any loss for failure to complete the obligations under

contract (Article 4.2).

KS&EW neither fulfilled the contracted delivery period nor the quality in respect

430

of specified speed of the boats was achieved. As against the contractual delivery

date of December 15, 2002, the first boat was delivered on June 25, 2003 and the

second one on October 24, 2003; thus the maximum period of 120 days delay was

also lapsed over by KS&EW. Resultantly, PQA withheld balance payments of

Rs.7.340 million as well as Performance Bank Guarantee and lodged following

claims against KS&EW for their failure to fulfill contractual obligations:-

i. Liquidated damages upto 10% of contract price

Rs.12.376 million

ii. Fee of PQA consultants for the delay in delivery beyond 120 days.

Rs. 1.560 million

iii. Compensation against deficiency in the speed of boats @ 2% of contract price

Rs. 3.840 million

Total: Rs.17.776 million The issue was taken up with the management in January 2008 and referred to the Ministry in October 2008. The management in its reply in February 2008 stated that the matter was under correspondence with PQA to resolve the issue of outstanding payments. The matter was discussed in the DAC meeting held on February 17, 2009 which

directed KS&EW authorities to pursue the matter with PQA and resolve it within

six weeks. The DAC further directed that in case of failure by PQA to respond, then

the matter be referred to Ministry of Ports and Shipping under intimation to

Ministry of Defence Production for early settlement of the long outstanding issue.

However, despite efforts, no latest position was intimated by the management till

the finalization of this report.

431

432

MINISTRY OF EDUCATION

(69–71)

433

434

NATIONAL BOOK FOUNDATION

AUDIT COMMENTS


40. National Book Foundation (NBF) is an autonomous body established

under an Act of Parliament, 1972. National Book Council of Pakistan (NBCP) was

merged with National Book Foundation w.e.f July 01, 1994. Accordingly all the

assets and liabilities of former NBCP on that date were incorporated in the books of

NBF. National Book Foundation is engaged in the promotion of literacy by

developing, printing and trading of books and other activities related thereto.

40.1 The working results of the Foundation for the year 2006-07 as compared

with those of the preceding years are as under: - (Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

Sales 184.698 13 163.280 45 112.429

Cost of sales 148.958 16 128.117 38 92.616

Trading profit 35.740 2 35.162 77 19.813

Other income 6.017 (24) 7.934 78 4.448

Admn. selling and distribution expenses 32.553 57 20.731 58 13.139

Financial charges 4.592 (14) 5.360 (20) 6.730

Profit /(loss) before taxation 4.612 (73) 17.005 287 4.392

Provision for taxation 0.923 13 0.816 45 0.562

Profit /(loss) for the year 3.689 (77) 16.189 323 3.830

Accumulated profit/(loss) 16.436 29 12.747 - (3.441)


The Foundation earned net profit after taxation of Rs. 3.689 million in

2006-07 as against Rs.16.189 million in 2005-06 registering a decrease by 77%.

The main reason of decrease in net profit was increase in administrative and general

expenses by 57% from Rs.20.731 million in 2005-06 to Rs. 32.553 million in

2006-07. The increase in administrative and general expenses needs to be

controlled.

435

436

MINISTRY OF ENVIRONMENT

(73–76)

437

438

PAKISTAN ENVIRONMENTAL PLANNING AND ARCHITECTURAL

CONSULTANTS (PVT.) LIMITED

AUDIT COMMENTS


41. Pakistan Environmental Planning and Architectural Consultants (Pvt.)

Limited (PEPAC) was incorporated as a private limited company, in 1974 under

the Companies Act, 1913 (now Companies Ordinance, 1984). The Company is

primarily engaged in providing architectural consultancy services.

41.1 The working results of the Company for the year 2006-07 as compared to

previous years are given here under: -

(Rs. in million)

2006-07 %

Inc/(Dec)

2005-06

(Restated)

%

Inc/(Dec)

2004-05

Professional fee 40.058 27 31.518 158 12.226

Cost of professional services 22.733 31 17.394 103 8.567

Gross profit 17.325 23 14.124 286 3.659

Administrative expenses 6.663 23 5.396 85 2.916

Promotional expenses 0.533 10 0.483 1758 0.026

Other income 2.078 - 0.066 (84) 0.401

Financial and other charges 0.019 19 0.016 167 0.006

Profit before taxation 12.188 47 8.295 646 1.112

Taxation 1.104 - 0.158 - 0.061

Profit after taxation 11.083 36 8.137 674 1.051

Accumulated loss B/F (11.613) (41) (19.750) 63 (12.087)

Accumulated loss transferred to

balance sheet (0.530) (95) (11.613) 5 (11.036) Source: Annual Audited Accounts

Profit after tax increased from Rs.8.137 million in 2005-06 to Rs.11.083

million in 2006-07 registering an increase of 36% over previous year. The increase

was due to 27% increase in professional fee over previous year i.e. from Rs. 31.518

million in 2005-06 to Rs.40.058 million in 2006-07. The accumulated loss

decreased from Rs.11.613 million in 2005-06 to Rs.0.530 million in 2006-07.

Efforts need to be made to increase the revenue of the organization.

439

41.2 Professional fee receivable increased from Rs.9.703 million in 2005-06 to

Rs.15.046 million in 2006-07 registering an increase of 55% over previous year.

The amount arrived at after providing for bad and doubtful debts amounting to

Rs. 14.989 million. The management in the accounts for the year 2005-06 created

provision of doubtful debt of Rs.6.275 million but in the accounts for the year

2006-07 provision of doubtful debts for the year 2005-06 increased from Rs.6.275

million to Rs.14.989 million which resulted into increase of accumulated loss to Rs

19.750 million on June 30, 2006. Efforts may be made for early realization of

outstanding amount to avoid their conversion into bad debts in the years to come.

440

FINANCE DIVISION

(77–113)

441

442

HOUSE BUILDING FINANCE CORPORATION

AUDIT COMMENTS


42. House Building Finance Corporation was formed in 1952 under an Act of

Parliament known as House Building Finance Corporation Act, 1952. The

objectives of the Corporation are to provide financial facilities for the construction,

reconstruction, repair and purchase of houses. The Corporation provides

investment facility through a network of 58 district offices and 12 zonal offices

throughout Pakistan including Azad Kashmir.

The Board of Directors of the Corporation through a resolution dated July

02, 2005 approved a change in the accounting policy regarding the treatment of

interest income earned on items reflected in deferred credit account. According to

this change, the same portion of interest income has been credited to the deferred

credit account instead of the profit and loss account. The effect of this change in

accounting policy has been taken retrospectively and necessary revisions have

accordingly been made in the comparative figures to reflect the change.

42.1 The working results of the Corporation for the year ended December 31,

2006 as compared to the previous years are as under:

(Rs. in million)

2006

%

Inc/(Dec)

2005

%

Inc/(Dec) 2004

Net rental mark-up / return/interest

income 1,823.488 19.8 1,521.637 28.7 1,182.520

Reversals/provisions made against non- performing advances 310.800 (3.4) 321.673 (76.2) 1,353.410

Reversal of rental income due to

relief package (286.907) (67.8) (890.290) - -

Other income 29.325 56.3 18.767 (50.7) 38.060

Total income 1,876.706 93.1 971.767 - (132.830)

Administrative and other charges (991.103) 10.2 ( 899.310 ) 3.0 872.670

SBP share of profit (529.829) - - - -

Profit/(loss) before taxation 355.774 391.0 72.467 92.8 (1,005.500)

Taxation (211.460) (53.0) (450.199) 44.8 (310.850)

Profit/(loss) after taxation 144.314 - (377.732) 45.6 (694.650)

Un-appropriated/un-remitted profit

C/F 131.876 - 2,794.364 - 3,172,.100


443

The overall working results of the Corporation were satisfactory during


42.2 Un-appropriated profit on close of the preceding year 2005 amounting to

Rs.2,794.364 million was appropriated to the extent of Rs.2,777.939 million as

well as General Reserves (Rs.17.969 million) and Contingency Reserve (Rs.4.092

million) for issuance of bonus share in the year 2006, thus making the share capital

as Rs.3.000 billion as on December 31, 2006 against the amount of Rs.0.200 billion

of preceding year.

43. Systemic issue observed during audit of House Building

Finance Corporation

System failure in recovery of housing loans

The heavy accumulation of amount of default in repayments of loans by the

borrowers is the main issue of House Building Finance Corporation (HBFC),

which is adversely effecting its financial position. Though in some cases the

management confiscated the properties of defaulters for auction, but in most of the

cases a very lukewarm response was observed due to influential position of the

defaulters.

Despite powers conferred to the authorities under HBFC Office Procedure Manual,

1984 and subsequently vide Financial Institutions (Recovery of Finances)

Ordinance, 2001, the management could recover only 11.4% of the stuck up

amount during the year under review as detailed in the Audit Paras. The

unsatisfactory results indicated system’s failure which requires attention of the

management for remedial measures.

444

AUDIT PARAS

44. Non-recovery of housing loans from the defaulters – Rs.2.688 billion

As per Para 221 and 222 of House Building Finance Corporation (HBFC) Office

Procedure Manual 1984, in case of the chronic defaulter of Interest Bearing

Scheme (IBS), Profit & Loss Scheme (PLS) and Simplified Schemes (SS), the

action under Section 30 was required to be invoked to take over the physical

possession of the property for auction and realization of the Corporation dues.

Under Section 15 (4) of Financial Institutions (Recovery of Finances) Ordinance, 2001, where a mortgagor fails to pay the amount as demanded within the period expired, the financial institution may, without the intervention of any court, sell the mortgaged property or any part thereof by public auction.

Despite above provisions, following outstanding recoveries as detailed para-wise

below, were noticed:-

(a) Non-recovery of loans from the defaulters of time expired cases


In HBFC (Head Office), a heavy amount of Rs.2.851 billion was outstanding as on

December 31, 2006 against 22,659 defaulters of time expired cases (15 to 20 years

old) as detailed below, which indicates loose internal controls:-

(Rs. in million)

S.No. Scheme No. of cases Outstanding

amount

1 IBS 2,591 260.050

2 PLS 9,092 1,057.990

3 SS 10,976 1,533.290

Total: 22,659 2,851.330

The matter was taken up with the management in November 2007 and referred to

the Ministry in December 2008. The management in its reply in December 2007

stated that they had introduced various schemes and packages for clients with

establishment of a special Assets Division to recover such non-performing loans,

but no tangible success had been noticed. The management in its further reply dated

445

February 20, 2009 reported recovery of Rs.326.360 million and stated that the

outstanding balance as on December 31, 2008 was Rs.2,554.160 million after

closing of 5,159 accounts. However, no documentary evidence was furnished in

support of their reply.

The case was discussed in the DAC meeting held on April 27, 2009. The

management informed the DAC that 5,159 accounts had been closed with recovery

amount of Rs.326.350 million against the outstanding balances. The DAC decided

to reduce the amount of Audit Para to the extent of recovered amount and the Para

would stand till the recovery of full amount. The DAC also directed the

management to get the recovery of Rs.326.350 million verified from Audit.

However, no progress in the recoveries was reported by the management till the


(b) Non-recovery of decreed amount of Rs.100.032 million

In House Building Finance Corporation (HBFC), an amount of Rs.161.614 million was outstanding against 1,697 court decreed cases as on December 31, 2006 which depicts inadequate recovery action by the management. The non-recovery was pointed out to the management in November 2007 and referred to the Ministry in December 2008. The management in its reply in December 2007 stated that pace of recovery was improved significantly and remaining 605 cases only amounting to Rs.93.160 million were left to be recovered. The matter was discussed in the DAC meeting held on April 27, 2009. The management informed the DAC that out of total 1,697 cases, they had settled 1,158 cases by recovery of Rs.61.582 million leaving an outstanding balance of Rs.100.032 million. The DAC decided that the Para would stand till full recovery and directed the management to get the recovered amount verified from Audit. However, no progress was reported by the management till finalization of this report.

(c) Non-recovery from the defaulters under various schemes – Rs.27.556 million

House Building Finance Corporation (HBFC) sanctioned loans to a large number of parties under Simplified Scheme (SS), New Simplified Scheme (NSS), Shandar Ghar Scheme (SGS) and Ghar Aasan Scheme (GAS) during the years 1995 to 2006 as per details shown below, however, the management could not recover the

446

outstanding balance from the borrowers which indicates loose internal controls:-

(Rs. in million) S.

No.

Scheme Amount

disbursed

Last

amount

received

Default

amount

Outstanding

balance

1. Simplified Scheme (SS) 3.001 0.108 4.537 7.860

2. New Simplified Scheme

(NSS)

7.101 0.257 3.367 18.080

3. Shandar Ghar Scheme (SGS) - - 2.355 2.355

4. Ghar Aasan Scheme (GAS) 1.690 - 0.284 2.292

Total: 11.792 0.365 10.543 30.587

The non-recovery was pointed out to the management in November 2007 and

referred to the Ministry in December 2008. The management in its reply in March

2008 stated that the inflationary trends had affected the repayment capacity of

partners; however, legal actions under the provisions of Financial Intuitions

(Recovery of Finance), Ordinance 2001 had been taken in all cases.

The reply of the management was not tenable because some of the schemes are no

more operative; therefore, legal actions were bound to be started on expiry of

schemes. It was evident from the records that no action had been taken under the

Recovery Rules of the Corporation.

The matter was discussed in the DAC meeting held on April 27, 2009. The

management informed the DAC that outstanding amount had been reduced to

Rs.27.556 million by October 2008 after effecting recoveries. The DAC directed

the management to expedite the campaign till full recovery. However, no progress

in the recovery was reported by the management till the finalization of this report.

(d) Non-recovery of housing loans from the defaulters – Rs.6.404

million

In House Building Finance Corporation (HBFC), Housing Project Zone, Karachi,

an amount of Rs.6.739 million was lying outstanding against 17 default cases of

housing loans. The management confiscated mortgaged property valuing Rs.4.721

million, thus the balance of default amount to the extent of Rs.2.018 million was a

loss to the organization. Neither those confiscated properties were disposed off nor

447

any other measures were taken to recover the disbursed amount.

The non-recovery was pointed out to the management on August 08, 2007 and


April 24, 2008 stated they had recovered Rs.1.072 million leaving a balance of

Rs.6.813 million and efforts for recovery under the Financial Institutions

(Recovery of Finances) Ordinance, 2001 were in progress.

Upon verification of recoveries as intimated by the management, the outstanding

balance in respect of the same accounts found to be accumulated as Rs.9.182

million as on November 25, 2008 with a recovery of Rs.1.550 million; hence the

progress of recovery was not found significant.


management informed that after effecting recoveries, the outstanding balance was

Rs.6.404 million. The DAC decided that Para would stand till full recovery and

directed the management to get the recovered amount as well as the position of

confiscated properties, verified from Audit. However, no progress was reported by

the management till the finalization of this report.

448

INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN

AUDIT COMMENTS


45. Industrial Development Bank of Pakistan (IDBP), a scheduled bank, was

established in Pakistan under the IDBP Ordinance (XXXI of 1961). The objective

of the Bank is to provide all types of banking services. The Bank also remained

engaged in term financing for industrial and commercial activities, fund

management and leasing. At present Bank’s operations are confined in keeping of

depositor’s accounts and recovery of outstanding/stuck-up loans.

IDBP is presently in the process of being incorporated under the Companies

Ordinance 1984 consequent upon the promulgation of Industrial Development

Bank of Pakistan (Reorganization and Conversion) Ordinance No.XVII of 2006

aimed at converting IDBP into Industrial Development Bank Limited; a corporate

entity incorporated under the Companies Ordinance, 1984.

45.1 The working results of the Bank for the year 2006-07 as compared to the

previous years are given below: - (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Mark up/return/

interest earned 552.443 95.5 282.605 10.0 256.980 (3.9) 267.510

Mark up/return/ interest expensed (649.811) (2.0) (662.873) (11.0) (745.415) (0.3) (747.499)

Net mark-up/ interest

expense (97.368) (74.4) (380.268) 22.1 (488.440) 1.7 (479.990)

(Provision)/Reversal against

non-performing loans

and advances 399.436 - (619.345) 3.35 (640.850) 29.9 (493.22)

Net mark-up/ Interest (Loss) after provision 302.068 130.2 (999.613) 11.48 (1,129.290) 160.4 (973.210)

Total non-markup/

interest income 114.896 52.2 75.490 101.0 37.410 16.7 32.630

Total income 416.964 - (924.123) 15.4 (1,091.880) 16.1 (940.580)

Non-markup/

interest expenses (812.651) (7.3) (876.572) 186.5 (305.960) (44.8) (554.951)

Loss before taxation (395.687) (78.0) (1,800.695) 28.8 (1,397.840) (6.6) (1,496.100)

Taxation (2.655) 15.6 (2.303) 18.1 (2.813) (45.6) (5.174)

Loss after taxation (398.342) (77.9) (1,802.998) 28.72 (1,400.653) (6.7) (1,501.274)

Accumulated losses (28,978.795) 1.4 (28,580.450) 6.7 (26,777.455) 5.5 (25,376.802)


449

Loss before taxation decreased by 78.0%, i.e., from Rs.1.803 billion

during the year 2005-06 to Rs.0.396 billion during the year 2006-07. The progress


45.2 As on June 30, 2007, total liabilities stood at Rs.37.544 billion

(2005-06 : Rs.36.167 billion) against assets of Rs.9.424 billion

(2005-06: Rs.8.132 billion) resulting in negative net worth of Rs.28.120 billion

(2004-05 : Rs.28.035 billion). The accumulated losses of Rs.28.979 billion had

eroded share capital and reserve fund of the organization. Corrective measures

are required to eliminate accumulated losses and to make the Bank a viable

concern.

45.3 Borrowing from Financial Institutions and Government of Pakistan

amounted to Rs.22.682 billion as on June 30, 2007 (2005-06 : Rs.20.581 billion). It

included SBP Credit Line and Banking Sector Adjustment Loan amounting to

Rs.8.000 billion and Rs.0.500 billion respectively for which no formal agreement

defining the terms and conditions of the loans had been made between the Bank

and the lenders.

AUDIT PARAS

46. Non-recovery of dues from a defaulting borrower – Rs.23.917 million


Industrial Development Bank of Pakistan (IDBP), Islamabad sanctioned a local

currency financial assistance of Rs.11.900 million on February 19, 1998 under

SBP, LMM Scheme to M/s. Venice Steel Mills (Pvt.) Limited for setting up a

new high frequency Steel Induction Furnace and Steel Re-rolling Mills at

Mirpur (AJK). Out of the aforesaid financial assistance, the company availed

Rs.9.858 million.

450

The loan liability accumulated to Rs.17.487 million as on May 15, 2003, which

was re-scheduled in August 2003. Subsequently, the borrower made down

payment of Rs.1.500 million on August 9, 2003 and Rs.0.500 million in December

2003.

The borrower approached the Bank for settlement under SBP’s newly introduced

scheme for One Time Debt Settlement (OTDS) on April 29, 2005. A package

for lump sum payment of Rs.14.378 million under said scheme was offered to

the borrower. The borrower paid only down payment of Rs.1.438 million and

failed to make balance payment within prescribed time. Resultantly, package was

withdrawn and the Bank filed a suit of recovery amounting to Rs.28.354 million on

May 31, 2006. Had prompt action been taken against the defaulter, heavy

accumulation of outstanding dues could have avoided.

The non-recovery was pointed out to the management on May 9, 2007 and

referred to the Ministry on November 14, 2007. The management in its reply dated

November 27, 2007 stated that the Bank had recovered Rs.4.437 million from the

borrowers against total amount of Rs.28.354 million.

The reply was not tenable as Audit was of the view that timely action had not been

taken against the defaulter. Moreover, the recovery reported by the management

was not substantial.


management informed the DAC that the case was subjudice. The DAC observed

that the Para would stand till recovery. However, no progress in the case was

reported by the management till finalization of this report.

47. Non-recovery against a decreed case of loan default – Rs.8.291 million


In Industrial Development Bank of Pakistan (IDBP), Head Office, a loan of

Rs.3.400 million was sanctioned to a firm, M/s. Jakhrani Flour Mills (Pvt.)

451

Limited in September 1993 under SBP Scheme for replacement and expansion

of their unit at Jacobabad. As a result of default in the repayment of loan, a

decree of Rs.8.291 million was issued by Sindh High Court in September 2001

in favour of IDBP. However, the management could not realize the decreed

amount despite lapse of seven years.

The non-recovery was pointed out to the management in April 2008 and referred

to the Ministry in November 2008. The management in its reply in May 2008

stated that the captioned case was decreed and was under possession of the

Bank. They also added that because of tribal status of the borrower in the

locality, no person came forward either under auction or negotiation, therefore,

the settlement of Bank's liability remained hanged on.

The reply was not tenable as the loan was required to be granted after satisfaction

over the aspect of recovery and the status of borrower should not be a ground to let

off realization in the decreed case.


management informed the DAC that an execution application had been filed in the

Banking Court, Larkana. The DAC observed that the Para would stand till

recovery. However, no progress in the recovery was reported by the management

till the finalization of this report.

48. Non-recovery of advances outstanding against ex-employees


The outstanding advances should be recovered from dues of employees before

their retirement/removal from service.

In Industrial Development Bank of Pakistan (IDBP), a sum of Rs.2.007 million was

recoverable from seven ex-employees as on June 30, 2006 on account of House

Building, Car/Scooter and Computer Advances. The management failed to settle

the advances at the time of retirement/quitting the Bank service by the concerned

employees.

The non-recovery was pointed out to the management on April 07, 2007 and


452

March 19, 2008 stated that the employees were not retired/relieved under normal

circumstances. The management added that after termination of their services, their

outstanding liabilities were adjusted against dues payable to them inclusive of their

Provident Fund and the legal actions had been initiated for recovery of balance

amount. The reply was not tenable as the advances should have been secured before

payment.


management informed the DAC that the recovery of Rs.0.183 million had been

made whereas a petty amount of Rs.19,377 would be written-off due to death of the

concerned ex-employee in a road accident. The DAC advised the management to

expedite measures for recovery of remaining amount and decided that the Para with

reduced amount would stand till full recovery. However, no progress in the

recovery was reported by the management till finalization of this report.

453

PAKISTAN SECURITY PRINTING CORPORATION (PVT.) LIMITED

AUDIT COMMENTS


49. Pakistan Security Printing Corporation (Private) Limited (PSPC) was

established in 1949 by the Government of Pakistan with an initial capital of Rs.500

million which included Government share as 60% in the form of cash and 40% was

by Thomas De La Rue of London in the shape of machinery and equipment. The

Corporation went into production in 1951. The printing machinery was initially

installed to meet the demands of the State Bank of Pakistan and Pakistan Post

Office for printing of currency notes and non-judicial postal stamps. Later on,

100% shares were acquired by the Government of Pakistan on March 31, 1971. The

Corporation is principally engaged in the printing of security documents on behalf

of the Government of Pakistan, State Bank of Pakistan and other institutions. PSPC

has its two associated companies, viz., Security Papers Limited (SPL) and SICPA

Inks Pakistan (Pvt.) Limited.

49.1 The working results of the Corporation for the year 2006-07 as compared

with those of the previous years are as under:- (Rs. in million)

2006-07

%

Inc/ (Dec)

2005-06 (Restated)

%

Inc/ (Dec) 2004-05

%

Inc/ (Dec) 2003-04

Sales 3,996.864 25.2 3,190.992 17.8 2,707.990 11.6 2,427.051

Cost of sales (2,842.723) 18.5 (2,399.156) 18.0 (2,024.665) 8.6 (1,863.456)

Gross profit 1,154.141 45.7 791.836 17.5 683.325 21.2 563.595

Operating expenses (190.098) (1.7) (193.468) 24.5 (164.735) 18.7 (138.767)

Operating profit 964.043 61.1 598.368 15.4 518.590 22.1 424.828

Other income 255.942 10.9 230.716 (6.4) 246.620 (21.7) 314.854

Financial charges (314.125) 781.8 (35.623) 1,589.9 (2.108) 34.8 (1.564)

Other charges (39.176) 55.2 (87.352) 125.8 (38.683) 2.1 (37.890)

Share of profit from associates

87.319

(44.4) 156.973 100.2 78.395 - -

Profit before taxation 954.003 10.5 863.082 7.5 802.814 3.4 700.228

Profit after taxation 588.295 (8.2) 641.010 13.2 565.988 0.7 495.484




454

49.2 Financial charges during the year under report increased to Rs.314.125

million as against Rs.35.623 million of preceding year 2005-06, registering an

increase of 781.8% mainly due to increase in markup on Term Finance Loan which

needs elucidation.

49.3 The share of profit from associates (viz, Security Papers Limited and

SICPA Inks Pakistan Pvt. Limited) during the year under review was Rs.87.319

million as against Rs.156.973 million of the preceding year 2005-06. The decrease

of 44.4% on this account needs justification.

AUDIT PARA

50. Irregular /unjustified ex-gratia payment – Rs.39.717 million

As per Bonus Policy circulated by Finance Division through O.M. F.3(5)R-12/80

R-14(Vol-II)/2001-544 dated November 30, 2001, the

autonomous/semi-autonomous bodies and corporations are required to obtain

approval of the administrative Ministry and concurrence of Finance Division

before payment of bonus to their employees. Moreover, in continuation of the said

policy, Finance Division, Government of Pakistan through O.M. No.

F.3(5)R-12/80(R.M)/2002-151 dated March 18, 2002 provided that the payment

of bonus to such employees would be subject to following conditions:-

i. The bonus would be paid on operational profit of the organization

only.

ii. The payment of bonus would not be made as customary but it

would be on the basis of operating profit as reflected in the annual

audited accounts of the organization.

iii. No commitment of payment of bonus may be made during

negotiation with the CBA because of conditions at (i) and (ii)

above.

iv. Managing Directors and Members of Board of Directors will not

be entitled to receive bonus.

Contrary to the above regulations, Pakistan Security Printing Corporation

(PSPC), made following payments of bonus and ex-gratia during the period

455

October 2006 to December 2007:-

S.No. Payee

Amount paid

(Rs. in million)

Ex-gratia Bonus Total

1. Managing Director 2.500 1.600 4.100

2. Officers 13.319 22.298 35.617

Total:- 15.819 23.898 39.717

The payment of bonus/ex-gratia to officers required concurrence of Finance

Division which was not obtained by the management, whereas the payment to

the Managing Director was not admissible at all.

The irregularity was pointed out to the management on April 14, 2007 &

November 24, 2008; and referred to the Ministry on December 13, 2008. The

management in its reply dated January 09, 2009 stated that the Board of

Directors under Companies Ordinance was empowered to approve the

expenditure as per powers vested under the Company Law. They added that

previously DAC in its meeting held on April 6 & 7, 2007 had recommended

for settlement of similar para (No.284 of 1989-90).

The reply of the management was not tenable as the policy circulated by

Finance Division did not exempt the Public Sector entities constituted under

Companies Ordinance for obtaining concurrence of the Finance Division.

Moreover, the DAC was not a forum to make rulings in this regard as the

Finance Division, Government of Pakistan, is relevant forum to endorse the

contention of the management which had not been obtained in this case.

The matter was discussed in the DAC meeting held on April 27, 2009. The DAC

observed that the Para would stand because the amount of bonus / ex-gratia paid to

the ex-Managing Director was unreasonable.

456

STATE BANK OF PAKISTAN

AUDIT COMMENTS


51. State Bank of Pakistan (SBP) is the Central Bank of Pakistan and is

incorporated under the State Bank of Pakistan Act, 1956. It is an autonomous

institution. Under the provisions of the SBP Act, 1956, the “general

superintendence and direction of the affairs and business of the Bank” rests with the

Central Board of Directors. Through an amendment in the SBP Act in February

1994, the Central Board of Directors was enlarged which now consists of the

Governor, Secretary Finance, Government of Pakistan and seven Directors

nominated by the Federal Government. From these seven Directors, one Director

from each province is nominated while ensuring representation to agriculture,

banking and industrial sectors.

The strategic objectives are:

1. Broadening Access of Financial Services.

2. Ensuring Soundness of the Financial Sector.

3. Maintaining Price Stability with Growth.

4. Exchange and Reserve Management.

5. Strengthening of Payment System.

6. Human Resources Development.

7. Information Technology Development.

51.1 The working results of the Bank for the year 2006-07 as compared to the

previous years are given below: (Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

%

Inc/(Dec) 2003-04

Discount, interest/

markup and/or return

earned 92,513.195 32.3 69,940.502 135.0 29,757.649 153.6 11,734.111

Interest/markup expense (5,289.092) 30.7 (4,047.802) 77.2 (2,284.108) (56.1) (5,202.091)

Net income 87,224.103 32.4 65,892.700 140.2 27,473.541 320.6 6,532.020

Commission income 656.268 48.8 441.033 (36.3) 692.958 39.6 496.454

Exchange gain/(loss) 1,957.806 (55.3) 4,376.273 (68.3) 13,827.713 1,731.1 755.172

Dividend income 4,286.628 117.1 1,974.628 31.4 1,502.639 5.7 1,422.058

Other operating

income - net 2,944.823 268.3 799.545 143.8 327.904 (10.8) 367.824

Total operating

Income – net 97,069.628 32.1 73,484.179 67.7 43,824.755 357.8 9,573.528

Note printing charges (3,087.214) 26.9 (2,431.476) (2.2) (2,486.249) 26.6 (1,963.777)

Agency commission (2,576.382) 17..6 (2,190.528) 25.6 (1,743.991) 12.2 (1,554.969)

457

Provision for:

- loans and advances 73.964 -

-

-

(4,687.861)

726.9

(566.906)

- diminution in value

of investment

-

-

-

-

(395.129)

-

-

- other doubtful assets (212.057) (61.3) (547.691) (64.7) (1,551.419) - -

Total provisions (138.093) 74.8 (547.691) (91.7) (6,634.409) 1,070.3 (566.906)

Total direct operating

expenses (5,801.689) 12.2 (5,169.695) 107.3 (32,960.106) 500.6 (5,487,876)

General, administrative

and other expenses

(9,210.501) 32.4 (6,956.813)

20.4 (5,779.637) (4.8) (6,073.234)

Operating profit/(loss) 82,057.438 33.7 61,357.671 125.7 27,180.469 - (585.358)

Other income 27,478.244 277 7,288.864 73.4 4,203.976 (41.9) 7,241.967

Other charges (803.069) 73.5 (462.747) 38.0 (335.209) (38.8) (548.111)

Net profit for the year 108,732.613 59.5 68,183.788 119.6 31,049.236 408.3 6,108.498

Source: Annual Audi ted Accounts

The overall working results of the Bank were satisfactory during the

year under review.

51.2 Capital work in progress increased to Rs.421.451 million as on June 30th

2007 as against Rs.396.760 million of preceding year 2005-06, registering an

increase of 6.2%. Non-completion of the work-in-progress needs to be elaborated.

AUDIT PARAS

52. Non-recovery/adjustment of loans outstanding against Government

and Private Sector Financial Institutions – Rs.15.663 billion

Loans must be recovered as per schedule of repayment provided in the relevant

loan agreements.

In State Bank of Pakistan (SBP), an amount of Rs.216.583 billion was lying

outstanding as on June 30, 2006 on account of loans and advances to the

Government as well as Private Financial Institutions.

The non-recovery was pointed out to the management on July 23, 2007 and referred

to the Ministry on March 27, 2008. The management in its reply dated April 21,

2008 stated that loans and advances disbursed in routine are not problematic,

however, overdue loans are matter of grave concern. They added that the

outstanding balance of Rs.16.144 billion was stuck up which has now been brought

down to Rs.15.663 billion as on December 31, 2008.

458

The matter was discussed in the DAC meeting held on April 27, 2009. The DAC

observed that the Para would stand as there was no progress in recovery of the

outstanding loans.

53. Irregular contract appointment of an executive with hefty salary

package of Rs.13.766 million per annum

As per Government of Pakistan, Finance Division’s Notification No.F.3(7) R-4/98

dated August 18, 1998, the scales and fringe benefits of Management Position-II

(MP-II) were prescribed for hiring professionals from private sector. No other

benefit is admissible for contract employees.

Besides, in accordance with Government’s policy regarding contract appointments

in the Corporations/Public Sector Enterprises notified through Cabinet Secretariat

O.M. No.6/2/2000-R.3 dated May 6, 2000, where the nature of particular job

requires contract appointment, standing instructions by the Administrative

Ministry/Division specifying such posts and parameters governing the contract

appointment shall be issued in consultation with the Chairman of Board of

Directors of the concerned organization. Moreover, the selection shall be made for

the maximum period of two years with prior advertisement and through a regularly

constituted Selection Committee/Board.

State Bank of Pakistan (SBP), created a new post and appointed an

executive as Head of Treasury in October 2005 on contract basis for two

years with a salary package of Rs.13.766 million per annum. This

appointment was made without open competition / advertisement.

The irregularity was pointed out to the management on August 19, 2008

and referred to the Ministry on December 29, 2008 but no reply was

received.


management informed that the officer, before contract appointment, was serving on

deputation in the SBP for last two years and subsequently he was offered the

contract appointment for a period of two years by creating a post of Head of

459

Treasury with the approval of Board of Directors. They added that his contract had

been extended for further two years. The DAC observed that the creation of post

and appointment on unusual salary package without observing formalities was

unprecedented; hence the Para would stand. The DAC also directed the

management that names of Board of Directors who approved the appointment, may

be provided to the Ministry of Finance as well as to Audit. However, DAC’s

directive has not been complied with, till finalization of this report.

460

SMALL AND MEDIUM ENTERPRISES BANK LIMITED

AUDIT COMMENTS


54. Small and Medium Enterprises (SME) Bank Limited was incorporated in

pursuance of Government of Pakistan Ordinance No.LVI of 2001 with prime

objective of supporting and developing SME sector of the country. Small and

Medium Enterprises Bank was formed and incorporated as a public limited

company under the Companies Ordinance, 1984.

The Bank was established with the following objectives:

i. To support, develop and promote SMEs by providing them

necessary technical and financial assistance;

ii. To concentrate on value addition and export oriented SMEs; and

iii. To enable SMEs to play a vital role in stimulating GDP growth,

create job opportunities and reduce poverty.

54.1 The working results of the Bank for the year ended on December 31, 2007

as compared with those of previous years are given here under:- (Rs. in million)

2007

%

Inc/(Dec) 2006

%

Inc/(Dec) 2005

Markup/return/interest/earned 875.560 (9) 960.293 14 844.666

Mark-up / return/interest expenses 379.956 (16) 454.062 35 337.437

Net markup-interest /income 495.604 (2) 506.231 - 507.229

Reversal of provision against non

performing loans and advances

104.643 (52) 217.499 30 311.863

(Provision)/Reversal for diminution

in the value of investments

(0.804)

-

16.415

-

(5.690)

Reversal of value of provision in

value of other assets

37.466

-

-

-

-

Bad debts written off directly (3.780) 204 (1.245) - -

Net reversals of provisions 137.525 (41) 232.669 (24) 306.173

Net mark-up / interest income after

provision

633.129

(14)

738.900

(9)

813.402

Non markup / interest income

Fee, commission and brokerage

income

3.608

39

2.591

276

0.690

Dividend income 1.013 (14) 1.173 244 0.341

Gain on sale of Government

Securities

25.646

-

-

-

0.040

461

Other income 10.071 (56) 23.046 (13) 26.518

Total non markup / interest income 40.338 50 26.810 (3) 27.589

673.467 (12) 765.710 (9) 840.991

Non-markup/ interest expenses

Administration expenses 526.464 (5) 553.867 9 507.715

Other provision for write off (5.910) (70) (20.00) (45) (36.645)

Other charges 0.819 418 0.158 (80) 0.809

Total non-markup / interest

expenses 521.373 (2) 534.025 13 471.879

Profit before taxation 152.094 (34) 231.685 (37) 369.112

Taxation current 50.862 (29) 72.034 (50) 144.817

Prior years - - - - 23.886

Deferred (9.170) - 6.464 - (5.800)

41.692 (47) 78.498 (52) 162.903

Profit after taxation 110.403 (28) 153.187 (26) 206.209

Un-appropriated profit B/F 209.096 (64) 586.546 39 421.579

Profit available for appropriation 319.499 (57) 739.733 18 627.788

Basis / diluted earning per share

(Rs)

0.48 (38) 0.77 (35) 1.18

Source: Annual audited accounts

Analysis of annual audited accounts revealed that net markup / interest

income during the year decreased by 14% i.e. from Rs. 738.900 million in 2006 to

Rs. 633.129 million in 2007. The profit before tax decreased from Rs.231.685

million in 2006 to Rs.152.094 million in 2007 registering a decrease of 34% over

previous year. The decrease was mainly due to decrease in markup/return/ interest

earned by 9%. The overall performance of the Bank needs to be improved.

54.2 Disbursements rose to an all time high and surged to Rs.1.57 billion in 2007

as compared to Rs.1.25 billion in 2006. The number of clients served rose to 838

and since inception the bank has served 6,804 clients. The recovery of the SME

portfolio was Rs.619 million as compared to Rs.685 million in preceding year.

Recoveries for stuck up portfolio of defunct RDFC and SBFC had been Rs.93

million (2006: Rs.201 million) and Rs.308 million (2006: Rs.382 million)

respectively.

462

AUDIT PARAS

55. Doubtful recovery of loans due to non-initiation of proceedings under

Financial Institutions (Recovery of Finances) Ordinance, 2001

– Rs. 9.326 million

As per section 15(2) of Financial Institutions (Recovery of Finances) Ordinance,

2001 in case of default in payment by a customer, the financial institution may send

a notice on the mortgager demanding payment of the mortgage money outstanding

within fourteen days from the serving of the notice and failing payment within due

date, it shall send a second notice of demand for payment within the fourteen days.

In case the customer continues to default in payment, financial institution shall

serve a final notice for demanding outstanding amount within thirty days from

receiving the final notice. Further as per section 15(4) where a mortgager fails to

pay the amount as demanded within the period prescribed under sub-section (2),

and after the due date given in the final notice, the financial institution may without

the intervention of any Court, sell the mortgaged property or any part thereof by

public auction for satisfaction of the outstanding mortgage money.

SME Bank, Rawalpindi, disbursed loans to five borrowers amounting to Rs.4.730

million during the period from 1990 to 1997 after mortgage of properties. These

borrowers failed to repay their loan installments on due dates and went in default of

Rs.9.326 million in 1997-98, but the management did not take any action under

above referred sections of FIO-2001 and defaulted amount could not be realized.

The matter was reported to the management on August 06, 2007. The management

replied on October 26, 2007 that due to certain inherent weaknesses in effective

implementation of Recovery Ordinance and on the advice of their legal advisor,

action was not taken as per instructions of FIO 2001. The reply was not convincing

as no recovery was made since 1997-98.

The matter was also reported to the Ministry on May 31, 2008. The management in

its reply dated June 18, 2008 stated that legal action had been initiated against the

defaulters. The reply was not acceptable as the delayed action on the part of

management resulted in non-recovery of Rs.9.326 million.

DAC in its meeting held on October 11, 2008 directed the management to furnish

revised reply showing the breakup of outstanding loan i.e. principal and markup.

463

The matter was again discussed in DAC meeting held on May 06, 2009.

Management informed the committee that defaulting borrowers take full advantage

of inherent weaknesses in the Ordinance and challenge the action taken by Bank in

courts who generally grant stay order. These are court cases and the management

was, however, pursuing the cases in the courts of law. The DAC did not agree with

the view point of the management and directed to pursue the cases vigorously and

recommended the para for discussion in the PAC.

56. Non-recovery of insurance premium paid on behalf of employees


According to Para 114 of Award of the Fourth Wage Commission, the insurance

charges for house building and motorcycle / scooter purchased out of advances

should be borne by the employees receiving advances. The same condition

remained in-tact in Fifth, Sixth and Seventh Wage Award.

Small and Medium Enterprises Bank, Islamabad obtained insured employee loans

from State Life Insurance Corporation (SLIC), Rawalpindi on February 18, 1999.

A payment of Rs.2.349 million was made to the SLIC for the period April 5, 1999

to June 30, 2006 but the same was not shown as recoverable from the bank

employees.

The issue was brought to the notice of management on August 4, 2006. The

management in its reply dated January 24, 2007, stated that staff benefits are

determined with the prior approval of the Board. Reply was not tenable as the

Finance Division, time and again, directed the Board of Directors not to allow

excess benefits which were not admissible under the Government policy.

The matter was also reported to the Ministry on April 26, 2008. The management

on June 18, 2008 reiterated their earlier reply.

The DAC in its meeting held on October 11, 2008 concluded that insurance

premium charges for house building and motorcycle advances should be borne by

the employees and directed the management to adjust/recover the insurance

premium.

464


Management informed the Committee that staff benefits had been determined with

the approval of Board which was competent to make personnel policies. As part of

pay package approved for Bank employees, insurance expenses against advances

of employees had been decided to be borne by Bank. The Law & Justice Division

had already given ruling that BoDs is competent to allow these benefits to the Bank

employees. Audit did not agree with the view point of the management because

rule was not got approved from the Federal Government as required under SME

Ordinance. DAC directed the management that revised reply along with Law &

Justice Division’s opinion may be provided to Audit within two days. No reply was

received from the management.

57. Loss due to non-recovery of overdue financial assistance – Rs.0.432

million

According to condition-7 of the financial assistance agreement dated March 20,

1999, if the borrower failed to repay the installments and other payable dues within

the prescribed period, the Bank will be entitled to demand repayment of entire loan

along with 20% liquidated damages on the outstanding amount and to take

possession of the assets, properties and goods mortgaged and to sell the same for

recovery of outstanding dues through auction.

SME Bank, Mingora Branch sanctioned financial assistance of Rs.200,000 on

March 20, 1999 in favour of Mr. Khadimullah for purchase and sale of cement. The

loan was disbursed in two equal installments of Rs.100,000 each on March 20 and

June 19, 1999 respectively. The loan including mark up of 15% was required to be

repaid in 72 equally monthly installments commencing from November 20, 2000.

The borrowers repaid only Rs.3,000 on January 14, 2002. An amount of

Rs.432,379 including markup Rs.232,379 was recoverable from the borrowers on

June 30, 2006. Although the repayment period had expired, but no action under the

above referred clause of agreement was initiated against the defaulter.

The matter was reported in July 2007. The management in its reply dated August

09, 2007 stated that due to closure of SME Bank, Mingora branch in April 2005,

the recovery remained unattended. SME Bank, had opened recovery booth in

Mingora in February 2007 and recovery team had pursued the said case. It was also

replied that staff responsible for disbursement had opted for VSS. The reply was

465

not tenable as the management admitted that no effective steps were initiated in

past for recovery of Bank loan as such the chances of recovery of defaulted amount

are bleak.

The matter was also reported to the Ministry on February 16, 2008. The

management in its reply stated that borrower and guarantor were not traceable. The

reply was not tenable as timely action was not taken for recovery of loan which

resulted in such a situation.

During the DAC meeting held on October 11, 2008, the management stated that

borrower had shifted to Mehmand Agency, therefore, recovery is not possible.

DAC directed the management to furnish revised reply to Audit substantiating it

with the facts/efforts made by the management after default.


Management informed the Committee that intensive efforts had been made to trace

out the borrower/guarantor but both were not traceable. The borrower had

reportedly shifted to Mehmand Agency which is almost “no go” area for

government officials because of Law and Order situation. Therefore, recovery is

not possible. DAC directed that matter may be pursued and fix responsibility on

Recovery Officer for non initiating recovery action against the defaulting borrower,

timely.

466

ZARAI TARAQIATI BANK LIMITED

AUDIT COMMENTS


58. Agricultural Development Bank of Pakistan (ADBP) was established under

the Agricultural Development Bank Ordinance 1961. It was restructured vide

ADBP (Reorganization and Conversion) Ordinance 2002 and renamed as Zarai

Taraqiati Bank Limited (ZTBL) and incorporated as a Public Limited Company on

October 23, 2002 under the Companies Ordinance, 1984. The main purpose of the

Bank is to provide sustainable rural finance and services particularly to small

farmers and low income households to strengthen the rural and agricultural sector,

mitigate poverty, capital market and investment activities and other banking

business.

58.1 The working results of the Bank for the year ended December 31, 2006 as

compared to the previous years are as under:

(Rs. in million)

2006

%

Inc/(Dec) 2005

%

Inc/(Dec) 2004

Markup/return/interest earned 5,996.030 (12) 6,822.719 (16) 8,105.383

Markup/return/interest

expenses 2,802.785 615 391.738 (88) 3,135.736

Net markup/interest income 3,193.245 (50) 6,430.981 29 4,969.647

Provision against non

performing loans(NPL) and

advances 1,767.234 (63) 4,731.992 39 3,406.277

(Reversal )/provision for

impairment in the value of

investments 10.110 - (0.585) - 0.998

(Reversal )/provision against

portfolio audit - - - - 1,098.570

Provision against other assets 2,048.971 15739 12.936 379 2.698

Net total provision 3,826.315 (19) 4,744.343 105 2,311.403

Net markup/interest income

after provisions (633.070) - 1,686.638 (37) 2,658.244

Non markup/interest income

Fee, commission and

brokerage income 2.544 (19) 3.157 31 2.410

Dividend income 6.458 - 6.458 7 6.028

Deferred income 14.532 (55) 32.178 407 6.349

Other income 5,499.545 591 796.341 (15) 939.990

467

Total non- markup/interest

income 5,523.079 559 838.134 (12) 954.777

Total markup and non-

markup income 4,890.009 94 2,524.772 (30) 3,613.021

Non-markup/interest

expenses

Administrative expenses 2,760.452 7 2,580.159 6 2,437.251

Amortization of deferred

income - - 32.178 407 6.349

Government relief package

written off

1,482.448 - - - -

Other charges 0.306 (92) 3.802 73 2.196

Total non-markup/ interest

expenses 4,243.206 62 2,616.139 7 2,445.796

Profit/(loss) before taxation 646.803 - (91.367) - 1,167.225

Taxation for the current year 217.539 466 38.434 (92) 503.234

Deferred taxation 9.458 - (0.607) - 0.005

Profit/(loss) after taxation 419.806 - (129.194) - 663.986

Un appropriated profit brought

forward 702.355 (18) 861.549 161 330.360

Profit available for

appropriation 1,122.161 53 732.355 (26) 994.346

Transfer to contingencies 30.000 - 30.000 (77) 132.797

Transfer to statutory reserves 83.961 - - - -

Un appropriated profit/(loss)

carried forward 1,008.200 44 702.335 (18) 861.549

Earnings per share(Rs) 0.35 - (0.11) - 0.62

Source - Annual Audited Accounts

The Bank earned profit after taxation of Rs. 419.806 million in the year

2006 as against after tax loss of Rs. 129.194 million in the year 2005. Financial

position of the Bank improved during the year under review.

468

58.2 Profitability Ratio:

Earnings per share was increased from Rs.(0.11) per share in 2005 to

Rs.0.35 in 2006 as shown in the diagram below:

The main impact for negative EPS in 2005 was due to Presidential Relief

Package due to which the markup rate was decreased from 14% to 9%. The

conversion of earnings per share from Rs.(0.11) in 2005 to Rs.0.35 in 2006 was due

to increase in non-markup income from Rs.838 million in 2005 to Rs.5,523 million

in 2006. There has been no increase in the number of shares issued during the

period.

Pursuant to Presidential Relief Package 2004 markup rate on ZTBL loans

was reduced from 14% to 09% (with 1% further rebate on timely repayment). As

per directive of the Board of Directors of the Bank, the Bank has requested the

Ministry of Finance to compensate the loss of revenue due to this reduction in the

rate of markup. The total claim in this respect has provisionally been worked out at

Rs.6,738.000 million for period from July 2004 to December 2006. This amount

has not been accounted for in the accounts as approval from the Ministry has yet not

been received. If the effect of this has been taken into account the earnings per

share would have been further increased.

58.3 Recovery Ratio: (Rs. in million)

Particulars 2006 2005 2004

Recoverable 67,287 73,758 72,827

Recovered 49,156 42,144 38,945

% recovered 73% 57% 54 %

Earnings per share

0.46

-0.11

0.35

-0.2 -0.1

0 0.1 0.2 0.3 0.4 0.5

2004 2005 2006 Year

Earnings per share

Rupees per share

469

The ratio of amount recovered to recoverable improved from 57% in 2005 to 73%

in 2006. The Bank accelerated its recovery rate against recoverable and achieved a

growth of 16.64% in amount recovered during the period as compared to 2005. The

recovery rate shows healthy signs of improvement in banking operational activity.

The prominent features of high recovery during the year were effective

mobilization of MCOs, daily monitoring of recovery by the Branch Managers,

Regional Managers and on different levels by the Area Office. Personal recovery

targets were given to the MCOs, Managers and Regional Managers in the

beginning of the year.

58.4 The Bank earned markup/return/interest income of Rs.5,996.030 million in

2006 as against Rs.6,822.719 million in 2005 registering a decrease of 12%. On the

other hand the markup/return/ interest expense increased from Rs.391.738 million

in 2005 to Rs.2,802.785 million in 2006 registering an abnormal increase of 615 %

mainly due to long term borrowings from State Bank of Pakistan. This may be

explained.

58.5 The Bank created huge provision of Rs.2,048.971 million against other

assets in the year 2006 in comparison to Rs.12.936 million in 2005. The reason of

creating such a huge provision needs to be justified.

Recovery Ratio

54% 57%

73%

0.00%

20.00%

40.00%

60.00%

80.00%

2004 2005 2006

Year

Recovery Ratio

Percentage

470

AUDIT PARAS

59. Misappropriation by fraudulent withdrawal of loans by employees


As per Credit Manual of ZTBL, following requirements are to be fulfilled:-

Para-3.9 Proper identification is most important requirement in sanctioning

loan, and antecedents of the prospective borrowers.

Para-5.26 The Manager should obtain and keep in safe custody, specimen

signatures of Revenue Officers for comparing.

Para-9.42 Head of Department was bound to exercise utmost vigilance,

analyze the cause and trace the sources where incidence of

corruption occurs. He will bear responsibility and answerable for

proven charges of corruption.

In ZTBL, funds amounting to Rs.54.985 million were withdrawn fraudulently in

264 loan cases by the employees posted at ZTBL, Sohbatpur Branch, Balochistan

during the period from January 01, 2003 to April 15, 2004. The enquiry was

conducted by the management and charges proved. Fraud was committed

intentionally by preparing fake securities, fake agriculture pass books, fictitious

mutation and NICs of the borrowers by changing names of the borrowers and their

father’s names. Revenue Office and NADRA also confirmed that particulars of

borrowers provided by ZTBL were fake. On the findings of Enquiry Committee,

President of ZTBL imposed s major penalty and dismissed five officers from Bank

services with effect from May 19, 2006 and obtained undertaking from the accused

that they will make good the loss. The management succeeded to recover a sum of

Rs.15.600 million but remaining amount of Rs.39.385 million could not be

recovered from the accused. The chances of its recovery were remote.

Audit was of the view that fraud occurred due to failure of internal controls and

lack of supervision.

The matter was reported to the management on May 03, 2008. Management stated

in its reply dated May 20, 2008 that case had been registered with NAB, Quetta for

recovery of Bank’s money, but no progress towards recovery effected was

intimated.

471

The matter was reported to the Ministry on June 14, 2008. The management

reiterated its earlier contention on August 02, 2008.

DAC in its meeting held on November 18, 2008 directed the management to pursue

the case with NAB.


Management informed the Committee that the NAB Balochistan had informed that

preliminary enquiries had been completed and the matter was under investigation.

They also informed that they had improved their system of internal controls. There

were no such lapses as the Internal Audit is being conducted on quarterly basis

instead of annual basis. DAC directed the management to furnish the revised reply

and pursue the recovery vigorously.

60. Loss due to investment in companies – Rs.27.197 million

According to para 1.2 and 2 of ZTBL Funds of placement Policy, significant

controls and review measures need to be adopted. The objectives of the Funds

Placement operation are as follows.

i. To maintain sufficient liquidity for the bank to honor its

commitments as they fall due.

ii. To maximize overall return on damaged assets.

iii. Deposits may only be placed with approved banks and financial

institutions who meet the following criteria:-

a) Comply with the regulatory requirements.

b) Whose owners with controlling interest have good market

repute.

(a) ZTBL (then ADBP) purchased share capital valuing Rs.3.000

million of M/s. Dadabhoy Agricultural Leasing Company Limited in September

1986 with the approval of Finance Division. The company was under suspension

since November 2001 and at the time of suspension the market value of a share was

Rs.2.50 against face value of Rs.10 per share. Resultantly the ZTBL sustained loss

on investment in the company.

472

(b) The bank purchased one million equity share valuing Rs.10.000

million of M/s Saudi Pak Kalabagh Livestock Company Limited during the years

1985-87 with the permission of Government of Pakistan and Board of Directors.

The company is non operational, resultantly the ZTBL sustained loss.

(c) ZTBL purchased 141,970 shares valuing Rs.14.197 million of

Larkana Sugar Mills Limited in July 1989. The company is in the process of

liquidation since February 2000 and there is no probability of any recovery of

investment on final settlement.

Management did not get / analyze the financial statements of the respective

companies before purchasing shares. As the management did not evaluate and

assess the market value hence all the three companies were under suspension /

liquidation since 2000, 2001 and the shares had lost its value which could not be

sold in the market. As a result ZTBL sustained a loss of Rs.27.197 million.

The matter was brought to the notice of management on May 03, 2008 and

management stated in its reply dated May 20, 2008 that the share capital of the

companies was made with the approval of competent authority. Reply of the

management was not tenable as the investments were made without keeping in

view the healthy financial position of the companies.

The matter was also reported to the Ministry on June 14, 2008. The management

reiterated its earlier contention on August 02, 2008.

DAC in its meeting held on November 18, 2008 directed the management to come

up with sufficient documentary evidence in support that due process and criteria for

investment was followed.


Management informed the Committee that the share capital in companies was

made with the approval of the competent authority and Government of Pakistan.

Larkana Sugar Mills Limited went into liquidation and there was no probability of

any recovery of amount invested on final settlement. The Government decided to

convert the said liability of the Mills as Bank’s equity. DAC observed that position

regarding two Companies i.e. M/s Dadabhoy Agricultural Leasing Limited and

Saudi Pak Kalabagh Livestock Limited has not been given in the reply.

473

DAC, therefore, directed that revised reply explaining the position of remaining

two Companies may be provided to Audit within two days and recommended the

para for discussion in PAC.

61. Redemption of securities without recovery of outstanding loans


As per para 9.41 of Credit Manual Vol-I, the Manager is authorized to redeem the

mortgage deed assigned to the bank, after obtaining certificate from the Accounts

Officer that entire amount of the loan advanced to the borrower has been repaid by

him with up-to-date interest/return as per terms of loan agreement.

ZTBL, D.G. Khan disbursed an amount of Rs.16.318 million to 36 borrowers

during the years 1996 to 2001 against the security of agricultural land. The pledged

agricultural land of the loan cases was redeemed during the years

2000-2001 without recovery of outstanding amount of Rs. 19.982 million. The

amount was outstanding till December 2007.

Audit was of the view that redemption of securities without recovery of entire dues

of the Bank indicated loose internal control of the management.

The matter was brought to the notice of management on January 02, 2008 and to the

Ministry on March 13, 2008. In reply dated August 02, 2008 the management

stated that after fixing responsibility on persons at fault, five employees were

dismissed and two were compulsory retired and the case had been filed in NAB and

list of redeemed cases was provided to Assistant Director FC/W NAB, Lahore vide

letter dated December 28, 2006.

During the DAC meeting held on November 18, 2008, the management informed

that out of Rs 19.982 million an amount of Rs 5.400 million had been recovered.

The DAC directed the management to pursue the case with NAB.


Management reiterated its earlier reply that out of outstanding amount of Rs.19.982

million, a sum of Rs 5.400 million had been recovered. The case was, however,

with NAB. DAC directed the management to pursue the case.

474

62. Non-recovery of Bank dues – Rs. 3.918 million

According to para-13.72 of ZTBL Credit Manual, all the secured cases with default

amount of Rs. 0.50 million or more with a period of 03 years default may be

referred to Banking Courts for recovery.

Zarai Taraqiati Bank Limited (ZTBL), Deh Tore (Gadap) Branch, Karachi

disbursed loans of Rs.2.776 million to four borrowers for poultry structure during

the year 1988-89, which were required to be recovered up to July, 1997. The

borrowers failed to repay the due installments and went into default. The bank

management transferred the said loan cases to the doubtful loan ledger in June,

1993 and subsequently no interest was charged thereon. Only an amount of

Rs.0.240 million was recovered from borrowers and amount of Rs.3.918 million

was outstanding against them since 1993.

The matter was reported to the management on September 25, 2007. The

management in its reply stated that the said cases would be referred to the Banking

Court for recovery. Reply was not convincing because timely action was not taken

resultantly the dues could not be recovered till June 2007.

The matter was also reported to the Ministry on April 26, 2008. The management in

its reply of August 02, 2008 stated that borrowers are not traceable and cases would

be filed in court of law for recovery.

During the DAC meeting held on October 11, 2008, the management informed that

cases against defaulters had recently been filed in the court of law.


Management informed the Committee that chances of recovery were not promising

as the cases against the defaulters had been filed in court of Law. DAC observed

that it was negligence on the part of Bank and directed the management to furnish

revised reply to Audit explaining the reasons of delay with regard to filing the case

in Court of Law.

63. Embezzlement due to non-deposit of collected amount into bank

account – Rs.1.007 million

475

As per para 9.42 (Conduct of Employees) of Personal Manual, Head of Department

is bound to exercise utmost vigilance, analyze the cause and trace the source where

incidence of corruption occurs. He will bear the responsibility and answerable for

proven charges of corruption within the area of his administrative jurisdiction.

ZTBL, Khanewal branch sanctioned and disbursed loans amounting to Rs.720,000

to two borrowers from July 24, 2002 to August 16, 2002 for the purchase of

tractors and inputs. Borrowers could not return the loans in time, as a result the

outstanding balance rose to Rs.1.007 million. However, it was observed that a sum

of Rs.1.007 million collected from borrowers by MCO in November 2004 was not

deposited into Bank account. Subsequently NOCs were issued on November 12,

2004 and land of both the borrowers was redeemed. Management of ZTBL

assigned the preliminary enquiry to the Manager, ZTBL, Vehari. According to the

findings of preliminary enquiry of December 2007, embezzlement of Rs.1.007

million was established which occurred with the connivance of Bank employees.

This indicated weak internal control.

The matter was reported to the Ministry on June 14, 2008. In reply dated August 02,

2008 the management stated that the competent authority had allowed time up to

June 30, 2008 for arranging recovery. The decision of the case would be finalized

after due date.

DAC in its meeting held on November 18, 2008 observed that since it was a

criminal charge and the management may initiate proceedings against the

defaulters and also explain the case before the PAC.


Management informed the Committee that Bank imposed major penalties on the

Bank employees. The reversion of Mr. Tassawar Hussain, the then MCO Khanewal

was made from Officer to Senior Assistant for a perod of 5 years and also held

responsible for 50% recovery of embezzled amount with up to date mark up. Two

increments of Mr. Zahoor Ahmed Bhatti, the then Manager, Khanewal were

withheld for a period of two years. Besides he was also held responsible for

recovery of 50% of the outstanding amount with up to date mark up. The Zonal

Office had started deduction from their salaries @ of 25% till the recovery of

embezzled amount but FST, Islamabad vide their order dated 02.04.2009 restrained

them from effecting recovery with reference to appeal No. 1000RCS/2008 filed by

476

Mr. Zahoor Ahmed Bhatti in FST, Islamabad. DAC directed the management to

make the recovery as per schedule and recommended the para for discussion in

PAC.

477

478

MINISTRY OF FOOD, AGRICULTURE AND LIVESTOCK

(115–122)

479

480

KORANGI FISHERIES HARBOUR AUTHORITY

AUDIT COMMENTS


64. Korangi Fisheries Harbour Authority (KFHA) was established in 1982

under Korangi Fisheries Harbour Authority Ordinance No.XVI of 1982. The

objectives of the Authority are planning, construction, operation and maintenance

of Korangi Fisheries Harbour near Port Qasim in Karachi.

The Harbour was completed in 1992 with project cost of Rs.938.139

million including foreign exchange component of Rs.644.236 million (US$ 26.121

million). The Harbour commenced trial operations in 1996. However, the same has

not yet been made fully operational.

64.1 The working results of the Authority for the year 2006-07 as compared to

the preceding years are given below:-

(Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

%

Inc/(Dec) 2003-04

Operating income 29.790 (31.5) 43.470 218.5 13.650 3.8 13.150

Operating

expenses (59.555) 5.7 (56.338) 2.8 (54.810) 3.0 (53.210)

Operating loss (29.765) 131.2 (12.868) (68.7) (41.160) 2.7 (40.060)

Financial charges (24.178) (2.9) (24.889) (2.9) (25.640) (0.5) (25.770)

Grant from

Federal

Government 24.174 8.7 22.234 4.1 21.360 4.4 20.460

Other income 4.834 46.4 3.301 62.0 2.040 (44.6) 3.680

Other expenses - - - - - - 0.120

Loss for the year

before

appropriation (24.935) 104.0 (12.222) (71.8) (43.400) 3.8 (41.810)

Transfer of

Development

Cess Fund (15.960) (45.9) (29.505) - - - -

Loss for the year

after appropriation (40.895) (2.0) (41.727) - - - -


Operating income decreased by 31.5%, i.e., Rs.29.790 million during the

year under review as compared to Rs.43.470 million of preceding year 2005-06.

481

The decrease in operating income was mainly due to decrease in development fee

which was Rs.15.960 million in the year 2006-07 as compared to Rs.29.505 million

of the preceding year 2005-06. The decrease needs to be clarified.

64.2 The loss before appropriation increased by 104%, i.e., Rs.24.935 million

during the year under review as compared to Rs.12.222 million of preceding year

2005-06. Efforts are required to be made to control the losses and make the

organization self-sustaining.

64.3 The Authority is not maintaining fixed assets register or any other

consolidated record which should contain year wise purchase and installation of

property, equipments and other movable/immovable assets. The statutory auditors

(Chartered Accountants) while issuing Audit Report on the accounts of the

Authority expressed their inability to physically verify the fixed assets of the

Authority as on June 30, 2007 due to absence of detailed records thereof and

tagging of fixed assets items. The qualification on the audited accounts of the

Authority requires attention of the management for remedial measures.

482

PAKISTAN AGRICULTURAL STORAGE AND SERVICES

CORPORATION LIMITED

AUDIT COMMENTS

ON THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2007

65. The Corporation was incorporated on August 31, 1973 as a non-listed public

limited company. It is implementing the Federal Government policy of support

price programs of food grains, equitable distribution of food commodities and

maintenance of their reserve stocks. The objectives of the Corporation are to

purchase, acquire, sell, supply, market, distribute, exchange and store agricultural

commodities.

65.1 The working results of the Corporation for the year 2006-07 as compared to

the previous years are tabulated as below:-

Operational Results:

2006-07 2005-06 2004-05

Procurement target of wheat (M. ton) 1,300,000 1,200,000 1,400,000

Actual procurement(M. ton) 1,242,417 997,310 823,300

Wheat cost P.M.T 10,375 10,000 8,750

Percentage of procurement 96% 83% 59%

Actual sale in M.ton 1,082,195 847,656 678,629

Financial Results: (Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

Sales 12,957.077 29 10,076.603 41 7,155.310

Cost of sales

Wheat 10,848.962 32 8,217.423 43 5,756.958

Paddy, powder, strips 292.091 1955 14.213 - -

Field office expenses 408.941 15 354.590 11 318.166

Operating expenses

Gunny bags consumed 612.558 28 477.129 17 409.144

Delivery charges 36.979 25 29.527 (76) 123.862

Tarpaulins 90.531 - - - -

Others expenses 88.326 26 69.907 27 54.930

Total cost of sales 12,378.388 35 9,162.789 38 6,663.060

Gross profit 578.689 (37) 913.814 86 492.250

483

Administrative and general

expenses 195.764 11 175.855 15 153.101

Operating profit 382.925 (48) 737.959 118 339.149

Financial and other charges 1,619.559 107 782.789 180 280.056

Cost differential received 979.989 - - - -

Other income 172.455 99 86.603 16 74.918

Profit / (loss) before taxation (84.190) 41.773 (69) 134.011

Taxation 72.940 57 46.431 162 17.696

Net profit / (loss) after taxation (157.130) 3,273 (4.658) - 116.315 Source: Annual Audited Accounts

Gross profit of the Corporation decreased from Rs.913.814 million in

2005-06 to Rs.578.689 million in 2006-07 due to increase in cost of sales from

Rs.9,162.789 million in 2005-06 to Rs.12,378.385 million in 2006-07 registering

an increase of 35%. Although sales of the Corporation increased from

Rs.10,076.603 million in 2005-06 to Rs.12,957.077 million in 2006-07 registering

an increase of 29%, yet the Corporation sustained a net loss of Rs.157.129 million

in 2006-07 as against loss of Rs.4.659 million during the year 2005-06. The loss

occurred mainly due to payment of heavy financial charges of Rs.1,619.559 million

on short term borrowings in 2006-07 as compared to Rs.280.056 million and

Rs.782.789 million during the years 2004-05 and 2005-06 i.e. 201% and 107%

increase respectively. This depicted that dependence on short term borrowings led

to increase in financial expenses which needs to be controlled.

65.2 There was phenomenal increase of Rs.4.12 billion in Corporation’s short term

borrowings while short term investments had increased by Rs.1 billion approx.

Furthermore, there were long term investments of more than Rs. 550 million

invested @ 9% with 15 years maturity term. It appeared that the Corporation was

borrowing from financial institutions at higher interest rates and investing them

back at lower interest rates. Assuming the minimum interest rate spread of 3% to

4% between borrowings and deposits, at least Rs.45 to 60 million could be saved in

the form of financial charges.

484

LIVESTOCK AND DAIRY DEVELOPMENT BOARD

AUDIT COMMENTS


66. Livestock and Dairy Development Board (the Company) was incorporated

in Pakistan as a Guarantee Limited Company on October 27, 2005 under the

Companies Ordinance, 1984 as a non profit organization. The Company is a

component of Agribusiness Development and Diversification Project assisted by

Asian Development Bank (ADB). Its main objective is to promote and facilitate

livestock development (including dairy, poultry and allied areas) in Pakistan.

The Company was established as a consequence of a loan agreement dated

June 14, 2005 between Asian Development Bank (ADB) and the Islamic Republic

of Pakistan for agribusiness development project. Under the loan agreement ADB

is to provide funds to the Government of Pakistan for the project. Part of the loan

proceeds is provided to the Company as a grant by Government of Pakistan which

is utilized for the execution of the project component assigned to the Company. In

addition to loan proceeds, the Government of Pakistan has also provided the grant

for execution of certain public sector development projects from its own resources.

66.1 The working results of the Board for the year 2006-07 as compared with

those of previous year are given hereunder: (Rs. in million)

2006-07

%

Inc/ (Dec) 2005-06

Income:

Grant income recognized

Other income (income on investment)

33.257

00.199

--

--

--

--

Total Income: 33.456 -- --

Expenditure

Meat Project

Milk Project

LDDB Project support

18.964

7.889

6.180

--

--

2659

--

--

0.224

Total Expenditure: 33.033 14647 0.224

Surplus/(deficit) for the year 0.423 -- (0.224)

Accumulated surplus/(deficit) 0.199 -- (0.224) Source: Annual Accounts

It is evident from the table that the Board started its functions during the

485

year 2006-07. For the year under review the Board received grants of Rs.200.000

million from Government of Pakistan for various projects (Meat Project -

Rs.75.000 million, Milk Project – Rs.75.000 million, LDDB Project support -

Rs.50.000 million). The Board also received Rs.3.532 million from Agribusiness

Development and Diversification project (ADDP). However, the recognized grant

income of the Board for the year was Rs.33.456 million. As against a total receipts

of Rs.233.456 million the Board could utilize Rs.33.033 million only (Rs.18.965

million on Meat Project, Rs.7.888 million on Milk project and Rs.6.180 million on

LDDB Project support). The reasons for poor utilization of grant, need

justification.

486

MINISTRY OF HEALTH

(123–125)

487

488

NATIONAL INSTITUTE OF HEALTH

BIOLOGICAL PRODUCTION DIVISION

AUDIT COMMENTS


67. The Biological Production Division is working under the control of

National Institute of Health (NIH), Ministry of Health, Government of

Pakistan. It started functioning in 1967 as National Health Laboratories.

Subsequently under an ordinance in 1980, the Laboratories were converted into a

full-fledged National Institute of Health as a body corporate. Al l assets and

liabilities of the Laboratories were taken over by the Institute. The main source

of income of Institute was sale of its Biological Products. The Biological

Production Division is responsible for production and supply of Vaccine,

Therapeutic Anti Sera and Nimkol (ORS) to Government Hospitals, Civil Medical

Institutions, Autonomous Bodies and Defence Forces of the Country.

67.1 The working results of the Biological Production Division for the year

2006-07 as compared to the pervious years are given as under:-

(Rs. in million)

2006-07

% to

sales 2005-06

% to

sales 2004-05

% to

sales 2003-04

% to

sales

Sales 47.333 100 36.107 100 44.820 1 00 48.283 100

Gross profit 18.350 39 14.343 40 14.122 32 10.663 22

Cost of material consumed 11.164 24 10.984 30 10.095 23 14.956 31

Operating expenses 13.550 29 13.642 38 13.793 31 9.468 20

Net profit 4.694 10 0.668 2 0.295 1 0.162 1

Closing stock of finished

goods 12.445 26 9.010 25 7.957 18 6.001 12

Cost of production 33.388 71 40.172 111 34.357 77 42.340 88

Source: Annual Accounts

Total receipts of Biological Production Division were

Rs. 73.604 million in 2006-07. Out of which an amount of Rs. 26.976 million

related to receipts on account of Allergy vaccine but this amount was not

accounted for in the books of accounts. This showed under-statement of receipts

and needs explanation.

489

490

MINISTRY OF HOUSING AND WORKS

(127–131)

491

492

NATIONAL CONSTRUCTION LIMITED

AUDIT COMMENTS


68. National Construction Limited was incorporated on November 16, 1977

under Companies Act, 1913 (now Companies Ordinance, 1984) as an unlisted

Public Company. The principal activities of the Company are to carry out the

business of construction consultants, advisors, structural engineers, builders,

architects, contractors, Job contractors, designers and to engage in other allied

activities.


previous years are as under:- (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Contract income 1,672.754 291 428.065 33 321.524 20 266.871

Cost of work done 1,460.471 223 451.502 28 351.892 32 267.117

Operating profit/ (loss) 212.283 - (23.437) (23) (30.368) 12245 (0.246)

Other income 5.054 45 3.494 4 3.363 6 3.168

Income allocated to

joint venture partners

- - - - - - (9.32)

Profit/(loss) before taxation 217.337 - (19.943) (26) (27.005) 322 (6.397)

Provision for taxation 98.293 354 21.668 54 14.067 (14) 16.343

Profit/(loss) after taxation 119.044 (41.611) 1 (41.072) 81 (22.740)

Accumulated (deficit) (50.026) (71) (169.903) 31 (129.207) (245) 89.144


Contract income of the Company increased from Rs.428.065 million in

2005-06 to Rs.1,672.754 million during 2006-07 registering an increase of 291%.

The Company earned profit (pre tax) of Rs. 217.337 million during the year

2006-07 as against loss (pre tax) of Rs.19.943 million during 2005-06. Resultantly

the accumulated deficit of the Company reduced from Rs.169.903 million during

2005-06 to Rs.50.026 million during 2006-07. More efforts are required to be made

to boost up the income and minimize the accumulated deficit.

493

AUDIT PARA

69. Loss due to non-completion of project within contract period


As per agreement dated October 14, 2003 the project was to be completed within 18

months from the date of award of contract.

The National Construction Limited (NCL) entered into an agreement with M/s.

Azad Jammu and Kashmir Council, Sect-II, Islamabad on October 14, 2003 for the

construction of Directorate of Training, Hostel building, Accounts office and

Income Tax office building and residential colony at Palandari. The cost of the

project was Rs.71.990 million.

The Council issued letter of commencement on October 18, 2003 and site was

handed over to NCL on January 02, 2004. As such the project was to be completed

by July 2005. According to the client, the pace of work at site was very slow as

only 6% work was executed up to the target date. A meeting was held on July 30,

2005 in the office of the Secretary, AJ&K Council to discuss the slow pace of work,

grant of extension in completion period and mobilization advance. The Managing

Director, NCL while accepting the slow pace of work due to financial constraints,

committed for early completion of the project.

The AJK Council Secretariat vide its letter dated January 18, 2006 stated that

despite fresh commitment the NCL failed to start work. The council served a legal

notice on February 04, 2006 for cancellation of the contract as per clause-17.1 of

the agreement due to slow progress of the work, i.e., 8.10%.

It was observed from the profit and loss account of the project that NCL expended

an amount of Rs.12.925 million on the said project against which an amount of

Rs.6.616 million was received. As the contract has cancelled by the client, hence

the chances of recovery of remaining amount of Rs.6.309 million were remote.

Thus due to failure of the NCL in completion of project, the Company would

sustain a loss of Rs.6.309 million.

The matter was reported to the management on April 09, 2008 and to the Ministry

on June 13, 2008, the management in its reply dated August 07, 2008 stated that

494

NCL will defend the case in court of law.

DAC in its meeting held on August 13, 2008 directed the management that the

matter may also be enquired with reference to delay in completion of project. The

matter was again discussed in the DAC meeting held on June 2, 2009. DAC

directed the management to pursue the case vigorously.

495

496

MINISTRY OF INDUSTRIES AND PRODUCTION

(133–173)

497

498

EXPORT PROCESSING ZONES AUTHORITY 70. Export Processing Zones Authority (EPZA) was established in 1980 by Government of Pakistan under Export Processing Zones Authority Ordinance (IV of 1980) with the mandate to plan, develop, and operate Export Processing Zones in Pakistan in order to invite/help foreign investors. Karachi Export Processing Zone (KEPZ) is the first venture of EPZA, which was set up in 1984. KEPZ was developed with GoP’s grant of Rs.362 million. First phase comprising of 211 acres, was developed through Annual Development Program (ADP) from 1981-1989 and was fully allotted. Since 1989, EPZA is managing all affairs from its own resources. The Authority has developed phase-II comprising of 94 acres and is also acquiring 200 acres for phase-III for state of art modern Information Technology Park. At present, there are ten export processing Zones, namely (1) Karachi, (2) Sialkot, (3) Risalpur, (4) Gujarnawala, (5) Gwadar, (6) Saindak, (7) Reko Dig, (8) Al-Tawarique, (9) Duddar and (10) Khalifa Coastal. A regional office has also been established at Lahore. Out of ten zones planned by EPZA, only four are presently operational. The EPZA was established to achieve the following objectives:-

i. Attract foreign capital, sophisticated technology, modern management skills for export of industrial growth;

ii. Provide new employment opportunities for Pakistanis and to upgrade their managerial and technical skills;

iii. Provide a growing market at home for the country’s raw material, semi-manufacturers, manufacturers, sub-contracting and service industries

iv. Increase the foreign exchange earnings of the country by export of value added products; and

v. Provide a show window for display the ability and enterprise of the country’s work force to attract foreign investment.

71. Systemic issue observed during audit of EPZA

Internal Audit Department does not exist in EPZA, whereas it is an integral part of internal controls system of an entity. The Internal Audit Department of any organization becomes responsible for control over the business activities to ensure

499

that these are conducted in accordance with the rules and regulations in order to minimize the chances of any misappropriation/ leakages/ irregularities.

Audit is of the view that in order to monitor/control over the business transactions and operational/ financial activities including the performance of other departments, there should be an Internal Audit Department directly under the supervision of the Chairman EPZA.

500

PAKISTAN STEEL MILLS CORPORATION (PVT.) LIMITED

AUDIT COMMENTS


72. Pakistan Steel Mills Corporation (Private) Limited (PSM) was

incorporated in Pakistan on July 2, 1968 as a private limited company and is

wholly owned by the Government of Pakistan. The Corporation is mainly

engaged in manufacturing and sale of iron and steel products.


with those of the preceding years are given below: (Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

%

Inc/(Dec) 2003-04

Net sales 29,937 46.1 20,492 (33.0) 30,580 23.4 24,778

Cost of goods sold (26,241) 24.1 (21,142) 6.5 (19,854) 16.5 (17,036)

Gross profit/(loss) 3,696 - (650) - 10,726 38.5 7,742

Operating

expenses (1,236) (0.8) (1,247) 2.5 (1,216) 13.0 (1,076)

Operating

profit/(loss) 2,460 - (1,897) - 9,510 42.6 6,666

Other income 2,484 28.9 3,493 89.4 1,842 57.3 1,172

Financial and

other charges (368) 22.2 (301) 74.1 (1,162) 56.2 (744)


taxation 4,576 253.4 1.295 (87.3) 10,190 43.7 7,094

Taxation (1,417) 288.2 (365) (89.4) 3,458 54.2 (2,242)

Net profit/(loss)

after taxation 3,159 239.7 930 (86.2) 6,732 38.8 4,852

Accumulated (losses)/profit 8,025 64.9 4,866 23.6 3,936 240.1 (2,796)


The net sales increased by 46.1%, from Rs.20.492 billion in 2005-06 to

Rs.29.937 billion in 2006-07. The increase in sales was due to increase in the

production as well as favourable market conditions whereas the cost of sales of the

Corporation increased by 24.1%. The reversal of the market conditions can

adversely affect the profitability, hence needs attention of the management.

501

72.2 Comparative statement showing the profitability, liquidity and

debit/equity ratio is as under:-

Ratio analysis 2006-07 2005-06 Remarks/comments

Net profit (after taxation) to Sales 10.5% 4.5% Profitability increased

Liquidity Ratio 4.8 5.5 Liquidity Position is

satisfactory

Debt to Equity Ratio 59% 66% This needs to be improved in

order to minimize reliance on

debt.

72.3 Legal and professional charges increased from Rs.10.333 million in

2005-06 to Rs.17.635 million in 2006-07 which needs to be controlled.

72.4 Handling losses increased by 24%, i.e., from Rs.12.711 million in

previous year 2005-06 to Rs.15.867 million during the year under review which

needs justification.

72.5 The performance in terms of actual production against the sanctioned

capacity in respect of major products during the year under review remained as

under:

Major products (M.ton)

Sanctioned

capacity

Actual

production

Performance

(Percentage)

Coke 970 326 33

Molten metal/pig iron 1,230 1,097 89

Blooms, slabs and cast

billets 1,100 982 89

Rolled billets 260 244 93

HR coils 792 549 96

CR coils 201 149 70

Galvanized Coils/Sheets 100 37 37

Formed section 120 - -

Total: 4,773 3,384 70.9

The production capacity was utilized by overall 70.9% against the

sanctioned capacity. The under-utilization of capacity needs to be justified.

72.6 The provision for dead and slow moving items during the year

502

2006-07 stood at Rs.275.767 million which indicates that these items were

purchased without proper planning, needs justification.

72.7 The inventory of stores and spares increased from Rs.2.045 billion of

preceding year to Rs.2.150 billion during the year 2006-07 which needs

elaboration.

73. Systemic issues observed during audit of PSM:

73.1. Non-utilization of iron ore reserves available in the country.

PSM, the biggest industrial complex in Pakistan, is heavily dependent on

expensive imported iron ore. It needs to focus on import substitution policy to trade

off the expensive dependence. The quality of iron ore from Nokundi was superior

and its procurement was more feasible as compared to other places. The study

reports from experts on the country’s mineral reserves have recognized that the iron

ore reserves of Nokundi and Kalabagh can be processed economically. PSM should

consider and re-analyze the use of Kalabagh iron ore in the light of the massive

reserves of 350 million tons and previous studies carried out in this regard.

In addition to above, iron ore deposits of 12 million tons with 50-60% ‘Fe’

contents in Amir Chah, District Chitral, 6.5 million tons with 60-65% ‘Fe’ contents

in Dammer Nisar, District Chitral are available in Pakistan.

Audit is of the view that PSM should explore possibilities of utilization of

such huge deposits of iron ore of superior quality available in Pakistan.

73.2. Coke Oven Batteries

There are two Coke Oven Batteries in PSM, which produce coke for use in

Blast Furnace as fuel. The coke is also sold as a product of PSM. Both the batteries

became out of order in May 2005 and since then the management has been importing

coke as per requirement by spending foreign exchange, which was to the extent of

US$ 434.620 million upto April 2009. The repairs/renovation work of both the

batteries was assigned to M/s. Concord Industrial Project, Ukrain, at a cost of US$

23.023 million. The total cost in Pakistan currency was calculated as Rs.1,867.071

million inclusive of taxes and other contingencies. The letter of award was issued to

503

the contractor on January 25, 2007 with the completion period of 22 months.

However, despite expiry of completion period, only battery No.2 was on trial

production while Battery No.1 was under repair.

Audit is of the view that closure of both the batteries indicated no mid life

revamping or capital repairs by the management which resulted in their complete

breakdown.

73.3. Sale of below cost electricity to KESC

The electricity produced by PSM was being sold to KESC below its cost of

sales for the last so many years. Since KESC has been privatized, the generation and

sales of electricity is being done on commercial grounds, as such below cost sales by

PSM cannot be justified a regular feature in the public interest. PSM may consider

revision of rates for sale of electricity to KESC keeping in view the cost of generation

of electricity.

73.4. Fixation of sale price of PSM products

The prices of PSM products are fixed by a Price Fixation Committee. It has

been noticed that prices fixed by the committee does not match the market prices

determined on the basis of Common - Wealth of Independent States (CIS) origin

landed cost. The management justifies their fixation/revision of prices in public

interest whereas the market share of PSM was only 15% which is insignificant for

setting market trends.

Audit is of the view that fixation of prices of PSM products below the

prevailing market rates, usually benefits clients/dealers instead of end users. It is,

therefore, recommended that fixation /revision of prices of different products be

co-related with CIS original landed cost.

504

AUDIT PARAS

74. Loss on account of sale of Galvanized Products below cost


As per General Financial Rule 168, not only materials are to be sold at their full

value, but also a suitable percentage should also be added to cover charges on

account of supervision, storage and contingencies.

Pakistan Steel Mills (PSM), sold 36,253.000 M/Tons of Galvanized Products to

dealers during the year 2006-07 at a sale price of Rs.43,173 per M/Ton as against its

cost of sale of Rs.46,698 per M/Ton. Resultantly, PSM sustained a loss of

Rs.127.792 million due to sale at a price lower than the cost of sale.

The matter was taken up with the management in June 2008 and referred to the

Ministry in December 2008. The management in its reply dated August 13, 2008

furnished a statement showing a comparison of budgeted with actual cost of

production which also indicated a loss of Rs.3,525 per M/Ton. However, the

management contended that the loss incurred was less than the budgeted cost. They

also stated that the overall sale was satisfactory and the overall profitability should

be examined rather to examine a single product’s profitability. The contention of

the management was not tenable because being a commercial organization, the

production of the main product was required to be planned keeping in view the

profitability.


directed the management to provide the evidence to Audit for verification about the

rates of galvanized products as prevalent in the market during the same period.

The management in its revised reply dated March 24, 2009 reiterated its earlier

stand, however, contrary to the DAC’s directives, they did not prove in clear terms

that the selling rates of galvanized products of PSM were at par with prevailing

market rates/other competitors. The management through a letter dated April 09,

2009 was requested to provide data/documents about relevant market prices

prevailing on the dates of its products’ sales. However, no response was received

till finalization of this report.

505

75. Loss due to non-recovery of cost of supplied material – Rs.39.989 million

Rule 26 of GFR provides that it is the duty of the departmental controlling officer to

see that all sums due to Government are regularly and promptly assessed, realized

and duly credited to Government Accounts.

Pakistan Steel Mills (PSM), entered into an agreement in November 1993 with

National Highway Authority (NHA) for supply and erection of Metal Beam Guard

Rail Barriers on Lahore-Islamabad Motor Way Project. PSM subcontracted the

work to its subsidiary, Pakistan Steel Fabricating Company Limited. The

management of PSM, however, was not able to recover a sum of Rs.39.989 million

outstanding against NHA on account of same works/supplies because credit supply

of the material was not secured through Bank Guarantee or other security. Upon

failure in the recovery, a provision for doubtful debt was made in the account for

the year 2006-07, recognizing it as a loss.

The matter was taken up with the management on June 24, 2008 and referred to the

Ministry on December 26, 2008. The management in its reply dated August 13,

2008 stated that pursuance of recovery with NHA was being made and added that

the matter of recovery from NHA had been reported in the ARPSE 2001-02, hence

it should not be repeated. The reply was not tenable because the provision for

doubtful debt had been made during 2006-07 whereas the dues had not been

recovered.

The matter was discussed in the DAC meeting held on March 19, 2009. The

management informed that certain drawings were required by NHA before

payment which had been arranged by PSM by appointing a consultant in this

regard. The DAC directed the management to pursue for recovery. However,

despite efforts, no latest position was intimated till the finalization of this report.

506

76. Loss due to non-replacement of rejected items by the supplier


As per clause 8 of Purchase Order dated January 28, 2005 to M/s. Tianjin Foreign

Trade China, the Supplier was bound to replace the defective items free of cost

within 15 days from the date of intimation. Moreover, clause-17 provided that a

pre-shipment inspection shall be arranged by the supplier at their expenses through

an independent International Inspection Agency and an inspection will also be

carried out locally by the General Manger (Inspection) of PSM.

Pakistan Steel Mills (PSM) purchased 100 Nos. of “Pallet Car Assembly” from the

Supplier on January 28, 2005 at a cost of US$ 463,800 on C&F basis and after

inclusion of taxes, the total landed cost was equivalent to Rs.34.640 million. PSM

made payment through a letter of credit established on March 17, 2005. The entire

consignment was rejected from April to November 06, 2006. The Supplier was

asked on November 24, 2006 to replace the rejected items which could not be

replaced by the supplier.

The matter was reported to the management on March 31, 2007 and referred to the

Ministry on December 26, 2008. The management in its reply dated February 13,

2009 stated that despite several requests, the Supplier did not replace rejected

material, therefore, as per available option on the basis of terms & conditions of the

tender, the forfeiture of 10% Performance Bank Guarantee valuing Rs.2.798

million was made through its encashment.

The contention of the management itself depicted the defective contracting / Letter

of Credit utilization as the supplier was at advantage by losing only Rs.2.798

million despite inflicting net loss to PSM to the extent of Rs.31.842 million by

non-replacement of defective supplies.

The matter was discussed in the DAC meeting held on March 19, 2009. The

management informed that the defects were rectified by PSM itself and the material

had been brought in use. They also added that the defects were minor and the goods

were cleared by an independent inspection agency before shipments. Audit was of

the view that major penalty of forfeiture of 10% Performance Bank Guarantee was

imposed on the Suppliers by rejecting the whole consignment on arrival, so it was

not prudent to term such defect as minor. Audit also pointed out that the

management in its working papers for the DAC meeting issued on February 13,

507

2009 had not intimated about the utilization of the material by removing defects.

The DAC directed the management to furnish a revised reply to Audit.

The management in its revised reply dated March 24, 2009 reiterated its earlier

contention as put forth in the DAC meeting and added that cost of rectification of

the defects was Rs.2.600 million which was lesser than the encashed amount of the

Bank Guarantee of Rs.2.798 million. However, the management could not

elaborate as to why this rectification by PSM was not on its record while providing

the status of the case to DAC through the working papers dated February 13, 2009.

Moreover, despite efforts, the record about repairs were not provided to Audit till


77. Loss due to procurement at higher cost – Rs.10.287 million

Purchases should be made at the right time to avoid the excess payment for the

same items procured later on.

The Purchase Department of Pakistan Steel Mills (PSM) floated a press tender for

procurement of 100 pieces of working rolls on February 10, 2005. In response three

bidders participated in the tender. After technical evaluation, two participants were

technically accepted. The management decided for re-tendering due to rate of

US$12,865 per unit quoted by the lowest bidder M/s. Grid Pakistan which was

53.7% higher than the Last Purchase Price (LPP).

The item was re-tendered with due date as July 26, 2005. In response two offers

were received and technically accepted. The commercial offers were opened on

September 01, 2005. M/s. Grid Pakistan stood the lowest that time again and

quoted the rate, which was 16.3% higher then its 1st tender. However, that higher

bid was accepted being the 1st lowest at total cost of Rs.107.705 million which

involved higher cost of Rs.10.287 million as compared to the previously scrapped

tender.

The matter was reported to the management on March 31, 2007 and referred to the

Ministry in December 2008.The management in its reply dated February 13, 2009

stated that re-tendering was resorted owing to 1st tendering process found to be

53.7% higher than the last purchase price. They added that in the 2nd

tendering, the

1st lowest bidder, despite being higher by 16.3% than its own quoted price of 1

st

tendering, was to be awarded contract due to zero stock position at that time.

508

The contention of the management was not tenable as it was expected to foresee the

higher trend of the market and inventory position before decision of scraping the 1st

tender. Moreover, evaluation of the bids should have not been restricted to the last

purchase price only when there was a condition of fluctuating price in the market,

hence the prevalent rate at the time of bid opening should have been kept in view

before decision of the re-tendering.

The matter was discussed in the DAC meeting held on March 19, 2009. The DAC

directed the management to provide the records / minutes of meeting regarding

scrapping of the first tender to Audit for verification.

The management in its revised reply dated March 24, 2009 provided a copy of

minutes of meeting regarding acceptance of 2nd

tendering in October 2005 whereas

the DAC had directed to provide the records/minutes regarding scraping of the 1st

tenders. However, as per minutes of meeting so provided, the reasons for

acceptance of the 2nd

tender were recorded as zero level of stock and one year time

lag between the purchase order and supply from abroad. Audit holds the view that

the stock level and the time lag between purchase order and supply should have

been taken into account before decision of scrapping of 1st tender to avoid this

adverse situation in 2nd

tendering.

The management was requested through a letter dated April 20, 2009 for supply of

required documents to Audit for verification in compliance of DAC directives;

however, no response was received till finalization of this report.

509

PAKISTAN STEEL FABRICATING COMPANY LIMITED

AUDIT PARA

78. Non-recovery of unsecured advances from contractors/debtors


Para-228 (c) of Central Public Works Account Code (CPWA) prohibits payment of

advances to contractors as a rule except in exceptional circumstances by taking

necessary precautions for securing Government against losses.

Pakistan Steel Fabricating Company Limited (PSFCL) paid total advance of

Rs.4.916 million to eleven contractors and made credit sales of Rs.21.912 million

to fifteen sundry debtors without obtaining security; hence the same was lying

un-recovered as on June 30, 2006.

The non-recovery was pointed out to the management on June 24, 2008 and

referred to the Ministry on November 04, 2008. The management in its reply dated

February 13, 2009 stated that an amount of Rs.1.100 million had been adjusted

against the advances to contractors leaving a balance of Rs.3.816 million and added

that the outstanding advances were against work orders during 1993 to 2000. The

management further added that the outstanding debtors amounting to Rs.21.912

million belonged to the period from 1983 to 2001 and efforts were being made for

recovery of the balance amount of Rs.25.728 million.

The reply of the management was not tenable as they did not offer any comments as

to how such unsecured advances/credit sales were made to the private parties

whereas long period has elapsed without recovery.

The matter was discussed in the DAC meeting held on March 19, 2009. The DAC

directed the management to make efforts to recover outstanding balance amount.

However, despite efforts, no latest position of recoveries was intimated by the


510

STATE ENGINEERING CORPORATION (PVT.) LIMITED

AUDIT COMMENTS


79. State Engineering Corporation (SEC) was incorporated in 1973 under the

Companies Act 1913, (now Companies Ordinance 1984) with a paid up capital of

Rs.836 million fully subscribed by the Federal Government.

The objective of State Engineering Corporation are as under:

i. Promote industrial self-reliance and build a sound

technical / industrial base in the country;

ii. Upgrade facilities for maximum possible indigenization

and maintenance of technological edge over other

domestic competitors; and

iii. Induct local and foreign private sector partners, whenever

possible, to promote joint ventures with them for achieving

higher operational efficiencies.

The following heavy and light engineering companies are functioning

under the control of State Engineering Corporation (Pvt.) Limited:-

i. Pakistan Machine Tool Factory (Pvt.) Limited.

ii. Pakistan Engineering Company (Pvt.) Limited.

iii. Heavy Electrical Complex (Pvt.) Limited.


with the preceding years are given below:-

(Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

Income

Service charges 14.56 37 10.64 (1) 10.70

Interest 2.12 (11) 2.40 11 2.15

Total income 16.68 28 13.04 1 12.85

511

Expenditure

Operating expenses 68.07 62 42.04 60 26.26

Operating profit / (loss) (51.39) 77 (29.01) 116 (13.41)

Other income 8.12 538 1.27 (3) 1.31

Profit / (loss) before taxation (43.27) 56 (27.73) 129 (12.10)

Taxation 0.04 (48) 0.08 17 0.07

Profit / (loss) after taxation (43.31) 56 (27.81) 129 (12.17)

Accumulated loss C/F (1,613.17) 3 (1,569.86) 2 (1,542.05) Source: Annual Audited Accounts

The Corporation sustained a net loss of Rs.43.27 million during the year

under review and its accumulated loss increased to Rs.1,613.17 million as on June

30, 2007. The main reason for the loss was perpetual increase in operating expenses

which increased by 61.89% over the previous year. The management is advised to

improve the financial position of the Corporation by taking corrective measures.

512

HEAVY ELECTRICAL COMPLEX (PVT.) LIMITED

AUDIT COMMENTS


80. The Company was incorporated as private limited company on December

09, 1991 and is fully owned by State Engineering Corporation (SEC), Industries,

Production and Special Initiatives Division, Government of Pakistan.

The Company is engaged in the manufacturing of new power transformers

as well as repairing of damaged power transformers.

80.1 The working results of the Company for the year 2006-07 as compared with

the previous years are tabulated below:- (Rs. in million)

2006-07

%

to

Sales 2005-06

%

to

Sales 2004-05

%

to

Sales 2003-04

Sales 955.220 100 587.796 100 374.205 100 181.698

Cost of sales 794.347 83 533.446 91 370.911 99 195.62

Gross profit 160.873 17 54.350 9 3.294 1 (13.922)

Operating expenses

Administrative

expenses 21.465 2 21.092 4 13.809 4 11.078

Selling and distribution

expenses 10.986 1 8.998 2 4.440 1 6.132

Total operating

expenses 32.451 30.090 18.249 5 17.210

Operating profit / (loss) 128.422 13 24.260 4 (14.955) (4) (31.132)

Other income 2.612 0 9.617 2 4.015 1 2.652

Financial charges 20.964 2 24.690 4 13.727 4 10.541

Workers profit

participation fund 5.504 1 0.459 - - - -

Worker welfare fund 2.091 0 - - - - -

Profit before taxation 102.475 11 8.728 1 (24.667) (7) (39.021)

Provision for taxation 4.789 1 3.017 1 1.904 1 0.889

Profit/(loss) for the year

after taxation 97.686 10 5.711 1 (26.571) - (39.910)

Prior year adjustments (6.408) - (1.908) - - - -


(loss) (225.894) - (317.17) - (320.98) - (292.36)


513

The financial position of the Company improved during the year under review. The

improving trend needs to be maintained.

80.2 Trade receivables had increased from Rs.211.604 million as on June 30, 2006

to Rs.387.105 million as on June 30, 2007. Ageing of trade receivables showed that

Rs.56.210 million i.e. 15% of the total was overdue for more than one year. Early

recoveries of long outstanding trade receivables need to be made.

514

HEAVY MECHANICAL COMPLEX (PVT.) LIMITED

AUDIT COMMENTS


81. Heavy Mechanical Complex was incorporated under the Companies Act

1913 (now Companies Ordinance 1984) in July, 1975. The aims of Company are to

manufacture, supply and install machinery for cement, sugar, oil, gas and energy

sector industries as well as manufacture and supply of cranes, boilers, defense and

construction equipment.

81.1 The working results of Company for the year 2006-07 as compared with those

of the previous years are given below:- (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 1,767.755 2 1,737.021 24 1,403.087 75 803.869

Cost of sales 1,584.773 6 1,500.203 22 1,214.066 57 784.732

Gross profit 182.982 (23) 236.818 25 189.021 889 19.137

Operating expenses 122.554 (30) 175.057 42 122.977 44 85.604

Operating profit/(loss) 60.428 (2) 61.760 6 66.044 (1) (66.467)

Profit/(loss) after

taxation 9.962 (53) 21.011 - (5.457) (96) (145.716)


(loss) C/F (2,633.116) (1) (2,666.217) 2 (2,712.936) (5) (2,859.220)

Source: Audited Annual Accounts

Sales of the Company increased by 2% only as compared to the growth of 24%

and 75% in 2005-06 and 2003-04 respectively. The phenomenal growth levels

achieved in 2005-06 and 2004-05 was mainly due to huge orders by sugar industry.

The job order and cyclic nature of the Company’s business is the reason for such

abnormal fluctuations in the sales levels. The Company might look to explore more

markets to reduce its dependence on any single economy.

81.2 Gross profit ratio had fallen from 13.63% in 2005-06 to 10.35% in

2006-07. There was a decrease of 3.28% in gross profit ratio. The management

attributed this decrease to a rise in the cost of raw materials and supplies locally and

internationally.

515

Operating profit ratio remained almost the same in 2006-07 being 3.41% as

compared to 3.56% in 2005-06. Despite a huge drop in gross profit the reason for

such a consistent performance seemed to be a huge cut of Rs.41 million in general

and administrative expenses and Rs.11 million in selling and distribution expenses.

Net profit after tax had fallen from Rs.21 million in 2005-06 to Rs.10 million for

the reasons explained above.

81.3 Current ratio of the Company was 0.91 time in 2006-07 which was highly

un-satisfactory being even less than one time. Current ratio of 0.91 times means

that the Company would not be able to meet even its short term liabilities. This was

one of the factors casting doubt on the Company’s ability to continue as a going

concern.

516

81.4 Debtors collection period increased from 68 days in 2005-06 to 93 days in

2006-07. This represents worsening credit management policies. Keeping in view

the current ratio of less than 1, probably the Company cannot afford to give so

many days to its debtors.

No. of days

517

PAKISTAN MACHINE TOOL FACTORY (PVT.) LIMITED

AUDIT COMMENTS


82. Pakistan Machine Tool Factory (Pvt.) Limited (PMTF) was established

with technical collaboration of M/s. Oerlikon Buhrle of Switzerland. It was

incorporated on July 23, 1974 as a private limited company under the Companies

Act, 1913 (now Companies Ordinance 1984). The Company is engaged in

manufacturing and marketing of machine tool transmission components for trucks

and tractors, die-casting and other classified defence based products. PMTF is

wholly owned by the Government of Pakistan and its working is controlled through

State Engineering Corporation (Pvt.) Limited, Industries, Production and Special

Initiatives Division.

82.1 The working results of the Factory for the year 2006-07 as compared to the

previous years are given as under:- (Rs. in million)


82.2 Gross profit of the Company decreased from Rs.163.75 million in 2005-06

to Rs.119.41 million in 2006-07 registering a decline of 27%. Likewise, loss after

taxation was of Rs.52.00 million during 2006-07 as compared to profit after

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 894.42 (5) 945.46 2 926.276 10 838.80

Cost of good sold 775.02 (1) 781.71 1 777.918 14 684.61

Gross profit 119.41 (27) 163.75 10 148.358 (4) 154.18

Operating expenses 151.07 1 149.66 2 147.122 12 131.104

Operating profit/(loss) (31.67) - 14.09 - 1.236 (95) 23.077

Other income 7.83 7 7.29 (84) 44.477 83 24.295

Financial charges 45.39 35 33.58 93 17.44 46 11.941

Other charges - - 0.04 (98) 2.131 (32) 3.115


taxation (69.23) 466 (12.24) - 26.142 (19) 32.316

Provision for taxation 17.22 (22) 22.06 - -28.499 - 15.266

Profit/(loss) after

taxation (52.00) - 9.82 (82) 54.641 220 17.05

Accumulated

profit/(loss) B/F 109.55 10 99.73 (2) 102.087 (14) 119.137

Accumulated

profit/(loss) C/F 57.54 (47) 109.55 10 99.73 (2) 102.087

518

taxation of Rs.9.82 million in 2005-06. The main reason for loss was increasing

trend in financial charges which increased to Rs.45.40 million in 2006-07 from

Rs.33.58 million in 2005-06 registering an increase of 35%. Due to this, loss per

share increased to Rs 5.00 per share in 2006-07 from earning of Rs.1.12 per share in

2005-06. The trend analysis is presented as under:

Earning/(Loss) per share

1.95

1.37 1.12

-5.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

2003-04 2004-05 2005-06 2006-07Earning/(Loss) per

share

The reasons of adverse state of affairs of the Factory in the year 2006-07

need to be justified.

Gross profit ratio decreased from 17.32 % in 2005-06 to 13.35% in

2006-07. The decrease in gross profit was attributed to the loss of sales to Millat

Tractors Limited with higher gross profit ratio than other components of sales.

Other factors which contributed to the decrease of gross profit ratio were higher

cost of inputs, labour and utilities. Pretax loss had also increased from Rs.12.24

million in 2005-06 to Rs.69.23 million in 2006-07. This again was owing to the net

operating loss during 2006-07, higher operating expenses and higher financial

charges.

519

82.3 Long term loans (secured) increased to Rs.93.265 million in 2006-07 from

Rs.75.031 million in 2005-06 registering an increase of 24%. Reasons of increase

in long term loans need to be stated.

82.4 Total sales of the Company for the year 2006-07 was Rs.894.420 million

which included sales of scrap amounting to Rs.34.710 million (Rs.17.584 million

in 2005-06) registering an increase of 97%. The management may explain the

composition of scrap sold, whether it was from production or redundant plant and

machinery or loose tools etc.

82.5 Current ratio declined from 1.48 in 2005-06 to 1.42 in 2006-07. It depicts

financial difficulties for PMTF to meet its short term liabilities. Moreover, the

Company needs to look at the sufficiency of its working capital and perhaps

running finance facilities can be negotiated to be converted into long term loans.

Necessary steps needs to be taken to improve the liquidity.

520

The decrease in the current ratio needs to be justified. The trend analysis of current

ratio is shown in graph below;

Necessary steps needs to be taken to improve the ratio to enhance the financial

viability in future.


2006-07, which means that the Company was giving more time to its customers for

the clearance of their payments. Keeping in view the deteriorating current ratio

there might be a good reason to improve debtor days rather than giving more time

for recoveries. The trend analysis of debtors’ collection period is shown in the

graph below:

No. of days

521

82.7 The net profit ratio decreased from 2.03% in the year 2003-04 to negative

5.81% in the year 2006-07. The decreasing trend of net profit ratio is shown in the

diagram below;

Net Profit Ratio

2.03

1.29 1.04

-5.81

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2003-04 2004-05 2005-06 2006-07

Net Profit Ratio

The management needs to make strenuous efforts to improve the

profitability in future.

522

PAKISTAN ENGINEERING COMPANY LIMITED

AUDIT COMMENTS


83. Pakistan Engineering Company Limited (PECO) was incorporated in

Pakistan on February 15, 1950 under Companies Act 1913 (now Companies

Ordinance 1984) as a public limited company. The Company is principally

engaged in the manufacturing and sale of engineering products. The major products

of the Company are electricity transmission and communication towers, bicycles,

electric motors, pumps and steel rolled products. The Company has closed down its

all divisions, except structure division, and is principally engaged in the

manufacturing and sale of electricity transmission and communication towers only.

83.1 The working results of the Company for the year 2006-07 as compared to the

previous years are tabulated below:- (Rs. in million)

2006-07

%

Inc /

(Dec) 2005-06

%

Inc /

(Dec) 2004-05

%

Inc /

(Dec) 2003-04

Sales 983.499 18 834.706 (2) 852.150 87 456.577

Cost of sales 760.336 23 617.264 5 588.017 49 395.633

Gross profit / (loss) 223.163 3 217.442 (21) 264.133 333 60.944

Selling and distribution expenses 10.102 71 5.908 (50) 8.855 (9) 9.738

Freight and distribution expenses

12.269

313 2.968 100

-

Admn. and general expenses 35.759 20 29.827 (19) 35.630 (4) 37.261

Total expenses 58.13 50 38.703 (15) 44.485 (5) 46.999

Operating profit/(loss) 165.033 (8) 178.739 (23) 219.648 1,475 13.945

Other charges 10.838 (77) 47.909 18 39.268 1,785 2.083

Financial charges 8.591 (52) 17.994 (10) 19.815 (58) 46.812

Other income 63.304 829 6.815 55 3.043 (66) 9.079

Compulsory separation scheme - - - 82.355 1,299 5.887

Prior year adjustment - - - - - 17.913

Loan liability foregone by

associated Co.

- - - 16.000 - 17.913

Workers profit participation fund 7.28 22 5.983 19 4.863 - -

Profit/(loss) before tax 201.628 77 113.668 19

92.390

- (13.845)

Provision for taxation 110.42 - (4.174) (3) 4.308 89 2.283

Profit/(loss) after tax 312.047 185 109.494 20

88.08

- (16.13)

Accumulated profit/(loss) C/F (1,245.20) (19) (1,530.26

)

(8) (1,646.1

4)

- (1,740.95)

Earnings per share Rs. 54.84 185 19.24 20 15.48 - (2.83)


523

The financial position of PECO improved during the year under review.

Comparison of sales, cost of sales and gross profit

Selling and distribution expenses increased by 71% while the sales

increased by 18%. This shows that sales promotion activities of the management were ineffective and could not contribute to enhancement of sales.

Freight and forwarding expenses increased by 313% from Rs.2.968 million in 2005-06 to Rs.12.269 million in 2006-07. This abnormal increase may be justified with complete facts and figures. 83.2 Assets turn over ratio was 0.374% which indicates that the management of PECO was not utilizing its assets to generate the revenues. It is suggested that idle assets may be put into operations or otherwise disposed off. 83.3 Debt Equity Ratio is 4.58 times in the year under review which shows that management has been financing its assets through heavy borrowings. This should be an alarming situation for the management. Audit suggests that debt financing may be minimized and equity financing should be emphasized. For this the management could float shares to generate funds from public.

Sales Sales

Gross profit/(loss)

Gross profit/(loss)

Sales

Cost of sales Cost of sales

Cost of sales

Gross profit/(loss)

-

200.000

400.000

600.000

800.000

1,000.000

1,200.000

2006-07 2005-06 2004-05

Sales

Cost of sales

Gross profit/(loss)

524

ENAR PETROTECH SERVICES (PVT.) LIMITED

AUDIT COMMENTS


84. The Company was incorporated in July 1974 as a private limited company.

The Company provides complete range of services (engineering, project

management and supervision) for executing projects. The Company also offers

project development services and undertakes feasibility/market studies, technology

evaluations and environmental studies.


the previous years are as under:- (Rs. in million)

2006-07

%

Inc /

(Dec) 2005-06

%

Inc /

(Dec) 2004-05

%

Inc /

(Dec) 2003-04

Income from services 112.161 9 102.656 7 95.855 7 89.453

Cost of services 84.912 8 78.696 8 72.605 9 66.817

Gross profit 27.249 14 23.960 3 23.250 3 22.636

Admn and general expenses 18.714 13 16.539 12 14.763 - 14.751

Financial expenses 0.025 (83) 0.145 14 0.127 18 0.108

Net profit from operations 8.510 17 7.276 (13) 8.360 7 7.777

Other income 0.360 (57) 0.832 738 0.099 (89) 0.915

Net profit before taxation 8.870 9 8.108 (4) 8.459 (3) 8.692

Taxation 3.104 (7) 3.324 (37) 5.279 41 3.738

Net profit after taxation 5.766 21 4.784 50 3.180 (36) 4.954

Accumulated profit/(loss) B/F 17.571 37 12.787 33 9.606 106 4.652

Accumulated profit/(loss) C/F 23.237 32 17.571 37 12.787 33 9.606


Gross profit increased by 14% from Rs.23.960 million in 2005-06 to

Rs.27.249 million in 2006-07 and administrative and general expenses also

increased by 13% from Rs.16.539 million in 2005-06 to Rs.18.714 million in

2006-07. Net profit from operations increased by 17% in the year 2006-07.The

profitability of the Company needs to be maintained in future.

84.2 Trade debts (un-secured) increased from Rs.21.243 million in the year

2005-06 to Rs.30.205 million in the year 2006-07 registering an increase of 42 %.

Reasons of this increase in trade debts need to be elucidated.

525

Current Ratio decreased from 2.20 times in 2004-05 to 1.97 times in 2006-07 as

shown in the graph below:

Current Ratio

1.99

2.20

2.02

1.97

1.85

1.90

1.95

2.00

2.05

2.10

2.15

2.20

2.25

2003-04 2004-05 2005-06 2006-07Year

Tim

es

Current

Ratio

Necessary step needs to be taken to improve the current ratio, so that viability of the

entity be secured.

0 10000 20000 30000 40000 50000 60000 70000 80000

2003-04 2004-05 2005-06 2006-07 year

Current Assets Current Liabilities

Rs.in Million

526

NATIONAL FERTILIZER CORPORATION OF PAKISTAN (PVT.)

LIMITED

AUDIT COMMENTS


85. National Fertilizer Corporation of Pakistan (Pvt.) Limited (NFC) was

established in August 1973 as a private limited company to carry out the business

of manufacturing, buying, selling, exporting and importing all types of chemical

fertilizers. The Corporation has four subsidiaries including two institutes of

engineering, one fertilizer producing company and one marketing company.


the previous years are given below: (Rs. in million)

2006-07

%

Inc(Dec)

2005-06

%

Inc(Dec)

2004-05

Income:

Dividend 184.698 (71) 645.105 101 320.964

Interest, mark up and charges

on loans to subsidiary

companies

5.777 (12) 6.529 (73) 24.051

Profit on bank deposits and

Government securities

701.349 (33) 1,047.938 59 659.924

Other income 0.422 (8) 0.460 (90) 4.823

Total income 892.246 (48) 1,700.032 68 1,009.762

Expenses and other charges

Administrative and general

expenses

128.943 (2) 131.392 8 121.944

Donations 0.250 (100) 1,010.920 - 0.200

Write off- receivable from GOP 3,379.150 - - - -

Financial charges 0.006 20.00 0.005 (50) 0.010

Total expenses 3,508.340 207 1,142.317 835 122.154

Profit/(loss)before taxation (2,616.103) - 557.715 (37) 887.608

Taxation - - 32.255 (86) 227.000

Profit/(loss) after taxation (2,616.103) - 525.460 (20) 660.608 Source: Annual audited accounts

The Corporation sustained a loss of Rs.2.616 billion during the year

2006-07 as against the net profit of Rs.525.460 million in the previous year, the loss

was caused mainly due to decrease in income from Rs.1.700 billion during the year

527

2005-06 to Rs.892.246 million during the year under review and writing off

receivable from Government of Pakistan to the tune of Rs.3.379 billion on account

of sale of Pak American Fertilizer and Lyallpur Chemicals in July 2006 and

February 2007 respectively.

85.2 Working capital loan of Rs.65.701 million was provided to Hazara Phosphate

Fertilizers (Pvt.) Limited during the year 2005-06 which rose upto Rs.141.327

million in 2006-07. The loan carried interest at the rate of 5% per annum.

International Accounting Standard (IAS)-18 stipulates the revenue should be

recognized on fair value basis, therefore, the market interest rate should be charged

to subsidiary. Accrued interest receivable from HPFL stood at Rs.0.554 million

during the year 2005-06 which rose upto Rs.1.137 million in 2006-07. Reasons for

providing financial assistance to subsidiary company at lesser rate against the

provision of IAS need to be justified. Prior to 2005 free interest loaning facility was

provided to HPFL which needs to be justified.

528

NFC INSTITUTE OF ENGINEERING AND FERTILIZER RESEARCH

(PVT.) LIMITED, FAISALABAD

AUDIT COMMENTS


86. The Company was incorporated on June 26, 1984 as a private limited

company under the name “Fertilizer Research and Development Institute (Pvt.)

Limited”. Subsequently, the name of the Company was changed to NFC Institute of

Engineering and Fertilizer Research (Pvt.) Limited on January 15, 1998. The

Company is engaged in educational programmes leading to higher degree in the

field of Chemical Engineering since 1998, Electrical Engineering since 2003,

Mechanical Engineering since 2004 and Computer Sciences since 2007. It is

affiliated with the University of Engineering and Technology, Lahore. The

Company is also engaged in research and development activities with reference to

fertilizer industry.



2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Income Tuition fee 64.594 18 54.524 24 44.029 31 33.548

Profit on bank deposit 15.806 26 12.547 78 7.068 3 6.861

Other income 3.948 18 3.346 10 3.052 (21) 3.853

Total income 84.349 20 70.417 30 54.149 22 44.262

Expenses Research and development 5.474 (29) 7.697 (8) 8.407 (3) 8.708

Admn. and gen. expenses 15.782 51 10.463 31 7.985 9 7.327

Teaching expenses 41.535 14 36.342 13 32.144 26 25.471

Total expenses 62.474 15 54.502 12 48.536 17 41.506

Excess of income over expenditure 21.558 35 15.915 184 5.613 104 2.756


Overall performance of the Institute remained satisfactory as it earned an

excess income over expenses as compared to previous years.

529

NFC INSTITUTE OF ENGINEERING AND TECHNOLOGICAL

TRAINING (PVT.) LIMITED, MULTAN

AUDIT COMMENTS


87. The Company was incorporated on 26th

June 1984 as a private limited

company under the name "NFC Technical Training Center (Pvt.) Limited".

Subsequently, the name of the Company was changed to NFC Institute of

Engineering and Technological Training (Pvt.) Limited on 30th

August 1994. The

Institute is engaged in educational and training programmes leading to higher

degrees in the field of engineering. Institute is affiliated with Baha-ud-Din Zakaria

University, Multan.


previous years are given below:- (Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

(Inc/Dcc) 2004-05

Income

Tuition fee and other income 142.029 16 122.086 12 109.431

Expenditure

Teaching 58.014 9 53.091 9 48.764

Training 5.348 17 4.569 (34) 6.964

Admn. and general expenses 14.025 16 12.097 (3) 12.431

Bank charges 0.011 (42) 0.019 (14) 0.022

Total expenditure 77.398 11 69.776 2 68.181

Surplus 64.631 24 52.310 27 41.250

Taxation 0.460 7 0.431 6 0.407

Surplus after taxation 64.171 24 51.879 27 40.844


Income of the Institute increased to Rs.142.029 million in 2006-07 from

Rs.122.086 million in 2005-06 registering an increase of 16% over the previous

year. While the total expenditure increased to Rs.77.398 million in 2006-07 from

Rs.69.776 million in 2005-06 registering an increase of 11% over previous year.

The improving trend needs to be maintained.

530

NATIONAL FERTILIZER MARKETING LIMITED

AUDIT COMMENTS


88. National Fertilizer Marketing Limited (NFML) is a subsidiary of National

Fertilizer Corporation of Pakistan (Pvt.) Limited. It operates on ‘No profit no loss’

basis as the total expenditure incurred by the Company in marketing of fertilizers is

reimbursed as incidentals by associated companies / subsidiaries of National

Fertilizer Corporation.


previous years are tabulated below:- (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 2,136.471 (56) 4,813.005 (59) 11,627.543 6 10,979.943

Cost of sales 2,029.082 (57) 4,702.859 (59) 11,578.041 5 10,979.671

Gross profit 107.389 (3) 110.146 123 49.502 - 0.271

Provision for allowances of incidentals

174.740 (50) 346.124 (54) 745.474 0.220 747.140

Net income 282.129 (38) 456.269 (43) 794.976 6 747.411

Operating, sales

promotion and administrative expenses

103.703 (50) 209.016 (38) 336.770 83 184.433

Allowance to dealers 38.280 (45) 69.522 (37) 109.924 (24) 144.619

Storage expenses 27.086 (9) 29.753 (68) 92.032 35 68.368

Freight expenses 181.099 (36) 284.541 (26) 386.043 1 383.416

Bank charges 0.172 (2) 0.176 (65) 0.502 (79) 2.423

Total expenses 350.0339 (41) 593.009 (36) 925.271 18 783.259

Other income 68.211 (50) 136.740 5 130.295 263 35.848

Net expenditure 282.129 (38) 456.269 (43) 794.976 6 747.411

Source:-Annual Audited Accounts

The analysis indicated that sales of the Company decreased to Rs.2,136.471

million in 2006-07 from Rs.4,813.05 million in 2005-06 registering a decrease of

56%. Storage expenses included an amount of Rs 8.334 million as loading /

unloading and carriage expenses for the year 2006-07 as against Rs 6.390 million in

2005-06 registering an increase of 30%, on the other hand total sales of the

Company decreased by 56% in the year under review. The reason of increase in

these expenses despite decrease in the sales may be explained.

531

UTILITY STORES CORPORATION OF PAKISTAN (PVT.) LIMITED

AUDIT COMMENTS


89. Utility Stores Corporation of Pakistan (Pvt.) Limited was incorporated on

September 3, 1971 as private limited company under presidential order issued vide

President Secretariat U.O No.D-91(S)C.III 171 dated March 26, 1971. The

Corporation was established to:-

i. Undertake the procurement of essential consumer goods from domestic and

external services.

ii. Ensure the availability of quality goods in adequate and regular quantities

and market them at lower price than market price through a chain of stores.


previous years are given below:- (Rs. in million)

2006-07

%

to

sales 2005-06

%

to

sales 2004-05

%

to

sales

Sales 19,656.339 100 12,441.508 100 2736.023 100

Cost of goods sold (18,470.727) (94) (11,622.412) (93) (2493.833) 91

Gross profit 1,185.612 6 819.096 7 242.190 9

Operating expenses

Selling and dist. Expenses (543.457) (3) (339.69) (3) (191.806) 7

Admn expenses (44.999) (0.23) (34.545) (0.28) (28.841) 1

Financial charges (11.648) (0.06) (5.311) (0.04) (1.748) -

Operating profit 585.508 3 (439.549) 4 19.795 1

Other operating income 65.817 0.33 45.433 0.37 239.893 9

Profit before taxation 651.324 3 484.982 4 259.688 9

Provision for taxation (48.779) (0.24) (62.207) (1) 13.680 -

Profit for the year 602.545 3 422.775 3 246.009 9 Source: Annual Audited Accounts

The sales of the Corporation increased during 2006-07 but increase in cost

of sales was on higher side being 93.96% of sales (2006 93.42%). The increase in

cost of sales was mainly due to packing material and other expenses which

increased to Rs.223.50 million against Rs. 101.95 million in 2005-06.

89.2 An amount of Rs 126.583 million was recoverable from the Store Incharges

532

on account of theft and pilferage. Out of this amount provision of doubtful debts

amounting to Rs.84.139 million had been made. Theft of huge amount of store is

indicative of weak internal controls which is results huge losses to the Company.

Implementation of sound policy in this area is stressed upon the management.

89.3 A provision for slow moving and obsolete items of Rs.10.969 million had

been made in the accounts of the previous years. Steps need be taken for disposal of

these stores before their further deterioration.

AUDIT PARAS

90. Procurement in violation of PPRA Rules, 2004 – Rs. 2,483.518 million

Under rule-12 of Public Procurement Rules 2004, procurement over one hundred

thousand and up to the limit of one million rupees shall be advertised on the

Authority’s website in the prescribed manner/format. The procurement

opportunities over one million rupees should also be advertised in print media, if

deemed necessary by the procuring agency

In violation of above rules, Utility Stores Corporation purchased various

commodities valuing Rs.2,483.518 million during the years 2004-05, 2005-06 and

2006-07 as detailed below on the basis of three quotations, resultantly the

Corporation was deprived of the benefits of competitive rates.

Sr. No Draft Para No. Name of commodity Rs. in million

1 2252 Atta 284.845

2 2313 Milk and milk powder 7.534

3 2277 Dates 1.534

4 2504 Kenya tea 146.051

5 2503 Spices 72.099

6 2501 Rice and pulses 1,890.686

7 2500 Cleaners, insecticide

and detergent

64.338

8 2505 Grinding machine 0.570

9 2314 Raw granule 15.861

Total 2,483.518

The irregular purchases were brought to the notice of the management / Ministry.

533

According to their reply the matter has been taken up with Public Procurement

Regularity Authority (PPRA). Consequently, PPRA appointed M/s. Anjum Asim

Shahid Rehman as Consultants to examine USC Procurement Rules and give their

recommendations. According to Consultants’ report, in view of peculiar nature of

operations, the procurement of commodities by USC may be exempted from the

purview of the Public Procurement Rules, 2004. The reply was not tenable as no

exemption has been granted by the Authority till May 2008. In the absence of

exemption requested for, it was mandatory to procure the commodities as per

aforesaid rules.

The DAC in its meeting held on July 12, 2008 directed the management to pursue

the case with PPRA for granting exemption to the USC.

The matter was also discussed in DAC meeting held on May 16, 2009. The

management informed that the matter is with PPRA for grant of exemption to USC.

DAC directed the management to pursue the case with PPRA.

91. Non-recovery of sale proceeds of empty sugar bags – Rs.20.527 million

As per Utility Stores Corporation (USC) policy dated December 26, 2006, the

disposal of empty poly propylene bags of sugar was required to be made by the

concerned Warehouse In-charge w.e.f March 28, 2005 under supervision of the

concerned Regional Manager on the best possible price. Out of sale proceeds an

amount of Rs.3 per bag was required to be deposited by the In-charges Warehouse

in USC account and the balance shall be retained by them against compensation on

account of weight loss.

Regional Offices sold 892,726 M.ton of sugar from February, 2005 to June 2008.

According to calculation if each bag contains 50 kg of sugar, then 17,854,520

empty bags were to be sold by the respective in-charges. Thus an amount of

Rs.53.564 millions was to be recovered. An amount of Rs.33.037 million against

the sale of 11,012,187 bags was recovered from the five zonal offices but sale

proceeds of 6,842,333 bags amounting to Rs.20.527 million was not deposited by

the In-charges, (6,842,333 X Rs. 3.00 = Rs. 20.527 million) till June 30, 2008.

534

The matter was reported to the management on February 02, 2008 and to Ministry

on June 21, 2008. The management in its replies dated May 15, 2008 and April 01,

2009 stated that Rs.33.037 million had so far been recovered from the five zonal

offices but reasons for non-recovery of balance amount of Rs.20.527 million were

not explained. The Ministry reiterated the earlier reply of the management on June

26, 2008.

The DAC in its meeting held on July 12, 2008 directed the management to furnish

revised reply giving the latest position of recovery.

The matter was again discussed in DAC meeting held on May 16, 2009. DAC

directed the management to recover outstanding amount from concerned

employees at the earliest.

92. Loss due to defective procurement of confiscated goods by USC

– Rs.6.087 million.

As per para-3.29 of the USC Stores Operation Manual “prices of articles lifted shall

be appraised by Customs and accepted by USC, keeping in view the market rates.

Under no circumstances, goods un-appraised, in damaged condition, or considered

to be un-saleable at our stores, or highly priced, be lifted from customs”.

Utility Stores Corporation purchased confiscated goods valuing Rs.6.087 million

from Customs during 2003-04 to 2004-05 for sale at Regional Office, Rawalpindi

but as per status report dated June 30, 2008 the confiscated goods valuing

Rs.6.087 million were lying in warehouse since receipt and chances of their sale

were remote. This showed that the goods were not sale worthy in the market and

were purchased against the provisions of Operational Manual. Thus by violating

the terms of lifting of confiscated goods the Corporation sustained a loss of

Rs.6.087 million.

The matter was reported to the management on February 02, 2008. The

management in its reply dated May 15, 2008 stated that cloth lifted under the lot

scheme became out of fashion and could not be sold out. The dead stock had been

stored in USC warehouse, Islamabad and is in the process of disposal. Reply of the

management was not convincing as the confiscated goods were purchased by

ignoring the Store Operational Manual due to which said stores became as dead

535

stock.

The matter was reported to the Ministry on June 21, 2008. The Ministry reiterated

the earlier reply of the management on June 26, 2008.

The DAC in its meeting held on July 12, 2008 directed the management to furnish

revised reply to audit giving the details of full consignment, value of stock

available and plan for further disposal.

The matter was also discussed in DAC meeting held on May 16, 2009. The DAC

directed the management to chalk out a program for the disposal of dead stock and

to streamline the procurement procedure in line with the procurement manual.

93. Loss due to theft / burglary of cash and stores – Rs. 2.087 million

As per para-10.3 section-II of the USC Accounting Manual all the stores and

warehouses are to be adequately insured against the risk of fire, theft and burglary

to safeguard the interest of the Corporation. Further as per USC, Head Office

circular dated January 24, 2007 safe and secure operation of the stores were not

being followed and instructed to follow the safe and secure operation of the stores,

after affixing iron safe with strong angle iron, to avoid possibility of lifting /

removal of the safe, depositing sale proceeds in bank twice a day, after hiring the

services of watchman at night and deposit of the sale proceeds prior to weekly

holiday.

At 20 sales outlets of 13 Regions of the Corporation theft/burglary incidents

occurred during 2006-07. The burglars took away safe with cash/stores involving

Rs.2.087 million as reported by Regional Managers to police authorities / Head

Office. Frequent incidents of theft / burglary of cash indicates that iron safe were

not affixed with strong iron, sale proceeds was not deposited in bank twice in a day,

services of the watchmen were not hired and other measures were not adopted by

the Regional Offices in this regard, which resulted in theft / burglary at Utility

Stores. Due to negligence of the management of the Regional Offices, the

Corporation had to sustain a loss of Rs. 2.087 million.

Matter was taken up with the management on February 02, 2008. In their reply

dated May 15, 2008 it was intimated that frequent incidents of robberies at gun

536

point and cases of theft/burglary at Utility Stores were due to law and order

situation in the country. The various insurance covers / policies obtained by the

Corporation to secure the loss and others precautionary measures are being adopted

by the Regions. Further matter was reported to Government with the request to

provide Police guards at each store. Reply of the management was not satisfactory

as instructions/orders issued by the Head Office were not adhered to by the

Regional Offices/sales staff. The loss could not be recovered through insurance

claims.

The issue was also reported to the Ministry on June 21, 2008. The Ministry

reiterated the earlier reply of the management on June 26, 2008.

The matter was discussed in DAC meeting held on July 12, 2008. The Committee

directed the management to provide enquiry reports about the theft to audit and

pursue the recovery through insurance claims.

The matter was also discussed in DAC meeting held on May 16, 2009. The amount

of recovery undertaken by USC is very nominal viz a viz their claims against

National Insurance Corporation. DAC expressed its concern over the recovery

process and directed to expedite recovery. Insurance process needs to be revisited

as recovery against claims submitted is meager.

537

538

MINISTRY OF INFORMATION AND BROADCASTING

(175–193)

539

540

PAKISTAN BROADCASTING CORPORATION

AUDIT COMMENTS


94. The Corporation was established under Pakistan Broadcasting Corporation

Act, 1973. The primary goal of the Corporation is to provide broadcasting service

for general reception in all parts of Pakistan and the territorial waters thereof and on

board ships and aircrafts, and other countries and places for the purposes of

disseminating information, education and entertainment through programmes

which maintain a proper balance in their subject matter and a high general standard

of quality and morality.



2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Advertisement income 163.884 18 138.403 9 148.674 10 135.150

Subsidy from government

1500.00 15 1304.000 85 1294.512 88 1170.000

Other income 24.845 (73) 92.162 6 20.314 1 35.509

Total 1,688.729 10 1,534.565 100 1,463.500 100 1,340.659

Expenditure

Salaries and allowances 670.673 10 608.506 40 530.441 36 488.001

Pension and gratuity 193.971 13 171.555 11 177.579 12 181.026

Personal expenses 267.113 27 210.131 14 207.851 14 185.506

Traveling and

conveyance

44.714 4 42.991 3 305.384 2 32.093

Programme expenses 124.666 19 104.487 7 106.997 7 84.442

News expenses 42.754 11 38.368 3 34.851 2 32.871

Other admn expenses 85.302 1 84.805 6 75.766 5 82.622

Training expenses 0.706 554 0.108 0.001 0.127 0.017 0.108

Repair and maintenance 14.660 29 11.352 1 10.549 1 13.720

Legal and professional charges

0.811 89 0.430 0.028 0.619 0.042 0.403

Power and fuel charges 160.555 (0.32) 161.070 10 156.660 11 164.003

Financial expenses 1.346 15 1.173 0.076 0.913 0.06 0.859

Stores and spares

consumed

23.397 23 19.093 1 17.108 1 19.673

Depreciation 74.085 2 72.871 5 74.279 5 64.686

Provision for doubtful debts

1.593 87 0.854 0.056 0.726 0.05 2.601

Total 1,706.346 12 1,527.794 100 1,429.850 98 1,352.613

541

Surplus/(deficit) before

taxation

(72.622) 70 (42.648) 3 33.650 2 11.953

Provision for taxation (1.000) 44 (0.693) 0.046 (0.835) (0.06) 0.944

Surplus/(deficit) after

taxation

(73.622) 70 (43.341) 3 32.816 2 12.898

Deficit brought forward (351.697) - (308.556) 20 (341.171) (23) 328.273

Deficit carried forward (425.319) - (351.697) 23 (308.356) (21) 341.171

Source - Annual Audited Accounts The advertising income increased by 18.41% even then the operational results of

the Corporation remained unsatisfactory. Resultantly the Corporation’s deficit

increased by 70% i.e. from Rs. 42.648 million in 2005-06 to Rs. 72.622 million in

2006-07. The main reason for increase in the deficit is enhancement in salaries and

personal expenses.


2006-07. The debtor turnover days are exceptionally high and Corporation needs to

review its credit policies. The ratio tells us that on average a debt is collected in 230

days which is considered as abnormal, keeping in view the nature of business. The

trend analysis of debtors’ collection period is shown in the graph below:-

94.3 The Chartered Accountants in their report pointed out that Corporation had

not incorporated its liability towards pension fund amounting to Rs.2,049 million

as determined by the actuarial valuation carried out on 30 June, 2003. Further,

actuarial valuation for the year ended on June 30, 2007 had not been carried out.

Had the provision been made, the deficit for the year would have increased to that

extent. The necessary provisions may be incorporated accordingly.

94.4 Grants received from the Government of Pakistan from time to time for

542

Capital and Development expenditure were Rs.1,782.142 million as on June 30,

2007. These grants are repayable in 20 years including a grace period of five years

for recovery of principal amount. The interest was chargeable at prevailing rate for

respective year. However, the Corporation has formally requested the Government

for its conversion into non-repayable grants. The Corporation needs to improve its

operational efficiency to repay such grants.

94.5 The Pakistan Broadcasting Foundation (PBF) loan amounting to Rs.1.712

million was written off during 2006-07. A detailed explanation regarding

circumstances under which the loan remained un-recovered may be provided.

AUDIT PARAS

95. Irregular re-employment beyond the age of superannuation resulting

into un-authorized expenditure – Rs. 4.259 million

As per Establishment Division’s letter dated May 26, 1998 no re-employment

beyond the age of superannuation should be allowed except in very exceptional

cases for which approval of the Prime Minister needs to be obtained. This decision

is also applicable to autonomous/semi-autonomous bodies.

In Pakistan Broadcasting Corporation (PBC) HQ, 17 employees retired from

service during 1999 to June 30, 2007 on attaining the age of superannuation were

re-employed on contract at a fix pay with the approval of Director General, PBC.

The contract employees were paid Rs. 4.259 million from 1999 to 2007. As per

standing instructions of the Federation, the DG, PBC was not authorized to appoint

such persons beyond the age of 60 years, hence the expenditure of Rs.4.259 million

was considered irregular.

The matter was reported to the management on February 14, 2008. The

management in its reply stated that retired employees have not been appointed in

pay scale; rather they were engaged on lump sum pay on booking basis due to

service exigencies for which Director General was fully competent. The reply was

not convincing because employees were working since 1999 whereas the booking

base employment is a temporary arrangement. Audit is of the view that these

employees did not fall under booking basis employment as their contracts were

extended on year to year basis.

543

The matter was reported to the Ministry on June 18, 2008. The management

reiterated its previous reply on September 25, 2008. The reply was not tenable as

re-employment beyond the superannuation was to be got approved from the Prime

Minister.

DAC meeting held on October 28, 2008 directed the management for regularization

of these appointments by Finance Division.

DAC meeting was held again on May 07, 2009 and advised the management that

the case already referred to the Finance Division for regularization be pursued.

96. Permanent absorption of contracts staff on false statements, irregular

expenditure – Rs.2.391 million

In accordance with the Cabinet Division instructions dated January 08, 2005 the

recruitment in Corporation, autonomous bodies should be made after obtaining

NOC from Establishment Division. Further following criteria was fixed by the

Board of Directors for permanent absorption of IT staff in PBC.

i. Evaluation of the recruitment process to ascertain whether it ensured fair

competition procedure or otherwise as prescribed by the Government for

recruitment on permanent basis.

ii. Any other cogent reasons supporting the proposed regularization.

PBC HQ., Islamabad absorbed the IT personals against regular pay scales. Later the

matter was placed before Board of Directors on April 28, 2006. The Board did not

agree to the proposal and asked for obtaining views of Finance Division,

Government of Pakistan. Instead of sending case to Finance Division the case was

again placed before Board of Directors on August 7, 2006. This time the Board

referred the case to the committee comprising Director Administration PBC, an

Additional Secretary, Ministry of Interior with reference to evaluate the same in

the light of criteria as above. The committee submitted its report in BoD meeting

held on September 26, 2006 that the vacancies proposed to be regularized were

widely advertised in leading newspaper. Necessary formalities were fulfilled for

appointment of permanent employment/permanent absorption as they had

completed almost 4 years experience in PBC. Besides, there was no extra financial

544

burden of PBC in case of permanent absorption, hence the committee

recommended to the BoDs for permanent absorption of 35 IT personals on

September 26, 2006. Recommendations of the committee were approved by BoDs

accordingly. Audit observed that out of 35 permanently absorbed employees 14

were posted on contract basis on June 22, 2006 without press advertisement,

approval of the administrative Ministry and NOC from Establishment Division,

without having past experience thus report of committee was not based on facts. An

amount of Rs.2.391 million incurred on their pay and allowances from October 1,

2006 to December 31, 2007 was considered irregular.

The matter was pointed out to the management in February 2008. The management

in its reply dated May 15, 2008 stated that due to establishment of monitoring unit

on the instructions of Minister, Information and Broadcasting, IT personals were

urgently required therefore 13 personals were employed on booking basis and later

on decided to absorb these IT personals on permanent pay scales. The reply was not

tenable as the monitoring unit was established in

2001-02 and employment was made in June 2006 hence there was no urgency. As

regard management’s contention for non-obtaining of NOC the same was also not

justified because 14 employees under observation were appointed in June 2006.

The issue was brought to the notice of Ministry on June 18, 2008. The management

reiterated its previous reply on September 25, 2008. The reply was not tenable as

the monitoring unit was established in 2002 hence there was no urgency. The

appointment should have been made on open merit after obtaining NOC from the

Establishment Division.

DAC in its meeting held on October 28, 2008 directed the management that a fact

finding inquiry be conducted for fixing responsibility within two months.

Again DAC in its meeting held on May 07, 2009 directed the management that

report of the inquiry committee may be finalized at an early date and a copy of the

same may be provided to Audit for examination.

545

97. Irregular appointment on contract basis and payment – Rs.2.274

million

In accordance with the Government of Pakistan, Establishment Division, OM

No.6/02/2000-R-3 dated May 06, 2000 for contract appointment the vacancies

should be advertised in the leading national and regional newspapers.

Pakistan Broadcasting Corporation, Rawalpindi-III, appointed 15 employees on

contract basis during the period from 1999 to 2006 on monthly consolidated pay.

The employees were appointed by the PBC Headquarters, Islamabad and

transferred to this unit on different dates. The procedure of appointment was not

adopted by the management therefore, an amount of Rs.2.274 million paid to the

employees was held irregular.


in its reply dated November 30, 2007 stated that contract appointments were made

due to ban on regular appointment. The reply was not convincing because the

employees were appointed without open competition.

The matter was reported to the Ministry on April 26, 2008. The management in its

reply dated September 25, 2008 intimated that persons were appointed on

consolidated monthly booking basis and not on contract, hence there was no need

of advertising the same. Audit is of the view that vacancies had to be advertised as

per rules.

DAC in its meeting held on October 28, 2008 directed the management to

regularize the appointments from competent authority.

DAC meeting was held again on May 07, 2009 and advised the management that

the case already referred to the Finance Division for regularization be pursued.

98. Loss due to non-procurement of equipment within validity period


The offer of Rs.45,000 of M/s. United Technology, Karachi dated March 22, 2004

for 16 delay machine system, UPS 6000, USA was the lowest with the validity

period up to August, 2004.

546

Pakistan Broadcasting Corporation invited tenders for the purchase of studios

equipments (delay machine 6000 USA) through press on April 16, 2004. The offer

of Rs.45,000 per item from M/s. United Technology, Karachi was found the lowest.

The management failed to place order on the firm within the validity period in spite

of extension in validity of bid up to 31st August, 2004. The management placed

purchase order on November 05, 2004. The firm refused to supply the item vide

letter dated November 15, 2004 on the plea that the validity period had since

expired and the rates of the said item was increased in the market from Rs.45,000 to

Rs.135,000. Subsequently Corporation purchased 16 delay machine from M/s.

World Wide Vision, Islamabad at the rate Rs.127,950 per item vide purchased

order dated April 16, 2005. Thus due to inordinate delay in placing order within the

extended validity time, the Corporation had to sustain a loss of Rs. 1.244 million.

The loss was reported to the management on February, 2008. The management in

its reply of May 19, 2008 stated that rates offered by M/s. United Technology,

Karachi was un-reasonable. The order was placed on the firm after the expiry of

validity period due to finalization of the case in most transparent manner and

earnest money of Rs.19,000 of the firm was forfeited due to refusal for supply. The

reply was not convincing as there was inordinate delay on the part of management

in placing purchase order which caused a loss to the Corporation. Moreover the

confiscated earnest money was also released by the management.

The matter was brought to the notice of Ministry on June 18, 2008. The

management in its reply dated September 25, 2008 intimated that the expenditure

exceeding one million was to be sanctioned by the Minister for I&B, the sanction

from the Minister was received on September 18, 2004. Letter of intent was issued

on October 05, 2004 but the firm refused to supply the machines due to increase in

Sterling value hence the earnest money of the firm was forfeited. The reply was not

convincing as Corporation sustained loss due to non-placing of purchase order

within validity period.


constitute an enquiry committee to investigate and probe the matter and fix

responsibility.

DAC in its meeting held on May 07, 2009 directed that report of the inquiry

committee may be finalized at an early date and a copy of the same may be

provided to Audit for examination.

547

99. Overpayment of deputation allowance – Rs.216,000

According to Establishment Division’s O.M No 1/13/87, Islamabad dated

December 12, 1994, deputation allowance @10% of basic pay is allowed to the

officer deputed on management cadre post, which was subsequently revised to 20%

vide Office Memorandum No 01/13/87-R-I dated June 12,2006.

In PBC, Director General, Director Administration and Director Finance were

posted on deputation in M-I and M-II group respectively and according to the

above referred rules they were entitled for deputation allowance @ Rs. 10% of their

basic pay, whereas they were paid deputation allowance @ 20% of their basic pay

during the period from July 1, 2004 to June 30, 2006 which resulted in excess

payment of Rs.216,000 to the officers.

The overpayment was reported to management in February 2008 followed by

reminders on March 26, 2008 and May 17, 2008. But no reply was received.

The matter was reported to Ministry on June 18, 2008. The management in its reply

dated September 25, 2008 intimated that Establishment Division has allowed

deputation allowance @ 20% of Basic Pay, subject to maximum of Rs.6,000. per

month. The reply was not convincing as the amount pointed out by Audit relates to

the period prior to the revision of deputation allowance.


regularize the appointments from Finance Division.

Again, DAC in its meeting held on May 07, 2009 directed that the case may be

persuaded with the Finance Ministry for regularization.

548

PAKISTAN TELEVISION CORPORATION LIMITED

AUDIT COMMENTS


100. Pakistan Television Corporation came into existence on November 26,

1964 under the Companies Act, 1913 (now Companies Ordinance 1984). All shares

of the Corporation are held by the Government of Pakistan. The 2nd

Channel (set

up with the help of Government of Japan) for educational purposes started its

operation in November 1992. The operation of Channel-3 established in 2003, has

since been closed.

Pakistan Television Corporation was established to:-

i. Setup a net work of television stations in Pakistan by erecting, constructing,

maintaining and improving television stations at places approved by the

Government of Pakistan;

ii. Carry out instructions of Government of Pakistan with regard to general

pattern or policies or programmes, announcements and news etc. to be put

on air from time to time; and

iii. Carry on the business of commercial advertisement by selling programmes

and advertising time of television stations.



2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

%

Inc/(Dec) 2003-04

Revenue net 3,805.525 0.45 3,788.647 2 3714 45 2,555.63

Operating expenditure 3,205.681 11 2,891.701 11 2614 7 2,441.37

Administrative Expense 892.707 5 853.481 30 654 (4) 684.044

Financial and other charges 3.703 (20) 4.631 (89) 43 66 25.57

Operating profit / (loss) (296.566) 38.834 (90) 403 (168) (595.350)

Other income 116.714 (11) 131.269 29 102 (19) 125.308

(179.852) 170.103 (66) 505 (207) (470.042)

Prior year adjustment - - 22.128

Profit / (loss) before taxation (179.852) (206) 170.103 (66) 505 (213) (447.914)

549

Provision for current

taxation (21.681) (64) (59.536) (66 (176) (1,475) 12.778

Profit / (loss) after taxation (201.533) (282) 110.567 (66) 330 (172) (460.692)

Accumulated profit / (loss) b/f 42.358 (68.209) (397.77) 62.924

Accumulated profit / (loss)

c/f (159.175) 42.358 (68.209) (397.768)


The income of the Corporation increased by 0.45% only from Rs.3,788.647

million in 2005-06 to Rs.3,805.525 million in 2006-07 while the operating and

administrative expenses increased by 11% and 5% respectively over previous year.

The Corporation sustained an operating loss of Rs. 296.566 million in 2006-07 as

against operating profit of Rs.38.834 million of the previous year. The accumulated

loss of the Corporation stood at Rs.159.175 million in 2006-07 as against

accumulated profit of Rs.42.358 million in previous years. Efforts need to be made

to control the expenditure and increase the income in advertisement business to

absorb the operating and administrative expenses.

100.2 Trade debtors stood at Rs.1,241.722 million as on June 30, 2007 as against

Rs.1,358.776 million in previous year. Provision for doubtful debts amounting to

Rs.42.044 million was made during the year 2006-07, equivalent provision was

also made during pervious year. Reasons for static provision and non-initiation of

timely action for recovery of trade debts need to be explained.

AUDIT PARAS

101. Irregular sanction and payment of ex-gratia/bonus to employees


According to Government of Pakistan, Finance Division (Regulation Wing) office

O.M. No.F-3(5)R-12/80 (R-14)/2002-154 dated March 18, 2002 the payment of

bonus to the employees of Autonomous/Semi-autonomous/Public Sector

Corporations / Organizations would strictly be in accordance with the following

conditions.

i) The bonus would be paid out of operational profit of the organization only

excluding income from other sources;

550

ii) The payment of bonus would not be made as a customary but it would be on

the basis of profit earned and reflected in the annual audited accounts of the

organization; and

iii) No commitment of payment of bonus may be made during negotiation with

the CBA because of the conditions mentioned at (i) and (ii) above.

Furthermore, according to Finance Division office memo No.F-3(5) R-12/80

(R-14) Vol-II/2001-544 dated November 30, 2001 bonus cannot be made to the

employees of corporations without prior concurrence of Finance Division.

Contrary to the above instructions the Board of Directors of PTV in its meeting

held on January 14, 2008 accorded approval for the grant of bonus amounting to

Rs.52.00 million to all PTV employees in Pay Group-1 to 9 including whole time

Directors, Trainees, Daily Wages and Contract Staff, Professionals, Deputationists,

Resources Persons and those working against Programme Budget Estimates. The

bonus was paid in January, 2008 against the announcement of Managing Director

PTV at the eve of oath taking ceremony of CBA on December 11, 2007 whereas

ex-post facto approval was accorded by Board of Directors on January 14, 2008

The Corporation sustained an operating loss of Rs.296.566 million in the year

2006-07 as such bonus was not admissible to the employees. Thus due to

non-observance of Government instructions the payment of Rs.52.00 million on

account of bonus cannot be termed justified.

The matter was reported to the Ministry and management on June 18, 2008. The

management in its reply dated September 25, 2008 intimated that Chairman PTV

graciously announced payment of ex-gratia to all PTV employees in pay Group-1

to 9 on the eve of oath taking ceremony of CBA union. Subsequently the Board of

Directors ratified the payment. The reply was not tenable as payment of

bonus/ex-gratia was linked with certain conditions by the Finance Division which

was not kept in view by the PTV Management.

DAC in its meeting held on October 28, 2008, directed that a meeting of

stakeholders may be arranged to decide the powers of Board of Directors. PTV

may request to Ministry of Information and Broadcasting for convening the

meeting on priority.

The matter was again discussed in DAC meeting held on May 07, 2009 and it has

been agreed to call the stakeholders meeting within two weeks time to settle the

551

issues once for all regarding powers of Board of Directors; no further progress was


102. Appointment of consultants having degrees from unrecognized

institutions, irregular payment – Rs.4.144 million

The Board of Directors of Pakistan Television Corporation in its meeting held on

October 26, 2004, approved the basic criteria for appointment of consultants on

contract basis for marketing & news and prescribed qualification from a recognized

university i.e. “MBA (Marketing) for marketing consultant and Master / Bachelor

degree in Social Sciences for news Consultant.”

Pakistan Television Corporation Limited in August 2004 appointed two

consultants for marketing and one for news on special pay package of Rs.51,000

and Rs.90,000 respectively for the period of two years on contract basis. The

Corporation had paid Rs.4.144 million to these Consultants from August 2004 to

May 2006. Audit has observed that their academic degrees are not recognized by

Higher Education Commission (HEC), as such the appointments and payment of

salaries amounting to Rs. 4.144 million to these Consultants was irregular.

The matter was reported to the management on July 01, 2006. The management in

its reply dated November 16, 2006 stated that at the time of interview their original

degrees were checked by the Selection Board. The reply was not convincing as

the consultants were appointed without verification of their degrees from the HEC.

The matter was also reported to the Ministry on June 21, 2008. The management in

their revised reply dated September 25, 2008 stated that all the officers had left

service of PTVC and verification of their degrees at this stage is useless

DAC in its meeting held on October 28, 2008 directed the management to hold an

enquiry to probe the matter.

The matter was again discussed in DAC meeting held on May 07, 2009 and it was

decided to call meeting of all the stakeholders within two weeks and settle the

issues once for all regarding powers of Board of Directors. Further progress is

awaited till finalization of this report.

552

103. Unauthorized grant of move over – Rs. 2.306 million

According to Finance Division’s approval of Revised Pay Scales of PTV Officers

vide O.M. No.F-4(2) R-04/2000 dated November 18, 2003, move-over was

discontinued with effect from December 1, 2001 and pay was to be fixed in the

original scale of the post equivalent to or if there is no such stage next below and

difference be allowed as personal pay to be absorbed against future increment /

increase in pay. However no recovery was to be made for the period from

December 1, 2001 to December 1, 2002.

(i) The PTV management did not implement the decision of the Finance

Division while adopting the revised pay scales. At that stage, 19 employees of PTV

Centre Peshawar were availing move over in higher pay scales. Resultantly,

Corporation had to bear an extra expense of Rs.1.791 million from January 1, 2003

to December 31, 2005 in respect of officers in Group-7, 8 and 9. Audit is of the

view that had the management implemented the Government instructions with

regard to placing the officers in their original scales, this expenditure could have

been avoided.

The matter was pointed out to the management on April 25, 2006. The management

in its reply dated June 22, 2006 stated that PTV Board of Directors in its meeting

dated March 18,2004 resolved to put the decision of the Finance Division referred

above, on hold. The reply of the management was not convincing because the

Ministry of Finance was the only competent authority to approve the pay package

of Officers in Pay Group-7 to 9 therefore, the facility should have been

discontinued from December 01, 2001 and the officers holding scale by virtue of

move over should have been placed in their original scale as instructed by Finance

Division.

(ii) Moreover in contravention of instructions of the Finance Division, Pakistan

Television Board of Directors in its meeting held on February 18, 2004 extended

the facility of move over to those officers of the Corporation who were not at their

maximum ceiling of the respective pay scales on July 01, 2003. As a result,

irregular payment of Rs.0.515 million was made by PTV, Peshawar Center till

December 31, 2005 as due to irregular grant of move-over in next pay group.

The matter was pointed out to the management on April 24, 2006. The management

in its reply dated June 22, 2006 stated that on decision of Ministry of Finance to

553

discontinue the scheme of move-over, PTV Board of Directors in its meeting held

on March18, 2004 put on hold the said scheme, because as a result of extension in

number of stages in Pay Groups-7 to 9 in certain cases anomaly was developed and

some of the employees were relegated. This needed rectification to meet the ends of

justice and maintain status of scheme of move-over on hold in case to all

employees. The reply was not convincing because the policy of move-over should

have not been continued after the instructions of the Finance Division.

The issue was brought to the notice of Ministry on May 31, 2008. The management

in its reply dated September 25, 2008 intimated that pay scales of PTV employees

are governed under PTV Employees Service Rules and revision in pay scales of

PTV employees in Pay Group-1 to 6 was granted w.e.f. September 01, 2003 as a

result of memorandum of settlement with the approval of the Board of Directors

and pay scales of employees in Group-7 and above were revised after concurrence

of Finance Division. The Board of Directors in its meeting held on March 18, 2004

decided to put on hold the scheme of move over, selection grade and advance

increments. The reply was not convincing as the Ministry of Finance was the only

competent authority to approve the pay package of Officers in Pay Group-7 to 9

therefore, the facility should have been discontinued from December 01, 2001 and

the officers holding scale by virtue of move over should have been placed in their

original scale as instructed by Finance Division

DAC in its meeting held on October 28, 2008 directed that a meeting of

stakeholders may be arranged to decide the powers of Board of Directors. The PTV



The matter was also discussed in DAC meeting held on May 07, 2009 and it has


issues once for all regarding powers of Board of Directors, no further progress was


554

104. Excess payment on account of salary due to re-appointment of

ex-Producer after superannuation – Rs.325,420

As per Cabinet Secretariat instructions dated December 05, 1990 and August 21,

2001, re-employment of employee beyond the age of superannuation in

autonomous bodies and corporations should be made subject to approval of the

Prime Minister and his pay may be fixed at that stage of the time scale of the post at

which he was drawing his pay before retirement.

In PTV, Lahore Centre, an Ex-Producer was re-employed on September 05, 2006

after retirement on superannuation at package of Rs.255,000 per month, whereas he

was drawing pay and allowances of Rs.40,800 before his retirement. He was paid a

sum of Rs.397,500 from September 5, 2006 to October 31, 2006 as against the

entitlement of Rs.72,080. Thus an amount of Rs.325,420 was paid in excess of the

entitlement in contravention to the above referred orders which was held irregular.

The matter was reported to the management in October 2006. The management in

its reply dated September 08, 2007 stated that PTV Service Rules allowed

Managing Director, PTV to engage ex-employees of PTV. Furthermore, the officer

was appointed with the approval of the Federal Minister for Information and

Broadcasting. The reply of the management was not convincing as the

re-appointment of ex-producer was to be made with orders of the Prime Minister.

The matter was reported to the Ministry on May 31, 2008 the management in its

reply dated September 25, 2008 intimated that the concerned officer was an

PTV ex-producer having sound professional skills. He was renowned producer for

his investigative reports so engaged on temporary basis after approval from the

Board of Directors in accordance with PTV employees service rules. The reply was

not tenable as per government policy re-employment of an employee after

superannuation should be made after approval of the Prime Minister.

DAC in its meeting held on October 28, 2008 directed that a meeting of

stakeholders may be arranged to decide the powers of Board of Directors. The PTV



The matter was again discussed in DAC meeting held on May 07, 2009 and it has


555

issues once for all regarding powers of Board of Directors, no further progress was


556

ASSOCIATED PRESS OF PAKISTAN CORPORATION

105. Associated Press of Pakistan (APP) was taken over by the Government of

Pakistan through APP Ordinance 1961, and later on it was converted into a

Corporation vide Ordinance dated February 19, 2002. Its main objectives are

efficient flow of information, supply of un-biased and reliable news to news papers

and news agencies.

Annual Audited Accounts of the Corporation for the year 2003-04 to 2006-07 were

not provided on due dates.

AUDIT PARAS

106. Non-deduction of income tax from the salary of employees working as

foreign correspondents – Rs.23.754 million

Under Section-149 of Income Tax Ordinance 2001, every employer was obliged to

deduct tax from payment of taxable salary and deposit into Government account.

According to Section-161(1) and 161(2), Associated Press of Pakistan Corporation

(APPC) was responsible to recover the amount from foreign correspondents and

deposit in treasury.

Associated Press of Pakistan Corporation (APPC) being a Corporation ceased to be

Government Department since October 19, 2002 and its employees also ceased to

be Government servants, therefore the payment made to foreign correspondents on

account of salary and allowances were taxable since October 19, 2002. The

management of APPC did not deduct income tax of Rs.16.627 million from the

salary and allowances amounting to Rs. 64.003 million paid to foreign

correspondents during the years 2002-03 to 2006-07. The management of APPC

did not deduct the tax, due to which Government was put to loss of Rs.16.627

million along with additional tax amounting to Rs.7.127 million at the rate 18%.

Income Tax Authorities issued notice to the management on September 24, 2007

for depositing the tax of Rs.23.754 million.

The matter was brought to the notice of management on December 19, 2007

followed by reminders dated February 08, 2008; March 04, 2008 and May 10, 2008

557

but no reply was received.

The issue was brought to the notice of Ministry on June 02, 2008, the management

in its reply dated September 25, 2008 intimated that management had lodged an

appeal against the decision of the Commissioner Income Tax (Appeals) on

February 02, 2008 and final decision of the appeal is still awaited.

DAC in its meeting held on October 28, 2008 pended the Para till receipt of

decision from the court.

The matter was again discussed in DAC meeting held on May 07, 2009. Since the

matter is subjudice, the DAC recommended for early decision of the case under

intimation to Audit.

107. Loss due to non-recovery of dues from ceased subscribers – Rs. 1.168

million

In accordance with clause-04 of the General News Service agreement, the

subscriber was required to pay the subscription to APPC in equal monthly

installments. Each installment shall be paid in advance on the first day of each

month. Failure in advance payment of any of the monthly installment of the

subscription shall constitute a breach of agreement on the part of the subscriber and

APP shall have the right to discontinue its news service forthwith and claim all the

installments of the year remaining unpaid.

Due to non-taking action as per agreement APPC could not recover an amount of

Rs.1.168 million from the ceased subscribers from March 2002 to June 2007. The

subscribers had ceased by the APPC hence the chances of recovery of subscription

from them are remote. Corporation would have to sustain a loss of Rs.1.168

million.

The matter was brought to the notice of management on December 19, 2007. The

management did not furnish reply even after issuance of reminders.

The issue was brought to the notice of Ministry on June 02, 2008. The management

in its reply dated September 25, 2008 stated that efforts were made to recover its

dues but in vain.

558

DAC in its meeting held on October 28, 2008 directed the management to make

more efforts for recovery and get irrecoverable amount regularized from the

competent authority.

The matter was again discussed in DAC meeting held on May 07, 2009. DAC

recommended for early recovery of APPC dues without further loss of time.

559

560

LABOUR AND MANPOWER DIVISION

(197–204)

561

562

EMPLOYEES’ OLD-AGE BENEFITS INSTITUTION

AUDIT COMMENTS


108. Employees’ Old-Age Benefits Institution (EOBI) is a body corporate,

established under Employees’ Old-Age Benefits Act, 1976. The Institution’s prime

objective is to provide pensions and old-age grants to the insured persons covered

under the scheme. It operates 31 regional offices and 32 field offices located at

various parts of the country.

EOBI Fund was established under Section 17 of Employees’ Old-Age

Benefits Act, 1976 wherein all contributions paid under this Act, and all other

moneys received by or on behalf of the Institution are paid into it while expenditure

incurred by the Institution necessary for the purpose of this Act are charged to the

same.

109.1 During the year 2005-06 minimum EOBI pension was enhanced from

Rs.700 to Rs.1,000 per month and employers’ contribution was enhanced from 5%

to 6% of the wages consequent to the announcement by Government of Pakistan.

The employees’ contribution was also amended to flat rate of 1% of wages.

Besides, the Government of Pakistan had announced enhancement of the minimum

EOBI pension from Rs.1,000 to Rs.1,300 per month and enhancement of minimum

wage rate from Rs.3,000 to Rs.4,000 per month.

108.2 The working results of the Institution for the year 2006-07 as compared to

the preceding years are given as under:

(Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

%

Inc/(Dec) 2003-04

Income 26,018.728 49.1 17,452.928 3.5 16,936.042 15.5 14,665.862

Benefits paid (3,445.697) 18.8 (2,899.362) 50.3 (1,929.413) 10.8 (1,741.516)

Management expenses (585.266) (7.9) (635.534) 1.7 (624.824) 13.5 (550.269)

Reversal/ (Provision) against other receivables - FIBs

14.839

(50.5) 30.000 - (22.000) - -

Surplus for the year

22,002.604

57.7 13,948.032 (2.9) 14,359.805 16.0 13,374.077

Fund balance 131,951.441 20.0 109,948.837 14.5 96,000.805 17.6 81,641.000


563

The overall working results of the Institution were satisfactory during


108.3 Other receivables stood at Rs.632.145 million as on June 30, 2007 as

against Rs.163.155 million as on June 30, 2006, registering an increase of 287%

which needs elucidation.

AUDIT PARAS

109. Non-recovery of dues on account of EOBI contribution – Rs.487.908

million

As per Registration of Employers and Insured Persons under EOBI Rules 1976

issued under Employees Old-Age Benefits Act 1976, the contributions falling due

at the end of the month to which they relate shall be paid not later than the 15th

of

the following month. Moreover as per EOBI Act 1976, the amount recoverable

may be recovered as arrears of land revenue (Section-32); and failing to pay any

contribution under the Act will be an offence (Section 37) which is to be taken up

for prosecution as provided in Section 38 thereof.

In Employees’ Old-Age Benefits Institution (EOBI), an amount of Rs.487.908

million was outstanding on account of contribution arrears against various units

which included the closed and de-registered units as on June 30, 2007. This was

indicative of loose internal controls.

The non-recovery was brought to the notice of the management in July 2008 and

referred to the Ministry in November 2008. The management in its reply dated

September 11, 2008 stated that vigorous efforts were in progress to recover the long

outstanding dues and they had succeeded to recover Rs.101.569 million during the

year 2006-07. The reply was not tenable as the progress of recovery was not

satisfactory as the sizable amount was outstanding on close of the same year.


directed the management to bring the individual cases before the Board for

appropriate action. The DAC also directed the management to devise remedial

measures for recoveries to avoid recurrence of such non-recovery cases in future.

564

However, latest position was not intimated by the management till the finalization

of this report.

110. Irregular investment in non-profitable share capital – Rs.176.904

million

As per Employees’ Old-Age Benefits (Investments) Rules, 1979, sub-clause (f) of

clause “Definition”, the Institution may invest moneys in ordinary or preference

shares of any such authority or corporation or of such company listed within

Pakistan, as has paid dividend of not less than ten percent per annum on its ordinary

shares capital for three accounting years preceding the year in which investment is

made. Moreover as per notification of Ministry of Finance circulated vide O.M.

No.F.4 (I) BR.11/2002 dated November 01, 2002, Public Sector Enterprises and

Autonomous Bodies were allowed to invest 20% of their surplus funds in those

stocks, whose dividends exceed the average six months Treasury Bill rate for the

last three years.

Employees’ Old-Age Benefits Institution made an investment of Rs.176.904

million by purchasing a total number of 4.666 million shares of M/s. MACPAC

Films Limited at an average rate of Rs.37.913 per share in April 2004. The said

company listed in Karachi Stock Exchange (KSE) in the year 2004, was suffering

losses and never distributed any dividend. Thus the investment was made without

considering the criteria fixed under EOBI rules as well as Ministry of Finance.

The irregular investment was pointed out to the management in July 2008 and

referred to the Ministry in December 2008. The management in its reply dated

September 11, 2008 stated that dividend income is not guaranteed in case of

ordinary shares; as such the EOBI being ordinary shareholder had not received any

dividend from the company.

The reply of the management was not tenable because the objective of the set

criteria for the investment was to ensure that public funds are invested only in

profitable stocks which has not been observed in this case.

The case was discussed in the DAC meeting held on February 25, 2009. The DAC

directed the management to conduct an inquiry into purchase of these shares and

565

submit a report within three weeks to proceed further in the matter. However, no

latest position was intimated by the management till the finalization of this report

111. Blockage of capital due to purchase of plots with inappropriate lease

period – Rs.12.809 million

Rule-10 (i) of the GFR provides that every public officer is expected to exercise



money.

Employees' Old-Age Benefits Institution (EOBI) purchased two plots in September

2006 for petrol pump sites in Lahore costing Rs.12.809 million from Lahore

Development Authority on a three years lease. However, no feasibility was

prepared for the same investment to assess adequacy of the agreed lease

period. Resultantly, neither petrol pumps were established nor plo ts were

utilized for any other commercial purpose. Therefore, upon expiry of three years

lease period, the expenditure is likely to be wasteful and also resulted into blockage

of capital.

The matter was brought to the notice of management in July 2008 and referred to

the Ministry in November 2008. In its reply dated September 11, 2008, the

management stated that the LDA had agreed to enhance the lease period from 3 to

30 years but with an increase in the rates of lease money from 10% to 15% as such

the establishment of petrol pumps was not economically feasible. They added that

negotiations with City Nazim, Lahore, were in progress to reduce the rate of lease

money.

The issue was discussed in the DAC meeting held on February 25, 2009. The

management informed the DAC that EOBI has established a company with

exclusive assignment of investment in real estates with due diligence as a remedial

measure after experiencing such cases of investment. The DAC directed the

management to get resolve the issue from the concerned authorities. However, no

latest position was intimated by the management till the finalization of this report

566

OVERSEAS EMPLOYMENT CORPORATION (PVT.) LIMITED

112. Overseas Employment Corporation was incorporated as a private limited

company for recruitment of manpower in Pakistan against orders from employers

abroad and supply of right type of persons to them.

Annual Audited Accounts of the Corporation for the year 2006-07 were not

provided on due date.

AUDIT PARA

113. Wasteful expenditure on the study report for re-structuring of OEC –

Rs. 0.610

In the 38th

meeting of Board of Directors of the Corporation held on October 22,

2001 it was decided that consultant be appointed for carrying a comprehensive

study for restructuring of Overseas Employment Corporation (OEC) to get better

results in promotion of manpower export in public sector.

Accordingly terms of reference (TORs) were prepared and applications were

invited through an advertisement in the daily Dawn on November 04, 2001 for the

appointment of consultant.

Out of 18 participants 3 firms were short listed and finally M/s. Professional

Consultants, Lahore being the lowest were awarded the contract on February 4,

2002 at Rs.0.610 million and payment was made on March 16, 2002. The

management of OEC instead of analyzing the report upon its submission and

implementation of the same, kept it pending for two years. The brief on report was

submitted by Managing Director to the Board of Directors in its meeting held on

April 3, 2004. It was disclosed that the consultant report was not strictly in

accordance with TORs. Neither the consultant was asked to remove the

deficiencies, nor was any recovery made from him.

The matter was pointed out to the management and Ministry on April 28, 2008. The

management in its reply dated July 22, 2008 intimated that the study on overseas

employment of Pakistani manpower was approved by the Board of Directors on

October 22, 2001 and agreement was signed on March 11, 2002 for completion of

567

study within 12 weeks. The report was received in July, 2002 and was placed

before BOD in its 40th

meeting. The MD explained in the note that:-

i. Report was not strictly in accordance with TORs provided to the consultant;

ii. Report was made without correlating their study with other employment

promoting agencies in Pakistan and abroad;

iii. The restructuring of regional offices as proposed by the consultant is neither

practicable nor advisable.

On October 23, 2004 the Board constituted a sub committee headed by JS Admn

for undertaking critical review of the report, but committee could not submit their

report. It was also intimated that payments to the consultant were made from SLIC

fund of the Corporation and laid down conditions for payment were also waived off

by the Ministry vide letter dated March 05, 2002. The reply is not tenable as the

report of the consultant was not in accordance with the agreed TORs neither the

consultant was asked to remove the deficiencies nor the recovery was made from

him.

The DAC in its meeting held on July 31, 2008 decided that in two weeks time Joint

Secretary (E) and Executive Director (Finance) of OEC should prepare a list of

recommendations of the consultants, bifurcate those which are implementable and

which cannot be implemented.

The matter was again discussed in DAC meeting held on May 12, 2009. A list of

implementable and non implementable items was produced as bifurcated by the

Committee referred in the previous DAC meeting. The Committee directed that

workable items may be implemented as recommended by the Committee under

intimation to audit. However, the implementation report was awaited till the

finalization of this Audit Report.

568

OVERSEAS PAKISTANIS DIVISION

(205–208 )

569

570

OVERSEAS PAKISTANIS FOUNDATION

114. The objective of Overseas Pakistanis Foundation is to advance the social

welfare of the Pakistanis working overseas and their families in Pakistan.

Annual Audited Accounts of the Foundation for the year 2006-07 were not


AUDIT PARA

115. Irregular payment on account of house rent allowance to an officer

residing in government accommodation – Rs.1.082 million

In terms of Government of Pakistan, Finance Division (Regulation Wing) O. M.

No.F-2 (1)-R-5/91 dated August 25, 1991, if both husband and wife are living

together in residential accommodation provided by the Government at the same

station, no house rent allowance shall be allowed to either of them.

In Overseas Pakistanis Foundation, Joint Director (Housing and Works) was

drawing house rent allowance, while he was residing in Government

accommodation since last 11 years, which was allotted by the Estate Office in

favour of his wife. This situation was reported to the Director (A&P), OPF by the

Section Officer, Labour, Manpower and Overseas Pakistanis Division on February

18, 2003. In response the management informed the Labour, Manpower and

Overseas Pakistanis Division that OPF being a limited company has its

independent source of funds and separate service rules and that the employees of

OPF do not fall under the purview of Government rules. The reply of the

management was not tenable as the Government rules were applicable in such

cases where service rules are silent. Since the OPF Service Rules are silent

regarding payment of house rent allowance to the employees residing in

government accommodation with their wives, the Finance Division vide letter

dated November 13, 2007 clarified that instructions contained in its O.M. dated

August 25, 1991 are operative and equally applicable on the employees of OPF.

The officer was drawing house rent allowance in violation of Government of

Pakistan, Finance Division office memo dated August 25, 1991 and a sum of

Rs.1.082 million was paid to the officer from February 08, 1996 to August 31, 2006

which was considered irregular.

571

The matter was taken up with the management on January 13, 2007. In reply dated

June 06, 2007 the management took the same plea as stated above. The matter was

referred to the Ministry on February 20, 2008. The Ministry reiterated the earlier

reply of the management in July 2008.

The DAC in its meeting held on July 08, 2008 directed the management for

recovery from the concerned officer. Final progress towards recovery was awaited

till finalization of the report

572

MINISTRY OF PETROLEUM AND NATURAL RESOURCES

(209–282)

573

574

PAKISTAN PETROLEUM LIMITED

AUDIT COMMENTS


116. Pakistan Petroleum Limited (PPL) was incorporated in 1950 with the main

objectives of conducting exploration, prospecting, development, and production of

oil and natural gas resources. In July 2004, the Government of Pakistan

dis-invested its equity equivalent to 15% of paid-up capital of the Company

through Initial Public Offering. The Company was listed on all stock exchanges of

Pakistan on September 16, 2004.

Gas production from PPL’s 100% owned fields and its share from all

operated and non-operated joint ventures was 365,525 million cubic feet during the

year 2006-07 as against 371,714 million cubic feet of the year 2005-06, registering

a decrease of 1.7%.

As far as the volume of Gas sales from the Sui Gas Field, the country’s

oldest and the largest 100% owned field of PPL, it recorded sales of 207,746

million cubic feet during the year 2006-07 as against volume of 215,972 million

cubic feet of the preceding year 2005-06, thus a decline of 3.8% was recorded.


the preceding year 2005-06 are given below: (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 38,382.645 20.9 31,756.712 36.3 23,294.169 31.8 17,667.508

Field expenditure and royalties (13,841.367) 16.2 (11,915.882) 23.8 (9,624.918) 17.1 (8,216.235)

Operating profit 24,541.278 23.7 19,840.830 45.1 13,669.251 44.6 9,451.273

Finance Cost (49.424) 64.2 (30.096) 56.6 (19.219) 5.3 (18.254)

Other operating expenses

(2,600.106)

130.7 (1,127.195) 50.1 (751.076) 32.8 (566.689)

Total others charges (2,649.530) 128.9 (1,157.291) 50.2 (770.295) 34.1 (584.943)

Other income 2,465.022 63.7 1,505.990 161.4 576.035 208.7 197.138

Profit before taxation

24,356.770 20.6 20,189.530 49.8 13,474.991 (48.8) 9,063.468

Taxation (7,588.996) 11.8 (6,788.532) 39.9 (4,851.839) 98.3 (2,446.069)

Profit after taxation 16,767.774 25.1 13,401.001 55.4 8,623.152 30.5 6,617.399


575

Overall financial position of the Company was showing a healthy sign and


116.2 Trade Debts from Others drastically increased to Rs.959.907 million as on

June 30th

2007 as compared to the amount of Rs.383.138 million of preceding year

2005-06. The abnormal increase of 150.5% depicts a loose internal control over the

receivables which requires recovery action.

117. Systemic issue observed during audit of PPL

There was negligence in observance of provisions of contracts in PPL. The

elements of cost over-run and time over run were noticed in most of the cases of

supplies / works agreements, but the management did not impose the penalties on

account of delay in late execution of works or failure to get supplies / works in time.

Although, the penal clauses were available and signed by the management and

contractors, yet those were not invoked which resulted into non-recovery of

liquidated damages and an increase in the cost of works.

Following table shows the instances of disregard of contractual provisions:

(Amount in million) S.

No.

Contract Name Contract

cost

Actual cost Cost

over-run

Estimated

Completion

date

Actual

Completion

date

1. Drilling of Admn X-1 Exploratory Well

(Hala Block)

US$ 7.126 US$ 15.594 US$ 8.468 30-4-2007 10-9-2007

2. Supply of 20” Dia Spiral Wield Line Pipe,

2000 mtrs. for Sui Kashmore Water Line

Rs.14.670 Rs.17.480 Rs.2.810 18-8-2006 4-12-2006

3. Construction of Access Road and

Well/Camp Site preparation for Adhi-13

Rs.14.027 Rs.14.027 Nil 10-7-2006 3-10-2007

4. Supply of 4½ OD, 12.75 LBS/FT, grade 13

Cr 80, Rawg 2 hydril CS connection

US$ 0.2147 US$ 0.2147 Nil 1-7-2006 10-10-2007

5. Supply of seam-less carbon steel pipes

from Huffaz Seamless Pipe Industries

Rs.5.158 Rs.5.158 Nil 7-12-2006 26-2-2007

6. Supply order to Gerry’s Softlogic (Pvt.)

Rs.6.550 Rs.6.550 Nil 25-8-2007 6-11-2007

576

AUDIT PARA

118. Irregular increase in the scope of work and non-recovery of

liquidated damages from defaulting contractor – Rs.6.414 million

As per clause VII of agreement, liquidated damages at maximum 5% of the

contract cost were to be recovered if contractor fails to complete the work on

stipulated date. Moreover, Rule 42 (c) (iv) of PPRA Rules 2004 allows repeat

orders with same contractor upto 15% of the original procurement.

Pakistan Petroleum Limited (PPL) awarded a work for repair/rehabilitation of

Sui-Kashmore Road, Sui Gas-field, Balochistan at the contract price of

Rs.128.284 million to M/s. Behram Construction Company, on December 26,

2006. As per agreed schedule, the work was to be completed by August 15,

2007 but the contractor failed to complete it within scheduled date. The poor

progress of work warranted to invoke penal clause by imposing liquidated

damages of Rs.6.414 million. However, the management did not recover the

penalty from the contractor.

The irregularity was brought to the notice of management on March 29, 2008 and

referred to the Ministry on September 27, 2008. The management in its reply

dated April 30, 2008 stated that the road had been completed on April 20, 2008

against the completion date of August 15, 2007, however, no completion

certificate was provided by the management in support of the statement. The

reply was not tenable as the contractor delayed the completion of the work

more than 8 months. The liquidated damages were liable to be imposed

according to the agreement.

The DAC meeting was held on 19th

and 20th

January 2009. The management

informed the DAC about the precarious law & order situation causing injuries

due to rocket fires and land mines, shortage of bitumen. They added that the

project scope was also extended to be executed in two phases and the time

period was extended. Due to the increased scope of work and project completion

time in accordance with regulations of the Company, the DAC recommended

the para for settlement subject to verification,

Upon verification it was found that the extension of 151 days was granted to the

577

contractor whereas the Resident Engineer had evaluated the time period of 74 days

as delayed period caused due to interruptions in the work. Moreover, the

management had increased the scope of work by Rs.71.264 million against the

original contract cost of Rs.128.284 million. Thus, the increase in the contractual

work by 55.5% was irregular being in violation of PPRA Rules 2004 which

prohibits repeat order exceeding 15% of the original work.

578

PAKISTAN STATE OIL COMPANY LIMITED

AUDIT COMMENTS


119. Pakistan State Oil Company Limited (PSO) is a public limited company

incorporated in Pakistan under the Companies Act 1913 (now Companies

Ordinance 1984) and listed on Karachi, Lahore, and Islamabad Stock Exchanges.

The principal activities of the Company are procurement, storage and marketing of

petroleum and related products. It also blends and markets various kinds of

lubricating oils.


those of the previous years are given below:

(Rs. in million)

2006-07

%

Inc/(Dec) 2005-06

%

Inc/(Dec) 2004-05

%

Inc/(Dec) 2003-04

Net sales 349,706 17.2 298,250 40.4 212,503 31.55 161,538

Cost of products

sold

(337,447)

34.3

(281,043)

41.4

(198,757)

30.5

(152,347)

Gross profit 12,259 (28.8) 17,207 25.2 13,746 49.6 9,191

Operating

expenses

(6,013)

(18.0) (7,337) 26.9 (5,592) 32.4 ( 4,223)

Operating profit 6,246 (36.7) 9,870 23.9 8,154 64.1 4,968

Other income 1,703 22.2 1,394 17.5 1,186 (20.1) 1,484

Financial charges (1,158) 30.4 ( 884) 138.3 (371) 96.3 (189)

Share of profit of

associates

330

(68.2)

1,039

368.0

222

-

-

Profit before

taxation

7,121

(37.6) 11,419 26.8 9,191 46.7 6,263

Taxation (2,432) (37.5) ( 3,894) 16.8 (3,535) 72.3 ( 2,051)

Profit after

taxation

4,689

(37.7)

7,525

33.0

5,656

34.3

4,212


Net sales were Rs.349.706 billion during the year under review as against

Rs.298.250 billion of preceding year registering an increase of 17.2%; however,

cost of sales substantially increased by 34.3%, i.e., Rs.337.447 billion during the

year under review as against Rs.281.043 billion which requires justification.

119.2 Provision against doubtful debts stood at Rs.1,752.798 million as on June

30, 2007 as against Rs.1,602.050 million as on June 30, 2006. Trade debts at the

end of year 2005-06 were Rs.11,715.868 million, which rose to Rs.13,599.966

579

million as on June 30, 2007. Thus, there was a net increase of Rs.1,844.098 million.

The rising trend of trade debts requires attention of the management for recovery.

Trend Analysis of key Financial Ratios of PSO’s Financial Statements for the period 2003-07

119.3 Profitability Position:-

The profitability ratios reflect the profitability of an entity in terms of profit margin to sales.

Gross Profit Ratio of PSO shows that in the year 2003 it was 4.3% which in

the year 2005 increased upto 5.4%. However, subsequently it declined and in the year 2007, it came down to 3%. It means cost of sales were too higher as compared to preceding years.

0

1

2

3

4

5

6

2003 2004 2005 2006 2007

Gross Profit Margin

580

Net Profit Ratio shows that in the year 2003 it was 2% which in the years

2004 and 2005 increased upto 2.2%. However, it subsequently declined in the year 2007 and came down to 1.1%. It showed that net profit continuously decreased as compared to preceding years.

119.4 Return on Total Assets

This ratio measures how effectively assets are employed in an entity by comparing net profit with the total assets.

0

2

4

6

8

10

12

14

2003 2004 2005 2006 2007

Return on Total Assets

581

The ratio of Return on Total Assets of PSO shows that it had 12.5% in the

year 2003. However, it declined; and it was 6.3% in the year 2007. This shows that

assets were not efficiently employed.

119.5 Liquidity Position:-

This ratio reflects the ability of an entity to meet short-term obligations

using assets that are most readily converted into cash.

The trend of PSO’s current ratio depicts a gradual decrease. Ideally the

standard ratio is 2:1 and larger the ratio, better the ability of an entity to satisfy its immediate obligations. PSO was having current ratio of 1.2:1 in the year 2007, which means that the Company had not adequate potential to meet its current liabilities, thus having shortage of working capital.

1.16

1.18

1.2 1.22

1.24

1.26

1.28

1.3

1.32

1.34

1.36

2003 2004 2005 2006 2007

Current Ratio

582

AUDIT PARAS

120. Loss due to short supply of POL by cartage contractors – Rs.48.200

million

As per clause-13 of agreement between cartage contractors and Pakistan State Oil

(PSO), the amount of short supply shall be recovered from the contractors when

they submit their cartage bills to PSO.

PSO entered into an agreement with M/s. Saindak Metals for supply of POL

products through cartage contractors. M/s. Saindak Metals deducted an amount of

Rs.48.200 million from bills of PSO on the ground of short supply of furnace oil

and diesel by the cartage contractors during the year 2006-07. However, the

management could neither recover the loss from cartage contractors nor the short

payments were made good from M/s. Saindak Metals.

The matter was taken up with the management in July 2008 and referred to the

Ministry in January 2009. The management in its reply dated August 15, 2008

stated that the shortages were recorded by the recipient of the supplies due to

change in the method, i.e., PSO accounted for the delivered quantity by taking dip

of the tank carriers whereas M/s. MRDL (the Chinese company managing Saindak)

accounted for the received quantity on the basis of weighbridge which was not

acceptable to PSO as well as cartage contractors. They added that neither the

customer nor the cartage contractors took up the issue of short delivery; otherwise,

the amount could have been deducted from the cartage bills. The management in

their subsequent reply dated December 23, 2008 reiterated their earlier stand and

added that representatives of cartage contractors had been pursued through various

meetings and they had agreed to resolve the issue. The management further added

that in near future an agreement would be reached with cartage contractors and

deduction of amount would commence.

Both the replies of the management were not tenable because it was their

responsibility to confirm the receipt of supplies before passing the cartage bills for

payment. The dependence of the management to reach an agreement with cartage

contractors for recovery of cost of short supplied quantity would not have occurred,

had due diligence been exercised before payment.

The DAC in its meeting held on 19th

and 20th

January 2009 directed the

583

management to recover the amount of short supplied quantity from cartage

contractors. However, latest position was not intimated by the management till


121. Loss due to rejected / pending insurance claims – Rs.6.637 million

Rule-10 (i) of GFR provides that "every public officer is expected to exercise



money".

In Pakistan State Oil (PSO), a large number of short deliveries were made at destination

points by tank lorries/oil tankers during the period August 2006 to February 2007 either

due to accidents or pilferages for which claims were lodged with the insurance

companies. The insurance companies either fully rejected the claims or accepted those

partially on technical grounds. As a result, the Company sustained a loss of Rs.6.637

million.

The matter was taken up with the management in July 2008 and referred to the

Ministry in November 2008. The management in its reply dated August 15, 2008 put

the blame on the insurance company, viz, National Insurance Company Limited, by

stating that their bad service had caused short/delayed settlement. They added that as

regards marine claims, the losses represented temperature and density losses on

imported POL cargo and they, as per practice, had lodged claims with marine insurer

which were either accepted or rejected on the basis of survey reports.

The reply was not tenable as the cost of insurance was paid to the insurance companies

by PSO to cover the losses and not for the sake of discretionary rejection/partial

acceptance of claims.


and 20th

January 2009. The management

informed that they had already taken remedial steps to recover the insurance cost

by including it into the contracts. The DAC directed the management to

expedite the recovery of outstanding insurance claims and to get verified the

already adjusted claims from Audit.

Upon verification, it was found that an amount of Rs.1.108 million only had been

recovered. The claims for Rs.3.017 million were still outstanding, whereas the

584

claims for Rs.6.637 million had been rejected, which was a loss to the organization.

However, no latest position was intimated by the management till the finalization

of this report.

122. Non-imposition of liquidated damages against defaulting contractor


Clause 2.3 of the agreement executed with the contractor provided that in the event of

the contractor's failure to complete the work within stipulated time, the contractor

shall be liable to pay and owner will in that event authorized to deduct from his bills or

performance bond a sum of Rs.15,000 per day as Liquidated Damages (L.D.) subject to

maximum of 10% of work order amount.

Pakistan State Oil (PSO) awarded a contract work “Up-gradation of Existing T/T, T/W

De-canting Facilities at Terminals and Depots" to M/s. Industrial Engineer &

Contractors, on March 21, 2007 valuing Rs.18.949 million with stipulated date

of completion as August 25, 2007. The contractor failed to complete the work in

time which was completed on November 25, 2007 with a delay of 90 days. Therefore,

penalty of Rs.1.350 million (Rs.15,000 x 90 days) on account of liquidated damages was

required to be levied. Instead of recovery of liquidated damages, the management

granted extension in completion period upto November 30, 2007 on the grounds of

rainy season and enhanced business activities at Keamari Terminal which stated to be

the cause of delay in construction work.

The matter was pointed out to the management in July 2008 and referred to the

Ministry in November 2008. The management in its reply dated August 15, 2008

stated that the circumstances were beyond the control of the contractor; hence his

request for extension was accepted.

The reply was not tenable because the contractor was allowed 157 days for completion

of work and then 90 days extension was allowed which was 57% of the original time

allowed for completion. The extension in completion of work was, therefore, liberal and

a favour to the contractor.

585

The DAC in its meeting held on 19th

and 20th

January 2009 directed the

management to provide the record in support of their contention about

circumstances beyond the control of the contractor for verification.

Upon verification, the delays on account of stoppage of work due to rain for 19

days only were found as circumstances beyond the control of contractor whereas no

other cause for stoppage / delay on the work could be substantiated by the

management. Hence, the loss on account of non-imposition of L.D. reduced by 19

days amounting to Rs.1.065 million stands.

586

SAINDAK METALS LIMITED

AUDIT COMMENTS


123. Saindak Metals Limited was incorporated in Pakistan as a private limited company in April 1974 in the name of Resources Development Corporation (Pvt.) Limited. Its name was changed as Saindak Metals (Pvt.) Limited in October 1993. It was converted into a public limited company in January 1996. The Company is fully owned by the Government of Pakistan. The Saindak project was handed over to MCC Resource Development Limited (MRDL) China on October 2, 2002 under a lease agreement at the annual rent of US$ 0.5 million and sharing of surplus generated from the sale of product at the ratio of 50:50. The objectives of the Company are exploration, mining and metallurgical processing of copper, gold and other minerals at Saindak in District Chaghi, Balochistan. 123.1 The working results of the Company for the year 2006-07 as compared to the previous years are given below:

(Rs. in million)

2006-07

% Inc/

(Dec) 2005-06

% Inc/

(Dec) 2004-05

% Inc/

(Dec) 2003-04

Income 1,675.146 259.8 465.528 359.8 101.250 326.7 23.730

Depreciation, administrative & other expenses (1,023.025) (10.2) (1,138.701) (9.1) (1,252.360) (10.1) (1,392.240)

Operating profit/(loss) 652.121 - (673.175) (41.5) (1,151.110) (15.9) (1,368.510) Financial charges (191.396) (57.0) (445.124) (29.7) (639.840) (35.2) (986.620) Voluntary separation scheme - - (0.675) - 1.300 - 17.440 Other income 331.650 - 7.897 (47.1) 23.500 - 1.170

Profit for the year 792.375 - (1,111.075) (37.2) (1,768.750) (25.4) (2,371.400) Prior year adjustment - - (231.200) - - - - Profit/(loss) before taxation 792.375 - (1,342.275) - - - - Income tax expenses (8.376) 259.9 (2.328) - - - - Profit/loss for the year 783.999 - (1,344.603) - - - - Accumulated losses (16,999.991) (4.4) (17,783.990) 8.2 (16,439.390) 8.9 (15,095.840)


587

The overall working results of the Company were satisfactory during the year under review, which needs to be maintained to enable reduction of accumulated losses amounting to Rs.17 billion.

588

SUI SOUTHERN GAS COMPANY LIMITED

AUDIT COMMENTS ON THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2007

124. Sui Southern Gas Company Limited (SSGCL) is a public limited company

incorporated in Pakistan and is listed on the Karachi, Lahore and Islamabad Stock

Exchanges. The main activity of the Company is transmission and distribution of

natural gas in Sindh and Balochistan. The Company is also engaged in certain

activities related to the gas business including the manufacturing and sale of gas

meters and construction contracts for laying of pipelines.


the year 2005-06 are given as under:- (Rs. in million)

2006-07

% Inc/

(Dec)

2005-06

% Inc/

(Dec)

2004-05

% Inc/

(Dec)

2003-04

Net sales 69,084.403 4.2 66,303.588 24.9 53,076.690 17.6 44,799.690

Cost of gas (63,157.107) 5.9 (59,594.477) 27.3 (46,812.706) 20.9 (38,713.079)

Gross profit 5,927.296 (11.65) 6,709.111 7.1 6,263.984 (3.2) 6,086.611

Transmission, distribution and selling cost

administrative and other operating expenses

(6,882.423)

1.97

(6,749.199)

7.2

(6,329.966)

14.0

(5,551.552)

Other operating income 4,069.092 29.1 3,150.774 42.1 2,217.676 49.5 1,732.894

Operating profit before finance cost 3,113.965 0.1 3,110.686 44.5 2,151.694 (5.1) 2,267.948

Finance cost (1,778.740) 27.9 (1,390.460) 146.9 (563.017) (19.0) (695.597)

Profit before taxation 1,335.225 (22.3) 1,720.226 8.2 1,588.677 1.0 1,572.351

Taxation (1,044.846) 26.1 (828.509) 43.7 (576.176) 0.09 (575.639)

Profit for the year 290.379 (67.4) 891.717 (11.9) 1,012.501 1.5 996.712

Gas sales volume (MMCF) 357,129 (0.5) 358,959 5.9 338,759 6.1 318,068


Net sales increased by 4.2%, i.e., from Rs.66,303.588 million in preceding

year 2005-06 to Rs.69,084.403 million during the year under review. Cost of sales

increased by 5.9% in 2006-07 as compared to the previous year, despite decrease in

the volume of sales by 0.5% during the year under review, which requires

justification.

124.2 The taxation for the year under review was Rs.1.045 billion as against

Rs.0.829 billion of preceding year, registering an increase of 26.1% whereas the

589

profit before taxation decreased by 22.3%. The disproportionate increase in the

taxation needs elucidation.

124.3 Profit for the year after taxation went down to Rs.290.379 million by 67.4%

during 2006-07 as against Rs.891.717 million during 2005-06 due to increase in

finance cost by 27.9% and taxation by 26.1% during 2006-07 over the previous

year 2005-06.

124.4 The increasing trend of Financial Cost was adversely affecting the net profit

which was showing a declining trend during the period 2002-03 to

2006-07. The Long Term Financing during the year under review was

Rs.12,581.455 million as against Rs.8,725.052 million of the preceding year 2006,

registering an increase of 44.2%. The rising trend of long-term borrowing requires

justification.

124.5 Trade debts stood at Rs.16,118.951 million as on June 30, 2007 as against

Rs.10,898.343 million of the preceding year 2005-06, registering an increase of

47.9% which requires remedial measures for recovery in order to improve the

declining liquidity position of the Company.

124.6 Other receivables stood at Rs.7,039.853 million as on June 30, 2007 as

against Rs.4,789.122 million of preceding year 2005-06, registering an increase of

47% which requires attention of the management for recovery action.

AUDIT PARAS

125. Non-recovery of Gas bills from disconnected consumers – Rs.1.075

billion

As per Rule-26 of GFR, it is the duty of the departmental controlling officer to

see that all sums due to Government are regularly and promptly assessed,

realized and credited into Public Accounts.

In Sui Southern Gas Company Limited (SSGCL), a sum of Rs.1.075 billion was

outstanding against the consumers as on June 30, 2007 whose gas connections

were disconnected for default in payments without recovery despite having

teams of recovery officers with Magisterial Powers. Moreover, it was indicative

590

of loose internal controls.

The consumer-wise detail of outstanding dues is as under:

S.No. Category Dues

(Rs. in million)

1 Industries 39.663

2. Commercial 140.739

3. Domestic 895.306

Total 1,075.708


referred to the Ministry on December 29, 2008. The management in its response

dated January 14, 2009 stated that they apply maximum efforts to facilitate and

effect recoveries and keep the receivables position under tab. They added that

disconnected consumers had been provided for in full in the books of accounts

and they had not been frequently writing off the doubtful debts from the books

and target recovery as far as possible. The reply was not tenable because the

timely recovery action would have prevented the accumulation of huge amount

of dues.


and 20th

January 2009. The DAC was apprised

that it represented past 7 years cumulative amount of outstanding dues against

disconnected customers and worked out as 0.27% of cumulative sales of

Rs.393 billion and that was also fully provided for. The DAC directed the

management to report the progress of the recovery and the matter may be

placed before the BoD for appropriate decision. However, despite efforts, no latest


591

126. Non-recovery of outstanding dues from chronic defaulters


The Para-4.1.2 of the “Gas Supply, Disconnection/Reconnection Policy” of

SSGCL provides to disconnect the gas supply of the consumers if they fail in

payment of gas bills as per following parameters:-

a. Domestic: Default of five consecutive gas bills and amount in default

Rs.1,500 or more.

b. Commercial: Default of three consecutive gas bills Or amount in default not

secured by Gas Supply Deposit (GSD).

c. Industrial: Amount in default not secured by Gas Supply Deposit (GSD)

irrespective of the number of months in default.

d. Installment: Default in payment of installment obtained from the

Company.

Sui Southern Gas Company Limited (SSGCL), despite facilitated with recovery

teams possessing magisterial powers, was not able to recover a sum of Rs.574.593

million lying outstanding as on June 30, 2007 from a large number of consumers

who were defaulters in payment of dues over a period ranging more than one to five

years. The non-recovery of the huge amount depicts ineffective control over

realization of the dues in contravention of policy of SSGCL.


referred to the Ministry on September 01, 2008. The management in its reply dated

November 06, 2008 provided an analytical status of default of customers stating

that the default amount as on June 30, 2008 was Rs.590 million which was 2.77%

of the total value of sales and the number of defaulters was 69,115 on that date as

against the 57,251 defaulters as on June 30, 2006. They added that a variety of

obstacles were being faced in the recovery from defaulters.

The reply was not tenable because the statistics provided in the reply itself spoke of

rise in the volume of default whereas the management was expected to observe its

policy of disconnection against defaulting consumers which provided specific

separate criteria for action in case of domestic, commercial and industrial

consumers.

592


to 20th

January 2009. The DAC was apprised

that it represented amounts due for more than one year against live customers, i.e.,

not yet disconnected and that worked out to 0.146% of total sales of past 7 years.

Being an ongoing process, DAC directed the management that the “Policy of

Default of Gas Bills” may be adhered to in letter and spirit. However, no latest


127. Irregular award of contract without complete evaluation of bid


Under Rule 15 of PPRA Rules, 2004, a procuring agency prior to the floating of

tenders, may engage in pre-qualification of bidders in case of civil works and in

case of procurement of expensive and technically complex equipment to ensure

that only technically and financially capable firms having adequate managerial

capability are invited to submit bids. The Rule 4 thereof provides exercise of due

diligence by procuring agencies so that value for the price paid is achieved.

Sui Southern Gas Company Limited (SSGCL) on September 11, 2006 invited

tenders for award of the work of “Replacing the existing Overhead Pipe Line

crossing Canals and Water Channels with submerged Pipeline Crossing by

Horizontal Directional Drilling (HDD) method without interruption of water flow

in the Canal Services” at Nusrat, Nara, and Begari Kanals. The management in

this case of tendering adopted single stage two envelopes method, which did not

include prequalification process despite being a civil work involving procurement

of expensive equipment.

Only Two firms, namely, M/s. Marathon Construction Company (Pvt.) Limited

and M/s. Abdul Wasay Siddiqui Corporation, Karachi participated in the tender.

The latter firm was technically disqualified and its financial proposal was also

returned un-opened. The contract was awarded to M/s. Marathon Construction

Company (Pvt.) Limited at a cost of Rs.74.305 million as quoted by them. The bid

of this single qualified firm was evaluated on the basis of the previous work of same

type done by the same firm. However, the bid price in respect of two components of

the tendered work (24” dia and 8” dia) costing Rs.21.495 million could not be

compared by the Evaluation Committee for the reason that no such works were

previously carried out as noted in the Departmental Evaluation Report on the

Financial Proposal.

593

Audit was of the view that since the project was a technical one with heavy

financial implications, the management should have pre-qualified the contractors

before going into the process of award of work. Moreover, when only one

contractor was found technically qualified, its single financial proposal should have

been completely evaluated with the engineer estimates or with the prevailing

market rates, which has not been done in this case. The management, therefore, did

not achieve the benefit of competitive bid and awarded the irregular contract

valuing Rs.74.305 million in violation of PPRA Rules, 2004 which provides

exercise of due diligence.

The matter was reported to the management on April 21, 2008 and referred to the

Ministry on December 29, 2008 but no reply was received.


and 20th

January 2009. After detailed

discussions in the matter, the DAC directed the management to produce before

Audit the cost evaluation criteria on the basis of which BoD approved the

budget.

Upon verification it was established that the “Engineer Estimates” were not

prepared before tendering and the bid evaluation was not based on any engineer

estimates.

128. Loss due to expiry of validity of the offer and purchase of dozers at the increased price – Rs.7.542 million

Rule 30 of PPRA Rules 2004, provides the bidder with the lowest evaluated bid shall be awarded the procurement contract within the original or extended period of validity of bid Sui Southern Gas Company Limited (SSGCL) invited open tenders on November 11, 2004 for procurement/import of construction equipment, i.e, one dozer with ripper (D94) and one dozer (D-7) or equivalent (D7G). The bids were opened on February 1, 2005 but the evaluation was completed in five months instead of scheduled one month. The lowest bid was offered from M/s. Allied Engineering Service who had quoted FOB price of US$ 429,000 and US$ 218,000 respectively. The landed cost of the quoted items worked out to equivalent Pak Rs.43.403 million at the conversion rate of US$ 1 = Rs.59.48.

594

The management took further time for seeking approval from the competent authority. In the meantime, the validity of the offer expired and the firm regretted to extend the validity period. Simultaneously, they also informed that the prices had escalated and new price was offered as US$ 486,900 and US$ 245,000. The management awarded purchase order to the same firm on August 29, 2005 at the new quoted price. Resultantly an extra expenditure of Rs.7.542 million was incurred because the revised landed cost was Rs.50.945 million as against the original landed cost of Rs.43.403 million, which was a loss to the organization. The matter was reported to the management in June 2007 and referred to the Ministry in November 2007. The management in its reply contended that they had invited bids before approval of budget with the objective to place order immediately after approval of the budget. They added that if they had invited bids after approval of budget, then same prices would have also been paid. The reply of the management was not tenable because the evaluation was required to be completed before expiry of the validity of bids and in this case there was an inordinate delay in completion of evaluation. The DAC meeting was held on 19

th to 20

th January 2009. The DAC directed the

management to hold an inquiry to find out the reasons of delay in technical evaluation and award of work. It was also directed that such matters should be finalized within the stipulated timeframe. However, the results of inquiry were not intimated by the management till the finalization of this report.

595

SUI NORTHERN GAS PIPELINES LIMITED

AUDIT COMMENTS


129. SNGPL's Profile

Sui Northern Gas Pipelines Limited (SNGPL) was incorporated as a private limited

company in 1963 and converted into a public limited company in January 1964

under the Companies Act 1913, (now Companies Ordinance 1984) and is listed on

all the three Stock Exchanges of the Country.

SNGPL is the largest integrated gas company serving more than 2.95 million

consumers in North Central Pakistan through an extensive network in Punjab and

NWFP. The Company has over 44 years of experience in operation and

maintenance of high pressure gas transmission and distribution systems. It has also

expended its activities to undertake the planning, designing and construction of

pipelines, both for itself and other organizations.

Financial Results


previous years are tabulated below:

(Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Gas sales quantity

(MMCF) 576,658 1 571,481 6 537,086 19 452,338

Gas sales value 122,091.652 13 107,897.291 27 84,710.404 32 64,276.145

Less gas development

surcharge 9,514.600 365 2,046.177 53 1,333.069 1,803 70.064

Net sales 112,577.052 6 105,851.114 27 83,377.335 30 64,206.081

Rental services income

and deferred credit etc. 2,092.735 19 1,752.304 1 1,743.369 14 1,524.522

Total income 114,669.787 7 107,603.418 26 85,120.704 29 65,730.603

Cost of gas sold 99,168.250 8 91,986.318 29 71,192.390 35 52,627.542

Operating cost 7,421.617 13 6,581.810 17 5,642.480 6 5,345.772

Depreciation 4,583.427 9 4,218.128 16 3,646.644 9 3,333.486

Total expenses 111,173.294 8 102,786.256 28 80,481.514 31 61,306.800

596

Operating profit 3,496.493 (27) 4,817.162 4 4,639.190 5 4,423.803

Other operating income 1,855.118 1 1,828.399 99 918.747 126 406.283

Financial and other charges 1,102.039 (28) 1,526.503 18 1,296.460 11 1,165.709

Profit before taxation 4,249.572 (17) 5,119.058 20 4,261.477 16 3,664.377

Taxation 1,571.307 12 1,396.816 (8) 1,525.499 12 1366.899

Profit after taxation 2,678.343 (28) 3,722.244 36 2,735.978 19 2297.478


The Company earned a profit of Rs.4, 249.572 million before tax during the year

under review, as compared to Rs.5,119.058 million in the previous year. Earnings

per share (EPS) decreased from Rs.6.78 per share in 2005-06 to Rs.4.88 during the

year under review. The decrease in EPS was mainly due to unusual increase in

operating cost especially due to abnormal increase in gas development surcharge

(GDS). Under the provisions of World Bank loan 3252-PAK the Company is

required to earn a return on operating fixed assets at least 17.5%. Any surplus or

deficit on account of this is recoverable or payable to the Government of Pakistan

as differential margin or gas development surcharge.

The gross profit ratio of the Company was constantly decreasing as shown in the

graphical analysis given below:

129.2 Current Ratio

The current ratio of the Company improved slightly from 1.3 in 2005-06 to 1.31 in

2006-07. Both the current assets and currents liabilities decreased slightly during

the year. However, decrease in liabilities was greater in amount as compared to the

decrease in current assets. However it is important to note that the Company

597

received Rs.6,008.736 million during 2006 from Government of Pakistan under

Khushal Pakistan Programme . The healthy financial position of the Company was

mainly due to receipt of this heavy funding from the Government and not due to

better financial management of the available resources.

130.3 Age-wise analysis of the debtors showed that debtors over one year

increased to Rs.1.591 billion as on June 30, 2007 against Rs.1.291 billion as on

June 30,2006. Thus there was an increase of 23.24% in debtors over one year as

compared to previous year which showed that Company had failed to recover its

dues within due dates. The Company may like to re-consider the existing

policies/rules to avoid from default amount.

AUDIT PARAS

130. Pilferage of gas by using direct tapping and meter tampering


As per Section 18.1 of Billing Manual of SNGPL, it is responsibility of every

employee of SNGPL to detect and report the cases involving pilferage of gas and as

per Section-18.13 of Billing Manual when tampering of meter is established, gas

supply shall be disconnected immediately (within 24 hours). The consumer shall

be placed under observation for a period at least 6 months after restoration of gas.

598

The un-accounted for gas team (UFG) of SNGPL conducted various raids during

2002-03 to 2006-07 and detected pilferage of gas amounting to Rs.92.174 million

as detailed below by commercial, industrial and domestic consumers by using

direct tapping and tampering of meters: (Rs.in million)

S.No. D.P. No. Name of consumers Mode of Pilferage Amount

1. 2516 Ten consumers,

Lahore

Direct tapping 56.630

2. 2512 M/s.Fancy Dyeing and

Finishing Mills,

Lahore

Meter tampering 9.940

3. 2507 M/s.Suleman Silk

Mills, Faisalabad

Meter tampering 9.868

4. 2513 M/s.Sarfraz Ceramics

Industries, Khewra


5 2509 M/s.Akbari Supper

Store, Lahore


6 2376 Canteen Contractor of

Parliament Lodges,

Islamabad


Total 92.174

When cases of pilferage of gas were taken up with the management and referred to

the Ministry, the management replied that amount of pilferage of gas had been

booked and recovery suits had been filed.

The above cases were discussed in the DAC meeting held on July 19, 2008. The

DAC directed the management to intimate final outcome of recovery suits to audit.

The DAC meeting was held again on June 11, 2009. It was informed that the action

on the recommendation of the earlier DAC is in hand and results would be

intimated in due course of time.

599

131. Non-recovery of gas bills – Rs. 10.107 million

Clause 16 of Gas Sales Agreement necessitates terminating gas connection if the

bill is not paid within 10 days of the date of bill.

SNGPL could not recover gas charges amounting to Rs.10.107 million relating to

the period from February 1991 to March 2006 from its following consumers:

(Rs. in million) S.No.

D.P. No.

Name of

consumer/No. of

cases

Nature of recovery Amount

1. 2522 M/s.Awan Rubber

Works, Wazirabad

Non-payment of bills and

consumers not traceable

3.972

2. 2521 M/s.Hameed Metal

Works, Gujranwala

Non-payment of bills,

matter in court.

2.420

3. 2518 Eleven Consumers,

Gujrat

Consumers were

under-billed, cases in

courts

2.808

5. 2517 Twenty two

consumers of Katchi

Abadi, G-8/1 and

F-7/4, Islamabad

Illegal extensions, cases in

court

0.907

Total 10.107

The recovery could not be effected because either the respective consumers were

not traceable or the company had filed suits in the court of law against the

consumers.

When cases of non-recovery of gas charges were reported to the management and

referred to the Ministry, the management replied that recovery suits had been filed.

The above cases were discussed in the DAC meeting held on July 19, 2008. The

DAC directed the management to accelerate the process of recovery under

intimation to audit.

The DAC meeting was held again on June 11, 2009. It was informed that the action

on the recommendation of the earlier DAC is in hand and results would be

intimated in due course of time.

600

132. Loss due to abnormal delay in processing of order – Rs.6.720 million

Cabinet Division (Implementation Cell), Government of Pakistan vide letter

No.2151/93-MP-VI dated November 14, 1993 required that all the contracts, tender

enquiries must be finalized within a period of six weeks and no discretion is used.

Sui Northern Gas Pipelines Limited floated tender enquiry in November, 2003 and

opened on December 02, 2003 for the procurement of 560 M. ton polyethylene for

which M/s. Arfeen Borouge, UAE was considered technically as well as

commercially responsive with rate of US$ 842 per M. ton on FOB Karachi basis.

The bid offered by the supplier was valid for 90 days i.e. up to March 02, 2004. The

supplier was approached for the extension of validity period of bid up to June 02,

2004, but he refused to extend the validity period. Due to abnormal delay in

processing of the tender against the Cabinet Division instructions, a commercially

as well as technically responsive bid could not be materialized. The fresh tenders

were floated in March, 2004 and M/s. Arfeen Borouge of UAE was again declared

technically as well as commercially responsive with a rate of US$ 1,042 per M. ton

and purchase order was placed on the supplier. Thus due to in-ordinate delay in the

processing of tender enquiry the rate of polyethylene was enhanced from US$ 842

per M. ton to US$ 1,042 per M. ton by the same supplier. As a result, the

organization sustained a loss of Rs.6.720 million, as the rate of polyethylene was

enhanced by US $ 200 per M. ton during the said period.

The loss was pointed out to the management on November 29, 2006. The

management in its reply March 27, 2007 stated that normally the bidders extend the

validity of their offer beyond the original validity period, but in this case the

supplier declined to extend validity of its bid, due to continuous increase in

petroleum and its by-products. The contention of the management was not

convincing as inordinate delay occurred due to delay in processing / finalizing the

tender enquiry.

The case was brought to the notice of the Ministry on November 28, 2007. The

management in its reply dated June 13, 2008 intimated that the matter was delayed

due to obtaining some clarifications from the bidder regarding ocean freight for

shipment through first class shipping line instead of PNSC. The bidder did not

extend the validity of their offer beyond the original validity. The reply was not

tenable as the clarifications could be obtained through e-mails instantly, instead of

lengthy correspondence.

601

The issue was discussed in the DAC meeting held on July 19, 2008. The

management re-iterated its previous versions. The DAC directed the organization

that delay caused due to non-finalization of case within the bid validity period

which translated into loss to the organization, may further be probed into and a

detailed reply regarding request for extension of bid validity period be provided to

audit for verification of the findings through Ministry of Petroleum and Natural

Resources within 30 days.

The DAC meeting was held again on June 11, 2009. The Committee directed the

management to conduct inquiry in the matter focusing the highlighted areas and

submit the same to audit for verification within two months.

133. Avoidable expenditure on air-lifting of consignment – Rs.1.136 million

As per clause 2 of Procurement Manual of SNGPL, the Company while engaging

in procurements, shall ensure that procurements are conducted in a fair and

transparent manner, the object of procurement brings value for money to the

Company and the procurement process is efficient and economical.

Sui Northern Gas Pipelines Limited (SNGPL) opened a tender on October 20, 2005

for the supply of polyethylene fittings (50,000 Poly tapping reducing tees) under

annual development program for the year 2005-2006. The tender was cancelled on

the recommendation of Bid Evaluation Committee (BEC) due to huge variation in

the lowest and highest bids. Tender enquiry was re-floated on April 25, 2006 and

purchase order for 75,000 reducing tees was placed on January 23, 2007 on M/s.

DANCOM, USA. SNGPL took 16 months to finalize the case, resultantly, the

stock of above mentioned tapping tees was fully consumed/exhausted and work

was completely held up due to which the consignment had to be air-lifted. Thus an

avoidable expenditure of Rs.l.136 million was incurred on account of air-lifting of

consignment which could be avoided had timely action been taken by SNGPL

management and material procured in time.

The matter was pointed out to the management on January 26, 2008. The

management in its reply dated May 08, 2008 stated that SG MC (D) advised

air-lifting of consignment and the same was arranged after getting approval of

competent authority. SNGPL saved Rs.8.00 million due to fresh tendering on April

602

25, 2006 which fully offset the extra expenditure on air-lifting due to operational

requirement. The reply of the management was not convincing as timely

procurement and availability of spares should have been arranged according to

approved annual distribution plan. Had proper arrangements made the extra

expenditure could had been avoided.


in its reply dated June 13, 2008 reiterated its previous reply dated May 09, 2008.

The matter was discussed in the DAC meeting held on July 19, 2008. The CFO of

SNGPL apprised the DAC about the saving of Rs.4.459 million which offset the

additional cost of air lifting Rs.1.136 million, therefore the net saving to the

Company as a result of re-tendering was Rs. 3.323 million. The DAC directed the

audit to verify the contention of the management and also to check the inventory

level of the said items during that period within two weeks.


management to look into the inventory management system with a special focus on

critical level and submit the same to Audit within a month.

134. Loss due to excess charges of freight by the supplier – Rs.884,352


in procurements, shall ensure that the procurements are conducted in a fair and



SNGPL awarded a purchase order for the supply of 93,800 meter of 6” dia pipes to

M/s. International Industries Limited, Karachi on June 25, 2004. The freight

charges @ Rs.24 per meter from Karachi to Manga Store was to be charged by the

supplier. After receiving the delivery of 1,680 meter pipe at Manga Store, the

management decided to take remaining delivery at Uch Sharif. The Managing

Director further directed to claim the difference due to reduction in freight from the

party. The management approached to the supplier but he did not agree to reduce

the freight charges in spite of the fact that distance of Uch Sharif was about 480

Km lesser as compared to Manga. Resultantly, the Company had to sustain a loss

of Rs.884,352 due to ill-planned purchase of pipes as the same was required at Uch

603

Sharif but was procured for Manga Store.

The matter was pointed out to the management on November 11, 2005. The

management in its reply dated September 05, 2006 stated that the supplier was

requested to reduce the transportation charges proportionately due to change in

destination but he did not agree. The contention of the management was not

tenable as the management should have issued the amendment in the purchase

order. The management could adjust / recover excess charges against the security

held / earnest money of the supplier on his refusal.

The matter was brought to the notice of Ministry on July 02, 2008. The

management in its reply dated July 14, 2008 intimated that despite the hectic follow

up the supplier did not agree for any reduction in transportation charges and

showed his willingness to supply the material at Manga Store on the agreed price.

The reply of the management was not acceptable as the distance between Uch

Sharif is shorter as compared to Manga Store, Lahore hence the freight rates should

have been adjusted accordingly.

The matter was discussed in the DAC meeting held on July 19, 2008. The

management reiterated its earlier reply. The DAC directed that management may

place complete case before the Board of Directors for their deliberation and

decision under intimation to audit.

DAC was held again on June 11, 2009. It was apprised by the management of

SNGPL that with efforts the matter has been resolved with the supplier by reducing

the claim. DAC directed that a complete report may be furnished to Audit on the

basis of which the decision to reduce the amount of excess charges of freight have

been taken.

604

135. Loss due to ill-planned purchase of LPG store items – Rs. 715,061


in procurements, shall ensure that the procurements are conducted in a fair and



SNGPL purchased LPG items (spindle sets) valuing Rs.715,061 from M/s.Gasco

Engineering (Pvt.), Karachi which were received on July 25, 2000 and sent to

Transmission Store, Wah on September 02, 2000. The material in question was not

utilized as LPG business was privatized on September 15, 2001. Due to ill planned

purchase the material was lying in Wah Store unutilized since 2001.

The matter was pointed out to the management on November 11, 2005. The

management in its reply dated September 05, 2006 stated that the bids called by

Privatization Commission were based on assets pertaining to LPG business as on

September 30, 2000 and the above items were not received at that time; therefore

these were not included for transfer to successful bidder. The reply of the

management was not convincing as the items were received vide bill of entry dated

July 25, 2000. Therefore, these items should have been included in the list of

inventory.

The matter was brought to the notice of Ministry on July 02, 2008. The

management in its reply dated July 14, 2008 reiterated its previous reply.

The issue was discussed in the DAC meeting held on July 19, 2008. The

management reiterated its previous reply. The DAC directed that the matter be

placed before the Board of Directors for appropriate action under intimation to

audit.

The DAC meeting was held again on June 11, 2009. It was informed that LPG

business was under consideration and the material would be 100% utilized. The

DAC reiterated its earlier decision dated July 19, 2008 to present the case before

BoDs and submit the decision thereon to Audit.

605

136. Theft of gas at British Colony, Rawalpindi worth million of rupees

As per Section 18.1 of Billing Manual of SNGPL it is a moral responsibility of

every employee of SNGPL to detect and report the cases involving pilferage of gas.

Such cases are dealt with under clause 27 of the gas sales contract and rules and

procedure framed by the Company. As per Section 18.13 when the tampering of

meter is established, the gas supply shall be disconnected immediately (within 24

hours). The consumers shall be placed under observation for a period of at least 06

months after restoration of gas during which period the CMS will be visited by the

Company personnel at least 08 times every month.

The residents of the surrounding of Samarzar Colony made complaints to SNGPL

Area Office, Islamabad regarding illegal connections by contractors and drastic

low gas pressure, but no corrective measures such as raid/departmental enquiry was

taken by the Area management against the employees/contractors who were

engaged in laying of un-authorized connections. The local councilor of the area

made a press conference and requested G.M. Islamabad Area to send his team.

Afterward, a news item was published in Daily Newspaper (Ausaf) on 23rd

December, 2006, consequently the team of UFG Islamabad Area conducted raid at

British Colony, Adyala Road, Rawalpindi on December 28, 2006 and observed that

some SNGPL registered contractors were engaged in laying gas pipelines at night

to provide illegal connections in Samarzar Colony and getting illegal gratifications.

Resultantly, gas pressure of the colony had been dropped drastically.

The matter was reported to the management on January 26, 2008. The management

in its reply dated May 08, 2008 stated that a raid was conducted on December 28,

2006 and gas supply was disconnected by removing sections of illegal pipes,

moreover, a number of attempts were made to remove the complete illegal network

but could not be done due to severe resistance from the residents. The reply of the

management was not convincing as neither the pilferage charges were calculated

nor any action was taken against the SNGPL contractors / employees involved in

illegal extension of network.

The issue was brought to the notice of Ministry on July 02, 2008. The management

in its reply dated July 14, 2008 stated that after locating illegal network the

Company removed the same. However the pilferage charges to non consumers

could not be booked due to non availability of the identity of contractors and actual

consumers of the gas. The reply of the management was not convincing as it was

606

not possible for any un-registered contractor to lay the new gas pipe lines and get it

connected with the SNGPL network and the consumers must also have certain

definite addresses.

The matter was discussed in DAC meeting held on July 19, 2008. The management

reiterated its earlier reply. The DAC directed the management to conduct an

inquiry, investigate the matter and outcome thereof be intimated to audit.


management to submit a complete and detailed enquiry report to Audit along with

relevant documents within 30 days.

607

SPECIAL STUDY

ON

FUNDS ALLOCATED AND DISBURSED

TO SUI NORTHERN GAS PIPELINES LIMITED UNDER

KHUSHAL PAKISTAN PROGRAM

FOR THE PERIOD 2003-2007

137. (i) Introduction

A study of the funds disbursed to Sui Northern Gas Pipelines Limited (SNGPL)

under Khushal Pakistan Program (KPP) was initiated on the request of Special

Secretary to the Prime Minister dated March 09, 2007. The objective of the study

was to ascertain the utilization of the funds received under Khushal Pakistan

Program (I & II) and the status of available balance of funds with the SNGPL.The

schemes under this program are identified by Members National Assembly /

Senators.

(ii) Overview of Khushal Pakistan Program

Khushal Pakistan Program was initiated by the Prime Minister to provide relief to

the people through the provision of utilities at district/village level. This included

supply of natural gas to remote areas. Funds are allocated by the P.M. Secretariat to

the Ministry of Petroleum and Natural Resources. Schemes are identified by Prime

Minister / MNAs / Senators and conveyed to the Ministry of Petroleum and Natural

Resources. SNGPL is the executing agency for areas of Punjab, NWFP and AJK.

The SNGPL prepares feasibility of the schemes and ascertains the financial

viability of each scheme. The viable schemes are required to be completed by

SNGPL from their own resources. If the schemes are financially not viable the cost

over and above the criteria would be met from the funds received under Khushal

Pakistan Program.

608

(iii) Criteria for allocation of Government funds

The Cabinet Committee on Energy considered the summary dated 5th

December

1991 on gas development program submitted by Ministry of Petroleum and Natural

Resources, and approved the extension of gas supply to new towns, by dispensing

with the formalities of preparing PC I. The criteria for investment for supply of gas

to new areas / towns are as follows: (Amount in Rupees)

S.No. Name of Province Capital cost

per consumer

1. Punjab and Sindh 20,000

2. N.W.F.P 40,000

3. Baluchistan 100,000

However, in towns where the gas is already available, the companies would

continue to expand their network from their own resources under phased program.

Government of Pakistan will provide assistance / grant to the gas companies where

the capital cost per consumer exceeds the above criteria.

Audit findings

137.1 Non-reconciliation of grants amount

As per audited accounts for the year 2006-07, the SNGPL received an amount of

Rs.9.890 billion during the period from May 2003 to 30, June 2007 for

providing/laying gas net work, meeting the above criteria under KPP-I and II

schemes as per detail given below:-

Table-1 (Rs. in million)

S.

No.

Period of Disbursement M/o L.G.R.D

(KPP-I)

M/o P&NR (KPP-II) Total

1- May 2003 - 71.800 71.80

2- 2003-2004 341.440 2,494.971 2,836.411

3- 2004-2005 157.188 924.006 1,081.248

4- 2005-2006 168.023 2,430.589 2,598.612

5- 2006-2007 120.817 3,181.055 3,301.89

6- 2007-2008 90.244 6,246.027 6,336.271

Total 877.712 15,348.45 16,226.232

609

However Ministry of Petroleum & Natural Resources reported the following

amount disbursed under Khushal Pakistan Program, as per detail given below:-

Table-2

(Rs. in million)

The Government grant was received through Ministry of Petroleum and Natural

Resources and Ministry of Local Government and Rural Development (LGRD)

under KPP-I and II program respectively till June 30, 2007. From the above data it

is clear that there was an un-reconciled amount of Rs.1,275.169 million

(Rs.9,102.421-Rs.7,827.252 million).

The matter was reported to the management on September 28, 2007, the

management in its reply dated February 01, 2008 confirmed the figures mentioned

by audit, however, reconciliation of figures as reported by Ministry of Petroleum

and Natural Resources was not carried out by the management of SNGPL as

requested by audit.

The management in its reply dated October 25, 2008 stated that SNGPL have

accounted Government grant in the books of accounts on receipt basis and the

amount shown by audit is based on audit observation issued by Director General

Federal Audit. The contention of the management is not based on facts, as figures

pointed out by audit were indicated in Ministry of P&NR letter as mentioned

above.

The matter was discussed in DAC meeting held on December 22, 2008. DAC

directed the management of SNGPL that reconciliation statement be prepared and

submitted to audit through Ministry of Petroleum and Natural Resources.

S.

No.

Period of

Disbursement

Year

SNGPL

(KPP-II)

1- May 2003 2002-2003 442.998

2- 2003-2004 2003-2004 2,445.75

3- 2004-2005 2004-2005 1,458.79

4- 2005-2006 2005-2006 2,167.83

5- 2006-2007 2006-2007 1,311.88

6- 2007-2008 2007-2008 3,241.62

Total 11,068.67

610

DAC was held again on June 11, 2009, the committee showed its concern on the

delay in reconciliation of the grants with concerned ministry.DAC directed to do

the needful and submit report within a week.

137.2 Shortfall of cash – Rs 7.138 billion as on December 31, 2008

The following expenditure was booked in the SNGPL (H.O) books of accounts:-

(Rs in million)

Period of

disburse-

ment

Grants received

(Rs. in million) Amount

capitalized

with in

criteria

Over &

above

criteria

Total

% of Funds

utilized

(Rs. in million)

May 2003 71.800 - - - -

2003-04 2,836.410 1,533 (M) 56.781 1,589.78 2%

2004-05 1,081.190 1,970 (M) 71.707 2,041.71 6.63%

2005-06 2,598.620 2,808 (M) 138.564 2,946.56 5.33%

2006-07 3,301.890 4,814 (M) 1,968.836 6,782.84 59.62%

2007-08 6,342.271 1,258(M) 2,002.790 3,261.222 31.58

Total 18,319.050 2,383(M) 4,238.68 1,8319.05 23.13

It may be observed from the above table that SNGPL could only utilize an amount

of Rs. 4,238 million against the allocation of Rs. 18,319.052 million made by the

Government of Pakistan. The utilization worked out to 23.13% during the last five

and a half years. The amount of cash for such schemes was deposited in the

common bank account of the Company where all sorts of expenditure including

these schemes are being met.

The management in its reply dated October 25, 2008 stated that audit has not taken

into account the figures of Work in Progress and cost of material purchased for

KPP Schemes, and claimed the utilization upto 87% of grant received up to June

30, 2008.

611

During verification the audit has worked out utilization of 45% upto June 30,2008

and 47% upto 30th

September, 2008 as per detail given below:-

(Rs in million)

Projects completed 4,238.678

Work in progress (Distribution) 1,198.000

Transmission (WIP) 15.000

Material at operational stores 1,725.000

Material at distribution stores 170.000

Total fund utilized by SNGPL 7,346.678

Grant received up to June 30,2008 16,221.159

Percentage of utilization 45.29%

Un-used balance of grant received 8,874.481

Cash available as at June30,2008(including KPP funding) (8,137.148)

Shortfall in cash 737.333

Position of amount utilized against the grants received from GOP upto December

31, 2008.

(Rs in million)

Project completed 4,238.678

Work in progress 2,106.869

Operational stores(80% of total stores) 2,295.550

Transmission 284.649

Total funds utilized by SNGPL 8,925.746

Grant received up to 31-12-2008 18,319.050

Un-utilized balance 9,394.05

Percentage 48.72%

Cash Available in Assignment Account as on 31-12-2008 (2,255.20)

Short fall in cash 7,138.85

It is pertinent to mention that SNGPL is running out of cash to the tune of

Rs.737.3333 million as on June 30, 2008 and Rs 3.913 billion upto September 30,

2008.

As the funds were specifically granted by Government for development schemes,

so SNGPL must have the equivalent cash in their bank accounts for the completion

612

of KPP Schemes. This depicts that the organization has used specific funds for its

other projects different from Khushal program.

The matter was discussed in DAC meeting held on December 22, 2008, the

management informed the DAC about the recent meetings in the Prime Minister’s

House on the subject. After which the separate Assignment Account has been

opened on 20th

November 2008 for carrying out the schemes under Prime

Minister’s and President Directives. Before that the amount of such schemes was

deposited in the common bank account of the Company from where all sorts of

expenditure including these schemes are being carried out without any shortage of

capital either for the schemes or for the purposes to which the allocation was meant.

Audit was of the opinion that the money specified for Khushal Pakistan should be

spent for the purpose for which it was meant so as to provide relief to the under

privileged sections of society. Due to non maintenance of separate accounts for

KPP Schemes the money has been spent for the purpose other than the projects

which has resulted in effecting accomplishment of KPP Schemes and the Company

is virtually short of cash.

DAC was held again on June 11, 2009, and observed that the Company has used the

funds allocated for Khushal Pakistan Programme for other purposes. The DAC

directed the Company should make up the account under this programme from Gas

Development Surcharge (GDS) payments and also from other sources if possible.

The Company may evolve a strategy and inform the Audit within two months.

137.3 Increasing trend of Work in Progress

From the following table it is evident that since May 2003 to June 2007, there was

an increasing trend in work in progress. Despite the availability of sufficient funds

schemes were not being completed even after lapse of a considerable time.

Schemes were initiated and left in-complete, while work was also started on new

schemes. This was due to lack of proper planning and lack of capacity to complete

the schemes without delay. This situation had resulted in cost overrun and

deterioration of supply lines left without commissioning.

613

Table-5 (Rs in million)

S. No.

Year

Closing balance of

Work-in-Progress

1. 2002-2003 3,172

2. 2003-2004 3,854

3. 2004-2005 3,603

4. 2005-2006 5,402

5. 2006-2007 6,513

6 2007-2008 10,269

7 Upto Dec 08 15,868

Regarding rising trend in the capital work in progress it was stated by the

management that this was mainly due to substantial release of funds by GOP and

increased activity on account of supply of gas to new towns funded under KPP I

and II schemes. The contention of the management did not hold goods as the

SNGPL had not completed the schemes and is causing un-necessary delay.

The management in its reply dated October 25, 2008 stated that accumulation of

Work in progress was on account of increased activity in provision of gas to new

towns under the policy of GOP. The reply of the management is not based on facts

as WIP should have been converted in completed schemes at regular intervals and

should never accumulate.

The matter was discussed in DAC meeting held on December 22, 2008. The

management of SNGPL is of the opinion that this amount cannot be reduced as

these are under the directive of the Prime Minister to be carried out immediately.

As soon as, the fund for any scheme is received the same is supposed to be started

immediately irrespective of the completion of the ongoing schemes. Audit was of

the opinion that all the schemes should not be started simultaneously as most of the

schemes remained incomplete. Rather these should be properly planned and

completed in one go.

DAC was held again on June 11, 2009, it was informed by the management that the

increase in work in progress is due to the corresponding increase in directives for

new schemes. The Audit was of the view that the completion should also

commensurate with the increase in work in progress. DAC directed the

management to rationalize the discrepancy as soon as possible and furnish a report

614

within six months.

137.4 Capitalization of Job

Clause 13.7.6.5 of Accounting Manual of SNGPL “Reconciliation of Job” requires

that completion report shall be prepared for each job within one month of its

completion, and shall be a pre-requisite for closing of all jobs and capitalization

thereof.

The capitalization of Rs.2.235 billion was done without observing the accounting

procedure of SNGPL. In the absence of reconciliation of job the value of the

capitalization may be overstated.

SNGPL had capitalized 341 schemes involving a capital expenditure of Rs.267.052

million under KPP-I Schemes during 2005-06. The completion reports of only 82

schemes were prepared and approved by the competent authority. The material

reconciliation statement the essential part of the completion report was not

prepared in remaining 259 schemes. Similarly in KPP-II, 240 schemes having a

capital outlay of Rs.284.40 million were completed and capitalized during the year

2005-2006, the completion reports of only 51 schemes were available with the

management, thus only 21% was actually completed. The Board of Directors of the

Company also show their displeasure in its 13th

meeting held on September 28,

2006 regarding capitalization of job by SNGPL without finalizing completion

reports. Hence the capitalization of schemes amounting to Rs.2.235 billion made

during the period 2003 to 2007 was also not done in accordance with the laid down

criteria hence the capitalization shown by the management is questionable.

The management in its reply dated October 25, 2008 stated that due to increase in

activity, the quantum of jobs has increased manifold. However, for the year

2005-06 no completion report is outstanding. The matter was discussed in DAC

meeting held on December 22. 2008, the committee directed that the completion

reports pertaining to the period from May 2003 to June 2007 along with the

information regarding any write off by the BODs be provided. No record was

provided despite reminders.

The DAC meeting held again on June 11, 2009, the management informed that the

directives of the DAC have been largely complied with. Now, the management

615

should produce the details of report to the Audit for verification.

Recommendations

1. Transfer the unutilized amount of Rs 7.138 billion as on 31 Dec. 2008 to

assignment account. If the required cash is not available proper inquiry

should be conducted.

2. Capitalize the schemes after carrying out the Job reconciliation as per

requirement of accounting manual of SNGPL.

3. Year wise break up of KPP schemes in progress may be maintained

separately for proper monitoring.

4. SNGPL is required to enhance operational capacity to complete the

schemes at the earliest.

616

OIL AND GAS DEVELOPMENT COMPANY LIMITED

AUDIT COMMENTS


Corporate information

138. OGDCL was established in 1961 as a public sector Corporation which

subsequently was converted from statutory Corporation into a public limited joint

stock company with effect from October 23, 1997.

Operational highlights

OGDCL's concessions portfolio as of June 30, 2007 stood at 42 own and operated

joint venture exploration licenses covering an area of 80,584.48 Sq Km which is

33% of the total Country's exploration acreage and is the largest exploration

acreage held by any single company in Pakistan. In addition OGDCL also holds

working interest in other 5 exploration licenses operated by other joint venture

partners.

OGDCL has 40 development and production/mining leases which are operated by

it besides working interest ownership in 13 non operated leases.

OGDCL's remaining recoverable reserves as of June 30, 2007 stood at 159.17

million barrels of oil and 10,869.92 billion cubic feet of gas.

During the year 2006-07, OGDCL's share in Country's oil and gas production

remained at 54% and 22% respectively. Its daily production from its own fields and

share in operated and non operated joint venture fields averaged 41,503 barrels of

oil and 947 MMcf of gas. The Company also produced 386 M.ton of LPG and 66

M.ton of Sulphur on daily basis.

During year 2006-07, total 77 wells (36 Exploratory and 41 Development wells)

were spudded in Pakistan, out of which OGDCL spudded 41 wells (19 Exploratory

Well and 22 Development wells i.e. 53.24% of the total wells spudded in Pakistan)

as compared with 30 wells in 2005-06 and 18 wells in

2004-05. The Company also overshot its 2-D business plan seismic target by 14%

to 3.282 L. Km and registered a 67% increase in its 3-D seismic achievement from

617

395 Sq Km in financial year 2005-06 to 661 Sq Km in 2006-07. Company's

production including its share in operated and non-operated fields averaged at

41,503 barrels per day of oil and 947 MMcf per day of gas as compared with 38,966

barrels per day of oil and 956 MMcf per day of gas during 2005-06. Gas production

includes production of 19 MMcf per day from its subsidiary company, Pirkoh Gas

Company (Private) Limited as compared with 23 MMcf per day in 2005-06. During

2006-07 OGDCL made ten oil and gas discoveries as compared to five in 2005-06

and only three in 2004-05. Out of these ten discoveries, eight were in Sindh, and

one each in Punjab and NWFP Provinces.

The product wise sale of the Company during the year 2006-07 as compared to

previous years are as under:

618

Name of

product

Unit 2006-07

% +

/(-)

to

previo

us

yea

r

2005-06

% +

/(-)

to

previo

us

yea

r

2004-05

% +

/(-)

to

previo

us

yea

r

2003-04

Crude Oil Barrels 13,929,860 8 12,956,000 (1) 13,045,000 3 1 9,941,000

Gas Mmcf 337,430 0.41 336,059 2 329,385 19 277,408

Liquefied

petroleum gas(LPG)

M.ton 139,480 8 128,654 7 120,063 19 101,322

White

petroleum products

Barrels 895,147 (7) 959,000 8 885,000 (1) 889,493

Sulphur M.ton 16,638 (24) 22,006 (15) 25,884 37 18,917

The above comparison showed a minor increase in production of crude oil and gas

and LPG by 8%, 0.41% and 8 % respectively during the year under review whereas

there was a decrease of 7% and 24% in the sale of white petroleum products and in

sulphur respectively. The decrease in production of white petroleum products and

sulphur needs attention of management for corrective action.

138.1 The financial results of the Company for the year 2006-07 as compared to the previous years are tabulated below:

(Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 100,261.1 91 4 96,755.382 31 73,710.101 44 51,326.273

Royalty 10,877.443 0.05 10,872.443 34 8,109.632 46 5,570.218

Operating expenses 18,497.388 23 15,045.654 25 12,023.734 16 10,124.678

Exploration and

prospecting expenditure 7,406.280 101 3,680.707 38 2,671.260 (21) 3,397.907

Transportation charges 1,087.931 15 942.163 24 760.092 38 548.919

General and

administrative expenses 1,285.476 20 1,071.979 30 823.305 (2) 838.818

Finance cost 449.561 4408 9.973 67 5.955 (85) 38.468

WPPF 3,213.617 (7) 3,469.017 34 2,580.011 61 1,606.071

Operating profit 57,443.495 (7) 61,663.446 32 46,736.112 61 29,201.194

Other income 3,615.231 (15) 4,247.881 86 2,284.104 51 1,314.156

Net profit before tax 61,058.726 (7) 65,911.327 34 49,020.216 61 30,515.350

Provision for tax 15,428.762 (23) 19,943.604 24 16,052.316 98 8,100.889

Net profit after tax 45,629.964 (0.73) 45,967.723 39 32,967.900 47 22,414.461

619


Ratio analysis

The gross profit ratio of the Company increased from 69.60% in 2005-06 to

72.20% in 2006-07.

Sales of the Company grew by 3.6% to Rs.100.261 billion in 2006-07 as compared

to Rs.96.755 billion in 2005-06 which was due to combination of increase in sales

volume of crude oil, gas and LPG and higher average prices of crude oil, naphtha

and LPG. Sales volume of crude oil and LPG increased by 7.5% and 8.4% which

contributed Rs.3.191 billion towards sales revenue as depicted in table below:

Product Units 2006-2007 2005-2006 Inc/

(Dec)

%

Inc/

(Dec)

Average

rate in

2005-06

Sales increase (Rs. in billion)

Crude oil Barrels 13,929,860 12,956,000 973,860 8 3,042 3.000

LPG MMCF 139,480 128,654 10,826 8 17,673 0.191

620

Further, increase in net average prices of crude oil and LPG contributed Rs.5.490

billion to the sales revenue as depicted in the table below:

Product Units 2006-2007 2006-2007

(Rate in Rs.)

2005-06

(Rate in Rs.)

Increase/

(Decrease in Rs.)

Sales increase

Rs. in billion

Crude oil Barrels 13,929,860 3,305 3,042 263 4.000

LPG MMCF 139,480 28,405 17,673 10,732 1.490

However, due to unfavorable price change in gas from Rs.152.88 Mcf during

2005-06 to Rs.144.12 Mcf in 2006-07 net sales revenue from gas decreased by

Rs.2.745 billion.

In spite of this increase in sales, gross profit of the Company declined as operating

expenses also increased by 23% to Rs.18.497 billion as compared with Rs.15.046

billion during the previous year. Operating expenses Rs.1.054 billion increased on

account of minimum supply of gas liquidating damages pertaining to UCH Gas

Field and Rs.1.478 billion increased on account of provision made in respect of

sales revenue of crude oil for prices in excess of 50 $/bbl for which discount table is

yet to be finalized with the Ministry of Petroleum and Natural Resources.

138.2 Net profit Ratio

Net profit ratio is constantly declining which is mainly due to increase in

exploration and prospecting expenditure which increased from Rs.3,680.707

million in 2005-06 to Rs.7,406.280 million in 2006-07.Within these costs Rs.2.688

billion resulted on account of cost of dry/abandoned wells and amount of Rs.1.037

billion on account of prospecting expenditure. Higher exploration and prospecting

expenditure is in line with the Company’s strategy of extensive exploratory efforts

which will contribute new discoveries

621

Current Ratio

138.3 The current ratio increased significantly in 2005-06 as compared to 4.96 in

2004-05. The main reason for this was increase in trade debts, short term

investments while current liabilities have overall decreased. During the current

year, the ratio declined a little as shown in the graph above. An analysis of current

assets reveals that stores and spares increased further from Rs.11.032 billion to

Rs.13.178 billion in 2006-07. The table below shows yearly position of stores and

respective provision:

(Rs. in million)

2006-07 2005-06 2004-05

Stores and spares 13,178.295 11,032.754 7,578.153

Provision 787.865 787.865 740.414

Accumulation of stores & spares needs to be controlled.

622

138.4 Trade debts increased from Rs.24.498 billion in 2005-06 to Rs.27.873 billion

in 2006-07. This indicates that debtors have increased by 13.17% and overall sales

have increased from Rs.96 billion to Rs.100 billion with an increase of 3.6%. The

Company should try to match its debtors turnover period with the sales otherwise

increase in sales without timely receipts from the debtors can create cash flow

problems for the Company in future.

The trade debts includes an amount of Rs.5.379 billion (2006: 1.768 billion) which

has been withheld by the refineries under the directive of Ministry of Petroleum and

Natural Resources and represents revenue of crude oil in excess of 50$ per barrel

.The discount table for this revenue is yet to finalized and was pending with the

Ministry for many years. This is an area of significant attention and has to be

resolved at the earliest to avoid blockage of funds.

138.5 Fixed assets and investments in subsidiaries amounted to Rs.60,819.414

million as on June 30, 2007 which was only 47.02% of total assets. Whereas, the

current assets excluding stores and spares, mainly comprised on cash or cash

equivalent, were Rs.68,518.758 million being 52.98% of the total assets. The

situation indicates that management has no policy to invest its funds in diversifying

its business i.e. development and exploration of oil and gas wells and products as

most of its funds were lying with financial institutions. The un-appropriated profit

of the Company also reached Rs.55,169.140 million as on June 30, 2007 for which

management had no plans. The need for chalking out a strategy to span out for

development in oil and gas sector in Pakistan as well as in other countries is

stressed upon the management.

623

AUDIT PARAS

139. Loss due to non delivery of two rigs by M/s. GWDCL (US $ 21,516,200)


As per clause 1.3 of the agreement M/s. Great Wall Drilling Company Limited

(GWDCL) was obliged to supply rigs as detailed hereunder:-

i. Hiring of one medium depth drilling rig i.e. ZJ50DB (GW-77) from

Pakistan at an estimated amount of US $ 1,505,000.

ii. Hiring of one deep depth drilling rig i.e. ZJ70D (GW-98) from China at an

estimated amount of US $5,306,500

iii. Hiring of one deep depth drilling rig i.e. ZJ70D from China at an estimated

amount of US $5,306,500 as per rates mentioned under Appendix-A with

Option-I.

iv. Hiring of four deep depth drilling rigs i.e. ZJ70D from China at an

estimated amount of US $ 5.525 million each.

As per clause 1.5 the duration of contract was for an initial term of two years on as

and when required basis subject to mobilization notice which was applicable from

commencement date.

Oil and Gas Development Company Limited (OGDCL) entered into a contract

agreement with M/s. Great Wall Drilling Company Limited (GWDCL), Beijing,

China on October 19, 2005 for hiring of seven rigs at the contract price

US $ 33.818 million. The Company supplied five rigs. OGDCL asked GWDCL, on

November 28, 2006 to intimate the availability of balance two drilling rigs but the

Company instead of offering the supply of remaining rigs, offered the remaining

two rigs at revised tender rates, in spite of fact it was obliged to provide seven rigs

on as and when required basis within two years contract period. The OGDCL

entered into a new agreement at higher rates without stressing the Company to

supply the remaining two rigs at previously agreed rates. Thus OGDCL had

incurred to an extra expense of US $ 21.516 million equal to Rs.1.291 billion.

The matter was reported to the management on March 05, 2008 but no reply was

received there from. The matter was brought to the notice of Ministry on June 11,

2008. The management in its reply dated June 20, 2008 intimated that on demand

624

from GWDCL regarding remaining two rigs the supplier informed that remaining

two rigs were no more available as these had been shifted to an other country as

OGDCL did not ask for these rigs to be mobilized. The strict action could not be

taken against the supplier which may result in losing the other five rigs already

working on OGDCL wells. The reply of the management was not convincing as

the supplier was bound to supply the remaining two rigs on as and when required

basis during the currency of the contract i.e. within two years from the date of

contract.

The issue was discussed in the DAC meeting held on July 05, 2008. The DAC

directed the management to inquire the matter and place the results before the

Board of Directors for review and appropriate action under intimation to audit.

DAC was held again on June 11, 2009, it was informed that in compliance of earlier

decision of the DAC the case was submitted to technical finance committee and

now the same will be submitted in the upcoming BoDs meeting and the results will

be intimated to Audit.

140. Non-encashment of bank guarantees due to litigation with two Italian

Contractors – US $. 9.119 million (Rs.547.120 million)

As per clause 20.2 of Foreign Procurement Procedure Manual of OGDCL, the

bid/performance bond shall be in the form of pay order/demand draft/cash deposit

or bank guarantee issued by a scheduled bank.

Oil and Gas Development Company Limited (OGDCL) entered into contracts for

setting up Qadirpur Project for supply, production and distribution equipment of

gas for US $ 73,262,000 with M/s. Compagnia Technica International Progetti SPA

(CTIP) and for civil works valuing Rs.560,586,600 with M/s. Fochi Energia Sri in

February, 1994. Both the contractors submitted performance bonds from Italian

Banks contrary to the Foreign Procurement Procedure Manual of OGDCL and

started work. The contractors failed to fulfill their contractual obligations and major

deficiencies were found in their work. Both the contractors left the site in third

week of December, 1996 without rectifying the faults. OGDCL called the

concerned Italian Banks to encash the bank guarantees. The contractors moved

petition before the Civil Court in Rome and obtained stay orders against

encashment of the bank guarantees. In 1998 OGDCL also filed recovery suit in the

625

court of Senior Civil Judge, Islamabad. Subsequently, both the contractors declared

bankruptcy. In the year 2000, OGDCL obtained ex-party decree from the court of

Senior Civil Judge, Islamabad against both guarantor banks. On 11th

October, 2003

OGDCL moved an arbitration petition in International Chamber of Commerce

(ICC) Paris and filed two execution petitions in the Court of Senior Civil Judge,

Islamabad and appointed Mr. S. M. Zafar, Senior Advocate as an Arbitrator from

OGDCL side. OGDCL was successful in obtaining a judgment in its favour from

an Italian Court for Euro 36,000 as cost (Rs.2,520,000) and a judgment for

encashment of bank guarantees amounting to US $ 9.000 million (Rs.540,000,000)

in 2005 but the decision was challenged by the banks in the higher Italian Court.

The management got the permission to withdraw the arbitration application from

ICC, Paris to pursue the case at Italian Court only and allowed the Italian Council to

take steps for recovery of the arbitration fee deposited with ICC Paris by OGDCL

on its behalf as well as on behalf of CTIP and Fochi. The OGDCL incurred

Rs.4.600 million as legal expenses till 2007. Loss of Rs.547,120,000 could have

been avoided, had the foreign bank guarantees were not accepted in contravention

to Foreign Procurement Procedure Manual of OGDCL.


received.

The matter was brought to the notice of Ministry on June 09, 2008, the management

in its reply dated June 20, 2008 intimated that OGDCL agitated the matter in the

Italian Court of Law. The reply was not tenable and an inquiry must be conducted

in the matter as to how the bank guarantees of a foreign banks were accepted in

contravention to the procedure.

The issue was discussed in DAC meeting held on June 21, 2008, the DAC directed

the OGDCL to conduct an inquiry into the matter and place it before the BoDs.

DAC was held again on June 11, 2009, it was informed that the case will be

submitted to BoDs and results thereof will be intimated to Audit.

141. Loss due to delay in finalization of agreement with M/s. Seabird for

3D Seismic Survey in Indus Delta – US $.9.070 million (Rs.544.200

million)

626

The Board of Directors vide its resolution No.795, approved the award of contract

for acquisition of 3-D Seismic survey of 530 Sq. Km area in Indus Delta-A (Block

2367-4) at an estimated cost of US $ 15.450 million to M/s. Seabird Exploration

F.Z LLC., Dubai, UAE (HO), Norway.

The Government of Pakistan awarded an exploration license over Block No.2367-4

(Indus Delta-A) to Government Holdings (Private) Limited, (GHPL) on October

23, 2004 for a period of two years (Phase-I) ending on October 22, 2006 for

undertaking off-shore exploration activities. The management of OGDCL

contacted M/s. Seabird Exploration Norway on November 13, 2005 and LOI was

issued to the Company by OGDCL in December 2005, for seismic survey over

block 2367-4 covering an area of 530 sq.km. in a shallow water depths from

5-30 meter of Indus Offshore Basin at the cost of US $ 6.380 million. OGDCL

informed GHPL to grant the consent being joint venture partner to finalize contract

on or before December 9, 2005. The GHPL granted their consent on December 8,

2005 to finalize the contract with M/s. Seabird. The management of OGDCL

instead of finalizing the contract with M/s. Seabird issued bid documents to five

short-listed companies on May 26, 2006 but none of the companies submitted their

bids. A delegation of M/s. Seabird again met with the OGDCL management on

September 20, 2006 and concluded a new agreement in November 2006 with the

total estimated cost of US$ 15.450 million. The previous rate of the same firm was

US $ 6.380 million in which OGDCL failed to award the contract within stipulated

time, which resulted in exorbitant incremental cost by US $ 9.070 million (15.450 -

6.380 = US $ 9.070 million). In addition to expense of US $15.450 million, the

management also incurred an amount of US $ 201,488 for processing of the data

acquired through M/s. Seabird as the data was sent to M/s. Western Geco Data

Services Middle East Limited, Egypt vide contract dated October 17, 2007. The

work was to be completed within 60 days but no result thereof was received from

M/s. Western Geco up till March 30, 2008.


received.

The matter was reported to Ministry on June 12, 2008, the management in its reply

dated June 20, 2008 stated that contract was not finalized due to non availability of

vessel from M/s. Seabird in January, 2006. The reply was not tenable as the time

schedule could be adjusted at previous rates keeping in view the increasing trends

of prices in the market.

627

The issue was discussed in DAC meeting held on July 05, 2008. The DAC directed

that the complete case since the date of issuance of first LOI in December, 2005 be

placed before the Board of Directors for their review under intimation to audit.

DAC was held again on June 11, 2009, it was informed that in compliance of earlier

decision of the DAC the case will be submitting to audit committee, the same will

be submitted in the upcoming BoDs meeting and the results will be intimated to

Audit.

142. Un-justified payment to M/s. LMKR as share in joint venture

– loss US $ 614,093 - (Rs.36.846 million)

As per resolution of Board of Directors on October 27, 2005 that at the end of each

calendar year a profit / loss statement will be prepared and all profits would be

shared by 50 / 50 between OGDCL and LMKR but in case of loss it will be

exclusively borne by LMKR.

In terms of the agreement dated December 30,2005 M/s. LMK Resources was

obliged to arrange Omega-II software for processing the seismic data and arrange

equivalent software for this purpose. M/s. Western Geco, supplier of the Omega-II

refused to supply the software to LMK Resources being their competitors and M/s.

LMK Resources could not arrange equivalent software for this purpose. OGDCL’s

user departments were also not satisfied with the seismic data processed by the joint

venture. The management decided on February 21, 2007 to terminate the Joint

Venture agreement, and OGDCL’s 50% share in the (loss) settlement worked out to

US $ 614,093.50. Regarding acquisition of seismic data processing equipment the

committee was of the view that equipment was worth only US $ 40,000 (based on

the highest bid received) and advised that as a service to the society it may be

donated to Quaid-e-Azam University, Islamabad.

The matter was taken up with the management on March 05, 2008. The

management in its reply dated April 03, 2008 stated that the joint venture could not

be continued as the LMKR failed to procure the required software and Board of

Directors on February 21, 2007 decided to wind up the joint venture and OGDCL

had to pay amount of US $ 614,093 as their share in final settlement because

agreement was terminated before validity period of 11 years and without notice of

628

345 days. The reply of the management was not convincing as M/s. LMK

Resources failed to acquire the required software which was essential for data

processing and caused closure of joint venture, hence OGDCL was not bound to

share the Joint Venture loss.

The matter was reported to the Ministry on June 12, 2008, the management in its

reply dated June 20, 2008 reiterated its previous reply dated April 03, 2008.

The case was discussed in the DAC meeting held on July 05, 2008. The DAC was

not satisfied with the explanations given by ODGCL, and directed the management

to provide complete documentary record of the case and point of view of LMKR

for verification.

DAC was held again on June 11, 2009 and directed the management to present the

case before BoDs and decision thereof be intimated to Audit.

143. Loss due to receipt of damaged carbon steel pipes – Rs.146.970 million

As per clause 14.2 of Foreign Procurement Manual of OGDCL, inspection of the

material at manufacturer / stockiest / agent premises will be carried out by an

inspection team formed by the Manager Procurement, within 07 days of the

supplier' intimation for the inspection.

Oil and Gas Development Company Limited (OGDCL) placed procurement orders

valuing US $ 438,128 and Euro € 1,523,398 on M/s. DAE SE Steel and Co.

Limited, Korea and M/s. Oil and Gas Industries Services, London for procurement

of carbon steel pipes on March 14, 2007. The supplier shipped the requisite

material on October 04, 2007 and November 08, 2007 at Karachi Base Store. The

joint inspection of the subject material was carried out by the representatives of

Project and Store Departments on November 26, 2007, and material was rejected

by the end user. The management en-cashed the performance bonds of both the

suppliers amounting to Rs.14.899 million and the case regarding remaining loss

was taken up with the supplier on November 26, 2007. However, no response was

received from the supplier till end of March 2008. OGDCL appointed M/s. Moody

International as third party inspector on January 22, 2008. As per report dated

February 02, 2008 the supplied material was completely rejected. Thus, OGDCL

has to suffer a loss of Rs.146.970 million due to non-exercising pre-shipment

629

clause as advised by Qadirpur Field office, under provisions of the Foreign

Purchase Procedure of OGDCL.

The matter was reported to the management in March 2008. The management in its

reply dated April 04, 2008 stated that performance bonds amounting to Euro

137,196 were en-chased. Moreover third party inspection was carried out by the

Project Department on June 13, 2007, when the consignment was ready for

shipment and L/C was expiring, and it was not possible to hire the services of third

party for inspection. The reply was not tenable and loss may be recovered from the

suppliers responsible for wrong shipments.


in its reply dated June 20, 2008 reiterated its previous reply dated April 04, 2008.

The matter was discussed in DAC meeting held on July 05, 2008. The committee

showed its concern on the waiver of pre-shipment clause of the agreement and

directed to work out the cost of third party inspection for assessing the cost of

damaged pipes under intimation to Audit. The DAC also desired to place the matter

before the Board of Directors for policy decision on pre-shipment inspection.

DAC was held again on June 11, 2009 and upheld its earlier decision and directed

the management for compliance.

144. Appointment of 22 officers without observing the codal formalities


As per service rules of OGDCL all the vacancies are required to be advertised in

leading newspapers of the country. Based on written test and interview and

recommendation of Selection Committee, final selection is made by follow the

Regional / Provincial Quota approved by the Government. The recruitment cases of

specific positions are to be conducted by the Interview Committees notified by the

management and finally the proceedings of the committees are required to be

approved by the Managing Director.

Oil and Gas Development Company Limited (OGDCL) made 22 recruitments

without observing the laid down criteria / procedure. The posts were not advertised

in the press, and most of the candidates did not meet the prescribed qualifications.

630

These cases were submitted to Executive Committee of the Board on June 08, 2006

who advised the management that all these cases should be submitted to Board of

Directors for information / ex-post facto approval. The matter was placed in Board

of Directors meeting held on February 06, 2007 for ex-post facto approval /

regularization but the Board of Directors turned down the case and advised that the

Chairman / Chief Executive being the competent authority may decide the cases on

merit basis. The management of OGDCL did not take any corrective measures and

the officers were working on different posts against the Company’s recruitment

policy; hence, the amount of Rs.65.132 million paid on account of pay and

allowances up to March 2008 was considered irregular.

The matter was pointed out to the management on March 05, 2008 but no reply was

received.


in its reply dated June 20, 2008 intimated that all the posts were properly advertised

and short listing of the candidates was done and interviewed by the Managing

Director, moreover, 12 officers out of 22 have already left the service of OGDCL.

The reply of the management was not convincing as the Executive Committee of

the Board has also pointed shortcomings and the matter was placed before the

Board of Directors for ex-post approval / regularization on the recommendation of

the Committee but Board of Directors did not regularized the case on the plea that it

be decided by Managing Director on merit basis.

The issue was discussed in the DAC meeting held on July 07, 2008, the

management intimated that proper advertisements were placed almost for all the

posts and recruitments were made by the Managing Director by exercising the

powers delegated to him by the Board in November 2005. Audit was of the view

that appointments were made in disregard of service rules hence considered

irregular. DAC directed the management that each case should be reviewed and

submitted to the Board with specific recommendations for each case and results

thereof be intimated to audit for verification.



145. Procurement of defective man portable drills (shot hole) - (Euro

631

702,302) – Rs.49.863 million

As per Clause-3.2 of the Foreign Procurement Procedure of OGDCL, the indenting

department should raise their indents on prescribed forms for imports giving

complete description of specifications, nomenclature, weight, dimension, mode of

shipment, quantity, units etc. of the required material.

Oil and Gas Development Company Limited (OGDCL), Islamabad invited bids for

procurement of 12 Man Portable Drilling Rigs (Shot Hole) 30 meter with spares

through open tender. M/s. GEMSA, Turkey was the financially lowest firm with

Euro 702,302 (C&F basis). The order was placed on the firm on December 29,

2005 despite having certain deficiencies in specification of offered rigs. The rigs

were received by OGDCL in August 2006 and issued to the Seismic Parties.

Frequent breakdowns occurred in short duration during field operation. The local

agent of the supplier M/s. Rastgar and Company also admitted problems with the

Man Portable Rigs on February 12, 2007. The Chief of Seismic Party No.04

informed on May 07, 2007 that 04 MP rigs in operation were out of order. The

performance bond submitted by the supplier for Euro 71,000 expired on December

31, 2006 and the Company failed to get the extension of the same.

The matter was pointed out to the management on July 25, 2007. The observation

under discussion was not replied; however, it was verbally informed during

discussion that an inquiry was conducted in this regard under the supervision of ED

(Finance) and presently with Managing Director for final approval.


in its reply dated June 20, 2008 intimated that an enquiry committee has been

constituted to probe the matter and final fate of the case would be intimated in due

course of time.

The issue was discussed in the DAC meeting held on July 07, 2008, management of

OGDCL informed that initial inquiry had been completed. Further proceedings as

per legal requirements under Removal from Service Ordinance 2000 were in

process. The DAC directed the management to submit findings of inquiry and

actions taken thereon to audit preferably within 3 months.



632

146. Non-recovery of sale proceeds from buyers of low pressure gas


Clause-7.6 of the agreement provides that in the event, full invoiced payment is not

made within the period of thirty (30) days, Seller shall have the right to suspend the

deliveries of gas till such time, all arrears together with late payment surcharge is

paid.

(i) OGDCL entered into an agreement with M/s. Farooq Lime Merchants,

Faisalabad on January 14, 2002 for the sale of low pressure gas from its Kall Field

for a period of three years. The contractor failed to make payment for low pressure

gas supplied by OGDCL from July 2004 to February 2005. The management was

required to suspend the supply of gas after default of July 2004 which was not done

and resulted in accumulation of outstanding dues of Rs.14.525 million due to undue

favoritism to the party.

(ii) Similarly OGDCL entered into an agreement on June 30, 2003 with M/s.

Shahdab Lime Company, for a period of 3 years for the sale of low pressure gas

from its Toot Field. The buyer was not punctual in payment from the very first day.

Despite the fact that the buyer was in default OGDCL did not suspend the supply of

gas, which resulted in accumulation of outstanding dues against M/s. Shahdab

Lime Company to the extent of Rs.3.542 million. Finally, the supply of gas was

suspended in November 2004 at the request of the defaulter firm.

The matter was reported to the management on March 05, 2007. The management

in its reply dated May 17, 2007, stated that the cases were under arbitration process.

The reply was not acceptable as the management failed to comment upon

continuous supply of gas to the defaulting clients


in its reply dated June 20, 2008 intimated that arbitrator has announced award /

decision for recovery of outstanding dues against them. The awards had been

submitted to the court for making awards as rule of court.

The issue was discussed in the DAC meeting held on June 21, 2008. After hearing

the detailed deliberation on the issue by the OGDCL management that after award

633

of arbitrator, the matter was now subjudice. The DAC observed that supply of gas

should had been discontinued when the buyers went in default, hence the matter

may be inquired and results be placed before the BOD.



147. Irregular appointment of Executive Director (Human Resources)


As per OGDCL Service Regulation, for appointment at any executive

post Government’s policy, issued by the Establishment Division, as

amended from time to time, needs to be followed. The Cabinet

Secretariat (Establishment Division) vide letter No. 6/2/2000-R.3 dated

May 06, 2000 issued following guidelines for contract appointments in

Autonomous / Semi Autonomous Bodies, Corporations, Public Sector

Companies etc. owned and managed by the Federal Government:-

a) Where the nature of a particular job vacant position requires

contract appointment for a specific period, the administrative

Ministry / Division concerned should issue standing instructions,

after consultation with the Chairman of the Board of Directors /

Board of Governors, specifying such posts and the parameters

governing appointment on contract basis against such posts.

b) Vacancies should be advertised in the leading national and regional

newspapers.

c) Selection should be made through regularly constituted Selection

Committees /Boards.

Oil and Gas Development Company Limited (OGDCL) on November 20, 2005

advertised the posts in newspapers for appointment of SEVPs / EDs (HR). The

minimum qualification for the post was Master degree and 20 years experience of

top level management skills in the relevant field. Mr. Shahzad Saddal having B.Sc

qualification with four courses in human resource and 12 years experience of

human resource management applied for the post of Executive Director. The said

officer did not qualify even for short listing due to deficiencies in the qualification

as well as in experience, but the Human Resource Committee of OGDCL in its

634

meeting held on February 13, 2006 interviewed the candidate and recommended

his name as Executive Director, Human Resources @ Rs.500,000 per month in

addition to other perquisites. The Board of Directors in its meeting held on

February 23, 2006 accorded the approval of his appointment. In order to cover the

deficiencies of qualifications the case was again put in Board of Directors meeting

on August 15, 2006 and the Board of Directors approved the case by granting

special relaxation in qualification and experience on August 15, 2006. The officer

received Rs.16.800 million as remuneration. The appointment of the said officer

was considered irregular as healthy competition was not made and a candidate

having lesser qualification as well as practical experience was selected / appointed

against the OGDCL service rules and criteria published in the newspapers dated

November 20, 2005, which resulted in undue favour to the candidate.

The irregular appointment was reported to management on March 05, 2008. The

management in its reply dated March 28, 2008 stated that due to vast experience of

the said officer in field of HR the relaxation in qualification was granted. The reply

was not tenable as the officer was granted relaxation in qualification as well as in

practical experience required for the post of ED (HR).

The matter was discussed in the DAC meeting held on June 21, 2008. The

management explained that appointment and relaxation in qualification was

approved by the OGDCL Board of Directors which is the competent authority for

such appointments. However, Audit was of the view that appointment was not on

merit and approval by the BoDs was not justified and requested that the matter be

placed before the PAC.

DAC meeting was held again on June 11, 2009 and the Committee reiterated its

earlier decision for placing the matter before PAC.

148. Loss due to theft of gasoline from Dhodak – Rs.9.758 million

As per clause-8.2 of the agreement “buyer will send their product requisition

through driver of bowzer of each load and the delivery voucher shall be prepared

with mutual consent of buyer and seller. The delivery voucher shall be serially

numbered which shall be communicated to the seller on fortnightly basis”.

Moreover, as per clause–8.3 of the agreement “buyer will not be responsible for the

product delivered to any vehicle by seller without buyer’s requisition and having

635

signature of other than buyer’s designated officials”.

Oil and Gas Development Company Limited (OGDCL), Islamabad entered into

agreement with M/s. Shell Pakistan Limited and M/s. Caltex Oil (Pak) Limited in

1995 for the sale of certain liquid petroleum products. In October 1997 and January

1998 Gasoline valuing Rs.9.758 million was mis-appropriated by the staff of

OGDCL from the deliveries made to the buyers from Dhodak. On realization of

misappropriation in September 1998, a Senior Technician (Production) made

confession before the inquiry committee constituted to probe into the matter. The

culprit also named some other officials of OGDCL as his companions. The

authorized officer recommended dismissal of main culprit from service. An inquiry

committee was constituted on August 10, 1999 as per directives of Managing

Director with the direction to finalize the report within a month. In May, 2000, the

Manager (Reg) a member of the inquiry committee returned the file without any

action with the remarks that due to paucity of time the inquiry could not be

conducted and the task may be assigned to somebody else. Due to delayed and

improper handling of case the Company sustained a loss of Rs.9.758 million. There

was no progress of the case after July, 2003, the theft of gasoline amounting to

Rs.9.758 million was not possible by one man, hence the termination of an

employee did not serve the purpose.

The matter was taken up with the management on March 05, 2008. The

management in its reply dated April 08, 2008, stated that after proper inquiry it was

revealed that a Senior Technician, Production Department was involved in the theft

case. Moreover, the matter was taken up with M/s. Shell and M/s. Caltex for

recovery of the gasoline. However, the marketing companies refused to pay the

said amount on the plea that they had never received the said gasoline. The matter

was presented to OGDCL, Board of Directors twice to grant the write off sanction.

The reply of the management was not convincing as the Board of Directors had also

refused to grant write off sanction of the loss in question twice but no FIR was

lodged by the OGDCL management.


in its reply dated June 20, 2008 reiterated its previous reply dated April 08, 2008.

The DAC meeting held on June 21, 2008, OGDCL management informed that

inquiry into the matter had been carried out and findings along with the

recommendations were submitted before the Board of Directors which directed the

636

management to conduct another inquiry and the findings thereof be again put up to

the Board. The DAC directed the management that after completion of the recent

inquiry, loss may be made good from the defaulters and matter be placed before the

Board of Directors and results thereof be intimated to audit within 03 months.

DAC meeting was held again on June 11, 2009. The management apprised the

DAC about the decision of the BOD which is now being pursued. DAC directed to

submit the findings thereof to Audit.

149. Irregular appointment of part time consultant with open TORs and

payment of remuneration – Rs.4.826 million

As per para-10 of prescribed procedure for the appointment of consultants, the

services of qualified individual consultants and experts for short term assignments

of maximum six months were to be sought out through press advertisement for the

proposed job giving a brief description of assignment. The information from the

consultants must be obtained through questionnaire which should be prepared by

the concerned department. The questionnaire should be tailored to suit the job

requirement.

Oil and Gas Development Company Limited (OGDCL) appointed a part time

Consultant / Advisor (Human Resources) on December 01, 2005 at a consolidated

pay of Rs.80,000 per month on an open TORs. The initial period of appointment

was for four months and payment of Rs.720,000 was made from October, 2005 to

June, 2006. Then, the officer was appointed as Manager (Cost and Benefit) on July

1, 2006 @ Rs.195,539 per month and an amount of Rs.4,106,319 was paid upto

March, 2008. The appointment was finalized without following the procedure and

the job was not advertised. The degree of the said officer was also not recognized

from HEC hence the appointment of the said officer was considered unjustified and

irregular. Moreover, the TORs of job were also not prepared. Thus the payment of

Rs.4.826 million for the period October 2005 to March 2008 was considered

irregular.

The matter was pointed out on July 25, 2007. The management in its reply dated

November 30, 2007 stated that OGDCL being a Company incorporated under the

Companies Ordinance, 1984 should be governed under the SECP Rules, and would

be subject to audit under such rules only. Resultantly the Company may be audited

637

by the office of Auditor General but under SECP Rules. The reply was not tenable

as the appointment of the officer was made without prescribing the TORs and open

competition and later on the same officer were appointed as Manager (HR) on

regular basis without observing the codal formalities of OGDCL service rules.


in its reply dated June 20, 2008 reiterated its previous reply dated November 30,

2007.

The matter was discussed in DAC meeting held on July 05, 2008. The DAC was of

the view that Board has not been apprised of the factual position of the recruitment

rules / procedures; therefore, the DAC advised to place the matter before the Board

of Directors for regularization.

DAC in its meeting held again on June 11, 2009 upheld its earlier decision and

directed the management for compliance.

150. Loss due to non-forfeiture of performance bond of defaulting

construction contractor – Rs.3.884 million

As per condition of contract agreement dated July 07, 2005 for civil work, in case

of default by the contractor, performance bond will be forfeited.

Oil and Gas Development Company Limited, Islamabad awarded the work of

construction of workers camp at Bobi LPG Plant in Sindh to M/s. Shan Associates,

Lahore on July 07, 2005. The total cost of contract was Rs.38,835,924. The

contractor submitted 10% performance bond on August 23, 2005 valuing

Rs.3,883,600 issued by M/s. Credit Insurance Company Limited, Lahore, which

was valid up to July 26, 2007. As per clause–6 of the agreement, the work was to be

started within 15 days of the assigning of the contract agreement and required to be

completed within 18 months. The work for Rs.2.167 million was carried out in 05

months from March 2006 to July 2006 and the payment for work done was released

on July 26, 2006, after which the work was stopped / suspended by the contractor.

The contract was cancelled on September 13, 2007 after 10 months from the date of

stoppage of work by the contractor. The Manager Engineering Operation

recommended encashment of performance bond on account of non-fulfillment of

contract by the contractor within the validity period of contract. The management

638

delayed the action resulting in expiry of bond causing a loss of Rs.3.884 million.

The management also failed to incorporate the risk and cost clause in the contract

due to which the work could not be got completed through another contractor at the

risk and cost of the defaulting contractor.

The matter was taken up with the management on March 05, 2008 but no reply was

received.


in its reply dated June 20, 2008 intimated that approval for forfeiture of

performance bond required the advice of the department which was a time

consuming task hence delayed in start of forfeiture of the process, resulted in expiry

of performance bond which cannot be termed as human error. The reply was not

tenable as process of encashment of bond must be started well in time to save

Company from loss.

The issue was discussed in DAC meeting held on July 05, 2008. After discussing

the DAC directed the management to place the matter before Board of Directors for

consideration and appropriate action.

DAC meeting was held again on June 11, 2009 and the Committee upheld its earlier

decision and directed the management for compliance.

GOVERNMENT HOLDINGS (PVT.) LIMITED

AUDIT COMMENTS


151. Government Holdings (Pvt.) Limited, Islamabad was incorporated as a

private limited company on January 15, 2000 under the Companies Ordinance,

1984. The main objectives of the Company are to:

i. Acquire shares of the companies or interest of Government of

Pakistan in the existing and new oil and gas joint ventures and to

hold and enjoy all interests, rights, contracts and privileges vested in

or connected with the title of such shares.

ii. Take over, acquire, renew, utilize and hold any exploration,

prospecting development and production concessions and to

639

establish and operate oil and gas wells and other undertakings for

the extraction of oil and gas.


those of the previous years are as under:-

(Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Net sales 16,639.273 25 13,295.893 33 10,034.483 96 5,119.741

Cost of sales:

Operating expenses

1,420.326

62

878.097

(15)

1,038.942

77

588.247

Depreciation 626.335 20 522.327 - - - -

Royalty 1,901.300 24 1,533.161 34 1,140.298 99 573.443

Amortization of

exploration and

development expenditure

450.768

38

326.671

(6)

346.059

298

87.041

4,398.729 35 3,260.257 29 2,525.299 102 1,248.731

Gross profit 12,240.544 22 10,035.636 34 7,509.185 94 3,871.010

Gen and admn. expenses 32.039 17 27.315 100 13.627 18 11.509

Operating profit 12,208.505 22 10,008.321 34 7,495.558 94 3,859.501

Other income 703.510 48 476.334 528 75.795 - (6.711)

Profit before taxation 12,912.015 23 10,484.655 38 7,571.353 97 3,852.790

Taxation 4,146.099 6 3,918.703 59 2,457.276 74 1,411.208

Net profit after taxation 8,765.916 34 6,565.952 28 5,114.077 109 2,441.582


640

Sales of the Company increased from Rs.13,295.893 million in 2005-06 to

Rs.16,639.273 million in 2006-07 registering an increase of 25%. Cost of sales

increased by 35% over previous year. The Company earned net profit of

Rs.8,765.916 million in 2006-07 against Rs.6,565.952 million in 2005-06. The

overall performance of the Company is satisfactory. However efforts may be made

to increase the sales and control over cost of sales and general / administrative

expenses.

151.2 Trade debts increased from Rs.3,295.45 million in 2005-06 to

Rs.5,283.992 million in 2006-07 registering an increase of 60%. The increase in

trade debts was mainly due to withholding of 10% of sale invoices by the refineries

as sale / purchase agreements were not finalized by the management.

Non-finalization of agreements needs investigation. Efforts for early realization of

debts also need to be made.

641

PIRKOH GAS COMPANY (PVT.) LIMITED

AUDIT COMMENTS

ON ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2007

152. Pirkoh Gas Company (Pvt.) Limited (PGCL) was established as private

limited company under Companies Act 1913 (Now Companies Ordinance 1984).

The Company is wholly owned subsidiary of Oil and Gas Development Company

Limited (OGDCL).


previous years are as under:-

(Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Net sales 471.820 (18) 577.138 (50) 1,158.860 (12) 1,312.880

Operating expenses 837.897 (8) 912.191 4 879.784 62 543.171

Royalty expenses 58.978 (18) 72.228 (50) 144.858 (11) 163.319

Operating profit /

(loss) (425.055) 4 (407.280) - 134.218 - 606.394

General and admn

expenses 4.171 (19) 5.180 (96) 115.319 30 88.798

Financial charges 83.109 1,038,763 0.008 (94) 0.134 21 0.111

Other operating

expenses - - 11.065 (15) 13.093 (63) 35.209

Impairment loss 0.375 - - - - - -

Other income 813.112 28 633.768 164 240.148 38 173.644


taxation (74.223) - 210.234 (14) 245.820 (63) 655.920

Taxation 70.961 594 10.225 (73) 37.507 (83) 220.778

Profit/(loss) after

taxation (145.184) - 200.009 (4) 208.313 (52) 435.142

Un appropriated

profit b/d 5,797.056 (7) 6,221.398 (1) 6,263.880 4

6,016.840

Un appropriated

profit c/d 5,401.072 (7) 5,797.056 (7) 6,221.398 (1)

6,263.880

Source: Annual Accounts

Net sales of the Company decreased from Rs.577.138 million in 2005-06 to

Rs.471.820 million in 2006-07 showing decrease by 18%. The decrease in sales

642

was due to decrease in production from the field which resulted into operating loss

of Rs.425.055 million and pretax loss of Rs. 74.223 million during 2006-07 as

against pretax profit of Rs. 210.234 million in 2005-06. Although the production

from the Pirkoh field is decreasing day by day, the management failed to take steps

in this regard. The management may take steps to improve the situation.

643

PAKISTAN MINERAL DEVELOPMENT CORPORATION (PVT.)

LIMITED

AUDIT COMMENTS


153. Pakistan Mineral Development Corporation (Pvt.) Limited was incorporated

on June 17, 1974 as a private limited company wholly owned by the Government of

Pakistan. The Company is engaged in the business of mining, exploration,

development and exploitation of mineral deposits e.g. salt, coal and silica sand.

Currently the Company has the following working projects:-

SALT PROJECTS

Salt Mines Khewra, Warcha, Kalabagh and Salt Quarries Jatta / Bahadur

Khel

COAL PROJECTS

Lakhra, Sharigh, Degari and Sor-Range Collieries

OTHER MINERAL PROJECTS

Silica Sand and Duddar Zinc Lead Project

The salt and coal projects except Lakhra were taken over by the Corporation from

PIDC in 1974. The Corporation holds 50% shares of Lakhra Coal Development

Company Limited (LCDCL) for which equity fund of Rs.25 million was provided

by the Government. Dividend income from LCDCL was Rs.4.750 million in

2006-07 as compared to Rs.3.800 million in 2005-06.


with the previous years are as under:- (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Sales 938.820 (2) 959.613 22 785.396 34 584.864

Cost of sales 684.403 6 644.071 25 516.216 24 414.863

Gross profit 254.417 (19) 315.542 17 269.180 58 170.001

644

Operating

expenses

Administrative 78.574 17 67.035 (5) 70.485 19 59.354

Selling 52.967 7 49.725 24 40.058 59 25.241

Total

operating

expenses 131.541 13 116.760 6 110.543 31 84.595

Operating

profit 122.876 (38) 198.782 25 158.637 86 85.406

Other income 12.628 (75) 50.272 28 39.258 (43) 68.702

WPPF 6.775 (46) 12.453 26 9.895 28 7.705

Net profit

befor taxation 128.729 (46) 236.601 26 188.000 28 146.403

Provision for

taxation 42.110 (46) 77.592 26 61.339 166 23.028

Net profit after

taxation 86.619 (46) 159.009 26 126.661 3 123.375

Allocation for

depletion

reserve 19.817 - 43.333 - 31.877 94 16.449

Dividend paid 25.000 - 15.000 - - - -

Transfer to

general reserve 20.000 - 80.000 - 100.000 - -

Appropriated

profit 21.802 5 20.676

- (5.216) (105) 106.926

Accumulated

profit/(loss) b/f 53.359 63 32.683 (14) 37.899 (155) (69.027)

Accumulated

profit/(loss) c/f

75.161 41 53.359 63 32.683 (14)

37.899


Sales of the Corporation decreased by 2%, from Rs.959.613 million in

2005-06 to Rs. 938.820 million in 2006-07. Cost of sales increased by 6% in

2006-07; resultantly, gross profit decreased to Rs.254.417 million as against

Rs.315.542 million of the previous year. The reasons of inverse relation between

sales and cost of sales need to be explained.

153.2 The working results of the Projects of the Corporation for the year

2006-07 as compared to previous years are as under:- (Rs. in million)

Projects Accumulated profit /

(loss ) as on 30.06.2007

Net profit /(loss) before taxation

2006-07 2005-06 2004-05

Khewra (100.668) 4.723 8.504 0.194 Warcha 114.176 75.588 60.694 32.665 Jatta / B. Khel 37.186 0.066 0.381 0.486

645

Kalabagh (47.989) 6.789 2.412 2.302

Total Salt Mines (2.705) 87.166 71.991 35.647 Degari (53.869) (10.964) 0.555 7.407 Sor-Range 28.219 43.366 51.600 68.985 Sharigh (181.672) 23.500 21.158 11.733 Lakhra 82.593 25.735 70.046 63.980

Total Coal Mines (124.729) 81.637 142.249 155.105 Silica Sand 0.821 0.069 0.048 0.066

Total Projects (121.203) 168.872 214.288 190.818

The above table indicates that performance of certain PMDC Projects i.e.

Khewra, Jatta / B.Khel, Degari, Sor-Range, and Lakhra remained unsatisfactory

during the year 2006-07 as compared to the year 2005-06. Resultantly net profit of

the projects decreased to Rs.168.872 million in 2006-07 from Rs. 215.460 million

of 2005-06. Steps may be taken to increase the production and sales.

153.3 A sum of Rs. 6.755 million was invested in FATA Joint Venture through an

agreement with Civil Secretariat NWFP, Peshawar on August 07, 2003 but no

return / benefits had been received due to law & order situation in the Kurram area.

The investment of funds in such scheme needs to be explained and efforts to be

made to achieve the objectives linked with the same.

646

PLANNING AND DEVELOPMENT DIVISION

(283–291)

647

648

NATIONAL LOGISTIC CELL

AUDIT COMMENTS


154. National Logistic Cell (NLC) was established by the Government of

Pakistan vide Notification No.120/19/78-MIN dated August 12, 1978 with main

objective of providing uninterrupted logistic facilities in the country. NLC is also

engaged in construction, toll collection and other engineering related activities. It is

an attached department of Planning and Development Division.

The main objectives of NLC are as under:-

i. Transportation of commodities from one location to other by all

available means,

ii. Hiring / maintenance of storage facilities,

iii. Carrying out construction of roads and other engineering projects,

iv. Building of truck bodies and chassis of various makes, and

v. Revenue generation through toll collection.

154.1 The working results of the Cell for the year 2006-07 as compared to the

previous years are here under:- (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

Revenue 8,697.897 50 5,799.713 14 5,080.340

Operating cost 7,497.918 48 5,058.941 12 4,497.403

Gross profit 1,199.979 62 740.772 27 582.937

General and administrative expenses 847.600 25 680.783 87 364.148

Other income 979.500 14 859.012 44 598.206

Operating profit 1,331.879 45 919.001 12 816.995

Financial cost 257.889 89 136.147 49 91.457

Profit for the year 1,073.990 37 782.854 8 725.538 (Source: Annual Accounts)

The annual accounts of the NLC for the year 2006-07 were not approved by

the National Logistic Board when submitted to Audit in June 2008. The findings of

this report are based on the draft copy of financial statements.

649

The revenue of the Cell increased from Rs.5,799.713 million in 2005-06 to

Rs.8,697.897 million in 2006-07 registering an increase of 50% over previous year.

The main increase was in revenue from construction and freight services. The

increase in revenue resulted in increase in net profit for the year 2006-07 to

Rs.1,073.990 million as against Rs.782.854 million, registering an increase by 37%

over previous year. On the other hand, the operating cost increased to

Rs.7,497.918 million in 2006-07 (2006 : Rs.5,058.941 million) i.e. 48% increase,

administrative and general expenses increased to Rs.847.600 million

(2006 –Rs.680.783 million) i.e. 25% increase. Efforts need to be made to minimize

the operating cost and curtail the administrative and general expenses to make the

concern more profitable in the years to come.

154.2 Trade debts increased to Rs.3,326.638 million as on June 30, 2007

(2006 : Rs 1,323.493 million) registering an increase of 151% over previous year.

The abnormal increase in trade debts needs justification. The amount included

Rs.93.500 million (2006 - Rs 53.767 million) considered doubtful for which a

provision of the same amount was created in the accounts. The party-wise breakup

of doubtful debts along with reasons of considering them doubtful and efforts made

for the realization of the same needs to be explained.

163.3 Trade debts included a sum of Rs.186.670 million due from the National

Highway Authority (NHA) on account of Karachi Northern Bypass Project.

Subsequently, due to collapse of the Shershah Bridge in Karachi, the amount was

withheld by the NHA till the decision of the Prime Minister’s Inquiry Commission.

Early realization of the claim is stressed upon the management.

AUDIT PARAS

155. Irregular expenditure due to procurement of imported vehicles


The Prime Minister Secretariat approved modification in the procedure relating to

replacement of condemned vehicles and purchase of additional vehicles, vide U.O

dated July 11, 2005, circulated by Cabinet Division vide office memo dated July

22, 2005, according to which the ban imposed on the replacement / additional

purchase of new vehicles was lifted but instructions with reference to imported

650

vehicles circulated vide Cabinet Division’s D.O letter dated February 28, 2000 will

continue to be observed.

National Logistic Cell imported 86 (6 Land Cruisers, 38 Double Cabin Toyota

Hilux and 42 Single Cabin Toyota) vehicles at Rs.85.716 million during 2006-07,

out of Government of Punjab funds placed at the disposal of NLC for Education

and Health Sectors, Reform Projects, without approval of the Prime Minister .The

expenditure of Rs.85.716 million incurred on the import of foreign vehicles was

considered irregular.

The matter was reported to the Ministry on May 26, 2008. The management in its

reply dated July 10, 2008 intimated that vehicles were imported out of Government

of Punjab fund placed at the disposal of NLC for education and health sector reform

projects. The vehicles were imported after obtaining NOC from the Ministry of

Defense as day to day working of NLC would be through Quarter Master General

Army. The reply of the management was not convincing as the vehicles were

imported out of Punjab Government Funds and instructions of Cabinet Division

were not followed.

The DAC in its meeting held on November 12, 2008, directed the management to

conduct an enquiry (by including a representative of Ministry in the said

committee) to find out reasons for violation of the Government instructions and

move a summary for ex-post facto approval of the Prime Minister of Pakistan

within 15 days. No further progress was reported till finalization of this report.

156. Irregular payment due to retention of employees beyond age of 60

years – Rs.2.235 million

As per section 17(b) part-II (Appointments, Service, Discharge) of NLC Service

Rules 1986, no person over 60 years of age will be employed / retained. Advisors or

consultants over 60 years age can be engaged and will be treated as re-employment

for which explicit orders of the Prime Minister of Pakistan would be obtained prior

to employment.

Contrary to the service rules, five employees serving in the Cell on contract basis

were appointed after the age of 60 years during April, 2004 to January, 2006,

without the approval of competent authority i.e. Prime Minister of Pakistan. As the

651

employees were retained / appointed without approval of competent authority

hence their retention / appointment as well as payment of Rs.2.235 million till

August 2006 was considered irregular.

The matter was pointed out to management in October, 2006. In reply dated

December 09, 2006 the management stated that case is being processed for waiver

by the Prime Minister. The reply of the management was not convincing as the

management was required to get the approval of competent authority prior to

retention / appointment of officers.

The matter was reported to the Ministry on February 20, 2008. The management

vide its reply dated April 19, 2008 reiterated its earlier contention dated December

09, 2006.

The matter was discussed in DAC meeting held on July 07, 2008. It was informed

that a summary has been moved for approval of the Prime Minister for

regularization which was awaited from the concerned quarter. Progress towards

approval of the competent authority was awaited till finalization of this report.

157. Irregular appointment of a legal advisor and payment – Rs.0.996

million

According to Government of Pakistan, Human Rights, Law and Justice Division

letter dated November 22, 2004 no Division, Office or Corporation under

administrative control of Federal Government shall appoint any legal advisor

without prior approval of the Ministry of Law.

The management of NLC appointed a legal advisor without prior approval of

Ministry of Law and Justice for two years at a monthly fixed pay of Rs.40,000 plus

mobile calls Rs.1,500 and 800 CC Car without driver vide office order dated

September 28, 2005. An amount of Rs.996,000 was paid to the legal advisor during

the period from October 2005 to September, 2007. In the absence of approval of

Law and Justice Division, the appointment as well as legal and professional charges

paid to legal advisor was considered.

The matter was pointed out to management on September 1, 2007. The

management in its reply dated November 30, 2007 stated that the policy for

652

nomination of legal advisor is soft to some extent on NLC due to its self financial

nature. It was further stated that Law and Justice Division vide letter dated January

14, 2005 had authorized the department to continue the existing assignment of legal

advisor where the fee did not exceed Rs 100,000. The salary of the Legal advisor of

NLC was less than Rs 100,000 hence there was no need to obtain the approval of

Law Division. The reply was not acceptable as the above policy was equally

applicable to all government organizations working under direct or indirect control

of the Federal Government. The plea of authorization of legal advisors having fee

less than Rs.100,000 was not held good because as per para-2(i) of the policy no

legal advisor should be appointed without prior approval of the Law Ministry. The

Government allowed to continue the existing legal advisors appointed prior to

November 22, 2004 whereas NLC appointed Legal Advisor in October, 2005.

The DAC in its meeting held on July 07, 2008, directed the management to submit

revised reply and a summary for regularization be forwarded to Law Division or

NOC be obtained from the Ministry. The compliance of DAC directives was

awaited till finalization of this report.

653

PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS

AUDIT COMMENTS


158. The Institute was initially, established on June 04, 1957 as Institute of

Development Economics. The President of Pakistan was pleased to establish

Pakistan Institute of Development Economics with effect from May 01, 1964 and

has been granted degree awarding status on November 08, 2006 under the

Ordinance No. XXXI of 2006. The administrative control of the Institute is under

Planning and Development Division. The affairs of the Institute are governed by

Board of Governors. The sources of finance of the Institute are Government grants,

gifts, endowments and self generation through sales of publications, receipts for

professional services and tuition fee.

158.1 The working results of the Institute for the year 2006-07 as compared with

those of the previous years are hereunder:- (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Income

a) Government grants 57.015 25 45.700 8 42.400 (25) 56.200

b) Grant from HEC 15.400 - - - - - -

c) Other income 13.446 4 12.904 53 08.460 (7) 9.097

Total 85.861 47 58.604 15 50.860 (22) 65.297

Expenditure 80.736 29 62.350 (7) 66.863 (0.10) 66.932

Excess of income /

expenditure

5.125 - (3.746) (77) (16.004) 879 (1.635)

Source : Annual Audited Accounts

The Institute achieved excess of income over expenditure by Rs.5.125

million during the year 2006-2007 as against deficit of Rs.3.746 million during

previous year. The excess of income over expenditure was due to increase in

Government grants by 25% as well as receipt of additional grant of Rs.15.400

million from Higher Education Commission of Pakistan (HEC) during the year

under review.

The management of PIDE received restricted grant of Rs.15.400 million from

Higher Education Commission of Pakistan, to be utilized for specific purposes as

654

informed by the management to HEC. However out of total grant, an amount of

Rs.3.806 million was utilized on the specific purposes and the balance grant of

Rs.11.594 million was mis-utilized, which needs justification.

158.2 Gratuity/Pension Fund amounting to Rs.38.489 million payable to the

employees at the time of retirement were invested in TDRs. The interest received

on investment was part of Fund and needs to be credited to such accounts.

However, the interest received on TDRs of Pension Fund amounting to

Rs.1,023,342 was deposited by the management in their operational bank account

of NBP, which needs to be explained.

655

656

MINISTRY OF PORTS AND SHIPPING

(293–306)

657

658

GWADAR PORT IMPLEMENTATION AUTHORITY

159. With the approval of the Prime Minister, vide Prime Minister’s Secretariat

O.M. No.324/JS(IA-III)/2004, dated 26 March 2004, a small organization by the

name of Gwadar Port Implementation Authority (GPIA) has been set up under the

administrative control of Ministry of Communications with its headquarters at

Gwadar and a camp office at Karachi.

The functions and powers of the Authority are as under:-

i. Prepare a Master Plan and Programme for development of Gwadar

Port on the pattern of Singapore or Dubai and get it approved from

the Cabinet Committee.

ii. Initiate all development work, install all infrastructures for Gwadar

Port, including establishment of a Special Economic Zone at

Gwadar and acquire land for such development.

iii. Be responsible for the operation, maintenance, development and

monitoring of Gwadar Port and the Port Area.

iv. Coordinate with the Government of Balochistan and other

Ministries/Organizations regarding development of infrastructure

and Special Economic Zone at Gwadar.

v. Explore opportunities to attract investment at Gwadar.

vi. Perform any other functions, which are in line with the objectives of

the Authority.

AUDIT PARA

160. Irregular expenditure on account of club bills and membership fee


Rule-10 (iii) of GFR provides that no authority should exercise its powers of

sanctioning expenditure to pass an order, which will be directly or indirectly to

its own advantage.

In Gwadar Port Implementation Authority (GPIA), an amount of Rs.0.242

million was paid to various clubs during April 2004 to June 2006 towards clubs

bills and membership fee for the Chairman (GPIA) though those perquisites

659

were not provided in his employment contract.

The matter was reported to the management in June, 2008 but no reply was

received.

The DAC in its meeting held on March 02, 2009 observed that the Para stands and

recommended it for placing before the PAC.

660

LIGHTHOUSES AND LIGHTSHIPS DEPARTMENT

AUDIT COMMENTS


161. Lighthouses and Lightships Department maintains Navigational Aids on

the coast of Pakistan through its Light towers. These towers and its allied apparatus

were built in 1914 under the control of the then Central Government of India.

Following navigational aids exist along coast of Pakistan.

i. Cape Monze Lighthouse is about 39 miles from Karachi and was

established in 1914 and remodeled in 1982.

ii. Four Lighthouses are situated on the coast of Balochistan at Pasni,

Gwadar, Jiwani, and Ormara which have been installed in 1969

powered by gas, later-on converted into solar power in 1987.

iii. One lighthouse established in Aslota Island in early 1985 was converted

into solar powered in 1987.

Revenue of the Department is generating by levying light dues to be

collected from every ship arriving and departing from ports of Pakistan. Such dues

are paid to Customs Collectorate and ultimately credited into Government

Account. The expenditure of the Department is met from the budget allocated by

Government. The Head of the office is designated as Superintendent who

supervises ship-engineers and surveyors, mechanics, lighthouse keeping teams and

ministerial staff. Director General (Ports and Shipping) is the Head of Department.

161.1 The Department could not submit its accounts for the year 2006-07 as per

list of defaulting organizations provided at Annexure-I of this report. However, the

Department has furnished annual accounts upto the year 2005-06 during the year

2007-08.

661

161.2 The working results of the Department for the year 2005-06 as compared to

the preceding years are as under:- (Rs. in million)

2005-06 %

Inc/(Dec)

2004-05 %

Inc/(Dec)

2003-04 %

Inc/(Dec)

2002-03

Income 65.398 8.9 60.052 10.8 54.180 (10.7) 60.577

Expenditure (8.329) 105.2 (4.059) (70.6) 13.788) 246.2 (3.983)

Surplus

transferred to GRF 57.069 1.9 55.993 38.6 40.392 (28.6) 56.594


There was an abnormal increase in the expenditure by 246.2% in the year

2003-04 as compared to the year 2002-03, mainly due to a new head, “Other

Development Expenditure” amounting to Rs.9.200 million which was incurred by

the Department for shifting of Kajhar Creek Lighthouse to a new site owing to

damages caused by a cyclone in May, 1999. The measures taken by the

management to save the assets from such losses need elaboration.

662

PAKISTAN NATIONAL SHIPPING CORPORATION

AUDIT COMMENTS ON THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2007

162. Pakistan National Shipping Corporation (PNSC) was established under the provisions of Pakistan National Shipping Corporation Ordinance, 1979 and is principally engaged in the business of shipping including charter of vessels, transportation of cargo and other related services and providing commercial, technical, administrative, financial and other services to third parties in relation to the business of shipping. The Corporation is also engaged in renting out its properties to tenants under long-term lease agreements. The Corporation is listed on the Stock Exchanges of Karachi and Lahore. The Corporation has established 19 subsidiaries companies.

162.1 The working results of the Corporation for the year 2006-07 as compared to the previous years are tabulated and discussed as under:-

(Rs. in million)

Unit 2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

No. of cargo ships No 16 6.6 15 7.1 14 - 14

Voyage completed (including

chartered vessels) “ 671 2.9 652 5.0 621 0.2 620

Cargo carried (by own and

chartered vessels) Million

Ton 8.960 (4.7) 9.409 2.3 9.201 (2.1) 9.396

Operating revenues

Freight (net) Rs (m) 6,554.591 6.6 6,145.271 15.0 5,345.980 35.8 3,935.720

Chartering revenues “ 2,416.960 44.8 1,668.918 (33.6) 2,514.250 (14.7) 2,946.230

Rental income “ 117.573 6.5 110.425 21. 7 90.750 11.8 81.153

Total revenues “ 9,089.124 14.7 7,924.614 (0.3) 7,950.980 14.2 6,963.100

Operating expenses

Fleet expenses direct and indirect Rs. (m) (6,495.702) 3.8 (6,255.047 25.2 (4,995.060) 9.3 (4,571.320)

Admn & General expenses “ (468.030) 21.5 (385.297) (8.6) (421.420) 43.7 (293.270)

Total operating expenses “

(6,964.00) 4.9 (6,640.340) 22.6 (5,416.490) 11.3 (4,864.590)

Operating profit/loss “

2,125.392 65.5 1,284.270 (49.3) 2,534.500 20.8 2,098.510

Other income “

943.526 184.6 331.499 (58.2) 792.470 891.1 79.960

Share of net loss in associate “

- - (4.992) (18. 0) (6.080) - (48.950)

Other expenses including finance

cost “ (220.862) 20.5 (183.225) (48.0) (422.340) (5.0) (444.433)

Profit/(loss) before taxation “ 2,848.056 99.5 1,427.552 (52.0) 2,898.540 62.6 1,782.990

Profit/ (loss) after taxation “ 2,336.873 83.3 1,274.597 (54.2) 2,703.250 76.0 1,535.590


663



162.2 The Corporation, during the year under review, had written off insurance

claim amounting to Rs.154.547 million against Oceanus Mutual Underwriting

Association. The circumstances under which these insurance claims could not be

recovered and became doubtful need elaboration.

162.3 During the year under review, the management had made a provision of

Rs.5.424 million as compared to Rs.0.163 million of preceding year 2005-06 for

different insurance claims. The circumstances, under which the provision for

doubtful claims has been made, need to be elaborated.

162.4 Trade debts stood at Rs.557.290 million as on June 30, 2007 as compared to

Rs.209.936 million of the preceding year. Efforts need to be made to recover the

outstanding dues to curb the extra ordinary increasing trade of receivables.

162.5 The management has increased the provision to Rs.98.260 million during

the year 2006-07 (Rs.92.923 million in 2005-06) for doubtful debts against trade

debtors, which indicated that the chances of the recovery were remote which need

justification.

162.6 Capital work in progress amounting to Rs.4.595 million was written off

during the year under review due to destruction by fire. Circumstances under which

this amount of capital work in progress could not be recovered from National

Insurance Corporation Limited need elaboration.

664

AUDIT PARA

163. Payment of donation without approval of Finance Division – Rs.1.710

million

According to the regulations framed by Ministry of Finance through O.M.

No.F-15(13)R.14/82, dated September 05, 1982, the Autonomous/Semi

Autonomous bodies and Corporations should not pay donation unless:

(a) the donation directly promotes its business and authority to make the

donation exists in its statutes, or

(b) the donation is specifically authorized by the Ministry of Finance in the

Public interest.

Pakistan National Shipping Corporation (PNSC) donated ten Motor cycles to Sindh

Police valuing Rs.0.710 million and also paid Rs.1.000 million as donation to

Karachi Press Club in October, 2006 and June, 2007 respectively. The donations

paid by PNSC did not fall under the parameters laid down by the Finance Division.

Neither these organizations were related in the business promotion of PNSC nor

was it specifically authorized by Ministry of Finance as in the Public interest.

The irregularity was reported to the management on March 13, 2008 and referred to

the Ministry on August 29, 2008. The management in its reply dated May 09, 2008

stated that donations were made as per directives of the Ministry of Ports and

Shipping and added that the expenses were also sanctioned/ approved by PNSC’s

Board of Directors which has got powers under PNSC Ordinance 1979.

The reply of the management was not tenable as the donations neither were meant

for promotion of the business nor were specifically authorized by the Ministry of

Finance to allow the payments as in the public interest.


deferred the Para and directed the management to obtain post facto approval of the

Finance Division to regularize the case. However, no latest position was intimated

by the management till the finalization of this report.

665

PORT QASIM AUTHORITY

164. Port Qasim Authority was established in 1973 under the Port Qasim

Authority Act, 1973. Principle activity of the Authority is to provide services of

ships movement, storage, berthage, wharfage and towage, etc., besides developing

and managing an industrial estate within its occupied area.

164.1 The Authority is included in the list of organizations which have not

submitted their audited accounts at Annexure-I of this report.

AUDIT PARAS

165. Loss due to wasteful expenditure on works for Rs.41.575 million and

extra expenditure outside contract provision – Rs.11.009 million

According to clause 48.1 of contract between Port Qasim Authority (PQA) and

M/s. Al-Waqar (Contractor), the Engineer of PQA was required to submit a

completion certificate within 21 days of the completion of work by the Contractor.

In case the work was not found satisfactory, the Engineers were supposed to notify

defects in the work within the said period.

PQA awarded the contract to above contractor on March 12, 1994 for

“Construction of an open Reservoir at North Western Industrial Zone” under the

project of Bulk Water Supply Scheme planned to provide 20 million gallons per

day raw water from KG Canal to Port Qasim Industrial Zone at a cost of Rs.36.173

million.

The Contractor after having two extensions in completion period, requested for

issuance of substantial completion certificate on September 21, 1995. The

consultants of PQA, M/s. NESPAK supported issuance of the certificate along-with

punch list. The Contractor removed the defects as per punch list as reported to PQA

on October 30, 1996. M/s. NESPAK recommended on January 22, 1997 for taking

over the work terming the completion as 99.5%. However, the PQA Engineer did

not take over the work and insisted on testing. The Contractor made a complaint

with the Federal Ombudsman in April, 2000 against non-releasing of final bill of

Rs.14.4 million and non-issuance of completion certificate by PQA. The

Ombudsman on December 12, 2000 recommended in favour of contractor.

666

Upon appeal by PQA to the President of Pakistan against Mohtasib’s verdict , it

was directed to hold Arbitration as per terms of contract. Consequent upon

disagreement between both arbitrators (appointed by PQA and the Contractor), an

umpire (Mr. Justice Mamoon Qazi) was appointed who gave decision in favour of

the Contractor which was ratified by Sindh High Court in the year 2007. The

decision included orders of following payments to the Contractor:-

i. Principal of Retention Money amounting to Rs.4.141 million.

ii. Watch and Ward Charges @ 3% of contract value per annum.

iii. Markup on Retention Money and Watch and Ward Charges at

prevalent bank rate.

iv. Reimbursement of other expenses - Rs.850,000.

PQA went into appeal in High Court of Sindh against the above decision and the

out come was awaited. However, Audit held the view that the purpose of this

particular work was not achieved as the whole project of Bulk Water itself went

into ruins and this particular segment constructed by the Contractor (99.5%

completion termed by M/s NESPAK) was not taken over by PQA despite lapse of a

decade. Instead of achieving benefit from the construction work, PQA had to

assume liabilities of Watch and Ward charges plus markup which were earlier not

provided in the contract.

The matter was taken up with the management on March 13, 2008 and referred to

the Ministry on January 13, 2009 but no response was received. The issue was

discussed in the DAC meeting held on March 02, 2009. The management informed

that the issue had been resolved amicably through out of court settlement. They

added that the Contractor had been paid Rs.16 million in lump sum and the same

amount did not include any watch and ward charges specifically. The DAC decided

that the latest development as informed by the management may be got verified

from Audit within 15 days.

Upon verification by Audit, it was observed that the payment of Rs.41.575 million

was made to the Contractor for the works done which stands abandoned /wasteful.

Further payment of Rs.16.000 million was made to the contractor in January 2009

through an out of court settlement which included the release of retention money of

Rs.4.141 million and re-imbursement of other expenditure of Rs.0.890 million,

whereas the remaining amount of Rs.11.009 million was an impact of watch and

667

ward charges plus markup which was not covered under any provision of the

contract, hence tantamount to an extra expenditure on the abandoned works.

166. Irregular payment of bonus to officers – Rs.17.607 million

As per Bonus Policy circulated by Finance Division through O.M.

No.F.3(5)R.12/80(R.14)Vol-II/2001-544 dated November 30, 2001, applicable to

all Autonomous Bodies/Public Sector Enterprises, the payment of bonus to the

employees is subject to concurrence of Finance Division.

In Port Qasim Authority (PQA), a payment of Rs.17.607 million was made as bonus

to the officers during the years 2005-06 and 2006-07 without obtaining concurrence

of the Finance Division.

The irregularity was pointed out to the management on March 08, 2008 and

referred to the Ministry on June 27, 2008. The management in its reply dated

November 3, 2008 stated that payment of bonus had been made provisionally as the

audit of PQA Accounts for the year 2002-03 onward was under completion. They

added that a reference would be made to the Finance Division for regularization of

the so paid bonus when audit is finalized.

The reply of the management was not tenable because the non-compliance of

regulations made by the Finance Division was not explained.


management informed the DAC that provisional payment of bonus had been made

out of the operating profit earned in the respective years. The DAC directed the

management to regularize the provisional payment of bonus from Finance Division

for the years of account already audited for settlement of this para. However,

despite efforts, no latest position was intimated by the management till the


668

167. Irregular payment and non-adjustment of TA/DA advances


Under Rule-88 of GFR, the authority administering a grant is ultimately

responsible for keeping the expenditure within the grant. Moreover, under

Rule-269 (1) of GFR, the advances granted to Government servants for journeys on

tour are required to be adjusted upon their return to headquarters or June 30,

which ever is earlier.

Port Qasim Authority (PQA) paid an amount of Rs.3.480 million as TA/DA

advance to eleven officers of Ministry of Ports and Shipping during the period

April 2004 to June, 2006, but the advances were lying unadjusted till June 30,

2007.

The payment made by PQA from its funds on account of TA/DA advances of the

officers of the Ministry (who were not on its payroll), on the one hand was in

contravention of the rules as it amounted to exceeding the budgetary grant

approved for the Ministry of Ports and Shipping; and on the other hand the

beneficiaries failed to adjust the advances so drawn.

The irregularity was pointed out to the management on March 13, 2008 and

referred to the Ministry on June 28, 2008, but no reply was received.


management informed that the TA/DA advances were paid to the Ministry’s

officers because the Ministry had no budget for foreign visits pertaining to the port

matters. As regards the adjustment of advances, four officers had adjusted their

advances and remaining cases of seven will be adjusted within 15 days. The DAC

deferred the para for next meeting. However, despite efforts, no latest position was


168. Blockage of funds due to non-disposal of spares of crafts – Rs.1.050

million

Under Rule-167 of GFR, the stores which are reported to be obsolete, surplus or

unserviceable may be disposed-off by sale or otherwise under the orders of

competent authority.

669

In Port Qasim Authority (PQA), the spares of crafts valuing Rs.1.050 million

declared obsolete since June, 2006 were lying undisposed-off as on June 30, 2007.

The matter was reported to the management in March 2008 and referred to the

Ministry in June, 2008. The management in its reply dated September 29, 2008

stated that a committee would decide about the disposal of the obsolete parts for

auction on the basis of weight. The reply of the management was not tenable as a

considerable period had elapsed since declaration of the obsolescence of the parts.

The DAC in its meeting held on March 02, 2009 directed the management to

expedite the disposal process. However, despite efforts, no latest position was


670

MINISTRY OF SCIENCE AND TECHNOLOGY

(307–309)

671

672

PAKISTAN SCIENCE FOUNDATION

AUDIT COMMENTS


169. Pakistan Science Foundation (PSF) was established on February 02, 1973

under PSF Act, 1973 with the main objectives to promote and finance scientific

activities having a bearing on social economic needs of the country.

169.1 The working results of the Foundation for the year 2006-07 as compared with

those of preceding years are as under:- (Rs. in millions)

2006-07

% to

receipts 2005-06

% to

receipts 2004-05

% to

receipts 2003-04

% to

receipts

Income

Grants from Federal

Government 85.00 100 57.75 100 49.18 100 45.00 100

Other income 0.02 - 0.05 - 0.06 - 0.02 -

Total income 85.02 100 57.80 100 49.23 100 45.02 100

Expenditure

Scientific functions 32.73 39 24.24 42 21.08 43 18.66 41

Administrative expenses

48.00 56 34.40 60 28.22 57 26.97 60

Total expenses 80.73 95 58.64 102 49.29 100 45.63 101

Surplus / (deficit) of

receipt over

expenditure

4.29 5.05 (0.83) (1.44) (0.06) (0.12) (0.61) (1.36)

Prior year adjustment 0.23 - 0.03 - - - 0.07 -

Net surplus/(deficit) of

receipts over expenses 4.52 5.31 (0.80) (1.38) (0.06) (0.12) (0.55) (1.21)

Source : Annual Audited Accounts

Grants from Federal Government increased over the last three years sharply

but the corresponding increase in scientific functions expenditure was low.

Moreover, administrative expenses increased from Rs.34.40 million in 2005-06 to

Rs.48.00 million in 2006-07. This situation showed that grants were being shifted

from the core functional expenditure (i.e. scientific functions) to the administrative

functions. This situation needs to be checked by the management.

673

674

MINISTRY OF SOCIAL WELFARE AND SPECIAL

EDUCATION

(311–324)

675

676

PAKISTAN BAIT-UL-MAL

AUDIT COMMENTS


170. Pakistan Bait-ul-Mal (PBM) was established by the Federal Government

under Pakistan Bait-ul-Mal Act 1991. Main objectives of PBM are to provide:

i. Financial assistance to the destitute, widows, orphans, invalid, infirm and

other needy persons with emphasis on rehabilitation; ii. Educational assistance to needy orphans and stipends for the outstanding,

non-affording students for higher professional education; iii. Residential accommodation and necessary facilities for the deserving; iv. Free medical treatment for indigent sick people, setup free hospitals and

rehabilitation centers for the poor; v. Financial aid to charitable institutions including educational and

vocational setup; vi. Sponsor and promote self-employment schemes; and

vii. Assistance for other purposes approved by the Board.

170.1 The working results of the Formation for the year 2006-07 as compared to

the previous years are tabulated below: (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Income

Revenue grant

from Federal

Government 5,331.69 9 4,900.00 40 3,500.29 3 3,392.51

Misc. income 5.63 70 3.31 (53) 7.03 76 4.00

Profit on

investments /

saving accounts 98.65 (5) 103.55 (21) 130.48 (21) 164.82

Services

charges 0.62 (36) 0.97 148 0.39 (54) 0.84

Total income 5,436.59 9 5,007.83 38 3,638.18 2 3,562.17

677

Expenditure

Food Support

Programme 2,091.82 (5) 2,204.19 (20) 2,765.19 34 2,062.94

Child support

program 14.45 - - - - - -

Individual

Financial

Assistance

(IFA) 398.21 (33) 595.09 61 368.49 61 228.61

Misc. Project

expenses 299.40 39 216.00 43 151.07 61 94.08

Bugti tribes 63.11 1 62.46 198 20.95 270 5.66

NGOs 50.06 (44) 89.58 8 82.95 105 40.54

Administrative

expenses 178.07 20 147.94 26 117.33 6 110.70

Larkana

housing scheme 0.03 40 0.02 (38) 0.04 (98) 2.34

Total

expenditure 3,095.15 (7) 3,315.27 (5) 3,506.01 38 2,544.85

Surplus for the

year 2,341.44 38 1,692.56 1,181 132.17 (87) 1,017.32

Prior year

adjustment 2,002.92 170 742.75 23 603.04 (60) 1,498.24

Surplus B/F 3,517.54 37 2,567.72 (15) 3,038.59 (14) 3,519.09

Surplus C/F 3,856.06 10 3,517.54 37 2,567.72 (15) 3,038.17


The above table indicates that major source of income of the Formation was

grants from the Federal Government that constituted 98% of the total income for

the year 2006-07. The net surplus after adjusting the expenditure and

disbursements of financial assistance was Rs.3,856.06 million as on June 30, 2007

which showed an increase of 10% over previous year. The management invested

the surplus funds in banks and earned profit thereon which is not basic function of

Pakistan Bait-ul-Mal.

170.2 Grant of Rs.4.38 billion was received under Food Support Programme

(FSP), out of which an amount of Rs.2.092 billion i.e. 48% of the total grant could

be disbursed upto June 30, 2007. The reasons of less disbursement and status of

balance amount need to be elaborated.

170.3 The 12th

installment of Food Support Programme (FSP) had almost been

distributed throughout the Pakistan. However, an amount of Rs.2.18 million of 10th

678

and 11th

installments of District Jhang and Islamabad was lying un-disbursed on

June 30, 2007 as per detail given below:-

1. District Office, Jhang 11th

installment Rs. 1,923,181

2. District Office, Islamabad 10th

installment Rs. 261,000

Total Rs. 2,184,181

The said amount is of only two district offices. The management may

intimate the exact position of un-disbursed amount of previous installments of FSP

in other district offices. Non-disbursement of 10th

and 11th

installments despite

lapse of a considerable period showed poor financial and managerial controls in the

organization.

170.4 The Chief Executive Secretariat vide letter dated August 10, 2000

approved payment of subsistence allowance to displaced persons of Bugti and

Kalpar Bugti Tribes amounting to Rs.1.80 million per month for one year, from

Pakistan Bait-ul-Mal. Whereas the management of PBM made a payment of

Rs.63.11 million to the Bugti Tribes. The reasons of making payment to Bugti

Tribes beyond one year need to be explained.

679

STUDY REPORT ON

FOOD SUPPORT PROGRAMME

JHANG DISTRICT

171. Introduction

Pakistan Bait-ul-Mal (PBM) was established as a corporate body on

January 06, 1992 under Pakistan Bait-ul-Mal Act, 1991. Pakistan Bait-ul-Mal

being a corporate body is administrated by a Board of Management comprising

Chairman (Ameen) and five non official members to be appointed by the Federal

Government, one from each province and ICT / AJK, a representative of the

Central Zakat Council and two officials of the Federal Government nominated by

the Prime Minister. The administrative head of PBM is Chairman (Ameen), office

at Islamabad. In addition, there are four Provincial Offices (at each provincial HQs)

and one Regional Office at Islamabad. The Provincial / Regional Offices are

headed by Deputy Directors. In each district there are District PBM Offices and in

some cases Divisional Offices headed by Divisional / District In-charge under the

control of Deputy Directors.

Objectives of PBM

i. To provide financial assistance for rehabilitation of destitute and needy

widows, orphans, invalids, other needy persons, to provide free medical

treatment and free education to their children;

ii. To set up free hospitals, poor houses, rehabilitation centers and provide

financial aid to charitable institutions, including industrial homes and

educational institutions established specially for the poor and needy; and

iii. Any other purpose approved by the Board having regard to aims and

objectives of PBM.

Source of PBM funds

i. Transfer of receipts from tax levied for this purpose;

ii. Grants from Federal Government, Provincial Governments, local

authorities, national organizations and international agencies;

iii. Voluntary donations, including sadqaat, attiyyat by individuals, societies,

bodies, institutions or organizations; and

680

iv. Sale of property of Pakistan Bait-ul-Mal whether moveable or immoveable

and income from such property, investments and other assets.

Projects / schemes

Following projects /schemes were being run by Pakistan Bait-ul-Mal during

2006-07:

S # Particulars of Scheme (Rs. in million)

1 Food Support Programme (FSP) 2,091.821

2 Child Support Programme (CSP) 14.447

3 Individual Financial Assistance (IFA) 398.208

4 Misc. Projects Expenses

World Food Programme

Dastkari Schools

NCRCL Centers

NCRCL Graduate Student Policy

Diversified Dastkari School

299.401

5 Bughti Tribes 63.111

6 Institutional Rehabilitation (NGO) 50.060

7 Larkana Housing Scheme 0.031

8 Administrative expenses 178.072

Total 3,095.151

Food Support Programme (FSP)

Food Support Programme (FSP) was started on August 31, 2000 for a period of two

years. The aim of the programme was poverty reduction and to provide an effective

social safety net to the poorest of the poor. The Government of Pakistan was to

release funds worth Rs.2.5 billion per annum for FSP. The total numbers of

projected beneficiaries were Rs.1.25 million. Support per beneficiary was

determined Rs.2,000 per annum to be disbursed in two equal installments.

Government of Pakistan released Rs.7.5 billion during September 01, 2000 to June

30, 2003. In view of the efficacy and effectiveness of the programme rate of annual

subsidy was revised two times, from Rs.2,000 to Rs.2,400 in 2003-04 and from

Rs.2,400 to Rs.3,000 in 2005-06, the subsidy was being paid in one annual

installment. Simultaneously numbers of beneficiaries have been increased from

Rs.1.25 million to Rs.1.46 million.

681

Salient features of the programme are as under:

i. Designed to meet the basic nutritional requirement of the poor and

vulnerable groups;

ii. In selection of beneficiaries, priority is given to the female headed

household;

iii. The programme covers 1.46 million house holds i.e 10 million

beneficiaries @ 6.8 persons per household;

iv. Current annual budget is Rs.4.38 billion;

v. The annual subsidy per house hold under the programme is Rs.3,000

which is paid annually through the Post Offices / Banks;

vi. 3% of the quota of beneficiaries has been reserved for poor minority

house holds;

vii. Food Support Steering Committees have been constituted at Federal,

Provincial / Regional and District levels for implementation and

monitoring of programme;

viii. Beneficiaries are verified through a task force constituted by DCOs /

DCs and are approved by the District Food Support Steering

Committees; and

ix. At the start Army Monitoring Teams carried out independent scrutiny of

selected beneficiaries and disbursement of subsidy (cash);

Executing Agencies:

a. Pakistan Bait-ul-Mal

b. Pakistan Post

c. Provincial / Regional Governments

d. District Governments /Administration

Steering Committees:

i. Federal Food Support Steering Committee (FFSSC)

ii. Sub-Group of Federal Food Support Steering Committee (FFSSC)

iii. Provincial Food Support Steering Committees (PFSSCs)

iv. Regional Food Support Steering Committee for AJ&K

v. Regional Food Support Steering Committee for Northern Areas

vi. District Food Support Steering Committees (DFSSCs)

vii. Food Support Steering Committee at Agency Level at FATA

682

Budget of FSP

Year (Rs. in billion)

1st Year (F.Y 2000-01) 2.50

2nd

Year (F.Y 2001-02) 2.50

3rd

Year (F.Y 2002-03 2.50

4th

Year (F.Y 2003-04) 3.00

5th

Year (F.Y 2004-05) 3.00

6th

Year (F.Y 2005-06) 4.38

7th

Year (F.Y 2006-07) 4.38

8th

Year (F.Y 2007-08) 4.38

26.64

Allocation of FSP budget

The budget allocated among the provinces / regions according to the approved

quota of beneficiaries was as under:

Province/ Region Number of households

Punjab 752,192

Sindh 313,024

NWFP& FATA 263,968

Balochistan 54,896

ICT, AJK and NAs 75,920

Total 1,460,000

Procedure:

Eligibility criteria:

Eligible: Assistance is provided to the needy individuals having no support or

source of income in following order of priority:

i. Individual with major ailment/disability

ii. Widow with dependent children

iii. Invalid with dependent children

iv. Infirm (Senior citizens above 65)

v. Orphans

683

vi. Destitute

vii. Victims of unpredictable circumstances

Ineligible:

i. Government employees and their family members

ii. Beneficiaries of other social welfare agencies

iii. False declaration or provision of wrong information may result in

recoveries and permanent ineligibility or debar from all PBM schemes

Registration of beneficiaries:

i. District Food Support Steering Committee may receive applications for

FSP subsidy through offices of PBM, Zakat and District / Tehsil and

Union Council Nazim or directly from beneficiaries.

ii. Applications received are scrutinized and verified by any member of

Task Force constituted by DCOs / DCs in all the districts.

iii. Then applications are placed before DFSSC for approval.

iv. District Nazim or his nominated Naib Nazim / Tehsil Nazim and AD /

District In-charge PBM are the co-signatories of application forms.

v. On the basis of approved beneficiaries lists are prepared. The DCO or his

nominated EDO/DDO/DOC and AD/ District In-charge PBM are the

co-signatories of these lists.

vi. Lists are forwarded to GPOs for opening of accounts of beneficiaries.

vii. Authority letters are signed and issued through registered post by the AD

/ District In-charge PBM to approved beneficiaries, who after receiving

the same approach their respective post offices for opening their

accounts.

viii. As per FSP Policy the accounts of the beneficiaries, who failed to draw

their subsidy within a period of 90 working days after the credit of

amount of subsidy into their accounts are closed and the amount is

re-deposited into PBM, District GPO account. The DFSSC registered as

many new regular beneficiaries as have failed to draw their subsidy and

the available amount of closed accounts is paid to them. The

un-disbursed amount of the dropped out beneficiaries of previous

installments is disposed off by registering additional beneficiaries for the

temporary period.

Transfer of funds through PPO

684

i. Funds are provided by the Government to PBM from where the funds are

transferred to PBM Provincial/Regional accounts. PBM is maintaining

Main GPO account.

ii. PBM Provincial/Regional offices are maintaining Provincial/Regional

GPO accounts at their headquarters through which funds are transferred

to the district offices.

iii. PBM District Offices are maintaining District GPO accounts at their

GPOs through which funds are transferred to the beneficiaries’ accounts.

iv. Each sub post office is provided sufficient cash by the GPO to enable it to

make payments to the beneficiaries at their first visit against Food

Support Programme.

Audit Findings

171.1 During audit of the accounts of Pakistan Bait-ul-Mal for the year 2006-07

on receipt of a complaint regarding discrepancies in payment of 11th

installment of

Food Support Programme in District Jhang a study was carried out by the staff of

Director General, Commercial Audit and Evaluation, Lahore and following were

observed.

i. In PBM District Office, Jhang total registered beneficiaries for

disbursement of 11th

installment on June 21, 2006 were 32,704 out of

which the payment to 32,063 beneficiaries could be made within

prescribed time. For the disbursement of remaining amount plus profit on

Food Support Programme account, 6,928 additional beneficiaries

enrolled and payment to 6,287 beneficiaries was made. The additional

beneficiaries were enrolled by the district management were total in

disregard to the PBM policy of FSP and payments were made to bogus

beneficiaries. The District Food Support Steering Committee (DFSSC)

in its meeting held on November 07, 2007 cancelled the accounts of all

the additional beneficiaries to whom payment of 11th

installment was

made. The cancellation of account was not the remedy of bogus payment,

matter required investigation to fix responsibility and recovery of bogus

payment of Rs.18.861 million from the person(s) responsible. The matter

was discussed in DAC meeting held on July 03, 2008. The DAC

nominated another enquiry committee to evaluate the findings of enquiry

committee constituted by the District Nazim, Jhang. The enquiry

685

committee in its report of March 2009 stated that some forms had been

verified by the committee and remaining are in process, however on the

request of District In-charge, PBM Jhang the list of additional

beneficiaries was signed by the then acting DCO, Jhang. Thus inquiry

was in progress and it needs to be completed at the earliest. The matter

was also discussed in DAC meeting held on May 06, 2009. DAC directed

the management to keep the relevant record ready in respect of all

respective additional beneficiaries at Jhang District for its verification by

audit. In the absence of any outcome of the earlier committees nominated

to probe the issue, the fate of the para will be decided on receipt of

findings of audit.

ii. The record of payment to 6,287 beneficiaries was scrutinized by audit on

test check basis and 48 cases were found in which payment was made

without the approval of District management, Bait-ul-Mal, while the

payment in the name of 72 beneficiaries was made from Tehsil Chiniot

although they were permanent residents of District Faisalabad. The

DFSSC on realizing the fact cancelled the accounts of all the additional

beneficiaries to whom payment of 11th

installment was made on

November 07, 2007. An amount of Rs.360,000 was misappropriated/

embezzled by the concerned officials in District Jhang. The enquiry

committee in its report of March, 2009 stated that Investigation Officer,

PBM, Jhang was responsible to obtain the approval from the District

Management which was not made at that time as such matter needs

investigation by the PBM. The matter was also discussed in DAC

meeting held on May 06, 2009. DAC directed the management to keep

ready all the relevant record in respect of 48 un-authorized and 72

beneficiaries belonging to Distt. Faisalabad at Jhang District as pointed

out by audit, for verification. In the absence of any outcome of the earlier

committees nominated to probe the issue, the fate of the para will be

decided on receipt of findings of audit.

iii. The management of PBM deputed an internal audit team to conduct the

audit of Food Support Programme for the year 2002-03. The audit team

reported 164 cases in which the real beneficiaries ignorant about their

accounts and payment on their behalf was misappropriated. Out of these

164 beneficiaries, 38 beneficiaries have given their written statement; the

Postmaster admitted the payment to 45 bogus beneficiaries. Thus, total

686

amount of Rs.492,000 was misappropriated. The management

constituted an enquiry committee to probe into the matter without any

fruitful results there from. As per policy the inquiry on FSP matters was

required to be completed within 30 days, however, in this specific case

despite lapse of more than 2 years the enquiry was to be completed. The

enquiry committee in its report of March, 2009 stated that defaulters had

been dismissed from the services but recovery of misappropriated

amount was not made from them. The matter was also discussed in DAC

meeting held on May 06, 2009. DAC directed the management of PBM

to take up the matter with Director General, Pakistan Post for the

recovery of embezzled amount and inform audit accordingly.

iv. As per FSP policy the entire amount of an installment was required to be

disbursed prior to receipt of next installment by enrolling additional

beneficiaries in lieu of closed accounts. The 12th

installment had almost

been distributed throughout the Pakistan, however, during scrutiny of

record of District Office, Jhang it was observed that an amount of

Rs.1.923 million relating to 11th

installment was lying un-disbursed in

Jhang GPO. The non-disbursement of 11th

installment despite lapse of a

considerable period indicated poor financial and managerial control in

the organization. The matter was also discussed in DAC meeting held on

May 06, 2009. DAC recommended the para for settlement subject to

provision of installments wise detail/break up of un-disbursed amount of

FSP, transferred from Jhang District.

The matter was reported to the management on March 01, 2008. The

management in its reply dated April 07, 2008 stated that an inquiry committee had

been constituted by District Nazim, Jhang to probe the matter. The proceedings of

the inquiry were in progress. The management further stated that as per operational

guidelines of FSP the program is strictly monitored by DFSSC headed by District

Nazim. The plea of the management was not convincing, as being executing

agency, PBM was required to ensure transparency in disbursement of public funds.

687

Recommendations:-

i. Evaluate the recommendations of the inquiry committee constituted by

District Nazim, Jhang;

ii. Finalize the case and fix responsibility on the persons at fault; and

iii. Strengthen the internal controls to avoid such instances in future.

688


(325–328)

689

690

NATIONAL TEXTILE UNIVERSITY

AUDIT COMMENTS


172. The Government of Punjab with the help of leading textile industrialists

formed an institute of textile technology in Faisalabad in 1954. Federal

Government took over the administrative control of Pakistan Institute of Textile

Technology, Faisalabad with effect from July 01, 1976 and renamed as National

College of Textile Engineering. The College was upgraded as National Textile

University vide Ordinance, 2002 dated November 15, 2002.

Main purpose of the University is the promotion and dissemination of

knowledge and technology in textile, determination of courses of study in textile

education and to provide for instruction, training, research, demonstration and

service in the said areas of learning.

172.1 The working results of the University for the year ended December 31, 2006

as compared to the previous year are as under:-

(Rs. in million)

2006

%

Inc/

(Dec) 2005

Income

Fee 29.253 14 25.658

Grant from APTMA 18.000 24 14.500

Other income 19.831 25 15.859

Total income 67.084 20 56.017

Expenditure

Salaries, wages and other benefits 40.037 21 33.087

Student expenses 1.880 140 0.782

Depreciation and amortization 13.622 (9) 15.043

Other expenses 12.119 13 10.682

Total expenditure 67.658 14 59.594

Deficit for the year (0.574) (84) (3.577)

Previous year deficit B/F (24.194) 17 (20.617)

Accumulated deficit C/F to balance sheet (24.768) 2 (24.194) Source: Annual Audited Accounts

691

The University sustained a net deficit of Rs.0.574 million during the year

2006 despite increase in fee, grant from APTMA and other income. The

expenditure increased from Rs.59.594 million in 2005 to Rs.67.658 million in

2006 mainly due to increase in salaries, wages and other benefits, students

expenses, advertisement, traveling and conveyance expenses. Management should

take effective steps to control expenditure so as to make the University a self

sustaining organization.

172.2 Title of free hold land valuing Rs.312.219 million was not transferred in

the name of University in Land Revenue Authorities record. Transfer of title in the

name of University needs to be arranged at the earliest.

692

MINISTRY OF TOURISM

(329–335)

693

694

PAKISTAN TOURISM DEVELOPMENT CORPORATION LIMITED

173. The main objectives of Pakistan Tourism Development Corporation are to

develop hotels, motels & tourist information centers and conduct promotional

events for attracting tourists.

Annual Audited Accounts of the Corporation for the year 2006-07 were not


AUDIT PARAS

174. Irregular expenditure due to attachment of vehicles with the Minister

and his Private Secretary – Rs. 1.127 million

In accordance with the Cabinet Division letter No.6-7/2002-CS dated February 06,

2003 the allotment of official vehicles to the Ministers and their Private Secretaries

was responsibility of the Ministry.

Pakistan Tourism Development Corporation (PTDC), Head Office, Islamabad

attached four official vehicles along with drivers to the Minister and his Private

Secretary for their use during the period from April, 2004 to June 22, 2005 and

expenditure on its repair, maintenance, POL and pay and allowances, TA/DA and

overtime of drivers was being incurred out of the budget of PTDC in spite of the

fact that allotment of official vehicles to the Minister and his Private Secretary was

the responsibility of the Ministry of Tourism. The expenditure incurred on account

of repair, maintenance, POL of vehicles and pay and allowances, TA / DA and

overtime of drivers amounting to Rs.1.127 million was considered irregular in the

light of above decision of Cabinet Division.


in its reply dated February 23, 2006 stated that expenditure was made on account of

POL and allied expenses in accordance with the directives of Ministry of Tourism.

The issue was referred to the Ministry on February 20, 2008. The Ministry

reiterated previous reply of the management on April 05, 2008. The replies were

not tenable as it was violation of Cabinet Division’s letter dated February 06, 2003.

695

In the DAC meeting held on October 30, 2008, the management was directed that

matter may further be investigated / inquired at departmental level and rules be

followed. The compliance of DAC directives was awaited till finalization of this

report.

175. Non-recovery due to non-execution of proper agreement – Rs.0.700

million

As per GFR-19 (i) the terms of a contract must be definite and there must be no

room for ambiguity.

The management of PTDC Flashman’s Hotel and Mr. Haider Ali, C.E.O. of M/s.

H.A Entertainment Company finalized a deal to organize Industrial Exhibition at

PTDC premises located on Haider Road. M/s. H.A. Entertainment Company

agreed to pay Rs.600,000 to utilize PTDC plot from November 20, 2005 to

December 20, 2005. The party paid Rs.300,000 on October 3, 2005 in advance with

the remarks that the remaining amount of Rs.300,000 would be paid one week

before starting the festival. According to the deal M/s. H.A. Entertainment

Company supposed to close the exhibition on December 20, 2005 but they carried

on till January 9, 2006 for an extra period of 20 days. Thus, an amount of

Rs.700,000 was recoverable from the party but same was not paid by them.

The matter was reported to the management on June 15, 2007. The management in

its reply dated August 23, 2007 stated that the firm could not pay the balance

amount due to protest of local traders which affected its business. The matter was

also referred to the Ministry in February 2008. The management reiterated its

earlier reply on March 17, 2008. Replies were not convincing, because the

Corporation’s interest was not safeguarded as neither proper agreement was

executed nor the entire amount obtained from the party in advance.

The DAC in its meeting held on October 30, 2008 noticed that case was under

litigation and directed the management to convey the decision of court as and when

received. The decision of court was awaited till finalization of this report.

696

PTDC MOTELS NORTH (PVT.) LIMITED

AUDIT COMMENTS


176. Pakistan Tourism Development Corporation, Motels North (Pvt.) Limited

was incorporated in Pakistan on 19th

March 1977, under the Companies Act, 1913

(now Companies Ordinance, 1984). The Company is a wholly owned subsidiary of

Pakistan Tourism Development Corporation Limited. The Company was

established to promote tourism industry and run / manage motel business in

Pakistan.


previous years are as under: (Rs. in millions)

2006-07

%

Inc /

(Dec) 2005-06

%

Inc /

(Dec) 2004-05

%

Inc /

(Dec) 2003-04

Revenue 94.17 23 76.78 - 76.99 8 71.50

Cost of sales 79.88 23 65.11 1 64.56 6 60.97

Gross profit 14.29 22 11.67 (6) 12.43 18 10.52

Operating expenses

Admin expenses 13.29 26 10.51 (13) 12.09 36 8.91

Financial charges 0.25 32 0.19 - - - -

Operating profit 0.75 (23) 0.97 184 0.34 (79) 1.61

Other income 0.01 (50) 0.02 (35) 0.03 (64) 0.09

Net profit before taxation 0.76 (24) 0.99 166 0.37 (78) 1.69

Provision for taxation 0.52 (44) 0.93 142 0.39 (64) 1.08

Profit/( loss) after taxation 0.24 300 0.06 - (0.21) - 0.61


Although revenue of the Company increased from Rs.76.78 million in

2005-06 to Rs.94.17 million during 2006-07 yet operating profit for the year

2006-07 decreased to Rs.0.75 million against the profit of Rs.0.97 million of the

preceding year 2005-06 registering decrease of 23%. The decrease in profit was

mainly due to increase in cost of sales by 23% and administrative expenses by 26%

which stood at Rs.79.88 million and Rs.13.29 million in 2006-07 against

697

Rs.65.11 million and Rs.10.51 million in 2005-06 respectively. Effective steps

need to be taken to minimize the cost of sales and operational expenses.

176.2 Trade debtors (un-secured) increased to Rs.8.397 million as on June 30, 2007

from Rs.6.842 million in 2005-06, registering an increase of 23%. Efforts are

required to be made to recover the outstanding dues.

698

PTDC PAKISTAN TOURS (PVT.) LIMITED

AUDIT COMMENTS


177. Pakistan Tours (Pvt.) Limited (PTL) was incorporated as a private limited

company under the Companies Act, 1913 (now Companies Ordinance 1984) on

December 26, 1970. The Company is wholly owned subsidiary of Pakistan

Tourism Development Corporation Limited and is primarily engaged in the

business of tour operations and transport services.


previous years are as under: (Rs. in million)

2006-07

%

Inc/

(Dec) 2005-06

%

Inc/

(Dec) 2004-05

%

Inc/

(Dec) 2003-04

Revenue 41.459 49 27.807 (6) 29.434 37 21.512

Cost of services (25.320) 33 (19.098) (4) (18.341) 34 (13.725)

Admn and general expenses (15.177) 63 (9.314) (6) (9.925) 39 (7.155)

Other charges/financial (0.227) 266 (0.062) (170) (0.023) 35 (0.017)

Other income 0.003 (73) 0.011 (98) 0.471 712 0.058

Net profit/(loss) 0.738 13 (0.656) (59) 1.616 140 0.673

Provision for taxation (0.258) 86 (0.139) (5) (0.147) (49) (0.289)

Net profit/(loss) after taxation 0.480 (40) (0.796) (46) 1.468 2.82 0.384

Accumulated loss b/f (10.778) 8 (9.982) (13) (11.450) 9 (10.491)

Accumulated loss c/f (10.298) (5) (10.778) (08) (9.982) (13) (11.450)


The Company earned a net profit of Rs.0.738 million in 2006-07 as against

loss of Rs.0.656 million of the previous year. The revenue and cost of services

registered an increase of 49% and 33% during the year 2006-07 respectively. Admn

& general expenses increased by 63% during the year

2006-07 as compared to the previous year. Need for control over general and

administrative expenses is stressed upon the management.

699

700

MINISTRY OF WATER AND POWER

(337–342)

701

702

NATIONAL ENGINEERING SERVICES PAKISTAN (PVT.) LIMITED

AUDIT COMMENTS


178. The Company was incorporated in 1973 under the Companies Act 1913

(now Companies Ordinance 1984). It is wholly owned by the Government of

Pakistan and engaged in engineering consultancy services in Pakistan and abroad.

178.1 The working results of the Company for the year 2006-07 as compared

with the previous years are tabulated below:

(Rs. in million)

2006-07

%

of

income 2005-06

%

of

income 2004-05

%

of

income 2003-04

%

of

income

Consultancy services in

Pakistan 2,147.809 86 1,540.041 85 1,021.924 83 797.545 91

Consultancy services outside

Pakistan 324.866 13 251.325 14 198.063 16 73.646 8

Other income 30.690 1 10.996 1 8.591 1 4.287 1

Total income 2,503.365 100 1,802.362 100 1,228.578 100 875.478 100

Administrative, general and

financial charges 2,057.606 82 1,617.226 90 1,149.337 94 841.115 96

Profit before taxation 445.759 18 185.136 10 79.241 6 34.363 4

Taxation 24.447 1 16.234 1 4.267 - (0.939) -

Profit after taxation 421.312 17 168.902 9 74.974 6 35.302 4

Source Annual Audited Accounts

Income of the Company increased to Rs.2,503.365 million in 2006-07 as

compared to Rs.1,802.362 million in 2005-06 mainly due to increase in fee income

on account of consultancy services rendered in Pakistan and outside Pakistan by

39% and 29% respectively. Management is required to maintain the increasing

trend of income.

Contract fee receivable considered good increased to Rs.571.317 million in

2006-07 from Rs.535.549 million in 2005-06 showing increase by 7%. Likewise,

contact fee receivable considered doubtful also increased to Rs.317.718 million in

2006-07 from Rs.269.498 million in 2005-06 registering an increase by 18%. Steps

be taken to recover the outstanding amounts from the concerned clients.

703

178.2 The administrative, general and financial charges increased to

Rs.2,057.606 million in 2006-07 from Rs.1,617.226 million in 2005-06 showing an

increase of 27% . Administrative and general expenses included an amount of

Rs.19.274 million which has been written-off on account of bad debts. Party-wise

detail, aging and reasons for non-recovery of dues may be explained.

704

NATIONAL POWER CONSTRUCTION CORPORATION (PVT.)

LIMITED

AUDIT COMMENTS


179. The Corporation was incorporated on July 18, 1974 under the Companies

Act 1913 (now Companies Ordinance 1984). It is wholly owned by the

Government of Pakistan and is engaged in power construction works in Saudi

Arabia.


to previous years are tabulated below:- (Rs. in million)

2006-07

%

of

income 2005-06

%

of

income 2004-05

%

of

income 2003-04

%

of

income

Contract and other income 4,319.949 100 202.949 100 310.286 100 1,600.933 100

Contract and other

expenses

Material consumed 3,249.676 75 3.699 2 139.878 45 1,019.548 64

Salaries, wages and other benefits 178.620 4 72.485 36 55.635 18 65.200 4

Subcontracts 609.213 14 8.915 4 27.278 9 390.332 24

Depreciation 13.910 0.5 4.864 2 5.477 2 4.385 -

Other expenses 193.452 5 82.975 41 62.615 20 91.798 6

Financial charges 12.590 0.5 13.215 7 7.044 2 6.632 -

Total expenses 4,257.461 99 186.153 92 297.926 96 1,577.892 99

Pre-tax profit 62.489 1 16.796 8 12.360 4 23.041 1


The income of the Corporation increased from Rs.202.949 million in

2005-06 to Rs.4,319.949 million in 2006-07 but it earned only 1% (Rs. 62.489

million) pretax profit on total income in 2006-07 as against 8% (Rs.16.796 million)

pretax profit in 2005-06. The main reason of decrease in profit in relation to total

income was due to increase in total expenses from 92% in 2005-06 to 99% in

2006-07 as compared with total income. The increase in expenses needs to be

justified.

179.2 Contract bills receivables (Saudi Arabia) increased to Rs.1,429.874 million

705

in 2006-07 as compared to Rs.2.901 million in 2005-06 registering an increase of

49,189%.These receivables are unsecured and early recovery is stressed upon the

management.

179.3 Tools, gauges and stores stood at Rs.53.132 million in 2006-07 as against

Rs.12.376 million in 2005-06 registering an increase of 329%. It included stores in

transit of Rs.44.282 million, the status of its receipt may be intimated.

706

SECTION –II

(343–361)

707

708

COMMENTS ON INTERNAL CONTROLS

Introduction

Internal controls in any organization take the form of policies, procedures,

rules, regulations, monitoring mechanism, etc. These controls guard against fraud,

waste and inefficiency. Internal controls ensure reliable, accurate operational and

financial information for intelligent decision making and prompt compliance with

institutional policies/applicable laws and regulations. Internal controls are essential

part of management’s efforts to achieve its objectives and goals. A number of

internal control weaknesses were observed during the audit of Public Sector

Enterprises. Few are illustrated below:-

Liberal Loan Sanctioning Policy

It was noticed that financial institutions pursued liberal policy of loan

sanctioning without observing evaluation criteria, which resulted in defaults. At

times loans were sanctioned beyond value of collateral; and the securities pledged

without proper verification by the revenue authorities. Further post finance

monitoring was also lacking which minimized chances of recovery. It is suggested

that entire process of loan sanctioning from feasibility to approval, be well

documented and according to instructions laid down in the procedures. The

securities pledged should be verified from revenue authorities and where possible

physical verification may also be carried out.

Inventory Management

Inventory management was another area where almost all organizations

exhibited lackadaisical attitude with respect to purchases, physical verification and

record keeping. Purchases were made without ascertaining the requirements thus

blocking the capital. Obsolete inventories were not disposed-off for years. In order

to lower the cost of inventories, maximum retaining/reordering levels should be

defined and purchases be made through open competition to avail the lowest prices.

Furthermore, annual physical verification should be carried out.

709

Low Capacity Utilization

It was noticed that the Public Sector Enterprises are not adapting

themselves according to the demands of the market. This leads to low capacity

utilization due to non availability of orders. Marketing departments have to play a

proactive role by informing the management about the changes in technologies and

working of other potential competitors. The marketing departments have to keep a

close liaison with the customers regarding their needs and at the same time make

efforts to find new clientele.

Receivables Management

Receivables management in almost all the organizations required

immediate attention. Rising trend in receivables was noticed in a large number of

organizations. While trade debts are not being collected within the stipulated

period, late collection surcharge is also not levied on delayed payments. This

adversely affects the liquidity position.

Recommendations

Strengthening of internal controls is required in all organizations for their

effective functioning with a view to safeguard against fraud, inefficiency and

waste. By doing so, the organizations can better achieve their desired objectives in

a befitting and economical manner.

710

ANNEXURE-I

NON-SUBMISSION OF ACCOUNTS

Annual audited accounts of Public Sector Enterprises for the year

2006-07 were to be provided to the Directorates General of Commercial Audit and

Evaluation, Karachi and Lahore, by January 15, 2008. Despite repeated requests,

the organizations listed below failed to provide their annual audited accounts for

the year 2006-07 as well as for the previous years by the prescribed date. While

non-submission of accounts needs to be explained, efforts should be made to

finalize and submit the accounts immediately. None of these companies enjoy

benefit of exemption under the Auditor-General’s (Functions, Powers and Terms

and Conditions of Service) Ordinance, 2001.

Sr.

No. Name of Ministry/Division/Organization Year of Accounts

Cabinet Division

1. Oil and Gas Regulatory Authority 2006-07

Ministry of Commerce

2. Expo Lahore (Pvt) Limited 2006-07

Ministry of Defence

3. PIA Midway House (Pvt.) Limited 2003-04 to 2006-07

Revenue Division

4. Pakistan Revenue Automation (Pvt) Limited 2002-03 to 2006-07

Ministry of Housing and Works

5. Pakistan Housing Authority 2002-03 to 2006-07

Ministry of Industries and Production

6. Export Processing Zones Authority 1992-93 to 2006-07

7. Pakistan Steel Fabricating Company (Pvt.) Limited 2005-06 to 2006-07

8. Small and Medium Enterprises Development Authority (SMEDA) 2006-07 9 State Enterprises Display Centre (Pvt) Limited 2006-07

711

Ministry of Information and Broadcasting

10. Shalimar Recording and Broadcasting Company Limited 2003-04 to 2006-07 11. Associated Press of Pakistan Corporation 2003-04 to 2006-07

Information Technology and Telecom Division

12. Pakistan Software Export Board 2002-03

Ministry of Interior

13. National Database and Registration Authority 2005-06 to 2006-07

Labour and Manpower Division

14. Overseas Employment Corporation (Pvt) Limited 2006-07


15. Overseas Pakistanis Foundation 2006-07 16. Kaghan Brick Works Limited 2006-07

Kashmir Affairs and Northern Areas Division

17. Northern Areas Transport Corporation Limited 2004-05 to 2006-07

Ministry of Petroleum and Natural Resources

18. Lakhra Coal Development Company Limited 2006-07

Ministry of Ports and Shipping

19. Gwadar Port Authority 2002-03 to 2006-07

20. Gwadar Fish Harbour-cum-Mini Port 1986-87 to 2006-07

21. Lighthouses and Lightships Department 2006-07

22. Port Qasim Authority 2002-03 to 2006-07

Ministry of Textile Industry

23. National Textile University 2007

Ministry of Tourism

24. Pakistan Tourism Development Corporation Limited 2006-07

25. Malam Jabba Resorts (Pvt) Limited 2004-05 to 2006-07

26. PTDC Associated Hotels of Pakistan (Pvt) Limited 2004-05 to 2006-07

712

ANNEXURE-II

COMPANIES UNDER LIQUIDATION/CLOSED

The under-mentioned Corporations/Units have closed their operational activities. In some cases decision about their privatization/liquidation has already been taken but implementation of the same was awaited.

S.No.

Name of

Ministry/Division/Organization

Status/Remarks

Ministry of Defence

1. Midway House (Pvt.) Limited

Business closed since 2000,

however, liquidation is still in

process.

Finance Division

2. Federal Bank for Co-operatives Under liquidation since 2002.

3. Agricultural Marketing and Storage

(Pvt) Limited

Under liquidation since 1993.

Ministry of Industries and

Production

4. Pakistan Motorcar Company (Pvt.)

Limited

Operation closed since 1992,


process.

5. Republic Motors (Pvt.) Limited Operation closed since 1986,


process.

6. Associated Cement Rohri Limited

Operation closed since 1998.

The Company was placed

under liquidation on June 28,

2005, which is still in

process.

7. Ghee Corporation of Pakistan (Pvt.)

Limited

Operation closed since June,

1997

713

8. Morafco Industries Limited Operation closed since June,

1997


9. Kaghan Brick Works Limited Operation closed since June,

1996

Ministry of Tourism

10. PTDC Motels South (Pvt.) Limited Operation closed since 1990

714

ANNEXURE-III

RECOVERIES MADE AND FINANCIAL IRREGULARITIES/ LOSSES

OF PUBLIC MONEY CONDONED OR RECTIFIED AT THE INSTANCE

OF AUDIT

During the year 2007-08 formations listed below while accepting the losses/ irregularities pointed out by Audit through Audit Inspection Reports and Audit Paras, made recoveries to the tune of Rs.311.011 million at the instance of audit.

(Rs. in million)

S.No. Name of

Ministry/Division

Brief particulars of recoveries Amount

Cabinet Division

1. Printing Corporation

of Pakistan (HO),

Islamabad

Non-recovery of Rs.0.716 million on

account of house building advance

from ex-employees was pointed out by

Audit and management recovered the

entire amount.

0.716

Ministry of

Commerce

2. State Life Insurance

Corporation of

Pakistan

An amount of Rs.565,891 was

recoverable from an Area Manager

regarding defalcation of premium. The

entire amount has been recovered

0.566

3. Pakistan Tobacco

Board

An overpayment of Rs. 0.178 million

on account of acquisition of land was

pointed out. The management

recovered the entire amount.

0.178

Ministry of Defence

4. Pakistan International

Airlines Corporation

An amount of Rs.368,000 was pointed

out as recoverable from a contractor.

The entire amount along with penalty

totaling Rs.531,154 has been

recovered.

0.531

715

5. Skyrooms (Pvt.)

Limited

An amount of Rs.767,918 was

recoverable from a tenant. The entire

amount has been recovered.

0.768

Ministry of

Education

6. National Book

Foundation

Loss of Rs.0.260 million due to

damage/theft of books was pointed out

by audit and management recovered

Rs.0.096 million.

0.096

7. -do- Foundation had not imposed penalty on

printers as per agreements and when

pointed out by audit the management

recovered Rs.0.017 million.

0.017

8. -do- Non-recovery of Rs.2.983 million on

account of credit sales was pointed out

and management recovered Rs.0.044

million.

0.044

9. -do- Non-recovery of Rs.0.180 million on

account of printing work was pointed

out by audit and management


0.180

Finance Division

10. SME Bank, Jehlum Non-recovery of Rs.0.442 million from

a defaulting borrower was pointed out


million.

0.200

11. SME Bank,

Rawalpindi

An amount of Rs.0.647 million was

recoverable from borrowers and

management recovered the entire

amount when pointed out by audit.

0.647

12. SME Bank, HO,

Islamabad

Non-recovery of Rs.77.762 million

from defaulting borrowers was pointed

out and management recovered

Rs.76.000 million.

76.000

13. -do- Irregular sanction/disbursement of

Rs.0.750 million to a borrower was

pointed out and bank recovered

Rs.0.274 million.

0.274

716

14. SME Bank, H.O.,

Islamabad


from defaulters was pointed out and

management recovered Rs.2.062

million.

2.062

15. Zarai Taraqiati Bank

Limited, Peshawar

Non-recovery of loans amounting to

Rs.2.121 million on account of loans

for production and purchase of diesel

engine was pointed out. The


million.

1.452

16. ZTBL, Rawalpindi Non-recovery of Rs.1.816 million in

respect of seven loan cases was point

out. The management recovered the

entire amount.

1.816

17.

ZTBL, Skardu Rs.0.671 million was recoverable from

the defaulting borrower and


million when pointed out by audit.

0.335

18. ZTBL, Karachi Non-realization of sale proceed of

Rs.3.225 was pointed out and


amount.

3.225

19. -do- Non-recovery of Rs.0.297 million from

a defaulting borrowers was pointed out


million.

0.100

20. -do- Disbursement of loans amounting to

Rs.19.888 million on fake documents

was made by the management. An

amount of Rs.4.000 million was

recovered when pointed out by audit.

4.000

21. -do- Loss of Rs.0.403 million on account of

theft of vehicles was pointed out and


million.

0.203

717

22. Zarai Taraqiati Bank

Limited, Karachi

Non-recovery of Rs.0.522 million due

to theft of loan case files was pointed

out and management recovered entire

amount.

0.522

23. ZTBL, Peshawar Non-recovery of production loans of

Rs.2.063 million was pointed out by

audit and management could recover

Rs.0.076 million only.

0.076

Revenue Division

24. Pakistan Revenue

Automation Limited

Non-recovery of Rs.8.614 million on

account of services provided to

National Highways Authority was

pointed out by audit. The management


8.614

Ministry of

Industries and

Production

25. Pakistan Steel Mills

Corporation (Pvt.)

Limited

An amount of Rs.2.110 million due to

short receipt of material was pointed

out as recoverable. An amount of

Rs.1.874 million has been recovered.

1.874

26. -do- A short supply of a material valuing

Rs.0.202 million was pointed out by

audit. A recovery of Rs.0.175 million

has been made.

0.175

27. -do- The earnest money of a supplier

amounting to Rs.0.080 million has

been forfeited upon pointing out by

Audit.

0.080

718

28 Pakistan Industrial

Development

Corporation


on account of Godown Rent was

pointed out by audit. The recovery

of Rs.0.121 million has been

made.

0.121

29 Hazara Phosphate

Fertilizers Limited


on account of house rent

allowance was pointed out by

audit and management

recovered/adjusted the entire

amount.

0.319

30. Utility Stores

Corporation


on account of shortage from

serving employees was pointed

out and management recovered

Rs.0.582 million.

0.582

31. -do- Management could not

recover/adjust advance of

Rs.0.246 million. An amount of

Rs.0.145 million was recovered

when pointed out by audit.

0.145

Ministry of

Information and

Broadcasting

32. Pakistan Broadcasting

Corporation (PBC),

H.O., Islamabad

An amount of Rs.11.977 million

was outstanding against

advertisers. When pointed out by

audit, the management recovered

Rs.9.774 million.

9.774

33. -do- Non-recovery of Rs.0.242 million

from contractor was pointed out

and management recovered

Rs.0.046 million.

0.046

719

34. Pakistan Broadcasting

Corporation, Gilgit

Management paid Rs.0.003

million inadmissible personal

allowance to an employee and

recovered entire amount when

pointed out by audit.

0.003

35. PBC, HO Non-recovery of Rs.93.926

million from advertisers was

pointed out and management

recovered Rs.82.756 million when


82.756

36. -do- Management paid an excess

amount of Rs.0.022 million to an

employee on account of self house

hiring. The entire amount was

recovered when pointed out by

audit.

0.022

37. -do- An amount of Rs.0.406 million

was recoverable from a college

and management recovered

Rs.0.074 million, when pointed by

audit.

0.074

38. Pakistan Television

Corporation

Management paid Rs.0.122

million inadmissible special

allowance to a Programme

Manager and recovered Rs.0.024


0.024


from M/s. UAE, TV Sharja was

pointed out and management out

of it recovered Rs.0.963 million.

0.963

720

40. Pakistan Television

Corporation

Due to unauthorized credit sale of

air time an amount of Rs.47.825

million was recoverable from

clients. Management recovered

Rs.12.466 million when pointed

out by audit.

12.466

Labour and

Manpower Division

41. Overseas

Employment

Corporation


from ex-employees on account of

air ticketing was pointed out and


million.

0.014

Information

Technology and

Telecom Division

42. Pakistan Software

Export Board

Overpayment of Rs.0.018 million

was made on account of

deputation allowance. The entire

amount was recovered when

pointed by audit.

0.018

43. -do- Non-recovery of Rs.28.772

million from Government

Departments and parties was



21.024


was recoverable from employee

on account of mis-appropriation.

The management recovered

Rs.0.906 million when pointed out

by audit.

0.906

45. -do- Rs.0.620 million was recoverable

from Shell Pakistan on account of

short supply of POL. The


million at the instance of audit.

0.162

721

46. Pakistan Software

Export Board


was recoverable on account of hire

charges. The entire amount was

recovered when pointed out by

audit.

1.718


due to irregular payment of special

allowance was recoverable from

employees. The whole amount

was recovered when pointed out

by audit.

0.396

Ministry of

Petroleum and

Natural Resources

48. Oil and Gas

Development

Company Limited


was recoverable from employees

on account of Eid Advance. The



0.713


was recoverable from an

ex-officer on account of hiring

rent. The management recovered

Rs.0.221 million, when pointed

out by audit.

0.221


on account of advance rental

ceiling was pointed out and


million.

0.049

51. Sui Northern Gas

Pipeline Limited

Pilferage of gas valuing Rs.10.343

million in respect of two cases was



2.865

722


Pipeline Limited

The Company sustained loss of

Rs.2.831 million due to damage of

transmission pipelines and theft of

cash. The Company received three

insurance claims of Rs.1.091

million., when pointed out by audit

1.091


from six defaulting industrial units

was pointed out by audit and


million.

32.939

54. -do- Mis-appropriation of POL valuing

Rs.0.116 million was noticed and

entire amount was recovered when


0.116

55. -do- An amount of Rs.6.065 million on

account of bills collection was not

cleared by the banks. When pointed

out by audit the management


0.988

56. -do- Non-recovery of late delivery

charges of Rs.0.305 million was

pointed out by audit and


million.

0.203

57. -do- Under billing of Rs.15.106 million

to a steel re-rolling mill was noticed.



by audit.

14.208

58. -do- Loss of Rs.3.324 million due to

incorrect reading of gas meters was

pointed out by audit and


million.

0.516

723


Pipelines Limited

The Company could not recover

Rs.9.868 million from an industrial

unit. When pointed out by audit the

management encashed bank

guarantee of Rs.4.500 million.

4.500

Planning and

Development

Division

60. National Logistic Cell Non-recovery of Rs.15.708 million

on account of transportation charges

was observed and management

recovered Rs.15.642 million when


15.642

61. NLC Gujranwala National Logistic Cell, Gujranwala

could not recover penalty of

Rs.0.440 million from drivers.

When pointed out by audit the


million.

0.077

Ministry of Science

and Technology

62 Pakistan Science

Foundation

Non-refund of Rs.0.032 million by

the Project Officer was pointed out

by audit and management recovered

the entire amount.

0.032

Ministry of Tourism

63. Pakistan Tours (Pvt.)

Limited

An amount of Rs.0.123 million was

recoverable from employees since

long and when pointed out by audit,

the management recovered Rs.0.018

million.

0.018

724

64. PTDC Motels North

(Pvt) Ltd.

Lease money of Rs.0.225 million

was recoverable from lessee and

when pointed out by audit, the


amount.

0.225

65. -do- An amount of Rs.0.379 million was

recoverable from ex-employees.



by audit.

0.158

Grand Total 311.011

725

ANNEXURE-IV

PAC DIRECTIVES

AUDIT REPORT FOR THE YEAR 2007-08

CABINET DIVISION

PRINTING CORPORATION OF PAKISTAN (PVT) LIMITED

1.

i. PARA NO.2, PAGE-7, (ARPSE-2007-08)

AUDIT COMMENTS

ii. PARA NO.2.2, PAGE-8, (ARPSE-2007-08)

AUDIT COMMENTS


iii. PARA NO.3, PAGE-9, (ARPSE-2007-08)

AUDIT COMMENTS

iv. PARA NO.3.1, PAGE-9, (ARPSE-2007-08)

WORKING RESULTS

PAC DIRECTIVE

The Sub-Committee recommended the above four (4) paras for settlement.


2. PARA NO.40.1, PAGE-71, (ARPSE-2007-08)

WORKING RESULTS

The Audit pointed out that the Foundation’s earned net profit after taxation of Rs.

3.689 million in 2006-07 as against Rs.16.189 million in 2005-06 registering a

decrease by 77%. The main reason of decrease in net profit was increase in

administrative and general expenses by 57% from Rs.20.731 million in 2005-06 to

Rs.32.553 million in 2006-07. The increase in administrative and general expenses

needs to be controlled.

The PAO informed the Committee that as desired by Audit, (NBF) always

exercised its all-out efforts to keep the operational expenses at the bare minimum.

726

As far as the employees related expenses are concerned these are since obligatory

in nature hence neither can be deferred by the NBF at its own nor eliminated. The

reasons for decrease in net profit in 2006-07 as pointed out by Audit are the

increase in Admin and General Expenses. Now, the expenses have been controlled

and reduced, which has been verified by Audit.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement and directed to improve

the trend in making NBF profitable.

3. PARA NO. 2.1, PAGE-7, ( AR-2007-08)

WORKING RESULTS

The Audit pointed out that the sales of the Corporation is reducing, the PCP should

reduce its expenditure, check over staffing and to increase its capacity utilization so

as to make it a profit centre. Many efforts were also made to increase the sales and

curtail expenditure in order to make the Corporation a profitable entity. In this

connection, many committees had been constituted for the restructuring of PCP,

but, it couldn’t be finalized due to which the accumulated loss of PCP increased.

The PAO stated that in pursuance of Finance Division, Cabinet Division’s advised

letter dated 27.02.2012 a summary was sent regarding restructuring of PCP to

ERU/Sectt of CCOR. However, the Finance Division vide its UO No.

3(5)/CP-III/2012-498 dated 02.11.2012 informed that PCP is not included in the

list of PSEs being restructured by the Cabinet Committee on Restructuring of PSEs.

The case of restructuring of PCP may, therefore, be placed directly before the ECC.

Hence, it is still in process.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement and directed the PAC

Wing to arrange a briefing with the approval of the Hon. Chairman PAC, for giving

productive track to Govt. for making restructuring of PCP in good way.

727

DIRECTOR GENERAL COMMERCIAL AUDIT & EVALUATION,

LAHORE (FY 2007-08)


9. PARA-171.3

The Audit pointed out that the management of PBM deputed an internal audit team

to conduct the audit of Food Support Programme for the year 2002-03. The audit

team reported 164 cases in which the real beneficiaries were ignorant about their

accounts and payment on their behalf was misappropriated. Out of these 164

beneficiaries, 38 beneficiaries have given their written statement; the Postmaster

admitted the payment to 45 bogus beneficiaries. Thus, total amount of Rs.492,000

was misappropriated. The management constituted an enquiry committee to probe

into the matter without any fruitful results there from. As per policy the inquiry on

FSP matters was required to be completed within 30 days, however, in this specific

case despite lapse of more than 2 years the enquiry was yet to be completed. The

enquiry committee in its report of March 2009 stated that defaulters had been

dismissed from the services but recovery of misappropriated amount was not made

from them. The matter was also discussed in DAC meeting held on May 06, 2009.

DAC directed the management of PBM to take up the matter with Director General,

Pakistan Post for the recovery of embezzled amount and inform audit accordingly.

PAC DIRECTIVE

The Sub-Committee pended the Para with the direction to the PAO to invite DG

Post Office to attend the meeting on 20-08-2015 with all relevant record.


10. PARA-174

IRREGULAR EXPENDITURE DUE TO ATTACHMENT OF VEHICLES

WITH THE MINISTER AND HIS PRIVATE SECRETARY – RS. 1.127

MILLION

The Audit pointed out that during verification management explained that the

Minister for Tourism was also used to be the Chairman of the Board of Directors of

PTDC. The PTDC resources including vehicles were used for promotional

activities of Tourism. Management further stated that on the instructions of audit

728

the vehicles were retrieved on 01-04-2005 and case will be placed before Board for

getting the expenditure approved as a special case.

PAC DIRECTIVE

The Sub Committee recommended the Para for settlement subject to verification of

record by the Audit.

11. PARA-175

NON-RECOVERY DUE TO NON-EXECUTION OF PROPER

AGREEMENT – RS.0.700 MILLION

The Audit pointed out that as per GFR-19 (i) the terms of a contract must be

definite and there must be no room for ambiguity.








Company supposed to close the exhibition on December 20, 2005 but they carried

on till January 9, 2006 for an extra period of 20 days. Thus, an amount of

Rs.700,000 was recoverable from the party but same was not paid by them.

The PAO informed the Committee that the DAC in its meeting held on October 30,

2008 noticed that case is under litigation and directed the management to convey

the decision of court as and when received. The decision of court is awaited till


PAC DIRECTIVE (10-08-2015)

The Sub Committee pended the Para with the direction to submit comprehensive

report on the issue.

729

PTDC MOTELS NORTH (PVT) LTD.

12. PARA-176.2

The Audit pointed out that Trade debtors (unsecured) increased to Rs. 8.397

million as on June 30, 2007 from Rs. 6.842 million in 2005-06, registering an

increase of 23%. Efforts are required to be made to recover the outstanding dues.

PAC DIRECTIVE

The Sub-Committee pended the Para with the direction to PAO to invite Managing

Director, Pakistan Tourism Development Corporation (PTDC) on 20-08-2015 with

a comprehensive report to be presented before the PAC.

PRINTING CORPORATION OF PAKISTAN (PVT) LIMITED

13. i. PARA-2 & 2.1

ii. PARA-2.2


iii. PARA-3 & 3.1


iv. PARA-40.1


v. PARA-170

vi. PARA-170.1

vii. PARA-170.2

viii. PARA-170.3

ix. PARA-170.4

x. PARA-171

xi. PARA-171.1

xii. PARA-171.2

xiii. PARA-171.4

730


xiv. PARA-173

xv. PARA-176

xvi. PARA-176.1

PTDC PAKISTAN TOURS (PVT) LTD

xvii. PARA-177

xviii. PARA-177.1


The Sub-Committee recommended the above mentioned 18 Paras for settlement on

the recommendation of the DAC.

ACTIONABLE POINTS

Actionable points arising out from the discussion of meeting of the

Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Aviation

Division held on 20th

August, 2015 are as under:-

DIRECTOR GENERAL COMMERCIAL AUDIT & EVALUATION,

LAHORE (FY 2007-08)


1. PARA-171.3

The Audit pointed out that the management of PBM deputed an internal audit team

to conduct the audit of Food Support Programme for the year 2002-03. The audit

team reported 164 cases in which the real beneficiaries were ignorant about their

accounts and payment on their behalf was misappropriated. Out of these 164

beneficiaries, 38 beneficiaries have given their written statement; the Postmaster

admitted the payment to 45 bogus beneficiaries. Thus, total amount of Rs.492,000

was misappropriated. The management constituted an enquiry committee to probe

into the matter without any fruitful results there from. As per policy the inquiry on

FSP matters was required to be completed within 30 days, however, in this specific

case despite lapse of more than 2 years the enquiry was yet to be completed. The

enquiry committee in its report of March 2009 stated that defaulters had been

dismissed from the services but recovery of misappropriated amount was not made

731

from them. The matter was also discussed in DAC meeting held on May 06, 2009.

DAC directed the management of PBM to take up the matter with Director General,

Pakistan Post for the recovery of embezzled amount and inform audit accordingly.


The Sub-Committee pended the Para with the direction to the PAO to invite DG

Post Office to attend the meeting on 20-08-2015 with all relevant record.

PAC DIRECTIVE

The Sub-Committee directed Managing Director, Pakistan Bait-ul-Mal, DG Post

Office and Audit sit together and decide/resolve the matter within 30 days under

intimation to PAC.


2. PARA-175

NON-RECOVERY DUE TO NON-EXECUTION OF PROPER

AGREEMENT – RS.0.700 MILLION

The Audit pointed out that as per GFR-19 (i) the terms of a contract must be

definite and there must be no room for ambiguity.








Company supposed to cose the exhibition on December 20, 2005 but they carried

on till January 9, 2006 for anextra period of 20 days. Thus, an amount of

Rs.700,000 was recoverable from the party bu same was not paid by them.

The PAO informed the Committee that the DAC in its meeting held on October 30,

2008 noticed that case was nder litigation and directed the management to convey

the decision of court as and when received. The decision of court was awaited till


732


The Sub Committee pended the Para till the next meeting on 20-08-2015 with the

direction to submit comprehensive report on the issue.

PAC DIRECTIVE

The Sub-Committee recommended the Para for settlement subject to verification of

record by the Audit.

PTDC MOTELS NORTH (PVT) LTD.

3. PARA-176.2

The Audit pointed out that Trade debtors (unsecured) increased to Rs. 8.397

million as on June 30, 2007 from Rs. 6.842 million in 2005-06, registering an

increase of 23%. Efforts are required to be made to recover the outstanding dues.


The Sub Committee pended the Para with the direction to PAO to invite Managing

Director, Pakistan Tourism Development Corporation (PTDC) on 20-08-2015 with

a comprehensive report to be presented before the PAC.

PAC DIRECTIVE

The Sub-Committee recommended the Para for settlement subject to recovery of

balance amount and verification by the Audit.

MINISTRY OF CLIMATE CHANGE DIVISION 2007-08

ACTIONABLE POINTS


Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Ministry of

Climate Change Division held on 14th

October, 2015 are as under:-

733

CLIMATE CHANGE DIVISION

AUDIT REPORT PUBLIC SECTOR ENTERPRISES 2007-08

1. PARA-41&41.1 PAGE-75 ARPSE-2007-08 PAKISTAN ENVIRONMENTAL

PLANNING AND ARCHITECTURAL CONSULTANTS (PVT.) LIMITED

(PEPAC)

PAC DIRECTIVE

Sub-Committee recommended the para for settlement on the recommendation of

Audit/DAC.

2. PARA-41.2 PAGE-76 ARPSE-2007-08

PAKISTAN ENVIRONMENTAL PLANNING AND ARCHITECTURAL

ONSULTANTS (PVT.) LIMITED (PEPAC)

The Audit pointed out that professional fee receivable increased from Rs.9.703

million in 2005-06 to Rs.15.046 million in 2006-07 registering an increase of 55%

over previous year. The amount arrived at after providing for bad and doubtful

debts amounting to Rs.14.989 million. The management in the accounts for the

year 2005-06 created provision of doubtful debt of Rs.6.275 million but in the

accounts for the year 2006-07 provision of doubtful debts for the year 2005-06

increased from Rs.6.275 million to Rs.14.989 million which resulted into increase

of accumulated loss to Rs.19.750 million on June 30, 2006. Efforts may be made

for early realization of outstanding amount to avoid their conversion into bad debts

in the years to come.

The PAO informed that PEPAC is a consultancy firm which provides services to

various clients. Due to the nature and scope of work/business, there are ample

chances of bad debts during the course of work alongwith many bright prospects.

PAC DIRECTIVE

The Sub-Committee settled the para with the direction to PAO to get recovered

receivables and initiate action for write-off relating to non receivable if required so.

734

MINISTRY OF COMMERCE 2007-08

PAKISTAN TOBACCO BOARD

1. PARA NO. 15, (ARPSE-2007-08), PAGE-28,

INTRODUCTORY PARA

The Audit told that it is an introductory para and recommended for

settlement.

PAC DIRECTIVE

The Sub-Committee settled this para.

2. PARA NO. 15.1, (ARPSE-2007-08), PAGE-28,

WORKING RESULTS

The Audit told the working results of the Pakistan Tobacco Board in this

para, which are found satisfactory. Their income has risen up as compared to

the previous years and recommended for settlement.

The PAO replied that after discussing it in DAC meeting the Audit objection

has been resolved.

PAC DIRECTIVE

The Sub-Committee settled this para and appreciated the concerned officials; who

made struggles for making Pakistan Tobacco Board profitable.

3. PARA NO. 15.2, (ARPSE-2007-08), PAGE-29,

The Audit pointed out that Pakistan Tobacco Board’s research section are not

working properly. However, during DAC meeting Pakistan Tobacco Board

representatives told about their research work i.e. importing tobacco seeds and has

constituted tobacco research laboratories etc. On the satisfactory reply, DAC has

recommended this para for settlement.

735

The PAO explained that the board has more than two research stations. Main of

which is situated in Mardan, KPK. Further, seeds are also being imported to

improve the growth.

PAC DIRECTIVE

The Sub-Committee settled this para and directed the PAO to write a summery to

Govt. and to highlight the PAC remarks regarding the imported tobacco seeds that

the cultivation of these seeds, with in Pakistan, should be encouraged which may

save foreign reserves.

ANNEXURE-I, SERIAL-02, PAGE-347, (ARPSE-2007-08)

Audit pointed out that Pakistan Tobacco Board had delayed the submission of

accounts to Audit from the years 2006-07 to 2010-11, but subsequently the same

were provided. On the basis of which the para is recommended for settlement.

PAC DIRECTIVE

The Sub-Committee settled this para with remarks that submission of

accounts to Audit may not be delayed in future.

4. PARA NO. 16, (ARPSE-2007-08), PAGE-30,

NON-UTILIZATION OF GRANT RECEIVED FOR UP-GRADATION OF

LABORATORIES– RS.27.500 MILLION

The Audit pointed out that the grant of Rs.27.500 million was provided to

Pakistan Tobacco Board by Export Promotion Bureau for up gradation of

laboratories. However, their PC-1 was approved in 2009 and the grant was

released in 2005. The grants were not regularized to be released before the

approval of PC-1.

The PAO replied that this case has been discussed at different forums and the

DAC had recommended the PTB for initiating an inquiry. As per inquiry, the

funds have been spent over the up gradation of different research

laboratories and the un-utilized grant was returned back. Further, in past

there were no rules for the approval of PC-1 before releasing the grant.

736

PAC DIRECTIVE

The Sub-Committee settled this para with remarks that financial discipline

should necessarily be followed.

5. PARA NO. 17, (ARPSE-2007-08), PAGE-30-31,

NON-RECOVERY OF CESS COLLECTION RS.23.750 MILLION

The Audit pointed out that as per agreement dated June 29, 2007, one-fourth of the

bid amount was to be paid by the contractor at the time of auction and remaining in

three quarterly installments and as per clause-7, the contractor has no right to claim

any compensation for loss from the Board, in case the contractor fails to collect cess

within the stipulated period. Pakistan Tobacco Board, Peshawar awarded contract

dated June 29, 2007 for cess collection of tobacco from NWFP to M/s. Midrarullah

for the period starting from July 01, 2007 to June 30, 2008 at Rs. 45.000 million.

The contractor paid Rs.11.250 million at the time of auction and failed to deposit

any single penny for the remaining payable amount of Rs.33.750 million according

to the terms of the contract (i.e. 3 equal installments). The contractor stated that due

to poor production of tobacco in the area he was unable to pay installments but

continued the work. The Board did not cancel the agreement under clause-8 and

contractor was allowed to collect the cess on behalf of Board without any payment.

Audit was of the view that despite forfeiting security amounting to Rs 10 million, an

amount of Rs.23.750 million would remain unrealized. Matter was reported to the

management on April 19, 2008. In reply it was stated that the matter was referred to

the standing committee for redressing of the grievances of contractor to which he

did not agree. Consequently the matter was referred to the sole arbitrator on the

request of contractor. The arbitrator decided the matter in favor of PTB but the

contractor did not deposit the outstanding dues. The case had been filed in the court

of law for collection of PTB dues. Reply was not convincing as the management

was required to cancel the contract or impose penalty @ 10% of the installments as

the contractor was not entitled to claim any compensation for loss from the Board.

The issue was reported to the Ministry on June 20, 2008 the management in its reply

dated July 04, 2008 intimated that court has decided the case on July 31, 2008 in

favor of PTB. The DAC in its meeting held on September 08, 2008 directed the

management to recover the amount under the advice of audit. The matter was again

discussed in DAC meeting held on May 04, 2009. The management reiterated its

earlier reply that DAC directed the management to pursue the recovery vigorously.

737

The PAO replied that the contract was publicized in news paper on 20th

June, 2007;

it was done in very transparent manner, however, it is true that the PPRA rules were

not followed. The contractor proceeded against the PTB in the Court but the Court

gives its decision in favor of PTB. The contractor again proceeded and got Stay

order in this case from Hon. Court.

PAC DIRECTIVE

The Sub-Committee pended this para and directed the PAO to inquire the

matter on following basis with-in one month stipulated time:-

i. Whether the PTB had assessed the price before auction?

ii. Whether the publicity had been ensured?

iii. How many parties had participated in bidding auction?

iv. To whom, it was awarded?

v. What were the terms and conditions and whether the contract was

made as per the prescribed term & conditions?

Further, PAO may try to vacate the stay from the Hon. Court and after

vacating the reference may be forwarded to NAB for further inquiry against

the defaulters.

ACTIONABLE POINTS



Commerce on 17th

August 2015 are as under:-

AUDIT REPORT PUBLIC SECTOR ENTERPRISES

DIRECTOR GENERAL, COMMERCIAL AUDIT & EVALUATION,

LAHORE.

FOR THE YEAR 2007-08

(PAKISTAN TOBACCO BOARD)

1. PARA-15.2 /ARPSE-2007-08

PAC DIRECTIVE: (DATED 10.02.2015)

The Sub-Committee settled this Para and directed the PAO to write a summary to

Govt. and to highlight the PAC remarks regarding the imported tobacco seeds that

738

the cultivation of these seeds, with in Pakistan, should be encouraged which may

save foreign reserves.

The PAO informed that on the direction of Previous PAC meeting dated 10-02-15,

the letter/summary had been written by the Pakistan Tobacco Board (PTB) to the

Government.

PAC DIRECTIVE

The Sub-Committee recommended the Para for settlement.

2. PARA-17 /ARPSE-2007-08

NON-RECOVERY OF CESS COLLECTION RS.23.750 MILLION.

The Audit pointed out that as per clause-4 of the agreement dated June 29, 2007,

one-fourth of amount of bid was to be paid by the contractor at the time of auction

and remaining in three quarterly installments and as per clause-7, the contractor has

no right to claim any compensation for loss from the Board, in case the contractor

fails to collect cess within the stipulated period.

Pakistan Tobacco Board, Peshawar awarded contract dated June 29, 2007 for cess

collection of tobacco from NWFP to M/s. Midrarullah for the period July 01, 2007

to June 30, 2008 at Rs. 45.000 million. The contractor paid Rs.11.250 million at the

time of auction but subsequently did not deposit the remaining amount of

Rs.33.750 million payable in three equal installments of Rs.11.250 million each

after every three months. The contractor stated that due to poor production of

tobacco in the area he was unable to pay installments but continued the work. The

Board did not cancel the agreement under clause-8 and contractor was allowed to

collect the cess on behalf of Board without any payment. Audit was of the view that

despite forfeiting security amounting to Rs 10 million, an amount of Rs.23.750

million would remain unrealized.


The Sub-Committee pended this para and directed the PAO to inquire the matter on

following basis with-in one month stipulated time:-

i. Whether the PTB had assessed the price before auction?

ii. Whether the publicity had been ensured?

739

iii. How many parties had participated in bidding auction?

iv. To whom, it was awarded?

v. What were the terms and conditions and whether the contract was made as

per the prescribed term and conditions?

Further, PAO may try to vacate the stay from the Honourable Court and after

vacating the reference may be forwarded to NAB for further inquiry against the

defaulters.

The PAO informed that the report of inquiry committee had been received which

depict that the PEPRA Rules was not fully followed but was generally followed and

experience certificate could not be obtained from the contractor. The matter is in

the court of law and near to decision.

PAC DIRECTIVE

The Sub-Committee directed the PAO to provide inquiry report to the Audit for its

examinations and pended the Para till the views from Audit on that report.

MINISTRY OF DEFENCE PRODUCION

2007-08

7. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Defence

Production was examined by the PAC Sub-Com. III on 1st August 2011, 7

th May

2015 and 14th

December 2015.

7.1 60 paras were presented by the Audit Department which were examined by

the Committee. Out of which 53 paras were settled whereas appropriate

directions were accordingly issued for the remaining paras.

7.2 In few paras the PAO was directed to hold inquiries, fix responsibility and

initiate disciplinary actions.

740


ACTIONABLE POINTS



Defence Production held on 1st August 2011 are as under:-

AUDIT REPORT ON THE ACCOUNTS OF PUBLIC SECTOR

ENTERPRISES MINISTRY OF DEFENCE PRODUCTION FOR THE

YEAR 2007-08

PAKISTAN ORDNANCE FACTORY

1. PARA 1.4.15, PAGE 22- ARPSE-2007-08

LOSS DUE TO NON-INITIATION OF RISK PURCHASE – RS. 0.376

MILLION

Audit stated that POF Filling Factory awarded contract to M/s. National Plastic Ind.

Lahore, for supply of 173,800 Half Shell Guard for seven Horse Shoe Type Relay

at a total value of Rs 399,740. The firm did not supply the desired store up to

December 31, 2007. Consequently, the management cancelled the contract at the

risk and cost of the firm on February 14, 2008.

Audit further stated that fresh contract valuing Rs 776,190 was placed on M/s. Hi

Tech Plastic (Pvt) Ltd, Wah Cantt. Therefore, the management was required to

initiate risk purchase action and recover Rs.376,450 from M/s. National Plastic Ind.

Lahore.

The PAO informed the Committee that the firm, M/s National Plastic Ind. Lahore,

registration was cancelled and blacklisted by Ministry of Defence Production.

PAC DIRECTIVE

The para was kept pending with the directions that the company may be vigorously

pursued for payment and informed that strict action would be taken against them, if

payment is not made within one month.

741

PAKISTAN ORDNANCE CLOTHING FACTORY

2. PARA 2.2.6, PAGE 55-ARPSE 2007-08

BLOCKAGE OF FUND ON PURCHASE OF FUSING BUCKRAM- RS.

2.602 MILLION

Audit stated that POFs Clothing Factory awarded contract to M/s.Y2 K Industries

Ltd, Karachi, for supply of 18,168 meter fusing buckram white @ Rs 55 per meter

(total Rs 999,240). Store was to be delivered by February 29, 2008. At the time of

receipt of store a quantity of 29,935 meter was already available in store, thus,

raising the total stock to 48,103 meters. Out of which only 800 meters was

consumed by June 30, 2008, while 47,303 meter worth Rs 2.602 million (@

55Rs/m) remained unconsumed and due to cancellation of Army demand chances

of utilization of cloth valuing Rs 2.602 million were remote.

The PAO informed the Committee that the policy was changed by Army at that

time which resulted in non-utilization of stores for tailoring of uniforms and no

further order was delivered. The management was making vigorous efforts to

dispose off the remaining material.

PAC DIRECTIVE

The para was kept pending with the directions that the PAO may re-examine the

previous losses incurred by the POF’s Clothing Factory and settle the matter within

one month. The PAC observed that irrational decision/policies announced, without

proper systems being devised, leads to mismanagement and loss of public money

and needs to be stopped.

The DAC recommended the following Audit Paras for settlement by the Special

Committee.

PAKISTAN ORDNANCE FACTORY

3. i. PARA 1.4, PAGE 14, ARPSE- 2007-08

ii. PARA 1.4.1, PAGE 15-17, ARPSE- 2007-08

iii. PARA 1.4.2, PAGE 17-18, ARPSE- 2007-08

iv. PARA 1.4.3, PAGE 18, ARPSE- 2007-08

v. PARA 1.4.4, PAGE 18, ARPSE- 2007-08

vi. PARA 1.4.5, PAGE 18-19, ARPSE- 2007-08

742

vii. PARA 1.4.6, PAGE 19, ARPSE- 2007-08

viii. PARA 1.4.7, PAGE 19, ARPSE- 2007-08

ix. PARA 1.4.8, PAGE 19, ARPSE- 2007-08

x. PARA 1.4.9, PAGE 20, ARPSE- 2007-08

xi. PARA 1.4.10, PAGE 20, ARPSE- 2007-08

xii. PARA 1.4.11, PAGE 20, ARPSE- 2007-08

xiii. PARA 1.4.12, PAGE 20, ARPSE- 2007-08

xiv. PARA 1.4.13, PAGE 21, ARPSE- 2007-08

IRREGULAR AWARD OF TRANSPORTATION CONTRACT – RS

3.368 MILLION

xv. PARA 1.4.14, PAGE 22, ARPSE- 2007-08

NON-RECOVERY ON ACCOUNT OF WATER CHARGES – RS

1.114 MILLION

PAKISTAN ORDNANCE CLOTHING FACTORY

i. PARA 2.2, PAGE 53, ARPSE-2007-08

ii. PARA 2.2.1, PAGE 53, ARPSE- 2007-08

iii. PARA 2.2.2, PAGE 53, ARPSE- 2007-08


v. PARA 2.2.4, PAGE 54, ARPSE- 2007-08

vi. PARA 2.2.5, PAGE 54, ARPSE- 2007-08

WAH INDUSTRIES LIMITED

i. PARA 3.1, PAGE 81, ARPSE-2007-08

ii. PARA 3.1.1, PAGE 81, ARPSE- 2007-08

iii. PARA 3.1.2, PAGE 81, ARPSE- 2007-08


v. PARA 3.1.4, PAGE 82, ARPSE- 2007-08

vi. PARA 3.1.5, PAGE 83, ARPSE- 2007-08

vii. PARA 3.1.6, PAGE 83, ARPSE- 2007-08

viii. PARA 3.1.7, PAGE 83, ARPSE- 2007-08

ix. PARA 3.1.8, PAGE 83, ARPSE- 2007-08

x. PARA 3.1.9, PAGE 84, ARPSE- 2007-08

xi. PARA 3.1.10, PAGE 84, ARPSE- 2007-08

PAC DIRECTIVE

The Committee endorsed the recommendations of the DAC for settlement of the

above-mentioned thirty-two (32) Audit Paras.

743

PAKISTAN ORDINANCE FACTAORY

3. PARA NO.1.4.15 PAGE-22-23 (AR-2007-08) LOSS DUE TO

NON-INITIATION OF RISK PURCHASE – RS.0.376 MILLION

The Audit pointed out that POF Filling Factory awarded contract

No.05-LP-37-Pur-Fill, dated July 31, 2007 to M/s. National Plastic Ind. Lahore, for

supply of 173,800 Half Shell Guard for seven Horse Show Type Relay at a total

value of Rs. 399,740. The firm did not supply the desired store up to December 31,

2007, the scheduled time, consequently, the management cancelled the contract at

the risk and cost of the firm on February 14, 2008. A fresh contract,

No.56-LP-37-Pur-Fill, dated April 01, 2008 valuing Rs.776,190 was placed on M/s

Hi Tech plastic (Pvt.) Ltd. Wah Cantt. The management was required to initiate

risk purchase action and recover Rs. 376, 450 (Rs. 776,190-Rs.399,740) from M/s.

National Plastic Ind. Lahore. The management, however, failed to recover the said

amount, consequently, POFs had to bear an additional burden of Rs.376,450. PoF’s

authority was directed to take advice of Law & Justice Division for regularization

of loss as the litigation process so lengthy and expensive.

The PAO replied that despite of several reminders and final notice the firm failed to

supply the contracted store due to unusual increase in raw material of Petroleum

products. Therefore, taking the action against the defaulter firm and amount of

Rs.39,500 was confiscated and deposited in government treasury. It was also stated

that the prices of oil were increased during 20007-08 and therefore, the firm could

not maintain their contracted price. The firms registration with POF has been

cancelled vide letter dated 31.01.2008 and further business dealing with the firm

were stopped. The firm has also been blacklisted. The risk purchase amount is

Rs.335,950/- for which notices were served to the firm, but they did not pay.

Moreover, it was informed that the court case was decreed in favour of POF’s board

and execution petition was filed in the Court.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement.

744

PAKISTAN ORDINANCE CLOTHING FACTORY

4. PARA NO.2.2.6, PAGE-55 (AR-2007-08) COMMENTS ON ACCOUNTS

BLOCKAGE OF FUND ON PURCHASE OF FUSING BUCKRAM –

RS.2.602 MILLION

The Audit pointed out that POF’s Clothing Factory awarded contract

No.42/LP/37/Pur/Clo dated December 06-2007 to M/s. y2K Industries LTD.

Karachi for supply of 18.168 meter fusing buckram white @ Rs.55 per meter (total

Rs.999,240). Store was to be delivered by February 29, 2008. At the time of receipt

of store a quantity of Rs. 29,935 meter was already available in store, thus, raising

the total stock to 48,103 meters. Out of which only 800 meters was consumed by

June 30, 2008, while 47,303 meter worth Rs.2.602 million @ 55 RS/m) remained

unconsumed. The GHQ LS Branch Rawalpindi conveyed the decision of the

competent authority discontinuation of Army uniform vide letter

No.16157/Tgt/pl/05-07 dated February 23, 2008. Due to cancellation of Army

demand chances of utilization of cloth valuing Rs.2.602 million were very less.

POF’s authority was directed to give a certificate of the shelf life of store and

progress of utilization of remaining buckram within one week.

The PAO replied that it is clarified that the firm tendered full Qty i.e. 18168 Meters

Fusing Buckram White to Inspectorate vide Challan dated, 18-01-2008 against

Contract No.42-Lp-Pur-Clo dated 06-12-07. Requisite store was procured to meet

the production targets of DOS for the year 2008-09. The Qty 29,935 Meters

available in the store during Feb 2008 consisted over 10,000 Meters required for

the financial year 2008-09 and the remaining Qty was for the clearance of backlog

target of CCD uniform pertaining to the period 2007-08 . The buckram was stored

before stored before the decision regarding discontinuation of stitching of CCD

was received, The bukram had no alternate use and therefore, advertised twice by

Wah Industries limited for disposal, but the rates received were too low. Army has

given indication of giving fresh orders for uniform, wherein the bukram could be

utilized. Hence it has been reserved for the same.

PAC DIRECTIVE


745

FEDERALLY ADMINISTRATED TRIBAL AREAS (FATA)

2007-08

9. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Federally

Administrated Tribal Areas (FATA) was examined by the PAC Sub-Com. III on 9th

August 2011.


the Committee.

FEDERALLY ADMINISTERED TRIBAL AREAS (FATA)

SECRETARIAT

ACTIONABLE POINTS


Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Federally

Administered Tribal Areas (FATA) held on 9th


AUDIT REPORT ON THE ACCOUNTS OF FATA SECRETARIAT FOR

THE AUDIT YEAR 2007-08 (FINANCIAL YEAR 2006 07)

15. i. PARA 15.1, PAGE 174-AR-2006-07

IRREGULAR EXPENDITURE OF RS. 1.575.3403 MILLION

INCURRED ON THE EXECUTION OF SCHEMES IN ABSENCE

OF TECHNICAL SANCTION ii. PARA 15.2, PAGE 174-AR-2006-07

IRREGULAR DRAWL OF RS. 11.828 MILLION TO AVOID LAPSE

OF FUNDS iii. PARA 15.3, PAGE 175-AR-2006-07

UNJUSTIFIED EXPENDITURE ON A TECHNICALLY

UNFEASIBLE PROJECT iv. PARA 15.4 , PAGE 176-AR-2006-07

IRREGULAR TRANSFER OF PUBLIC FUND AMOUNTING TO S.

24.768 MILLION FROM GOVERNMENT ACCOUNT TO

PRIVATE ACCOUNT.

746

v. PARA 15.5, PAGE 177-AR-2006-07

LOSS OF RS. 47.380 MILLION TO GOVERNMENT DUE TO NON

DEPOSIT OF SALE PROCEEDS OF MACHINERY INTO

GOVERNMENT TREASURY

The PAO informed the Committee that all the relevant record against the

above-mentioned Audit Paras would be provided to Audit for verification.

PAC DIRECTIVE

The above mentioned five paras were settled subject to verifications as required by

Audit.

FINANCE DIVISION 2007-08

11. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Cabinet Division was

examined by the PAC Sub-Com. III on 19th

July 2011 and 14th

October 2015.






FINANCE DIVISION

ACTIONABLE POINTS


Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Finance


, July 2011 are as under:-

747

AUDIT REPORT ON THE ACCOUNTS OF PUBLIC SECTOR

ENTERPRISES FOR THE YEAR 2007-08


1. i. PARA 54, PAGE 97-ARPSE-2007-08 (AUDIT COMMENTS)

ii. PARA 54.1, PAGE 97-ARPSE-2007-08 (WORKING RESULTS)

PAC DIRECTIVE

The Committee endorsed the recommendations of the DAC for settlement of the

above-mentioned two (02) Audit Paras.

2. i. PARA 55, PAGE 99-ARPSE-2007-08

DOUBTFUL RECOVERY OF LOANS DUE TO NON-INITIATION

OF PROCEEDINGS UNDER FINANCIAL INSTITUTIONS

RECOVERY OF FINANCES ORDINANCE 2001 – RS. 9.326

MILLION

The Audit stated that SME Bank, Rawalpindi, disbursed loans to five borrowers

amounting to Rs.4.730 million during the period from 1990 to 1997 after mortgage

of properties. These borrowers failed to repay their loan installments on due dates

and went in default of Rs.9.326 million in 1997-98, but the management did not

take any action under above referred sections of FIO-2001 and defaulted amount

could not be realized.

ii. PARA 57, PAGE 101-ARPSE-2007-08

LOSS DUE TO NON-RECOVERY OF OVERDUE FINANCIAL

ASSISTANCE –RS. 0.432 million

The Audit stated that SME Bank, Mingora Branch sanctioned financial assistance

of Rs.200,000 on March 20, 1999 in favour of Mr. Khadimullah for purchase and

sale of cement. The loan was disbursed in two equal installments of Rs.100,000

each on March 20 and June 19, 1999 respectively. The loan including mark up of

15% was required to be repaid in 72 equally monthly installments commencing

from November 20, 2000. The borrowers repaid only Rs.3,000 on January 14,

2002. An amount of Rs.432,379 including markup Rs.232,379 was recoverable

748

from the borrowers on June 30, 2006. Although the repayment period had expired,

but no action under the above referred clause of agreement was initiated against the

defaulter.

The PAO informed the Committee on the above-mentioned two (02) Audit Paras

that the loan accounts inherited from defunct SBFC & RDFC had been assigned to

NBP since July, 2010.

PAC DIRECTIVE

The Committee directed the PAO to submit monthly follow-up reports on the

above two paras.

3. PARA 56, PAGE 100-ARPSE-2007-08

NON-RECOVERY OF INSURANCE PREMIUM PAID ON BEHALF OF

EMPLOYEES – RS. 2.349 MILLION

The Audit stated that SME Bank, Islamabad obtained insured employee loans from

State Life Insurance Corporation (SLIC), Rawalpindi on February 18, 1999. A

payment of Rs.2.349 million was made to the SLIC for the period April 5, 1999 to

June 30, 2006 but the same was not shown as recoverable from the bank

employees.

The PAO informed the Committee that the PAC had constituted a Committee

comprising of representatives of Auditor General, Finance and Law Ministries to

decide, whether the BOD of the bank was competent enough to make such

decisions keeping aside instructions of the Government issued from time to time.

The PAO further informed that the said committee has up hold the bank’s

viewpoint in the case.

PAC DIRECTIVE

The PAO was directed to re-examine the Committee’s report, which was

constituted to resolve the issue raised in the Audit para, to determine that the

decision of the Board was in line with Government Rules and Regulations.

749


4. i. PARA 59, PAGE 107-ARPSE-2007-08

MISAPPROPRIATION BY FRAUDULENT WITHDRAWAL OF

LOANS BY EMPLOYEES – RS. 39.385 MILLION

The Audit stated that in ZTBL, funds amounting to Rs.54.985 million were

withdrawn fraudulently in 264 loan cases by the employees posted at ZTBL,

Sohbatpur Branch, Balochistan during the period from January 01, 2003 to April

15, 2004. The enquiry was conducted by the management and charges proved.

Fraud was committed intentionally by preparing fake securities, fake agriculture

pass books, fictitious mutation and NICs of the borrowers by changing names of

the borrowers and their father’s names.

Audit further stated that Revenue Office and NADRA also confirmed that

particulars of borrowers provided by ZTBL were fake. On the findings of Enquiry

Committee, President of ZTBL imposed a major penalty and dismissed five

officers from Bank services with effect from May 19, 2006 and obtained

undertaking from the accused that they would make good the loss. The

management succeeded to recover a sum of Rs.15.600 million but remaining

amount of Rs.39.385 million could not be recovered from the accused.

Audit further stated that the management had registered the case with NAB, Quetta

for recovery of Bank’s money, but no progress towards recovery effected was

intimated.

The PAO informed the Committee that the case was pending adjudication before

the Accountability Court, Quetta and next date of hearing is 28-07-2011. The

management was pursuing the court case for recovery of outstanding loan amount,

vigorously.

ii. PARA 62, PAGE 111-ARPSE-2007-08

NON-RECOVERY OF BANK DUES – RS. 3.918 MILLION

The Audit stated that ZTBL, Deh Tore (Gadap) Branch, Karachi disbursed loans of

Rs.2.776 million to four borrowers for poultry structure during the year 1988-89,

which were required to be recovered up to July, 1997. The borrowers failed to

repay the due installments and went into default. The bank management transferred

the said loan cases to the doubtful loan ledger in June, 1993 and subsequently no

750

interest was charged thereon. Only an amount of Rs.0.240 million was recovered

from borrowers and amount of Rs.3.918 million was outstanding against them

since 1993.

The PAO informed the Committee about the updated developments /recovery

progress in the case that an amount of Rs. 0.169 M had been recovered against the

disbursed amount of Rs. 2.776 million. The cases were pending adjudication before

the various courts of law. The management was pursuing the court cases,

vigorously, for effecting recovery of outstanding loans.

PAC DIRECTIVE

The Committee directed the PAO to submit monthly follow-up reports on the

above two paras

5. PARA 60, PAGE 108-ARPSE-2007-08

LOSS DUE TO INVESTMENT IN COMPANIES – RS. 27.197 MILLION

The Audit stated that :-

a) ZTBL (then ADBP) purchased share capital valuing Rs.3.000 million of

M/s. Dadabhoy Agricultural Leasing Company Limited in September 1986 with

the approval of Finance Division. The company was under suspension since

November 2001 and at the time of suspension the market value of a share was



b) The bank purchased one million equity share valuing Rs.10.000 million of

M/s Saudi Pak Kalabagh Livestock Company Limited during the years 1985-87

with the permission of Government of Pakistan and Board of Directors. The

company is non operational, resultantly the ZTBL sustained loss.

c) ZTBL purchased 141,970 shares valuing Rs.14.197 million of Larkana

Sugar Mills Limited in July 1989. The company is in the process of liquidation

since February 2000 and there is no probability of any recovery of investment on

final settlement.

The PAO requested the Committee that this para may be referred to the DAC for

reviewing the documentary evidence by the ZTBL.

751

PAC DIRECTIVE

The Committee remanded the para back to the DAC for reviewing the documentary

evidence submitted by the ZTBL and verify record/authorization in this case.

6. PARA 61, PAGE 110-ARPSE-2007-08

REDEMPTION OF SECURITIES WITHOUT RECOVERY OF

OUTSTANDING LOANS – RS. 14.582 MILLION

The Audit stated that ZTBL, D.G. Khan disbursed an amount of Rs.16.318 million

to 36 borrowers during the years 1996 to 2001 against the security of agricultural

land. The pledged agricultural land of the loan cases was redeemed during the years

2000-2001 without recovery of outstanding amount of Rs. 19.982 million.

Representative Finance Division informed the Committee that the decisions of the

NAB Court had been implemented and the accused was dismissed from the service

and the management was pursuing for recovery of outstanding loan amount

through normal legal proceedings.

PAC DIRECTIVE

The PAO was directed to follow the decision of the DAC held on 14th

July, 2011,

obtain legal advice to initiate departmental proceedings for recovery of the

outstanding amount and report to the PAC Secretariat within one month.

7. PARA 63, PAGE 111-12-ARPSE-2007-08

EMBEZZLEMENT DUE TO NON-DEPOSIT OF COLLECTED AMOUNT

INTO BANK ACCOUNT – RS. 1.007 MILLION

The Audit stated that ZTBL, Khanewal branch sanctioned and disbursed loans

amounting to Rs.720,000 to two borrowers from July 24, 2002 to August 16, 2002

for the purchase of tractors and inputs. Borrowers could not return the loans in

time, as a result the outstanding balance rose to Rs.1.007 million. However, it was

observed that a sum of Rs.1.007 million collected from borrowers by MCO in

November 2004 was not deposited into Bank account. Subsequently NOCs were

issued on November 12, 2004 and land of both the borrowers was redeemed.

Audit further stated that management of ZTBL assigned the preliminary enquiry to

752

the Manager, ZTBL, Vehari. According to the findings of preliminary enquiry of

December 2007, embezzlement of Rs.1.007 million was established which

occurred with the connivance of Bank employees.

Representative Finance Division informed the Committee that M/s Zahoor Ahmed

Bhatti, Sr. Officer & Tassawar Hussain, Sr. Assistant were held responsible for

embezzlement. An amount of Rs.300,200 had been recovered and the department

was pursing for the recovery of remaining outstanding amount.

Representative Finance Division further informed that FIR had been registered

against the said accused persons in FIA and Investigation by FIA is under process.

PAC DIRECTIVE

The above para was settled by the Committee.


8. i. PARA 54.1-ARPSE-2007-08

ii. PARA 54.2-ARPSE-2007-08


i. PARA 58.-ARPSE-2007-08

ii. PARA 58.2-ARPSE-2007-08

iii. PARA 58.3-ARPSE-2007-08

iv. PARA 58.4-ARPSE-2007-08

v. PARA 58.5-ARPSE-2007-08

PAC DIRECTIVE

The Committee endorsed the recommendations of the DAC for settlement of

the above-mentioned seven (07) Audit Paras.

753

AUDIT REPORT ON THE ACCOUNTS OF MINISTRY OF FINANCE

FOR THE AUDIT YEAR 2007-08 (FINANCIAL YEAR 2006-07

9. PARA 7.1, PAGE 89, AR-2007-08

UNRECORDED FEDERAL GOVERNMENT INVESTMENTS VALUING

RS. 49.284 BILLION

The Audit stated that in the Financial Statements of the Federal Government,

information regarding the value of investment was not updated. The figures had

been compared the book value reflected in the financial statements of the individual

companies with the book value of investments reflected in the Financial Statements

of the Federal Government.

Member Finance Division further informed that the investments of the Government

Departments would be reconciled and the documents would be provided to Audit

and the Committee.

PAC DIRECTIVE

The para was remanded back to the DAC for reconciliation of figures of

Government investments reflected in Financial Statement of the Companies and the

Federal Government, being undertaken by the Corporate Finance Wing. A report

may be submitted to the PAC within two weeks.

10. PARA 7.2, PAGE 91, AR-2007-08

DIRECT PAYMENTS OF RS. 58,872 MILLION BY FINANCE DIVISION

WITHOUT AUTHORIZATION OF AGPR MAINLY ON ACCOUNT OF

ELECTRICITY TARIFF DIFFERENTIAL AND ADDITIONAL GST

SUBSIDIES

The Audit stated that scrutiny of records of subsidy paid to KESC and WAPDA

mainly on account of tariff differential & additional GST, revealed that the Finance

Division withdrew funds by direct payments through State Bank of Pakistan and

these were credited to Federal Consolidated Fund.

Audit further stated that Finance Division in the past also made direct payments

through SBP without authorization of AGPR. The above practice raises doubts

over authenticity of payments made without prior approval of AGPR and payments

754

made without proper supporting documents may result in wrong amount being

booked as payments.

The PAO informed the Committee that releases from budgetary allocations were

made through normal course i.e. authorization by AGPR.

PAC DIRECTIVE

The para was settled subject to presentation of the system in practice for direct

payments to the Audit and verification by Audit within two weeks.

11. PARA 7.3, PAGE 92, AR-2007-08

EXCESS TEXTILE SUBSIDY OF RS. 4.5 BILLION

The Audit stated that the management of Ministry of Commerce had authorized

SBP for direct payments to textile sector through issuance of Research &

Development Support Order, 2005 in the light of Import and Export (Control) Act,

1950.

Audit further stated that through aforementioned SRO management of Ministry of

Commerce authorized the SBP beyond its jurisdiction for making payment out of

Federal Consolidated Fund.

Audit further stated that R&D subsidy amounting to Rs 5,754 million was paid in

2005-06 in the light of the SRO. Ministry of Commerce was well aware of the fact

that the payment had to be made in 2006-07 for R&D subsidy but no budget was

allocated in the original grant and a supplementary grant of Rs 9,586 Million was

issued near year-end on June 30, 2007 to partially meet the actual expenditure of Rs

14,100 million in 2006-07. This supplementary grant was booked against Grant No

43 of Finance Division instead of a grant maintained by Commerce Division.

The PAO informed the Committee that a procedure had been formulated with the

concurrence of Auditor General of Pakistan, AGPR and SBP to regulate the

payment of subsidy on account of R&D support to the Textile sector and the system

had been streamlined to properly account for all such transactions.

PAC DIRECTIVE

The para was settled subject to regularization of the excess expenditure and

verification by Audit.

755

12. PARA 7.4, PAGE 93, AR-2007-08

EXCESS EXPENDITURE UPTO RS. 1.632 MILLION ON ACCOUNT OF

PAYMENT OF INCOME TAX ON BEHALF OF CONSULTANTS

The Audit stated that during the review of accounts involving ADB loan

“Strengthening of Pension, Insurance and Savings Systems”, it was observed that

management paid a sum of Rs 1,632,867 as income tax to the income tax

department against the amounts paid to the consultant.

Audit further stated that the management entered into an agreement with M/s Sidat

Murshad on account of Package C of PC-II (4). The face value of the agreement

was US$ 485,385/- and the firm was paid US$ 478,512/82 equal to PKR

28,944,210/-.

Audit further stated that Double payment of income tax may be recovered.

The PAO requested the Committee to allow some time to reconsider the issue and a

progress report would be submitted to the Audit and the Committee within two

weeks.

PAC DIRECTIVE

The PAO was directed to verify complete facts of the case viz-a-viz relevant

clauses of the agreements, and ensure recovery. A report may be submitted to the

PAC and Audit in one month

ACTIONABLE POINTS


Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Finance


October 2015 are as under:-

FINANCE DIVISION


1. PARA-56, PAGE-100 ARPSE-2007-08 SMALL AND MEDIUM

ENTERPRISES BANK (SME) BRIEF OF PARA.

756

NON-RECOVERY OF INSURANCE PREMIUM PAID ON BEHALF OF

EMPLOYEES– RS.2.349 MILLION

The Audit pointed out that according to Para 114 of Award of the Fourth Wage

Commission, the insurance charges for house building and motorcycle / scooter

purchased out of advances should be borne by the employees receiving advances.

The same condition remained in-tact in Fifth, Sixth and Seventh Wage Award.

Small and Medium Enterprises Bank, Islamabad obtained insured employee loans

from State Life Insurance Corporation (SLIC), Rawalpindi on February 18, 1999.

A payment of Rs.2.349 million was made to the SLIC for the period April 5, 1999

to June 30, 2006 but the same was not shown as recoverable from the bank

employees.


The PAO was directed to re-examine the Committee’s report, which was

constituted to resolve the issue raised in the audit para, to determine that the

decision of the Board was in line with Government Rules and regulations.

The PAO informed that the action was taken by the SME Bank with the approval of

BOD who was competent for the purpose.

PAC DIRECTIVE

The Sub-Committee settled the para subject to provision of approval of BOD to the

Audit for verification and directed the PAO to follow the rules at every tier/level.

2. PARA-60, PAGE-108 ARPSE-2007-08 ZARAI TARAQIATI BANK LTD

(ZTBL)

LOSS DUE TO INVESTMENT IN COMPANIES – RS.27.197 MILLION

The Audit pointed out that according to para 1.2 and 2 of ZTBL Funds of placement

Policy, significant controls and review measures need to be adopted. The objectives

of the Funds Placement operation are as follows.

i. To maintain sufficient liquidity for the bank to honor its commitments as

they fall due.

757

ii. To maximize overall return on damaged assets.

iii. Deposits may only be placed with approved banks and financial institutions

who meet the following criteria:-

a) Comply with the regulatory requirements.

b) Whose owners with controlling interest have good market repute.

(a) ZTBL (then ADBP) purchased share capital valuing Rs.3.000 million of

M/s. Dadabhoy Agricultural Leasing Company Limited in September 1986 with

the approval of Finance Division. The company was under suspension since

November 2001 and at the time of suspension the market value of a share was



(b) The bank purchased one million equity share valuing Rs.10.000 million of

M/s Saudi Pak Kalabagh Livestock Company Limited during the years 1985-87

with the permission of Government of Pakistan and Board of Directors. The

company is non operational, resultantly the ZTBL sustained loss.

(c) ZTBL purchased 141,970 shares valuing Rs.14.197 million of Larkana

Sugar Mills Limited in July 1989. The company is in the process of liquidation

since February 2000 and there is no probability of any recovery of investment on

final settlement.


The Committee remanded the para back to the DAC for reviewing the documentary

evidence submitted by the ZTBL and verify record / authorization in this case.

The PAO informed that as decided in the DAC the management would place the

matter before the BOD for appropriate decision.

PAC DIRECTIVE

The Sub-Committee pended the para and directed the PAO to discuss the matter in

the BOD and share its outcome at DAC level then further report the Committee.

758

3. PARA-57, PAGE-101 ARPSE-2007-08 SMALL AND MEDIUM

ENTERPRISES BANK (SME)

LOSS DUE TO NON-RECOVERY OF OVERDUE FINANCIAL

ASSISTANCE – RS.0.432 MILLION


The committee directed the PAO to submit monthly follow-up report.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement on the recommendation

of the Audit/DAC.

DETAIL OF COURT CASES

4. i. PARA-55, PAGE-99 ARPSE-2007-08 SMALL AND MEDIUM

ENTERPRISES BANK (SME)

DOUBTFUL RECOVERY OF LOANS DUE TO NON-INITIATION

OF PROCEEDINGS UNDER FINANCIAL INSTITUTIONS

(RECOVERY OF FINANCES) ORDINANCE, 2001 – RS. 9.326

MILLION

ii. PARA-59, PAGE-107 ARPSE-2007-08 ZARAI TARAQIATI BANK

LTD (ZTBL)

MISAPPROPRIATION BY FRAUDULENT WITHDRAWAL OF

LOANS BY EMPLOYEES – RS.39.385 MILLION

iii. PARA-61, PAGE-110 ARPSE-2007-08 ZARAI TARAQIATI BANK

LTD (ZTBL)

REDEMPTION OF SECURITIES WITHOUT RECOVERY OF

OUTSTANDING LOANS– RS. 14.582 MILLION

iv. PARA-62, PAGE-111 ARPSE-2007-08 ZARAI TARAQIATI BANK

LTD (ZTBL)

NON-RECOVERY OF BANK DUES – RS. 3.918 MILLION

759

PAC DIRECTIVE

The Sub-Committee pended the above mentioned 4 paras due to sub-judice in

nature

PARAS RECOMMENDED FOR PURSUANCE AT DAC LEVEL

13. i. PARA-44 (D) (ARPSE-2007-2008) PAGE-83

NON-RECOVERY OF HOUSING LOANS FROM THE

DEFAULTERS - RS.6.404 MILLION

ii. PARA-45.3 (ARPSE-2007-2008) PAGE-86

iii. PARA-48 (ARPSE-2007-2008) PAGE-88

NON-RECOVERY OF ADVANCES OUTSTANDING AGAINST

EX-EMPLOYEES – RS.1.804 MILLION

iv. PARA-49.2 (ARPSE-2007-2008) PAGE-91

v. PARA-51.2 (ARPSE-2007-2008) PAGE-94

vi. PARA-53 (ARPSE-2007-2008) PAGE-95

IRREGULAR CONTRACT APPOINTMENT OF AN EXECUTIVE

WITH UNDUE SALARY PACKAGE OF RS.13.766 MILLION PER

ANNUM

PAC DIRECTIVE

The Sub-Committee recommended the above mentioned 6 paras for pursuance at

DAC level and report to Committee.

COURT CASES

14. i. PARA-46 (ARPSE-2007-2008) PAGE-86

NON-RECOVERY OF DUES FROM A DEFAULTING BORROWER -

RS.23.917 MILLION

ii. PARA-48 (ARPSE-2007-2008) PAGE-88

NON-RECOVERY OF ADVANCES OUTSTANDING AGAINST

EX-EMPLOYEES – RS.1.804 MILLION

PAC DIRECTIVE

The Sub-Committee pended the above mentioned two paras due to sub-judice in

nature.

760

PARAS RECOMMENDED FOR SETTLEMENT/DELETION BY DAC

15. i. PARA-42 (ARPSE-2007-2008)PAGE-79

ii. PARA-42.1 (ARPSE-2007-2008) PAGE-79

iii. PARA-42.2 (ARPSE-2007-2008)PAGE-80

iv. PARA-45 (ARPSE-2007-2008) PAGE-85

v. PARA-45.1 (ARPSE-2007-2008) PAGE-85

vi. PARA-49(ARPSE-2007-2008) PAGE-90

vii. PARA-49.1 (ARPSE-2007-2008) PAGE-90

viii. PARA-49.3 (ARPSE-2007-2008) PAGE-91

ix. PARA-51(ARPSE-2007-2008) PAGE-93

x. PARA-51.1 (ARPSE-2007-2008) PAGE-93

PAC DIRECTIVE

The Sub Committee recommended the above mentioned 10 paras for settlement on

the recommendation of Audit.

MINISTRY OF HOUSING & WORKS

2007-08

13. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Housing &

Works was examined by the PAC Sub-Com. III on 1st July 2014 and 14

th October

2015.






761

ACTIONABLE POINTS



Hosing & Works held on 14th


MINISTRY OF HOUSING & WORKS


1. ANNEXURE-I SERIAL NO. 5 NON SUBMISSION OF ACCOUNTS

PAKISTAN HOUSING AUTHORITY (PHA)

The Audit pointed that Pakistan Housing Authority was established under

resolution of Cabinet Division dated May 19, 1999 and further reorganized by

resolution of the Ministry of Housing and Works dated March 8, 2000. The main

objectives of the Authority is to provide shelter to low income groups.

Audited Accounts of Pakistan Housing Authority for the year 2002-03 to 2006-07

was required to be provided to the Director General, Commercial Audit &

Evaluation, Lahore by January 15, 2008 . Despite repeated reminders the authority

fails to provide the accounts on due dates.

The PAO informed that the accounts of the department had been finalized till 2012.

PAC DIRECTIVE

The Sub-Committee settled the para subject to verification of up-dated annual

accounts of the department by the Audit. The PAO assured the Committee that the

up-dated accounts till 2015 would be submitted to Audit for the verification within

60 days.

2. PARA-68 & 68.1 NATIONAL CONSTRUCTION LIMITED (NCL)

PAC DIRECTIVE


of Audit.

762

3. PARA-69 PAGE-130 ARPSE-2007-08 NATIONAL CONSTRUCTION

LIMITED (NCL) BRIEF OF PARA, LOSS DUE TO NON-COMPLETION

OF PROJECT WITHIN CONTRACT PERIOD-RS.6.309 MILLION.

The Audit pointed that as per agreement dated October 14, 2003 the project was to

be completed within 18 months of award of contracts.

The National Construction Limited (NCL) entered into an agreement with Azad

Jammu & Kashmir Council, Sect-II Islamabad on 14-10-2003 for the construction

of Directorate of Training & Hostel Building, Accounts Office & Income Tax

Office Building and Residential Colony at Palandari. The cost of the project was

Rs. 71.990 Million.

The Council issued the letter of commencement on 18-10-2003, and site was

handed over on 02-01-2004. As such, the project was to be completed by July 2005.

According to the client, The pace of work at site was very slow as only 6% work

was executed up to the target date. A meeting was held on 30-07-2005 in the office

of the Secretary, AJ&K Council to discuss the slow pace of work, grant of

extension in completion period and mobilization advance. The MD NCL while

accepted the slow pace of work because of financial constraints, committed for

early completion of the project.

The AJ&K Council Secretariat vide its letter dated 18-01-2006 stated that despite

commitment the NCL failed to start work. The Council served a Legal Notice dated

04-02-2006 for cancellation of the contract as per clause17.1 of the agreement due

to slow progress of the work, i.e. 8.10%.

It was observed from the Profit & Loss Account of the project that NCL expended

an amount of Rs 12.925 million on said project against which an amount of Rs

6.616 million was received. As the contract had been cancelled by the client,

hence, the chances of recovery of remaining amount of Rs 6.309 million were

remote. Thus, due to failure of NCL in completion of the project, the Company

would sustain a loss of Rs 6.309 million.

PAC DIRECTIVE

The Sub-Committee recommended the para for pursuance at DAC level.

763

MINISTRY OF INDUSTRIES & PRODUCION 2007-08

14. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Industries

& Production was examined by the PAC Sub-Com. III on 12th

March 2014, 26th

January 2015 and 12th

October 2015.






MINISTRY OF INDUSTRIES & PRODUCION

ACTIONABLE POINTS



Industries and Production held on 12th

March, 2014 are as under:-


INDUSTRIES

NATIONAL FERTILIZER CORPORATION OF PAKISTAN (PVT.)

LIMITED

1. i. PARA-85 & 85.1

LOSS OF RS.2.616 BILLION DURING THE YEAR 2006-07 AS

AGAINST THE NET POFIT OF RS.525.460 MILLION IN THE

PREVIOUS YEAR.

ii. PARA-85.2

PROVISION OF FINANCIAL ASSISTANCE TO SUBSIDIARY

COMPANY AT LESSER RATE

764

NFC INSTITUTE OF ENGINEERING AND FERTILIZER RESEARCH

(PVT.) LIMITED, FAISALABAD

iii. PARA-86 & 86.1

EXCESS OF INCOME OVER EXPENDITURE (21.558 MILLION IN

2006-07 AS COMPARED TO 15.915 MILLION IN 2005-06

NFC INSTITUTE OF ENGINEERING AND TECHNOLOGICAL

TRAINING (PVT.) LIMITED, MULTAN

iv. PARA- 87 & 87.1

INCREASE IN EXPENDITURE OF RS.77.398 MILLION IN 2006-07

FROM RS.69.776 MILLION IN 2005-06

NATIONAL FERTILIZER MARKETING LIMITED

v. PARA-88 & 88.1

DECREASE IN SALE OF RS.2,136.471 MILLION IN 2006-07 FROM

RS.4,813.05 MILLION IN 2005-06

PAC DIRECTIVE

The Committee settled the above five (05) paras.

UTILITY STORES CORPORATION OF PAKISTAN (PVT.) LIMITED

2. PARA- 89 & 89.1

INCREASE IN COST OF SALES IN 2006-07 I.E 93.96 %

PAC DIRECTIVE

The Committee settled the para with the direction to provide information to the

PAC Secretariat with regard to the percentage of cost of sale in relation to the

volume of sales.

3. PARA-89.2

RECOVERY OF RS. 126.583 MILLION

The Audit pointed out that an amount of Rs 126.583 million was recoverable from

the Store In-charges on account of theft and pilferage. Out of this amount provision

765

of doubtful debts amounting to Rs.84.139 million had been made. Theft of huge

amount of store is indicative of weak internal controls resulting in huge losses to

the Company.

PAC DIRECTIVE

The Committee directed the PAO to recover the outstanding amount after

settlement of the court cases.

4. PARA-89.3

PROVISION FOR SLOW MOVING AND OBSOLETE ITEMS OF

RS.10.969 MILLION IN THE ACCOUNTS OF THE PREVIOUS YEARS.

PAC DIRECTIVE

The Committee directed the PAO to conduct an inquiry in the case and a report

thereof may be provided to the Committee within one month which inter alia

contains the following information.

i) List of slow moving items

ii) Total volume

iii) Names of the companies

iv) Prices of items worth more than ten hundred thousand.

5. PARA-90,

PROCUREMENT IN VIOLATION OF PPRA RULES, 2004 – RS. 2,483.518

MILLION

The Audit pointed out that Utility Stores Corporation purchased various

commodities valuing Rs.2,483.518 million during the years 2004-05, 2005-06 and

2006-07 in violation of Public Procurement Rules 2004, on the basis of three

quotations, resultantly the Corporation was deprived of the benefits of competitive

rates.

The Departmental Representative replied that the matter has been taken up with

Public Procurement Regularity Authority (PPRA). Consequently, PPRA appointed

M/s. Anjum Asim Shahid Rehman as Consultants to examine USC Procurement

Rules and give their recommendations. According to Consultants’ report, in view

of peculiar nature of operations, the procurement of commodities by USC may be

exempted from the purview of the Public Procurement Rules, 2004, however no

766

exemption has been granted by the Authority. The Ministry admitted that no

PEPRA Rules were followed and termed it an irregularity.

PAC DIRECTIVE

The Committee directed the PAO to conduct inquiry by fixing responsibility and a

report thereof be sent to the Committee within one month.

6. PARA-91

NON-RECOVERY OF SALE PROCEEDS OF EMPTY SUGAR BAGS –

RS.20.527 MILLION

PAC DIRECTIVE

The Committee settled the para subject to verification of record by Audit.

7. PARA-92

LOSS DUE TO DEFECTIVE PROCUREMENT OF CONFISCATED

GOODS BY USC – RS.6.087 MILLION.

PAC DIRECTIVE

The Committee settled the para.

8. PARA-93,

LOSS DUE TO THEFT / BURGLARY OF CASH AND STORES – RS. 2.087

MILLION

PAC DIRECTIVE

The Committee settled the para subject to recovery of insurance claims.

767



MINISTRY OF PRODUCTION

STATE ENGINEERING CORPORATION (PVT.) LIMITED

1. PARA-79&79.1

NET LOSS OF RS.43.27 MILLION

The Audit pointed out that the Corporation sustained a net loss of Rs.43.27 million

during the year under review and its accumulated loss increased to Rs.1,613.17

million as on June 30, 2007. The main reason for the loss was perpetual increase in

operating expenses which increased by 61.89% over the previous year.

The Management replied that accumulated deficit has been turned around in view

of book adjustment of diminution in the fair value of SEC investment in the units. It

was added that the organization was in the Privatization list who can be in a

position to expedite its process.

PAC DIRECTIVE

The Committee settled the para, however, directed that the PAO to examine the

affairs of the Organization and propose suggestions for its improvement.

HEAVY ELECTRICAL COMPLEX (PVT.) LIMITED

2. PARA-80&80.1

IMPROVEMENT IN THE FINANCIAL POSITION OF THE

ORGANIZATION.

PAC DIRECTIVE


3. PARA-80.2,

The Audit pointed out that Trade receivables had increased from Rs.211.604

768

million as on June 30, 2006 to Rs.387.105 million as on June 30, 2007. Aging of

trade receivables showed that Rs.56.210 million i.e. 15% of the total was overdue

for more than one year.

The Management replied that out of Rs. 387.105 million, Rs.304.592 million have

already been received Rs. 27.961 million have been written-off, provision for bad

debts has been made for the amount of Rs. 13.291 million leaving a balance of Rs.

41.261 million against which provision would be made as per policy approved by

HEC Board of Directors in their 45th

meeting held on 25.11.2009.

PAC DIRECTIVE

Keeping in view the poor performance of the Organization, the Committee

observed that the Management has failed to improve their performance and

directed the PAO to come up with restructuring plan of the Organization and

submit it to the Committee within one month.

HEAVY MECHANICAL COMPLEX (PVT.) LIMITED

4. i. PARA-81&81.1,

INCREASE IN SALES BY 2% ONLY AS COMPARED TO THE

GROWTH OF 24% AND 75% IN 2005-06 AND 2003-04

RESPECTIVELY

ii. PARA-81.2

DECREASE IN GROSS PROFIT RATIO FROM 13.63% IN 2005-06

TO 10.35% IN 2006-07.

iii. PARA-81.3

UN-SATISFACTORY CURRENT RATIO OF THE COMPANY

WHICH WAS 0.91 TIME IN 2006-07

iv. PARA-81.4

INCREASE IN DEBTOR’S COLLECTION PERIOD FROM 68

DAYS IN 2005-06 TO 93 DAYS IN 2006-07.

PAC DIRECTIVE

The Committee settled the above four (04) paras.

769

PAKISTAN MACHINE TOOL FACTORY (PVT.) LIMITED

5. i. PARA-82 & 82.1

NON-DIVERSIFICATION OF THE MANAGEMENT TO MAKE IT

A VIABLE UNIT.

ii. PARA-82.2

DECREASE IN GROSS PROFIT OF THE COMPANY FROM

RS.163.75 MILLION IN 2005-06 TO RS.119.41 MILLION IN 2006-07

AND LOSS AFTER TAXATION WAS OF RS.52.00 MILLION

DURING 2006-07 AS COMPARED TO PROFIT AFTER

TAXATION OF RS.9.82 MILLION IN 2005-06.

iii. PARA-82.7

DECREASE IN THE NET PROFIT RATIO FROM 2.03% IN THE

YEAR 2003-04 TO NEGATIVE 5.81% IN THE YEAR 2006-07.

PAC DIRECTIVE


observed that the Management has been failed to improve its performance and

directed the PAO to come up with restructuring plan of the Organization and a


6. PARA-82.3, PAGE-156, ARPSE-2007-08

INCREASE IN LONG TERM LOANS (SECURED) TO RS.93.265

MILLION IN 2006-07 FROM RS.75.031 MILLION IN 2005-06

PAC DIRECTIVE


7. PARA-82.4

TOTAL SALES OF THE COMPANY FOR THE YEAR 2006-07 WAS

RS.894.420 MILLION WHICH INCLUDED SALES OF SCRAP

AMOUNTING TO RS.34.710 MILLION (RS.17.584 MILLION IN 2005-06)

REGISTERING AN INCREASE OF 97%.

PAC DIRECTIVE


770

8. i. PARA-82.5

DECLINING OF CURRENT RATIO FROM 1.48 IN 2005-06 TO 1.42

IN 2006-07.

ii. PARA-82.6, PAGE-157, ARPSE-2007-08

INCREASE IN DEBTOR’S COLLECTION PERIOD FROM 80

DAYS IN 2005-06 TO 86 DAYS IN 2006-07

PAC DIRECTIVE

The Committee settled the above two paras.

PAKISTAN ENGINEERING COMPANY LIMITED

9. i. PARA-83 &83.1

INCREASED IN SELLING AND DISTRIBUTION EXPENSES BY

71% WHILE THE SALES INCREASED BY 18% WHEREAS

FREIGHT AND FORWARDING EXPENSES INCREASED BY

313% FROM RS.2.968 MILLION IN 2005-06 TO RS.12.269

MILLION IN 2006-07.

ii. PARA-83.2

NON-UTILIZATION OF ITS ASSETS TO GENERATE THE

REVENUES( TURNOVER RATIO 0.374%)

iii. PARA-83.3, PAGE-160, ARPSE-2007-08

INCREASE IN THE DEBT EQUITY RATIO WHICH WAS 4.58

TIMES IN THE YEAR UNDER REVIEW.

PAC DIRECTIVE

The Committee settled the above three (03) paras.

10. i. PARA-84 & 84.1

INCREASE IN GROSS PROFIT FROM RS.23.960 MILLION IN

2005-06 TO RS.27.249 MILLION IN 2006-07 AND INCREASE IN

EXPENSES FROM RS.16.539 MILLION IN 2005-06 TO RS.18.714

MILLION IN 2006-07.

ii. PARA-84.2, PAGE-161-162, ARPSE-2007-08

INCREASE IN TRADE DEBTS (UN-SECURED) FROM RS.21.243

771

MILLION IN THE YEAR 2005-06 TO RS.30.205 MILLION IN THE

YEAR 2006-07.

PAC DIRECTIVE

The Committee settled the above two (02) paras.

MINISTRY OF INDUSTRIES & PRODUCTION



PAKISTAN MACHINE TOOL FACTORY (PVT) LIMITED

1. PARA-82-82.1 (ARPSE-2007-08) PAGE-154

The Audit pointed out that Pakistan Machine Tool Factory (Pvt) Limited (PMTF)

Karachi was established under technical collaboration with M/s Oerlikon Buhrle of

Switzerland. It was incorporated on July 23, 1974 as a private limited company

under the Companies Act 1913 (now Companies Ordinance 1984). The Company

is engaged in manufacturing and marketing of machine tool transmission

components for Trucks and Tractors, Die casting and other classified defence based

products. PMTF is wholly owned by the Government of Pakistan and its working is

controlled through State Engineering Corporation, Ministry of Industries,

Production and Special Initiatives.

The working results of the Corporation for the year 2006-07 as compared to the

preceding years are decreasing.

The heads of non-operating income/other income have been shown by the

management in the accounts as “Operating Income”, which does not conform to the

accounting standards, therefore, needs clarification.

PAC’S DIRECTIVES (12-03-2014)

Keeping in view the poor performance of the organization, the Committee observe

that the management has been failed to improve its performance and directed the

PAO to come up with restructuring plan of the Organization and a report thereof be

sent to the committee within one month.

772

2. PARA-82.2 (ARPSE-2007-08) PAGE-154

The Audit pointed out that long term loans (secured) increased to Rs.93.265 million

in 2006-07 from Rs.75.031 million in 2005-06 registering an increase of 24%.

Reasons of increase in long term loans needs to be stated.

PAC DIRECTIVES (12-03-2014)

PAC directives keeping the view the poor performance of the organization, the

committee observe that the management has been failed to improve its

performance and directed the PAO to come up with restructuring plan of the

Organization and a report thereof be sent to the committee within one month.

3. PARA-82.7 (ARPSE-2007-08) PAGE-158

The Audit pointed out that the net profit ratio decreased from 2.03% in the year

2003-04 to negative 5.81% in the year 2006-07. The management needs to make

strenuous efforts to improve the profitability in future.

PAC DIRECTIVES (12-03-2014)

PAC directives keeping the view the poor performance of the organization, the

committee observe that the management has been failed to improve its

performance and directed the PAO to come up with restructuring plan of the

Organization and a report thereof be sent to the committee within one month.

PAC DIRECTIVE

The Sub-Committee pended the above mentioned 3 clubbed paras and referred to

DAC for discussion with the direction to come up with final recommendations

within one month.

4. PARA-82.4 (ARPSE-2007-08) PAGE-155

PAC DIRECTIVE

The Sub Committee recommended the para for settlement on the recommendations

of Audit.

773

MINISTRY OF INDUSTRIES AND PRODUCTION

HEAVY ELECTRICAL COMPLEX PVT. LTD.

5. PARA-80.2, PAGE-150 ARPSE-2007-08HEAVY ELECTRICAL

COMPLEX (PVT) LIMITED (HEC)

The Audit pointed out that the trade receivables increased from Rs 211.604 million

as on June 30, 2006 to Rs 387.105 million as on June 30, 2007. Aging of trade

receivables showed that Rs 56.210 million i.e. 15% of the total was overdue for

more than one year. Early recoveries of long outstanding trade receivables needs to

be made.

PAC DIRECTIVE (DATED 12.03.2014)


observed that the Management has failed to improve their performance and

directed the PAO to come up with restructuring plan of the Organization and

submit it to the Committee within one month.

The PAO informed the Committee that the HEC moving towards profit and we

would not suggest its privatization in a meeting with Privatization Commission.

PAC DIRECTIVE

The Sub-Committee pended the para and directed the PAO & Audit to discuss the

Ministry’s point of view pertaining to privatization of the HEC at DAC level and

present viable proposals to the Committee.

UTILITY STORES CORPORATION OF PAKISTAN (PVT) LIMITED

(USC)

6. PARA-89.2, PAGE-173ARPSE-2007-08


(USC)

The Audit pointed out that an amount of Rs 126.583 million was recoverable from

the Store In-charges on account of theft and pilferage. Out of this amount provision

of doubtful debts amounting to Rs 84.139 million had been made. Theft of huge

774

amount of store is indicative of weak internal controls which resulted in huge losses

to the Company. Implementation of sound policy in this area is stressed upon the

management.

PAC DIRECTIVE (Dated 12.03.2014)

The Committee directed the PAO to recover the outstanding amount after

settlement of the court cases.

The PAO stated that 8.35 M had been recovered in this case however some

recovery cases are in the Court of Law and it has been pursued regularly.

PAC DIRECTIVE

The Sub-Committee settled the para to the extent of recovered amount subject to

verification of Audit with the direction to PAO to continue efforts to recover the

doubtful debts and remaining amount.

7. PARA-89.3, PAGE-173ARPSE-2007-08


(USC)

The Audit pointed out that a provision for slow moving and obsolete items of Rs

10.969 million had been made in the accounts of the previous year Steps need be

taken for disposal of these stores before their further deterioration.


The Committee directed the PAO to conduct an inquiry in the case and a report

thereof may be provided to the Committee within one month which inter alia

contains the following information:-

1. List of slow moving items.

2. Total volume

3. Names of the companies

4. Prices of items worth more than ten hundred thousand.

775

The PAO informed the committee that an inquiry was held in the Ministry and

finding of the inquiry report had been submitted to Audit.

PAC DIRECTIVE

The Sub-Committee pended the para as requested by the MD Utility Stores

Corporation, referred it for discussion in the DAC for the satisfaction of Audit.

8. PARA-90, PAGE-173 ARPSE-2007-08


(USC)PROCUREMENT IN VIOLATION OF PPRA RULES, 2004 – RS

2,483.518 MILLION

The Audit pointed out that under rule-12 of Public Procurement Rules 2004,

procurement over one hundred thousand and up to the limit of one million rupees

shall be advertised on the Authority’s website in the prescribed manner/format. The

procurement opportunities over one million rupees should also be advertised in

print media, if deemed necessary by the procuring agency

In violation of above rules, Utility Stores Corporation purchased various

commodities valuing

Rs 2,483.518 million during the years 2004-05, 2005-06 and 2006-07 as detailed

below on the basis of three quotations. Resultantly the Corporation was deprived of

the benefits of competitive rates.

Sr. No Draft Para No. Name of commodity Rs in million

1 2252 Atta 284.845

2 2313 Milk and milk powder 7.534

3 2277 Dates 1.534

4 2504 Kenya tea 146.051

5 2503 Spices 72.099

6 2501 Rice and pulses 1,890.686

7 2500 Cleaners, insecticide and detergent 64.338

8 2505 Grinding machine 0.570

9 2314 Raw granule 15.861

Total 2,483.518

The irregular purchases were brought to the notice of the management / Ministry.

776

According to their reply the matter has been taken up with Public Procurement

Regularity Authority (PPRA). Consequently, PPRA appointed M/s. Anjum Asim

Shahid Rehman as Consultants to examine USC Procurement Rules and give their

recommendations. According to Consultants’ report, in view of peculiar nature of

operations, the procurement of commodities by USC may be exempted from the

purview of the Public Procurement Rules, 2004. The reply was not tenable as no

exemption has been granted by the Authority till May 2008. In the absence of

exemption requested for, it was mandatory to procure the commodities as per

aforesaid rules.

PAC DIRECTIVE (Dated 12.03.2014)

The Committee directed the PAO to conduct inquiry by fixing responsibility and a


The PAO assured that the final outcome of inquiry would be verified by him before

its submission to Audit/PAC.

PAC DIRECTIVE

The Sub-Committee pended the para till the receipt of inquiry report to Audit/PAC

duly verified by the PAO.

9. PARA-91, PAGE-174 ARPSE-2007-08


(USC)

NON-RECOVERY OF SALE PROCEEDS OF EMPTY SUGAR BAGS – RS

20.527 MILLION

The Audit pointed out that as per Utility Stores Corporation (USC) policy dated

December 26, 2006, the disposal of empty poly propylene bags of sugar was

required to be made by the concerned Warehouse In-charge w.e.f March 28, 2005

under supervision of the concerned Regional Manager on the best possible price.

Out of sale proceeds an amount of Rs 3 per bag was required to be deposited by the

In-charges Warehouse in USC account and the balance shall be retained by them

against compensation on account of weight loss.

Regional Offices sold 892,726 M.ton of sugar from February, 2005 to June 2008.

777

According to calculation if each bag contains 50 kg of sugar, then 17,854,520

empty bags were to be sold by the respective in-charges. Thus an amount of Rs

53.564 million was to be recovered. An amount of Rs 33.037 million against the

sale of 11,012,187 bags was recovered from the five zonal offices but sale proceeds

of 6,842,333 bags amounting to Rs 20.527 million was not deposited by the

In-charges, (6,842,333 X Rs 3.00 = Rs 20.527 million) till June 30, 2008.



The PAO informed that entire amount has since been recovered and got verified by

Audit leaving a balance of Rs. 123,480/- for which the case is pending in the Court

of Law.

PAC DIRECTIVE

The Sub Committee pended the para due to sub-judice in nature and directed the

PAO to pursue the case in the Court of Law vigorously.

10. PARA-93, PAGE-176 ARPSE-2007-08


(USC)

LOSS DUE TO THEFT / BURGLARY OF CASH AND STORES – RS 2.087

MILLION

The Audit pointed out that as per para-10.3 section-II of the USC Accounting

Manual all the stores and warehouses are to be adequately insured against the risk

of fire, theft and burglary to safeguard the interest of the Corporation. Further as per

USC, Head Office circular dated January 24, 2007 safe and secure operation of the

stores were not being followed and instructed to follow the safe and secure

operation of the stores, after affixing iron safe with strong angle iron, to avoid

possibility of lifting / removal of the safe, depositing sale proceeds in bank twice a

day, after hiring the services of watchman at night and deposit of the sale proceeds

prior to weekly holiday.

At 20 sales outlets of 13 Regions of the Corporation theft/burglary incidents

occurred during 2006-07. The burglars took away safe with cash/stores involving

778

Rs 2.087 million as reported by Regional Managers to police authorities / Head

Office. Frequent incidents of theft / burglary of cash indicates that iron safe were

not affixed with strong iron, sale proceeds was not deposited in bank twice in a day,

services of the watchmen were not hired and other measures were not adopted by

the Regional Offices in this regard, which resulted in theft / burglary at Utility

Stores. Due to negligence of the management of the Regional Offices, the

Corporation had to sustain a loss of Rs 2.087 million.


The Committee settled the para subject to recovery of insurance claims.

The PAO apprised about settlement of insurance claims of Rs.277,424/- and

recovery of Rs.502,092/- from concerned store incharge against total claim of

2,031,277/-.

PAC DIRECTIVE

The Sub-Committee settled the para subject to recovery of the remaining amount

and its verification by the Audit.

MINISTRY OF INFORMATION BROADCASTING & NATIONAL

HERITAGE 2007-08

15. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of

Information, Broadcasting and National Heritage was examined by the PAC

Sub-Com. III on 7th

September 2015.






779

MINISTRY OF INFORMATION, BROADCASTING & NATIONAL

HERITAGE

PAKISTAN BROAD CASTING AND TELEVISION CORPORATION

ACTIONABLE POINTS



Information, Broadcasting and National Heritage held on 7th

September, 2015 are

as under:-

1. Para 94 & 94.1 Page – 177 ARPSE-2007-08

The Audit Pointed out that the advertising income increased by 18.41% even then

the operational results of the Corporation remained unsatisfactory. Resultantly the

Corporation’s deficit increased by 70% i.e. from Rs. 42.648 million in 2005-06 to

Rs. 72.622 million in 2006-07. The main reason for increase in the deficit is

enhancement in salaries and personal expenses.

The PAO informed that the operational income of the Corporation increased from

Rs 148.992 million in 2009-10 to Rs 361.598 million in 2014-15.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to the PAO to maintain the

pace of efforts for further improvement in the years to come.

2. PARA-94.2 PAGE-178 ARPSE 2007-08 PAKISTAN BROADCASTING

CORPORATION (PBC)

The Audit pointed out that debtor’s collection period increased from 215 days in

2005-06 to 230 days in 2006-07. The debtor turnover days are exceptionally high

and Corporation needs to review its credit policies. The ratio tells us that on average

a debt is collected in 230 days which is considered as abnormal, keeping in view the

nature of business. The trend analysis of debtors’ collection period is shown in the

graph below:-

780

The PAO stated that the Organization would make efforts to minimize debtor’s

collection period upto standard time of 90 days.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO to make efforts to

minimize the debtor’s collection period up to standards time of 90 days.


CORPORATION (PBC)

The Audit pointed out that Chartered Accountants in their report pointed out that

Corporation had not incorporated its liability towards pension fund amounting to

Rs 2049 million as determined by the actuarial valuation carried out on 30 June,

2003. Further, actuarial valuation for the year ended on June 30, 2007 had not been

carried out. Had the provision been made, the deficit for the year would have

increased to that extent. The necessary provisions may be incorporated

accordingly.

The PAO informed that the case was being taken up with M/o Finance to

allocate/release the funds to meet the pensioners liabilities of Rs. 7.00 billion

PAC DIRECTIVE

The Sub Committee settled the Para subject to allocation of funds from the Finance

Division to discharge pensioners’ liabilities and directed the PAO to ensure

evolving of proper accounting system and everything should be depicted in the

accounts of the organization. The PAO assured the Committee that the direction

would be implemented within 60 days.


CORPORATION (PBC)

The Audit pointed out that grants received from the Government of Pakistan from

time to time for Capital and Development expenditure were Rs 1,782.142 million

as on June 30, 2007. These grants are repayable in 20 years including a grace period

of five years for recovery of principal amount. The interest was chargeable at

prevailing rate for respective year. However, the Corporation has formally

781

requested the Government for its conversion into non-repayable grants. The

Corporation needs to improve its operational efficiency to repay such grants.

The PAO, on the basis of Act of PBC explained their point of view that the grants in

aid by the Government might not be paid back to the Federal Government.

PAC DIRECTIVE

The Sub Committee directed the PAO to move a summary for the Prime Minister

through Finance Division for write off/appropriation of grants in aid and after the

approval of Prime Minister the para would be treated as settled.

5. PARA-95 PAGE-179-180 ARPSE 2007-08 PAKISTAN BROADCASTING

CORPORATION (PBC)

RE-EMPLOYMENT BEYOND AGE OF SUPERANNUATION– RS. 4.259

MILLION

The Audit pointed out that as per Establishment Division’s letter dated May 26,

1998 no re-employment beyond the age of superannuation should be allowed

except in very exceptional cases for which approval of the Prime Minister needs to

be obtained. This decision is also applicable to autonomous/semi-autonomous

bodies.In Pakistan Broadcasting Corporation (PBC) HQ, 17 employees retired

from service during 1999 to June 30, 2007 on attaining the age of superannuation

were re-employed on contract at a fix pay with the approval of Director General,

PBC. The contract employees were paid Rs 4.259 million from 1999 to 2007. As

per standing instructions of the Federation, the DG, PBC was not authorized to

appoint such persons beyond the age of 60 years, hence the expenditure of Rs 4.259

million was considered irregular.

The PAO informed the Committee that due to shortage of skilled staff the retired

employees were re-employed on contract at a fix pay with the approval of the

Director General PBC.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO the organization

should follow the rules in letter and spirit as approval of the Prime Minister was not

obtained in the instant case. Such practices should not be repeated in future.

782

6. PARA-96 PAGE-180-181ARPSE 2007-08 PAKISTAN BROADCASTING

CORPORATION (PBC)

ABSORPTION OF CONTRACT STAFF ON FALSE STATEMENTS–

RS.2.391 MILLION

The Audit pointed out that in accordance with the Cabinet Division instructions

dated January 08, 2005 the recruitment in Corporation, autonomous bodies should

be made after obtaining NOC from Establishment Division. Further following

criteria was fixed by the Board of Directors for permanent absorption of IT staff in

PBC.

i. Evaluation of the recruitment process to ascertain whether it ensured fair

competition procedure or otherwise as prescribed by the Government for

recruitment on permanent basis.

ii. Any other cogent reasons supporting the proposed regularization.

PBC HQ., Islamabad absorbed the IT personals against regular pay scales. Later the

matter was placed before Board of Directors on April 28, 2006. The Board did not

agree to the proposal and asked for obtaining views of Finance Division,

Government of Pakistan. Instead of sending case to Finance Division the case was

again placed before Board of Directors on August 7, 2006. This time the Board

referred the case to the committee comprising Director Administration PBC, an

Additional Secretary, Ministry of Interior with reference to evaluate the same in

the light of criteria as above. The committee submitted its report in BoD meeting

held on September 26, 2006 that the vacancies proposed to be regularized were

widely advertised in leading newspaper. Necessary formalities were fulfilled for

appointment of permanent employment/permanent absorption as they had

completed almost 4 years’ experience in PBC. Besides, there was no extra financial

burden of PBC in case of permanent absorption, hence the committee

recommended to the BoDs for permanent absorption of 35 IT personals on

September 26, 2006.

The PAO informed that the management had been directed to present all facts and

record to the Audit.

783

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO not to violate the

rules in future, discontinue this practice and take action against those officials who

violated the rules repeatedly.

7. AUDIT PARA, PARA-97 PAGE-182-ARPSE-2007-08 PAKISTAN

BROADCASTING CORPORATION (PBC)

IRREGULAR APPOINTMENT ON CONTRACT BASIS AND

PAYMENT-RS. 2.274 MILLION

The Audit pointed out that in accordance with the Government of Pakistan,

Establishment Division, OM No.6/02/2000-R-3 dated May 06, 2000 for contract

appointment the vacancies should be advertised in the leading national and regional

newspapers. Pakistan Broadcasting Corporation, Rawalpindi-III, appointed 15

employees on contract basis period from 1999 to 2006 on monthly consolidated

pay. The employees were appointed by the PBC Headquarters, Islamabad and

transferred to this unit on different dates. The procedure of appointment was not

adopted by the management therefore, an amount of Rs.2.274 million paid to the

employees was held irregular.

The PAO stated that the case was referred to Finance Division for its regularization

however the Finance Division referred back the case with the observation the

matter to be presented to the PAC as the para had been printed in Audit Report of

2007-08.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO not to violate the

rules in future, discontinue this practice and take action against those officials who

violated the rules repeatedly.

8. PARA-98 PAGE-182-184-ARPSE 2007-08 PAKISTAN BROADCASTING

CORPORATION (PBC)

LOSS DUE TO NON-PROCUREMENT OF EQUIPMENT WITHIN

VALIDITY PERIOD – RS 1.244 MILLION

The Audit pointed out that Pakistan Broadcasting Corporation invited tenders for

the purchase of studios equipments (delay machine 6000 USA) through press on

784

April 16, 2004. The offer of Rs 45,000 per item from M/s. United Technology,

Karachi was found the lowest. The management failed to place order on the firm

within the validity period in spite of extension in validity of bid up to 31st August,

2004. The management placed purchase order on November 05, 2004. The firm

refused to supply the item vide letter dated November 15, 2004 on the plea that the

validity period had since expired and the rates of the said item increased in the

market from Rs 45,000 to Rs 135,000. Subsequently Corporation purchased 16

delay machine from M/s. World Wide Vision, Islamabad at the rate Rs 127,950 per

item vide purchased order dated April 16, 2005. Thus due to inordinate delay in

placing order within the extended validity time, the Corporation had to sustain a

loss of Rs 1.244 million.

The PAO informed that the purchases were made after the second tender because

the management failed to place order within the validity period of first tender and

the case would be submitted in the Board of Directors to write off the loss occurred

due to delay in procurement of equipment.

PAC DIRECTIVE

The Sub Committee settled the para on the ground that at least tender procedure

was followed and different firms were provided the opportunity to offer their bids.

9. PARA-99 PAGE-184-ARPSE 2007-08 PAKISTAN BROADCASTING

CORPORATION (PBC)

OVERPAYMENT OF DEPUTATION ALLOWANCE – RS.216, 000

The Audit pointed out that according to Establishment Division’s O.M No 1/13/87,

Islamabad dated December 12, 1994, deputation allowance @10% of basic pay is

allowed to the officer deputed on management cadre post, which was subsequently

revised to 20% vide Office Memorandum No 01/13/87-R-I, dated June 12,2006.

In PBC, Director General, Director Administration and Director Finance were

posted on deputation in M-I and M-II group respectively and according to the

above referred rules they were entitled for deputation allowance @ Rs. 10% of their

basic pay, whereas they were paid deputation allowance @ 20% of their basic pay

during the period from July 1, 2004 to June 30, 2006 which resulted in excess

payment of Rs 216,000 to the officers.

785

The PAO informed that the partial recovery had been made in this case.

PAC DIRECTIVE

The Sub Committee pended the para and directed the PAO to make effort for the

recovery of amount or get the amount written off with the approval of board where

it is required.

10. PARA-100 & 100.1 PAGE-185-186-ARPSE 2007-08 PAKISTAN

TELEVISION CORPORATION LIMITED (PTV)

The Audit pointed out that the income of the Corporation increased by 0.45% only

from Rs 3,788.647 million in 2005-06 to Rs 3,805.525 million in 2006-07 while the

operating and administrative expenses increased by 11% and 5% respectively over

previous year. The Corporation sustained an operating loss of Rs 296.566 million

in 2006-07 as against operating profit of Rs.38.834 million of the previous year.

The accumulated loss of the Corporation stood at Rs 159.175 million in 2006-07 as

against accumulated profit of Rs.42.358 million in previous years. Efforts need to

be made to control the expenditure and increase the income in advertisement

business to absorb the operating and administrative expenses.

The PAO stated that the PTV was progressing and its recoveries were positive and

the generating revenues better than before.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to maintain the pace of

improvement and performance in future.

The Sub Committee advised the MD PTV to have a serious look into each audit

paras before its discussion in the DAC. The Committee further directed the PAC

Wing of National Assembly Secretariat to write a letter to the Honourable Prime

Minister of Pakistan to realistically allocate the funds/budget to PTVC and PBC

with the approval of Chairman PAC.

786

11. PARA-100.2 PAGE-186-ARPSE 2007-08 PAKISTAN TELEVISION

CORPORATION LIMITED (PTV)

The Audit pointed out trade debtors stood at Rs.1, 241.722 million as on June 30,

2007 as against Rs.1, 358.776 million in previous year. Provision for doubtful debts

amounting to Rs.42.044 million was made during the year 2006-07 equivalent

provision was also made during pervious year. Reasons for static provision and

non-initiation of timely action for recovery of trade debts need to be explained.

The PAO informed that the management had been directed to make efforts for the

recovery of trade debts.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO to expedite the

recovery of receivable or get it written off.

12. PARA-101 PAGE-186 TO 188-ARPSE 2007-08 PAKISTAN TELEVISION


IRREGULAR SANCTION AND PAYMENT OF EX-GRATIA/BONUS TO

EMPLOYEES – RS. 52.000 MILLION

The Audit pointed out that according to Government of Pakistan, Finance Division

(Regulation Wing) office O.M. No.F-3(5)R-12/80 (R-14)/2002-154 dated March

18, 2002 the payment of bonus to the employees of

Autonomous/Semi-autonomous/Public Sector Corporations / Organizations would

strictly be in accordance with the following conditions.

i) The bonus would be paid out of operational profit of the organization only

excluding income from other sources;

ii) The payment of bonus would not be made as a customary but it would be on

the basis of profit earned and reflected in the annual audited accounts of the

organization; and

iii) No commitment of payment of bonus may be made during negotiation with

the CBA because of the conditions mentioned at (i) and (ii) above.

Furthermore, according to Finance Division office memo No.F-3(5) R-12/80

(R-14) Vol-II/2001-544 dated November 30, 2001 bonus cannot be made to the

787

employees of corporations without prior concurrence of Finance Division.

The PAO informed that it was not bonus just Eidi and the approval of the BOD was

obtained.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO to make a

comprehensive policy in the subject matter.

13. PARA-102 PAGE188-ARPSE 2007-08 PAKISTAN TELEVISION


APPOINTMENT OF CONSULTANTS HAVING DEGREES FROM

UNRECOGNIZED INSTITUTIONS – RS.4.144 MILLION

The Audit pointed out that the Board of Directors of Pakistan Television

Corporation in its meeting held on October 26, 2004, approved the basic criteria for

appointment of consultants on contract basis for marketing & news and prescribed

qualification from a recognized university i.e. “MBA (Marketing) for marketing

consultant and Master / Bachelor degree in Social Sciences for news Consultant.”

Pakistan Television Corporation Limited in August 2004 appointed two

consultants for marketing and one for news on special pay package of Rs 51,000

and Rs.90, 000 respectively for the period of two years on contract basis. The

Corporation had paid Rs.4.144 million to these Consultants from August 2004 to

May 2006. Audit observed that as their academic degrees are not recognized by

Higher Education Commission (HEC), the appointments and payment of salaries

amounting to Rs. 4.144 million to these Consultants were therefore held irregular.

The MD PTV on the behalf of PAO informed the Committee that some officials

were terminated from the service on the basis of fake degrees.

PAC DIRECTIVE

The Sub Committee pended the Para with the direction to PAO and MD PTV to

verify the degrees of all officers/officials from the HEC and register FIR against

those officers/officials who had been terminated from service on the basis of fake

degrees and report to Committee within 60 days.

788

14. PARA-103 PAGE-189-190-ARPSE 2007-08 PAKISTAN TELEVISION


UNAUTHORIZED GRANT OF MOVE OVER – RS. 2.306 MILLION

The Audit pointed out that According to Finance Division’s approval of Revised

Pay Scales of PTV Officers vide O.M. No.F-4(2) R-04/2000 dated November 18,

2003, move-over was discontinued with effect from December 1, 2001 and pay was

to be fixed in the original scale of the post equivalent to or if there is no such stage

next below and difference be allowed as personal pay to be absorbed against future

increment / increase in pay. However no recovery was to be made for the period

from December 1, 2001 to December 1, 2002.

(i) The PTV management did not implement the decision of the Finance

Division while adopting the revised pay scales. At that stage, 19

employees of PTV Centre Peshawar were availing move over in higher

pay scales. Resultantly, Corporation had to bear an extra expense of

Rs.1.791 million from January 1, 2003 to December 31, 2005 in respect

of officers in Group-7, 8 and 9.

(ii) Moreover in contravention of instructions of the Finance Division,

Pakistan Television Board of Directors in its meeting held on February

18, 2004 extended the facility of move over to those officers of the

Corporation who were not at their maximum ceiling of the respective

pay scales on July 01, 2003. As a result, irregular payment of Rs.0.515

million was made by PTV, Peshawar Center till December 31, 2005 as

due to irregular grant of move-over in next pay group.

PAC DIRECTIVE

The Sub Committee settled the para with the direction to PAO to strictly avoid this

practice in future.

15. PARA-105 PAGE-193-ARPSE 2007-08 ASSOCIATED PRESS OF

PAKISTAN CORPORATION (APPC)

The Audit pointed out that Associated Press of Pakistan (APP) was taken over by

the Government of Pakistan through APP Ordinance 1961, and later on it was

converted into a Corporation vide Ordinance dated February 19, 2002. Its main

objectives are efficient flow of information, supply of un-biased and reliable news

789

to news papers and news agencies. Annual Audited Accounts of the Corporation

for the year 2003-04 to 2006-07 were not provided on due dates.

The PAO informed that a Committee had been constituted to probe the issue of

non-submission of annual Audited Accounts of Corporation to the Audit.

PAC DIRECTIVE

The Sub Committee pended the para and expressed its concern over delay in

submission of annual accounts to the Audit. The Sub Committee further directed

the PAO to ensure timely submission of annual accounts in future and report to the

PAC within 30 days.

PARAS SETTLED AS RECOMMENDED BY THE AUDIT

16. i. PARA-94.5 PAGE-179 ARPSE 2007-08 PAKISTAN

BROADCASTING CORPORATION (PBC)

ii. PARA-104 PAGE- 191 ARPSE 2007-08PAKISTAN TELEVISION


EXCESS PAYMENT ON ACCOUNT OF SALARY DUE TO

RE-APPOINTMENT OF EX-PRODUCER AFTER

SUPERANNUATION – RS.325, 420

iii. PARA-106 PAGE- 193-194ARPSE 2007-08 ASSOCIATED PRESS OF


NON-DEDUCTION OF INCOME TAX FROM THE SALARY OF

EMPLOYEES WORKING AS FOREIGN correspondents

–Rs.23.754 MILLION

iv. Para-107 Page- 194-195 ARPSE 2007-08 ASSOCIATED PRESS OF


LOSS DUE TO NON-RECOVERY OF DUES FROM CEASED

SUBSCRIBERS – RS. 1.168 MILLION

PAC DIRECTIVE

The Sub Committee recommended the above mentioned four paras for settlement on

the recommendations of the Audit.

790

MINISTRY OF KASHMIR AFFAIRS & GILGIT - BALTISTAN

2007-08

18. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry Of Kashmir

Affairs & Gilgit – Baltistan was examined by the PAC Sub-Com. III on 14th

December 2015.






MINISTRY OF NATIONAL FOOD SECURITY & RESEARCH

2007-08

19. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of National

Food Security and Research was examined by the PAC Sub-Com. III on 13th

March

2014.


the Committee. 03 paras were settled whereas appropriate directions were

accordingly issued for the remaining paras.

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

ACTIONABLE POINTS


Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Ministry

of National Food Security and Research held on 13th

March, 2014 are as

under:-

791


20 2007-08

NATIONAL FOOD SECURITY AND RESEARCH

PAKISTAN AGRICULTURAL STORAGE AND SERVICES

CORPORATION LIMITED

21 1. i. PARA-65&65.1

INCREASE IN SALE FROM RS.10,076.603 MILLION IN 2005-06 TO

RS.12,957.077 MILLION IN 2006-07 HOWEVER, SUSTAINED A NET

LOSS OF RS.157.129 MILLION IN 2006-07 AS AGAINST LOSS OF

RS.4.659 MILLION DURING THE YEAR 2005-06

22 ii. PARA-65.2

FINANCIAL ANALYSIS OF THE CORPORATION

PAC DIRECTIVE

The Committee settled the above two (02) paras.

23

24 LIVESTOCK AND DAIRY DEVELOPMENT BOARD

2. PARA-66&66.1

WORKING RESULTS OF THE BOARD

PAC DIRECTIVE


MINISTRY OF OVERSEAS PAKISTANIS & HR

2007-08

OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Overseas

Pakistanis & HR was examined by the PAC Sub-Com. III on 14th

October 2015.

792






MINISTRY OF OVERSEAS PAKISTANIS & HR DEVELOPMENT

ACTIONABLE POINTS



Overseas Pakistanis & Human Resource Development held on 14th

October, 2015

are as under:-

OVERSEAS PAKISTANIS & HUMAN RESOURCE DEVELOPMENT


1. PARA-112, PAGE-20 ARPSE-2007-08 OVERSEAS EMPLOYMENT

CORPORATION (PVT) LTD.

PAC DIRECTIVE


of DAC/Audit.

2. PARA-114, PAGE-207 ARPSE-2007-08 OVERSEAS PAKISTANIS

FOUNDATION

The Audit pointed that the objective of Overseas Pakistanis Foundation is to

advance the social welfare of the Pakistanis working overseas and their families in

Pakistan.

Annual Audited Accounts of the Foundation for the year 2006-07 were not


The PAO informed that the Accounts for the year 2012-13, 2013-14 & 2014-15 are

yet to be finalize by the management of OPF.

793

PAC DIRECTIVE

The Sub-Committee pended the para till handing over the record of Accounts of the

Department to the Audit to execute the annual audit..

PARA-113, PAGE-203-204 ARPSE-2007-08 OVERSEAS EMPLOYMENT

CORPORATION (PVT) LTD

WASTEFUL EXPENDITURE ON THE STUDY REPORT FOR

RE-STRUCTURING OF OEC-RS.0.610 MILLION

ii. PARA-115, PAGE-207 ARPSE-2007-08 OVERSEAS PAKISTANIS

FOUNDATION

IRREGULAR PAYMENT ON ACCOUNT OF HOUSE RENT

ALLOWANCE TO AN OFFICER RESIDING IN GOVERNMENT

ACCOMMODATION-RS.1.082 MILLION.

PAC DIRECTIVE

The Sub Committee recommended the above mentioned two paras for pursuance at

DAC level.

MINISTRY OF PETROLEUM & NATIONAL RESOURCES

2007-08

21. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Petroleum

& Natural Resources was examined by the PAC Sub-Com. III on 15th

August 2011,

18th

August 2011, 10th

May 2012, 15th

May 2015 and 10th

August 2015.

21.1 101 paras were presented by the Audit Department which were examined

by the Committee. Out of which 25 paras were settled whereas appropriate




21.3 In few paras the inquires were directed by FIA/PAO and the PAO was

directed to hold an inquiry, fix responsibility and disciplinary actions.

794

22 4. i. PARA 144, PAGES 266-268-ARPSE-2007-2008

APPOINTMENT OF 22 OFFICERS WITHOUT OBSERVING THE

CODAL FORMALITIES RS. 65.132 MILLION

The Audit stated that as per service rules of OGDCL all the vacancies were

required to be advertised in leading newspapers of the country. Based on

written test and interview and recommendation of Selection Committee, final

selection is made by following regional/provincial Quota, approved by the

Government. The recruitment cases of specific positions are to be conducted

by the Interview Committees notified by the management and finally the

proceedings of the committees are required to be approved by the Managing

Director. Oil and Gas Development Company Limited (OGDCL), made 22

recruitments without observing the laid down criteria/ procedure. The posts

were not advertised in the press, and most of the candidates did not meet the

prescribed qualifications. These cases were submitted to Executive Committee

of the Board on June 08, 2006 who advised the management that all these cases

should be submitted to Board of Directors for information/ex-post facto

approval. The matter was placed in Board of Directors meeting held on

February 06, 2007 for ex-post facto approval/ regularization but the Board of

Directors turned down the cases and advised that the Chairman/Chief

Executive being the competent authority may decide the cases on merit basis.

The management of OGDCL did not take any collective measures and the

officers were working on different posts against the Company’s recruitment

policy; hence, the amount of Rs. 65.132 million paid on account of pay and

allowances up to March 2008 was considered irregular.

23 ii. PARA 147, PAGES 270-272-ARPSE-2007-2008

IRREGULAR APPOINTMENT OF EXECUTIVE DIRECTOR

(HUMAN RESOURCES) RS. 16.800 MILLION

The Audit pointed out that Oil and Gas Development Company Limited

(OGDCL), on November 20, 2005, advertised the posts in newspapers for

appointment of SEVPs / Eds (HR). The minimum qualification for the post

was Master degree and 20 years experience of top level management skills in

the relevant field. Mr. Shahzad Saddal having B.Sc. qualification with four

courses in Human Resource and 12 years experience of Human Resource

Management, applied for the post of Executive Director. The said officer did

not qualify even for short listing due to deficiencies in the qualification as well

795

as in experience, but the Human Resource Committee of OGDCL in its

meeting held on February 13, 2006 interviewed the candidate and

recommended his name as Executive Director, Human Resources @ Rs.

500,000 per month in addition to other pre-requisites. The Board of Directors,

in its meeting held on February 23, 2006, accorded approval of his

appointment. In order to cover the deficiencies of qualifications, the case was

again put-up in the Board of Directors meeting on August 15, 2006, which

approved the case by granting special relaxation in qualification and

experience on August 15, 2006. The officer received Rs. 16.800 million as

remuneration. The appointment of the said officer was considered irregular as

healthy competition was not m ade and a candidate having lesser qualification

as well as practical experience was selected / appointed against the OGDCL

service rules and criteria published in the newspaper dated November 20,

2005, which resulted in undue favour to the candidate.

24 iii. PARA 149, PAGES 273-274-ARPSE-2007-2008

IRREGULAR APPOINTMEN OF PART TIME CONSULTANT WITH

OPEN TORS AND PAYMENT OF REMUNERATION - RS. 4.826

MILLION

The Audit pointed out that per para-10 of prescribed procedure for the

appointment of consultants, the services of qualified individual consultants and

experts for short term assignments of maximum six months were to be sought

out through press advertisement for the proposed job giving a brief description

of assignment. The information from the consultants must be obtained through

questionnaire which should be prepared by the concerned department. The

questionnaire should be tailored to suit the job requirement.

Oil and Gas Development Company Limited (OGDCL) appointed a part time

Consultant/Advisor (Human Resources) on December 01, 2005 at a

consolidated pay of Rs. 80, 000 per month on an open TORs. The initial period

of appointment was for four months and payment of Rs. 720,000 was made

from October, 2005 to June, 2006. Then, the officer was appointed as Manger

(Cost and Benefit) on July 1, 2006 @ Rs. 195,539 per month and an amount of

Rs. 4,106,319 was paid upto March, 2008. The appointment was finalized

without following the procedure and the job was not advertised. The degree of

the said officer was also not recognized from HEC hence the appointment of

the said officer was considered unjustified and irregular. Moreover, the TORs

796

of job were also not prepared. Thus the payment of Rs. 4.826 million for the

period from October 2005 to March 2008 was considered irregular.

PAC DIRECTIVE

The Committee directed the PAO to censure the persons for carrying out a

meaningless inquiry and directed the PAO to further inquire into the matter and

report to the Committee within two month. The Committee pended the above

mentioned three Audit paras till its next meeting on the Ministry.


25 5. i. PARA 138.4, PAGE 259-ARPSE-2007-2008

26 ii. PARA 138.5, PAGE 259-ARPSE-2007-2008

27 iii. PARA 139, PAGE 259-ARPSE-2007-2008

LOSS DUE TO NON-DELIVERY OF TWO RIGS BY M/S GWDCL

(US$ 21,516,200)- RS. 1.291 BILLION

28 iv. PARA 141, PAGES 263-264-ARPSE-2007-2008

LOSS DUE TO DELAY IN FINALIZATION OF AGREEMENT WITH

M/S SEIBIRD FOR 3D SEISMIC SURVEY IN INDUS DELTA – US $

9.070 MILLION (RS.544.200 MILLION

29 v. PARA 142, PAGES 264-265-ARPSE-2007-2008

UN-JUSTIFIED PAYMENT TO M/S LMKR AS SHARE IN JOINT

VENTURE- LOSS US $ 614,093 – (RS. 36.846 MILLION)

30 vi. PARA 143, PAGES 265-266-ARPSE-2007-2008

LOSS DUE TO RECEIPT OF DAMAGED CARBON STEEL PIPES-

RS. 146. 970 MILLION

31 vii. PARA 144, PAGES 266-268-ARPSE-2007-2008



32 viii. PARA 145, PAGES 268-269-ARPSE-2007-2008

PROCUREMENT OF DEFECTIVE MAN PORTABLE DRILLS

(SHORT HOLE)- (euro 702,302)- RS. 49.863 MILLION

33 ix. PARA 146, PAGES 259-270-ARPSE-2007-2008

NON-RECOVERY OF SALE PROCEEDS FROM BUYERS OF LOW

PRESSURE GAS RS. 18.067 MILLION

34 x. PARA 148, PAGES 272-273-ARPSE-2007-2008

797

LOSS DUE TO THEFT OF GASOLINE FROM DHODAK - RS. 9.758

MILLION

35 xi. PARA 150, PAGES 274-275-ARPSE-2007-2008

LOSS DUE TO NON-FOREETURE OF PERFORMANCE BOND OF

DEFAULTING CONSTRUCTION CONTRACTOR – RS. 3.884

MILLION

PAC DIRECTIVE

36 The Committee pended the above mentioned eleven (11) Audit paras till its

next meeting on the Ministry.

ACTIONABLE POINTS



Petroleum & Natural Resources held on 18th

August 2011 are as under:

AUDIT REPORT PUBLIC SECTOR ENTERPRISES FOR THE YEAR

2007-08

1. PARA 130, PAGES 234-235-ARPSE-2007-2008

PILFERAGE ON GAS BY USING DIRECT TAPPING AND METER

TAMPERING – RS.92.174 MILLION

The Audit pointed out that as per section 18.1 of Billing Manual of SNGPL, it is the

responsibility of every employee of SNGPL to detect and report the cases involving

pilferage of gas, and, as per section 18.13 of Billing Manual when tampering of

meter is established, gas supply shall be disconnected immediately (within 24

hours). The consumer shall be placed under observation for a period at least at 6

months after restoration of gas.

The un-accounted for gas team (UFG) of SNGPL conducted various raids, during

2002-2003 to 2006-2007, and detected pilferage of gas amounting to Rs. 92.174

million as detailed below, by commercial, industrial and domestic consumers, by

using direct tapping and tampering of meters:

798

(Rs. in million)

S. No. D.P. No. Name of Consumers Mode of

Pilferage Amount

1 2516 Ten consumers, Lahore Direct lapping 56.630

2 2512 M/s Fancy Dyeing and Finishing Mills, Lahore Meter tampering 9.940.

3 2507 M/s Suleman Silk Mills, Faisalabad Meter tampering 9.868

4 2513 M/s Sarfraz Ceramics Industries, Khewra Direct tapping 9.818

5 2509 M/s Akbari Supper Store, Lahore Direct tapping 3.173

6 2376 Canteen Contractor of Parliament Lodges,

Islamabad Direct tapping 2.745

Total 92.174

The PAO informed the Committee that the said matters are in the Courts.

PAC DIRECTIVE

The Committee directed the PAO to get the report from Legal Wing and submit a

comprehensive report to the Committee whether that either these connections have

been disconnected or not and take all appropriate measures to recover the amount

from CDA.

The Committee directed the PAO to provide:

Individual defaulters list

Large companies defaulters list

List of court cases

List of Lawyers

Status of Court cases

A comprehensive policy should be prepared by the Department in legal

cases

Strengthen the system, make transparency for improving the system, share

this policy with Audit and submit it to the Committee within one month for

sharing with the main PAC.

The Committee directed the PAO to expedite the court cases and report to

the Committee

The Committee pended this issue till its next meeting on the Ministry

799

2. PARA 131, PAGE 236-ARPSE-2007-2008

NON-RECOVERY OF GAS BILLS- RS. 10.107 MILLION

The Audit pointed out that clause-16 of Gas Sales Agreement, necessitates

terminating gas connection, if the bill is not paid within 10 days of the date of bill.

SNGPL could not recover gas charges amounting to Rs. 10.107 million relating to

the period from February 1991 to March 2006 from its following consumers:

(Rs. in million)

S. No. D.P. No. Name of Consumers/No. of cases Nature of

recovery Amount

1 2522 M/s Awan Rubber Works, Wazirabad

Non-payment of

bills and

consumers n ot

traceable

3.972

2 2521 M/s Hameed Metal Works, Gujranwala

Non-payment of

bills, matter in

court

2.420

3 2518 Eleven Consumers, Gujrat

Consumers were

under-billed

cases in courts

2.808

4 2517 Twenty two consumers of Katchi Abadi, G-8/1

and F-7/4, Islamabad

Illegal

extensions,

cases in court

0.907

Total 10.107

The recovery could not be effected because either the respective consumers were

not traceable or the company had filed suits in the court of law against the

consumers.

The PAO informed the Committee that the BODs allowed the authority, to different

officers, for the installments. However, the matter of recovery are in the Court.

PAC DIRECTIVE

The Committee directed the PAO to pursue the Court cases and report to the

800

Committee. The Committee pended the para till its next meeting on the Ministry.

3. PARA 132, PAGES 237-238-ARPSE-2007-2008

LOSS DUE TO ABNORMAL DELAY IN PROCESSING OF ORDER-RS.

6.720 MILLION

The Audit pointed out that SNGPL floated tender enquiry in November, 2003 and

opened on December 02, 2003 for the procurement of 560 M.ton polyethylene for

which M/s Arfeen Borouge, UAE was considered technically as well as

commercially responsive with rate of US $ 842 per M.ton on FOB Karachi basis.

The bid offered by the supplier was valid for 90 days i.e. upto March 02, 2004. The

supplier was approached for the extension of validity period of bid up to June 02,

2004, but he refused to extend the validity period. Due to abnormal delay in

processing of the tender against the Cabinet Division instructions, a commercially

as well as technically respective bid could not be materialized. The fresh tenders

were floated in March, 2004 and M/s Arfeen Borouge of UAE was again declared

technically as well as commercially responsive with a rate of US$1,042 per M. ton

and purchase order was placed on the supplier. Thus due to in-ordinate delay in the

processing of tender enquiry the rate of polyethylene was enhanced from US $ 842

per M. ton to US $ 1,042 M. ton by the same supplier. As a result, the organization

sustained a loss of Rs. 6.720 million, as the rate of polyethylene was enhanced by

US $ 200 per M. ton during the said period.

PAC DIRECTIVE

The Committee directed the PAO to hold the DAC meeting and pended the para till

its next meeting on the Ministry.

4. PARA 133, PAGES 238-239-ARPSE-2007-2008

AVOIDABLE EXPENDITURE ON AIR-LIFTING OF CONSIGNMENT-

RS. 1.136 MILLION

The Audit pointed out that SNGPL opened a tender on October 20, 2005 for the

supply of polyethylene fittings (50,000 Ply tapping reducing tees) under annual

development program for the year 2005-2006. The tender was cancelled on the

recommendation of Bid Evaluation Committee (BEC) due to huge variation in the

lowest and highest bids. Tender enquiry was re-floated on April 25, 2006 and

purchase order for 75,000 reducing tees was placed on January 23, 2007 on M/s

801

Dancom, USA. SNGPL took 16 months to finalize the case, resultantly, the stock of

above mentioned tapping tees was fully consumed/exhausted and work was

completely held up due to which the consignment had to be air-lifted. Thus an

avoidable expenditure of Rs. 1.136 million was incurred on account of air-lifting of

consignment which could be avoided had timely action been taken by SNGPL

management and material procured in time.

The PAO informed the Committee that in future, an inquiry will be conducted in

case of any inordinate delay. The Committee is requested to kindly settle the para.

PAC DIRECTIVE

The committee settled the para with the direction to redress the issue of inordinate

delay and the departmental inquiry should be conducted in such cases and due care

should be taken in future.

5. PARA 136, PAGES 242-243-ARPSE-2007-2008

THEFT OF GAS AT BRITISH COLONY, RAWALPINDI WORTH

MILLION OF RUPEES

The Audit pointed out that as per section 18.1 of Billing Manual of SNGPL it is a

moral responsibility of every employee of SNGPL to detect and report the cases

involving pilferage of gas. Such cases are dealt with under clause 27 of the gas sales

contract and rules and procedure framed by the Company. As per section 18.13,

when the tampering of meter is established, the gas supply shall be disconnected

immediately (within 24 hours). The consumers shall be placed under observation

for a period of at least 06 months after restoration of gas, during which period the

CMS will be visited by the Company personnel at least 08 times every month. The

residents of the surrounding of Samarzar Colony made complaints to SNGPL Area

Office, Islamabad regarding illegal connections by contractors and drastic low gas

pressure, but no corrective measure such as raid/departmental enquiry was taken by

the Area management against the employees/contractors who were engaged in

laying of un-authorized connections. The local councilor of the area made a press

conference and requested GM Islamabad Area to send his team. Afterward, a news

item was published inDaily Newspaper (Ausaf) on 23rd

December, 2006.

Consequently the team of UFG Islamabad Area conducted raid at that Colony,

Adyala Road, Rawalpindi on December 28, 2006 and observed that some SNGPL

registered contractors were engaged in laying gas pipelines at night to provide

802

illegal connections in Samarzar Colony and getting illegal gratifications.

Resultantly, gas pressure of the colony had been dropped drastically.

The PAO informed the Committee that an inquiry was conducted and no person

was found guilty. However, the inquiry showed that outsiders were involved.

PAC DIRECTIVE

The Committee directed the PAO to get the help of the Politicians of concerned

areas. The Committee also directed the PAO to hold another inquiry to determine

connivance of the Department or otherwise, and report to the Committee within one

month. The Committee settled the para subject to verification and satisfaction of

inquiry report by Audit with a report to the Committee within one month.


6. i. PARA 129-ARPSE-2007-2008

ii. PARA 129.1-ARPSE-2007-2008

iii. PARA 129.2-ARPSE-2007-2008

iv. PARA 129.3-ARPSE-2007-2008

v. PARA 134-ARPSE-2007-2008

LOSS DUE TO EXCESS CHARGES OF FREIGHT BY HE

SUPPLIER – RS. 884,352

vi. PARA 135-ARPSE-2007-2008

LOSS DUE TO ILL-PLANNED PURCHASE OF LPG STORE

ITEMS-RS 715,061

vii. PARA 137(i)-ARPSE-2007-2008

viii. PARA 137(ii)-ARPSE-2007-2008

ix. PARA 137(iii)-ARPSE-2007-2008

x. PARA 137.1-ARPSE-2007-2008

NON-RECONCILIATION OF GRANTS AMOUNT

PAC DIRECTIVE

The Committee settled the above mentioned ten Audit paras on the

recommendations of Audit.

803

i. PARA NO. 5.1 (d), ( AR-2007-08) DP 4310-GDS/K & 11750-GDS

NON-REALIZATION OF INTEREST ON INTEREST ON

NON/LATE PAYMENT OF GAS DEVELOPMENT SURCHARGE

–RS. 10.395 MILLION

ii. PARA NO. 5.3, (AR-2007-08) DP 11749-GDS

SHORT PAYMENT OF GAS DEVELOPMENT SURCHARGE AND

INTEREST RS. 6.262 MILLION

The Audit pointed out that the nature of the above two paras are same. Therefore,

they were clubbed. As para 5.1(d) that M/s. SNGPL, Lahore and M/s. PPL, Karachi

late deposited considerable amount of GDS during the period July and November,

2006 to March, 2007 but interest of Rs.10.395 million was not paid on account of

these late payments and para 5.3 is about that the M/s. SNGPL, Lahore paid gas

development sur-charge less than what was actually due in terms of rates notified

by OGRA from time to time. Gas development surcharge in gas sold in December,

2006 and billed in January, 2007, was paid short due to application of lower rates.

The GDS of Rs. 5.446 million was short period and that attracted levy of interest

@15% amounting to Rs. 0.816 million which raised the recoverable amount to

Rs.6.262 million. Further, Audit pointed out that these two paras had already been

discussed on 26th

February, 2014 in PAC meeting. However, no outcome has been

found so far.

The PAO stated that pertaining to the para 5.1(d) the Natural Gas (Development

Surcharge) Ordinance 1967 has been amended through Finance Act, 2012.

However, various amendments have also been made in the Government Rules to

effect the waiver off. The issue of late payment surcharge can be settled with

resolution of circular debt issue. As well as pertaining to the other para 5.3 is

concerned the SNGPL has been constituted a committee for providing the record

regarding reconciliation of deposited amount with the final determination of

revenue requirements. Further, deposits of assessed principle amount including

Rs.5.44 million which has been verified. The interest of late payment of GDS was

Rs. 0.816 million which is recoverable.

PAC DIRECTIVE

The Sub-Committee directed to settle the para 5.1(d) to the extent of SNGPL and

for the rest of para followed the direction same like of para 5.1(c). The para 5.3 also

recommended for settlement subject to verification of Audit and report to PAC.

804

1. SUI NORTHERN GAS PIPELINES LIMITED

i. PARA NO. 132, Page-237-238, ( AR-2007-08)

LOSS DUE TO ABNORMAL DELAY IN PROCESSING OF ORDER

–RS.6.720 MILLION

ii. PARA NO. 136, Page-242-243, ( AR-2007-08)

THEFT OF GAS AT BRITISH COLONY, RAWALPINDI WORTH

MILLION OF RUPEES

iii. PARA NO. 137.2, Page-247-249, ( AR-2007-08)

SHORTFALL OF CASH –RS.7.138 BILLION AS ON DECEMBER

31, 2008


iv. PARA NO. 138, ( AR-2007-08)

v. PARA NO. 138.1, ( AR-2007-08)

vi. PARA NO. 138.2, ( AR-2007-08)

vii. PARA NO. 138.3, ( AR-2007-08)

viii. PARA NO. 138.5, ( AR-2007-08)

ix. PARA NO. 141, Page-263-264, ( AR-2007-08)

LOSS DUE TO DELAY IN FINALIZATION OF AGREEMENT

WITH M/S. SEABIRD FOR 3D SEISMIC SURVEY IN INDUS

DELTA –US $. 9.070 MILLION (RS.544.200 MILLION

x. PARA NO. 143, Page-265-266, ( AR-2007-08)

LOSS DUE TO RECEIPT OF DAMAGED CARBON STEEL PIPES

–RS.146.970 MILLION

GOVERNMENT HOLDING PVT LIMITED

xi. PARA NO. 151, ( AR-2007-08)

xii. PARA NO. 151.1, (AR-2007-08)

WORKING RESULTS

xiii. PARA NO. 151.2, ( AR-2007-08)

805

PIRKOH GAS COMPANY (PVT.) LIMITED)

xiv. PARA NO. 152, ( AR-2007-08)

xv. PARA NO. 152.1, ( AR-2007-08)

PAKISTAN MINERAL DEVELOPMENT CORPORATION

xvi. PARA NO. 153, ( AR-2007-08)

xvii. PARA NO. 153.1, ( AR-2007-08)

xviii. PARA NO. 153.2, ( AR-2007-08)

xix. PARA NO. 153.3, ( AR-2007-08)

PAC DIRECTIVE

The Sub Committee recommended the above nineteen (19) paras for settlement.

SUI NORTHERN GAS PIPELINE LIMITED

5. PARA NO. 130, Page-234-235, ( AR-2007-08)

PILFERAGE OF GAS BY USING DIRECT TAPPING AND METER

TAMPERING –RS. 92.174 MILLION

The Audit pointed out that the un-accounted for gas team (UFG) of SNGPL

conducted various raidw during 2002-03 to 2006-07 and detected pilferage of gas

amounting to Rs.92.174 million by commercial, industrial and domestic consumers

by using direct tapping and tampering of meters.

The PAO stated that the cases are lying with OGRA and also in the court of law.

Moreover, the list of legal cases alongwith desired informations/details have been

submitted to Ministry of Petroleum & Natural Resources.

PAC DIRECTIVRE

The Sub-Committee pended the para and directed the PAO to look into the matter

personally and be resolved with intimation to the PAC.

6. PARA NO. 131, Page-236, ( AR-2007-08)

NON-RECOVERY OF GAS BILLS –RS. 10.107 MILLION

Audit pointed out that the SNGPL could not recover gas charges amounting to

806

Rs.10.107 million relating to the period from February 1991 to March 2006 from

some of its consumers. The recovery could not be affected may be either the

respective consumers are not traceable or the company has filed suits in the court of

law against them.

PAO stated that the3 recovery/suits filed suits cases in the court of law against the

defaulters are being pursued. However, recovery of Rs.937,865 has been made and

verified by Audit, whereas, the balance amount is sub-judice in the court of law.

PAC DIRECTIVE

The Sub-Committee pended the para and directed the PAO to make necessary

amendments in the agreement made with the customer/applicant for new gas

connection in future. By making land lord as second owner which would liable the

owner to pay in case the lessee become defaulter.

7. PARA NO. 137.3, PAGE-249-251, ( AR-2007-08)

INCREASING TREND OF WORK IN PROGRESS

The Audit pointed out that there was an increasing trend in work in progress.

Despite the availability of sufficient funds schemes were not being completed even

after lapse of a considerable time. Schemes were initiated and left incomplete while

work was also started on new schemes. This all resulted an increase in work in

progress from Rs. 3,172 million in 2002-03 to Rs.15,868 million in December

2008. This situation has resulted in cost overrun and deterioration of supply of lines

left without commission. Management was directed to share the scheme vise data

with Audit. The record was produced by the SNGPL and has been examined by

Audit.

The PAO stated that major increase in work in progress due to gas supply to

different new towns and villages as per government instructions. It is pertinent to

mention that the capitalization is also increased on yearly basis. It is also necessary

to mention that now Government has released funds and now the pending work will

be done expeditiously.

PAC DIRECTIVE

The sub Committee recommended the para for settlement.

807

8. PARA NO. 137.4, PAGE-251-252, ( AR-2007-08)

CAPITALIZATION OF JOB

The Audit pointed out that the capitalization of Rs. 2.235 billion was done without

observing the counting procedure of SNGPL. In the absence of reconciliation of job

the value of the capitalization may be over stated. SNGPL had capitalized 341

schemes involving a capital expenditure of Rs. 267.052 million under KPP-I

Schemes during 2005-06 . The completion reports of only 82 schemes were

prepared and approved by the competent authority. The material reconciliation

statements the essential part of the completion report was not prepared in remaining

59 schemes. Similarly in KPP-II, 240 schemes having a capital outlay of Rs.284.40

million were completed and capitalized during the year 2005-06, the completion

reports of only 51 schemes were available with the management, thus only 21%

was actually competed. The management was asked to provide the schemes vise

data with Audit and also provide record to them. The record/details were provided

by the management to the Audit which was under review.

The PAO stated that due to increase in activity, the quantum of jobs has increased

manifold. However, for the year 2005-06 no completion report is outstanding. As

per procedure on completion of each job, formal completion report are prepared for

capitalization of assets and the same has been adopted for internal control purpose.

PAC DIRECTIVE

The Sub-committee recommended the para for settlement subject to verification of

Audit.

OIL AND GAS DEVELOPMENT LIMITED

8. PARA NO. 138.4, Page-259, ( AR-2007-08)

The debts increased from Rs.24.498 billion in 2005-06 to Rs.27.873 billion in

2006-07. This indicates the debtors have increased by 13.17% and overall sales

have increased from Rs.96 billion to Rs.100 billion with an increase of 3.6%. The

company should try to match its debtors turnover period with the sales otherwise

increase in sales without timely receipts from the debtors can create cash flow

problems for the Company in future. The management was directed to pursue the

808

matter and take necessary steps for recovery of remaining amount.

The PAO informed the Committee that out of Rs.27.873billion, Rs. 27.567 billion

has been recovered and verified by Audit which amounts to 99% of total trade debts

leaving a balance of Rs.306.494 million.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement subject to verification by

Audit.

10. PARA NO. 139, Page-260-261, ( AR-2007-08)

LOSS DUE TO NON DELIVERY OF TWO RIGS BY M/S. GWDCL (US $

21,516,200) –RS. 1.291 BILLION

The Audit pointed out that Oil and Gas Development Company (OGD CL) entered

into a contract agreement with M/s Great Wall drilling Company Limited

(GWDCL), Beijing, China on October 19, 2005 for hiring of seven rigs at the

contract price US$33.818 million. The company supplied five rigs. OGDCL asked

GWDCL, on November 28, 2006 to intimate the availability of balance two drilling

rigs but the company instead of offering the supply of remaining rigs, offered the

remaining two rigs at revised tender rates, in spite of fact it was obliged to provide

seven rigs on as and when required basis within two years contract period. The

OGDCL entered into a new agreement at higher rates without stressing the

company to supply the remaining two rigs at previously agreed rates. Thus OGDCL

had incurred to an extra expense of US$ 21.516 million equal to Rs.1.291 billion.

The management was directed to inquire the matter and submit an inquiry report

duly approved by PAO.

The PAO stated that GWDC informed that the two remaining rigs under Contract

No.1019 were o more available as they had been shipped to other countries when

OGDCL did not ask for these rigs to be mobilized. Earlier OGDCL did not have

confirmed location for the wells. Afterwards due to increased drilling activity all

over the world the market had become tight and new rigs could not be offered at the

old rates. They rigs offer under the new contract were brand new and were in fact

being manufactured. It was further told that penalty/risk clause was covered under

clause 14 “Performance Bond, Rigs Availability” of the contract. However, the fact

of the matter is that there wasn’t any loss to OGDCL.

809

PAC DIRECTIVE


Audit and directed the PAO to re-examine the executed agreement made with the

supplier and if found any irregularity on the part of the officer/official who

executed this agreement an inquiry should be initiated against him and report to

PAC.

11. PARA NO. 140, Page-261-262, ( AR-2007-08)

NON-ENCASHMENT OF BANK GUARANTEES DUE TO LITIGATION

WITH TWO ITALIAN CONTRACTORS –US $. 9.119 MILLION

(RS.547.120 MILLION)

The Audit pointed that Oil and Gas Development Company Limited (OGDCL)

entered into contract for setting up Qadirpur Project for supply, production and

distribution equipment of gas for US$73,262,000 with M/s. Compagnia Technical

International Progetti SPA (CTIP) and for civil works valuing Rs.560,568,600 with

M/s. Fochi Energia Sri in February, 1994. The contractors failed to fulfill their

contractual obligations and major deficiencies were found in their work. Both the

contractors left the site in third week of December, 1996 without rectifying the

faults. OGDCL called the concerned Italian Banks to encash the bank guarantees.

OGDCL was successful in obtaining a judgment in its favour from an Italian Court

for Euro 36,000 as cost (Rs.2,520,000) and a judgment for encahment of bank

guarantees amounting to US$ 9.000 million (Rs.540,000,000) in 2005 but the

decision was challenged by the banks in the higher Italian Court. The OGDCL

incurred Rs.4.600 million as legal expenses till 2007. Loss of Rs.547,120,000 could

have been avoided, had the foreign bank guarantees were not accepted in

contravention to Foreign Procurement Procedure Manual of OGDCL . The

management was directed to pursue the case with full force and effect before the

Italian Court.

The PAO stated that OGDCL entered into contract for supply and works for setting

up Qadirpur Project for supply of production and distribution equipment of gas for

US$73,262,000/- with M/s. CTIP and for civil works valuing Rs.560,586,600- with

M/s. Fochi in February, 1994. The Contractors failed to fulfill their contractual

obligations and major deficiencies were found in their work. The contractors

moved petition before the Civil Court in Rome in 1998 and obtained Stay Orders

810

against the encashment of the Bank Guarantees. In 1998 OGDCL also filed

recovery suites in the Court of Senior Civil Judge, Islamabad. Subsequently, both

the contractors declared bankruptcy. In the year 2000 OGDCL obtained ex-party

decree from the court of Senior Civil Judge, Islamabad against both of the

guarantor bank. It was further informed that the inquiry committee has been

constituted and internal inquiry report has already been shared with Audit

authorities.

PAC DIRECTIVE

The Sub-Committee pended the para as the matter is sub-judice in Court of Law.

12. PARA NO. 142, Page-264-265, ( AR-2007-08)

UN-JUSTIFIED PAYMENT TO M/S. LMKR AS SHARE IN JOINT

VENTURE –LOSS US $ 614,093 –(RS.36.846 MILLION)

The Audit pointed out that in terms of the agreement dated December 30, 2005 M/s,

LMK Resources was obliged to arrange Omega-II software for processing the

seismic data and arrange equivalent software for this purpose. M/s, Western Geco,

supplier of the Omega-II refused to supply the software to LMK Resources being

their competitors and M/s, LMK Resources could not arrange equivalent software

for this purpose. OGDCL’s user departments were also not satisfied with the

seismic data processed by the joint venture. The management decided on February

21, 2007 to terminate the Joint Venture agreement, and OGDCL’s 50% share in the

loss settlement worked out to US$ 614,093.50 regarding acquisition of seismic data

processing equipment the committee was of the view that equipment was worth

only US$40,000 (based on the highest bid received) and advised that as a service to

the society it may be donated to Quaid-e-Azam University, Islamabad.

The PAO stated that the case was presented to Operation and Finance Committee of

the Board of before submission to BODs the O&FC of the Board directed the

MD/CEO to constitute and inquiry committee to probe in the matter. As per in

compliance with last PAC directive dated 15-08-2011 an inquiry has been

completed and recommendations are found. In consequence of recommendation

the needful is being done.

PAC DIRECTIVE

The Sub-Committee pended the para and directed the PAO to hold an inquiry and

to report the same to PAC.

811

13. PARA NO. 144, Page-266-268, ( AR-2007-08)



The Audit pointed out that Oil and Gas Development Company Limited made 22

recruitments without observing the lad down criteria/procedure. The posts were not

advertised in the press, and most of the candidates did not meet the prescribed

qualifications. These cases were submitted to Board on June 08, 2006 who advised

the management that all these cases should be submitted to Board of Directors for

information /ex-post facto approval. The matter was placed in Board of Directors

meeting held on February 06, 2007 for ex-post facto approval/regularization but the

Board of Director turned down the case and advised that the Chairman/Chief

Executive being the competent authority may decide the cases on merit basis. The

management of OGDCL did not take any corrective measures and the officers were

working on different posts against the Company’s recruitment policy; hence, the

amount of Rs.65.132 million paid on account of pay and allowance up to March

2008 was considered irregular. An inquiry committee was constituted and the

inquiry was in process.

The PAO stated that after doing proper advertisement and short listing the

candidate were interviewed and selected. Even than to comply with the PAC

directive dated 15-08-2011 an inquiry committee was constituted and its report has

been submitted accordingly to the PAC/Audit.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement and directed the PAO

that such practice may not be repeated again.

14. PARA NO. 145, Page-268-269, ( AR-2007-08)

PROCUREMENT OF DEFECTIVE MAN PORTABLE DRILLS (SHOT

HOLE) –(EURO 702,302) –RS.49.863 MILLION

The Audit pointed out that Oil and Gas Development Company Limited, Islamabad

invited bids for procurement of 12 Man Portable Drilling Rigs (Short Hole) 30

meter with spares through open tender. M/s. GEMSA, Turkey was the financially

lowest firm with Euro 702,302 (C&F basis). The order was placed on the firm on

812

December 29, 2005 despite having certain deficiencies in specification of offered

rigs. The rigs were received by OGDCL in August 2006 and issued to the Seismic

Parties. Frequent breakdown occurred in short duration during field operation. The

local agent of the supplier M/s, Rasttgar and Company also admitted problems with

the Man portable Rigs on February 12, 2007. The Chief of Seismic Party No.04

informed on May 07, 2007 that 04 MP rigs in operation were out of order. The

performance bond submitted by the supplier for Euro 71,000 expired on December

31, 2006 and the Company failed to get the extension of the same. An inquiry

Committee was constituted and the inquiry report was submitted to the PAC.

The PAO stated that an inquiry Committee was constituted to probe into the matter.

Final fate of the case would be intimated on finalization of inquiry proceeding. The

initial inquiry was completed and the findings of that inquiry were provided to the

Ministry.

PAC DIRECTIVE

The Sub-Committee pended the para and directed the PAO to re-inquire the matter

and if the inquiry Committee establishes the loss then it may be referred to FIA.

15. PARA NO. 146, Page-269-270, ( AR-2007-08)


PRESSURE GAS RS.18.067 MILLION

The Audit pointed out that OGDCL entered into an agreement with M/s. Farooq

Lime Merchants, Faisalabad on January 14, 2002 for the sale of low pressure gas

from its Kal Field for a period of three years. The contractor failed to make

payment for low pressure gas supplied by OGDCL from July 2004 to February

2005. The management was required to suspend the supply of gas after default of

July 2004 which was done and resulted in accumulation of outstanding dues of

Rs.14.525 million due to undue favoritism to the party. Similarly OGDCL entered

into an agreement on June 30, 2003 with M/s. Shahdab Lime Company for a period

of 3 years for the sale of low Pressure gas from its toot Field. The buyer was not

punctual in payment from the very first day. Despite the fact that the buyer was in

default OGDCL did not suspend the supply of gas, which resulted in accumulation

of outstanding dues against M/s. Shahdab Lime Company to the extent of Rs.3.542

million. Finally, the supply of gas was suspended in November 2004 at the request

of the defaulter firm. A case was filed for recovery of amount and the case is in

Islamabad High Court.

813

The PAO stated that OGDCL has supplied low pressure gas to M/s. Farooq Like

Kiln from Kal field from July 2002 to February 2005. The company has settled the

invoices up to June 2004 but the amount aggregating to Rs.10.770 million against

the invoices for the period July 2004 to February 2005 is outstanding. LPS has also

been charged to the company however, the payment has not been received. The

matter has gone in court of law and stay order has been issued.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement subject to recovery and

after the decision of Hon. Court.

16. PARA NO. 147, Page-270-272, ( AR-2007-08)

IRREGULAR APPOINTMENT OF EXECUTIVE DIRECTOR (HUMAN

RESOURCES) RS.16.800 MILLION

Oil and Gas Development company Limited on November 20, 2005 advertised the

posts in newspapers for appointment of SEVPs/Eds (HR). The minimum

qualification for the post was Master degree and 20 years experience of top level

management skills in the relevant filed. Mr. Shahzad Sadal having B.Sc.

qualification with four courses in human resource and 12 years experience of

human resource management applied for the post of Executive Director. The said

officer did not qualify even for short listing due to deficiencies in the qualification

as well as in experience, but the Human Resource Committee of OGDCL in its

meeting held on February 13, 2006 interviewed the candidate and recommended

his name as Executive Director, Human Resources @ Rs.500,000/- per month in

addition to other perquisites. The officer received Rs.16.800 million as

remuneration. The appointment of the said officer was considered irregular as

healthy competition was not made and candidate having lesser qualification as well

as practical experience was selected/appointed against the OGDCL service rules

and criteria published in the newspapers dated November 20, 2005, which resulted

in undue favour to the candidate. An inquiry committee was constituted to inquire

the matter. The inquiry report was finalized and submitted to Ministry.

The PAO stated that regarding appointment of ED (HR), it is stated that in response

to our advertisement published the news paper on 20-11-2005, Mr. Shahzad Sadan

had applied for the post. After scrutinizing the applications. The case of Mr.

Shahzad Sadan was put up to Human Resosurces Committee of the Board. The case

814

was presented in the Board of Directors meeting held on 23rd

February, 2006 for

their approval and it was resolved that “In view of his strong HR experience also

post graduate qualification the minimum requirements of the qualification and

experience for the position of Executive Director (Human Resources) may be

relaxed in the case of Mr. Shahzad Sadan. It was further informed that the inquiry

Committee constituted to inquire the case has finalized its inquiry and has

submitted the inquiry report to the PAC.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement and directed the PAO to

look into the inquiry in person with a report to PAC.

17. PARA NO. 148, Page-272-273, ( AR-2007-08)

LOSS DUE TO THEFT OF GASOLINE FROM DHODAK –RS. 9.758

MILLION

Audit pointed out that Oil and Gas Development Company Limited, Islamabad

entered into agreement with M/s. Shel Pakistan Limited and M/s. Caltex Oil (Pak)

Limited in 1995 for the sale of certain liquid petroleum products. In October 1997

and January 1998 Gasoline valuing Rs.9.758 million was misappropriated by the

staff of OGDCL from the deliveries made to the buyers from Dhodak. An inquiry

committee was constituted on August 10, 1999 with the direction to finalize the

report with a month. In May, 2000, the inquiry committee returned the file without

any action with remarks that due to paucity of time the inquiry could not be

conducted and the task may assigned to somebody else. Due to delayed and




employee did not serve the purpose. The matter is under investigation with FIA

Multan and the final status as emerged after FIA inquiry will be intimated

accordingly.

PAO stated that high level inquiries were conducted in this regard and as per their

findings/recommendations the case was forwarded to F.I.A. Now the case is under

investigation with FIA Multan Circle, Multan.

815

PAC DIRECTIVE

The Sub-Committee pended the para till the outcome of FIA inquiry report.

18. PARA NO. 149, Page-273-274, ( AR-2007-08)

IRREGULAR APPOINTMENT OF PART TIME CONSULTANT WITH

OPEN TORS AND PAYMENT OF REMUNERATION –RS.4.826 MILLION

Audit pointed out that Oil and Gas Development Company Limited (OGDCL)

appointed a part time Consultant/Advisor (Human Resources) on December 01,

2005 at a consolidated pay of Rs.80,000 per month on an open TOR’s. The initial

period of appointment was of four months and payment of Rs.720,000 was made

from October, 2005 to June, 2006. Then, the officer was appointed as Manager

(Cost and Benefit) and an amount of Rs.4,106,319 was paid up to March, 2008. The

appointment was finalized without following the procedure and the job was not

advertised. Thus, the payment of Rs.4.826 million from the period October 2005 to

March 2008 was considered irregular. An inquiry Committee was constituted to

inquire the case. The joint team under representative of Ministry completed the

inquiry and also submitted its findings to Ministry.

PAO informed the Committee that G.M. (H.R) Mr. Imtiaz Hussain Zaidi, resigned

from OGDCL and the Management was looking for a suitable replacement. In July

2005 the position was advertised in all leading newspapers both locally as well as

internationally. In order to get the functions of HR carried out perfectly the then

Managing Director gave the authority to Mr. Amir Murad to exercise the financial

powers of G.M (H.R). Later on case of Mr. Murad was presented to BOD, but BOD

after interview suggested appointing Mr. Murad as manager (H.R). It will be

appreciated that the Board has acted with lawful authority and all the payments

made were held quite regular.

PAC DIRECTIVE


19. PARA NO. 150, PAGE-274-275, ( AR-2007-08)

LOSS DUE TO NON-FORFEITURE OF PERFORMANCE BOND OF

DEFAULTING CONSTRUCTION CONTRACTOR –RS.3.884 MILLION

Audit pointed out that Oil and Gas Development Company Limited, Islamabad

816

awarded the work of construction of workers at Bobi LPG Plant in Sindh to M/s

Shan Associates, Lahore on July 07, 2005. The total cost of contract was

Rs.38,835,924. The contractor submitted 10% performance bond valuing Rs.3,

883,600 issued by M/s. Credit Insurance Company Limited, Lahore, which was

valid upto July 26, 2007. The contract was cancelled on September 13, 2007 after

10 months from the stoppage date of work by the contractor. The Manager

Operation recommended encashment of performance bond but the management

delayed the action resulting, in expiry of bond causing loss of Rs.3.884 million. An

inquiry committee was constituted to inquire the matter. The inquiry committee

finalized its inquiry and submitted inquiry report to MP&NR, DG-Commercial

Audit, Lahore.

PAO stated that the delayed start of work (09 months) & then release of 1st running

bill has almost taken 13 months out of allocated 18 months scheduled time. Then as

per usual practice of intimation & thereafter three notices with properly time span

followed by a final 14 days notice definitely would have taken time. Furthermore,

approval of the forfeiture need advice from the legal department & therefore, these

procedures are alsotime consuming tasks. Hence delayed start, followed by

procedural delays, resulted in expiration of performance bonds. This may kindly be

treated as procedural delay and may not be termed as human error.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement and directed the

management that all inquiry related paras may be completed within stipulated time

of 60 days.

ACTIONABLE POINTS


Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Ministry Of

Petroleum & Natural Resources

held on 10th



1. PARA-130, PAGE-234-235, ARPSE-2007-08

PILFERAGE OF GAS BY USING DIRECT TAPPING AND METER

TAMPERING– RS.92.174 MILLION

817

Audit pointed out that as per Section 18.1 of Billing Manual of SNGPL, it is

responsibility of every employee of SNGPL to detect and report the cases involving

pilferage of gas and as per Section-18.13 of Billing Manual when tampering of

meter is established, gas supply shall be disconnected immediately (within 24

hours). The consumer shall be placed under observation for a period at least 6

months after restoration of gas.

The un-accounted for gas team (UFG) of SNGPL conducted various raids during

2002-03 to 2006-07 and detected pilferage of gas amounting to Rs.92.174 million

by commercial, industrial and domestic consumers by using direct tapping and

tampering of meters:

The PAO informed the Sub-Committee that amount of pilferage of gas had been

booked and recovery suits had been filed in the court of law.


The Sub-Committee pended the Para because the matter is subjudice in nature. The

Committee further directed the PAO to pursue the case in the court of Law

vigorously.

2. Para-131, Page-236, ARPSE-2007-08

NON-RECOVERY OF GAS BILLS –Rs. 10.107 MILLION

Audit pointed out that Clause 16 of Gas Sales Agreement necessitates the

termination of gas connection if the bill is not paid within 10 days of the date of bill.

SNGPL could not recover gas charges amounting to Rs.10.107 million relating to

the period from February 1991 to March 2006.

PAC DIRECTIVE (DATED 15-05-2015)

The Sub-Committee pended the para and directed the PAO to make necessary

amendments in the agreement made with the customer/applicant for new gas

connection in future. By making land lord as second owner which would liable to

pay in case the lessee becomes defaulter.

The PAO informed the Committee that there were four cases pending in the court

of law and the Ministry is pursing the cases.

818

PAC DIRECTIVE

The Sub-Committee pended the para as the matter is sub-judice.

3. PARA-137.4, PAGE-251-252, ARPSE-2007-08

CAPITALIZATION OF JOB

Audit pointed out that Clause 13.7.6.5 of Accounting Manual of SNGPL

“Reconciliation of Job” requires that completion report shall be prepared for each

job within one month of its completion, and shall be a pre-requisite for closing of

all jobs and capitalization thereof.

The capitalization of Rs.2.235 billion was done without observing the accounting

procedure of SNGPL. In the absence of reconciliation of job the value of the

capitalization may be overstated.


The Sub-Committee recommended the para for settlement subject to verification

of record by the Audit.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement subject to verification

of record by the Audit.


4. PARA-138.4, PAGE-259, ARPSE-2007-08

The Audit pointed out that Trade debts increased from Rs.24.498 billion in 2005-06

to Rs.27.873 billion in 2006-07. This indicates that debtors have increased by

13.17% and overall sales have increased from Rs.96 billion to Rs.100 billion with

an increase of 3.6%. The practice can create cash flow problems.

The trade debts includes an amount of Rs.5.379 billion (2006: 1.768 billion) which

has been withheld by the refineries under the directive of Ministry of Petroleum and

Natural Resources and represents revenue of crude oil in excess of 50$ per barrel

.The discount table for this revenue is yet to finalized and was pending with the

Ministry for many years..

819


The Sub-Committee recommended the para for settlement subject to verification of

Audit.

The PAO informed the Committee that 99% accounts have been verified by the

Audit. 1 % which is 300 Million were remaining, whereas out of 300 Million,

Rs.200 Million has been settled and 100 Million were remaining.

PAC DIRECTIVE

The Sub-Committee recommended the Para for settlement subject to verification of

record by the Audit and directed the PAO to get the advice from Finance Division

how to improve its financial system.

5. Para-139, Page-260-261, ARPSE-2007-08

LOSS DUE TO NON DELIVERY OF TWO RIGS BY M/S. GWDCL (US $

21,516,200) – RS.1.291 BILLION

The Audit pointed out that as per clause 1.3 of the agreement M/s. Great Wall

Drilling Company Limited (GWDCL) was obliged to supply rigs as detailed

hereunder:-

v. Hiring of one medium depth drilling rig i.e. ZJ50DB (GW-77) from

Pakistan at an estimated amount of US $ 1,505,000.

vi. Hiring of one deep depth drilling rig i.e. ZJ70D (GW-98) from China at an

estimated amount of US $5,306,500

vii. Hiring of one deep depth drilling rig i.e. ZJ70D from China at an estimated

amount of US $5,306,500 as per rates mentioned under Appendix-A with

Option-I.

viii. Hiring of four deep depth drilling rigs i.e. ZJ70D from China at an

estimated amount of US $ 5.525 million each.

As per clause 1.5 the duration of contract was for an initial term of two years on as

and when required basis subject to mobilization notice which was applicable from

commencement date.

Oil and Gas Development Company Limited (OGDCL) entered into a contract

agreement with M/s Great Wall Drilling Company Limited (GWDCL), Beijing,

China on October 19, 2005 for hiring of seven rigs at the contract price US $ 33.818

820

million. The Company supplied five rigs. OGDCL asked GWDCL, on November

28, 2006 to intimate the availability of balance two drilling rigs but the Company

instead of offering the supply of remaining rigs, offered the remaining two rigs at

revised tender rates, in spite of fact it was obliged to provide seven rigs on as and

when required basis within two years contract period. The OGDCL entered into a

new agreement at higher rates without stressing the Company to supply the

remaining two rigs at previously agreed rates. Thus OGDCL had incurred to an

extra expense of US $ 21.516 million equal to Rs.1.291 billion.



Audit and directed the PAO to re-examine the executed agreement made with the

supplier and if found any irregularity on the part of officer who executed this

agreement an inquiry should be initiated against him and report to PAC.

The PAO apprised the Committee that the inquiry report has been received and the

same will be discussed in the DAC meeting soon.

PAC DIRECTIVE

The Sub-Committee pended the Para with the direction to PAO to submit its

comprehensive report on the matter on 20-08-2015.

6. Para-140, Page-261-262, ARPSE-2007-08

NON-ENCASHMENT OF BANK GUARANTEES DUE TO LITIGATION

WITH TWO ITALIAN CONTRACTORS – US $. 9.119 MILLION

(RS.547.120 MILLION)

Audit pointed out that as per clause 20.2 of Foreign Procurement Procedure Manual

of OGDCL, the bid/performance bond shall be in the form of pay order/demand

draft/cash deposit or bank guarantee issued by a scheduled bank.

Oil and Gas Development Company Limited (OGDCL) entered into contracts for

setting up Qadirpur Project for supply, production and distribution equipment of

gas for US $ 73,262,000 with M/s. Compagnia Technical International Progetti

SPA (CTIP) and for civil works valuing Rs.560,586,600 with M/s. Fochi Energia

Sri in February, 1994. Both the contractors submitted performance bonds from

821

Italian Banks contrary to the Foreign


The Sub-Committee pended the para as the matter is subjudice in Court of Law.

PAC DIRECTIVE

The Sub-Committee pended the Para as the matter is sub-judice in the Court of Law

and directed the PAO to share internal inquiry report with the Audit and report

therein be intimated to PAC within 60 days.

7. Para-142, Page-264-265, ARPSE-2007-08

UN-JUSTIFIED PAYMENT TO M/S. LMKR AS SHARE IN JOINT

VENTURE – LOSS US $ 614,093 – (RS.36.846 MILLION)

Audit pointed out that as per resolution of Board of Directors on October 27, 2005

that at the end of each calendar year a profit / loss statement will be prepared and all

profits would be shared by 50 / 50 between OGDCL and LMKR but in case of loss

it will be exclusively borne by LMKR.

In terms of the agreement dated December 30,2005 M/s. LMK Resources was

obliged to arrange Omega-II software for processing the seismic data and arrange

equivalent software for this purpose. The management decided on February 21,

2007 to terminate the Joint Venture agreement, and OGDCL’s 50% share in the

(loss) settlement worked out to US $ 614,093.50. Regarding acquisition of seismic

data processing equipment the committee was of the view that equipment was

worth only US $ 40,000 (based on the highest bid received) and advised that as a

service to the society it may be donated to Quaid-e-Azam University, Islamabad.



to report the same to PAC.

PAC DIRECTIVE


report be submitted to PAC within 60 days.

822

8. Para-144, Page-266-268, ARPSE-2007-08


CODAL FORMALITIES RS.65.132 MILLION

PAC DIRECTIVE

The Sub-Committee recommended the Para for settlement on the recommendation

of the Audit.

9. Para-145, Page-268-269, ARPSE-2007-08

PROCUREMENT OF DEFECTIVE MAN PORTABLE DRILLS (SHOT

HOLE) – (EURO 702,302) – RS.49.863 MILLION

Audit pointed out that as per Clause-3.2 of the Foreign Procurement Procedure of

OGDCL, the indenting department should raise their indents on prescribed forms

for imports giving complete description of specifications, nomenclature, weight,

dimension, mode of shipment, quantity, units etc. of the required material.

Oil and Gas Development Company Limited (OGDCL), Islamabad invited bids for

procurement of 12 Man Portable Drilling Rigs (Shot Hole) 30 meter with spares

through open tender. M/s. GEMSA, Turkey was the financially lowest firm with

Euro 702,302 (C&F basis). The order was placed on the firm on December 29,

2005 despite having certain reservations according to the Clause 3.2 of the Foreign

Procurement Procedure of OGDCL. The local agent of the supplier M/s. Rastgar

and Company also admitted problems with the Man Portable Rigs on February 12,

2007. The Chief of Seismic Party No.04 informed on May 07, 2007 that 04 MP rigs

in operation were out of order. The performance bond submitted by the supplier for

Euro 71,000 expired on December 31, 2006 and the Company failed to get the

extension of the same.


The Sub-Committee pended the para and directed the PAO to re-inquire the matter

and if the inquiry Committee establishes the loss then it may be referred to FIA.

823

PAC DIRECTIVE

The Sub-Committee pended the Para by directing the PAO to inquire the matter and

report therein be submitted to PAC within 30 days .

10. Para-146, Page-269-270, ARPSE-2007-08


PRESSURE GAS RS.18.067 MILLION

(i) OGDCL entered into an agreement with M/s. Farooq Lime Merchants,

Faisalabad on January 14, 2002 for the sale of low pressure gas from its Kall Field

for a period of three years. The contractor failed to make payment for low pressure

gas supplied by OGDCL from July 2004 to February 2005. The management was

required to suspend the supply of gas after default of July 2004 which was not done

and resulted in accumulation of outstanding dues of Rs.14.525 million due to undue

favoritism to the party.

(ii) Similarly OGDCL entered into an agreement on June 30, 2003 with M/s.

Shahdab Lime Company, for a period of 3 years for the sale of low pressure gas

from its Toot Field. The buyer was not punctual in payment from the very first day.

Despite the fact that the buyer was in default OGDCL did not suspend the supply of

gas, which resulted in accumulation of outstanding dues against M/s. Shahdab

Lime Company to the extent of Rs.3.542 million. Finally, the supply of gas was

suspended in November 2004 at the request of the defaulter firm.

The PAO informed the Committee that supply of gas had been disconnected when

the buyers went in default the matter is pending in the court of Law.


The Sub-Committee recommended the para for settlement subject to recovery and

after the decision of Honourable Court.

PAC DIRECTIVE

The Sub-Committee recommended the Para for settlement subject to recovery of

amount and directed the PAO to pursue the case in Court of Law vigorously.

824

11. Para-147, Page-270-272, ARPSE-2007-08

IRREGULAR APPOINTMENT OF EXECUTIVE DIRECTOR (HUMAN

RESOURCES) RS.16.800 MILLION

PAC DIRECTIVE


12. Para-148, Page-272-273, ARPSE-2007-08

LOSS DUE TO THEFT OF GASOLINE FROM DHODAK – RS.9.758

MILLION

Oil and Gas Development Company Limited (OGDCL), Islamabad entered into

agreement with M/s. Shell Pakistan Limited and M/s. Caltex Oil (Pak) Limited in

1995 for the sale of certain liquid petroleum products. In October 1997 and January

1998 Gasoline valuing Rs.9.758 million was mis-appropriated by the staff of

OGDCL from the deliveries made to the buyers from Dhodak. Due to delayed and




employee did not serve the purpose.

The PAO informed the Committee that the case is under investigation with FIA.


The Sub-Committee pended the para till the outcome of FIA inquiry report.

PAC DIRECTIVE

The Sub-Committee pended the Para till the next meeting scheduled to be held on

20-08-2015 with the direction to FIA to brief about the latest status of the case in

detail to the Committee.

13. Para-150, Page-274-275, ARPSE-2007-08

LOSS DUE TO NON-FORFEITURE OF PERFORMANCE BOND OF

DEFAULTING CONSTRUCTION CONTRACTOR – RS.3.884 MILLION

825



PLANNING AND DEVELOPMENT DIVISION

2007-08

22. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to The Planning And

Development Division was examined by the PAC Sub-Com. III on 14th

December

2015.






22.3 The Committee referred 01 para to NAB.

22.4

PLANNING & DEVELOPMENT DIVISION

ACTIONABLE POINTS

23 Actionable points arising out from the discussion of meeting of the

Sub-Committee-III, of the PAC for the year 2007-08 pertaining to the Planning

& Development Division held on 14th

December, 2015 are as under:-

DIRECTOR GENERAL, COMMERCIAL AUDIT & EVALUATION,

LAHORE

24 1. PARA-154.2 PAGE-286 ARPSE-2007-08 (NLC)

The Audit pointed out that trade debts increased to Rs.3,326.638 million as on

June 30, 2007(2006 : Rs 1,323.493 million) registering an increase of 151%

over previous year. The abnormal increase in trade debts needs justification.

826

The amount included Rs.93.500 million (2006 - Rs 53.767 million) considered

doubtful for which a provision of the same amount was created in the accounts.

The party-wise breakup of doubtful debts along with reasons of considering

them doubtful and efforts made for the realization of the same needs to be

explained.

The PAO stated that It is worth mentioning that provision has been catered for

being old. The Audited Accounts for the year 2006-07 have also been

approved by the NLB.

PAC DIRECTIVE

The Sub-Committee pended the Para till the decision of arbitrator and directed

the PAO to keep apprised Committee and Audit about the position of the

arbitration.

25 2. PARA-154.3 PAGE-286 ARPSE-2007-08 (NLC)

The Audit pointed out that trade debts included a sum of Rs.186.670 million

due from the National Highway Authority (NHA) on account of Karachi

Northern Bypass Project. Subsequently, due to collapse of the Shershah Bridge

in Karachi, the amount was withheld by the NHA till the decision of the Prime

Minister’s Inquiry Commission. Early realization of the claim is stressed upon

the management.

The PAO stated that the case is still sub-judice.

PAC DIRECTIVE

The Sub-Committee directed the PAO to pursue the case in the court of Law

vigorously.

26 3. PARA-155 PAGE-286 ARPSE-2007-08 (NLC)

IRREGULAR EXPENDITURE DUE TO PROCUREMENT OF

IMPORTED VEHICLES – RS.85.716 MILLION

The Audit pointed out that the Prime Minister Secretariat approved

modification in the procedure relating to replacement of condemned vehicles

827

and purchase of additional vehicles, vide U.O dated July 11, 2005, circulated

by Cabinet Division vide office memo dated July 22, 2005, according to which

the ban imposed on the replacement / additional purchase of new vehicles was

lifted but instructions with reference to imported vehicles circulated vide

Cabinet Division’s D.O letter dated February 28, 2000 will continue to be

observed.

National Logistic Cell imported 86 (6 Land Cruisers, 38 Double Cabin Toyota

Hilux and 42 Single Cabin Toyota) vehicles at Rs.85.716 million during

2006-07, out of Government of Punjab funds placed at the disposal of NLC for

Education and Health Sectors, Reform Projects, without approval of the Prime

Minister .The expenditure of Rs.85.716 million incurred on the import of

foreign vehicles was considered irregular.

The matter was reported to the Ministry on May 26, 2008. The management in

its reply dated July 10, 2008 intimated that vehicles were imported out of

Government of Punjab fund placed at the disposal of NLC for education and

health sector reform projects. The vehicles were imported after obtaining NOC

from the Ministry of Defense as day to day working of NLC would be through

Quarter Master General Army. The reply of the management was not

convincing as the vehicles were imported out of Punjab Government Funds

and instructions of Cabinet Division were not followed.

The DAC in its meeting held on November 12, 2008, directed the management

to conduct an enquiry (by including a representative of Ministry in the said

committee) to find out reasons for violation of the Government instructions

and move a summary for ex-post facto approval of the Prime Minister of

Pakistan within 15 days. No further progress was reported till finalization of

this report.

The PAO stated that PC-I for ESR and HSR has been demanded from

Government of Punjab to process the case for obtaining the ex-post facto

approval of the competent authority.

PAC DIRECTIVE DATED 06-09-2012)

The Committee directed the PAO to pay custom duty in four installments, get it

verified from Audit and submit report to the PAC. However, the portion

828

regarding purchase of vehicles was clubbed with the Audit paras under

investigation by NAB.

PAC DIRECTIVE

The Sub-Committee pended the para and directed the PAO to send a reference

to NAB in pursuance of PAC directive 06-09-2012 (which could not

implemented) within 15 days. The Sub-Committee further directed the NAB to

give its progress report on the Para within 90 days to PAC.

PARAS RECOMMENDED FOR SETTLEMENT BY DAC

27 4. i. PARA 154 & 154.1

NATIONAL LOGISTIC CELL (NLC)

28 ii. PARA-156 PAGE-286 ARPSE-2007-08 (NLC)

IRREGULAR PAYMENT DUE TO RETENTION OF EMPLOYEES

BEYOND AGE OF 60 YEARS – RS.2.235 MILLION

29 iii. PARA-157 PAGE-288 ARPSE-2007-08(NLC)

IRREGULAR APPOINTMENT OF A LEGAL ADVISOR AND

PAYMENT – RS.0.996 MILLION

30 iv. PARA-158&158.1PAGE-290 (PIDE)ARPSE-2007-08

PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS

31 v. PARA-158.2 PAGE-291 ARPSE-2007-08

PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS (PIDE)

PAC DIRECTIVE

The Sub-Committee recommended the above mentioned 5 Paras for settlement

on the recommendations of the Audit/DAC.

829

MINISTRY OF SCIENCE & TECHNOLOGY

2007-08

26. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Science &

Technology was examined by the PAC Sub-Com. III on 17th

March 2015.

26.1 01 para was presented by the Audit Department which were examined by

the Committee and 01 para was settled whereas appropriate directions were

accordingly issued for the remaining paras.


2007-08

ACTIONABLE POINTS



Science & Technology held on 17th

March, 2015 are as under:-



1. PARA NO. 169 & 169.1, PAGE NO.309 ( AR-2007-08)

INTRODUCTORY PARA

Pakistan Science Foundation was established on Feb, 02 1973 under PSF Act. It is

working under the Ministry of Science and Technology. The organization has no

share capital rather it receives development and non-development grants from the

Government of Pakistan. Its office is situated at G-5/1, opposite Supreme Court

Building, Constitution Avenue, Islamabad. Grants from Federal Government

increased over the last three years sharply but the corresponding increase in

scientific functions expenditure was low. Moreover, administrative expenses

increased from Rs.34.40 million in 2005-06 to Rs.48.00 million in 2006-07. This

situation showed that grants were being shifted from the core functional

expenditure (i.e. scientific functions) to the administrative functions. This situation

needs to be checked by the management.

830

The PAO stated that Govt. of Pakistan, Finance Division, Islamabad allocates

funds to Pakistan Science Foundation, Islamabad on yearly basis through NIS, both

for statutory and administrative functions. During the last four years, funds

allocated by the Government and utilized by PSF for statutory and administrative

functions. We are almost spending these funds over research work.

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement


2007-08

27. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Textile

Industry was examined by the PAC Sub-Com. III on 12th

October 2015.






MINISTRY OF TEXTILE INDUSTY

2007-08

ACTIONABLE POINTS



Textile Industry held on 12th


NATIONAL TEXTILE UNIVERSITY


1. PARA-172& 172.1PAGE-327 ARPSE-2007-08

PAC DIRECTIVE

The Sub-Committee recommended the above mentioned 2 paras for settlement on

the recommendations of DAC.

831

2. PARA-172.2 PAGE-328 ARPSE-2007-08

The Audit pointed out that the title of free hold land valuing Rs.312.219 million

was not transferred in the name of University in Land Revenue Authorities record.

Transfer of title in the name of University needs to be arranged at the earliest.

The PAO informed that the opinion of Law & Justice Division has been received.

Accordingly, the Board of Revenue, Govt. of Punjab, Lahore has been requested to

transfer the land in the name of NTU vide letter No. NTU/ RO/ S-1/ 2045-1720

dated 02-07-2015

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement subject to compliance of

DAC directive.

MINISTRY OF WATER & POWER

2007-08

28. OVERVIEW

Annual Audit Report for the year 2007-08 pertaining to the Ministry of Water &

Power was examined by the PAC Sub-Com. III on 20th

August 2011, 25th

February

2014, 27th

February 2015, 8th

May 2015 and 14th

October 2015.






28.3 The Committee referred 01 para to FIA.

MINISTRY OF WATER & POWER

ACTIONABLE POINTS



Water & Power held on 25th

February, 2014 are as under:-

832



M/o Water & Power


1. PARA-178&178.1 PAGE-339 ARPSE-2007-08

The Audit pointed out that contract fee receivable increased to Rs.571.317 million

in 2006-07 from Rs.535.549 million in 2005-06 showing increase by 7%. Likewise,

contract fee receivable considered doubtful also increased to Rs.317.718 million in

2006-07 from Rs.269.498 million in 2005-06 registering an increase by 18%.

After detailed discussion, the PAO assured the Committee that the matters of

outstanding receivables would be resolved within 30 days.

PAC DIRECTIVE

The PAC settled the para with direction that the issues of outstanding receivables

would be resolved by the Ministry and a report thereof would also be submitted to

the Committee within 30 days.

2. PARA-178.2 PAGE-340ARPSE-2007-08

The Audit pointed out that the administrative, general and financial charges

increased to Rs.2, 057.606million in 2006-07 from Rs.1, 617.226 million in

2005-06 showing an increase of 27%. Administrative and general expenses

included an amount of Rs.19.274 million which has been written-off on account of

bad debts.

Departmental Representative replied that the amount in question has not been

written-off rather necessary corrections were made after meeting with the clients

and accordingly the amount was adjusted.

PAC DIRECTIVE

The Committee settled the para with direction that a report may be furnished to the

committee within 30 days indicating as to whether the write off of the amount was

right or wrong and under rules.

833

NATIONAL POWER CONSTRUCTION CORPORATION (PVT)

LIMITED

3. PARA-179&179.1

AN INCREASE IN TOTAL EXPENSES FROM 92% IN 2005-06 TO 99% IN

2006-07

4. PARA-179.2

AN INCREASE OF 49,189% IN THE CONTRACT BILLS RECEIVABLES

IN THE YEAR 2006-07 AS COMPARED TO THE YEAR 2005-06

5. PARA-179.3

AN INCREASE OF 329% IN NON-RECEIPT OF TOOLS, GAUGES AND

STORES IN THE YEAR 2006-07 AS COMPARED TO THE YEAR 2005-06

PAC DIRECTIVE

The PAC settled the above three (03) paras subject to verification of record by

Audit.

ACTIONABLE POINTS



Water & Power held on 8th

May, 2015 are as under:-



1.

i. PARA NO. 179 & 179.1, Page-340 (AR-2007-08)

ii. PARA NO. 179.2, (AR-2007-08)

iii. PARA NO. 179.3, (AR-2007-08)

PAC DIRECTIVE

The Sub-Committee recommended the above three (03) paras for settlement as

recommended by Audit.

2. PARA NO. 178 & 178.1, Page-339 ( AR-2007-08)

The Audit pointed out that the company was incorporated in 1973 under the

834

Companies Act 1913. It is wholly own by the Government of Pakistan and engaged

in engineering consultancy services in Pakistan and abroad. The working results of

the company for the year 2006-07 as compared with previous years decrease

because the contract fee receivable considered doubtful increased to Rs.317.718

million in 2006-07 from Rs.269.498 million in 2005-06 registering an increase by

18%. However, the income of the company increased mainly because of

consultancy services rendered in Pakistan and outside Pakistan by 39% and 29%

respectively.

The PAO replied that usually NESPAK bills are paid after several processes of

verification. The management of the NESPAK makes appropriate provision to

fully depict the true picture of the profitability of the company and therefore, the

recovery of contract fee receivable especially doubtful in nature becomes the

priority of the NESPAK management. As a result the old receivables are not

showing decreasing trends.

PAC DIRECTIVE

The Sub-Committee did not satisfy with the reply of PAO and directed that the

recoverable amount may be recovered on monthly basis and report to this

Secretariat accordingly, not more than three months.

3. PARA NO. 178.2, Page-340 ( AR-2007-08)

The Audit pointed out that the administrative general and financial charges increase

to Rs.2,057.606 million in 2006-07 from Rs.1,617.226 million in 2005-06 showing

an increase of 27%. Administrative and general expenses included an amount of

Rs.19.274 million which has been written-off on account of bad debts. The

Sub-Committee may ask the reasons for non-recovery of dues from the

management.

The PAO replied that during the year 2006-07 NESPAK income has increased to

Rs.2,503.365 million as compared to Rs.1,802.362 million in 2005-06 registering

an increase of around 39% whereas increase in administrative, general and

financial expenses is just 27% and is far less than the increase in income. The

improved performance and profitability can be attributed to aggressive business

strategy of the company, better management and continued thrive in the economy

in the country as well as our efforts to reduced expenses whenever possible.

835

PAC DIRECTIVE



AUDIT REPORT PUBLIC SECTOR ENTERPRISES2007-08

15. PARA-178&178.1 PAGE-339 ARPSE-2007-08 NATIONAL ENGINEERING

SERVICES PAKISTAN (PVT.) LIMITED

The Audit pointed out that the income of the Company increased to Rs.2,503.365

million in 2006-07 as compared to Rs.1,802.362 million in 2005-06 mainly due to

increase in fee income on account of consultancy services rendered in Pakistan and

outside Pakistan by 39% and 29% respectively. Management is required to

maintain the increasing trend of income.

Contract fee receivable considered good increased to Rs.571.317 million in

2006-07 from Rs.535.549 million in 2005-06 showing increase by 7%. Likewise,

contract fee receivable considered doubtful also increased to Rs.317.718 million in

2006-07 from Rs.269.498 million in 2005-06 registering an increase by 18%. Steps

be taken to recover the outstanding amounts from the concerned clients.


The PAC settled the para with direction that the issues of outstanding receivables

would be resolved by the Ministry and a report thereof would also be submitted to

the Committee within 30 days.

The PAO stated that in the light of directive of Sub-Committee of the PAC issued

on 08-05-2015 all out efforts have been made to recover the receivables and as a

result a sum of Rs.609.200 Million has been recovered out of Rs.889 Million

outstanding.

PAC DIRECTIVE

The Sub-Committee directed the PAO to settle/verify the record of the para at DAC

level and submit repot to the Committee for endorsement.

836

16. PARA-178.2 PAGE-340 ARPSE-2007-08 NATIONAL ENGINEERING

SERVICES PAKISTAN (PVT.) LIMITED

The Audit pointed out that the administrative, general and financial charges

increased to Rs.2,057.606 million in 2006-07 from Rs.1,617.226 million in

2005-06 showing an increase of 27% . Administrative and general expenses

included an amount of Rs.19.274 million which has been written-off on account of

bad debts. Party-wise detail, aging and reasons for non-recovery of dues may be

explained.


The Committee settled the para with direction that a report may be furnished to the

committee within 30 days indicating as to whether the write off of the amount was

right or wrong and under rules.

The PAO informed that the department has provided the proceeding of BOD

meeting regarding write-off action and Ministry has also endorsed that report

which has been sent to the PAC

PAC DIRECTIVE

The Sub-Committee recommended the para for settlement subject to verification of

record pertaining to NESPAK by the Audit and report to Committee.

Documents

AUDIT REPORT ON THE ACCOUNTS OF PUBLIC SECTOR ENTERPRISES ... · PUBLIC SECTOR ENTERPRISES AUDIT YEAR 2007-08 ... Karachi Shipyard and Engineering Works Limited ... Audit of the accounts