AUDIT REPORT

ON
THE ACCOUNTS OF
PUBLIC SECTOR ENTERPRISES
AUDIT YEAR 2018-19

AUDITOR GENERAL OF PAKISTAN

 TABLE OF CONTENTS

ABBREVIATIONS AND ACRONYMS i

PREFACE xi
EXECUTIVE SUMMARY xiii
SUMMARY TABLES AND CHARTS
I. Audit Work Statistics xxi
II. Audit Observations regarding Financial Management xxi
III. Outcome Statistics xxi
IV. Table of Irregularities xxii
V. Cost- Benefit xxii

AVIATION DIVISION
CHAPTER-1
(CABINET SECRETARIAT)
1.1 Pakistan International Airlines Corporation
1.1.1 Introduction 1
1.1.2 Comments on Audited Accounts 1
1.1.3 Compliance of PAC Directives 1
1.1.4 AUDIT PARAS 2
1.2 Skyrooms (Pvt.) Limited
1.2.1 Introduction 41
1.2.2 Comments on Audited Accounts 41
1.2.3 Compliance of PAC Directives 42
1.2.4 AUDIT PARAS 42
CHAPTER-2 CABINET DIVISION

2.1 Pakistan Bait-ul-Mal

2.1.1 Introduction 46
2.1.2 Comments on Audited Accounts 46
2.1.3 Compliance with PAC Directives 46
2.1.4 AUDIT PARAS 47
CHAPTER-3 MINISTRY OF CLIMATE CHANGE

3.1 Pakistan Environmental Planning and

Architectural Consultants (Pvt.) Limited
3.1.1 Introduction 59
3.1.2 Comments on Audited Accounts 59
3.1.3 Compliance with PAC Directives 60
CHAPTER-4 MINISTRY OF COMMERCE AND
TEXTILE

4.1 National Insurance Company Limited

4.1.1 Introduction 61
4.1.2 Comments on Audited Accounts 61
4.1.3 Compliance of PAC Directives 63
4.1.4 AUDIT PARAS 63
4.2 Pakistan Reinsurance Company Limited
4.2.1 Introduction 71
4.2.2 Comments on Audited Accounts 71
4.2.3 Compliance of PAC Directives 73
4.2.4 AUDIT PARAS 73
4.3 State Life Insurance Corporation of Pakistan
4.3.1 Introduction 79
4.3.2 Comments on Audited Accounts 79
4.3.3 Compliance of PAC Directives 80
4.3.4 AUDIT PARAS 81
4.4 Trading Corporation of Pakistan (Pvt.) Limited
4.4.1 Introduction 89
4.4.2 Comments on Audited Accounts 89
4.4.3 Compliance of PAC Directives 90
4.4.4 AUDIT PARAS 91
4.5 Pakistan Expo Centers (Pvt.) Limited
4.5.1 Introduction 95
 4.5.2 Comments on Audited Accounts 95
4.5.3 Compliance with PAC Directives 95
4.5.4 AUDIT PARAS 96
4.6 Pakistan Tobacco Board
4.6.1 Introduction 118
4.6.2 Comments on Audited Accounts 118
4.6.3 Compliance with PAC Directives 118
4.6.4 AUDIT PARAS 119
CHAPTER-5 MINISTRY OF COMMUNICATIONS

5.1 Karachi Infrastructure Development Company

Limited
5.1.1 Introduction 125
5.1.2 Comments on Audited Accounts 125
5.1.3 Compliance of PAC Directives 126
5.1.4 AUDIT PARAS 126
CHAPTER-6 MINISTRY OF DEFENCE PRODUCTION

6.1 Karachi Shipyard and Engineering Works

6.1.1 Introduction 138
6.1.2 Comments on Audited Accounts 138
6.1.3 Compliance of PAC Directives 138
6.1.4 AUDIT PARAS 139
6.2 Pakistan Ordnance Factories
6.2.1 Introduction 147
6.2.2 Comments on Audited Accounts 147
6.2.3 Compliance with PAC Directives 147
6.2.4 AUDIT PARAS 148
6.3 Pakistan Ordnance Clothing Factory
6.3.1 Introduction 184
6.3.2 Comments on Audited Accounts 184
6.3.3 Compliance with PAC Directives 184
6.3.4 AUDIT PARAS 184
 6.4 Wah Industries Limited
6.4.1 Introduction 191
6.4.2 Comments on Audited Accounts 191
6.4.3 Compliance with PAC Directives 192
6.4.4 AUDIT PARAS
CHAPTER-7 MINISTRY OF ENERGY (Power Division)

7.1 National Engineering Services Pakistan (Pvt.)

Limited
7.1.1 Introduction 196
7.1.2 Comments on Audited Accounts 196
7.1.3 Compliance with PAC Directives 196
7.1.4 AUDIT PARAS 197
CHAPTER-8 MINISTRY OF FINANCE (Finance Division)

8.1 House Building Finance Company Limited

8.1.1 Introduction 231
8.1.2 Comments on Audited Accounts 231
8.1.3 Compliance of PAC Directives 232
8.1.4 AUDIT PARAS 233
8.2 Pakistan Security Printing Corporation (Pvt.)
Limited
8.2.1 Introduction 250
8.2.2 Comments on Audited Accounts 250
8.2.3 Compliance of PAC Directives 251
8.2.4 AUDIT PARAS 252
8.3 State Bank of Pakistan
8.3.1 Introduction 270
8.3.2 Comments on Audited Accounts 270
8.3.3 Compliance of PAC Directives 272
8.3.4 AUDIT PARAS 273
8.4 SME Bank Limited
8.4.1 Introduction 294
 8.4.2 Comments on Audited Accounts 295
8.4.3 Compliance with PAC Directives 296
8.5 Zarai Taraqiati Bank Limited
8.5.1 Introduction 298
8.5.2 Comments on Audited Accounts 298
8.5.3 Compliance with PAC Directives 299
8.5.4 AUDIT PARAS 300
8.6 Kissan Support Services (Pvt.) Ltd
8.6.1 Introduction 327
8.6.2 Comments on Audited Accounts 327
8.6.3 Compliance with PAC Directives 328

MINISTRY OF INDUSTRIES AND

CHAPTER-9
PRODUCTION

9.1 Export Processing Zones Authority

9.1.1 Introduction 329
9.1.2 Comments on Audited Accounts 329
9.1.3 Compliance of PAC Directives 329
9.1.4 AUDIT PARAS 330
9.2 Pakistan Industrial Development Corporation
9.2.1 Introduction 339
9.2.2 Comments on Audited Accounts 339
9.2.3 Compliance of PAC Directives 339
9.2.4 AUDIT PARAS 340
9.3 Pakistan Industrial Development Corporation -
Medical Centre
9.3.1 Introduction 356
9.3.2 Comments on Audited Accounts 356
9.3.3 Compliance of PAC Directives 356
9.3.4 AUDIT PARA 356
9.4 Karachi Tools, Dies and Moulds Centre
9.4.1 Introduction 358
9.4.2 Comments on Audited Accounts 358
9.4.3 Compliance of PAC Directives 358
9.4.4 AUDIT PARAS 359
9.5 National Industrial Parks Development and
Management Company
9.5.1 Introduction 363
9.5.2 Comments on Audited Accounts 363
9.5.3 Compliance of PAC Directives 364
9.5.4 AUDIT PARAS 365
9.6 Pakistan Chemical & Energy Sector Skill
Development Company
9.6.1 Introduction 387
9.6.2 Comments on Audited Accounts 387
9.6.3 Compliance of PAC Directives 388
9.6.4 AUDIT PARAS 388
9.7 Pakistan Gems and Jewellery Development
Company
9.7.1 Introduction 396
9.7.2 Comments on Audited Accounts 396
9.7.3 Compliance of PAC Directives 397
9.7.4 AUDIT PARAS 397
9.8 Pakistan Institute of Management
9.8.1 Introduction 409
9.8.2 Comments on Audited Accounts 409
9.8.3 Compliance of PAC Directives 407
9.8.4 AUDIT PARAS 408
9.9 Pakistan Steel Mills Corporation (Pvt.) Limited
9.9.1 Introduction 413
9.9.2 Comments on Audited Accounts 413
9.9.3 Compliance of PAC Directives 415
9.9.4 AUDIT PARAS 416
9.10 Pakistan Steel Fabricating Company (Pvt.)
Limited
9.10.1 Introduction 427
9.10.2 Comments on Audited Accounts 427
9.10.3 Compliance of PAC Directives 428
9.10.4 AUDIT PARAS 428
9.11 Pakistan Machine Tool Factory (Pvt.) Limited
9.11.1 Introduction 434
9.11.2 Comments on Audited Accounts 434
9.11.3 Compliance of PAC Directives 434
9.11.4 AUDIT PARAS 435
9.12 ENAR Petrotech Services (Pvt.) Limited
9.12.1 Introduction 438
9.12.2 Comments on Audited Accounts 438
9.12.3 Compliance of PAC Directives 438
9.12.4 AUDIT PARAS 439
9.13 Technology Upgradation and Skill
Development Company
9.13.1 Introduction 443
9.13.2 Comments on Audited Accounts 443
9.13.3 Compliance with PAC Directives 445
9.13.4 AUDIT PARAS 445
9.14 Pakistan Hunting and Sporting Arms
Development Company
9.14.1 Introduction 455
9.14.2 Comments on Audited Accounts 455
9.14.3 Compliance with PAC Directives
457
9.15 Furniture Pakistan (Pvt.) Limited
9.15.1 Introduction 458
9.15.2 Comments on Audited Accounts 458
9.15.3 Compliance with PAC Directives 460
9.16 State Engineering Corporation
9.16.1 Introduction 461
9.16.2 Comments on Audited Accounts 462
9.16.3 Compliance with PAC Directives 463
9.17 Heavy Electrical Complex (Pvt.) Limited
9.17.1 Introduction 465
9.17.2 Comments on Audited Accounts 465
9.17.3 Compliance with PAC Directives 469
9.17.4 AUDIT PARAS 469
9.18 Industry Facilitation Centre (Pvt.) Limited
9.18.1 Introduction 480
9.18.2 Comments on Audited Accounts 480
9.18.3 Compliance with PAC Directives 482
9.19 National Fertilizer Corporation (Pvt.) Limited
9.19.1 Introduction 483
9.19.2 Comments on Audited Accounts 483
9.19.3 Compliance with PAC Directives 486
9.20 NFC Institute of Engineering and
Technological Training (Pvt.) Limited, Multan
9.20.1 Introduction 487
9.20.2 Comments on Audited Accounts 487
9.20.3 Compliance with PAC Directives 489
9.21 NFC Institute of Engineering and Fertilizer
Research Faisalabad
9.21.1 Introduction 490
9.21.2 Comments on Audited Accounts 490
9.21.3 Compliance with PAC Directives 491
 9.22 Small & Medium Enterprises Development
Authority
9.22.1 Introduction 493
9.22.2 Comments on Audited Accounts 493
9.22.3 Compliance with PAC Directives 495
9.22.4 AUDIT PARAS 495
9.23 Spun Yarn Research & Development Company
9.23.1 Introduction 498
9.23.2 Comments on Audited Accounts 498
9.23.3 Compliance with PAC Directives 498
9.23.4 AUDIT PARAS 499
9.24 Leather Crafts Development Company
9.24.1 Introduction 505
9.24.2 Comments on Audited Accounts 505
9.24.3 Compliance with PAC Directives 505
9.24.4 AUDIT PARAS 506
9.25 Utility Stores Corporation of Pakistan (Pvt.)
Limited
9.25.1 Introduction 510
9.25.2 Comments on Audited Accounts 510
9.25.3 Compliance with PAC Directives 513
9.25.4 AUDIT PARAS 514
9.26 Aik Hunar Aik Nagar
9.26.1 Introduction 553
9.26.2 Comments on Audited Accounts 553
9.26.3 Compliance with PAC Directives 555
MINISTRY OF INFORMATION,
CHAPTER-10 BROADCASTING AND NATIONAL
HISTORY & LITERARY, HERITAGE

10.1 Pakistan Television Corporation Limited

10.1.1 Introduction 556
10.1.2 Comments on Audited Accounts 556
10.1.3 Compliance with PAC Directives 559
 10.1.4 AUDIT PARAS 560
10.2 Pakistan Broadcasting Corporation Limited
10.2.1 Introduction 587
10.2.2 Comments on Audited Accounts 587
10.2.3 Compliance with PAC Directives 587
10.2.4 AUDIT PARAS 588
10.3 National Book Foundation
10.3.1 Introduction 600
10.3.2 Comments on Audited Accounts 600
10.3.3 Compliance with PAC Directives 601
10.3.4 AUDIT PARAS 602

MINISTRY OF INFORMATION
CHAPTER-11 TECHNOLOGY AND
TELECOMMUNICATION

Pakistan Software Export Board (Guarantee)

11.1
Limited
11.1.1 Introduction 606
11.1.2 Comments on Audited Accounts 606
11.1.3 Compliance with PAC Directives 608
11.1.4 AUDIT PARAS 609
MINISTRY OF NATIONAL HEALTH
CHAPTER-12 SERVICES REGULATION AND
COORDINATION

12.1 National Institute of Health Biological

Production Division
12.1.1 Introduction 624
12.1.2 Comments on Audited Accounts 624
12.1.3 Compliance with PAC Directives 626
 MINISTRY OF NATIONAL FOOD
CHAPTER-13
SECURITY AND RESEARCH

13.1 Pakistan Agricultural Storage and Services

Corporation Limited
13.1.1 Introduction 627
13.1.2 Comments on Audited Accounts 627
13.1.3 Compliance with PAC Directives 629
13.1.4 AUDIT PARAS 630
13.2 Livestock and Dairy Development Board
13.2.1 Introduction 640
13.2.2 Comments on Audited Accounts 640

CHAPTER-14 MINISTRY OF MARITIME AFFAIRS

14.1 Gwadar Port Authority 642
14.1.1 Introduction 642
14.1.2 Comments on Audited Accounts 642
14.1.3 Compliance of PAC Directives 643
14.1.4 AUDIT PARAS
14.2 Korangi Fisheries Harbour Authority
14.2.1 Introduction 647
14.2.2 Comments on Audited Accounts 647
14.2.3 Compliance of PAC Directives 647
14.2.4 AUDIT PARAS 648
14.3 Pakistan National Shipping Corporation
14.3.1 Introduction 654
14.3.2 Comments on Audited Accounts 654
14.3.3 Compliance of PAC Directives 656
14.3.4 AUDIT PARAS 657
 14.4 Port Qasim Authority
14.4.1 Introduction 674
14.4.2 Comments on Audited Accounts 674
14.4.3 Compliance of PAC Directives 674
14.4.4 AUDIT PARAS 675

CHAPTER-15 MINISTRY OF OVERSEAS PAKISTANIS

AND HUMAN RESOURCES
DEVELOPMENT

15.1 Employees’ Old-Age Benefits Institution

15.1.1 Introduction 710
15.1.2 Comments on Audited Accounts 710
15.1.3 Compliance of PAC Directives 711
15.1.4 AUDIT PARAS 712
15.2 Overseas Employment Corporation (Pvt.) Ltd.
15.2.1 Introduction 753
15.2.2 Comments on Audited Accounts 753
15.2.3 Compliance with PAC Directives 756
15.3 Overseas Pakistanis Foundation
15.3.1 Introduction 757
15.3.2 Comments on Audited Accounts 757
15.3.3 Compliance with PAC Directives 760
CHAPTER-16 MINISTRY OF PLANNING,
DEVELOPMENT AND REFORM

16.1 National Logistics Cell

16.1.1 Introduction 762
16.1.2 Comments on Audited Accounts 762
16.1.3 Compliance with PAC Directives 765
16.1.4 AUDIT PARAS 766
 16.2 Pakistan Institute of Development Economics
16.2.1 Introduction 801
16.2.2 Comments on Audited Accounts 801
16.2.3 Compliance with PAC Directives 804
CHAPTER-17 MINISTRY OF SCIENCE AND
TECHNOLOGY

17.1 Pakistan Science Foundation

17.1.1 Introduction 805
17.1.2 Comments on Audited Accounts 805
17.1.3 Compliance with PAC Directives 806
17.1.4 AUDIT PARAS 806
17.2 STEDEC Technology Commercialization
Corporation of Pakistan (Private) Limited
17.2.1 Introduction 812
17.2.2 Comments on Audited Accounts 812

Annexure: 1 MFDAC 817

2 Non-submission of Audited Accounts 827
3 Companies under liquidation/closed 830
4 Recoveries made at the instance / pursuance of
Audit 832
5 Statement showing the detail of loss due to low
seat factor 835
6 Statement showing the detail of non-collection of
cancellation charges 836
7 Statement showing the detail of Non-Production of
requisitioned auditable record 837
8 List of irregular appointment of officers/official 854
9 Statement showing negligence Engineering 856
Department of PIAC
10 Statement showing the detail of excess payment to
M/s Master Management 857
11 Statement showing the detail of short deposit of
amount 858
12 Statement showing the detail of misplaced/
unreturned inventory of Chairman House 859
13 Statement showing the detail of payment 860
14 Detail of bonus paid to Class-I to Class-IV Officer 861
15 PRCL PDP-Suspended Companies 2017 862
16 Statement showing the detail of irregular
appointment of officers 863
17 List of Debit balances in Assets & Receivables
accounts stands irrecoverable 865
18 Receivables from Govt. institutions and other
companies 866
19 Statement showing the detail of mis-appropriation
of funds 867
20 Statement showing the detail of irregular award of
contracts 869
21 Statement showing the detail of irregular revision
of the cost of contracts 870
22 Statement showing the detail of irregular award of
contracts 871
23 Detail of irregular appointments 873
24 Statement showing the detail of non-recovery of
decreed amount 875
25 Statement showing the detail of irregular
disbursement of loans beyond Area limit 877
26 Statement showing the detail of penalties 878
27 Statement showing the detail of non-collection of
sale deeds from the Registrar Office against
investment 879
28 Irregular appointment of Mechanical Engineer 880
29 Detail of payment made by PSPC on account of
income tax on behalf of MD and ED on payment
of Special Management Allowance 881
30 Statement showing non-production of record 882
31 Statement showing the detail of procurement of
 vehicles 883
32 Statement showing the detail of payment of fee 884
33 Statement showing Local currency investments 885
34 Statement showing detail of revised pay scales
2017 for EPZA employees 886
35 Statement showing in detail of investment made
on 28-08-2016 887
36 Statement showing the details of material reported
short / stolen 888
37 Statement the detail of Pay and Allowances drawn
by the CEO 891
38 Statement the detail of irregular payment of pay &
Allowances due to non-verification of degrees 892
39 Statement the detail of irregular appointment of
employees on contact basis 893
40 Detail of House Rent Allowance 2017-18 894
41 Detail of party wise receivable 895
42 Details of loss due to imprudent investment in
Companies’ Shares 896
43 Detail of non-recovery from debtors 897
44 Detail of loss due to irregular reservation of
vehicles as pool vehicles 989
45 Statement showing the detail of double payments 899
46 Detail of non-reconciliation of contribution
collection with banks 900
47 Detail of non collection of contribution from
employers 901
48 Detail of loss due to short fall in contribution
targets 903
49 Detail of investment in the category of held for
trading 905
50 Detail of loss due to donations by EOBI 906
51 Detail of extra ordinary delay in settlement of
pension claims 907
52 Detail of loss due to reduction in monthly rent 909
53 Statement showing the detail of IPS 910
54 Detail of non-recovery of outstanding rent and
electricity charges from tenants 911
55 Detail of non-recovery of contribution from
M/s. Kiran Sugar Mills 913
56 Detail of losses incurred on acquiring various
properties / land at exorbitant rates 914
57 Statement of unjustified revision rates 915
 ABBREVIATIONS AND ACRONYMS

ABL Allied Bank Limited

ADB Asian Development Bank
ADBP Agricultural Development Bank of Pakistan
ADMC Asian Development Management Center
AGP Auditor General of Pakistan
AHAN Aik Hunar Aik Nagar
AJK Azad Jammu & Kashmir
ANF Anti-Narcotic Force
APAR Annual Appraisal Appraisal report
APP Associated Press of Pakistan
APRR Annual Performance Review Report
APTMA All Pakistan Textile Mills Association
ART Appointment, Promotion and Transfer Rules
ASF Airport Security Force
B.Sc Bachelor of Science
BBA Bachelor of Business Administration
BE Bachelor of Engineering
BESA Baluchistan Engineering Services Agency
BG Bank Guarantee
BH Broadcasting House
BISE Board of Intermediate & Secondary Education
BMB Bait ul Mal Board
BOD Board of Directors
BOG Board of Governors
BoK Bank of Khyber
BOM Board of Management
BoQ Bill of Quantity
BoT Board of Trusties
BPD Biological Production Division
BPS Basic Pay Scale
BS Basic Scale
BSC Banking Service Corporation
C&F Cost and Frieght
C.O.F.A Controller of Factory Accounts
CA Chartered Accountants
CAA Civil Aviation Authority
CAD Computer Assisted Design
CAM Computer Assisted Machine
CBA Combined Bargaining Agent
CBR Central Board of Revenue

i
CCBL Coca Cola Beverages Limited
CCDP Centre Craft Development Project
CCRV Cell Culture & Rabies Vaccine
CCTV Close Circuit Television
CDA Capital Development Authority
CDR Call Deposit Receipt
CDTC Ceramics Development and Training Complex
CDWP Central Development Working Party
CEO Chief Executive Officer
CEPC China Pakistan Economic Corridor
CFC Common Facilitation Centre
CFO Chief Financial Officer
CFT Cubic Feet
CFTC Common Facility Training Center
CIIT COMSATS Institute of Information Technology
CIO Committee on International Operations
CIT Cash in Transit
CLDP Car Loan Depreciation Policy
CMA Controller Military Accounts
CMMI Capability Maturity Model Integration
CNIC Computerized National Identity Card
COAS Chief of Army Staff
COI Court of Inquiry
COO Chief Operating Officer
CPC Central Procurement Committee
CPF Contributory Provident Fund
CPI Consumer Price Index
CSD Canteen Stores Department
CSO Central Sale Office
CSR Corporate Social Responsibility
CSTs Comparative Statements
CV Curriculum Vitae
DAC Departmental Accounts Committee
DAE Diploma in Electrical Engineering
DCO District Coordination Officer/ Data Control Operator
DDWP Departmental Development Working Party
DEPO Defence Export Promotion Organization
DG CA&E Director General Commercial Audit & Evaluation
DGM Deputy General Manager
DHA Defence Housing Authority
DISCOs Distribution Companies
DMA Danger Money Allowances
DPD Defence Production Division
ii
DWP Development Working Party
EBM Executive Board Meeting
EC European Commission
ECC Economic Co-ordination Committee
ECNEC Executive Committee of National Economic Council
ED Electrical Department
EDO Executive District Officer
EOBI Employees Old Age Benefit Association
EOI Expression of Interest
EOL Extra Ordinary Leave
EOT Extension of Time
EPSL ENAR Petro-tech Services Limited
EPZA Export Processing Zones Authority
ERP Enterprise Resource Planning
ESCs Engineering Support Centers
ETV Educational Television
EUC End User Certificate
EVP Executive Vice President
FA Financial Advisor
FA(OF) Financial Advisor Ordinance Factories
FAR
FAT Financial Acceptance Test
FBR Federal Board of Revenue
FE Foreign Exchange
FIA Federal Investigation Agency
FIR First Information Report
FM Frequency Modulation
FoB Freight on Board
FPC Fixed Point Chart
FRF French Frank
FWO Frontier Works Organization
GAS Ghar Aasan Scheme
GB Gilgit Baltistan
GBP Great Britain Pound
GDP Gross Domestic Product
GE Garrison Engineer
GFR General Financial Rules
GHQ General Head Quarters
GITEX Gulf Information & Technology Exhibition
GM General Manager
GOP Government of Pakistan
GPA Gwadar Port Authority
GPF General Provident Fund
iii
GPO General Post Office
GRN Goods Receipt Note
GSD Gas Supply Deposits
GSD Geological Sciences Division
GST General Sales Tax
GTDMC Gujranwala Tools, Dies and Moulds Centre
HBA House Building Advance
HBFCL House Building Finance Company Limited
HBL Habib Bank Limited
HEC Higher Education Commission/ Heavy Electrical Complex
HO Head Office
HPT High Power Transmitter
HR Human Resource
HR Manual Human Resource Manual
HRD Human Resources Development
HRM Human Resource Management
IAC International Accounting Standard
IAD Internal Audit Department
ICT Islamabad Capital Territory
IDBL Industrial Development Bank of Pakistan
IEFR Institute of Engineering and Fertilizer Research
IET Institute of Engineering and Technological Training
IFA Individual Financial Assistance
IFC Industry Facilitation Centre (Pvt.) Limited
IFRS International Financial Reporting Standards
INTOSAI International Organization of Supreme Audit Institutions
IPC Interim Payment Certificate
ISO International Standards Organization
IST Institute of Space Technology
IT Information Technology
JBP Joint Business Plan
KESC Karachi Electric Supply Corporation
KFHA Korangi Fisheries Harbour Authority
KG Kilo Gram
KIBOR Karachi Inter-Bank Offered Rate
KIDCL Karachi Infrastructure Development Company Limited
KP Khyber Pakhtunkhwa
KPMG Klynveld Peat Marwick Goerdeler
KS&EW Karachi Shipyard & Engineering Works
KSSL Kissan Support Services (Pvt.) Limited
KTDMC Karachi Tools Dies and Moulds Centre
KVA Kilo Volt Ampare
LC Letter of Credit/ Local Currency
iv
LCDC Leather Craft Development Center
LD Liquidated Damages
LDA Lahore Development Authority
LDC Lower Division Clerk
LEA Law Enforcement Agency.
LED Light Emitting Diode
LESC Light Engineering Support Center
LESCO Lahore Electricity Supply Company
LLM Masters in Law/ Latin Magister Legume
LUMS Lahore University of Management Sciences
M&B Mechanize and Buying
M&E Monitoring & Evaluation
M.Sc Master of Science
MAG Military Accountant General
MBA Master of Business Administration
MCB Muslim Commercial Bank
MCO Mobile Credit Officer
MD Managing Director
MDI Maximum Demand Index
MEPCO Multan Electric Supply Company
MES Military Engineer Services
MFDAC Memorandum for Departmental Accounts Committee
MINTEX Minsitry of Textile Industry
ML Milliliter
MoD Ministry of Defence
MoDP Ministry of Defence Production
MoE Ministry of Energy (Petroleum Division)
MoF Ministry of Finance
MoI&P Ministry of Industries & Production
MoLJ&PA Ministry of Law Justice & Parliamentary Affairs
MoOP&HRD Ministry of Overseas Pakistanis & Human Resources Development
MOU Memorandum of Understanding
MPC Management Procurement Committee
MW Medium Wave
MWC Mobile World Congress
NAB National Accountability Bureau
NADRA National Database and Registration Authority
NBCP National Book Council of Pakistan
NBF National Book Foundation
NBP National Bank of Pakistan
NDC No Demand Certificate
NESPAK National Engineering Services of Pakistan
NFC National Fertilizers Corporation Limited
v
NFML National Fertilizer Marketing Ltd
NGO Non-Government Organization
NH&LH National History & Literary Heritage
NHR&C National Health Services Regulation and Coordination
NICL National Insurance Company Limited
NIDA National Income Daily Account
NIE National Institute of Electronics
NIFT National Institutional Facilitation Technology
NIH National Institute of Health
NIPD&MC National Industrial Parks Development & Management Company
NIRC National Industrial Relations Commission
NLB National Logistic Board
NLC National Logistic Cell
NOC No objection Certificate
NPDC Northern Punjab Craft Development
NPL Non-Performing Loans
NTDC National Transmission and Dispatch Company
NTS National Testing Service
NTU National Textile University
NUST National University of Science & Technology
OAEM Other Assets Especially Mentioned
OEC Overseas Employment Corporation
OJT On Job Training
OM Observation Memo
OPF Overseas Pakistanis Foundation
Oracle-EBS Oracle-E-Business Suit
ORS Oral Rehydration Solution
P&L Procurement & Logistics
P.O Purchase Order
PAC Public Accounts Committee
PAO Principal Accounting Officer
PARC Pakistan Agricultural Research Council
PASSCO Pakistan Agriculture Services & Supplies Corporation
PASTIC Pakistan Scientific and Technological Information Centre
PAX Passenger
PBA Pakistan Broadcasting Association
PBC Pakistan Broadcasting Corporation
PBF Pakistan Broadcasting Foundation
PBM Pakistan Bait-ul-Mal
PC Privatization Commission
PC Procurement Center
PCESSDC Pakistan Chemical & Energy Sector Skill Development Company
PC-I Planning Commission –I
vi
PCRET Pakistan Council for Renewable Energy Technologies
PCRWR Pakistan Council for Research in Water Resources
PCs-cum-RVs Procurement Centers Cum Reservoirs
PCSIR Pakistan Center for Scientific and Industrial Research
PD Project Director
PDC Peripheral Development Charges
PDF Project Development Fund
PEC Pakistan Engineering Council
PEPAC Pakistan Environmental Planning and Architectural Consultants (Pvt) Limited
PEPCO Paksitan Electric Power Company
PFA Punjab Food Authority
PG&JDC Pakistan Gems & Jewellery Development Company
PHA Parks & Horticulture Authority
PHDEC Pakistan Horticulture Development Company
PIAC Pakistan International Airlines Corporation
PID Press Information Department
PIDC Pakistan Industrial Development Corporation
PIDE Pakistan Institute of Development Economics
PIPS Pakistan Institute for Parliamentary Services
PKR Pak Rupee
PLS Profit and Loss Account
PM Prime Minister
PMP Project Management Professional
PMTF Pakistan Machine Tools Factory
PMU Project Monitoring Unit
PNSC Pakistan National Shipping Corporation
PO Purchase Order
POCF Pakistan Ordnance Clothing Factory
POFB Pakistan Ordnance Factories Board
POFs Pakistan Ordnance Factories
POL Petrol, Oil and Lubricant
PP Polypropylene
PPPMCL Pakistan Power Park Management Company Ltd
PPRA Public Procurement Regulatory Authority
PPRs Public Procurement Rules
PQA Port Qasim Authority
PR Peoples Repulic
PRCL Pakistan Reinsurance Company Limited
PSCA Punjab Safe Cities Authority
PSCs Public Sector Companies
PSDF Punjab Skills Development Funds
PSDP Public Sector Development Programme
PSEB Pakistan Software Export Board
vii
PSEs Public Sector Enterprises
PSF Pakistan Science Foundation
PSFCL Pakistan Steel Fabricating Company
PSM Pakistan Steel Mills
PSPC Pakistan Security Printing Corporation
PSQCA Pakistan Standard and Quality Control Authority
PTB Pakistan Tobacco Board
PTC Pakistan Tobacco Company/ Plastic Technology Center
PTDC Pakistan Tourism Development Corporation
PTVC Pakistan Television Corporation Ltd
PWD Public Works Department
R&D Research & Development
RAR Running Account Receipts
RBM Result Based Monitoring
RBS Reference Broadcast Synchronization
RCDP Rural Craft Development Project
RDA Rawalpindi Development Authority
RDR Revenue Deposit Receipt
RFP Request for Proposal
RMs Regional Managers
RRMTI Road Research & Material Testing Institute
RTP Reckonable to Pension
RV Reservoir
SAM Special Asset Management
SARRC South Asian Asociation for Regional Cooperation
SBCC Sialkot Business and Commerce Center
SBP State Bank of Pakistan
SBU Strategic Business Unit
SCAMPI Standard CMMI Appraisal Method for Process Improvement
SCM Store Chain Management
SCP Supreme Court of Pakistan
SDA Sarhad Development Authority
SECP Securities and Exchange Commission of Pakistan
SGS Shandar Ghar Scheme
SLIC State Lift Insurance Corporation of Pakistan
SMD Screen Surface Mount Device Screen
SMEDA Small and Medium Enterprises Development Authority
SMEs Small and Medium Enterprises
SO&S Stores Operation and Sales
SOP Standard Operating Procedure
SPC Special Procurement Committee
SR Service Rules
SRCL School for Rehabilitation of Child Labour
viii
SRO Statutory Regulatory Order
SSR Special Service Rules
STEDEC Scientific and Technological Development Corporation
STFS Science Talent Farming Scheme
STP Software Technology Park
SYRDC Spun Yarn Research & Development Company
TCP Trading Corporation of Pakistan
TDAP Trade Development Authority, Pakistan
TDR Term Deposit Receipt
TE Tender Enquiry
TEVT Technical Education and Vocational Training
TEVTA Technical Education & Vocational Authority
TNT Tri Nitro Toluene
ToR Terms of Reference
TOT Transfer of Technology
TUSDEC Technology Upgradation and Skill Development Company
UAE United Arab Emirates
UBL United Bank Limited
UET University of Engineering & Technology
UK £ United Kingdom Pound
US$ US Dollar
USA United States of America
USC Utility Stores Corporation of Pakistan (Pvt.) Limited
VMS Visitors Management System
WAPDA Water and Power Development Authority
WBM Wah Brass Mills
WEC Women Empowerment Centers
WIH Wah Industries Home
WIL Wah Industries Limited
ZMs Zonal Managers
ZSO Zonal Sales Office
ZTBL Zarai Taraqiati Bank Limited

ix
x
 Preface
Articles 169 and 170 of the Constitution of the Islamic Republic of
Pakistan 1973 read with Sections 8 and 15 and other relevant provisions of the
Auditor General’s (Functions, Powers and Terms and Conditions of Service)
Ordinance 2001 require 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 is based on audit of the accounts of Public Sector
Enterprises of Government of Pakistan for the year 2017-18. The Audit Report
also contains audit observations of the previous financial years. The
Directorates General Commercial Audit and Evaluation, Lahore and Karachi,
conducted audit during the period July 01, 2018 to November 15, 2018 on a
test check basis, with a view to report significant findings to the relevant
stakeholders. The main body of the Audit Report includes only the systemic or
significant issues and audit findings carrying value of Rs.1.00 million or more.
Relatively less significant issues have been listed in the Annex-I (MFDAC).
The audit observations listed in the Annex-I shall be pursued with the relevant
Principal Accounting Officers (PAOs) of the Ministries/Divisions at
Departmental Accounts Committee (DAC) level. In case where the PAOs do
not initiate appropriate action, the audit observations will be brought to the
notice of the Public Accounts Committee (PAC) through the next year’s Audit
Report.

Most of the observations included in this report have been finalized in

the light of discussions in the DAC meetings except, Pakistan EXPO Centres.

The Audit Report is submitted to the President of Pakistan in

pursuance of Article 171 of the Constitution of the Islamic Republic of
Pakistan 1973, for causing it to be laid before both Houses of Parliament
(Majlis-e-Shoora).
-Sd-
Islamabad (Javaid Jehangir)
Dated: February 14, 2019 Auditor General of Pakistan
xi
xii
 EXECUTIVE SUMMARY

The Directorates General of Commercial Audit & Evaluation (DsG,

CA&E), (North & South) carries out audit and evaluation of Public Sector
Enterprises (PSEs) established/controlled by Federal Government which
maintain their accounts on commercial basis. Sections 8 & 15 of the Auditor
General’s (Functions, Powers and Terms and Conditions of Service)
Ordinance, 2001 empowers the Auditor General of Pakistan to conduct audit
of companies and corporations established in the public sector. For this, DsG,
CA&E (North & South) has a human resource of 202 officers and staff
equivalent to 34,198 man-days for audit.

Out of 34,198 man-days allocated for undertaking field audit activities,

27,637 were utilized for conducting the audit of Federal Public Sector
Enterprises. The annual budget of the Directorates General allocated for audit
of Federal Organizations for the year 2017-18 amounted to Rs 193.67 million.
This report contains results of audit inspection and evaluation of financial
performance of public sector entities for the financial year 2017-18 conducted
during the year 2018-19.

This report also contains comments on the audited annual accounts of

41 public sector enterprises (25 pertain to the financial year 2017-18 and 16 to
previous years). However, comments on 56 organizations (Annex-2) could not
be included in this report as the concerned management failed to submit their
audited accounts by the prescribed date December 31, 2018. Moreover, eleven
organizations (Annex-3) ceased their operational activities during the years
1990 to 2008. These are still under the process of liquidation/privatization.

a. Scope of Audit

There are 101 commercial entities of the Federal Government under

the jurisdiction of DsG, CA&E, (North & South). These entities operate under
the administrative control of 26 Principal Accounting Officers (PAOs). As per

xiii
Audit Plan 2018-19 the DsG, CA&E (North & South) audited the accounts of
42 federal commercial entities for the year 2017-18.

The total estimated budget of entities under purview of DsG (CA&E),

(North & South) amounted to Rs 1,699,891.79 million. Out of this the budget
of entities audited by DsG (CA&E) (North & South), during the year was
Rs 1,228,856.61 million which was 72% of the total amount. The same was
included in audit coverage of selected entities.

b. Recoveries at the instance of audit

Recovery of Rs 63,811.03 million was pointed out, whereas recovery

of Rs 39,971.64 million was accomplished.

c. Audit Methodology

The audit methodology for conducting audit of the accounts of the

auditee organizations for the year 2017-18 started from audit planning and,
consulting and updating their permanent files. In order to develop an
understanding of each organization, desk audit and in-house audit planning
sessions were conducted; this also helped to define the core objectives for the
subject audit exercise. Accordingly, high-risk areas based on financial and
managerial significance were identified for each entity. The sources used by
audit included the rules and regulations of the Government, as well as
documents regarding the proceedings of the respective Boards of Directors
and any other relevant events. Audit checks were applied with a view to the
nature of transactions, accounting standards and best auditing practices. The
audit exercise was conducted on a sample selection basis of relevant types of
transactions.

d. Audit Impact

Audit through its findings contributed to the improvement of financial

transparency and internal controls of the auditee organizations. The
importance of management’s adherence to competitive procurement processes,
transparent recruitments and effective fund utilization was reinforced and
strengthened further.
xiv
e. Comments on Internal Controls

Internal controls comprise the policies, procedures, rules, regulations

and monitoring mechanisms in place in an organization. These controls are
essential to the management’s pursuit of its goals and objectives and help
prevent fraud, waste and inefficiency, while enhancing management’s
confidence level. A number of internal control weaknesses were identified
during the audit of Public Sector Enterprises, of which a few are illustrated
below:

 Inventory Management

Certain organizations exhibited weak control with respect to purchases,

physical verification and record keeping. Purchases were made without
ascertaining requirements, resulting in blockage of capital.

 Employment of Human Resources

It was noticed that Public Sector Enterprises were making fresh

appointments, re-employing retired personnel and appointing consultants
etc. without observing regulations. For example, shortcomings in the
hiring process were identified in the cases of PIAC, NICL, HBFC, PIDC,
NESPAK, PASSCO, USC, PTVCL.

 Receivables/Debt Management

Receivables management in almost all the organizations required

immediate attention. Trade debts were not being collected within the
stipulated period and a rising trend in receivables was noticed in a number
of auditee organizations, which adversely affects their liquidity position.
Furthermore, public sector financial institutions had quite liberal policies
of loan sanctioning, resulting in bad debts. For example, unsatisfactory
practices in the receivables /debts management were noticed in case of
PIAC, SBP, PIDC, NIPD & MC, PNSC, PQA, EOBI, NESPAK, PTVCL,
ZTBL and USC.
xv
f. Key audit findings
i. Nineteen cases of embezzlement of funds Rs 1,265.55 million.1
ii. Four cases of non-production of record Rs 916.07 million2
iii. Three cases of theft/dacoity Rs 12.88 million3
iv. Sixteen cases of irregular appointment of officers/ officials Rs 1303.56
million.4
v. Twenty four cases of over payment and non-recovery of advances/dues
valuing Rs 108,225.70 million5
vi. Twenty one cases of irregular purchases, violation of rules, procedures
& regulations etc. Rs 19,581.99 million.6
vii. Three cases of non-deduction/ non deposit of Income Tax and Sales
Tax Rs 157.38 million.7
viii. Three cases of irregular award of civil work Rs 116.98 million.8
ix. Seven cases of inadmissible/irregular payment of honorarium/bonus
Rs 184.59 million.9
x. Five cases of irregularities in assets management Rs 2,317.57
million.10
xi. Five cases of loss of revenue Rs 58,551.61 million.11
1
1.1.4.1, 1.1.4.2, 1.1.4.3, 1.1.4.4, 1.1.4.5, 2.1.4.1, 4.1.4.1, 4.3.4.1, 4.3.4.2, 5.1.4.1, 8.3.4.1, 8.5.4.1, 8.5.4.2, 9.9.4.1,
9.10.4.1, 9.10.4.3, 9.25.4.1, 9.25.4.2, 9.25.4.3
2
1.1.4.17, 8.1.4.1, 8.3.4.3, 14.2.4.2
3
6.2.4.1, 9.25.4.4, 9.25.4.28
4
1.1.4.20, 4.3.4.4, 5.1.4.6, 6.1.4.5, 6.2.4.11, 6.4.4.1, 9.13.4.3, 9.13.4.4, 9.17.4.5, 9.24.4.2, 10.1.4.9, 10.14.13,
10.2.4.4,
10.3.4.12, 14.4.4.15, 14.4.4.16
5
1.1.4.9, 1.1.4.11, 4.4.4.1, 4.4.4.2, 4.6.4.2, 6.2.4.13, 8.1.4.2, 8.2.4.10, 8.3.4.2, 8.3.4.12, 8.5.4.10, 8.5.4.11, 8.5.4.12,
9.5.4.3, 9.25.4.12, 9.25.4.21, 10.1.4.14, 10.2.4.8, 11.1.4.5, 14.3.4.2, 14.3.4.4, 14.4.4.1, 16.1.4.1, 16.1.4.2
6
1.1.4.18, 1.1.4.19, 1.1.4.21, 1.1.4.22, 1.1.4.23, 4.6.4.1, 4.6.4.5, 5.1.4.4, 5.1.4.5, 6.1.4.3, 6.1.4.4, 6.2.4.6, 6.2.4.12,
6.4.4.3, 8.2.4.1, 8.3.4.5, 8.5.4.8, 9.17.4.2, 9.23.4.2, 9.25.4.8, 10.1.4.7
7
4.6.4.5, 6.2.4.24, 9.25.4.26
8
4.6.4.4, 6.2.4.7, 16.1.4.13
9
4.2.4.2, 4.3.4.5, 4.4.4.3, 6.2.4.21, 8.1.4.9, 8.2.4.5, 9.25.4.7
10
9.1.4.2, 9.2.4.1, 14.4.4.3, 14.4.4.5, 14.4.4.10
11
1.1.4.6, 1.1.4.7, 1.1.4.8, 1.1.4.10, 15.1.45
12
8.1.4.13, 8.1.4.18
13
4.2.4.3, 6.1.4.2, 15.1.4.10

xvi
 xii. Two cases of blockage of funds Rs 6,752.61 million.12
xiii. Three cases of imprudent investments Rs 7,038.55 million.13

Recommendations:
i. Internal control structure needs to be strengthened to curtail the
incidence of embezzlement, fraud and misappropriation.
ii. In order to ensure transparency and authenticity of the transactions, the
record must be provided to audit.
iii. Management is required to exercise extra vigilance in order to curb the
tendency of theft/ dacoity through an elaborate monitoring mechanism.
iv. Appointments may be made in transparent manner and according to the
respective HR Policies of the organizations with due regard to
Government policies on the matter.
v. Steps must be taken to avoid overpayments and efforts should also be
made for recovery of advances/receivables.
vi. Organizations should streamline procedure of procurement to achieve
economy, efficiency and value of money as per Public Procurement
Rules.
vii. Ensure internal checks for proper implementation of Income Tax Act &
Sales Tax Act to avoid non-deduction or non-deposit of Income Tax &
Sales Tax.
viii. No favour should be extended to contractors beyond the provision of
contracts.
ix. Payment of bonus/ honorarium should be rationalized and same may
also got regularized.
x. Efforts should be made to improve the assets management by the
organizations.
xi. Internal controls may be improved to avoid revenue losses.
xii. Efforts needs to be made to avoid blockage of funds
xiii. Management should have made efforts to improve its fund management.

xvii
xviii
SUMMARY TABLES AND CHARTS

xix
xx
 SUMMARY TABLES AND CHARTS
Table 1: Audit Work Statistics
(Rs in million)
S. No. Description No. Budget

1 Total PAOs in Audit Jurisdiction 26 1,699,891.79

2 Total Commercial Entities in Audit Jurisdiction 101 1,699,891.79
3 Total PAOs Audited 20 1,228,856.61
4 Total Commercial Entities Audited 42 1,228,856.61
5 Audit Inspection Reports 42 1,228,856.61
6 Special Audit Reports 6 -
7 Performance Audit Reports 5 -
8 Other Reports 2 -

Table 2: Audit observations regarding Financial Management

(Rs in million)
S. No. Description Monetary value of audit
observations
1. Unsound asset management 4,484.85
2. Weak financial management 84,262.78
3. Weak internal controls relating to financial management 313,720.83
4. Others 114,848.78
Total 517,317.24

Table 3: Outcome Statistics

(Rs in million)
Expenditure on
Sr. acquiring Civil Total current Total last
Description Receipts Others
No. Physical Assets Works year year
(Procurement)
1. Outlays Audited 38,482.52 13545.33 613,714.99 563,113.78 1,228,856.61 3,779,255.30
2. Monetary value 5,577.26 11,374.06 183,767.50 316,598.42 517,317.24 3,389,130.54
of audit
observations
3. Recoveries 11.53 6,086.16 12,769.74 44,943.60 63,811.03 153,362.97
Pointed out at the
instance of Audit
4. Recoveries 11.53 6,086.16 12,769.74 44,943.60 63,811.03 153,362.97
Accepted /
Established at the
instance of Audit
5. Recoveries - 144.00 6,428.72 33,398.92 39,971.64 6,424.64
Realized at the
instance of Audit

xxi
Table 4: Table of Irregularities pointed out
(Rs in million)
Monetary
S.
Description value of audit
No.
observations
1. Violation of rules and regulations and violation of principle of
36,742.83
propriety and probity in public operations.
2. Reported cases of fraud, embezzlement, thefts and misuse of public
969.19
resources
3. Accounting
3 Errors (accounting policy departure from IAS,
misclassification, over or understatement of account balances) that
4,683.12
are significant but are not material enough to result in the
qualification of audit opinions on the financial statements
4. Weaknesses of internal control systems 227,656.93
5. Recoveries and overpayments, representing cases of established
63,811.03
overpayment or misappropriation of public money
6. Non – production of record 916.07
7. Others, including cases of accidents, negligence etc. 182,538.08
Total 517,317.24

Table 5: Cost-Benefit
(Rs in million)
S. Description 2018-19 2017-18 2016-17
No.
1. Outlays Audited 1,228,856.61 3,779,255.29 2,830,257.53
2. Expenditure on Audit 133.59 238.38 204.22
3. Recoveries realized at the instance 39,971.64 6424.64 5397.51
of Audit
4. Cost-Benefit Ratio 1:333.42 1:26.95 1:26.43

xxii
 Chapter-1
Aviation Division Cabinet Secretariat

1.1 Pakistan International Airlines Corporation

1.1.1 Introduction

Pakistan International Airlines Corporation (PIAC) was incorporated on

January 10, 1955 through PIAC Ordinance, 1955. The Ordinance was replaced
with PIAC Act, 1956, which was also replaced with PIAC (Conversion) Act,
2016 w.e.f April 19, 2016 and the Corporation was converted from statutory
Corporation to a public company limited by shares. The new Company called
Pakistan International Airlines Corporation limited (PIACL) is listed on Pakistan
Stock Exchange and governed by the Companies Ordinance, 1984 (now
Companies Act, 2017), Public Sector Companies (Corporate Governance) Rules,
2013. The principal activity of the Corporation is to provide air transport
services. In addition, the Corporation is also engaged in providing engineering
and allied services to other airlines.

1.1.2 Comments on Audited Accounts

1.1.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts.

1.1.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of compliance %age of

Directives reported awaited awaited compliance
Year

1998-99 28 24 4 42,43,53,72 86
74, 75, 77, 78, 79, 81, 83, 84,
2001-02 31 16 15 85, 87, 90, 91, 93-94, 96 52
2002-03 31 24 37, 38,39, 40,40.1, 40.2,40.4 77
2003-04 18 13 5 22,23,25,26,27 72

1
2004-05 11 3 8 20, 21, 22, 24, 25, 26, 27, 28 27
18.1, 18.2,18.3,18.4,19, 20,
20.1,20.2, 20.3, 20.4, 20.5,
20.6, 20.7, 20.8, 22, 24,25, 26,
2006-07 32 12 20 28, 30 38
2007-08 29 23 6 27,31,32,33,34,35
3.1.2, 3.1.2.1, 3.1.2.2,3.1.2.3,
3.1.2.4,3.1.2.5,
3.1.2.6, 3.1.2.7, 3.1.3, 3.1.4.1,
2010-11 48 30 18 63
3.1.4.2, 3.1.4.3, 3.1.4.18,
3.1.4.19, 3.1.4.20,
3.1.4.21,3.1.4.23, 3.1.4.24,
Total 228 145 76 - 64 %

The overall compliance of PAC directives was not satisfactory which

requires immediate attention of the management.

1.1.4 Audit Paras

1.1.4.1 Loss due to misappropriation by travel agents - Rs.85.314 million

As per Article-9 of Passenger Sales Agency Agreement, the agent shall be

under obligation to submit sales reports and remittances on fortnightly basis.
Further, Article-27 says that agent will be liable for any outstanding amounts in
default and immediately upon notification of default, ticketing authority will be
de-linked and guarantee(s) will be encashed to cover the amounts in default.

During audit of PIAC, Lahore office for the years 2016 and 2017, it was
observed that 29 travel agents did not deposit the sale amount of Rs. 59.263
million into PIAC account, indicating that agents were allowed to sell tickets
beyond prescribed limits/capping, due to which they easily managed to escape
observing this limit. Further, an amount of Rs. 26.501 million was also reported
in the ledger of Islamabad office as ‘missing sales’ under the account code 60260
as on December 31, 2016. The account code used for ‘missing sales’ actually
pertained to the “Overriding Commissions” to the agents, which shows that the
management tried to conceal the figures of actual losses caused by

2
non-depositing of amount of sales. This resulted into misappropriation of
Rs.85.314 million.

Audit is of the view that the management extended undue favour to the
agents by allowing excess sale over and above the security deposit/ bank
guarantees, and no concrete action was taken against the defaulted agent.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that matter should be investigated with a view to

fixing of responsibility upon person(s) at fault besides, recovery of
misappropriated amount.

1.1.4.2 Misappropriation of funds by Manager Airport - Rs. 62.00 million

Section 54 of PIAC Employees Services & Discipline Regulations states

that any employee who causes or attempts to cause any loss or loss of revenue to
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.

During audit of PIAC Lahore office for the years 2016 and 2017, it was
observed that the Manager Airport misappropriated an amount of Rs. 62.00
million, which was recorded in the accounts R-8 dated August, 2016 relating to
the defaulted parties (Account Head “R-8” includes only defaulted/
misappropriated amount by the agents or employees). However, the record was
not produced to audit to ascertain the nature of the misappropriation.

Audit is of the view that the concealment of the record proves

involvement of the management in the misappropriation.

The matter was reported to the management in October, 2018. The

management in its reply of December, 2018 stated that the required documents

3
 are at Head Office, Karachi and will be provided as soon as received. The reply
of the management is not tenable, as the relevant documents and reasons of
misappropriation should have been provided immediately, but the same were not
produced as yet. DAC meeting was not convened despite requests by audit.

Audit recommends that matter should be investigated with a view to

fixing of responsibility upon person(s) at fault besides, recovery of
misappropriated amount.

1.1.4.3 Non-dismissal of officers involved in smuggling - Rs.11.200 million

Pakistan International Airline Corporation (PIAC) Personnel Policy

Manual, Chapter- 4 para 75(a)(k) states that smuggling or suspected of being
engaged in smuggling or reasonably suspected of being associated with others
engaged in smuggling will have penalty of dismissal from service.

During audit of PIAC Lahore office for the years 2016 & 2017, it was
observed that Mr. Muhammad Iqbal Ghurki, Security Officer PG-IV was
involved in 03 smuggling cases and also arrested by Customs Authorities and
Anti Narcotic Force (ANF) as reported in FIR No.30/216 dated 15-8-2016.
However, the management only issued show cause notice but did not take any
disciplinary action to remove the officer involved in smuggling cases. Thus, the
retention of officer in service and his pay of Rs.7.200 million (Rs.100,000 x 6
years) from 2012 to 2018 are irregular. Similarly, 06 other employees of
Islamabad station were also found involved in the smuggling and theft cases of
Rs. 4.00 million approximately, but no proper disciplinary action was initiated
against these employees, nor the management pursued the Court cases properly.
The details are as under;

Sr.
Case. No Case Title Court Type
No.
4A(229)/2017
1. M. Shoaib (62780) vs PIAC
24(304)/2017 NIRC Mobile Smuggling
2. WP. No. 2301/16 PIAC Vs Jalwat Huma HIGH COURT ISB Smuggling of cigarettes

4
3. 212/18 Abeeda Kazmivs PIAC HIGH COURT ISB Smuggling of cigarettes
4. WP.33/2018 Waseem Akhtarvs PIAC HIGH COURT RWP Smuggling of narcotics
5. 24(141)2013 Abdul Karim But VS PIAC NIRC Theft
6. 4B (192)/2015 Muhammad SohailVs PIAC NIRC Smuggling of Narcotics

Audit is of the view undue favour was extended to officials of PIAC

involved in smuggling which proves negligence and poor monitoring of the
management.

The irregularity was reported to the management in October, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility on management for not taking

disciplinary action against the officer.

1.1.4.4 Misappropriation of funds by District Manager - Rs. 6.300 million

Section 54 of PIAC Employees Services & Discipline Regulations, states

that “any employee who causes or attempts to cause any loss or loss of revenue to
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.”

During audit of PIAC Islamabad office for the years 2016 & 2017, it was
observed that the management paid Rs. 6.300 million on account of Umrah visa
fee to District Manager during last 03 years but the amount was not deposited in
the Saudi Embassy as no documentary evidence for the transfer of the amount
was produced to audit. Details are given below:

Sr. Amount
Year Per Month
No. (Rs.)
1 2014-15 175,000 2,100,000
2 2015-16 175,000 2,100,000
3 2016-17 175,000 2,100,000
Total 6,300,000

5
 Audit is of the view that the above payment was misused by not paying to
the Saudi Embassy as no evidence/acknowledgment from Saudi Embassy was
available in the record of PIAC.

The matter was reported to the management in October, 2018 but no reply
was received.DAC meeting was not convened despite requests by audit.

Audit recommends that the matter should be investigated with a view to

fix responsibility on the person(s) at fault besides, recovery of the amount.

1.1.4.5 Non-recovery of fraudulent payments - Rs.2.823 million

Section 54 of PIAC Employees Services & Discipline Regulations states

that “any employee who causes or attempts to cause any loss or loss of revenue to
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.”

During audit of PIAC, Lahore office for the years 2016 and 2017, it was
observed that the management issued a show-cause notice in April 2014 to
Mr. Yasir Aslam, Account Assistant on account of fraudulent payments of
Rs. 2.823 million made to M/s Regent Palace Guest House. The allegation of
fraudulent payment was admitted in his reply to show cause notice and he was
ready to refund the amount to PIAC. However, no recovery was made.

Audit is of the view that the management extended undue favour to the
employee by not recovering the amount.

The matter was reported to the management in October, 2018. The

management in its reply dated January 04, 2019 stated that show cause notice
was issued to the officer for fraudulent payments to M/s Regent Palace and
subsequently inquiry committee was constituted. However, an amount of Rs 2.00
million were recovered from Regent Palace. The reply is not tenable as recovered
amount was not got verified from audit and no action was taken against the

6
concerned employee nor against the guest house. DAC meeting was not
convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault, besides recovery of the amount.

1.1.4.6 Non-achievement of sales targets on domestic routes - Rs.4,218.398

million

As per Job Description and Responsibilities, District Manager was

required to perform sales activities pertaining to passengers/ freight and evolve
local marketing plans for its implementation.

During audit of PIAC Lahore and Islamabad office for the years 2016 &
2017, it was observed that the management failed to achieve the targets for the
passenger sales stipulated by the management during the period under review.
Sales of the station remained Rs.24,955.436 million against the target of
Rs.29,173.835 million. Thus, due to non-achievement of sales targets the
Corporation was deprived of revenue of Rs.4,218.398 million.

(Rs. in million)
Station Target Achievement Difference
Lahore 14,773.835 12,458.436 2,315.398
Islamabad 14,400.000 12,497.000 1,903.000
Total 29,173.835 24,955.436 4,218.398

Audit is of the view that despite paying additional sales allowances to the
sale department for stimulating the sales of PIAC, the desired results could not be
achieved. This shows weak internal controls and negligence of the management.

The matter was reported to the management in October, 2018 but no reply
was received.DAC meeting was not convened despite requests by audit.

7
 Audit recommends investigating the matter with a view to fixing of
responsibility on the person(s) at fault and efforts be taken to increase revenue.

1.1.4.7 Non-achievement of revenue target - Rs. 2,876.17 million

As per Chapter-14 of Job Description Manual dated 15-01-2015, the

responsibilities of Passenger Sales Manager are “Achieve Revenue Targets
assigned to his territory by sales promotional activities and by facilitating all
selling outlets through mobilizing the field officers. Prepare and analyze the
relevant information/market intelligence in his area for developing effective
action plan for guidance of sales promotion in achieving the sales goals. Prepare
action plan for providing guidance and implementing plans in their area. Review
daily activities of competitors in the market constantly and suggest ways and
means to management to achieve maximum revenue for PIA”. Further, as per Job
Description Manual dated 15-01-2015, Chapter-14, the District Manager was
responsible to perform sales activities pertaining to passengers/ freight and
evolve local marketing plans for its implementation.

During audit of PIAC Islamabad station, it was observed that 1,142 flights
operated at an average seat factor of 16.8% carrying 34,925 passengers in 2016
and 2017 from Islamabad to domestic/international destinations, due to which
PIAC sustained a loss of Rs. 2,876.17 million. Similarly, the seat factor in
business class also remained very low during 2017, due to which PIAC was
deprived of the revenue of Rs. 945.078 million. This resulted into loss of revenue
3,821.248 million (Annex-5).

Audit is of the view that due to poor planning and unprofessional/weak

management at Islamabad Station, the Corporation failed achieve revenue target.

The matter was reported to the management in October, 2018 but no reply
was received.DAC meeting was not convened despite requests by audit.

8
 Audit recommends that the matter may be investigated at the Ministry’s
level for fixing of responsibility on the person(s) at fault.

1.1.4.8 Loss due to difference in sales amount of agents and Sabre system
sales - Rs. 2,206.87 million

Section 54 of PIAC Employees Services &Discipline Regulations, states

that “any employee who causes or attempts to cause any loss or loss of revenue to
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.”

During audit of PIAC, Islamabad Office for the years 2016 & 2017, it was
observed that there was difference of amount of Rs. 2,206.87 million between the
figures reported by the management and Sabre System as given below:

Sales amount as Sales as per Difference

Year
per Islamabad Sabre system (Rs. in million)
2016 6,069.70 7,920.95 1,851.25
2015 5,527.70 5,883.32 355.62
Total 11,597.40 13,804.27 2,206.87

Audit is of the view that the management failed to recover the amount
which proves negligence and poor financial management.

The matter was reported to the management in October 2018, but no reply
was received.DAC meeting was not convened despite requests by audit.

Audit recommends that the data may be reconciled and report thereon
may be submitted to audit and action may be taken against the person(s) found at
fault for above discrepancy.

1.1.4.9 Non-recovery of dues from various parties - Rs.471.383 million

According to Para 2.02 of the Credit policy of PIAC, all dues from private
organizations are required to be recovered within 30 days.
9
 During audit of the PIAC Islamabad and Lahore office for the years 2016
and 2017, it was observed that an amount of Rs.471.383 million was lying
outstanding against various parties. This resulted into blockage of Corporation
funds. The detail is as under:
Sr. Period Islamabad Total amount
Lahore
No. (as on 31-12-17) (Rs. in million)
1 Over one year 118.374 45.684 164.058
M/s Royal Airport Services - 10.779 10.779
since May 2009
2 Up to one year 227.663 68.883 296.546
3
Total 346.037 125.346 471.383

Audit is of the view that the management extended undue favour to the
service providers and even failed to recover the amount since more than nine
years in case of royal airport services. This indicates weak financial management.

The irregularity was reported to the management in October, 2018. The

management in its reply of December, 2019 stated that the reconciliation with
M/s Royal Airport Services was made at Head Office Karachi, the result of which
is awaited. The reply was not tenable as no amount was recovered from
concerned party as yet. DAC meeting was not convened despite requests by
audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault besides, expeditious recovery of the amount.

1.1.4.10 Loss of revenue due to operating empty flights from Islamabad -

Rs. 184.00 million

As per Job Description Manual dated 15-01-2015, Chapter-14, the District

Manager was responsible to perform sales activities pertaining to passengers/
freight and evolve local marketing plans for its implementation. As per Job
Description Manual dated 15-01-2015, Chapter-14, Page No. 344 & 345, the

10
General Manager, Network and Schedule Planning, PG-X (Reporting to Director
Marketing) was responsible to supervise and monitor proper designing of long
term and short term operating plans; and to focus on network management and
evaluation of multiple scenarios of schedule changes.

During audit of PIAC, Islamabad office for the years 2016-2017, it was
observed that 46 flights were operated without any passengers, resulting loss of
Rs. 184.00 million (Average 200 pax per flight x Rs. 20,000 average fare x 46
flights) excluding 36 flights for Hajj and Umrah.

Audit is of the view that operation of flights without passenger shows lack
of proper planning and control on the part of the management.

The matter was reported to the management in October, 2018 but no reply
was received.DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

1.1.4.11 Loss due to non-recovery from defaulting travel agents - Rs. 157.059
million

As per Article-9 of Passenger Sales Agency Agreement, the agent shall be

under obligation to submit sales reports and remittances on fortnightly basis.
Further, Article-27 says that agent will be liable for any outstanding amounts in
default and immediately upon notification of default, ticketing authority will be
de-linked and held guarantee(s) will be en-cashed to cover the amounts in default.

During audit of PIAC, Islamabad and Lahore office for the years 2016
and 2017, it was observed that 25 agents at Islamabad and Lahore did not deposit
the sale amount of Rs.157.059 million. The agents were allowed to sell the tickets
beyond the prescribed limits/capping due to which they easily managed to
escape. The management did not take legal action against the defaulters.

11
 Audit is of the view that the management extended undue favour to the
agents by allowing excess sale than the security deposit/ bank guarantees which
shows weak internal controls and poor financial management.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that action may be taken against the officer found
involved for allowing the agents to sell the tickets beyond limits besides taking
legal action against the agents and recovery of the amount from them.

1.1.4.12 Loss due to delayed flights - Rs. 126.799 million

In terms of Job Description Manual of Passenger Handling Services

Division (Chapter-17, page 12), it is the responsibility of the Passenger Handling
Services Division of PIAC to analyze station delays over the PIAC network and
take corrective and preventive actions to improve the punctuality by ensuring on-
time departures.

During audit of PIAC, Lahore office for the years 2016 & 2017, it was
observed that the management paid Rs.126.799 million on account of Delay
Flight Allowance, Passenger Delay Flight and Passenger Layover. Thus, PIAC
sustained a loss of Rs.126.799 million due to delay in flights. The detail is as
under:

Delay Passenger
Passenger Total
flight delay
Year Layover (Rs.)
allowance flights
Rs.
(Rs.) (Rs.)
2016 58,295,617 5,644,804 13,886,300 77,826,721
2017 12,439,204 8,916,888 27,616,267 48,972,359
Total 70,734,821 14,561,692 41,502,567 126,799,080

12
 Audit is of the view that due to lack of proper planning and control over
the flights schedule/operation, the flights faced disruption, delays, and
cancellation.

The irregularity was reported to the management in October, 2018. The

management in its reply dated January 03, 2019 stated that Lahore station
performs all efforts to depart the flights on time however late arrival were due to
some constraints such as technical & engineering issues with aircrafts, FIA
immigration, ASF, ANF, Customs, bad weather, etc. The reply was not tenable,
as no documentary evidence was provided therefore, the payment of allowances
was not justified. DAC meeting was not convened despite requests by audit.

Audit recommends that matter may be investigated and responsibility be

fixed on the person(s) at fault.

1.1.4.13 Loss of revenue due to damage to aircraft - Rs. 45.00 million

Section 54 PIAC Employees Services and Discipline Regulations states

that “any employee who causes or attempts to cause any loss or loss of revenue to
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.”

During audit of PIAC, Lahore office for the years 2016 and 2017, it was
observed that the management issued a show-cause notice in December 2017 to
Mr. Zahid Ali, Pax Service Officer (Loading Supervisor) for off-loading
containers carelessly, which resulted into damage to aircraft and revenue loss of
Rs. 45.00 million approximately (Rs. 20,000 average fare x 150 passenger per
flight x 15 flights approx).

Audit is of the view that the Corporation sustained loss due to negligence
and inefficiency. However, no concrete action was taken.

13
 The matter was reported to the management in October, 2018. The
management in its reply dated January 03, 2019 stated that inquiry was conducted
and loading supervisor was found guilty and management proposed punishment.
The reply was not satisfactory as no concrete action has been taken as yet. DAC
meeting was not convened despite requests by audit.

Audit recommends that matter may be investigated for fixing of

responsibility on the person(s) at fault.

1.1.4.14 Loss of revenue due to award of contract at lower rates - Rs.33.624

million
Rules 20 & 23 of GFR states that every government officer should realize
fully that he will be held responsible for any loss sustained by the Government
through fraud or negligence on his part or on the part of any other officer to the
extent to which it may be proved that he contributed through his own negligence
or action.

During audit of PIAC Lahore office for the years 2016 and 2017, it was
observed that the management awarded a contract to M/s Agro Developers for
sale of Airline waste @ Rs.385,000 per month for 03 years (September 2015 to
September 2018) at all domestic stations, whereas the same contract was
previously awarded @ Rs.1,169,000 per month for 03 years (September 2013 to
September 2015) for 03 domestic stations as detail below:
Amount
Sr. No. Station
(Rs.)
1. Karachi 500,000
2. Lahore 351,000
3. Islamabad 318,000
Total 1,169,000

Due to award of contract at lower rate, Corporation sustained loss of

Rs.33.624 million.

14
 Audit is of the view that undue favour was extended to the contractor
which caused loss to the Corporation.

The matter was reported to the management in October, 2018. The

management in its reply dated December 19, 2018 stated that the awarding
contract at lower rate was result of implementing CPC directives to compact the
refuse/throwaway material first then handing over to the contractor for removal
from airline premises. The reply is not satisfactory as the decision was to be made
in a way to earn more revenue, but the management allowed the contractor at
much lower rate, which caused loss of revenue to the Corporation. DAC meeting
was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

1.1.4.15 Loss due to renting of office space at lower rates - Rs. 14.324 million

Section 54 of PIAC Employees Services & Discipline Regulations states

that any employee who causes or attempts to cause any loss or loss of revenue to
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.

During audit of PIAC, Islamabad station for the years 2016 and 2017, it
was observed that in June 2014 an agreement was signed between Aviation
Division and PIAC for hiring 2nd Floor @ Rs.40 Per SQ Ft of PIAC building in
Blue Area, Islamabad w.e.f July 01, 2013 for three years. Before Aviation
Division, same building space was rented out to NEPRA @ of Rs.50 per Square
ft. and increase of 25% was due on July 01, 2014, after revision the rent would
have been Rs. 62.5 per square foot. Thus, Corporation sustained loss of

15
Rs.14.324 million. The detail is as under:

Rate Rate
Area
Sr. Tenant’s Lease No. of Given should Difference Loss born
in Sq
No. Name Period Months per be per in rate by PIAC
Ft
SQ Ft. Sq Ft
1 Aviation 10,228 1st July, 36 40/- 62.50 22.50 8,284,680
Division 2013 to
30th
June,
2016
2 -do- 10,228 1st July, 21 (up 50/- 78.12 28.12 6,039,838
2016 to to Sep)
30th
June,
2019
Total 14,324,518

Audit is of the view that the management extended undue favour to the
Aviation Division by allowing the building space at lower rate. This indicates
poor asset management.

The matter was reported to the management in October 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault for letting out the space at lower rate and rates may be enhanced as
per agreement of previous tenant.

1.1.4.16 Loss due to non-collection of Cancellation Charges - Rs. 12.246

million

As per job description Manual dated 15-01-2015, Chapter-4, the Manager

Finance at domestic station has to make refunds as per Corporation's rules and
ensuring that they are properly reported in refunds report. Make payments on
behalf of Corporation as per laid down rules and ensuring that they are properly
reported in disbursement report. Calculate physically the rates to confirm that

16
amount is correctly charged; calculate cancellation charges if applicable on
tickets in case of re-issuance/refund of documents.

During audit of PIAC, Islamabad station for the years 2016 and 2017, it
was observed that the counters/booking offices refunded 4,082 tickets of
domestic and international during the period of 06 years i.e. from 2011 to 2016,
but the cancellation charges were not deposited into the PIAC bank accounts. As
per refund policy, an average amount of Rs. 3,000 is charged as cancellation
charges, according to which PIAC sustained a loss of Rs. 12.246 million
(Rs. 3,000 x 4082 tickets refunds). Detail is at Annex-6.

Audit is of the view that loss was incurred due to negligence and
inefficiency of the management which indicates poor financial management.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault besides, recovery of the amount.

1.1.4.17 Non-Production of record

Section-14(2) of the Auditor General’s (Functions, Powers and Terms and

Conditions of Service) Ordinance 2001 states that the officer in-charge of any
office or department shall afford all facilities and provide record for audit,
inspection and comply with requests for information in as complete form as
possible and with all reasonable expedition. Further the Public Accounts
Committee directives, issued vide OM No.F-10(1)/2000/2004-PAC dated Jun 03,
2004 requires all PAOs of Ministries / Divisions to make available all
information/record to Audit as and when required by them, otherwise disciplinary
action will be initiated against person(s) responsible for the delay under Section-
14(2) of the Auditor General’s Ordinance No. XXIII of 2001.

17
 During audit of PIAC for the years 2015 and 2016, the management of
Engineering Department and Procurement Department at Head Office, Karachi
provided partial record, whereas Legal department at Lahore station did not
provide any record despite issuance of reminders and verbal requests (Annex-7).
Due to non-production of the requisitioned auditable records, audit was unable to
ascertain transparency in relevant transactions.

The matter was reported to the management in November, 2016, October,

2017 and 2018. The management in the reply dated January 10, 2019 stated that
Legal Department had no intimation regarding audit and case files were busy
which caused difficult to provide the same to audit. The reply is not tenable as no
record was provided to audit. DAC meeting was not convened despite requests by
audit.

Audit recommends that matter may be investigated and responsibility be

fixed on the person(s) involved in concealment of record.

1.1.4.18 Irregular acquisition of two aircrafts on dry lease - US$ 83.25 million
(equivalent to Pak Rs. 8,352 million)

Rule 36 of Public Procurement Rules, 2004 states that the bid shall
comprise a single package containing two separate envelopes. Each envelope
shall contain separately the financial proposal and the technical proposal. Further,
Rule 28(2) states that all bids shall be opened publicly in the presence of the
bidders or their representatives.

During audit of Pakistan International Airlines Corporation (PIAC)

Corporate Planning Department for the years 2010 to 2014, it was observed that
in October, 2015management awarded contract to lowest bidder M/s Aercap
Airlines, Ireland for acquisition of two Wide Body aircrafts for six years with
monthly rent US$ 580,000. Audit observed following irregularities:

18
 i. Advertisement was published in local newspapers only instead of
international publications whereas the advertisement was not posted
either on PPRA or PIA’s own websites.
ii. Bids were invited on single-stage one envelope instead of single-stage
two envelope basis as necessitated for technical and financial
evaluation separately.
iii. Bids were opened by Bid Opening Committee of PIAC in absence of
bidders.
iv. Copy of the contract as required under Section 33-B of National
Accountability Bureau (Amendment) Ordinance 2002 was also not
furnished to NAB.

Audit is of the view that appropriate procurement method was not adopted
which could have ensured the quality acquisition of air crafts which shows weak
internal control and negligence.

The matter was reported to the management in January, 2016 and in

November 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

1.1.4.19 Non-transparent acquisition of six aircrafts on wet lease -Rs. 2,730

million (US$ 26.00 million)

According to Rule 12 of Public Procurement Rules, 2004 all procurement

opportunities over two million rupees should be advertised on the Authority’s
website as well as in other print media or newspapers having wide circulation.
The advertisement in the newspapers shall principally appear in at least two
national dailies, one in English and the other in Urdu.

During audit of Pakistan International Airlines Corporation (PIAC),

Corporate Planning Department for the years 2010 to 2014, it was observed that

19
the management acquired six (06) aircrafts on wet lease at the cost of US$ 26.00
million equivalent to Pak Rs. 2.730 million in violation of PPRA rules. Following
irregularities were observed:

i. Bids were invited through advertisement published in local news

papers in July, 2014 instead of international publications.
ii. Advertisement was neither posted on PPRA website nor on PIA’s
website as required by PPRA.
iii. Bids were invited using method of procurement based on single-
stage one envelope rather than on single-stage two envelope basis as
necessitated for technical and financial evaluation separately.
iv. Bids were opened by Bid Opening Committee of PIAC in absence of
bidders.
v. Copy of the contract was not furnished to NABas required under Section
33-B of National Accountability Bureau (Amendment) Ordinance 2002.
vi. Six aircrafts were hired, four aircrafts (737-800) from M/s Corendon
Airlines, Turkey and two aircrafts (A-320) from M/s Air VIA OOD,
Bulgaria against the requirement of four as published in newspapers.
vii. The aircrafts were hired for two months, whereas further extensions
up to six months were granted.

Audit is of the view that appropriate procurement method was not adopted
which could have ensured the quality acquisition of aircrafts which shows
defective planning and negligence.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing of responsibility upon person(s) at fault.

20
1.1.4.20 Irregular appointment of officers/officials on fake degrees - Rs.678.00
million

Pakistan International Airline Corporation (PIAC) Personnel Policy

Manual, Chapter- 4, Para 75 Misconduct and Para 76 states that giving false
information regarding name, age, father’s name, educational or professional
qualification, previous service or experience or anything relating to the record of
service at the time of joining the service of the Corporation or at any time during
the service of the Corporation will have penalty of dismissal from service.

During audit of Pakistan International Airline Corporation (PIAC) Lahore

and Islamabad office for the years 2016 & 2017, it was observed that
management appointed 113 employees on fake degrees on various posts during
different periods respectively. However, no action was taken by the management
against such employees. This resulted in irregular payment of salary of Rs.678.00
million approximately (Rs.50,000 p.m. x 10 years x 113 employees).Thus, the
management had completely ignored the rules of the Corporation as a result
employees on fake degrees were still in service in violation of PIAC rules. The
detail of 55 employees is attached as Annex-8.

Audit is of the view that undue favour was extended to the employees
appointed on fake degrees at Corporation cost. This indicates weak management.

The irregularity was reported to the management in October, 2018. The

management in its reply dated January 07, 2019 stated that all employees having
fake degrees approached the Court due to which they cannot be terminated. The
reply was not tenable as the management did not properly persuade the Court
cases for termination of employees having fake degrees. DAC meeting was not
convened despite requests by audit.

Audit recommends that the services of employees appointed on fake

degree may be terminated immediately and recover the amount paid to them.

21
1.1.4.21 Irregular award of contract to M/s Kitchen Cuisine - Rs. 443.200
million

Rule 12 of Public Procurement Rules, 2004 states that all procurement

opportunities over two million rupees should be advertised on the Authorities
website as well as in other print media or newspapers having wide circulation.
The advertisement in the newspapers shall principally appear in at least two
national dailies, one in English and the other in Urdu.

During audit of PIAC Lahore office for the years 2016 and 2017, it was
observed that M/s Kitchen Cuisine (Pvt.) Limited was issued a letter of intent for
provision of Catering/ Meal services on board for passenger for 90 days with
effect from January 08, 2014 to April 07, 2014, which continued for further 04
years up to December 31, 2017 without any agreement and advertisement, which
is clear-cut violation of above provision of PPRA-2004. Thus, the award of
contract of Rs.443.200 million without tendering was irregular.

Audit is of the view that the above contractor was extended undue favour
for which the relevant PPRA rules were violated and the supplier continued to
provide the service.

The irregularity was reported to the management in October, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing of responsibility on the person(s) at fault.

1.1.4.22 Irregular award of Contract for in-flight catering services - Rs.185.00

million

Rule 4 of Public Procurement Rules, 2004 states that procuring agencies

while engaging in procurements shall ensure that the procurements are conducted
in a fair and transparent manner, the object of procurement brings value for
money to the agency and the procurement process is efficient and economical.

22
Further, according to Section 33-B of NAB Ordinance 2002 a copy of the
contract is required to be furnished to NAB.

During audit of PIAC Procurement & Logistics Department for the year
2016, it was observed that a tender was invited for in-flight catering from
prospective catering service providers to PK flights ex-Lahore, on May 06, 2016.
Four bidders participated in the bidding. The technical bids were opened on May
23, 2016 and as per technical evaluation M/s Pearl Continental (PC) and
M/s Kitchen Cuisine (KC) were qualified. The financial bids were opened on
June 24, 2016. At the time of financial bid opening, tender committee observed
that PC submitted PIA’s tender documents published in 2015 and KC submitted
required documents as uploaded at PIAC& PPRA websites. The Catering
Contract Committee (CCC) in its meeting held on June 30, 2016 rejected the
financial bid of PC on plea that PC submitted financial bids on documents which
were not part of bidding documents. The management awarded the contract to
M/s KC at a total financial impact of Rs. 185 million. Letter of intent was issued
to M/s KC on January 16, 2017 for a period of one year (w.e.f January 16, 2017
to January 15, 2018). M/s PC filed a case in Lahore High Court on Evaluation
Report uploaded on PIAC/PPRA websites. Further, the copy of the contract as
required under Section 33-B of NAB Ordinance 2002 was also not furnished to
NAB.

Audit is of the view that the reasons adopted by the management for
non-opening of the financial bid of M/s PC were unjustified. The rejection of the
bid of M/s. PC on technicality grounds was simply to award undue favour to
M/s. KC. Therefore, it is concluded that competitive bidding process was not
followed by the management and the award of contract to M/s. KC is held
irregular and unjustified.

The matter was reported to the management in October 2017. DAC

meeting was held on February 20, 2018. The DAC directed the management that
record should be reconciled with the audit. However, no progress was made.

23
 Audit recommends fixing responsibility on the person(s) at fault and
intimate progress of the Court case.

1.1.4.23 Irregular procurement of food items - Rs. 110.062 million

Rule 12 of Public Procurement Rules, 2004 states that all procurement

opportunities over two million rupees should be advertised on the Authority’s
website as well as in other print media or newspapers having wide circulation.
The advertisement in the newspapers shall principally appear in at least two
national dailies, one in English and the other in Urdu.

During audit of PIAC Flight Kitchen for the years 2013 to 2015, it was
observed that 985 food items amounting to Rs.76.941 million and 39 non-food
items amounting to Rs. 33.121 million were procured during the period through
internal requisitions and covering indents without open tendering process. The
details are as under:

Non-food items (casserole,

No. of Food
Year Amount lunch box, liquid soap, Amount
Items
paper cup etc.)
(Nos) (Rs.) (Nos) (Rs.)
2013 482 37,763,671 09 11,578,432
2014 435 38,106,381 15 12,483,042
2015 68 1,070,995 15 9,059,650
Total 985 76,941,047 39 33,121,124
Grand Total 110,062,171

Audit is of the view that the management deprived PIAC from benefit of
competitive bidding.

The matter was reported to the management in March 2016 and in

November, 2018 but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

24
1.1.4.24 Loss of advertising revenue on outsourcing of Humsafar Magazine -
Rs. 59.022 million

Clause-19 of the agreement between Pakistan International Airlines

Corporation (PIAC) and M/s. RG Blue Communications (Pvt.) Ltd states that the
producer, RG Blue Communications shall have exclusive right to produce the
Hamsafar magazine for the duration of this agreement. Further to this, producer
has the exclusive rights to solicit the advertisers for ads, collect the ads and
payments from the advertisers exclusively for the Hamsafar magazine during the
tenure of this agreement with complete information to the publisher.

During audit of PIAC, Procurement & Logistics Department for the year
2016, it was observed that the contract for printing of Hamsafar Magazine was
awarded to lowest bidder M/s. RG Blue Communications for Rs. 59.022 million,
despite PIAC’s own fully equipped printing press. Further exclusive rights were
also given to the producer for collection of payments on advertisement against
the opinion of Legal Department of PIAC.

Audit is of the view that undue favour of extended for collection of

payments on advertisements along with payment of huge amount which proves
negligence and poor financial management prevalent in the organization.

The matter was reported to the management in October 2017and in

November, 2018 but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault for

awarding printing contract in presence of fully equipped printing press in PIAC.

1.1.4.25 Irregular payment to M/s Shalimar Hotel - Rs. 45.700 million

According to Rule12 of Public Procurement Rules, 2004 all procurement

opportunities over two million rupees should be advertised on the Authority’s
website as well as in other print media or newspapers having wide circulation.
25
The advertisement in the newspapers shall principally appear in at least two
national dailies, one in English and the other in Urdu.

During audit of PIAC Lahore office for the years 2016 and 2017, it was
observed that the management awarded the contract to M/s. Shalimar Hotel
amounting to Rs. 45.731 million for accommodation of Aircraft Engineers and
Cabin Crew without competitive bidding, which is violation of above rule. The
year wise breakup of Payments is given below:

Sr. No. Year Amount

1 2015 42,992,932
2 2016 869,719
3 2017 1,868,612
Total 45,731,263

Audit is of the view that undue favour was extended by the management
to M/s Shalimar Hotel and Corporation was deprived from the benefits of
competitive bidding.

The matter was reported to the management in October, 2018. The

management in its reply dated December 19, 2018 stated that PPRA does not
allow more than one agreement per station due to which this alternate
arrangement was made without tendering. Further Pearl Continental hotel did not
accommodate Aircraft Engineer as per their entitlement equal to Cockpit Crew
and they had to go in Shalimar Hotel. The reply was not tenable as no such
provision exists in PPRA. Therefore, proper tendering should have been made to
avail competitive bidding as per PPRA, but the management set aside the rules to
extend undue favor to the said hotel. DAC meeting was not convened despite
requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

26
1.1.4.26 Irregular award of contract without competitive bidding - Rs.11.651
million

Rule 12 of Public Procurement Rules, 2004 all procurement opportunities

over two million rupees should be advertised on the Authorities website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During audit PIAC Islamabad station for the years 2016 and 2017, it was
observed that the management awarded two contracts valuing Rs.11.651 million
without competitive bidding in violation of above rule. The detail is as under:

Name of contractor Particular (Rs. in million)

M/s New Western Engineers HVAC 5.528
M/s Abdul Khaliq Khan Maintenance of Generator 6.123
Total 11.651

Audit is of the view that the management extended undue favour by

awarding contract without competitive bidding, which proves poor financial
planning in the management.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that matter may be investigated for fixing of

responsibility on person(s) at fault.

1.1.4.27 Irregular appointment of Assistant Manager, Legal – Rs.10.800

million

Job Description of Assistant Manager Legal required work experience of

05 years of professional experience in legal field or a practicing lawyer including
handling corporate legal matters, evaluating claims, preparing legal documents.

27
 During audit of PIAC Lahore office for the years 2016 & 2017, it was
observed that in April 2012 management appointed Mr. Muhammad Zahid
Wattoo, as Assistant Manager, Legal in pay group-VII without advertisement and
requisite experience of 05 years in violation of standard terms and conditions.
Thus, payment of Rs. 10.800 million on account of pay and allowances was
irregular (Rs.150,000 approx. per month x 6 years).

Audit is of the view that undue favour was extended to the incumbent this
indicates weak internal controls.

The irregularity was reported to the management in October, 2018. The

management in its reply dated January 04, 2019 stated that in advertisement 03
year experience was required instead of 05 years and verification of degrees is
under process. The reply was not tenable as the HR policy requires 05 year
experience for post, but in advertisement 03 year experience was called, which
indicates that the incumbent was accommodated in PIA. Non-verification of
degrees after lapse of 08 years of appointment is quite unjustified. Further
management did not mention regarding quota system, thus the appointment
without observing quota system is violation of Constitution of Pakistan. DAC
meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

1.1.4.28 Irregular award of transport contract without inviting tender -

Rs. 4.185 million

According to Rule 12 of Public Procurement Rules, 2004 all procurement

opportunities over two million rupees should be advertised on the Authority’s
website as well as in other print media or newspapers having wide circulation.
The advertisement in the newspapers shall principally appear in at least two
national dailies, one in English and the other in Urdu.

28
 During audit of PIAC Passenger Handling Service (PHS) for the years
2015 to 2017, it was observed that the management entered into contract with
M/s Airport Limousine for hiring of transport service for passengers Baggage at
Karachi, Lahore & Islamabad Airport for the period of 03 months w.e.f January
27, 2016 to April 27, 2016 amounting to Rs. 4.185 million. The contract was
awarded without calling tender in violation of rule.

Audit is of the view that Corporation was deprived of the benefits of

competitive bidding as required under PPRA-2004 rules.

The matter was reported to management in May 2018. The management

in its reply dated January 03, 2019 stated that tendering process was done by the
then Director Procurement and station was not involved in that process. The reply
is evasive as the concerned station must have been aware of the tendering and
agreement before payment to the parties. DAC meeting was not convened despite
requests by audit.

Audit recommends that investigate the matter with view to fix

responsibility on the person(s) at fault.

1.1.4.29 Non-receipt of material against advance payments - Rs. 628.072

million

Special instructions of Purchase Order Serial No. 6 states that a copy of

purchase order, original invoice duly signed, insurance declaration, copy of
airway bill/shipping documents are required for payment.

During audit of Pakistan International Airlines Corporation (PIAC),

Procurement & Logistic Division for the years 2014 & 2015, it was observed that
the management issued 1,196 purchase orders to various foreign suppliers /
vendors for procurement of different kind of spare parts in the years 2014 and
2015. Despite advance payments, not a single item was received in PIAC till

29
October 2016. Further, no bank guarantees were obtained from the suppliers to
safeguard the interest of the Corporation. The details are as under:
Sr. No. of Amount Involved
No. Purchase Foreign Pak.
Amount
Orders Currency Rupees
1 04 AED 313,895 9,102,955
2 1036 US$ 5,540,171 554,017,100
3 92 EUR 364,121 40,781,552
4 49 PKR 21,469,038 21,469,038
5 05 JYP 460,938 377,969
6 10 GBP 14521.07 2,323,371
Total 1196 - - 628,071,985

Audit is of the view that non-receipt of spare parts worth Rs. 628.072
million despite making advance payment shows weak financial management
controls in PIAC.

The irregularity was pointed out to the management in October, 2016 and
in November, 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends responsibility should be fixed on the person(s) at fault

for not receiving the material for the amount paid.

1.1.4.30 Loss due to wastage of Meals - Rs.106.573 million

Rule 5 of Public Sector Companies (Corporate Governance) Rules, 2013

states that the Board shall establish a system of sound internal control, which
shall be effectively implemented at all levels in the following manner, that the
principle of probity and propriety entails that company's assets and resources are
not used for private advantage and due economy is exercised so as to reduce
wastage. The principle shall be adhered to, especially with respect to the
following, namely (i) handling of public funds, assets, resources and confidential
information by directors, executives and employees; and (ii) claiming of
expenses.
30
 During audit of PIAC Flight Kitchen for the years 2013 to 2015, it was
observed that total meals amounting to Rs. 72.573 million were uplifted against
the passengers travelled during the years 2013 to 2015. The detail is as under:

Avg. meal
Year Meal uplift Pax travelled Meal excess Amount
cost
(Nos) (Nos) (Nos) (Nos) (Rs.)
(Rs.)
2013 2,154,675 1,998,111 156,564 122.304 19,148,403
2014 1,898,972 1,748,346 150,625 151.112 22,761,245
2015 2,019,192 1,811,827 207,365 147.869 30,662,878
Total 6,072,839 5,558,284 514,554 - 72,572,526

Similarly, the management of PIAC, Lahore station did not properly

control the meal wastage at Lahore station and there was no proper monitoring
system of meal-uplift, due to which excess meals were uplifted amounting to
Rs.34.00 million (6,800 x Rs. 500 + Rs. 30.00). Thus, PIAC sustained a loss of
Rs.106.570 million.

Audit is of the view that loss was incurred due to poor planning and
negligence.

The matter was reported to the management in April, 2016 and in

November, 2018 but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

1.1.4.31 Loss due to unnecessary hiring of ground handling equipment -

Rs.77.940 million

As per Job Description, the responsibilities of General Manager,

Passenger Handling Services were; negotiating and finalizing Ground Handling
Agreements with handling agents at all International Stations for PIAC flights;
acting as a liaison between PIAC and the handling agent (at International
Stations). To establish, maintain and develop a good working relationship with
31
Ground Handling Agents at International Stations and Ground Handling
customers at domestic stations.

During audit of PIAC, Lahore office for the years 2016 and 2017, it was
observed that the management made agreements with M/s Royal Airport
Services, M/s. Shaheen Airport Services, M/s Gerry’s Dnatta (Pvt.) Ltd, and
M/s Air blue for hiring of technical equipment at domestic stations and heavy
payment was made to them for availing ground services despite having their own
ground handling equipment. It is worth mentioning here that PIAC have 99
technical ground equipment at the station, out of which 32 main equipments were
unserviceable. To fill the gap of out-of-order/ unserviceable items, the
management hired equipment from the contractors. Thus, the expenditure of
Rs.77.940 million during 2016 is unjustified and resulted into loss to the
Corporation.

Audit is of the view that the equipments were not being repaired by the
management, so that the same could be hired from above parties at the cost of the
Corporation, although these items required minor repairs.

The irregularity was reported to the management in October, 2018. The

management in its reply dated January 11, 2019 stated that hiring was made so
that operation can be carried out smoothly and ensure flight departure on time
and to avoid flight delays (flight delay is unacceptable based on non-availability
of ground equipment as flight delay cause huge financial expenditure as
compared to hiring of ground equipment and that is not viable at all in any
situation). Further, out of 99 GSEs, 32 GSEs are very old and have exhausted
their useful lift and are beyond economic repair. The reply was not satisfactory as
there was no provision in rules of PIA to hire equipment at domestic stations. In
addition 99 equipments were available which could be managed properly to avoid
expenditure on unnecessary hiring from private parties. DAC meeting was not
convened despite requests by audit.

32
 Audit recommends investigating the matter with a view to fix
responsibility on the person(s) at fault.

1.1.4.32 Non-finalization of disciplinary action against Manager Works -

Rs. 24.00 million

Pakistan International Airline Corporation (PIAC) Personnel Policy

Manual’s para 75 defines Misconduct as under;
 Willful omission or commission against the interest of, or resulting in loss,
to the Corporation
 Theft, fraud or dishonest in connection with a revenue document, business or
property of the Corporation, any customer, agent or airline
 Willful insubordination or disobedience, whether alone or in combination
with others, to any lawful and reasonable order or a superior employee
 Taking or giving bribes or any illegal gratification

During audit of PIAC, Lahore office for the years 2016 & 2017, it was
observed that Mr. Farooq Malik, Manager Works committed a fraud of Rs.24.00
million for which Show cause notice was served to him on August 05, 2016 but,
inquiry was not finalized.

Audit is of the view that the management extended undue favor to the
accused employee and did not take action against him who was involved in fraud
and caused loss to the Corporation.

The matter was reported to the management in October, 2018. The

management stated in its reply dated December 31, 2018 stated that it is correct
that a disciplinary action was initiated on the charges of committing misconduct
and the inquiry proceedings are under process. Inquiry officer has confirmed that
it will be finalized in January, 2019 and finding will be shared with audit. The
reply is not satisfactory, as the management has delayed the action for more than
02 years and the same still in process. DAC meeting was not convened despite
requests by audit.

33
 Audit recommends finalization of inquiry at the earliest.

1.1.4.33 Loss due to non-recovery of air-conditioning charges - Rs.18.123

million

Rule-23 of GFR provides that every Government officer should realize

fully and clearly that he will be held personally responsible for any loss sustained
by Government through fraud or negligence on his part.

During audit of PIAC, Lahore office for the years 2016 & 2017, it was
observed that management incurred expenditure of Rs. 72.249 million on
air-conditioning system of the building in Lahore during last 10 years, but the
management failed to charge at least 25% of the total expenditure, which comes
to Rs. 18.123 million, from the tenants availing the facility. This resulted into non
recovery/ loss.

Audit is of the view that undue favour was extended to the tenants at the
Corporation cost by not including any clause in the contract regarding this
facility, which shows negligence of the management.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault, besides recovery of the amount.

1.1.4.34 Irregular payment of extended duty denial rest - Rs. 14.723 million

As per Para No. 6.80.01 & 6.81 of Pakistan International Airlines

Corporation (PIAC) HR Policy, the duty time limitation of Aircraft Engineer is
08 hours but can be extended to 16 hours in emergencies on occasional basis. The
extended duty /denied rest shall not be more than 48 hours in a month. However,
Aircraft Engineer shall not be scheduled to perform the duty beyond 08 (eight)

34
hours on regular and planned basis. Between any two successive duties rest
period shall be provided, as per corporate rules.

During audit of PIAC Engineering Department for the year 2016, it was
observed that the management paid Rs.14.723 million to officers of Engineering
Department on account of Extended Duty/Denied Rest without any provisions in
the rules.

Audit is of the view that the management extended undue favour to

engineers at the cost of PIAC.

The matter was reported to the management in November, 2017. The

DAC meeting was held on February 20, 2018. The DAC directed the
management to provide revised reply along with relevant PPM clauses. However,
no progress was made.

Audit recommends implementation of the DAC directives.

1.1.4.35 Non-utilization of vacant space of Lahore building - Rs.9.173 million

Rule 23 of GFR provides that every Government officer should realize

fully and clearly that he will be held personally responsible for any loss sustained
by Government through fraud or negligence on his part.

During audit of Pakistan International Airline Corporation (PIAC) Lahore

office for the years 2016 & 2017, it was observed that PIAC has its own building
at Lahore. About half portion was in use of PIAC and half portion was rented out.
However, an area of 4,200 sq. ft. is still lying vacant. Due to non-renting out of
vacant space, PIAC sustained a loss of Rs. 9.173 million (4,200 sq.ft. x Rs.91 per
sq.ft. x 24 months).

Audit is of the view that due to negligence of the management the vacant
space could not be rented out, which indicates poor asset management.

35
 The irregularity was reported to the management in October, 2018 but no
reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault besides taking measures for renting out the space.

1.1.4.36 Loss due to negligence of the management - Rs. 6.497 million

According to the clause of Component Service Program (CSP) agreement,

if the removed component is not received by Boeing within 05 calendar days
after the Exchanged Component is delivered to customer, there will be a charge
of 1% of the applicable part number’s current selling price per day until the
removed component has been received by Boeing.

During audit of PIAC Engineering Department for the year 2011, it was
observed that 08 parts were provided by the Boeing Company to PIAC on loan
basis in accordance with the Component Service Programme. The said parts were
required to be returned within 05 working days after the exchanged part is
delivered to PIAC. However, due to negligence of the management the parts
could not be returned within the stipulated period. Furthermore, the parts returned
were delayed/damaged during transit, which resulted into loss of US$ 73,011
equivalent to Pak Rs.6.497 million. (Annex-9)

Audit is of the view that loss was incurred due to negligence /slackness of
the management.

The matter was reported to the management in November 2013. The

management in its reply dated January 20, 2014 admitted the loss by stating that
delays occurred due to late clearance from the Custom Authority. The reply was
not tenable as the management should have initiated the return process keeping in
view the deadline. DAC meeting was not convened despite requests by audit.

36
 Audit recommends fixing responsibility on the person(s) at fault for the
loss.

1.1.4.37 Loss due to excess payment to M/s Master Management - Rs.3.700

million

As per Letter of Intent dated June 15, 2016, total yearly value of the
contract was Rs.4,020,000 for the period from June 01, 2016 to May 31, 2017.

During audit of Pakistan International Airlines Corporation (PIAC)

Passenger Handling Service (PHS) for the year 2015 to 2017, it was observed
that management entered into contract with M/s Master Management for
provision of meal services at PIAC Domestic and International Lounges at Jinnah
International Airport, Karachi. However, management paid Rs.7.719 million
instead of Rs.4.020 million. This resulted into excess payment of Rs.3.700
million (Annex-10).

Audit is of the view that undue favour was extended to the contractor by
making excess payment at Corporation cost, which shows weak internal controls.

The matter was reported to management in May, 2018. The management

in its reply dated January 03, 2019 stated that ground feeding is mostly a
contingent expenditure which depends on number and extent of flight delays,
transit duration which keeps on changing as schedule changes. The reply is not
satisfactory as the management has not provided the documentary evidence and
statement of flight delays and passengers serviced at the station. DAC meeting
was not convened despite requests by audit.

Audit recommends that investigate the matter with a view to fix

responsibility on the person(s) at fault beside recovery the amount.

37
1.1.4.38 Loss due to irregular waiver of tuition fees - Rs. 2.094 million

As per PIAC Human Resources Policy dated January 15, 2014, the
management approved to grant 25% concession in course fee to dependent
children of employees for Aircraft Engineering Apprentice Training, offered on
self-finance basis by PIA Training Centre, Karachi. Concession fee shall be
admissible up to maximum of ten (10) children of employees (serving, retired &
deceased), selected on merit basis. All existing 06 children of employees, who are
under-going apprentice training, shall be allowed 25% concession in fee.

During audit of PIAC Training Centre (PTC) for the years 2015 & 2016,
it was observed that management granted 50% to 100% concession to the
students of Apprentice Aerospace, Apprentice Flight Operations, and Basic Sheet
Metal Course instead of 25%, causing loss of Rs.2.094 million on account of
revenue.
.
Audit is of the view that undue favour was extended to the student and
management failed to safeguard the interest of the Corporation.

The matter was reported to the management in June, 2018. The

management in its reply of August, 2018 stated that all discounts/special waivers
were approved by CEO/MD PIACL. The reply was not satisfactory /tenable as
management must follow the above training rules of concession. DAC meeting
was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on person(s) at fault

besides recovery of the amount.

1.1.4.39 Loss due to short deposit of amount in bank - Rs. 1.291 million

Section 54 of PIAC Employees Service &Discipline Regulations states

that any employee who causes or attempts to cause any loss or loss of revenue to

38
the Corporation shall be liable to reimburse the loss caused by him and will also
be liable to disciplinary action including dismissal from service.

During audit of PIAC Lahore office for the years 2016 and 2017, it was
observed that PIAC travel agent M/s Ayub Travels & Tours deposited 07 pay
orders of Rs. 3.143 million against fortnight international sales for the period
16-31 May 2016. However, management of PIAC received the same from agent,
but deposited only Rs. 1.852 million and remaining left over amount of Rs. 1.291
million was not deposited in the bank (Annex-11).

Audit is of the view that undue favour was extended to the travel agents
and employees at Corporation’s cost, which shows inefficiency of management.

The matter was reported to the management in October, 2018. The

management in its reply stated that sales proceeds of May 16-31, 2016 were
timely deposited in the bank in full. The reply was not satisfactory as the
document provided does not show the name of above party from whom amount
was recovered and deposited in the bank. DAC meeting was not convened despite
requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault, besides recovery of the amount.

1.1.4.40 Non-preparation of proper Fixed Assets Register and non-conducting

physical verification of fixed assets

Section 230 of the Companies Ordinance, 1984 read with Technical

Release No.6 issued by the Institute of Chartered Accountant of Pakistan,
provided that the adequate itemized record of fixed assets should be maintained
and also suggests certain minimum particular. Further, it requires physical
verification of fixed assets on a cyclical basis (perpetual inventory) according to a
formal plan after periodic interval. The physical inventory should be reconciled
with the fixed assets records and adjusted accordingly.

39
 During audit of PIAC Training Centre (PTC) for the years 2015 and 2016,
the management was requested vide requisition No.05 on December 22, 2017 and
Requisition No. 10 dated 05-01-2018 to furnish the physical verification report
and Fixed Assets Register. In response, the management furnished loose
statements showing detail of fixed assets, which did not serve any purpose.
Whereas, the management maintained a fixed assets register which only
contained the particulars, cost, date of purchase, vendor, location and asset code.
Depreciation was calculated separately using Microsoft Excel. The physical
verification of the assets was not carried out by the management. Thus, the
balances of the assets recorded were not authentic.

Audit is of the view that the management failed to accomplish its

statutory obligation.

The matter was reported to the management in January, 2018. The

management in its reply stated that the fixed assets and the reconciliation of its
results with the fixed assets will be maintained in future. The reply itself shows
that neither the fixed assets register was being maintained as per the codal
requirement nor physical verification of the assets was carried out by the
management. DAC meeting was not convened despite requests by audit.

Audit recommends that the management should take corrective action and
fixing responsibility on the person(s) at fault.

40
1.2 Skyrooms (Pvt.) Limited
1.2.1 Introduction

Skyrooms (Pvt.) Limited was incorporated as a private limited company

on May 20, 1975. The company is a subsidiary of Pakistan International Airlines
Corporation registered under the Companies’ Ordinance, 1984 and listed on all
stock exchanges of Pakistan. Until June 30, 1999, PIA holdings (Pvt.) Limited
was the holding company. The company owns and manages “Airport Hotel” at
Karachi. The registered office of the company is situated at Airport Hotel,
Karachi.

1.2.2 Comments on Audited Accounts

1.2.2.1 The working results of Skyrooms (Pvt) Limited for the year 2013 as
compared with those of previous years are given as below:
(Rs in million)
2013 % inc / 2012 % inc / 2011
(dec) (dec)
Net Revenue 322.70 10.62 291.73 2.43 284.82
Cost of Sales (276.86) 11.67 (247.92) 6.37 (233.07)
Gross Profit/Loss 45.84 4.63 43.81 (15.34) 51.75
Administration Exp. (57.04) 11.78 (51.03) 1.51 (50.27)
Operating loss (10.32) 37.97 (7.48) - 1.49
Other Exp. (0.65) (66.49) (1.94) - -
Financial Charges (0.002) (94.29) (0.035) (41.67) (0.06)
Other Income 1.53 (9.47) 1.69 (0.59) 1.70
Loss before Taxation (10.32) 37.42 (7.51) - 3.13
Taxation (0.64) 276.47 (0.17) (98.68) (12.88)
Loss after Taxation (10.97) 42.84 (7.68) (21.23) (9.75)
Accumulated Loss (151.73) 7.79 (140.76) 2.89 (136.80)
(Source: Annual Audited Accounts)

41
Net Revenue of the Company limited increased to Rs.322.7 million in 2013 as
against Rs.291.73 million in the previous year registering an increase of 10.62%.
Cost of sale increased to Rs276.86 million in 2013 as against 247.92 million
reflecting an increase of 11.67%.

1.2.2.2 Gross profit increased to Rs. 45.84 million in 2013 as against Rs. 43.81
million of previous year registering an increase of 4.63%.The rise in gross profit
of Rs 2.03 million was mainly contributed by relative more rise in sale revenue
against cost of sale. Administrative expenses increased to Rs 57.04 million in
2013 as against Rs 51.03 million in the previous year registering an increase of
11.78%.

1.2.2.3 Loss after taxation in increased by 42.84% from Rs. 7.68 million in 2012
to Rs. 10.97 million in 2013, whereas Accumulated losses has touched Rs.151.73
million in 2013.

1.2.2.4 Chartered accountants have drawn attention to Management fees, which is

charged @7.50% of revenues yearly payable to PIAC. No formal agreement
exists for this provision, which is declining yearly revenue by 7.5%.

1.2.3 Compliance of PAC Directives

No PAC directive was outstanding against the organization.

1.2.4 Audit Paras

1.2.4.1 Non-recovery of outstanding dues - Rs.43.458 million

Clause 2.01 of the Credit Policy of Skyrooms (Pvt.) Limited states that
the authority extending the credit is also responsible for its timely recovery whilst
the Finance department function is to ensure timely/proper accounting,
reconciliation and providing an updated status of outstanding dues.

42
 During audit of Skyrooms (Pvt.) Limited (SRL) for the years 2015 and
2016, it was observed that the management did not recover outstanding dues from
PIAC and other airlines amounting to Rs.43.358 million. The detail is as under:

Name of Party Amount (Rs.)

PIAC 38,851,565
Other Airlines 3,203,218
Other Companies 1,303,045
Total 43,357,828

Audit is of the view that non recovery of dues shows negligence at the
part of the management, which indicates weak internal controls.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigating the matter with a view to fix

responsibility on the person(s) at fault, besides recovery of the amount.

1.2.4.2 Irregular procurement of electric and tool items - Rs. 2.400 million

According to clause 4 (b) of the tender documents issued by Airport

Hotel, the price must be stated for each item separately both in words and figures
in Pak Rupees. And as per clause 9, the Skyrooms (Pvt.) limited (Airport Hotel)
do not pledge themselves to accept the lowest tender and reserve the right to
accept or reject any or all tender/quotations, divide business among more than
one supplier.

During audit of Skyrooms (Pvt.) Limited (SRL) for the years 2015 and
2016, it was observed that a tender was floated for purchase of electric and tool
items. Three contractor submitted bids, two contractors M/S Sahi traders and
M/s Aamir Electric did not quote all the items mentioned in tender documents
(145 items) and only one supplier Mass Engineering quoted rates for all the
items.
43
 M/S Sahi Traders stood lowest due to the fact that it did not quote rates
for all items; management instead of rejecting the bid, jointly awarded the
contract to M/S Sahi Traders and M/S N.Z. Corporation (a company which did
not even participate in the bidding process) in clear violation of terms and
condition of the tender. Thus award of contract amounting of Rs.2.4 million was
irregular.

Audit is of the view that undue favour was extended to the contractors,
which indicates weak internal controls.

The matter was reported to the management in June, 2018. The

management in its reply stated that the tender was awarded to M/s Sahi Traders
and M/s N.Z. Corporation equally as they were the lowest bidders, and PPRA
rules allow distribution of work amongst more than one company. The reply of
the management is not tenable as M/s N.Z. Corporation did not participate in the
bidding process and M/s Sahi Traders did not quote the rates of all the items
required to be purchased.DAC meeting was not convened despite requests by
audit.

Audit recommends fixing responsibility on the person(s) at fault.

1.2.4.3 Procurements from disqualified supplier -Rs. 2.128 million

Rule 16 of Public Procurement Rules, 2004 states that the procuring

agency engaging in prequalification shall announce, in the prequalification
documents, all information required for prequalification including instruction for
preparation and submission of the prequalification documents, evaluation criteria,
list of documentary evidence required by supplier or contractors to demonstrate
their respective qualification and any other information that the procuring agency
deems necessary for prequalification.

During audit of Skyrooms (Pvt.) Limited (SRL) for the years 2015 and
2016, it was observed that the management disqualified M/s Trade & Techniques
International on the ground of non-submission of tax return and Bank statement.
44
However, management received supplies from this vender valuing Rs.2.128
million, which is irregular.

Audit is of the view that undue favour was extended to a disqualified

supplier.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigating the matter and fixing responsibility on

person(s) at fault.

1.2.4.4 Irregular procurements from blacklisted company - Rs. 1.002 million

Rule 19 of Public Procurement Rules, 2004 states that the procuring

agency shall specify a mechanism and manner to permanently or temporary bar,
from participation in their respective procurement proceedings, supplier and
contractors who either consistently failed to provide satisfactory performances or
are found to be indulging in corrupt or fraudulent practices. Such barring action
shall be duly publicized and communicated to the authority.

During audit of Skyrooms (Pvt.) Limited (SRL) for the years 2015 and
2016, it was observed that, M/s Bukhari Group of Companies was blacklisted by
CPC on May 30, 2015. However, the management continued to make
procurements from M/s Bukhari Group of Companies amounting to Rs. 1.002
million.

Audit is of the view that undue favour was extended to the contractor.

The matter was reported to the management in June, 2018 but no reply
was received.DAC meeting was not convened despite requests by audit.

Audit recommends investigating the matter and fixing responsibility on

the person(s) at fault.
45
 Chapter-2
Cabinet Division

2.1 Pakistan Bait-ul-Mal

2.1.1 Introduction

Pakistan Bait-ul-Mal is a fund established by the Federal Government

under Pakistan Bait-ul-Mal-Act 1991 (amended) to provide financial assistance to
needy people of Pakistan, met out of grants from Government / Semi
Government Organizations and voluntary donations etc. Bait-ul-Mal Board
constituted by the Federal Government governs Pakistan Bait-ul-Mal.

2.1.2 Comments on Audited Accounts

2.1.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.

2.1.2.2 Audit recommends that the annual audited accounts of 2017-18 be

provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

2.1.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No. % of

Year Paras Compliance Compliance compliance
1993-94 09 08 01 298 89
1997-98 08 07 01 351 88
2000-01 01 0 01 337 -
2003-04 02 0 02 188.1,188.2 -
2006-07 05 03 02 201,202 60
2007-08 03 0 03 171.3, 175,176.2 -
2009-10 11 7 4 225.2,226,227,232 64
2010-11 16 01 15 21.1.2.6,21.1.4.1,21. 6
1.4.5,21.1.1,21.1.2.1

46
 ,21.1.2.2,21.1.2.3,21
.1.2.5,21.1.2.7,21.1.
2.8,21.1.2.9,21.1.3,2
1.1.4.3,21.1.4.4,21.1
.4.6,
2016-17 07 - 07 2.1.2.2,(2.1.1&2.1.2, -
2.1.2.1,2.1.2.3,2.1.2.
4,2.1.2.5,2.1.3)
These paras are
referred to Sub-
committee
Total 62 26 36 42

The overall compliance of PAC directives was not satisfactory especially

during 2000-01, 2003-04, 2007-08 and 2016-17, which needs immediate
attention of the PAO.

2.1.4 Audit Paras

2.1.4.1 Non-recovery of misappropriated funds from ex-employees - Rs. 16.62

million

According to GFR-13, every controlling officer must satisfy himself not

only that adequate provision exists within the departmental organization for
systematic internal checks to prevent and detect errors and irregularities in the
financial proceedings of its subordinate offices and to guard against waste and
loss of public money and store but also that the prescribed checks were
effectively applied.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management disbursed medical financial assistance of Rs 16.62
million to Holy Family Hospital Rawalpindi in 59 cases during 2010. However,
during verification these cases were found fake/ bogus and funds were
misappropriated. Six officials were found guilty as proved during initial
investigation. The management lodged FIR on February 02, 2010 with Police and

47
terminated the involved employees. This resulted into non-recovery of
misappropriated funds valuing Rs. 16.62 million from ex-employees.

The matter was reported to the management on November 21, 2017.

During DAC meeting held on January 24, 2019, management informed that FIR
was lodged against the culprits and matter was being pursued in the Honorable
Supreme Court of Pakistan. The committee directed to pursue the court case,
recover the outstanding amount and get verified the total recovered amount from
audit.

Audit recommends the compliance of the DAC directive.

2.1.4.2 Unjustified payment of financial assistance to individuals by ignoring

the principal of first come first served basis - Rs 1,398.25 million

According to clause 4 of PBM Act 1992, the Bait-ul-Mal shall be

administered by the Board and the moneys in the Bait-ul-Mal shall be utilized for
the following purposes namely:

i. to provide financial assistance to destitute and needy widows, orphans,

invalid, infirm and other needy persons;
ii. for rendering help for rehabilitation of the persons specified in clause
4(a) in various professions or vocations;
iii. to provide assistance to children of the persons specified in clause 4(a) for
educational pursuits.
During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management disbursed financial assistance of Rs 1,398.25
million to persons / individuals recommended by political personalities and
others which was approved by the management on priority basis. Audit
considered it against merit as it ignored the principal of “first come first served
basis”.

Audit was of the view that the management failed to provide equal
opportunity to the genuine needy persons / individuals to avail of benefits from
PBM funds.
48
 The matter was reported to the management on October 25, 2018 and to
PAO on October 24, 2018. During DAC meeting held on January 24, 2019, the
management replied that main purpose of the IFA-program was to provide a
reasonable amount to needy / poor people and application can be received from
any source and the Public representatives are the best source. The contention of
the management was not accepted by the committee and it was directed to probe
the matter, fix responsibility on the person(s) at fault and devise a mechanism
providing equal opportunity to the general public instead of selected cases
through public representatives.

Audit recommends compliance of the DAC directive.

2.1.4.3 In-equitable distribution of IFA funds by PBM (Head Office) -

Rs 1,000 million

According to PBM Act 1992, it was the duty of the state to provide basic
necessities of life such as food, clothing, housing, education and medical relief
for all citizens irrespective of their sex, caste, creed or race. To meet these
purposes, fund namely Pakistan Bait ul Mal was established for providing
assistance to destitute and needy widows, orphans invalid, infirm and such other
persons to lead an honorable life in society.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management allocated an amount of Rs 2,000.00 million under
“Individual Financial Assistance-IFA (Medical, Education and General)” in
budget 2017-18. Later on, the management retained 50% of allocated budget
Rs 1,000.00 million at PBM (HO) for utilization in IFA priority cases and the
remaining 50% amount of Rs 1,000.00 million was allocated to all provincial
/regional offices located in Pakistan. The management of PBM head office
utilized retained funds to deal with priority cases referred by the political
personalities whereas remaining 50% portion of the budget allocated to the seven
provincial offices as well as ICT Islamabad was insufficient to entertain the
beneficiaries of those areas. Thus, retention of 50% funds at head office was not
justified.
49
 Audit was of the view that main function of the head office was
administration of regional offices instead of becoming a disbursing office at
Islamabad and causing inconvenience to people all across Pakistan to come to the
capital for resolution of their requests for financial aid.

The matter was reported to the management on October 25, 2018 and to
PAO on November 08, 2018. During DAC meeting held on January 24, 2019,
management replied that Rs. 1,000 million was retained by PBM (HO) with the
approval of Managing Director being PAO of the PBM and these funds were
distributed across the country between those deserving beneficiaries who
approached / applied for assistance directly to PBM (HO). The contention of the
management was not accepted by the committee and it was directed to probe the
matter, fix responsibility on the person (s) for retention of 50% budget at Head
Office and further directed to ensure distribution the funds to regional/ district
offices on rational basis.

Audit recommends compliance of the DAC directive.

2.1.4.4 Loss due to procurement of sewing machines at higher rates - Rs 5.23

million
According to Rule 4 of PP Rules 2004, procuring agencies, while
engaging in procurements, shall ensure that the procurements are conducted in a
fair and transparent manner, the object of procurement brings value for money to
the agency and the procurement process is efficient and economical. Moreover,
as per Rule 42 (b)(iv) PP Rules 2004, the object of the procurement is to purchase
from the supplier offering the lowest price.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management invited tender for the procurement of 5,000
sewing machines, which was opened on September 07, 2017. It was found that
the rate of M/s Singer Pakistan Ltd. was Rs 5,890 per machine but Financial
Committee did not place the purchase order to the technically qualified lowest
bidder. Later on, a joint meeting of technical and financial committees also
50
scrutinized the documents on September 18, 2017 and rejected the bids of four
firms on the plea that they do not fulfill the selection criteria of bidding
documents except M/s Singer Pakistan Ltd and decided to re-tender for healthy
competition. The second tender was floated in newspapers on September 28,
2017 and five firms participated therein. The Technical Committee evaluated the
proposals and only M/s Geo Tech Islamabad was found responsive with rate of
Rs 6,890 per machine, which was selected, and order was placed for supply of
5,000 machines on December 15, 2017. Furthermore, additional order of
234 machines at the same rate was also given to the same firm on November 16,
2017.

Due to non-acceptance of financial bid of technically responsive party i.e

M/s Singer Pakistan Ltd. by the financial committee in first tender and purchase
of sewing machines at higher rates in the second tender, PBM sustained loss of
Rs 5.23 million.

Audit was of the view that non-award of tender to the responsive bidder
M/s Singer Pakistan Ltd in first tender and subsequent award of tender to
M/s Geo Tech Islamabad at higher rates resulted in loss to the organization.

The matter was reported to the management on October 25, 2018 and to
PAO on November 15, 2018. During DAC meeting held on January 24, 2019,
management replied that M/s Singer was rejected due to expiry of ISO certificate.
The contention of the management was not accepted by committee and directed
to probe the matter at Ministry level and fix responsibility on the person(s) at
fault for purchase of sewing machines at higher rates.

Audit recommends compliance of the DAC directive.

2.1.4.5 Irregular disbursement of funds to NGOs - Rs 25.45 million

According to contract agreement executed by PBM with different NGOs

from time to time, the first party i.e. PBM shall be authorized to conduct an audit
51
or review / inspect financial and administrative records of second party relating to
the activities stated in the project document at any time.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management disbursed an amount of Rs 25.45 million to
various NGOs for providing financial support to needy and poor citizens but the
management did not conduct audit of financial statements of the respective NGOs
at all, hence the utilization of disbursed funds was not checked. Thus, the
disbursement of funds to NGOs was held irregular.

Audit was of the view that in the presence of huge network of PBM the
disbursement function was transferred to NGOs and their financial and
administrative records were not reviewed or inspected by PBM management to
ensure transparency which resulted into irregular disbursement.

The matter was reported to the management and to PAO on October 24,
2018. During DAC meeting held on January 24, 2019, management replied that
audit of financial statements and administrative record of concerned NGOs would
be checked in future. The committee directed the management to state the reasons
of non-conducting of audit of disbursement of funds to NGOs and fix
responsibility on the person(s) at fault.

Audit recommends compliance of the DAC directive.

2.1.4.6 Non-availability of data regarding rejected applications for Individual

Financial Assistance (IFA)

According to rule 12 of Monitoring & Evaluation Policy of Individual

Financial Assistance (IFA), the provincial / regional headquarters shall maintain
monthly record of applications received and cases processed either finalized or
regretted, for need assessment and performance evaluation, these reports are
required to be furnished to Head office on quarterly basis.

52
 During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management processed the selected applications of individual
financial assistance (IFA) (General, Medical, Education), “referred” by political
personalities but the applications of general public “without reference” were not
considered and their record was not available in the database. Even there was no
record of pending applications available with the management at the end of each
financial year.

Audit was of the view that the management was required to maintain
complete record of all applications received either accepted or rejected.

The matter was reported to the management on October 25, 2018 and to
PAO on November 8, 2018. During DAC meeting held on January 24, 2019,
management replied that only cases of eligible applicants were processed without
discrimination. The contention of the management was not accepted by
committee and directed to probe the issue of non-availability of pending
application record with PBM, fix responsibility on the person(s) at fault and also
directed to devise a mechanism of entertaining all the applications received in
PBM.

Audit recommends the compliance of the DAC directive.

2.1.4.7 Non-availability of Schools for Rehabilitation of Child Labour (SRCL)

and Women Empowerment Centers (WEC) network at Tehsil Levels

According to PBM Act 1992, it was the duty of the state to provide for
basic necessities of life such as food, clothing, housing, education and medical
relief for all citizens irrespective of their sex, caste, creed or race. To meet these
purposes, fund namely Pakistan Bait-ul-Mal was established for providing
assistance to destitute and needy widows, orphans invalid, infirm and such other
persons to lead an honorable life in society.

53
 During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management established Schools for Rehabilitation of Child
Labour (SRCLs)/ Women Empowerment Centres (WEC) network at district level
throughout the country. At present, 159 SRCLs and 154 WECs were working
with capacity of 120 (60 morning and 60 evening) poor children / students
respectively at district level. However, this network was not expanded at tehsil
level. Thus, the deserving community at tehsil level was ignored and deprived of
the important basic need i.e. education and technical training.

Audit was of the view that the management was required to make proper
planning to provide the basic needs i.e. education and technical training at tehsil
level, which was not done.

The matter was reported to the management on October 25, 2018 and to
PAO on November 15, 2018. During DAC meeting held on January 24, 2019,
management informed that PBM has established SRCL and WEC network in
different tehsils of districts on need basis. The committee directed to start the
pilot project of SRCL and WEC at Tehsils level under intimation to audit.

Audit recommends the compliance of the DAC directive.

2.1.4.8 Disproportionate allocation of budget viz district poverty ranking

- Rs 1,144.90 million

According to Individual Financial Assistance (IFA) Policy Annex-(V),

budget was to be distributed in districts on poverty ranking basis.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management distributed the budget in districts by ignoring the
district poverty ranking determined by Pakistan Bureau of Statistics. Audit
worked out / estimated the allocation of budget to districts on poverty ranking
basis and compared it with actual expenditure incurred in 23 out of 28 districts. It
was observed that funds amounting to Rs 306.68 million were allocated and
incurred in some districts, above the poverty ranking. While a sum of Rs 838.22
54
million could not be incurred due to lack of allocation of funds in districts below
the poverty ranking. Thus, the expenditure incurred without observing IFA Policy
in 28 districts was held irregular.

Audit was of the view that the management did not allocate budget in
these districts as per poverty ranking basis, which was against the IFA Policy.

The matter was reported to the management on October 25, 2018 and to
PAO on December 03, 2018. During DAC meeting held on January 24, 2019,
management stated that generally budget for IFA was released to provincial /
regional offices on population basis. The contention of the management was not
accepted by committee and directed to probe the matter, fix responsibility on the
person(s) at fault and ensure allocation of funds to districts according to their
poverty-ranking basis in future.

Audit recommends the compliance of the DAC directive.

2.1.4.9 Non-provision of education facility to class five (5) passed out students
in SRCLs annually
According to PBM Act 1992, it is the duty of state to provide for basic
necessities of life such as food, clothing, housing, education and medical relief
for all citizens irrespective of their sex, caste, creed or race. To meet purposes,
fund namely Pakistan Bait-ul-Mal was established for providing assistance to
destitute and needy widows, orphans invalid, infirm and such other persons to
lead an honorable life in society.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management was providing education opportunity to deserving
poor children of society up to class five (5) under SRCL project with capacity of
120 students per SRCL at district level throughout the country since 1992.
Almost all students could not continue their education afterwards due to
non-provision of further support under this project. These students remain
unattended and may again become street children. Thus, 7,632 deserving children
55
were deprived of further education during 2016-17 to 2017-18 due to improper
planning of PBM management.

Audit was of the view that due to non-provision of education beyond class
5, these poor students might not be able to progress in life. The management
should have focused on this important issue by upgrading SRCL from class 5 to
at least class 10 without any delay.

The matter was reported to the management on October 25, 2018 and to
PAO on November 15, 2018. During DAC meeting held on January 24, 2019,
management replied that as passed out students will be admitted in Govt. schools
for further education upto 8th class and for continuity of further education, they
will be covered under IFA Education Policy. Up gradation of existing schools
upto 8th class is under consideration. The committee directed to start a pilot
project of up-gradation of schools in all regional offices under intimation to audit.

Audit recommends the compliance of the DAC directive.

2.1.4.10 Non-surrender of un-spent grant for workers laid off from Saudi
Arabia - Rs. 252.00 million

According to PM’s office U.O. No. 2135(M)/SPM/2016 dated August 05,

2016, “the Prime Minister released an amount of Rs 500 million for the financial
assistance of Pakistani workers @ of Rs 50,000 each laid off workers by Saudi
employers. The Pakistan Bait-ul-Mal shall ensure that the financial assistance
was provided to only deserving families and shall maintain vouched accounts of
the payments made.

During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that management received grant of Rs. 500.00 million released by PM
Office in August 2016. The said grant was meant for provision of financial
assistance @ Rs. 50,000 (each) to the families of Pakistani workers laid off by
their Saudi employers. Out of total grant, an amount of Rs. 248.00 million was
disbursed among 4,960 beneficiaries up to August 08, 2017 leaving a balance of
56
Rs. 252.00 million. As the grant was received for a specific purpose, its un-spent
balance was required to be surrendered to the Government.

Audit was of the view that the management was required to surrender the
un-spent balance of grant to government.

The matter was reported to the management on October 25, 2018 and to
PAO on November 15, 2018. During DAC meeting held on January 24, 2019,
management replied that as per record of this office, an amount of Rs 260.00
million was disbursed among 5,200 beneficiaries and no applicant / member of
Saudi worker approached to PBM and from balanced amount an amount of
Rs 235.00 million was utilized for treatment of poor patients under the scheme of
IFA medical with the approval of MD. The contention of the management was
not accepted by committee and directed to enquire the matter and fix the
responsibility on the person(s) at fault for mis-utilization of unspent grant.
Moreover, they directed to provide original list of beneficiaries received from PM
office, disbursement of grant in light of SOP and refund the total unspent balance
to the concerned office.

Audit recommends the compliance of the DAC directive.

2.1.4.11 Irregular allocation of vehicles to the Board members - Rs 3.24 million

According to Rule 24 (4) of Staff Cars Rules 2008, Cabinet Secretariat,
Cabinet Division, Government of Pakistan, the Prime Minister approved the
responsibility of providing staff cars to various government functionaries as
indicated below:

a Federal Minister / Minister of State Respective Ministry

b Advisors to the Prime Minister / Respective Ministry
Parliamentary Secretaries allocated
a portfolio.
c Advisors / Special Assistants to the Cabinet Division
Prime Minister without portfolio

57
 During the audit of Pakistan Bait-ul-Mal for the year 2017-18, it was
observed that the management allocated vehicles to four Board members relating
to each province along with POL and repair & maintenance. This allocation was
not covered under rules. Thus, the allocation of vehicles to Board members and
expenditure of Rs 3.24 million incurred during the period 2014-15 to 2017-18
was held irregular.

Audit was of the view that Board members were entitled to claim
boarding / lodging and meeting fee only on the eve of every meeting while the
allocation of vehicles for permanent use was held irregular.

The matter was reported to the management on October 25, 2018 and to
the PAO on November 28, 2018. During DAC meeting held on January 24, 2019,
the management informed that non-official members were not drawing any salary
but they were entitled to such facility and privileges as prescribed from time to
time by the BoD. The Board of PBM approved 300 liters POL per month for the
vehicles provided to non-official members. The contention of the management
was not accepted by the committee and it was directed to recover the vehicles
along with cost incurred on POL and repair & maintenance from them.

Audit recommends compliance of the DAC directive.

58
 Chapter-3
Ministry of Climate Change
3.1 Pakistan Environmental Planning and Architectural
Consultants (Pvt.) Limited
3.1.1 Introduction

Pakistan Environmental Planning and Architectural Consultants (Private)

Limited (“the Company”) was incorporated as Private Limited Company,
established by the Government of Pakistan in 1974 under the Companies Act ,
1913 (now the Companies Act, 2017) with its registered office at 24-D, Rashid
Plaza, Blue Area, Islamabad. The Company was primarily engaged in providing
architectural consultancy services.

3.1.2 Comments on Audited Accounts

3.1.2.1 The working results for the year 2017-18 as compared to previous years
were as under:
(Rs. in million)
Particulars 2017-18 % inc / 2016-17 % inc / 2015-16
(dec) (dec)
Revenue 68.08 14.35 59.54 (12) 67.50
Cost of Revenue 47.80 6.50 44.88 (8) 48.92
Gross Profit 20.28 38.40 14.65 (21) 18.58
Other Operating Income 1.148 1,250.59 0.08 0 0

Administrative Expenses 13.52 1.33 13.34 19 11.250

Profit before taxation 7.91 467.22 1.39 (80) 7.06
Provision for taxation 2.37 449.07 0.43 (92) 5.40
Profit for the year 5.53 475.36 0.96 (42) 1.66
(Source: Annual Audited Accounts)

Revenue of the Company increased from Rs. 59.540 million to Rs. 68.08 million
during the year under review registering an increase of 14.35%. On the other
hand, the cost of revenue increased from Rs. 44.89 million to Rs. 47.80 million
during the year 2017-18 registering an increase of 6.50%. This indicated the

59
significant improvement in the performance of the company during the year
2017-18, which needs to be maintained.

3.1.2.2 Rent, rates and taxes increased by 48% from Rs. 2.48 million in 2016-17
to Rs. 3.67 million in 2017-18. The abnormal increase in rents and rates during
the year needs to be explained.

3.1.2.3 Trade and other payables include accrued liabilities Rs. 31.92 million as
at June 30, 2018 against Rs. 4.38 million as at June 30, 2017. The detailed break
up of accrued liabilities and reasons of accumulation of such liabilities may be
provided.
3.1.2.4 Trade debts Rs.102.66 million as of June 30, 2018 include long
outstanding dues Rs. 55.27 million without any security. Detailed break up
alongwith aging of long outstanding dues and reasons/justification of non-timely
recovery of these dues may be provided.

3.1.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No % of

Paras Compliance Compliance compliance
1992-93 03 02 01 138 67
1995-96 03 02 01 123 67
1998-99 03 01 02 103,104 33
2002-03 06 03 03 47&48,48.4,49 50
2003-04 02 0 02 35.3,35.5 -
2005-06 04 03 01 54.3 75
2007-08 02 01 01 41.2 50
2009-10 02 01 01 64 50
Total 25 13 12 52

Overall compliance of the PAC directives was not satisfactory especially

during 2003-04, which needs to be improved.

Note: Audit para’s portion for the entity has not been compiled, as audit of the entity was
not undertaken during the subject period.

60
 Chapter-4
Ministry of Commerce & Textile

4.1 National Insurance Company Limited

4.1.1 Introduction

National Insurance Company Limited (NICL) 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 (NICL).

The Company is principally engaged in Non-Life Insurance Business of

Public Property comprising of Fire, Marine, Aviation and Transportation,
Engineering and Crops/Agriculture Insurance etc.

4.1.2 Comments on Audited Accounts

4.1.2.1 The working results of the Company for the year ended December 31,
2014 as compared with those of the previous years are given as under:
(Rs. in million)
% %
Particulars 2014 Inc/ 2013 Inc/ 2012
(Dec) (Dec)
Premium Earned 5,961.830 (9.42) 6,581.289 1.88 6,459.916
Re-Insurance Cession (3,178.427) (12.07) (3,614.749) (7.11) (3,374.869)
Net Premium Revenue 2,783.403 (6.17) 2,966.540 (3.84) 3,085.047
Net Claim Paid (704.388) 415.94 (136.524) (92.52) (1,825.103)
Management Expenses (841.793) 6.25 (897.875) (18.89) (1,107.003)
Commission from Reinsurer 99.229 42.86 69.458 3.56 67.068
Net Underwriting Expenses (742.564) (10.36) (828.417) (20.34) (1,039.935)
Underwriting Results 1,336.45 (33.23) 2,001.59 809.77 220.00
Investment Income 1,973.149 (22.35) 2,541.148 10.85 2,292.359
Rental Income 234.676 61.75 145.087 4.31 139.093
Other Income 4.922 74.91 2.814 20.10 2.343
General and Administration (659.624) 11.98 (589.068) (14.73) (690.799)

61
Expenses
Profit before tax 2,806.501 (37.09) 4,461.305 94.56 2,293.013
Taxation (888.566) (38.72) (1,449.990) 62.80 (890.636)
Profit after tax 1,917.935 (36.31) 3,011.315 114.73 1,402.377
(Source: Annual Audited Accounts)

During the year 2014, underwriting results of NICL witnessed a massive decline
of 33%, from Rs. 2,001.50 million in 2013 to Rs. 1,336 million in 2014. This was
mainly due to 9.42% decrease in Premium and increase in net claim payment by
415%

4.1.2.2 During the year under review, investment income decreased by 22% from
Rs. 2,541.148 million in 2013 to Rs. 1,973.149 million in 2014.

4.1.2.3 General and Administrative expenses also increased by 12% from

Rs. 589.068 million in 2013 to Rs. 659.624 million in the year 2014.

4.1.2.4 From the matters mentioned above, profit before tax in 2014 showed a
massive decline of 37% as compared to last year and consequently profit after tax
was declined by 36.30%, from Rs. 3,001 million in 2013 to Rs. 1,917 million in
2014.

4.1.2.5 It is worth mentioning here that the Chartered Accountants showed

serious concerns in their audit report for the year 2014 and expressed qualified
opinion. Some material qualified opinions of the Chartered Accountants are
reproduced as under:

a. The company does not have a system of confirming reconciliation of

balances in respect of: amount due to reinsurer Rs. 1,318 million;
Premium received in advance Rs. 550.6 million and Premium due unpaid
Rs. 3,571 million. The Chartered Accountants ‘Grant Thornton Anjum
amounts/balances confirmed by PRCL did not match amounts/balances
provided by the company’s records.

62
b. The issues related to procurement of properties. As per Suo motto action
taken by the Honourable Supreme Court of Pakistan for arrest of certain
members of the then Board of Directors and offices of the company,
Valuation, settlement and recoveries against these properties together with
the status and ongoing proceedings of the case. Further, all of the
post-dated cheques provided to the company towards recovery of amount
involved of Rs. 422.4 million were bounced on the reason “funds not
sufficient”. The pending finalization of the cases and dishonored cheques
create significant uncertainty over recoverability of amounts involved.

The above issues may be justified by the management.

4.1.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance compliance
awaited
2004-05 3 2 1 4 67
2010-11 9 8 1 2.1.4.1 73
2013-14 5 4 1 4.1.2 80
4.1.4.1, 4.1.2.1, 4.1.3,
4.1.4.2, 4.1.4.3,
2015-16 9 2 7 4.1.4.4, 4.1.4.5 22
Total 26 16 10 - 62%

The overall compliance of PAC directives was not satisfactory which

needs improvement.

4.1.4 Audit Paras

4.1.4.1 Embezzlement of public funds by Ex-GM - Rs.31.300 million

As per Chapter VIII of HR Manual of National Insurance Company

Limited (NICL), the acts are considered as “misconduct” which may lead to the
dismissal of the employee, include theft, fraud or dishonesty in connection with
the company’s business or property, willful damages or loss to company’s
property or image.
63
 During the audit of NICL (HO) for the year 2016, it was observed that
Mr. Amir Qureshi, Ex-General Manager was involved in serious irregularities in
expenditure of fuel, repair/ maintenance & entertainment. In April, 2016 an
enquiry was conducted and embezzlement amounting to Rs. 31.30 million was
proved against him. However, neither stern legal action was taken nor amount
was recovered.

Audit is of the view that undue favour was extended to the incumbent and
management failed to safeguard the assets of the company.

The matter was reported to the management in January, 2018. DAC

meeting was held on January 11, 2019. The management informed that contended
that the alleged amount of misappropriation was Rs.7.8 million approximately.
DAC directed the management to reconcile the amount with Audit and recover
the same amount from the officer concerned for settlement of the Para. However,
no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.1.4.2 Loss due to misplaced/unreturned inventory of Chairman House -

Rs.7.790 million

As per Chapter VIII of HR Manual of National Insurance Company

Limited (NICL), the acts are considered as “misconduct” which may lead to the
dismissal of the employee, include theft, fraud or dishonesty in connection with
the company’s business or property, willful damages or loss to company’s
property or image.

During audit of National Insurance Company Limited (NICL) for the year
2016, it was observed that during the period March-2009 to September-2011, the
management incurred an amount of Rs.7.79 million on purchase of furnishing
/decoration items for the Chairman rented house situated in Defence Housing

64
Authority. In February, 2011 the rent agreement was expired after completion of
its tenure. However, they were not returned by the chairman (Annex-12).

Audit is of the view that the then Chairman misused his authority at the
cost of Corporation which indicates weak internal control and poor financial
management.

The matter was reported to the management in December, 2017. DAC

meeting was held on January 11, 2019. The management informed that matter
was under investigation with NAB. DAC directed the management to pursue the
investigation with NAB.

Audit recommends implementation of DAC directives.

4.1.4.3 Loss due to non-recovery of outstanding rent - Rs. 21.371 million

As per Para 31 of GFR, the Head of Department will be responsible for

recovery of rent of Govt. Building.

During audit of National Insurance Company Limited (NICL) for the year
2016, it was observed that the management rented out building premises to
various private and public organizations. However, the rental income of
Rs. 21.371 million could not be recovered. The detail is as under:

Sr. Rental Outstanding

Name of Tenant
No. Charges (Rs.) Amount (Rs.)

1. M/s IBL (Healthcare) 1st Floor (Right Wing) 5,280,584 5,280,584

2. M/s IBL Half Wing , 8th Floor 397,848 397,848
3. M/s Bearing Point ,10th Floor 15,692,953 15,692,953
Total: 21,371,385

Audit is of the view that non recovery showed poor vigilance on the part
of management. Further ageing of dues was not provided to audit.

65
 The matter was reported to the management in January, 2018. DAC
meeting was held on January 11, 2019. The management informed that legal
action was being initiated to recover the outstanding dues. DAC directed besides
verification of recovered amount, to constitute an inquiry committee headed by
Additional Secretary of Commerce Division to fix responsibility for the apparent
negligence in accumulation of Rs.15.69 million of rent arrears against
M/s. Bearing Point. The report shall be submitted within 60 days under
intimation to audit.

Audit recommends implementation of DAC directives.

4.1.4.4 Loss due to procurement of defective lifts - Rs.130.990 million

National Insurance Company Limited (NICL) issued a tender for

procurement of 06 lifts in June 2009. According to the bidding documents, origin
of lift manufacturing company shall only be North America, Western Europe or
Japan.

During audit of NICL (H.O) for the year 2016, it was observed that the
management on July 3, 2009 awarded a contract for supply, installation, testing
and commission of six new lifts at NICL Building Karachi to M/s Raja and
Brothers amounting to Rs. 130.990 million. The contractor supplied lifts
manufactured by a Company of China and completed the job in October 2010
and default liability period expired in May, 2011.The lifts provided by the
contractor were substandard as it went out of order time and again and remained
un-operational since then.

It was further observed that remaining 05 lifts also developed faults

during January, 2012 to August, 2016 and expenditure of Rs.9.109 million was
incurred on the repair.

Audit is of the view that the management deliberately procured

substandard lifts manufactured by a Chinese company in violation of provision of

66
the bidding documents. Resultantly, not only the procurement of lifts was
irregular but NICL also sustained loss of Rs. 130.990 million due to wasteful
expenditure.

The irregularity was pointed out to the management in December, 2017.

The management in its reply dated January 11, 2018 admitted that a number of
attempts have been made to get approval either repairing or replacing the lift No.
06 but could not be materialized. The management further stated that the lift No.
06 is being utilizing for cannibalization of spares for other lifts. The reply was not
tenable as the sub-standard lifts were purchased from China. DAC meeting was
not convened despite requests by audit.

Audit recommends that the matter may be investigated with a view fixing
responsibility on the person(s) at fault besides, recovery of loss from them.

4.1.4.5 Unlawful appointment/ retention in light of inquiry report - Rs. 18.90

million

As per inquiry report conducted by Ministry of Commerce on November

22, 2017 regarding officers illegally appointed by Chief Executive Officer (CEO)
of National Insurance Company Limited (NICL), the appointments conducted on
09 posts made by NICL during last one year were illegal and may be declared
null and void by the competent authority.

During audit of NICL for the year 2016, it was observed that the
management appointed 09 officers in various categories during November and
December 2016 in violation of rules. However, despite the recommendations of
the Ministry for terms of illegal appointments, the management failed to
terminate such incumbents. Resultantly expenditure of Rs.18.900 million
incurred on pay/ allowances and fringe benefits for the period Nov.2016 to
December 2017 was held irregular. The detail is as under:

67
 Sr. Fuel
Name Designation Salary (Rs.)
No. (Rs.)
1 Abdul Wahid CM(HR) 1,679,940 255,000
2 Muhammad Ahmed GM(HR) 2,097,960 306,000
3 Zafar Iqbal GM 1,991,304 306,000
4 Wahid Khan CM 1,678,272 255,000
5 Danish Khalid Manager 971,784 204,000
6 Saiaman Sidiqi Manager 1,063,960 204,000
7 Ali Raza Alvi DM 811,200 153,000
8 Shahzad Sher Ali AGM 1,284,118 233,750
9 Asad Ali DGM 1,217,040 140,250
Total Amount 12,795,578 2,057,000

Audit is of the view that undue favour was extended by appointing the
incumbents in non-transparent manner, which indicated weak internal controls.

The matter was reported to the management in December 2017. DAC

meeting was held on January 11, 2019. The management informed that the
subject matter was under litigation and pending for decision before Honourable
Sindh High Court, Karachi. DAC directed the management to pursue the court
case vigorously.

Audit recommends implementation of DAC directives.

4.1.4.6 Irregular appointment of Manager on deputation and absorption -

Rs.5.69 million

Board of Directors of National Insurance Company Limited (NICL) in its

meeting held on August11, 2003 vide item No.6 decided that NICL has been
converted into limited company with an objective to operate it on commercial
lines, therefore, no officer/officials should be accepted on deputation without
approval of the Board and it was mandatory requirement for the Management that
the case of deputation and, subsequently the case of absorption of employee to be
placed before the BoD of NICL.
68
 During audit of NICL for the year 2016, it was observed that Mr. Amir
Qureshi was posted as Deputy Manager on deputation basis in January, 2007 and
in January, 2008 he was absorbed in the company as Manager. Further, he was
promoted as Chief Manager in September 2012 which is contrary to the decision
taken by Board. Thus payment on accounts of salary and allied benefits made to
incumbent was irregular and unjustified (Annex-13).

Audit is of the view that undue favour was extended to the officer at
company cost which indicates weak internal controls.

The irregularity was reported to the management in December, 2017.

DAC meeting was held on January 11, 2019. The management informed that as
per legal opinion by the legal consultant, any person who joined as other than
transferred employees is not entitled to the benefits that are available to the
transferred employee just because he has been absorbed into the work force that
was with the Company prior to reorganization. DAC directed the management to
provide the record of absorption and promotion as Chief Manager for
verification. However, no progress was reported till finalization of this report.

Audit recommends fixing responsibility on the person(s) at fault for

extending undue favour, besides recovery of paid amount.

4.1.4.7 Doubtful expenditure on repair & maintenance - Rs.9.350 million

According to Chapter 8 part 3 of HR Manual following acts are

considered as misconduct which may lead to the dismissal of the employee. (1)
Willful damages to or loss of company’s property or image (2) theft, fraud or
dishonesty in connection with company’s business or property.

During audit of National Insurance Company Limited (NICL) for the year
2016 it was observed that an amount of Rs.9.35 million was incurred on account
of repair & maintenance of building. However, no record was provided to audit to
verify authenticity of the expenditure.

69
 Audit is of the view that due to non-availability of record, chances of
theft, fraud and embezzlement could not be ruled out.

The matter was reported to the management on January 31, 2018. DAC
meeting was held on January 11, 2019. The management informed that
preparation of assets register was under process and the consumable items were
procured on as and when required basis. Therefore, no necessity has been felt to
maintain such register. DAC directed the management to update the required
registers and get the same verified from the Audit. However, no progress was
reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.1.4.8 Excess expenditure on payment of additional increments - Rs. 5.438

million
As per rule, only one annual increment is allowed to an employee after
completion of more than six months service in existing pay scales.

During audit of National Insurance Company Limited (NICL) for the year
2016, it was observed that management revised its salary package and allowed 2
to 5 additional increments to its employees in violation of the rules. This resulted
in to excess expenditure of Rs. 5.438 million.

Audit is of the view that undue favour was extended, which indicates
weak internal controls.

The matter was reported to the management in January, 2018. DAC

meeting was held on January 11, 2019. The management informed that in some
cases increments were allowed at the time of recruitment keeping in view the
qualification, experience and previous achievement to attract talented workforce
to our Company. DAC directed the CEO NICL to hold a fact finding inquiry and
submit the findings to DAC within 30 days. However, no progress was reported
till the finalization of this report.

Audit recommends implementation of DAC directives.

70
4.2 Pakistan Re-insurance Company Limited
4.2.1 Introduction

Pakistan Insurance Corporation was re-organized 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 PRCL is a public sector company under the
administrative control of the Ministry of Commerce, Government of Pakistan.
The prime objective of the Company is the development of insurance as well as
reinsurance business in Pakistan. The Company is a national reinsurer playing its
role in the economic development of Pakistan. It provides reinsurance protection
to the local insurance companies by way of treaty and facultative business.

4.2.2 Comments on Audited Accounts

4.2.2.1 The working results of company for the year ended December 31, 2017 as
compared to previous years are given below:
(Rs. in millions)
% %
2017 Inc/ 2016 Inc/ 2015
(Dec) (Dec)
Gross premium 8,036 (8.75) 8,807 2.12 8,135
Net premium 5,098 (12.13) 5,802 11.17 5219
Net claim paid (3,740) 12.11 (3,336) (20.22) (2,775)
Management expense (744) 13.24 (657) (5.8) (621)
Commission paid (1,142) (9.65) (1,264) (14.81) (1101)
Underwriting (528) - 545 (24.52) 722
profit/(loss)
Investment income 3,326 246.10 961 2.78 935
Rental income 188 32.39 142 (202.13) 47
Exchange gain/(loss) 103 - (1) (99.06) 106
General & (60) 11.73 (53.7) (41.32) (38)
administrative expense
Taxation 754 - (452) (14.43) (395)
Profit after tax 2,219 127.82 974 (29.27) 1,377
(Source: Annual Audited Accounts)

71
In 2017, the gross premium is Rs. 8,036 million, same in preceding year was
Rs. 8,807 million, which shows a decrease 8.75% by Rs. 771 million and net
premium retention is Rs. 5,098 million in 2017 as compared to Rs. 5,802 million
in 2016, another decrease in revenue area by 12.13%.

4.2.2.2 Management expenses in 2017 were Rs. 744 million as compared to

Rs. 657 million of previous year, showing an increase of 13.24%, whereas
Company witnessed decrease of 9.65% in net commission expenses from
Rs. 1,264 million to Rs. 1,142 million. Underwriting profit and loss shows a
massive decline of Rs.1,073 million from Rs. 545 million in 2016 to Rs. (528)
million which is very critical for insurance business.

4.2.2.3 Profit after tax of the Company has increased drastically by 128%, from
Rs. 974 million in 2016 to Rs. 2,219 million in 2017. This sharp increase in profit
after tax is mainly comprised of investment income which increased by 2,364
million, foreign exchange gains amounting to Rs. 103 million and increase in
other income by Rs. 455 million.

4.2.2.4 Further it is also worth mentioning that external auditor of the company
has pointed out some areas for stake holders, which are summarized as under;

i. As on December 31, 2017, the balance under the head “Amount due from
other insurers / reinsurers" include an amount of Rs. 1,214.458 million in
respect of which balance confirmation has not been received.
Management has recorded a provision amounting to Rs. 312.982 million
in respect of these balances. In the absence of an independent
confirmation we are unable to confirm the existence and valuation related
to this amount. The Company is in process of reconciling all balances
with ceding companies as detailed in note 22. Due to pending
confirmation/reconciliation relating to the above balances, resultant
adjustment and consequential impact therefore, if any, on the financial
statements remain unascertained.

72
 ii. Note 172 to the financial statements which provide details regarding
orders passed by Sindh Revenue Board demanding the amount of sales
tax liability on re-insurance services provided / rendered by the Company.
The Company has not recorded provision against the orders and has
disclosed the amounts as contingent liabilities. SRB recovered an amount
of Rs. 2,573.889 million from the Company which has been recorded as
receivable as management is confident on the basis of advise received
from its legal advisors that the decision will be in the favour of the
Company. In the event the matter is decided against the Company, the
charge against profit would amount to Rs. 3,299.453 million.

4.2.3 Compliance of PAC Directives

Breakup of
Audit Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
2003-04 7 6 1 6 86
2.2.4.1, 2.2.4.2,
2010-11 13 10 3 2. 2.4.3 77
4.2.2.1, 4.2.2.2,
4.2.2.3, 4.2.2.4,
2013-14 6 1 5 4.2.3 17
2015-16 9 8 1 4.2.4.3 89
Total 35 25 10 - 71%

The overall compliance of PAC directives needs improvement.

4.2.4 Audit Paras

4.2.4.1 Loss due to provisioning of doubtful debts - Rs. 524.00 million

Section-43(1) of the Insurance Ordinance, 2000 binds the insurers to pay

their premium on account of reinsurance timely by levying a penalty in case of
default for the period during which the default continues as payable to the
reinsurance company calculated on the amount of the defaulted premium.

During audit of Pakistan Re-insurance Company Limited (PRCL),

Karachi for the year 2017, it was observed that management made a provision for
73
doubtful receivable of Rs. 524 million against Sundry Receivables for Rs. 4,818
million without any justification. Some instances are as under:

Sr.
Company Name Amount (Rs.)
No.
1 Adamjee Insurance Company 22,560,060
2 Business & Industrial Ins. 20,258,060
3 Premier Insurance 104,568,254
4 Crescent Star Ins. Co. 31,761,540
5 Societe Central De Reass (Moroco) 12,670,142
6 Sterling Ins. Co. 5,623,997
TOTAL 197,442,053

Audit is of the view that non-recovery of outstanding dues shows

negligence of the management and poor performance towards recovery.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 11, 2019. DAC directed the management that
reconciliation of figures up to December 31, 2017 be done till March 31, 2019
and ratio of provisioning be brought down.

Audit recommends implementation of DAC directives.

4.2.4.2 Irregular payment of Bonus - Rs.60.546 million

Government of Pakistan, Ministry of Finance vide letter No.F.3(5)R.12/

80(R.14)Vol.II/2002-544 dated March 18, 2002 directed that the bonus would be
paid on operational profit of the organization only excluding income from other
sources.

During audit of Pakistan Reinsurance Company Limited (PRCL), Karachi

for the year 2017, it was observed that the management paid a sum of Rs.60.546
million as Bonus to their employees despite operational losses of Rs.527.78
million (Annex-14).

74
 Audit is of the view that undue favour was extended to the employees at
company cost.

The matter was reported to the management in December 2018. DAC

meeting was held on January 11, 2019. The management informed that PRCL is
working on rationalizing the remuneration, bonuses and perks of the public sector
companies under the Ministry of Commerce which will be shared with Audit in
next DAC meeting. Since bonuses were given under operational loss conditions,
DAC directed the management to justify and take the remedial measures under
intimation to audit.

Audit recommends implementation of DAC directives.

4.2.4.3 Loss due to irregular payment of car monetization allowance to

contractual executives - Rs. 9.864 million

In accordance with Government of Pakistan, Cabinet Division OM

No.6/7/2011-CPC dated December30, 2011, the Monetization Policy is
applicable only to the Civil Servants in BS-20 to BS-22 working in
Ministries/Divisions/ Attached Departments and Sub-Ordinate offices. The policy
is not applicable in case of officers of Autonomous/Semi-autonomous
Organizations, Corporations, as well as to the officers drawing pay against
Constitution posts, appointed on contract, re-employed or persons appointed on
Management Pay Scales, Special Pay Scales and Health Personnel Scales.

During audit of Pakistan Reinsurance Company Limited (PRCL), for the

year 2016, it was observed that the management appointed four (4) officers on
contract basis for a period of 3 years. In contradiction to the above rules the
management paid an amount of Rs. 9.864 million on account of car monetizing
allowance to the said contractual officers. The detail of payment is as under:

Sr. Date of Amount

Name Designation
No. appointment (Rs.)
1 Mr. Muhammad Khurshid Chief Internal 02-12-2015 77,000
Auditor
2 Mr. Shams-ud-Din Company Secretary 01-01-2016 60,000
75
 3 Mr. Muhammad Junaid Executive Director 24-03-2016 77,000
Moti
4 Mr. Jameel Ahmed GM (Finance) 02-09-2016 60,000
Total amount paid per month 274,000
No. of months 36
Total amount paid 9,864,000

Audit is of the view that undue favour was extended to the contract
employees which shows poor financial management.

The matter was reported to the management in October, 2017 and in

December, 2018. DAC meeting was held on January 11, 2019. In view of
explanation given by the management, DAC recommended the Para for
settlement subject to verification of record by Audit. However no progress was
reported till finalization of this report.

Audit recommends fixing responsibility on the person(s) at fault besides,

recovery of the amount.

4.2.4.4 Unadjusted advances against suppliers /contractors - Rs. 7.12 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 in the Public Account.

During audit of Pakistan Re-Insurance Company Limited (PRCL) for the

year 2017, it was observed that management paid an amount of Rs.7.120 million
as advance to the suppliers / contractors but the same could not be adjusted as on
December 31, 2017.

Audit is of the view that undue favour was extended to the suppliers /
contractors by giving advance without obtaining bank guarantee.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 11, 2019. DAC recommended the Para for
76
settlement to the extent of recovered amount whereas, vigorous efforts be made
for recovery of remaining amount. However, no progress was reported till
finalization of this report.

Audit recommends implementation of DAC directives.

4.2.4.5 Loss due to non-disposal of shares – Rs. 5.63 million

Rule-5 of the Public Sector Companies (Corporate Governance) Rules,

2013 stats that the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company.

During audit of Pakistan Reinsurance Company Limited (PRCL), for the

year 2017, it was observed that the management purchased 563,426 shares of 16
different companies which were de-listed later on. The management failed to
recover the amount by selling those share before winding up of the companies
under directives of SECP. Thus, loss of Rs.5.63 million was incurred (Annex-15).

Audit is of the view that company sustained loss due to negligence of the
management and imprudent investment.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 11, 2019. Management informed the DAC that
investment was made in profit earning companies. DAC directed the management
to provide detail of purchase of shares of such companies and the profits earned.

Audit recommends implementation of DAC directives.

4.2.4.6 Irregular expenditure on advertisement – Rs.2.490 million

PID letter No. 18 (47)/2014-Advt dated October 13, 2014 took serious
notice of the practice of some Ministries / Divisions / Department / Corporations /
Autonomous and Semi-Autonomous bodies have been releasing their
77
advertisement to newspapers through advertising agencies, bypassing Press
Information Department.

During audit of Pakistan Re-Insurance Company Limited (PRCL) for the

year 2017, it was observed that management incurred an amount of Rs.2.490
million on account of advertisement through private advertising agencies
M/s Argus advertising private Ltd in various newspapers for different works. The
advertisement work was assigned to agency without obtaining NOC from
DG/PIO of Press Information Department, Govt. of Pakistan. Thus the payment
of Rs.2.490 was held irregular.

Audit is of the view that undue favour was extended to the advertising
agency which indicates weak internal controls.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 11, 2019. DAC settled the Para subject to
verification of record by Audit. However, no progress was reported till
finalization of this report.

Audit recommends implementation of DAC directives.

78
4.3 State Life Insurance Corporation of Pakistan
4.3.1 Introduction

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

November 1, 1972 under the Life Insurance (Nationalization) Order, 1972 which
has been replaced with Insurance Ordinance, 2000. The main objective of the
Corporation is to engage in the life insurance business.

4.3.2 Comments on Audited Accounts

4.3.2.1 The working results of the Corporation for the year 2017 as compared
with those of the previous years are tabulated below:
(Rs. in million)
% %
2017 Inc/ 2016 Inc/ 2015
(Dec) (Dec)
Income
Premium Income less reinsurance 100,760.72 12.18 89,820.97 12.35 79,941.31
Investment Income (net) 68,787.63 7.95 63,722.05 6.88 59,616.56
Rental Income (net) 463.72 (5.81) 492.33 29.54 380.05
Total Income 170,012.07 10.37 154,035.35 10.07 139,937.92
Claims and expenditure:
Payment to policy holder (44,954.66) 18.49 (37,938.99) 5.50 (35,960.97)
Management expenses (30,930.61) 12.13 (27,583.57) 5.85 (26,057.74)
Total claims and expenditure (75,885.26) 15.82 (65,522.56) 5.65 (62,018.71)
Excess of income over claims and 94,126.81 6.34 88,512.79 13.59 77,919.21
expenditure
Addition /(Subtraction) to Life
Fund (87,800.45) 5.42 (83,286.43) 11.06 (74,990.10)
Surplus before tax 6,326.36 21.04 5,226.54 78.42 2,929.11
Life Fund at the end of the year 707,388.38 15.18 614,176.74 16.61 526,675.68
Percentage of Expenses to Total
Income 44.64 9.98 40.59 (8.41) 44.32
Percentage of Expenses to
Premium income 75.31 8.19 69.61 (10.27) 77.58
(Source: - Annual Audited Accounts)

79
During the year 2017, total income has increased by 10.37%, from Rs.154,035.35
million in 2016 to Rs.170,012.07 million in 2017.

4.3.2.2 Total claims and expenditure have also risen by 15.82% as compared to
previous year, from Rs.65,522.56 million in 2016 to Rs.75,885.26 million in
2017.

4.3.2.3 During year under review surplus before tax also improved and showed
an increase of 21.04%, percentage of expenses to total income and Premium
income are increased by 9.98% and 8.19% respectively.

4.3.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance compliance
awaited
1996-97 11 9 2 56&59,57(a)(b) 82
1998-99 11 9 2 46,49 82
2001-02 5 4 1 31 80
2002-03 9 8 1 13 89
2003-04 10 8 2 8, 9 80
2004-05 8 7 1 13 88
2006-07 4 3 1 9 75
2007-08 6 4 2 10, 11 67
2008-09 7 4 3 5, 6, 7 57
2010-11 17 15 2 2.3.4.4, 2.3.4.9 88
2013-14 4 3 1 4.3.3.2 75
4.3.4.1, 4.3.4.6, 14
4.3.2.1, 4.3.2.2,
4.3.2.3, 4.3.2.4,
4.3.2.5, 4.3.3,
4.3.4.2, 4.3.4.3,
2015-16 14 2 12 4.3.4.4, 4.3.4.7
Total 106 76 30 - 72%

The overall compliance of PAC directives needs improvement.

80
4.3.4 Audit Paras
4.3.4.1 Embezzlement at cash counter of AJK - Rs. 2.771 million

As per State Life Insurance Corporation (SLIC) letter No. QZ/F&A/269/

2012/1688, a permanent staff member shall be posted as cashier after obtaining
personal surety of Rs. 50,000. No hired staff shall be posted as cashier. Further,
Regulation No. 30 of State Life Insurance Employees Service Regulations 1973
on offence and punishments: (1) an employee who:

a. Commits breach of rules, regulation or orders of the Corporation or,

b. Commits or assists in commitments acts of misappropriation or
embezzlement of funds which belongs to or are meant to belong to
Corporation,
c. Knowingly does anything detrimental to the interest of Corporation.

During audit of SLIC for the year 2017, it was observed that funds of
Rs.2.771 million were misappropriated by the privately hired cashier Mr Shoukat
Ali in Mirpur Azad Kashmir Zone. The inquiry fixed responsibility on
proportionate basis on the Zonal Accountant 45%, Mr. Altaf Janjua Incharge 30%
and Zonal Auditor, Mr. Khalid Habib (AM), 10%. However, amount was not
recovered and officials are still working.

Audit is of the view that the management failed to recover the embezzled
amount which proves poor financial management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. Management informed the DAC that the
whole amount had been recovered. DAC directed to get the recovered amount
verified from Audit and take strict action against the persons involved. However
no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

81
4.3.4.2 Loss due to embezzlement in premium collection - Rs. 1.779 million

State Life Insurance Corporation (SLIC) Principal Office letter dated

April 30, 2007 provides that Zonal Head should arrange proper security at all
cash counters at Zonal office as well as at all collection centers. Zonal
Accountant should himself make periodic visits of collection centers on surprise
basis or authorize any officer of Budget and Account to visit these collection
centers and check cash collection. Both Zonal Head and Accountant should check
proper maintenance of banking operations.

During audit of SLIC (Zonal Office, Larkana) for the years 2016 & 2017,
it was observed that an amount of Rs. 1.779 million was
embezzled/misappropriated by the then Cashier (Asstt. Superintendent), posted at
Jacobabad, SLIC. The official was dismissed from service but amount was not
recovered.

Audit is of the view that management failed to recover embezzled amount

which indicates poor financial management.

The matter was reported to the management in November 2018. DAC

meeting was held on January 11, 2019. DAC observed that there was delay in the
recovery from the cashier. It further directed that departmental inquiry be
conducted into the causes of this delay and report be submitted to audit within 30
days. However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.3.4.3 Loss due to imprudent investment in Alpha Insurance Company -

Rs. 96.400 million

The Finance Division OM. No. F.4(1)/2002-BR-II dated July 02, 2003
requires that total investment in the shares of a company not to exceed 5% of the
total funds managed by the public sector entity, whichever is lower.

82
 During audit of State Life Insurance Corporation of Pakistan, (SLIC)
Principal Office Karachi for the year 2017, it was observed that subsidiary
company of SLIC named “Alpha Insurance Company Limited” engaged in
providing non-life insurance business comprising fire, marine, motor, accident
and health, approached to SLIC vide its letter dated 16th May, 2017 for
investment of Rs. 96.400 million in order to meet minimum capital requirement,
as per SECP’s paid up capital requirement for General Insurance issued vide
SRO 225(I)/2015 dated 13th March, 2015.

In this connection, it was revealed that SLIC made payment on account

of Alpha Insurance company (subsidiary) amounting to Rs. 94.837 million
through payment on July 19, 2017 followed by another payment of –Rs. 1.563
million on August 02, 2017 to the right shares subscription account
(94,837,100+1,562,900=total -Rs. 96,400,000/-). It is worth-mentioning here that
since last ten (10) years the Alpha Insurance company had not paid any dividend
or had paid insignificant amount as dividend. It evidently depicts, the investment
amounting to Rs.96.400 million made in the above Company was imprudent.

Consequently, Board Investment Committee (BIC) in its 12-th meeting

held on 25th May 2017, chairman BIC opined that Alpha Insurance Company is
subsidiary of SLIC; the proposed investment is inevitable to safeguard the
interest of the Corporation. However, Mr. Saad Amanullah Director/member of
the Board apprised the committee that if the Alpha Insurance Company is not
performing well the SLIC should dispose-off it. The BoD in its 252nd meeting
held on 17th July, 2017 resolved “that on the recommendation of BIC, the
investment in Alpha Insurance at Rs. 96.400 million approved to meet the paid up
capital requirement as per prescribed by the SECP.

Audit is of the view that the management while releasing an amount of

Rs. 96.400 million should consider the advice from the Director/member Board
investment committee (BIC) as they advised to dispose-off the subsidiary.

83
 The irregularity was pointed out in October, 2018. The management in its
reply stated that State Life held 94% of AICL shares, AICL requested SLIC for
investment of Rs. 96.40 million. The reply of the management was not tenable as
due diligence was not carried out prior to the investment. DAC meeting was not
convened despite requests by audit.

Audit recommends that the matter may be investigated with a view to fix
responsibility on the person(s) at fault besides, make the loss good.

4.3.4.4 Irregular appointment of officers - Rs. 37.950 million

As per Rule 5 of the Service Rules of State Life Insurance Corporation

(SLIC) a candidate must possess the educational qualification and experience and
must be within the age limit as mentioned against the post concerned in the
schedule to this notification unless otherwise provided, the experience prescribed
for initial appointment will be the post qualification.

During audit of SLIC for the year 2017, it was observed that in July 2012
management published an advertisement in the national newspapers for the
appointments of officers. Against this advertisement management appointed 09
officers/ officials without requisite qualification and experience. Thus the
payment of Rs.37.950 million on account of pay and allowances was held
irregular (Annex-16).

Audit is of the view that undue favour was extended to the employees
who were appointed without requisite qualification and experience. This indicates
weak and inadequate internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. The management informed that BoD
allowed the incumbents to complete requisite qualification by December, 2019.
DAC directed to present the matter again in the BoD for review of the earlier
decision. However no progress was intimated till finalization of this report.

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 Audit recommends implementation of DAC directives.

4.3.4.5 Irregular payment of Advance Bonus to Officers – Rs. 31.238 million

According to the bonus policy laid down by the Government of Pakistan,

Finance Division (Regulation Wing) through OM dated November 30, 2001; the
payment of bonus by autonomous bodies/semi-autonomous bodies /Corporations
required approval by administrative ministry and concurrence of the Finance
Division.

During audit of State Life Insurance Corporation (Central Zone), Lahore,

for the year 2017, it was observed that the management paid an amount of
Rs. 31.238 million as advance bonus to the officers of the Corporation without
approval of the administrative ministry and concurrence of the Finance Division.

Audit is of the view that undue favour was extended to the officers at
Corporation cost, which indicates poor financial management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. The management informed that bonus
payments were made in accordance with the policy laid down by the BoD of
SLIC. DAC directed the management to provide documentary evidence of board
policy and its conformity with Finance Division regulations for Advance Bonus.
However no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.3.4.6 Loss due to non-completion of ERP system - Rs.45.677 million

As per clause-3 agreement signed with M/s. Siddat Hyder Morshed

Associates (Pvt.) Ltd, project of Enterprise Resource Planning (ERP) was to be
completed in May, 2012.

85
 During audit of State Life Insurance Corporation of Pakistan, (SLIC)
(Principal Office) Karachi for the year 2017, it was observed that the
management awarded contract to the Sidat Hyder Morshed Associates (Pvt)
Limited to acquire an ERP system for 33 Zones at the cost of Rs.124.781 million
in January, 2010 which was to be completed by May 2012.

Audit is of the view that non-completion of the work was indicative of

weak supervision which led to the non-achievement of objectives despite lapse of
07 years and incurring expenditure of Rs. 45.677 million.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. Management informed that
implementation of the ERP was in process. DAC directed the management to
make efforts to complete the project before end April, 2019. DAC further
directed to form a Committee under Executive Director Investment to inquire into
the matter and fix responsibility for this undue delay. The report should be
finalized within 30 days. However, no progress was reported till finalization of
this report.

Audit recommends implementation of DAC directives.

4.3.4.7 Loss due to non-recovery from Field staff and others - Rs. 9.985 million

According to Rule 20 of GFR, it is the duty of the departmental

Controlling officers to see that all sums due to Government are regularly and
promptly assessed, realized and duly credited in the Public Account.

During audit of the State Life Insurance Corporation of Pakistan, (SLIC)

(Principal Office) Karachi for the year 2017, it was observed that an amount of
Rs.9.986 million outstanding against various field staff on the account of
defalcation. The detail is as under:

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 Amount
Year -2017
(Rs. in million)
Defalcation by Staff 1.139
Defalcation by Field Staff 7.588
Defalcation by others(Area Managers, on commission) 1.258
Total 9.985

Audit is of the view that undue favour was extended which proves weak
internal controls and poor financial management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. Management informed that recovery of
Rs.1.8 million had been affected. DAC directed to get the recovered amount
verified from audit and make the balance recovery by the end of February, 2019.
However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.3.4.8 Non-recovery of outstanding balances since long - Rs. 2.445 million

As per Rule 4(3) of Public Sector Companies (Corporate Governance)

Rules, 2013 the Chief Executive is responsible for the management of a Public
Sector Company and for its procedures in financial and other matters, subject to
the oversight and directions of the Board, with the Ordinance. Responsibilities of
CEO include implementation of strategies and policies approved by the Board,
making appropriate arrangements to ensure that funds and resources are properly
safeguarded and used economically, efficiently and effectively and in accordance
with all statutory obligations.

During audit of State Life Insurance Corporation (Central Zone), Lahore,

for the years 2017-18, it was observed that an amount of Rs. 2.445 million under
different head of accounts was unrecovered since more than 15 years (Annex-17).

87
 Audit is of the view that non-recovery of outstanding dues since more
than 15 years shows negligence of the management and indicates weak internal
controls.

The matter was reported to the management in October l, 2018. DAC

meeting was held on January 11, 2019. Management informed that an amount of
Rs.1.35 million had been adjusted/recovered. Furthermore, these amounts were
brought forward from pre-nationalization period of SLIC and decided to place
before BoD for final decision. DAC directed the management to get verified the
factual position from Audit. However no progress was reported till finalization of
this report.

Audit recommends implementation of DAC directives.

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4.4 Trading Corporation of Pakistan (Pvt.) Limited
4.4.1 Introduction

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

as a private limited company under the Companies Act, 1913, (repealed
Companies Ordinance, 1984, Now Companies Act 2017). It is fully owned by the
Federal Government and operates under the administrative control of the
Ministry of Commerce. The registered office of the Company is situated at
Karachi.

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. The
Corporation has restricted its engagement in trading on behalf of the Government
of Pakistan only.

4.4.2 Comments on Audited Accounts

4.4.2.1 The working results of the Corporation for the year 2016-17 as compared
with those of the previous years are given below:
(Rs. in million)
% %
2016-17 Inc/ 2015-16 Inc/ 2014-15
(Dec) (Dec)
Commission income 33.869 (83.30) 202.782 (61.71) 529.65
Administration (1,080.597) 27.60 (846.866) (6.09) (900.43)
expenses
Gross Profit (1,046.73) 62.51 (644.09) 73.36 (370.79)
Other income 1,534.289 (14.23) 1,788.830 (12.10) 2,037.03
Profit/ (loss) before 487.561 (57.41) 1,144.746 (31.12) 1,666.24
taxation
Taxation (93.076) (73.52) (351.517) (34,60) 535.89
Profit/ (loss) after tax 394.485 (50.27) 793.229 (29.46) 1,130.35
(Source: Annual Audited Accounts)

89
Commission Income is the only source of revenue and the same has been
decreased by 83.30%, from Rs.202.782 million in 2015-16, become Rs. 33.869
million in 2016-17 contrary, administrative expenses were increased by 27.60%
from Rs.846.866 million in 2015-16 to Rs. 1,080.597 million in 2016-17.

4.4.2.2 Profit before and after tax has been decreased by 57.41% from
Rs.1,144.75 million in 2015-16 to Rs. 487.561 million and from Rs.793.30
million in 2015-16 to Rs.394.485 million in 2016-17 decrease by 50.27%.

4.4.3 Compliance of PAC Directives

Total No.
Audit Compliance Compliance Breakup of %age of
of
Year reported awaited compliance awaited compliance
Directives
49, 50, 51, 52
1992-93 23 18 5 & 53 78
1994-95 29 27 2 56, 60 93
44,49, 63-64, 66,
SAR b-2, b-3, b-6, b-
1996-97 24 14 10 7, b8, b-9 58
1997-98 14 9 5 32, 33, 34, 35, 37 64
1999-00 14 13 1 49 93
2000-01 11 10 1 10 91
2003-04 11 10 1 15 91
2004-05 3 2 1 15 67
2005-06 13 12 1 21 92
2007-08 6 5 1 13.2 83
2008-09 10 6 4 8.3, 9, 10, 11, 12 60
2.4.2.3, 2.4.4.3,
2010-11 14 11 3 2.4.4.6 79
2013-14 15 6 9 4.4.2.1(A), 40
4.4.2.1(B), 4.4.2.1,
4.4.2.1 (C),
4.4.2.1 (D), 4.4.2.1
(E), 4.4.2.2, 4.4.2.7,
4.4.3
2015-16 11 3 8 4.4.4.1, 4.4.4.2, 27
4.4.4.6, 4.4.2.1,
4.4.3, 4.4.4.3,
4.4.4.4, 4.4.4.7
Total 203 150 53 - 74%

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 The overall compliance of PAC directives needs improvement.

4.4.4 Audit Paras

4.4.4.1 Non-recovery of dues - Rs. 48,267.572 million

Rule 10 of General Financial Rules provides that every Public Officer is

expected to exercise the same vigilance in respect of expenditure incurred from
public moneys as a person of ordinary prudence would exercise in respect of
expenditure of his own money.

During audit of Trading Corporation of Pakistan (TCP) for the year

2017-18, it was observed that an amount of Rs. 48,267.572 million was not
recovered from Government Institutions & other companies, out of which
Rs.10,692.98 million were outstanding for more than three years (Annex-18).
The complete record was not provided by the management to audit.

Audit is of the view that the non recovery of dues shows negligence of the
management and indicates weak internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. The management informed that they were
pursuing the recovery vigorously. DAC directed the management to get the
recoveries expedited.

Audit recommends implementation of DAC directives besides, production

of complete record.

4.4.4.2 Non-recovery of rent from tenants of godowns - Rs. 145.152 million

As per clause-7 & 18 of the TCP’s Tenancy Agreement, monthly rent of

godown is payable, inclusive of all applicable taxes on rent. The rent shall be
payable in advance by 5th day of each calendar month. Where tenant is a
withholding agent under respective laws, they may deduct the amount of tax
91
under respective laws and shall furnish duly paid challans / CPR of deducted
taxes to TCP within 15 days following the close of a month. The tenant will be
ejected from the said buildings without any notice by the landlord (TCP), if they
failed to pay the monthly rent for continuous two months or the default
outstanding amount against tenants reaches up to the amount equal to two
months’ rent (tax and utility charges shall be treated as part of outstanding
amount).

During audit of Trading Corporation of Pakistan (TCP) for the year

2017-18, it was observed that out of total outstanding dues of Rs. 382.903
million, an amount of Rs.145.152 million was not recovered from the tenants in
violation of the above rule.

Audit is of the view that the non recovery of dues shows negligence of the
management and indicates weak internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. Management informed that out of
Rs. 145.152 million, an amount of Rs. 119 million was receivable from Sindh
Food Department. DAC directed the management to get the recoveries verified
by Audit and expedite the recovery of remaining amount. However no progress
was reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.4.4.3 Irregular payment of honorarium and bonus - Rs. 82.128 million

Rule-10 of GFR provides that every Public Officer is expected to exercise

the same vigilance in respect of expenditure incurred from public moneys as a
person of ordinary prudence would exercise in respect of expenditure of his own
money.

During audit of Trading Corporation of Pakistan (TCP) for the year

2017-18, it was observed that the management paid honorarium of Rs.6.945

92
million to a few selected employees, bonus of Rs. 45.128 million and Eid
Assistance of Rs.30.055 million without any justification.

Audit is of the view that undue favour was extended to the employees
which shows poor financial management.

The matter was reported to the management in October, 2018. The

management in its reply dated October 18, 2018 stated that TCP being a private
limited company formulated its own policies and rules. The reply of
management was not tenable as payment of three types of rewards could not be
justified. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fixing of

responsibility on the person(s) at fault besides recovery of the amount.

4.4.4.4 Loss due to appointments beyond sanctioned strength

Board of Directors of Trading Corporation of Pakistan (TCP) in its 298

meeting held on March 13, 2015 reduced the staff strength to 409 employees.

During audit of Trading Corporation of Pakistan (TCP) for the year

2017-18, it was observed that 457 employees were working against sanctioned
strength of 409 employees resulting into excess of 48 employees. The excess
strength of employees caused extra burden on Corporation. The details of 48
employees and payments were not provided to audit.

Audit is of the view that undue favour was extended to the employees at
Corporation cost. This indicates weak internal controls.

The matter was reported to the management in October 2018. DAC

meeting was held on January 11, 2019. The management informed that the posts
where the present strength is more than the proposed strength would be adjusted
through natural attrition process through retirements of employees etc. DAC

93
directed the management to take up the matter with the BoD to rectify the
anomaly. However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

4.4.4.5 Non-depositing of Sindh Sales tax - Rs. 20.438 million

As per Claus-17 (1) of the Sindh Sales Tax on Services Act, 2011 the tax
in respect of a taxable service provided or rendered during a tax period shall be
paid by a person by the due date prescribed for payment of tax. Clause-17 (4) the
tax due on taxable services shall be paid by any of the following modes, namely:

a. Through deposit in a bank designated by the Board; or

b. Through such other mode and manner as may be specified by the Board.

During audit of Trading Corporation of Pakistan (TCP) for the year

2017-18, it was observed that the management collected Rs.20.438 million on
account of Sindh Sales Tax from tenants of godowns, but the same was deposited
in the Govt. exchequer in violation of above rule.

Audit is of the view that compliance of the rules and regulation was the
responsibility of the management. Thus, non-compliance shows weak internal
controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 11, 2019. The management informed that tenants
obtained stay order from the High Court on the grounds that renting of property
did not fall in the ambit of Sales of services which was challenged by SRB. DAC
recommended the Para for settlement subject to verification of non-collection of
sales tax as claimed by the management. However no progress was reported till
finalization of this report.

Audit recommends implementation of DAC directives.

94
4.5 Pakistan Expo Centers (Pvt.) Limited
4.5.1 Introduction

Expo Lahore (Pvt.) Limited was incorporated in Pakistan on July 19, 2004
as a private limited company under the Companies Ordinance, 1984. It is a
corporate body jointly owned by the Government of Pakistan and Government of
the Punjab with a mandate to design, develop, operate and promote a state-of-the-
art Lahore International Expo Centre. It is providing a platform of international
standard to the manufacturers, exporters, traders and service providers for
effectively introducing and marketing their products and services through trade
exhibitions, fairs and conferences.

4.5.2 Comments on Audited Accounts

4.5.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the years 2015-16 to 2017-18 till December 31,
2018.
4.5.2.2 Audit recommends that the annual audited accounts of past years be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

4.5.3 Compliance of PAC Directives

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
2013-14 06 04 02 4.5.4.2,4.5.4.3 67
2016-17 (3.5.4.1,3.5.4.2,3.5.4.3,3.5.1 -
&
3.5.2,3.5.2.1,3.5.2.2,3.5.2.3,3.
09 0 09 5.2.4,3.5.3)
Total 15 04 11 27

The compliance of the PAC directives was very poor which need
immediate attention of the PAO.

95
4.5.4 Audit Paras

4.5.4.1 Irregular appointment of Manager Internal Audit - Rs. 8.38 million

According to Establishment Division OM dated April 17, 2003 (referring

to a decision of Supreme Court of Pakistan) (i) all initial appointments should be
made through open advertisement and all selections should be made through duly
constituted selection/ promotion committee/ board (iii) there should be
pre-determined criteria for each post (iv) no provision for relaxation of rules
should be given in favor of any individual. Moreover, according to advertisement
for the post of Assistant Accounts & Admn Officer, required qualification &
experience was B.Com plus 5 years post qualification experience in relevant
filed.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
years 2016-18, it was observed that the management appointed Mr. Imran
Mohsin as Assistant Accounts & Administration Officer on December 01, 2005
on contract basis for a period of 3 years (from December 01, 2005 to November
30, 2008). The following irregularities were observed:

i. The candidate possessed only 17 months of post qualification experience

at the time of appointment instead of at least 5 years experience.
ii. Before expiry of the contract period i.e. November 30, 2008, the
concerned officer was re-appointed as Accounts Officer on March 01,
2008 without advertisement in newspaper in violation of Government
instructions.
iii. In January 2014, he was appointed as Internal Auditor of the company
without observing requisite qualification and experience in violation of
Govt. policy.
iv. Just after one year, he was further promoted as Manager Internal Audit
w.e.f. January 01, 2015 without following promotion policy.

96
 Thus, the appointment and payment of Rs. 8.38 million to the said officer
was held irregular, as it is not covered under the above-referred Honorable
Supreme Court’s instructions and advertised criteria.

The matter was reported to the management and to PAO on December 09,
2018. In reply the management stated that the appointment of assistant accounts
and admin officer was not in contravention of the advertisement. The reply was
not convincing as neither the appointment was according to the laid down criteria
nor the promotion was justified in the absence of approved promotion policy.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter and fix responsibility on the

person at fault for irregular appointment besides recovery.

4.5.4.2 Irregular appointment of CEO and payment of salary - Rs. 13.65

million

According to SECP Notification dated March 03, 2015 regarding

procedure for appointment of Chief Executive Officer of Public Sector
Companies, the Board shall initiate the appointment process i.e. issue a public
advertisement in the print media to invite applications from applicants, shortlist
candidates on the basis of criteria specified for the position and evaluate
shortlisted candidates. The Board shall conduct the interview of the candidates
and recommend a minimum of three candidates to the line ministry for
appointment to the position of Chief Executive officer. Upon concurrence of the
competent authority, the Board shall appoint the Chief Executive Officer.

Moreover, according to Para – 2 of Establishment Division, Cabinet

Secretariat, OM No. 1/85/94-E.6 dated September 12, 1994, the appointment of
CEO of the public sector autonomous/semi-autonomous bodies shall be
considered/processed through the selection board headed by the Minister
in-charge who will suggest a panel of at least three names for each vacancy and

97
recommend a name out of this panel for the consideration and approval of the
Prime Minister.

During the audit of the Pakistan Expo Centers (Pvt.) Limited (PEC), for
the years 2016-18, it was observed that the management re-designated the post of
COO as Chief Executive Officer (CEO) with the approval of its BoD w.e.f.
December 06, 2016. Neither the case of appointment of CEO was processed in
line with SECP instructions nor approval of the Prime Minister was sought.

In the absence of proper procedure as well as the approval of the

competent authority, the appointment of the COO as CEO and payment of
Rs. 13.65 million @ Rs. 718,344 per month on account of pay & allowances from
December 2016 to June 2018 was held irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply the management stated that in order to run the day-to-day affairs of
the company, the Board of Directors hired the Head of the Company with the title
Chief Operating Officer. The contention of the management was not based on
facts as articles of association or SECP Governance Rules could not be relaxed
by the management at its own. Moreover, during verification it was observed that
the management appointed Mr. Arif Mansur Khosa as Chief Operating Officer
(COO) on March 05, 2005 on contract basis for three years. but the officer did
not fulfill the required advertised criteria of educational qualification i.e. MBA
preferably Civil Engineering for his initial appointment as COO, whereas he
possessed the degree of Electrical Engineer. The officer was also working above
the age of superannuation for which approval of the Prime Minister was
necessary but same was not obtained.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter at ministry level, fix

responsibility on the person (s) at fault for irregular appointment of the officer
and effect recovery.
98
4.5.4.3 Irregular appointment of CFO and payment of salary - Rs. 38.51
million

According to the order of the Supreme Court of Pakistan, passed in

Human Rights Case No.104 dated December 26, 1992 (circulated by the Cabinet
Division), the Court observed that the Federal Government, Provincial
Government, Statutory bodies and the Public Authorities are making initial
appointments, both adhoc and regular to posts without publicity and properly
advertising `the vacancies and at times by converting adhoc appointments into
regular appointments. This practice is prima facie violation of Fundamental
Rights (Article-18 of the Constitution) guaranteeing to every citizen’s freedom of
profession. It was ordered that the violation of this Fundamental /Human Right
should be discontinued forthwith. Steps shall immediately be taken to rectify, to
bring the practice in accordance with the Constitutional requirements.

During the audit of the Pakistan Expo Centers (Pvt) Limited (PEC), for
the years 2016-18, it was observed that the management appointed Mr. Zia-ul-
Mustafa as Manager Finance & Administration on contract basis for three years
w.e.f July 15, 2005. The following irregularities were observed:

i. After one and half years of appointment, the officer was re-designated as
CFO & Business Administrator w.e.f November 29, 2006.
ii. The management again issued him a fresh appointment letter for Manager
Finance & Business Administration on regular basis on March 01, 2008
and again re-designated him as CFO & Business Administrator on July
25, 2008.
iii. The case of appointment of Manager Finance & Business Administration
on regular basis and the appointment as CFO & Business Administrator
was not processed in line with directions of Supreme Court.
iv. The salary of the officer was also increased from Rs. 60,000 to
Rs. 456,772 per month from the date of appointment up till June, 2018.

99
 Audit was of the view that a sum of Rs. 38.51 million on account of pay
& allowances was irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the company appointed Head of
Finance & Administration with the title Manager Finance & Administration.
Likewise, there was no re-appointment and it was just the change in employment
term from periodic to perpetual basis. The reply was not convincing as the officer
was appointed against the laid down procedure and declared promoted without
having a promotion policy.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter at ministry level, fix

responsibility on the person (s) at fault for irregular appointment of the officer
and effect recovery.

4.5.4.4 Irregular appointment of Executive Secretary - Rs. 6.03 million

According to Establishment Division OM dated April 17, 2003 (referring

to a decision of Supreme Court of Pakistan) (i) all initial appointments should be
made through open advertisement (ii) all selections for appointment should be
through duly constituted Selection/ Promotion Committee/Board (iii) there
should be pre-determined criteria for each post (iv) no provision for relaxation of
rules should be given in favor of any individual. Moreover, according to
advertisement for the post of Executive Secretary made in the daily Jang Lahore,
dated April 26, 2005, the required qualification & experience was B.Com plus 3
years relevant experience and computer literate.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
years 2016-18, it was observed that the management appointed Syed Hammad
Hasan Hamdani as “Executive Secretary” on June 15, 2005 on contract basis for
a period of 3 years. The said official has passed his bachelor degree on August
30, 2004, which proves that he did not possess 3-years experience at the time of
appointment. Before expiry of the contract period i.e. July 14, 2008, he was
100
appointed as HR & Administration Officer on March 01, 2008 without
advertisement in newspaper in violation of Government instructions and without
observing required qualification (Master in HR) and experience as HR Manager.
Thus, appointment and payment of salary of Rs. 6.03 million was held irregular.

The matter was reported to the management and to PAO on

December 09, 2018. In reply, the management stated that the appointment of
Executive Secretary was not in contravention of the advertisement. The reply of
the management was not convincing as appointment of executive secretary in
June 2005 and subsequent placement at higher position as HR and Admin Officer
in March 2008 was done without fulfilling required qualification and experience.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends investigating the matter, fix responsibility on the

person (s) at fault and effect recovery.

4.5.4.5 Irregular appointment of Mechanical Engineer and payment of salaries

– Rs. 18.38 million

According to Establishment Division OM dated April 17, 2003 (referring

to a decision of Supreme Court of Pakistan) (i) all initial appointments should be
made through open advertisement (ii) all selections for appointment should be
through duly constituted Selection/ Promotion Committee/Board (iii) there
should be pre-determined criteria for each post (iv) no provision for relaxation of
rules should be given in favor of any individual. Moreover, according to
advertisement in the daily Jang Lahore, dated April 30, 2006 for appointment of
Mechanical Engineer, the following qualification & Experience was required.

 Age limit was 32 to 40 years.

 B.Sc. Engineering (Mechanical) or equivalent with specialization in HVAC/
E&M from HEC recognized university/ institution duly registered with

101
 Pakistan Engineering Council with minimum 08 years relevant field
experience. Knowledge of HVAC/ E&M works related codes and standards
 Computer literate with knowledge of profession related software programs.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
years 2016-18, it was observed that the management appointed Mr. Zakaul
Mustafa as “Mechanical Engineer & Technical Coordinator” on January 16, 2007
on contract basis for a period of one year. The following irregularities were
observed:

i. The age of officer at the time of appointment was of 28 years against the
minimum required age limit i.e. 32 years with experience of only 4 years
and nine months as mentioned in CV against the minimum experience
limit i.e. 8 years.
ii. Neither any documents of experience mentioned in CV were available in
file nor did the management confirm / verify the relevant experience from
concerned organization.
iii. The officer passed engineering degree on attaining the age of 23 years,
hence, the experience of 8 years was not possible at the age of 28 years.
iv. The CFO of the company is real brother of the officer recruited and he
was the member of recruitment committee, which was an example of
conflict of interest.
v. He was re-appointed as “Mechanical Engineer & Project Coordinator”
w.e.f. March 1 2008 on regular basis and on August 02, 2013, he was
promoted as Resident Engineer without having promotion policy.

Audit was of the view that the appointment, promotion and payment of
Rs. 18.38 million was irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the appointment of Mechanical
Engineer was not in contravention of the advertisement. The reply was not
convincing as appointment of Mechanical Engineer was made without meeting
102
the requirement mentioned in the advertisement i.e. age and experience.
Moreover, the officer was promoted as Resident Engineer and increased salary up
to 500% from Rs 0.05 million to Rs. 0.25 million per month while there is no
promotion policy in the company.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter through appropriate

investigating agency and fix responsibility on the person (s) at fault for irregular
appointment besides effecting recovery.

4.5.4.6 Irregular appointment of an employee - Rs 8.90 million

According to Establishment Division OM dated April 17, 2003 (referring

to a decision of Supreme Court of Pakistan) (i) all initial appointments should be
made through open advertisement (ii) all selections for appointment should be
through duly constituted Selection/ Promotion Committee/ Board (iii) there
should be pre-determined criteria for each post (iv) no provision for relaxation of
rules should be given in favor of any individual. Moreover, according to
advertisement made in the daily Jang Lahore, dated October 04, 2005 for
appointment of Receptionist/ Executive Assistant, the following qualifications &
experience was required:
 Preferably Bachelor’s degree from HEC recognized institution
 Minimum of 3 years’ experience in a corporate environment
 Well versed with operating PABX and computer related office
management tools
 Proficient in written and spoken English.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
years 2016-18 it was observed that the management appointed Ms Farhat Nazir
as Receptionist/ Executive Assistant on December 01, 2005 on contract basis for
a period of 3 years on monthly salary of Rs. 12,000. The appointment was made
in violation of the said advertisement. She did not possess minimum 3 years’
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experience of corporate environment at the time of appointment as she passed her
Bachelor of Arts (Punjabi & Journalism) from University of the Punjab on
August 27, 2003 due to which it was impossible to have three-years experience
from August 2003 to November 2005.

Later on, just after two years and two months i.e. before completion of her
three years contract period as Receptionist, she was appointed as Business
Development Officer by the management w.e.f. February 20, 2008 on regular
basis without any competitive process. The basic qualification required for said
post was Master Degree in Marketing but she possessed only simple graduation
degree at the time of her appointment as Business Development Officer and
completed her MBA degree from Superior College, Lahore on July 02, 2013. Her
MBA degree was also not verified from HEC. Thus, her appointment and
payment of Rs. 8.90 million was held irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the appointment of Executive
Assistant was not in contravention of the advertisement. The reply was not
convincing, as the official did not possess the relevant experience and
qualification at the time of appointment. Moreover, the officer was appointed as
Business Development Officer without ascertaining required qualification and
experience.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter at ministry level and fix

responsibility on the person (s) at fault for irregular appointment besides effecting
recovery.

4.5.4.7 Irregular appointment of Technical Support Officer - Rs 3.81 million

According to advertisement made in the daily Jang Lahore, dated

November 03, 2010, the candidate should have relevant qualification/
104
certification with the practical experience of at least 5 years in the operations,
maintenance and configuration of security systems, communication systems,
Visitor’s Management System (VMS) and IT equipments.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC) for the
years 2016-18, it was observed that the management appointed Mr. Rafiullah, as
“Technical Support Officer” on December 01, 2010 on contract basis for a period
of one (01) year w.e.f December 01, 2010. He passed his matriculation
examination from BISE, Sargodha on July 23, 1998 and three months
certification in Optical Fiber Transmission System & Cable Jointing Course in
2009. He did not possess the required minimum practical experience of five (05)
years in the operations, maintenance and configuration of security systems,
communication systems, Visitor’s Management System (VMS) and IT
equipments at the time of appointment. Further, the management did not verify
his matric certificate as well as certification in Optical Fiber and experience
certificates available in the personal file. The contract period of the employee was
not extended after expiry of contract i.e. w.e.f. November 30, 2011 and employee
continued his services without legal umbrella. The salary of the officer from the
date of appointment up till June 2017 was enhanced from Rs. 25,000 per month
to Rs. 65,000 per month. Thus, the appointment and payment of Rs. 3.81 million
was held irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the appointment of Technical Support
Officer was in accordance with the defined criteria specified in the advertisement.
The reply was not convincing as the officer did not possess relevant qualification
and experience at the time of his appointment.

Despite repeated requests, the PAO did not convene meeting of the DAC.
Audit recommends to investigate the matter at ministry level and fix
responsibility on the person (s) at fault for irregular appointment besides effecting
recovery.

105
4.5.4.8 Irregular expenditure through splitting - Rs. 15.92 million

According to Clause -09 of PP Rules-2004, a procuring agency shall

announce in an appropriate manner all proposed procurements for each financial
year and shall proceed accordingly without any splitting or regrouping of the
procurements so planned. The annual requirements thus determined would be
advertised in advance on the Authority’s website as well as on the website of the
procuring agency in case the procuring agency has its own website. Moreover,
according to clause-12(2) of PP Rules-2004, all procurement opportunities over
two million rupees were required to be advertised on the Authority’s website as
well as in other print media or newspapers having wide circulation. The
advertisement in the newspapers shall principally appear in at least two national
dailies, one in English and the other in Urdu.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
years 2016-18, it was observed that as per design and master plan prepared by
M/s NESPAK, a Shopping Mall was to be constructed in Expo Centre, Lahore.
However, the management failed to construct the same and converted the place of
Shopping Mall into parking area. The management hired the services of
M/s Sajid Construction & Bricks to develop the said parking area and incurred an
amount of Rs. 15.92 million through petty transactions during 2012-16. No other
documents regarding prequalification process and tender process for financial
bids was provided to audit which showed that no tender process was adopted and
the whole work was irregularly executed by splitting the same to avoid tender
process. This was indicative of imprudent management policy.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the Pakistan Expo Centers hired the
services of contractors through competitive bidding process. The reply was not
convincing as the management failed to execute the work according to the PP
Rules and splitting of work was done through petty transactions.

Despite repeated requests, the PAO did not convene meeting of the DAC.
106
 Audit recommends investigating the matter, fix responsibility on the
person (s) at fault and loss may be made good from them.

4.5.4.9 Irregular payment to contractor on account of non-provision of sales

tax invoices - Rs 46.69 million

According to Para 3(ii) of the Government of Pakistan, Revenue Division

FBR OM No. 1(42) STM /2009/ 99638-R dated July 24, 2013, in case of public
works it may be ensured that the contractor engaged makes purchases only from
sale tax registered persons. Since contractor carrying out government works
against public tender are required to have a bill of quantity (BOQ), the
contracting department / organization must require such contractor to present
sales tax invoice of all material mentioned in the BOQ as evidence of its legal
purchase before payment is released to them. At the time of audit, it may be
ensured that the above-mentioned legal requirement has been fulfilled.

During the audit of Pakistan Expo Centers (Pvt.) Limited (PEC), for the
years 2016-18, it was observed that the management awarded two contracts to
M/s Khan Brothers Engineers for erection work of pre-fabricated building along
with other related works of Halls 3 & 4 of Expo Center, Lahore for Rs 303.15
million. An amount of Rs. 274.66 million including Sales Tax amounting to
Rs. 46.69 million was released to the contractor by the management against
public works transactions without demanding the requisite documentary evidence
i.e. Sales Tax invoices in support of different material supplied/purchased by
them. Hence, payment of Sales Tax amounting to Rs. 46.69 million without
observing the instructions of FBR was considered irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated according to the notification of
Government of the Punjab No. SO (TAX) 5-24/2016, the construction services
for Government turnkey projects funded under Public Sector Development Fund
was zero rated with respect to Sales Tax. The reply was not convincing as the
contract was awarded during 2013-14 and at that time FBR, instructions as

107
mentioned in the para were applicable on said contractor to provide relevant
record/information to management to be verified by the audit.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter and fix responsibility on the

person (s) at fault.

4.5.4.10 Irregular payment to the PEC employees as PSDF trainers in violation

of agreement - Rs 1.38 million

According to clause 8.6 of Vocational Training Contract under Industrial

Training Program 2017 signed between Punjab Skills Development Fund (Party
A) and Pakistan Expo Centers (Pvt.) Limited (Party B) on March 16, 2017
“Qualified Trainers” means persons of required qualifications, experience and
competence. Furthermore according to clause 15, “Conflict of interest”, neither
Party B nor any of Party B’s Personnel/employee shall engage in any personal,
business or professional activity which conflicts or could potentially conflict with
any other obligations in relation to this Contract.

During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
years 2016-18, it was observed that the management paid an amount of
Rs. 1.38 million to its three employees as trainer’s fee in violation of the above
referred clauses of the contract. The management advertised the opportunity for
professional trainers in the daily “Jang” on September 28, 2017 for six training
programs. But contrary to the requirement of professional trainers i.e. required
qualifications, experience and competence, the management hired the services of
its employees not having qualification and experience in the relevant fields of
training program. The management paid a sum of Rs. 1.38 million to the officers/
employees of PEC in addition to their own pay/ salaries.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the program announced by PSDF was
108
Industrial Training Program in which organizations were invited to train the
people about the traits of that specific industry. The reply was not convincing as
these employees did not possess relevant experience for providing training. The
management extended additional benefits to their employees during working
hours.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter, fix responsibility on the

persons at fault and effect recovery.

4.5.4.11 Loss due to procurement of steel structure at higher rate - Rs. 243.50
million

According to Rule-10 of PP Rules, specifications shall allow the widest

possible competition and shall not favour any single contractor or supplier nor
put others at a disadvantage. Specifications shall be generic and shall not include
references to brand names, model numbers, catalogue numbers or similar
classifications. However if the procuring agency is convinced that the use of or a
reference to a brand name or a catalogue number is essential to complete an
otherwise incomplete specification, such use or reference shall be qualified with
the words “or equivalent”. Moreover, according to Rule-4 of PP Rules, procuring
agencies, while engaging in procurements, shall ensure that the procurements are
conducted in a fair and transparent manner, the object of procurement brings
value for money to the agency and the procurement process is efficient and
economical.

During the audit of the Pakistan Expo Centers (Pvt) Limited (PEC), for
the years 2016-18, it was observed that management awarded a contract to
M/s Mammut Building Systems, Dubai for purchase of Pre-fabricated Steel
Structure for Expo Center, Peshawar on June 20, 2017 for Rs. 590.82 million by
ignoring the lowest rates of M/s Banu Mukhtar of Rs. 447.76 million.
Furthermore, technical specifications were not prepared in generic form and

109
favored M/s Mammut Building Systems. The specifications contained words
“similar buildings with similar descriptions/images” which were favorable to
only M/s Mammut Building Systems, Dubai and were not generic. Further, the
word “equivalent” was also not used. Thus, procurement of steel structure by
ignoring the lowest rate resulted into loss of Rs. 243.50 million (Rs. 691.26
million - Rs. 447.76 million)

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the company follows PP Rules and
tender documents clearly defined the evaluation criteria for technical and
financial bids. The reply was not convincing as the management failed to explain
the reasons of ignoring the lowest offer bid by M/s Banu Mukhhtar Ltd. of
Rs. 447.76 million against accepted bid of Rs. 590.82 million.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter, fix responsibility on the

person (s) at fault and loss may be made good from them.

4.5.4.12 Irregular procurement of pre-fabricated buildings for exhibition hall

3 & 4 from M/s Mammut Building System – Rs. 610.40 million

According to Rule 4 of PP Rules 2004, Procuring agencies, while

engaging in procurement, shall ensure that the procurements were conducted in a
fair and transparent manner, the object of procurement brings value for money to
the agency and the procurement process was efficient and economical. Moreover,
according to Rule 12(2) of PP Rules 2004, all procurement opportunities over
two million rupees should be advertised on the Authority’s website as well as in
other print media or newspapers having wide circulation. The advertisement in
the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu. Moreover, according to minutes of 27th BoD
meeting dated October 30, 2012, members advised the COO to proceed with the
development of Phase-II of Expo Centre.

110
 During the audit of Pakistan Expo Centers (Pvt) Limited (PEC), for the
year 2016-18, it was observed that the management purchased pre-fabricated
building of exhibition hall 3 & 4 through direct contracting from
M/s Mammut Building System vide contract dated July 09, 2013. As per clause
7.1 of the said contract, supply price C&F Karachi port value of USD 3,409,924
was decided. The management paid a sum of Rs. 610.40 million during August
31, 2013 to June 27, 2014 to M/s Mammut Building System. Furthermore, the
building structure did not fall under the category of the items purchased in direct
contracting. Direct contracting could be made for proprietary items, availability
of single manufacturer, acquisitions of services/ spare parts from original
manufacturers, emergency items, and repeated orders upto fifteen percent. Thus,
procurement of pre-engineered building from M/s Mammut Building system
through direct contracting was held irregular.
The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that in March 2012, Planning Commission
approved PC-1 for Rs 955 million for the development of exhibition hall No 3 &
4. These halls were originally planned in previous PC-1 for which Suppliers and
Contractors were selected through tendering process. The reply was not
convincing as project was divided into two phases Phase-I for 1, 2 halls and
ancillary work, phase II for three, four halls for which work should be done by
inviting fresh tenders instead of providing opportunity of direct contracting to the
previous party.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter, fix responsibility on the

person (s) at fault and loss may be made good from them.

4.5.4.13 Non-deposit of Punjab Sales Tax collected from clients – Rs. 76.37
million
According to Punjab Sales Tax on Services Act, 2012, Sales Tax is
applicable @16% on event managers. Section 20 (c) of the Provincial Sales Tax
Act, imposes sales tax on services rendered or provided by the person; Section
111
35 defines "taxable activity "as any economic activity carried on by a person
whether or not for profit and includes an activity that involves the supply of
goods, the rendering or providing of services, or both to another person.

During the audit of Pakistan Expo Centers (Pvt.) Limited (PEC) for the
years 2016-18, it was observed that the management did not deposit the
provincial sales tax of Rs. 76.37 million into the Government treasury, which was
collected from the event organizers/clients. The company had filed a petition in
Honorable Lahore High Court. The Honorable Court passed its orders disposing
off the case on the grounds that the company should file its reply with PRA. The
management filed its reply with PRA and appeal was pending with Punjab
Revenue Authority for final decision regarding imposition of Punjab Sales Tax
on PEC. Resultantly the management was collecting Punjab Sales Tax
@ 16% from its clients but the same was not yet deposited into Government
treasury, which caused revenue loss of Rs. 76.37 million to government
exchequer due to non-compliance of provisions of Punjab Sales Tax on Services
Act, 2012.

The matter was reported to the management and to PAO on December 09,
2018. In reply the management stated that the company has challenged the
imposition of Punjab Sales Tax in Lahore High Court. The reply of the
management was not tenable because the Honorable Lahore High Court has
already disposed of the case with the direction to resolve the matter with PRA.
However, due to non-pursuance of the matter by the company management with
the Punjab Revenue Authority, the management was collecting Punjab Sales Tax
@ 16% from its clients but the same was not yet deposited into Government
treasury, which caused revenue loss of Rs. 76.37 million to government
exchequer.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter and fix responsibility for non-
deposit of collected sales tax in Govt. treasury.
112
4.5.4.14 Overpayment due to provision of leave encashment facility to
employees - Rs 9.38 million

According to Rule 5(5)(a) of the Public Sector Companies (Corporate

Governance Rules 2013), the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses. Moreover, according to standing instructions of the federal
government, earned leave was admissible to employees based on basic pay drawn
by the employee.

During the audit of Pakistan Expo Centers, (Pvt.) Limited (PEC), for the
year 2016-18, it was observed that encashment of earned leave was sanctioned
based on last basic salary drawn plus maximum entitlement of house rent
allowance instead of running basic pay. It was further noticed that the company
while considering the working papers and deciding the matter had not mentioned
as to whether this facility was to be provided based on running basic pay or
otherwise. The company implemented the wrong policy No. 4.9 regarding
making provision in the accounts for 48 days earned leave instead of 2/3 balance
of 32 days and unused leave balances can be carried forwarded up to maximum
accumulation of 96 days (two years) for the purpose of leave encashment.
Therefore, an amount of Rs. 30.23 million was paid by the management to its
employees of different categories during 2007-17 including the excess payment
of Rs. 9.38 million.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that as per the Service Rules, the
employees of the company are entitled for 48 leaves in the year and out of 48
leaves 32 leaves that is 2/3 of the total earned leaves are en-cashable if not
availed by any employee during the financial year. The reply was not convincing

113
as the management failed to justify the reasons for inclusion of HRA in basic pay
to calculate the amount of leave encashment.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends investigating the matter to fix responsibility on the

person (s) at fault.

4.5.4.15 Excess electricity sanctioned load over & above the actual
requirement resulted in excess payment of fixed charges - Rs 11.44
million

According to schedule of electricity tariff of LESCO, for all non-domestic

categories of consumers, fixed charges were to be levied on sanctioned load or
Maximum Demand Index (MDI) reading, whichever is higher, on per KVA basis.
Lahore Electricity Supply Company (LESCO) guidelines stated that from the
period July 2012 to June 2017 onwards, the average of three high maximum
demands reading recorded for the consumer during the 60-month period would be
adopted to revise the sanction load during the ensuing years i.e. 2012-13 to
2016-17. Any prudent and large consumer of electricity was expected to see that
it does not pay fixed charges on account of inflated sanction load.

During the audit of Pakistan Expo Centers (Pvt.) Limited (PEC), for the
year 2016-18, it was observed that the management got electricity-sanctioned
load as 4,500 KVA from the LESCO in excess of the consumption pattern. The
load assessment was not carried out as per the LESCO guidelines. The excess
sanctioned load resulted in additional payment of fixed charges of Rs. 11.44
million during the period 2012-17. Despite the reduction in tariff category, the
sanctioned load was not assessed resulting in excess payment of
Rs. 11.44 million during the period 2012-17. Furthermore, it was observed by
audit that during last five years PEC did not utilize the sanctioned load even for a
single month during 2011-17 and caused excess payment of fixed charges every
month to LESCO.

114
 The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the under-utilization of load was not
loss as the company is recovering all the electricity cost from its clients based on
4500 KVA supplies. The reply was not convincing, as management could not
utilize the maximum load since establishment of the center, which resulted into
excess payment of fixed charges of Rs. 11.44 million.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to justify the excess payment besides revisiting the

capacity issue in order to avoid such irregularity in future.

4.5.4.16 Loss due to payment of fine on account of defective electricity meter

- Rs. 8.55 million

According to Rule – 4(3) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the chief executive is responsible for the management
of the Public Sector Company and for its procedures in financial and other
matters, subject to the oversight and directions of the Board, in accordance with
the Ordinance.

During the audit of Pakistan Expo Centers (Pvt.) Limited (PEC), for the
years 2016-18 it was observed that the Standing Committee of LESCO checked
the electricity meter of PEC and found defective. Accordingly, a notice was
served to the management on July 24, 2012 along with a detection /assessment
bill of Rs. 8.55 million and same was paid by management without enquiring
from the concerned department and ensuring the correctness of electricity meter
which caused a loss to the company.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that on joint checking of meter in the
presence of representative of both organizations, it was found that the reading on
the meter installed at Expo premises was not matching with the reading of back
115
up meter installed at LESCO Grid Station. The reply was not convincing as fine
was paid due to lack of proper vigilance and coordination with the WAPDA
authorities.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter and fix responsibility on the

person (s) at fault.

4.5.4.17 Award & execution of contracts in violation of Pakistan Engineering

Counsel Rules - Rs. 303.34 million

According to Planning & Development Division, Government of

Pakistan’s letter No. 8(60)WR/PC/2008 dated February 12, 2008, ECNEC
directed to implement the revised standard form of bidding documents prepared
by Pakistan Engineering Council on June 11, 2007 for procurement of all
engineering goods, works and services. The Federal, Provincial
Departments/Organization and District Governments were responsible to
implement the decision of ECNEC. Moreover, according to Standard Form of
Bidding Documents for procurements of works issued by Pakistan Engineering
Council on June 11, 2007, the bidding documents shall include Instructions to
bidders, Bidding data, General Conditions of Contracts, Particular Conditions of
Contracts, Special Provisions, Technical Provisions, Forms of Bid & Appendices
to Bid, Bill of Quantities (BOQ), Form of Bid Security, Form of Agreement,
Form of Performance Security/Bond and Mobilization Guarantee, Drawings.

During the audit of the Pakistan Expo Centre, Lahore, for the years
2016-18, it was observed that management singed two contracts valuing
Rs. 49.07 million and Rs. 254.28 million (total Rs. 303.34) with M/s Khan
Brother Engineers on December 01, 2013 and October 16, 2014 for construction
of works of Hall No. 3 & 4. The management did not follow the directions of
ECNEC for preparation of bidding documents despite the fact that funds for
subject contract were received from PSDP. The management just prepared TORs
116
as per their own desire rather than preparation of the standard bidding documents.
The BOQ prepared by management was on estimation basis as no detailed
Measurement Book showing basis for calculation of BOQ was made available by
the management. Thus, the award and execution of contracts were held irregular.

The matter was reported to the management and to PAO on December 09,
2018. In reply, the management stated that the company awarded said contracts
as per the PP Rules and PEC Guidelines. The reply was not convincing as the
management of company failed to prepare standard bidding documents, issued by
the PEC on June 11, 2007. Tailor-made TOR and BOQ shows irregularity on the
part of management.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter and fix responsibility on the

person (s) at fault for non-compliance of PEC guidelines.

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4.6 Pakistan Tobacco Board

4.6.1 Introduction

Pakistan Tobacco Board Peshawar came into existence in 1968 as a semi-

autonomous body under the control of Ministry of Commerce and Textile. The
principal activities of the Board were to regulate control and promote the export
of tobacco and related produce and to undertake and assist research connected
with tobacco industry, impart training in tobacco testing etc. It renders assistance
for the development of new tobacco growing areas and establishment of model
farms, to organize and assist special research connected with tobacco cultivation
and generally to render assistance for improving tobacco production and to
collect statistics on any matter relating to tobacco and tobacco industry.

4.6.2 Comments on Audited Accounts

4.6.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
4.6.2.2 Audit recommends that the annual audited accounts of past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

4.6.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
1999-00 03 03 0 - 100
2003-04 04 02 02 18&18.1,18.2 50
2005-06 04 03 01 26 75
2007-08 02 01 01 17 50
2009-10 08 04 04 27,28,30,33 50
2010-11 13 01 12 2.5.2.2,2.5.2.3,2.5.2 8
.4,2.5.2.5,2.5.2.6,
2.5.2.7,2.5.2.8,
118
 2.5.2.9,2.5.2.10,2.5.
2.11,2.5.4.1,2.5.3
2013-14 11 03 08 4.6.2&4.6.2.1,4.6.4. 27
2, ,4.6.4.5,
4.6.4.1,4.6.3,4.6.4.3
,4.6.4.7,4.6.4.8
2016-17 15 01 14 3.6.4.5,3.6.2.3,(3.6. 7
4.2,3.6.4.6,3.6.4.7,3
.6.4.3,3.6.4.4,3.6.4.
10,3.6.4.11,
3.6.4.8,3.6.4.1,3.6.1
&3.6.2,3.6.2.1,3.6.3
Total 60 18 42 30

Overall compliance of PAC directives was very poor especially during the
year 2010-11 and 2016-17, which need immediate attention of PAO.

4.6.4 Audit Paras

4.6.4.1 Irregular procurement of vehicles - Rs 8.81 million

According to Finance Department (Expenditure Wing), Government of

Pakistan letter No. 7(1) Exp-IV/2016-510 dated July 29, 2016, ban was imposed
on purchase of all types of vehicles both for current as well as development
expenditure except operational vehicles of law enforcing agencies.

During the audit of Pakistan Tobacco Board (PTB), Peshawar for the
years 2016-18, it was observed that the management procured four vehicles
valuing Rs. 8.81 million in replacement of condemned vehicles. The matter was
referred to Cabinet Division through Ministry of Commerce for obtaining
necessary NOC. Cabinet Division vide letter dated June 3, 2016 issued NOC
subject to concurrence of Finance Division. The management instead of getting
approval from the Finance Division, Government of Pakistan procured vehicles
amounting to Rs. 8.81 million which was held irregular.

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 Audit was of the view that the procurement of vehicles valuing Rs. 8.81
million without concurrence of Finance Division during ban period was held
irregular.

The matter was reported to the management on October 14, 2018 and to
PAO on October 22, 2018. During DAC meeting held on January 15, 2019, the
management informed that all the codal formalities have been followed as
required under the Staff Car Rules. The DAC directed the management to seek
concurrence from Finance Division on the matter. The requisite concurrence from
Finance Division was not obtained till the finalization of this report.

Audit recommends compliance of the DAC directive.

4.6.4.2 Non- recovery of Cess from defaulting contractor - Rs 3.74 million

According to clause 3(a) of Cess Collection Agreement dated January 28,

2017 executed between Mr. Naeem Khan (contractor) and PTB Peshawar, the
remaining 75% i.e Rs 8.625 million shall be positively paid in three installments
of Rs. 2.875 million each payable on April 04, 2017, June 02, 2017 and final
installment on August 02, 2017. Further, according to clause-15 the defaulter of
cess payment will be liable to penalty by three times of cess applicable in the case
to the contractor.

During the audit of Pakistan Tobacco Board (PTB), Peshawar for the
years 2016-18, it was observed that the management awarded cess collection
agreement dated January 28, 2017 to Mr. Naeem Khan valuing Rs. 12.65 million
w.e.f February 02, 2017 to February 01, 2018. The contractor paid cess of
Rs. 8.91 million with tax and went to default by leaving a balance of Rs. 3.74
million.

Audit was of the view that the management was required to obtain
postdated cheques equivalent to the remaining 75% amount of cess contract at the
close of auction but postdated cheques were not obtained which resulted into

120
non-recovery of Rs 3.74 million. Furthermore, management was also required to
take action against the defaulter contractor but the management took no action.

The matter was reported to the management on October 14, 2018 and to
PAO on October 22, 2018. The DAC in its meeting held on January 15, 2019,
directed the management to pursue the court case more vigorously.

Audit recommends compliance of the DAC directive.

4.6.4.3 Loss due to non-imposition of penalty on defaulters -Rs 24.81 million

According to Cess Collection Agreements, “The successful bidder

will pay 1/4th of the bid in advance and the remaining amount in three equal
installments. Further in case of failure of the contractor to deposit any installment
on due date, the Chairman Pakistan Tobacco Board reserves the right to cancel
the contracts with immediate effect or impose penalty equivalent to 10% of the
contractual amount and recover the amount from the property of the contractors.

During the audit of Pakistan Tobacco Board (PTB), Peshawar for the
years 2016-18, it was observed that the management awarded nine contracts to
different contractors for cess collection on Tobacco in different areas of Pakistan
valuing Rs 315.28 million. The contractors failed to pay installments on due date
and penalty of Rs. 24.81 million @10% was recoverable from contractors but the
management did not impose the same. This resulted into non-imposition of
penalty valuing Rs. 24.81 million from contractors.

Audit was of the view that the management was required to impose
penalty on the contractors due to late payment of installments but no penalty was
imposed which resulted into loss of Rs 24.81 million to the Board.

The matter was reported to the management on October 14, 2018 and to
PAO on October 22, 2018. The DAC in its meeting held on January 15, 2019,

121
directed to hold an inquiry at Ministry level headed by Joint Secretary,
Commerce Division to probe the matter and submit report within 60 days.

Audit recommends compliance of the DAC directive.

4.6.4.4 Loss due to award of civil work at higher rate – Rs 1.10 million

According to Rule-04 of Public Procurement Rules, 2004, the procuring

agencies while engaging in procurement, shall ensure that the procurement are
conducted in a fair and transparent manner, the object of procurement brings
value for money to the agency and the procurement process is efficient and
economical. Rules-38 further defines that the bidder with the lowest evaluated
bid, if not in conflict with any other law, rules, regulations or policy of the
Federal Govt. shall be awarded the procurement contract within the original or
extended period of bid validity.

During the audit of Pakistan Tobacco Board (PTB), Peshawar for the
years 2016-18, it was observed that the management invited bids for civil work of
PTB Head Office building through press advertisement. Bids were opened on
March 13, 2017 in which seven firms participated. M/s Said Wali Shah &
Brothers Peshawar offered lowest rates of Rs. 2.88 million but the management
awarded contract to 2nd lowest bidder M/s. Shahid Khan & Brothers at a cost of
Rs 3.98 million due to which PTB suffered loss of Rs 1.10 million. Further probe
into matter revealed that the management forwarded the bids to technical
committee comprising of non- technical officers. The management changed the
evaluation criteria and committee evaluated two bids of M/s. Shahid Khan &
Brothers and M/s CS International Lahore on the basis of submitted samples. The
work was awarded to second lowest bidder M/s. Shahid Khan & Brothers, prima
facie, by extending undue favour, which resulted into loss of Rs. 1.10 million.

Audit was of the view that the management was required to award the
contract to lowest evaluated bidder but contract was awarded to second lowest
bidder, which was held irregular.

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 The matter was reported to the management on October 14, 2018 and to
PAO on October 22, 2018. The DAC in its meeting held on January 15, 2019,
directed to hold an inquiry through a committee at Ministry level headed by Joint
Secretary (Admn). The report may be submitted within 45 days.

Audit recommends compliance of the DAC directive.

4.6.4.5 Loss due to non-deduction of Sales Tax – Rs 3.82 million

According to Para 2(1)(3) of Sales Tax S.R.O. No.660(I)/2007 dated June

30, 2007, “All withholding agents shall make purchases of taxable goods from a
person duly registered under the Sales Tax Act, 1990, provided that under
unavoidable circumstances and for reasons to be recorded in writing, purchases
are made from unregistered persons, the withholding agent shall deduct sales tax
at 17% of the value of taxable supplies made to him from the payment due to the
supplier”.

During the audit of Pakistan Tobacco Board (PTB), Peshawar for the year
2016-18, it was observed that the management executed/ approved a project
namely “Barns Modification” valuing Rs. 22.47 million on February 09, 2016. As
per project, total 400 barns were required to be modified in two years by the
farmers (60 barns in 1st year and 340 barns in 2nd year). For supply of material
i.e bricks, cements, sand, crash, iron rods, grills, doors and pipes to farmers, the
management awarded work orders to unregistered suppliers M/s Muhammad
Sardar & Brothers and M/s Sudais Associates valuing Rs. 4.29 million and
Rs 18.16 million on May 31, 2016 and May 10, 2017 respectively. The
management paid contract amounts to both contractors without deducting the
sales tax @ Rs 17% amounting to Rs 3.82 million.

Audit was of the view that as per rules, it was the sole responsibility of
the PTB management to deduct the tax at the time of payment but this was not
done. Thus due to non-deduction of Sales Tax from the unregistered suppliers,
Government sustained a loss of Rs 3.82 million.
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 The matter was reported to the management on October 14, 2018 and to
PAO on October 22, 2018. The DAC during its meeting held on January 15,
2019, directed the management to take up the matter with contractor for
re-imbursement of outstanding tax under intimation to Ministry/Audit.

Audit recommends compliance of the DAC directive.

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 Chapter-5
Ministry of Communications

5.1 Karachi Infrastructure Development Company Limited

5.1.1 Introduction

The Karachi Infrastructure Development Company Limited (KIDCL) is a

public unlisted company incorporated under Companies Ordinance, 1984 on June
02, 2015.

The principal object of the Company is to carry out the business of

expansion planning, designing, implementation, construction and execution of
infrastructure developments in Karachi and any other areas.

Government of Pakistan (GoP) Ministry of Communication issued

instructions for transfer of Special Project Management unit into the Company
along with all its assets, liabilities, employees and Business operations. The
objective of the Company is to take over and execute the Green Line Bus Rapid
Transport System (BRTS) Project of GoP.

5.1.2 Comments on Audited Accounts

5.1.2.1 The working results of the Company for the year 2017-18 are given below:
(Rs. in million)
% %
Particular 2017-18 Inc / 2016-17 Inc / 2015-16
(Dec) (Dec)
Service revenue net 62.14 77.08 35.091 412.58 6.846
Administrative expenses (95.63) 64.52 (58.13) 24.45 -46.71
Operating loss (33.49) 45.37 (23.04) (42.21) -39.867
Other income 25.889 (60.89) 66.198 82.31 36.31
Profit / (loss) after taxation (7.60) - 43.159 - -3.557
(Source Annual Audited Accounts)

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During the year under review, service revenue of KIDCL has increased by
77.08%, from Rs.35.091 million in 2016-17 to Rs.62.14 million in 2017-18.

5.1.2.2 Administrative expenses has become an area of concern for KIDCL,

which took a massive increase of 64.52%, from Rs.58.13 million in 2016-17 to
Rs.95.63 million in current year, due to which company sustained operating loss
of Rs.33.49 million as compared to operating loss previous year for Rs. 23.04
million

The reason for the increase in administrative expenses is major rise in Salaries,
wages and benefits which rose by 71.06%, the only area which impacted
operating results.
%
Particular 2017-18 Inc / 2016-17
(Dec)
Salaries, wages and benefits 64.894 71.60% 37.817

5.1.2.3 Other income is decreased by 60.89%, whereas company registered a

loss after taxation of Rs.7.603 million in 2017-18, the same was profit of
Rs.43.159 million in 2016-17.

5.1.3 Compliance of PAC Directives

No PAC directive was outstanding against the organization.

5.1.4 Audit Paras

5.1.4.1 Mis-appropriation of funds - Rs.81.087 million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 stats that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the Public-
Sector Company, which may include the Procurement of goods and services so as

126
to enhance transparency in procurement transactions, marketing of goods to be
sold or services to be rendered by the Public-Sector Company.

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that M/s. EA Consultant claimed
Rs.4.230 million per month on account salary for their officers / staff and the
same was paid by KIDCL. However, the record revealed that the EA Consultant
disbursed an amount of Rs.1.977 million to its employees on account of salary
per month. Resulting in excess amount of Rs.81.087 million @ Rs. 2.252 million
per month claimed by consultant during three years (Annex-19).

Audit is of the view that excess payment was made to the consultant
without ascertaining actual salaries of the employees. Which proves negligence
and poor financial management. Further, chances of financial embezzlement
could not be ruled out.

The matter was reported to the management in January 2018. DAC

meeting was held on November 26, 2018. The management apprised the DAC
that KIDCL is not responsible of the contract between the Project Consultant &
their staffs as this is the discretion of the consultant; KIDCL is only concerned
with the qualification of the staff mentioned in bidding process as per the
requirement of the project. The audit contended that during scrutiny of payment
record it was observed that lesser payment was made by the consultant to the
workers. Resultantly, either the management of KIDCL did not sign agreement
with due diligence or made excess payment to the consultant. DAC directed the
management that the issue may be referred to the Pakistan Engineering Council
(PEC) for obtaining its comments. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

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5.1.4.2 Non-imposition of Liquidated Damages - Rs. 4,599.872 million

According to the Para 5 of the Conditions of Contract, the amount of

liquidated damages per day of delay shall be entered by the Engineer/Employer
in Contract Data. Usually the liquidated damages are set between 0.05% and
0.10% per day and the maximum limit as 10 percent.

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that the management did not
impose liquidity damages as stated in the Letter of Acceptance. The contractors
failed to complete the projects well in time, but the management failed to impose
LD Charges as per agreement. The detail is attached as Annex-20.

Audit is of the view that management extended undue favor by not

imposing LD charges Rs.4,599.872 million, which resulted non completion of
projects by the contractors despite of lapse of more than one year from the actual
date of completion.

The matter was reported to the management in January, 2018. DAC

meeting was held on November 26, 2018. The management apprised that the
delayed was due to the shifting of utility lines and involvement of Sindh
Government for structural changes of the routes. Audit further requested to
provide the record for verification that whether extension was granted by the
competent forum and there is no cost escalation in the project. DAC directed the
management to get the record verified from audit on or before 10-12-2018.
However, no progress was reported till finalization of this report.

Audit recommends implementation of the DAC directives.

5.1.4.3 Unjustified revision of Cost - Rs. 2,843.652 million

According to the Section (J) of West Pakistan Buildings & Roads,

Department Code, any development of a project thought necessary while a work

128
is in progress, which is not fairly contingent on the proper execution of the work
as first sanctioned. Must be covered by a supplementary estimate, accompanied
by a full report of the circumstances which render if necessary. The abstract must
show the amount of the original estimate and the total of the sanction required
including the supplementary amount. A revised estimate must be submitted when
the sanctioned estimate is likely to be exceeded by more than 5 per cent (revised
to 10%) either from the rates being found, insufficient, or from any cause
whatever. Further, According to the Para 11 of the Govt. of Pakistan, Planning
Commission’s Guide lines, at the time of award of contract if it is found that cost
of the project would exceed the approval limits by 15%, get the project revised
and approved by the competent forum before implementation.

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that the management increased
cost of 05 projects several times ranging from 27% to 327.48% with the total
financial impact amounting to Rs.1,508.830 million in violation of above rule.
Moreover, the consultant failed to properly design /supervise the different works
of Company which caused unnecessary revision and extensions of the works.
However, management did not take any action against consultant failure in
supervision/design of infrastructure. Almost all contract packages were revised
more than 15% without any approval and proper justification. (Annex-21).

Audit is of the view that abnormal increase in the cost of the project
shows ill planning and weak internal controls on the part of the management.

The matter was reported to the management in January, 2018. DAC

meeting was held on January 11, 2019. The management informed that as the
parent ministry of KIDCL is Ministry of Communication and National Highway
Authority is the sister concern of KIDCL. KIDCL has adopted NHA variation
order procedure (NHACode-2005-Volume-I, rule-94, table : III-13) and
implemented same in the KIDCL after approved from BOD of KIDCL. The DAC
directed the management to provide all the data to audit for verification at the
earliest. However no progress was reported till finalization of this report.
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 Audit recommends implementation of the DAC directives.

5.1.4.4 Irregular hiring of consultant and sub consultants - Rs. 2,853.579

million

As per clause-3 of Pakistan Engineering Council Standard Guideline for

Pre-qualification of Consultant, the PECB by Laws require the client formations
to ensure equal and unbiased opportunity to all the eligible firms i.e. the ones
registered/licensed by the PEC to practice engineering profession in Pakistan.
The Notice must be publicly notified along-with scope of work of the project for
which the services of consultant are required. In addition to the fore going, the
client formations may also seek their Expression of Interest (EOI) from the
following:

i. Firms which have previously satisfactorily performed similar services for

the client on a similar project.
ii. Firms having already applied to the client and communicated their EOI
prior to issuance of public notification.
iii. Firms which have been involved in an earlier activity on the project e.g.
feasibility studies before services are to be procured for detailed design
and other activities that follow.
iv. Firms selected on the basis of data on consultants obtained from the
PEC’s Data base.

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that the management hired
consultant and sub-consultants at different times in violation of rules and paid
Rs. 2,853.579 million (Annex-22).

Audit is of the view that undue favour was extended to consultants / sub-
consultants and hired consultants of their choice in violation of rules at the cost of
the company.

130
 The matter was reported to the management in January, 2018. DAC
meeting was held on November 26, 2018. The management informed issue-wise
justification. The DAC directed the management to provide complete record to
audit before December 10, 2018 for verification. However, no progress was
reported till finalization of this report.

Audit recommends implementation of the DAC directives.

5.1.4.5 Favoritism in award of contract - Rs.319.547 million

As per rule 36(b) (viii) of PPRA 2004, after the evaluation and approval
of the technical proposal the procuring agency, shall at a time within the bid
validity period, publicly open the financial proposals of the technically accepted
bids only. The financial proposal of bids found technically non- responsive shall
be returned un-opened to the respective bidders; and

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that the management invited
tenders for its project GL-4 in April 2016. In response 09 bidders submitted the
bids, out of which five bidders were technically qualified. Moreover, M/s NPI
Construction Engineers after technical qualification was excluded from the
competition by the management on the plea that NPI has already won in bidding
process of project GL-5. It is pertinent to mention here that M/S NPI was the
lowest bidder in Contract Package of GL-05 i.e. 16.81% below the estimated cost
and it was expected to succeed also in this package therefore, the management
did not open deliberately his financial bid to accommodate M/S Usmani Jv
Reliable and award the contract irregularly to M/S Usmani JV Reliable sustained
expected loss of Rs. 319.547 million in higher quoted rate as compare to 16.81%
below in estimated rate in GL-5 project.

Audit is of view that undue favour was extended to the contractor due to
award of contract in non-transparent manner.

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 The matter was reported to the management in January 2018. DAC
meeting was held on November 26, 2018. The mmanagement informed that as
per PPRA Rules 23 & 24 the procuring agency (if deem necessary) may
incorporate any clause that it think necessary for work done and every detail is
clearly mentioned in the bidding documents and NIT.

The audit contended that the management, in fact discriminate and putting
the particular contractor at advantageous position which is against the rule 10 and
rule 32 of PPRA. In case the management conducted fair competition more
competitive rates could be obtained contractor has already been given the
identical nature of the work by the management which shows that the subject
contractor was qualified to execute the work. The DAC directed the management
to revisit the reply in the light of quoted rules. However, no progress was
reported till finalization of this report.

Audit recommends implementation of the DAC directives.

5.1.4.6 Irregular appointments of Engineers/Managers - Rs. 39.200 million

The management advertised its several vacancies in Newspapers by

laying down the appointment criteria. Further, According to the Govt. of
Pakistan, Establishment Division OM dated June 24, 2010, the Ministries
/Divisions/ Department are advised that hence forth, the concession of 5 years
general relaxation in upper age limit shall be clubbed with the maximum age
limit of the post in their advertisements. In case usual upper age limit of posts in
various Basic Pay Scales is as in column (a) below, the maximum age limit shall
be as in column:

General Age
Basic Pay Scale Age Limit Maximum Age Limit
Relaxation
1-15 25 + 5 years 30
16 28 + 5 years 33
17 30 + 5 years 35
18 35 + 5 years 40

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 19 40 + 5 years 45
20 45 + 5 years 50
21 50 + 5 years 55

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that the management appointed
13 Officers (Engineers / Managers) in violation of appointment rules/criteria
(Annex-23).

Audit is of the view that the management extended undue favour to the
officers which proves weak internal controls.

The matter was reported to the management in January, 2018. DAC

meeting was held on January 11, 2019. The management informed that
appointments were made through advertisement and HR Committee short listed
the candidates according to their profile and recommended the same to BOD.
Salaries of the incumbent were determined by the HR Committee according to
his/her credentials within the ambit of PC-01. Audit contended that short comings
have already been pointed out in audit paras. DAC directed the management to
make HR manual for KIDCL and recommended that contract of all those
employees who does not fulfill the specific criteria of the post may be reviewed
and get the record verified from audit. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

5.1.4.7 Non-payment of Stamp duty to Sindh Revenue Board - Rs.8.858 million

According to Section 15 of the Sindh Revenue Board (Amendment) Act,

2017 any instrument in the nature of memorandum or agreement made or entered
into by contractor with Government, a Corporation, local body, local authority,
commercial or industrial concern, whether singly owned or run through
partnership, body registered under the Company Law, a cooperative society or
any other organization to execute any work or to supply or to undertake cartage
133
of stores and materials and to provide engineering consultancy services or any
other services covered under above documents including a purchase order, work
order, cargo bill, a railway ticket of ACC, a running rate contract and other levies
and taxes pertaining to local bodies shall pay twenty paisa for every hundred
rupees or part thereof of the amount of the contract.

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that the management paid an
amount of Rs.4,428.841 million to the different contractors and suppliers on
account of construction of project. However, the stamp duty amounting to
Rs.8.858 million (4,428,841,000 x 0.20/100) was not paid to the Sindh Revenue
Board.

Audit is of the view that non-payment of stamp duty shows negligence on

the part of management.

The matter was reported to the management in January, 2018. DAC

meeting was held on January 11, 2019. The management informed that as per
Sindh stamp duty Act, it is responsibility of contractor to submit stamp duty on
contract on given rate to provincial government. Hence, KIDCL cannot withhold
stamp duty as per provincial tax laws. Audit contended that it was responsibility
of the KIDCL to ensure that all govt. taxes/fees are deposited in
federal/provincial exchanges. DAC directed that a letter will be sent to Sindh
Revenue Board. After suitable response from SRB, and if advised the stamp duty
be deducted and deposited in relevant head of accounts. However, no progress
was reported till finalization of this report.

Audit recommends implementation of the DAC directives.

5.1.4.8 Irregular award of additional charge of CEO along with dual pay -
Rs. 8.600 million

According to Fundamental Rule 35 and provision to Section 17 of the

Civil Servants Act, 1973 additional charge of a vacant post may be held by an
134
officer for three months. This term may be extended for another three months in
consultation with the Finance Department. On expiry of six months of additional
charge of a particular vacant post, the post would be treated as having been
abolished, and it cannot be revived without the concurrence of the Finance
Department. Further, As per section 10(ii/iii) of office memorandum of Finance
Division OM No.F.No.1(2)Imp/2016-333, Islamabad Dated 1st July 2016 that;
“Special Allowance on additional charge of identical/Non-identical is 20% and
10% of Basic pay respectively subject to maximum of Rs.12000.”

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that Mr. Muhammad Sualeh
Ahmed Faruqui (a BS-20 Officer) Principal Secretary to the Governor Sindh was
holding additional charge of Chief Executive Officer (CEO) KIDCL in addition
to his own services since last four 4 years. The officer drawn salary Rs. 8.6
million from KIDCL in addition to the regular salary from EOBI / Governor
house at the same time. Whereas, as per Finance Division’s OM referred above,
he was entitled only additional charge allowance @ 20% of Basic pay subject to
maximum of Rs.12,000.

Audit is of the view that the Mr. Farooqui retained charge of CEO,
KIDCL and drawn double salaries from EOBI / Governor House and KIDCL at
the same time in violation of rules.

The matter was reported to the management in January, 2018. DAC

meeting was held on November 26, 2018. The management informed that
Rs. 8.60 million as worked out by the auditors was not correct. Rs. 300,000 of
incentive allowance was decided in 1st meeting of BOD of KIDCL, if CEO is
hired on full time basis. CEO has only availed Rs. 2.4 million till June 30, 2017
for his service of two years in KIDCL as CEO. Audit contended that the officer
was holding the additional charge of the post of CEO, KIDCL. Whereas, he is a
civil servant and posted as Principal Secretary to the Governor of Sindh on
regular basis. Thus, being civil servant, his terms & conditions of service is
subject to the Government’s rules & regulations. According to which only 20%
135
of the basic pay was admissible as additional charge allowance. DAC referred the
para to FA of the Ministry for his opinion. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

5.1.4.9 Irregular payment of mobilization advance - Rs.74.347 million

Clause 60.12 (a) of standing forms of bidding documents of Pakistan

Engineering Council (PEC) states that an interest-free mobilization advance up to
15% of the contract price stated in the letter of acceptance shall be paid by the
Employer to the Contractor.

During audit of Karachi Infrastructure Development Company Limited

(KIDCL) for the year 2016-17, it was observed that in KAR/BRTS/GL/10 project
management paid mobilization advance to M/s. Greeves Pakistan
Rs.74.347million @ 20% in violation of PEC standards and guideline. As the
maximum limit of mobilization advance was fixed by PEC at 15% of the contract
value.

Audit is of the view that undue favour was extended to the contractor by
granting 20% mobilization advance instead of 15%. This is irregular.

The matter was reported to the management in January, 2018. DAC

meeting was held on November 26, 2018. The management apprised that no
mobilization advance was granted to the supplier. It is 20% of CIF (Cost
insurance & Freight) cost. As per provision of contract, 20% of CIF cost will be
given when contractor has given LC (Letter of Credit). 60% of CIF cost will be
given when contractor has given BL (Bill of lading) and 20% of CIF cost will be
given when contractor has provided the goods/ equipment at site to the
satisfaction of the Engineer. Audit contended that huge amount as advance was
released to the supplier for import of lifts and allied equipment without
considering the proposed schedule of installation of lifts. Thus, the amount was

136
blocked and undue favour was extended to the supplier. DAC directed the
management to examine necessity of the agreement clauses besides, verification
of the record by the audit on or before December 10, 2018. However, no progress
was reported till finalization of this report.

Audit recommends implementation of the DAC directives.

137
 Chapter-6
Ministry of Defence Production

6.1 Karachi Shipyard and Engineering Works Limited

6.1.1 Introduction

Karachi Shipyard & Engineering Works Limited (KS&EWL) 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.

6.1.2 Comments on Audited Accounts

6.1.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

6.1.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance compliance
awaited
1999-00 5 3 2 74, 77 60
2005-06 7 6 1 50 86
2013-14
(Paras
More Than
50 M) 1 1 5.1.4.1 0
2016-17
( Paras
More Than
50 M) 2 2 5.1.4.4, 5.1.4.5 0

Total 15 9 6 - 60%

The overall compliance of PAC directives needs improvement.

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6.1.4 Audit Paras
6.1.4.1 Non-recovery of Service Charges from customers - Rs. 337.607 million

Rule-38(1) of GFR states that it is primarily the responsibility of the

departmental authorities to see that all revenue or other debts due to government,
which have to be brought to account, are correctly and promptly assessed,
realized and credited to Public Account.

During audit of Karachi Shipyard & Engineering Works (KS&EW) for

the year 2016-17, it was observed that the management failed to recover amount
of Rs.337.607 million from various clients/customers on account of Ship repairs,
Ship Building and General Engineering Services as on June 30, 2017.

Audit is of the view that non-recovery of huge amount shows negligence

on the part of the management which indicates weak internal controls.

The matter was reported to the management in March, 2018. DAC

meeting was held on January 15, 2019. The management informed that
Rs. 198.00 million (approx) has been recovered and efforts are being made for
early recovery of the remaining amount. The DAC directed the management to
recover the remaining amount within 06 weeks. However, no progress was
reported till finalization of this report.

Audit recommends implementation of the DAC directives.

6.1.4.2 Irregular placement of PSDP funds into commercial banks

- Rs. 2,346.377 million

Controller General of Accounts Letter No. 574/CGNAC-IV/1-1/2011

dated June 20, 2012, Para 2 (VI) of the revised procedure for operation of
Assignment Account, the transfer of funds from the assignment account for
deposit into chest or any bank account is forbidden.

139
 During audit of Karachi Shipyard & Engineering Works (KS&EW) for
the year 2016-17, it was observed that the management transferred PSDP (Ship
Lifting & Transfer System Project) funds of Rs. 2,346.377 million from
assignment account (NBP) to commercial banks in violation of above rule. The
detail is as under:

Sr. Deposit Balance as on

Name of Bank Account No.
No. since 30-06-2017 (Rs.)
1. Allied Bank 0010000080820041 July, 2009 1,060,418,920
2. Bank Islami 10030020079-0201 (616) July, 2011 1,285,959,052
Total 2,346,377,972

The management vide letter No.SLTS/MoDO/Admn/17/444 dated

December 18, 2017 reported to the administrative Ministry that no public funds
were deposited into commercial banks which tantamount to misreporting.

Audit is of the view that the management/Ministry misreported the facts

of parking of public funds into commercial banks and chances of financial
violation could not be ruled out.

The matter was reported to the management in March, 2018. DAC

meeting was held on January 15, 2019. The management informed that funds
were deposited in the commercial banks for opening of the Letter of Credits
(LC). However, due to default by the contractor, project could not be finalized
therefore; funds were transferred from assignment account to commercial banks
A/Cs. A detailed inquiry was also conducted and major punishment was given to
the officer. Audit contended that funds cannot be transferred from assignment
account to commercial bank without permission of the Finance Department.
Further default by the contractor showed that technical and financial position was
not evaluated properly resulting into default by the contractor. DAC directed the
management to share the inquiry report along with all related record with audit
and submit revised reply in next DAC/PAC meeting.

Audit recommends implementation of the DAC directives.

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6.1.4.3 Loss due to default by the supplier - Rs.1,911.18 million
Rules 20 & 23 of GFR states that every Govt. officer should realize fully
that he will be held responsible for any loss sustained by the Government through
fraud or negligence on his part or on the part of any other officer to the extent to
which it may be proved that he contributed through his own negligence or action.

During audit of Karachi Shipyard and Engineering Works (KS&EW) for

the year 2016-17, it was observed that in January, 2009 the management awarded
a contract for fabrication and installation of steel structure and accessories to ship
lift and transfer system (PSDP project) to M/s Schiess-Defrries Engineering
GmbH, German based Company amounting of US$ 6.300 million and Rs. 56.610
million against 2,589 ton steel plates, 239 ton welding material for fabrication of
platform, and service charges respectively. Meanwhile, the supplier become
insolvent and claimed that the requisite materials were supplied to KS&EW. The
management claimed that out of total requirement 200 tons of material was short
supplied. However, no record was available in the files relating to supply of
material. Moreover, in July 2010 the management claimed an amount of Euro
16.619 million equivalent to Rs.1,911.180 million from the supplier (including
the amount released, delay penalty, price increase of the new contract,
escalations, etc). The same was still outstanding.

Audit is of the view that undue favour was extended to the contractor as
no proper financial position and other eligibility criteria were observed.

The matter was reported to the management in March, 2018. DAC

meeting was held on January 15, 2019. The management informed that funds
were deposited in the commercial banks for opening of the Letter of Credits
(LC). However, due to default by the contractor, project could not be finalized
therefore; funds were transferred from assignment account to commercial banks
A/Cs. A detailed inquiry was also conducted and major punishment was given to
the officer. Audit contended that funds can’t be transferred from assignment
account to commercial bank without permission of the finance department.

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Further default by the contractor showed that technical and financial position was
not evaluated properly, resulted into default by the contractor. DAC directed the
management to share the enquiry report along with all related record with audit
and submit revised reply in next DAC/PAC meeting.

Audit recommends implementation of the DAC directives.

6.1.4.4 Loss due to purchase of engines at higher rates - Rs. 385.447 million
Rule-12 of Public Procurement Rules, 2004 states that all procurement
opportunities over two million rupees should be advertised on the Authorities
website as well as in other print media or newspapers having wide circulation.
The advertisement in the newspapers shall principally appear in at least two
national dailies, one in English and the other in Urdu. Further, clause 33B of
National Accountability Bureau (Amendment) Ordinance 2002 requires statutory
Corporations or authorities established by the Federal Government shall furnish a
copy of contract of fifty million rupees or more to NAB within reasonable time.

During audit of Karachi Shipyard and Engineering Works (KS&EW) for

the year 2016-17, it was observed that in July 2016 the management purchased
MTU marine engines directly from one supplier i.e., M/s Middle East FZE
amounting to EURO 4,379,459 equivalent to Rs. 446.348 million in violation of
above rules. It is further evident that these engines were almost of same power,
but there was huge difference of price i.e. the engines purchased were 10 times
higher than the engine of Cummins. Thus, KS&EW sustained a loss of
Rs. 385.447 million (Rs. 446,347,572- Rs. 60,900,000=USD 145,000 x 4 engines
x Rs. 105) due to procurement without open tendering. The detail is as under:
Sr. Description MTU Engine purchased Cummins
No.
1. Cylinders 16V 16V
2. Power kw 2720 2935/3935
3. Speed rpm 2100 1800
4. Price Euro1,094,864 US$ 145,000

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 Audit is of the view that undue favour was extended to contractor and
KS&EW was deprived from the benefits of the competitive bidding.

The matter was reported to the management in March, 2018. DAC

meeting was held on January 15, 2019. The management informed that KS&EW
install the parts/engine as required by customer, i.e. Pak Navy, which already
specified the required parts to be purchased from the OEM. Further, there is
difference of specification & components between the engines purchased and
engines quoted by Audit. DAC directed the management to provide documentary
evidence to audit for verification & obtained ex-post facto approval for being
proprietary item from PAO/Secretary MoDP. However, no progress was reported
till finalization of this report.

Audit recommends implementation of the DAC directives.

6.1.4.5 Irregular appointment of officers and staff - Rs. 359.212 million

Establishment Division O.M.No.8/31/2000-R.3, dated 11-10-2000.Civil

Servant Rule, 1973 regarding quota system states that vacancies in the
under-mentioned posts shall be filled on All-Pakistan basis in accordance with
the merit and provincial or regional quotas prescribed by Government from time
to time. Further, recruitment Policy for the Federal Services/ Autonomous
Bodies/Corporation issued by the Establishment Division vide OM dated 22
October 2014 endorsed the conditions of Civil Servant Rules-1973.

During audit of Karachi Shipyard and Engineering Works (KS&EW) for

the year 2016-17, it was observed that 2,443 employees (Officers/ staff) were
appointed on different posts and in different departments, without observing the
pre-requisite formalities such as quota system, advertisement, relevant
qualification and experience, age etc. Thus, the pay and allowances of
Rs. 359.212 million of employees were irregular and unjustified. Further, Service
Rules of KS&EW were prepared in contravention of the orders of Establishment
Division.

143
 Audit is of the view that the management extended undue favour to the
official appointed without observing the above rules and failed to provide equal
opportunity to the public.

The matter was reported to the management in March, 2018. DAC

meeting was held on January 15, 2019. The management informed that KS&EW
is an unlisted company under Companies Act and is governed by the Board of
Directors. Since more than two decades, no induction/ recruitment has been made
in regular cadre, but are hired on yearly contract basis. DAC directed the
management to consolidate the service rules of KS&EW in the light of Govt.
rules/direction and Corporate Governance Rules and get them approved from the
BoD and Government of Pakistan within three months or Government services
rules be followed in letter and spirit. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

6.1.4.6 Irregular appointment beyond age of superannuation - Rs.7.857 million

Govt. of Pakistan, Establishment Division, through OM dated December

04, 2007 issued directives that re-employment beyond the age of superannuation
on contract is restricted to few cases where the expertise of the civil servant is
still required by the Government, and such re-employment requires approval of
the Prime Minister. All Ministries/Divisions were directed that no case of
re-employment beyond the age of superannuation be initiated as matter of routine
and without following the laid down procedure. These directives are also
applicable to the attached Departments/ Subordinates Offices /Autonomous
Bodies/Semi-Autonomous Bodies /Corporations etc.

During audit of Karachi Shipyard and Engineering Works (KS&EW) for

the year 2016-17, it was observed that the management appointed Mr. Siddique
Ahmed as DGM on contract basis in September 2012, for a period of one year at
salary of Rs. 65,685 per month after the age of superannuation in violation of
144
above rule. Thus, payment of Rs. 7.857 million (Rs. 130,951 x 5 year x 12
months) on account of salary was held irregular.

Audit is of the view that undue favour was extended to the incumbent and
management deliberately violated the rules of the Govt. of Pakistan.

The matter was reported to the management in March, 2018. DAC

meeting was held on January 15, 2019. The management informed that
Mr. Siddique Ahmed, DGM is no more on KS&EW payroll and his services has
been stuck off w.e.f September 11, 2017. The DAC directed to regularize the
matter from competent forum. However, no progress was reported till finalization
of this report.

Audit recommends implementation of the DAC directives.

6.1.4.7 Violation of rules due to non-appointment of CIA, CFO & Company

Secretary

Rule-13(1) of the code of Corporate Governance Rules 2013, states that

the Board shall appoint a Chief Financial Officer, the Company Secretary, and a
Chief Internal Auditor by what so ever name called.

During audit of Karachi Shipyard & Engineering Works (KS&EW) for

the year 2016-17, it was observed that the management did not appoint the Chief
Internal Auditor, Chief Financial Officer and Company Secretary as required by
the above code of Corporate Governance. Moreover, Deputy General Manager
(Internal Auditor) and General Manager (Procurement) were working as Director
Finance as per Organizational Chart provided to audit, which was violation of
above rules.

Audit is of the view that the above position shows weak internal controls
and also conflict of interest.

145
 The matter was reported to the management in March, 2018. DAC
meeting was held on January 15, 2019. DAC directed the management to abide
by the corporate rules and to consolidate the service rules of KS&EW in the light
of Govt. rules/direction and Corporate Governance Rules and get them approved
from the BoD and Government of Pakistan within three months.

Audit recommends implementation of the DAC directives.

146
6.2 Pakistan Ordnance Factories

6.2.1 Introduction

Pakistan Ordnance Factories were established under the POFs Board

Ordinance 1961 to meet the arms and ammunition requirements of Pakistan
Armed Forces during peace and war. For the purpose, it has 14 manufacturing
units along with services department.

6.2.2 Comments on Audited Accounts

6.2.2.2 Comments on audited accounts are included in the Commercial Appendix
to Appropriation Accounts of the Defence Services for the year
2017-18.

6.2.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of
Year Paras Compliance Compliance compliance
1991-92 22 20 02 7,8 91
1992-93 12 11 01 49 92
1994-95 38 36 02 14,78 95
1995-96 12 08 04 66,67,68,107 67
1997-98 18 16 02 42,44 89
1999-00 18 16 02 15,16 89
2003-04 04 01 03 1.3.14,1.3.18,1.3.19 25
2009-10 16 08 08 50&51,52,53,54,55,56,58,1.2 50
2013-14 16 04 12 1.1.2,1.1.5,5.2.1,5.2.2&5.2.2. 25
1,5.2.3,5.2.4.1,5.2.4.2,5.2.4.3
,5.2.4.4,5.2.4.5,5.2.4.6,5.2.4.
7
2016-17 12 01 11 (5.2.1&5.2.2,5.2.2.1,5.2.3,5.2 8
.4.1,5.2.4.2,5.2.4.4,5.2.4.5,5.
2.4.6,5.2.4.7,5.2.4.8,5.2.4.9)
Total 168 121 47 72

The overall compliance of PAC directives was not satisfactory, especially

in the year 2003-04. No PAC was held for subsequent years.
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6.2.4 Audit Paras

6.2.4.1 Loss due to theft of store - Rs. 2.40 million

According to the Rule 159 of General Financial Rules (GFR), the physical
verification of stores should be carried out at least once a year by a competent
authority. The work should not be entrusted to a person; Who is custodian, the
ledger keeper or accountant of store to be verified; Who is not conversant with
the classification, nomenclature or techniques of store to be verified; Who is low
paid subordinate?

During the audit of POF Explosive Factory for the years 2015-17, it was
observed that physical verification was not conducted regularly which resulted in
theft of store of substantial value. Court of Inquiry (COI) was conducted on the
directives of Director Admin dated November 20, 2013 to probe into the matter.
As per findings of the Court of Inquiry 2290.44 Kgs of copper valuing
Rs. 2.99 million was found short as a result of embezzlement during the period of
three years. The inquiry officer recommended the dismissal of Mr. Sohail Ahmed
Senior GK from service along with recovery of the amount of Rs. 2.40 million on
November 18, 2014. This resulted into loss of Rs. 2.40 million due to theft of
copper.

Audit was of the view that there were serious loopholes in the Internal
Control System of the POFs Explosives. These loop holes facilitated the culprits
to indulge in this activity over a long period of three years. The inquiry report
was incomplete as it recommended action against only one person. All other
persons have been exonerated. Furthermore, no recovery was affected from the
culprits, which showed lack of follow up action, by the management.

During DAC meeting held on December 19 to 21, 2018, management

apprised the Committee that dismissed employees filed a petition in the FST
against the dismissal order. The DAC directed the management to recover the

148
amount from the accused and pursue the case actively. No recovery was affected
till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.2 Irregular contracting for imported Machine Guns - Rs 544.38 million

According to Para-2 of Ministry of Defense Production letter No. MoDP’s

U.O. dated April 06, 2016, import of Finished Defense Stores for Armed Forces
as well as Law Enforcement Agencies was neither covered in POFB Act nor
Policy letter bearing U.O. Note dated September 16, 1999. Moreover, according
to Extracts No. 1972/POF dated February 01, 2016 and 2053/POF dated April 28,
2016 received from the General Manager Production Coordination, the factory
had to manufacture two hundred and sixty two (262) 12.7mm AA Machine Guns
type W-54 with its accessories valuing Rs 374.95 million for Inspector General
Head Office Baluchistan Quetta and Khyber Pakhtunkhwa with delivery period
up to June 30, 2017 and June 30, 2018 respectively instead of its import.

During the audit of Pakistan Ordnance Machine Gun Factory Wah Cantt
for the years 2014-17, it was observed that:

i. The management invited sealed bids for supply of defense store as per
Chinese specification through Tender Inviting Notice in Daily Dawn
Islamabad dated June 16, 2016 with opening date July 16, 2016.
ii. Three firms offered their rates out of which the rate of US $ 6,880 (C&F)
per unit quoted by M/s Sky Wise Development Ltd China was lowest.
Contract No. 0002-FP-46-Pur-MGFY dated October 01, 2016 was issued
to M/s Sky Wise Development Ltd Beijing China for supply of 750
12.7mm AA M.G with complete accessories (W-54) with total cost of US
$ 5,160,000 equal to Pak Rs 544.38 million (C&F value up to Karachi
Seaport) within 10 months after opening of Letter of Credit @ US $
6,880 per unit.
iii. The Letter of Credit was opened on November 25, 2016 but the firm
failed to supply the total quantity of requisite store in stipulated period as
149
 stated in POF letter No 0002-FP-46-Pur-MGFY dated January 01, 2018.
The store was still under procurement.

Audit was of the view that POF, Machine Gun Factory was capable
enough to manufacture Machine Guns locally instead of importing and spending
foreign exchange. Moreover, the subject import was in violation of Ministry of
Defense instructions.

During DAC meeting held on December 19 to 21, 2018, management

informed the Committee that import was made in view of the capacity constraint
of the factory. The DAC decided that the MODP would review the whole case.
The case was not reviewed by the MODP till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.3 Irregular import of armed forces stores - Rs 339.43 million

According to Para-2 of Ministry of Defense Production letter

No. Ministry of Defence Production U.O. dated April 06, 2016, import of
Finished Defense Stores for Armed Forces as well as Law Enforcement Agencies
was neither covered in POFB Act nor Policy letter bearing U.O. dated September
16, 1999. Further, as per Finance Division O.M No F.15, (13)-R 14/82 dated
September 05, 1982, funds should be utilized with due care and caution strictly in
accordance with the prescribed rule or specific orders of the Government.

During the audit of Pakistan Ordnance Machine Gun Factory Wah Cantt
for the years 2014-17, it was observed that contrary to above directives the
management imported 8,100 Pistols B6 having CFR value up to Islamabad
Airport US$ (FOB) 2,096,259 (including air freight charges US $ 30,759)
equivalent to Pak Rs 212.25 million through M/s Sarsilmaz Silah Sanayi A.S.,
Turkey vide Contract dated April 11, 2016. The store was received from March
01, 2017 to April 06, 2017 for total amount of Rs 339.43 million. As the import
of Finished Defense Stores for Armed Forces as well as Law Enforcement

150
Agencies was not allowed as per POF Board Act, Policy letter bearing U.O. Note
dated September 16, 1999, therefore, incurrence of expenditure of Rs 339.43
million was held irregular.

Audit was of the view that the management despite having manufacturing
capacity imported the pistols against the standing instructions which was held
irregular.

During DAC in its meeting held on December 19 to 21, 2018

management informed the Committee that the store was imported with the
approval of MODP. The DAC directed that the profit earned by POF and WIL on
sale of Pistol/Gun, imported from Turkey may be deposited into Govt. Treasury.
However, the profit amount was not deposited into Govt. treasury despite DAC
directive.

Audit recommends compliance of the DAC directive.

6.2.4.4 i Irregular acceptance of offer and award of contract - Rs. 95.58

million
ii Non-obtaining of performance guarantee - Rs. 9.58 million

According to Tender Enquiry Clause-4.1, “the bid money at the rate of

2% (for registered firms with POF) and 5% (for unregistered firms) of the quoted
value should accompany the tender in shape of Deposit at Call Receipt/ Pay
Order/ Banker’s cheque from a scheduled bank drawn in favour of GM-Purchase-
I”. Moreover Chairman POF Board issued instructions vide Director S.C.
Management letter dated February 21, 2017 for compliance during procurement
processes that offers/ bids of the firms, fulfilling all the terms & conditions of the
TE should only be accepted. Conditional offers should be rejected at the time of
opening of tender and offers received without tender fee and insufficient bid
money should not be entertained”.

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 During audit of POF Director Supply Chain Management, for the years
2016-17, it was observed that the management floated RFP/ EOI on PPRA
website and print media for pre-qualification of firms for procurement of High
End ICT Equipment for Safe City Project with the opening date on January 18,
2017. Resultantly eight firms participated and only two firms pre-qualified.
Commercial offers of both the pre-qualified firms were opened on February 08,
2017. However, it was found that both the firms did not submit bid money @ 5%
of the quoted price alongwith their offers. As per requirement of Tender Enquiry
and Chairman POF Board’s instructions, both the bids were required to be
rejected and should not be entertained. However the management obtained the
bid money from the lowest bidder through correspondence and signed an
agreement with M/s Techaccess Pakistan Private Limited (lowest bidder) for
supply, installation and commissioning of store/equipments worth Rs. 95.58
million. In this way, undue favour was extended to the supplier against the
provisions of TE and Chairman POF Board instructions. It was further observed
from record that the management did not obtain performance guarantee @ 10 %
of the total value of contracted store i.e. Rs. 9.58 million, from the supplier for
satisfactory execution of the contract according to the provisions of the contract.

Audit was of the view that the awarding of contract and subsequently
allowing the technically prequalified firms to deposit bid money and
non-obtaining of performance guarantee was in violation of the provisions of TE
and Chairman POF Board instruction. The procurement was therefore, considered
irregular.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management to submit revised reply. Revised reply was not received till the
finalization of this report.

Audit recommends compliance of the DAC directive.

152
6.2.4.5 Irregular payment to the supplier - Rs. 19.12 million

According to Clause-13 of the Contract Agreement signed between

M/s Techaccess Pakistan Private Limited and POF Director Supply Chain
Management, payment to supplier will be made according to following terms.

 20% advance payment against CDR/Bank Guarantee of equal amount as BG

to be released after receipt of equipment.
 60% payment will be released after receipt of HW Equipment.
 20% payment will be released after installation, commissioning integration
and testing of the complete project (means after FAT).

During the audit of POF Director Supply Chain Management, for the
years 2016-17, it was observed that the management signed an agreement with
M/s Techaccess Pakistan Private Limited on March 03, 2017 for supply,
installation and commissioning of store/equipments worth Rs. 95.58 million for
safe city project with completion time up to June 05, 2017. The supplier could
not complete the project within the prescribed schedule and requested vide its
letter dated 24 October 2017 to extend the completion date of the project till
December 30, 2017, which was accepted by the management. Inspite of failure of
the contractor, full payment of the project was released during June 2017 before
completion of installation, commissioning integration and testing of the project.

Audit was of the view that the payment of Rs. 19.12 million was made to
supplier in violation of terms of contract therefore payment was held irregular
and undue favor to the supplier.

During DAC held on December 19 to 21, 2018 management informed the

Committee that the payment was made as per terms of contract after completion
of project. Audit was of the view that the acceptance certificate was issued just
to make the payment. The DAC directed the management that the physical
verification report regarding completion of project may be provided to audit. The
requisite documents were not provided to audit till the finalization of this report.

153
 Audit recommends early submission of revised reply alongwith
supporting document as per directive of the DAC.

6.2.4.6 Irregular procurement without obtaining competitive rates - Rs. 364.42

million

According to Rule-12 (2) of PPRs-2004, “All procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu. Moreover according to Rule-42 c (ii) of PPRs-
2004 “A procuring agency shall only engage in direct contracting if the following
conditions exist, namely only one manufacturer or supplier exists for the required
procurement: Provided that the procuring agencies shall specify the appropriate
fora, which may authorize procurement of proprietary object after due diligence.

During the audit of POF SAA Factory for the years 2015-17, it was
observed that the management awarded contract dated April 29, 2016 worth US $
3,599,212.50 equivalent to Pak Rs. 364.42 million without obtaining competitive
rates to M/s Poly Technologies Inc. China on C & F basis for procurement of
“7.6x39 mm Ball Ammunition” quantity 26.75 million. The contract was
awarded to the firm on the instructions of GHQ GS Branch W & E Rawalpindi
dated October 29, 2015 through direct contracting without declaring the product
as proprietary as per criteria given in PPRA Rules. Hence, the management made
violation of PPRA rules. Thus, expenditure of Rs. 364.42 million incurred on
procurement of store without obtaining of competitive rates/ through direct
contracting in violation of PPRA Rules was held irregular.

During DAC dated December 19 to 21, 2018 management apprised the

Committee that the order was placed on M/s PTI on the directives of GHQ GS
Branch W & E Dte. Rawalpindi. The DAC directed the management to refer the
case to MODP for ex-post-facto approval.

154
 Audit recommends compliance of the DAC directive.

6.2.4.7 Irregular enhancement of civil works contract - Rs. 7.00 million

According to Rule-12 of PPRs 2004, “All procurement opportunities over

two million rupees should be advertised on the Authority’s website as well as in
other print media or newspapers having wide circulation. The advertisement in
the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.” Rule-42 c (iv) further states that repeat orders/
enhancement should not exceed fifteen per cent of the original procurement/
contract.

During the audit of POF Explosives Factory for the years 2015-17, it was
observed that:

i. The management awarded civil works contract worth Rs. 1.5 million to
M/s Pyramid Engineering (Pvt) Ltd for repair & maintenance of
buildings of POFs Explosives Factory during the year 2015-16.
ii. Similarly another civil works contract worth Rs. 1.5 million was awarded
to M/s Hanif & Co for repair &maintenance of buildings of the factory
during the year 2016-17.
iii. Later on, both these contracts were enhanced to Rs. 3.5 million each on
the plea that certain civil works / repair and maintenance works was yet
to be carried out.
iv. As the amounts of enhancement in contracts was more than 100 % of the
original contract value and were over and above Rs. 2.00 million in each
case, hence the management was required to obtain fresh competitive
rates through print media or newspapers, which was not done.

Audit was of the view that the enhancement in civil works worth Rs. 7.00
million in violation of PPRA Rules was held irregular.

155
 The DAC in its meeting held on December 19 to 21, 2018 directed the
management to hold a fact-finding enquiry to probe the reasons of enhancement
of civil works. Fact finding Inquiry was not held despite DAC directive.

Audit recommends compliance of the DAC directive.

6.2.4.8 Irregular cash payment - Rs 9.570 million

According to FBR (CBR) Notification No.F.4 (1) TP/2004-EC dated July

17th 2004, expenditure incurred under single account was inadmissible if it
exceeded Rs 5,000 and not paid through cross cheque. Clause(1) of Section 21 of
the Income Tax Ordinance, 2001 has been amended to raise the limit to
Rs 10,000 for the purpose of making payment through crossed cheque under a
single account head. Further as per para-6.5 of Purchase Manual of POF,
payment will be made by the C.O.F.A through cross cheque on
receipt/acceptance of store on prescribed bill form supported by receipt voucher
on part/full supply basis.

During the audit of CMA POFs Wah for the years 2011-17, it was
observed that the management purchased stores to the extent of Rs 9.57 million
during the period 2013-14 to 2016-17. It was noticed that the prescribed
directives for purchases were not observed and payments were made in cash
instead of crossed cheques to the concerned parties. Thus, the entire expenditure
was held irregular.

During DAC held on December 19 to 21, 2018 management admitted the

cash purchases on the plea that the procurements were made in emergency,
however, the practice has been stopped forthwith. The DAC directed the
management to segregate the procurement cases with regard to their requirement
and value and revised reply be submitted to audit for consideration. Revised reply
was not received till the finalization of this report.

Audit recommends compliance of DAC directive.

156
6.2.4.9 Irregular payment based on fake completion report – Rs 39.16 million

According to clause 61 (a) of MES Regulations, “as soon as possible after

the completion of the works to the satisfaction of the GE, the contractor bill shall
be accompanied by all abstracts, vouchers, etc supporting it and shall be prepared
in the manner prescribed by the GE. No claims will be entertained after the
contractor has signed the No Demand Certificate.”

During the audit of Director Civil Work (DCW) for the years 2017-18, it
was observed that contract was awarded to M/s Wah Construction Ltd. for
construction of building for DCW Offices at POF Wah Cantt. Total value of
contract was Rs 39.97 million. As per completion report, the building was
completed on June 01, 2018. However, building was not handed over due to the
reason that building was only 60% complete, necessary accessories were not
installed. Final payment was made on fake completion report which resulted into
loss of Rs. 39.16 million.

During DAC meeting held on December 19 to 21, 2018, the management

apprised the Committee that the building had been completed. However audit
highlighted that prima facie final payment was released on fake completion
report. The DAC showed its concern over change of the title in working papers
and directed the management to hold an inquiry on the matter. The DAC further
directed that relevant record regarding completion of building may be provided to
audit for verification. No record was produced by the management till the
finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.10 Irregular enhancement in the scope of work - Rs 6.57 million

According to Para-9 (c.) of MES Regulations 1998 “ the deviation limit to

a contract will not exceed 20 per cent for contracts estimated to cost over

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Rs 1.250 million without the prior sanction of DW & CE concerned”. Each case
will be considered on its merits and the deviation limit fixed as low as possible.

During the audit of Director Civil Work (DCW) for the year 2017-18, it
was observed that the management awarded contract to M/s Danyal Enterprise
Wah Cantt valuing Rs 12.57 million vide contract agreement dated December 19,
2015 for rectification of leakage /seepage in power house at POF Wah Cantt.
Work Order dated January 01, 2016 was issued to the contractor for completion
of work within three months up to March 31, 2016. The contractor failed to
complete the subject work within time schedule mentioned in the first work order
however, submitted 1st running bill of Rs 4.10 million on June 21, 2016 and 2nd
running bill of Rs 1.27 million on October 29, 2016. It was observed that the
contract was revised in February 2017 and the scope of work was enhanced from
Rs 12.57 million to Rs 18.68 million. This resulted into irregular 52%
enhancement in scope of work worth Rs 6.57 million which was beyond the
permissible limit of 20% of MES Regulations 1998 and was held irregular.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management to hold a fact-finding inquiry to probe the reasons as to why both
MES and PPRA rules were not followed by DCW. Fact Finding Inquiry was not
conducted by the management till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.11 Irregular appointment of consultant - Rs. 2.10 million

According to approved sanctioned strength of POF Weapon Factory, there

was no post of Consultant Weapons & Ammunition. Further As per Cabinet
Secretariat Establishment Division OM. dated Jun 21, 2005 “Engagement of
retired officers as Consultant/ Advisors etc shall require prior permission of the
Government, invariably i.e. Establishment Division in case of retired civilian
officers, Defence Division in case of retired defense officers and Law, Justice and
Human Rights Division/ Supreme Court in case of retired judiciary officers”.

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 During the audit of POF Weapon Factory for the year 2016-17, it was
observed that the management appointed Col (R) Jawed Umer as consultant
Weapons & Ammo on contract basis for a period of one-year w.e.f July 01, 2017
on monthly pay package of Rs. 175,000. The officer joined the duty w.e.f
December 28, 2017. However, there was no post of Consultant, Weapons
&Ammunition as per approved strength of the factory. Moreover, as per policy
instructions of Government of Pakistan for appointment of retired defence
services employees, POF management was required to obtain approval of the
Defence Division, which was not sought. This resulted into irregular appointment
of consultant and payment of pay and allowances amounting to Rs 2.10 million.

Audit was of the view that due to appointment of consultant in the

absence of relevant post in sanctioned strength and in violation of Government
instructions, appointment of the consultant was irregular.

During DAC meeting held on December 19 to 21, 2018 management

apprised the Committee that POF Board was competent to appoint a consultant
on contract. The DAC directed to get the matter regularized from the competent
forum.

Audit recommends compliance of the DAC directive.

6.2.4.12 Irregular procurement by splitting the requirement -Rs 1.26 million

According to Rule-9 of PPRs-2004, “a procuring agency shall announce

in an appropriate manner all proposed procurements for each financial year and
shall proceed accordingly without any splitting or regrouping of the procurements
so planned. The annual requirements thus determined would be advertised in
advance on the Authority’s website as well as on the website of the procuring
agency in case the procuring agency has its own website”.

During the audit of POF M.A.A Factory for the year 2016-17, it was
observed that the management purchased five items having value Rs. 1.26 million

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through different cash purchase orders from different suppliers. However, these
purchases were made by splitting the requirement. The management made
purchases without assessing the actual annual requirement and purchases were
made during the whole year through different purchase orders by obtaining
hand-collected quotations in violation of PPRs.

Audit was of the view that the procurement of Rs. 1.26 million by
splitting the requirement in violation of PPRs was irregular.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management to hold an inquiry on frequent cash purchases made by the factory
and the findings of the inquiry may be shared with the PAO. No inquiry was held
by the management despite directive by the DAC.

Audit recommends compliance of the DAC directive.

6.2.4.13 Non-recovery of building rent - Rs 16.20 million

According to Para-23 of GFR Vol I & II, every officer should realize fully
and clearly that he will be personally held responsible for any loss sustained by
government through fraud or negligence on his part and that he will be personally
responsible for any loss arising from fraud or negligence on the part of any
officer to the extent to which it may be shown that he contributed to the loss by
his own action or negligence.

During audit of Director (Admn) including Rent and Estate POF Wah
Cantt for the years 2009-17, it was observed that POF’s Hotel was renamed as
POFs Guest House in January 2015. The management revised the monthly rent
w.e.f 7/2017. The POF Hotel management did not pay revised rent for the period
January 2015 to June 2017 (30 months) in violation of government rules /
procedure.

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 Audit was of the view that the hotel was renamed as POF Guest House in
January 2015 and revised building rent of Rs 16.20 million for the period w.e.f.
01/2015 to 6/2017 @ Rs 540,000 per month was not recovered from the POF
Hotel management.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management to get the amount of rent deposited into Govt. Treasury.

Audit recommends compliance of the DAC directives.

6.2.4.14 i Non-recovery of rent from NGO, Sir Syed Education Society,

Wah Cantt - Rs 4.32 million
ii Non-deposit of recovered rent in POF Account - Rs 1.35 million

According to clause-vi of the agreement between POF Welfare Trust

(1st Party) and Sir Syed Education Society (2nd Party) dated August 19, 2011,
the 2nd party shall pay Rs 150,000 to 1st Party on account of monthly rent by 5th
of each month. The monthly rent shall be increased @ 10% at the end of the each
agreement year.

During audit of Director (Admn) including Rent and Estate POF Wah
Cantt for the years 2009-17, it was observed that the management provided
seventeen (17) quarters to Wah Industries Home (WIH) until completion of
orders received from POF Clothing Factory. In August, 2011, upon the closure of
WIH due to non receiving of orders from POF Clothing Factory, the quarters
were handed over to an NGO M/s Sir Syed Education Society by the
management of Welfare Trust through an agreement dated August 19, 2011 valid
for a period of 10 years at a monthly rent of Rs. 150,000 per month. The said
NGO paid only 50% of the monthly rent i.e Rs. 75,000 per month instead of
Rs. 150,000 per month total rent of Rs. 1.35 million was paid for the period
September 2013 to February 2016 to Welfare Trust instead of Director (Admn)
POF. The management time and again requested management of Welfare Trust to
deposit the received rent in their account but Welfare Trust made no payment.

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Furthermore, an amount of Rs. 4.32 million (remaining 75% monthly rent for the
period October 2015 to May 2018 alongwith 10% increase in monthly rent was
not paid by the NGO. This resulted into non-recovery of Rs. 4.320 million from
NGO and Rs. 1.35 million from Welfare Trust.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management that the rental charges may be recovered from the concerned
agencies and deposited into Govt. Treasury.

Audit recommends compliance of the DAC directives.

6.2.4.15 Non-recovery of sales revenue of stores supplied to Sri Lanka -

Rs 3.35 million

According to Clause-9 (b) Agreement signed between Sri Lanka

Government and POF, on July 27, 2016, the balance 20% of payment would be
released within 15 days after receipt of store in Sri Lanka.

During the audit of Director (Export) Pakistan Ordnance Factories Wah

Cantt for the year 2016-17, it was observed that the management supplied 194
Nos. Mp5P3 Weapons to Sri Lanka on October 30, 2017 valuing US$ 158,000
equal to Pak Rs 16.59 million in October 2017. However, despite lapse of more
than 06 months, the supplied store was neither accepted by the client nor the
remaining 20% payment amounting to Rs 3.35 million was released as yet
violating the above said clause of contract.

Audit was of the view that the management was required to request the
client to accept the material and release balance payment but no efforts were
made in this regard.

The matter was reported to the management on April 17, 2018. In reply
dated April 19, 2018, the management stated that client was reliable and no
impediment was expected to occur in successful completion of the contract. The

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reply was not tenable, as despite lapse of more than 06 months, remaining 20%
payment amounting to Rs 3.35 million was not made.

The DAC in its meeting held on December 19, 20 and 21, 2018 directed
the management to pursue the recovery at appropriate level.

Audit recommends compliance of the DAC directive.

6.2.4.16 Loss of foreign exchange due to import of Pistol B6 & Short Guns by
POF - Rs 386.91 million

According to the Contract dated June 4, 2013 signed in Dubai between

POF & M/s. Sarsilmaz Turkey for Transfer of Technology (TOT) of Pistol B6 &
Shot Guns and to authorize POF to market Sarsilmaz products in Pakistan, the
POF should have to transfer the desired technology from Turkey as stated in
Managing Director POF Machine Gun Factory Wah Cantt office note dated
February 10, 2017. Furthermore, according to Para-2 of Ministry of Defense
Production letter No. MoDP’s U.O. dated April 06, 2016, import of Finished
Defense Stores for Armed Forces as well as Law Enforcement Agencies (LEA)
was neither covered in POFB Act nor Policy letter bearing U.O. Note No.
2/6/99/DP-4 dated September 16, 1999.

During the audit of Pakistan Ordnance Machine Gun Factory Wah Cantt
for the years 2014-17, contrary to above contract, management failed to get the
requisite technology transferred to POFs. During this period management
executed contracts for purchase of Pistols& Shot Guns without built-in TOT cost
to fulfill the demands of Pak Army, LEAs and WIL orders. The Dy. Secretary
MODP vide his letter No. MODP’s U.O. dated. 06 April 2016 categorically
focused upon carrying out such procurements through Wah Industries Limited
and regretted to issue NOC for import of Pistols to MG-POF in future.

Audit was of the view, had the desired technology been transferred and
implemented accordingly, the POF would have saved foreign exchange

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amounting to US $ 3.68 million equal to Pak Rs 386.91 million @ Rs 105 per
US $.

During DAC meeting held on December 19 to 21, 2018 management

apprised the Committee that TOT could not be finalized due to irregular
requirements and budgetary constraints and the case was closed by the POF
Board. The DAC directed that the profit earned by POF and WIL on sale of
Pistol/Gun, imported from Turkey may be deposited into Govt. Treasury. The
amount of profit was not deposited into treasury despite directive of DAC.

Audit recommends compliance of the DAC directive.

6.2.4.17 Loss due to rejection of lowest bidders - Rs. 6.547 million

According to Rule-04 of Public Procurement Rules, 2004, the procuring

agencies while engaging in procurement, shall ensure that the procurement are
conducted in a fair and transparent manner, the object of procurement brings
value for money to the agency and the procurement process is efficient and
economical. Rules-38 further defines that the bidder with the lowest evaluated
bid, if not in conflict with any other law, rules, regulations or policy of the
Federal Govt. shall be awarded the procurement contract within the original or
extended period of bid validity.

During the audit of POF Weapon Factory for the year 2016-17, it was
observed that the management invited tender inquiries on July 28, 2015 on PPRA
website and print media for procurement of raw material for G3A3, MP5 and
MG-3. In response, 12 firms participated in bidding. The management tested the
samples of five bidders and rejected the bids of all other bidders relating to
China, Hong Kong, and UAE etc. As per Financial Comparative Statements, it
was observed that the management procured following items vide contract dated
October 8, 2016 from M/s J.A.C Trading Ltd UK valuing Rs. 9.76 million on
highest rates by ignoring the lowest bidder and sustained loss of Rs. 6.55 million.

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 Audit was of the view that rejection of participating bidders without
sample test was unjustified.

The DAC during its meeting held on December 19 to 21, 2018 directed
the management to hold an inquiry to probe the reasons due to which lowest bid
was rejected and fix responsibility. No inquiry was conducted despite directive of
the DAC.

Audit recommends compliance of the DAC directive.

6.2.4.18 Loss due to payment of default surcharge on Income Tax - Rs. 3.44
million

According to Section 205 of Income Tax Ordinance 2001, a person who

fails to pay any tax, excluding the advance tax under section 147 [default
surcharge] under this section; any penalty; or any amount referred to in section
140 or 141, on or before the due date for payment, shall be liable for default
surcharge at a rate equal to 18 % per annum on the tax, penalty or other amount
unpaid computed for the period commencing on the date on which the tax,
penalty or other amount was due and ending on the date on which it was paid.

During the audit of POF Director Services for the years 2015-17, it was
observed that the management failed to pay the amount of income tax collected
by the POF through monthly electricity bills of private, commercial and industrial
consumer’s w.e.f 1992 to 2005. On non-payment of income tax, FBR penalized
the management with default surcharge of Rs. 3.44 million. The POF paid the
said amount to tax department. Thus due to nonpayment of income tax within
stipulated time, POF sustained loss of Rs. 3.44 million.

Audit was of the view that the management was required to deposit the
income tax deducted into treasury but same was not deposited, which attracted
the penalty.

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 During DAC meeting held on December 19 to 21, 2018, management
informed the committee that the case is subjudice and pending in the court of law.
The DAC directed to pursue the case actively.

Audit recommends compliance of the DAC directive.

6.2.4.19 Expected loss due to ill planned procurement of stores - Rs 122.01

million

According to Rule-08 of Public Procurement Rules 2004, all procuring

agencies shall devise a mechanism for planning in detail for all proposed
procurement to determining the requirement of the procuring agency. Further as
per POF Purchase Procedure the procurement was required to be made by
assessing the actual requirement. In fact, un-necessary procurement needs to be
avoided.

During the audit of POF B & G Factory for the year 2016-17, it was
observed that slow moving stores valuing Rs 122.01 million were lying in stores
since 2010. Furthermore, the said stores were procured during the years 1978 to
2010 but after June 30, 2010, efforts were not made for the utilization of said
stores.

Audit was of the view that non-utilization of store since last eight years
clearly showed that the procurement was made without any planning and
assessing the requirements and its deterioration could cause loss of Rs 122.01
million.

During DAC meeting held on December 19 to 21, 2018, the management

apprised that the store was procured against the targets of various ammunition,
which becomes obsolete subsequently. The DAC directed the management to
categorize the store as obsolete, slow moving etc. and useless store may be
disposed of within 3 months. The categorization of the store was not carried out
by the management till the finalization of this report.

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 Audit recommends compliance of the DAC directive.

6.2.4.20 Un-due favour resulted into acceptance of changed specification store

at higher rates - Rs 5.05 million

According to Para-14.0(c) of POFs New Purchase Procedure, a bid once

opened in accordance with the prescribed procedure shall be subject to only those
rules, regulations and policies that are in force at the time of issue of notice for
invitation of bids. Moreover, as per Rule 10 of Public Procurement Rules, the
specifications shall allow the widest possible competition and shall not favor any
single contractor or supplier nor put others at a disadvantage.

During the audit of POF B & G Factory for the year 2016-17, it was
observed that the management floated tender on August 25, 2015 for
procurement of “Mild Steel Tube Seamless”. In response, 17 firms participated in
bidding, out of which 13 firms technically qualified. The offer of M/s Huffaz
Seamless Pipe Industries (Pvt) Ltd was not fully qualified as the bidder did not
mention the tolerance of offered stores. Even then, contract dated March 25, 2016
valuing Rs 10.83 million was awarded to the supplier by ignoring the first lowest
bidders who were fully technically qualified.

Furthermore, firm could not supply the store as per contractual

specifications and later on requested the management to amend the tolerance of
outer dia and thickness as per offered specification. The management accepted
the store with amended specification against all five qualities vide letter dated
April 21, 2016. This resulted into loss due to irregular procurement of stores at
higher rates valuing Rs. 5.05 million.

Audit was of the view that management extended undue favour to bidder
M/s Huffaz Seamless Pipe Industries (Pvt) Ltd by issuing tender inquiry direct to
the preselected firm. Furthermore, offer of the firm without mentioning of
tolerance of offered store was accepted instead of rejection. Due to this un-due
favour, management sustained a loss of Rs 5.05 million.

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 During DAC meeting held on December 19 to 21, 2018, the management
apprised the Committee that the lowest firms were ignored due to the reasons that
they did not fulfill the requirement of tender enquiry. The DAC directed the
management that the relevant record may be produced to audit for verification of
facts. The record was not provided by the management till the finalization of this
report.

Audit recommends compliance of the DAC directive.

6.2.4.21 Inadmissible payment of honorarium to Non-Allied Departments -

Rs 8.19 million

According to POF Boards sanction letters for the years 2012-13, 2013-14,
2014-15, 2015-16, payment of honorarium was allowed to POF and allied
Department employees only.

During the audit of POF’s Pay & Allowances for the years 2011-17, it
was observed that an amount of Rs 6.44 million was paid to the officers of
following non-allied department as detailed below:

S No Name Year Amount

(Rs.)
1 LAO (A&B) 2013-14 to 2015-16 1,746,650
2 PAF 2012-13 to 2016-17 4,158,985
3 Navel Armament 2012-13 to 2016-17 1,213,140
Inspection
Organization
4 NAVY 2013-14 129,200
5 Navel Armament 2013-14 to 2016-17 939,290
Research &
Development
Establishment
Total 8,187,265

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 As the above departments were non-allied departments, hence payment of
honorarium amounting to Rs 8.19 million was not admissible.

The DAC in its meeting held on December 19 to 21, 2018 directed that in
case of declared allied departments duly approved by POF Board, payment of
honorarium was justified, whereas, those departments which were not coming
under allied status of POF and honorarium had been paid, the recovery may be
ensured for its deposit into government treasury. No recovery was affected till the
finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.22 Non-transparent award of consultancy contract - Rs 9.78 million

According to Rule-12 (2) of the Public Procurement Rules- 2004, all

procurement opportunities over two million rupees should be advertised on the
Authority’s website as well as in other print media or newspapers having wide
circulation. The advertisement in newspapers shall principally appear in at least
two national dailies, one in English and the other in Urdu.

During the audit of CMA POF for the years 2011-17, it was observed that
the management approved the training policy on August 24, 2016 to impart in-
house training during the years 2016-17 to its employees relating to Professional
Development and Organizational Development, through a training service
provider. An advertisement for submission of bids was published only on POFs
Website ignoring all other procedure/rules relating to publicity through print
media, leading newspapers, pre-qualification and Technical and Financial
Evaluation of bids. Only three firms M/s Myma Communications,
M/s PDC Nust Islamabad and M/s International Islamic University Islamabad
with collaboration of M/s Asian Management Development Centre (AMDC)
Islamabad were received. The firm M/s Asian Management Development Centre
(AMDC) Islamabad was selected based on certificate provided by Islamic
University. The documents available on record do not bear any registration or the

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background/ profile of the firm. The Chairman POF’s Board granted the approval
and agreement was executed with M/s Asian Management Development Centre
Islamabad on August 26, 2016 and same was continued during 2017-18. An
amount of Rs 9.78 million (i.e. 2016-17 Rs 4.73 million and 2017-18 Rs 4.15
million) was paid to Asian Management Development Centre.

Audit was of the view that the award of work was thus non-transparent/
unfair as the firm had no legal status in the relevant field and was selected
without prequalification.

During DAC meeting held on December 19 to 21, 2018, the management

informed the Committee that the firm was selected by evaluating its capability
through a committee. The DAC directed to finalize Service & Financial Rules of
POF. The Service Rules were not approved till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.23 In-admissible transfer of funds to Chairman Special Fund - Rs 2.13

million

According to the directives contained in Ministry of Defence Production

Division, letter dated August 28, 1989, the levy of one percent over and above
Export Price of POF’s Products was sanctioned by the President with the
directives that the amount of levy realized as a result of execution of export
orders will be transferred to Chairman POF’s Board Special Fund and will be
utilized to finance POF’s Welfare activities.

During the audit of POF’s Director Export for the year 2016-17 it was
observed that the management sold out Tungsten Alloy Scrap valued at US $
2,060,440 (Pak Rs 212.65 million) during the years 2013-17 to a foreign firm
M/s Transact Inc USA. An amount of Rs 2.13 million was transferred by CMA
on account of 1% of the value of store realized to Chairman Special Fund. It was
however, observed that the amount of 1% was neither included in the tender nor

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recovered from the party. The transfer of funds to the extent of Rs 2.13 million
was in violation of specific directives, therefore, held irregular.

The irregularity was reported to the management on May 2018. In reply,

dated July 04, 2018 the management stated that funds transferred to Chairman
Special Funds was in conformity with Government orders dated August 28, 1989.
Reply was not convincing as the above rules clearly states inclusion of 1% over
& above the tendered price of products and transfer on realization. Furthermore,
the said rules did not allow transfer of funds to CSF on sale of scrap.

The DAC in its meeting held on December 19, 20 & 21, 2018, hold the
audit point of view and directed the management to deposit the amount in
question in Govt. Treasury. The amount was not deposited in treasury despite
DAC directives till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.24 Loss due to non-deduction of Sales Tax - Rs 1.24 million

According to Government of Pakistan Ministry of Finance, Economic

Affairs, Statistics and Revenue Division notification No S.R.O.660 (1)/2007
clause (3) all withholding agents shall make purchases of taxable goods from a
person duly registered under the Sales Tax Act, 1990, provided that under
unavoidable circumstances and for reasons to be recorded in writing, purchases
are made from unregistered persons, the withholding agent shall deduct sales tax
at 15% of the value of taxable supplies made to him from the payment due to the
supplier in case of registered firms while @ 17% in case of non-registered firms.

During audit of CMA POFs for the years 2011-17, it was observed that
the management purchased store items valued at Rs 7.27 million during the years
2015-17 on cash basis from the non-registered suppliers by ignoring the recovery
of Sale tax @ 17%. Thus due to non-deduction of Sale Tax, the public ex-chequer
sustained loss of Rs 1.24 million.

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 Audit was of the view that due to non-deduction of Sale Tax, the public
ex-chequer sustained loss of Rs 1.24 million.

The DAC in its meeting held on December 19 to 21, 2018 showed

concern over non-deduction of sales tax from the suppliers and directed the
management that efforts be made for recovered of tax amount from the concerned
suppliers for its deposit into Govt. Treasury. No efforts were made for the refund
of amount till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.25 Non-initiation of risk and cost action against the defaulter suppliers -
Rs. 75.44 million

According to Clause-36 of Contract Agreement dated November 26,

2016, March 04, 2015 &February 20, 2008 signed between POF Director Supply
Chain Management and two suppliers in case the supplier fails to supply the
store, the purchaser will be entitled at his option to repurchase the store from
elsewhere at the risk and expense of the supplier.

During the audit of POF Director Supply Chain Management for the year
2016-17, it was observed that the management signed following contracts

S No Name of Contract dated Items Value

supplier (Rs. in
million)
M/s Union 04.03.2015 296 Pairs of 4.762
Traders, Conductive
1. Rawalpindi Shoes in
different sizes
@ Rs. 13,750
per Pair
M/s Chelsea 20.02. 2008 97 Energy 70.68
Global Pvt. Ltd Devices
2. Lahore
Total 75.442

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 M/s Union Traders, Rawalpindi supplied samples to the management on
August 02, 2016, which were rejected by G.M Inspection, vide letter dated
November 04, 2016. Later on, the firm failed to provide the contracted store
despite repeated reminders from the management. Moreover performance
guarantee @ 10% of the contract value i.e Rs. 0.48 million was not obtained from
the supplier and forfeited performance guarantee of Rs. 0.13 million of the firm
lying with POF management in another previous case. The management did not
initiate risk and cost action against above suppliers despite lapse of more than one
year of the delivery period. M/s Chelsea Global Pvt. Ltd Lahore supplied all the
energy saving devices and 41 devices were installed and commissioned.
However, the firm failed to carry out the performance test of the devices as per
terms of the contract to ascertain the committed energy saving of 10 to 30% or
above. Resultantly the user department rejected the devices.

Audit was of the view that undue favour was extended to the defaulter
suppliers by non-initiating risk and cost action against him despite failure to
supply the contracted store worth Rs. 83.93 million (Rs. 8.48 million +
Rs. 4.76 million + Rs. 70.68 million) according to requirements and
non-obtaining of performance guarantee from the supplier resulted in loss of
Rs. 8.39 million (Rs. 0.85 million + Rs. 0.47 million + Rs. 7.07 million).

During DAC held on December 19 to 21, 2018, the management informed

the Committee that requirement was re-tendered twice for Risk Purchase of store;
however, the case could not be finalized as both the time the samples were
rejected by the inspection authority. The case was re-tendered with opening date
December 20, 2018. The DAC directed the management to complete the risk
purchase action within four months. Furthermore, in case of
M/s Chelsea Global Pvt. Ltd Lahore, DAC directed to actively pursue the case in
the court.

Audit recommends compliance of the DAC directives.

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6.2.4.26 Non-endorsement of contracts to National Accountability Bureau

According to Government of Pakistan (National Accountability Bureau)

instructions circulated vide letter No. 19 (14) A&P/NAB/2008 dated February 13,
2012 that all Ministries/ Divisions and Attached Departments of the Federal
Government, all departments of Provincial and Local Governments, statutory
corporations or authorities established by the Federal Government or Provincial
Government and holders of public office are advised to furnish a copy of any
contract to NAB, entered into by such bodies as mentioned above or on its behalf
as the case may be, of the minimum monetary value of fifty million rupees or
more, within such time as is reasonable, practicable (one month) from the date of
signing such contract.

During the audit of POFs Supply Chain Management, Wah Cantt for the
year 2016-17, it was observed that the management entered into six contracts
worth Rs. 544.119 million having value more than Rs 50.00 million each for
purchase of raw material with different firms, however, the management failed to
furnish a copy of these purchase contracts to NAB authorities. Similarly, the
management of POFs SAA Factory entered into different contracts having value
more than Rs 50.00 million for purchase of raw material with different firms
during 2014-15 worth Rs 1,421.77 million and 2015-16 and 2016-17 worth
Rs 1,012.14 million. The management however, failed to furnish copies of these
purchase contracts worth Rs. 2,433.93 million to NAB authorities. Moreover, the
management of POFs Explosive Factory, entered into different contracts having
value more than Rs 50.00 million for purchase of raw material with different
firms during the years 2015-17. The management failed to furnish a copy of these
purchase contracts to NAB authorities. Hence, violation of NAB’s instruction
was made by the management by not furnishing the copy of purchase contracts
having value more than Rs. 50.00 million to NAB authorities.

Audit was of the view that the violation of NAB’s instructions were made
by the management by not furnishing the copy of purchase contracts having value
more than Rs. 50.00 million to NAB authorities.
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 During DAC meeting held on December 19 to 21, 2018, the management
apprised the Committee that the matter has been taken up with the MODP to seek
the clarification in this regard, the response is still awaited. The Chairman DAC
decided that necessary instructions would be issued shortly. No instructions were
issued by the authority till the finalization of this report.

Audit recommends compliance of the DAC directives.

6.2.4.27 Mis-representation for obtaining financial concurrence for purchase

of machine for subsidiary company and non-recovery of cost of
machine-Rs. 20.57 million

According to GFR-12, “A controlling officer must see not only that the
total expenditure is kept within the limits of the authorized appropriation but also
that the funds allotted to spending units are expended in the public interest and
upon objects for which the money was provided. In order to maintain a proper
control, he should arrange to be kept informed, not only of what has actually been
spent from an appropriation but also what commitments and liabilities have been
and will be incurred against it”.

During the audit of POF SAA Factory for the years 2015-17, it was
observed that contract dated May 14, 2016 worth US $ 203,200 equivalent to Pak
Rs. 20.57 million was placed on M/s Poly Technologies Inc. China for
procurement of “Coiler De-Coiler” for M/s Wah Brass Mills Pvt Ltd (WBM).
When the case was sent to the Financial Advisor (Ordnance Factories) to obtain
the financial concurrence of this procurement before award of contract, the
management stated that De-Coiler will be installed in Wah Brass Mills (WBM)
and its cost will be recovered from them after arrival of the machine. The
FA(POF) office inquired that “Why POF does purchase for Wah Brass Mills
(Pvt) Ltd (WBM) and not by M/s WBM itself”. The management replied to the
FA(POF) office query that at this belated stage, in case of assigning the
procurement to WBM at their own end, a considerable time will be required to
exercise the whole procurement cycle, which will cause delay in supply of input

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material to SAA Factory. FA (POF) demanded copy of agreement signed
between WBM and POF for perusal and concurrence of the case. The
management changed its stance and replied that the D-Coiler would be installed/
commissioned in POF SAA Factory for production of Bullet Cups of 7.62 x
39mm Ammunition. As no formal policy or approval had been chalked out for its
shifting / transfer to WBM, therefore it will remain the property of POF, however
in future, if it is considered to be shifted, the same will be transferred/ shifted as
per laid down procedure at that time. FA (POF) made financial concurrence of
the purchase proposal conditionally on the management’s above statement.

However it was observed from record that on arrival of De-Coiler, the

same was installed and commissioned in WBM which shows that the
management misrepresented the facts before FA (POF) for obtaining financial
concurrence of the purchase proposal. Copy of agreement signed between WBM
and POF for this transaction was requested but the same was not provided. The
cost of De-Coiler worth Rs. 20.57 million has not been recovered by the POF
management from WBM till date.

Audit was of the view that the financial concurrence obtained for
purchase proposal of De-Coiler worth Rs. 20.57 million on mis-representation of
facts before FA (POF) was irregular and management caused loss due to
non-recovery of the cost of machine.

The DAC in its meeting held on December 19 to 21, 2018, directed the
management that the value of store may be recovered from the Wah Brass Mills.

Audit recommends compliance of the DAC directive.

6.2.4.28 Loss due to non-recovery of cost of inventory items - Rs 1,122.60

million

According to Para-26 of General Financial Rules, it was the duty of the

departmental Controlling officers to see that all sums due to Government are

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regularly and promptly assessed, realized and duly credited in the Public
Account.

During the audit of POFs SAA & Brass Mills for the years 2015-17, it
was observed that plant & machinery valuing Rs 1,122.60 million was transferred
to Wah Brass Mills (Pvt) Ltd (a subsidiary of WIL) in the light of POF Board
letter dated January 29, 2013. However the cost of these items was neither
recovered from the subsidiary company nor booked in the accounts as receivable.
Thus due to non-recovery/ non-booking as receivable, of the cost of inventory
items issued to the private concern, POFs SAA Factory is likely to sustain loss of
Rs. 1,122.60 million.

During DAC held on December 19 to 21, 2018, the management apprised

the Committee that the Company had issued shares of equal amount i.e. Rs 1,384
million to POF. The matter was discussed at length with reference to the dividend
received on said investment; the Committee directed the management to place the
issue before POF Board for fixing a timeline for receipt of return on said
investment.

Audit recommends compliance of the DAC directives.

6.2.4.29 Unjustified purchase of TNT despite having own production plant -

Rs. 477.94 million

According to Fixed Asset record of POF Explosives Factory, a Plant for

production of Tri Nitro Toluene(TNT) was installed in 1974.

During the audit of POF Explosive Factory for the years 2015-17, it was
observed that Contract dated May 22, 2015 worth Rs. 93.39 million was awarded
to a Chinese firm for procurement of Tri Nitro Toluene (TNT). Similarly, another
contract dated March 25, 2017 worth Rs. 44.27 was awarded to another Chinese
firm for procurement of TNT. A probe into the matter disclosed that POF
Explosives Factory has its own plant for production of TNT. The TNT

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Production Plant had been closed for production for last 9 years i.e. since 2010
without any fault. During July 2009 to February 2010, a quantity of 238 M.T of
TNT was produced as last production of the plant. Since then, POF Explosives
Factory had been purchasing the TNT from foreign source to fulfill its own
requirement. The management had purchased a quantity of 2,325 M.T TNT
worth Rs. 477.94 million from June 2010 to June 2017. It is worth mentioning
here that five Technical Officers, forty Staff members and ninety workers had
been deputed on TNT Plant. With the closure of Plant, these employees remained
idle and received pay and allowances without utilization of their services for
almost 9 years.

Thus, purchase of TNT Rs 477.94 million from foreign source in the

presence of own production plant was held unjustified and waste of precious
foreign reserves.

During DAC meeting held on December 19 to 21, 2018, the management

informed the Committee that efforts were made six times to procure the new
NAC-SAC plant but without any fruitful results. The DAC directed the
management to produce the relevant record to audit for verification of facts. No
record was produced to audit for verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

6.2.4.30 Loss due to delay in taking the risk purchase action against the firm
- Rs 155.69 million

According to clause, 6.4 of the Tender Enquiry in case of failure to supply

the store the unsupplied stores can be purchased from elsewhere at the risk and
cost of the supplier.

During the audit of POF Explosives Factory for the years 2015-17, it was
observed that contract dated June 17, 2010 for purchase of two cutting machines
valuing Rs. 46.22 was awarded to M/s V. Flow China with delivery period of 18

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months after opening of LC. The firm could not supply the store according to the
required specification and the Factory management rejected the supplied store.

According to the terms of contract, management had to take immediate

risk purchase action against the firm but the same was delayed for an abnormal
period exceeding five years. The fresh offer for the cutting machines was
Rs. 241.00 million which was too high to be recovered from the available
balances of M/s V. Flow. An amount of Rs. 19.58 million was withheld by the
management against three contracts of the said firm, which was successfully,
completed during 2009-10 and 2010-11. The management also forfeited Bank
Guarantee in four contracts of the firm amounting to Rs. 18.41 million. Hence,
the management recovered Rs. 37.99 million leaving recoverable amount of
Rs. 155.69 million against risk purchase.

Audit was of the view that the management was unable to safeguard the
interest of the factory and no safety clause was inserted in the contract agreement,
which resulted into loss of Rs. 155.69 million.

During DAC meeting held on December 19 to 21, 2018, the management

apprised the Committee that recovery suit had been field in the Court of Law.
The DAC directed the management to pursue the case actively.

Audit recommends compliance of the DAC directive.

6.2.4.31 Loss due to ignoring rate of first lowest bidder - Rs 20.02 million

According to Rule 38 of PPRs 2004, the bidder who has offered the
lowest bid is to be awarded the contract if not in conflict with law within the
original or extended period of bid validity.

During the audit of POF’s Explosive Factory for the years 2015-17, it was
observed that the management invited rates through Tender Enquiry dated
October 10, 2012 for procurement of Demin Water Treatment Plant (capacity 50

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m3/hr) issued to the 18 local firms out of which technical offers of three firms
were qualified. The commercial offer of M/s SAGE Engineering Co Lahore for
Rs 10.77 million was the lowest. The Managing Director expressed doubt about
the firm’s ability to undertake the job. Resultantly, the case was discussed in a
meeting held by the firm with the management on May 03, 2013 regarding
technical discussion on the design and modalities of firms offer. The firm
submitted a revised technical offer on May 08, 2013 with the enhanced financial
effect i.e. (option -1 (Resin) Rs 14.17 million and option - II (Mixed Bid) Rs 14.5
million. Thereafter, the entire bidding process was scrapped.

Once again the bidding process was started and contract was awarded to
M/s Water Regime Lahore on April 24, 2015 at a cost of Rs 36.04 million
including GST. This resulted in loss of Rs 20.02 million being the difference
between 1st lowest offer of first bidding and final contract.

Audit was of the view after M/s SAGE was technically qualified after
detailed deliberations and submitted revised offer with POFs consent, there was
no reason to reject the offer. The management had not resorted to prequalification
procedure. The firm M/s Water Regime to whom contract was awarded had no
previous experience of dealing with such projects. If M/s SAGE were unreliable
then why the 2nd lowest firm of first bidding M/s Aqua Regia (with offer of
Rs 25.00 million) was not contacted and procurement was not made from them.

During DAC meeting held on December 19 to 21, 2018, the management

informed that to evaluate the capability a three member’s team of POF visited
firm’s premises; team confirmed that the firm is not capable to handle such an
important project. The DAC directed the management to hold a fact-finding
inquiry to probe the reasons for ignoring the firm, offered lowest rate. Fact
Finding Inquiry was not conducted by the management till the finalization of this
report.

Audit recommends compliance of the DAC directive.

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6.2.4.32 Blockade of funds due to unnecessary purchase of store - Rs. 23.96
million

According to Rule-4 of PPRs-2004, procuring agencies, while engaging in

procurements, shall ensure that the procurements are conducted in a fair and
transparent manner, the object of procurement brings value for money to the
agency and the procurement process is efficient and economical. Rule-9 further
states that “a procuring agency shall announce in an appropriate manner all
proposed procurements for each financial year and shall proceed accordingly
without any splitting or regrouping of the procurements so planned. According to
GFR-145, store should not be purchased in excess of actual requirement which
results in blockage of capital and such purchase is likely proved unprofitable to
Government.

During the audit of POFs MAA Factory for the years 2016-17, it was
observed that 47 items of material worth Rs. 23.96 million were lying in store of
the factory for last 3 to 25 years without any utilization. This reflects unnecessary
procurement of store resulting into blockage of funds to the extent of
Rs 23.96 million.

During DAC meeting held on December 19 to 21, 2018, the management

apprised that the store was procured against the targets of various ammunition,
which becomes obsolete subsequently. The DAC directed the management to
categorize the store as obsolete, slow moving etc. and obsolete store may be
disposed of within 3 months.

Audit recommends compliance of the DAC directive.

6.2.4.33 Unjustified expenditure on establishment of POF Liaison Office

Rawalpindi - Rs 106.20 million

According to Para-10 of General Financial Rules (GFR), “every person

while incurring expenditure from Public Funds would exercise the same vigilance

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as a person of ordinary prudence would exercise while incurring expenditure
from his own pocket.”

During the audit of Director Civil Works (DCW) for the year 2017-18, it
was observed that the management awarded contract to M/s Waheed Khan &
Brothers (Pvt) Ltd Rawalpindi worth Rs 106.20 million vide contract agreement
dated October 03, 2016 for construction of POF Liaison Office Rawalpindi with
the approval of Chairman POF. No PC-I was prepared/ approved from the POF
Board regarding establishment of Liaison Office at Rawalpindi justifying the
need/objectives of establishment i.e. cost and benefit analysis and its
administrative approval from the controlling ministry. The contract for
construction of building was awarded without transfer of title of land in the name
of POF and re-classification of land duly approved by Director General Military
Lands. Furthermore, office of the controlling ministry already existed in
Rawalpindi and the same arrangement could have been made at the controlling
ministry. In the absence of proper justification the expenditure on establishment
of Liaison Office Rawalpindi need proper justification.

The DAC in its meeting held on December 19 to 21, 2018, directed the
management that relevant record showing source of funding, transfer of title of
land in the name of POF may be provided to audit for verification. The record
was not provided by the management till the finalization of this report.

Audit recommends compliance of DAC directive.

6.2.4.34 Un-authorized occupation of A-1 land and non-recovery of

Government dues /share - Rs. 5.51 million

According to the policy on use of A-1 land for welfare and other projects
of the Armed Forces issued by the Ministry of Defence, vide letter No. F.2/5/D-
12/ML & C/99 dated April 02, 2008, compete rent from land shall be deposited
in the Government Treasury.

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 During the audit of POF Hospital for the years 2014-17, it was observed
that three shops of 3,568 square feet were occupied by Welfare Drug Store,
Welfare Canteen/ Café and Tuck Shop without Government sanction. The
income/rent of these shops was deposited into Non- Public Fund. Not a single
rupee was being deposited into POF Hospital account causing loss of Rs. 5.51
million (13.11 marla x Rs 560,000 per month x 25%x 3 years) for last three
years.

Audit was of the view that recovery of shops rent could not be affected
due to inefficiency of the management.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management to make recovery as per government policy and deposit into
government treasury. No recovery was affected till the finalization of this report.

Audit recommends compliance of DAC directive.

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6.3 Pakistan Ordnance Clothing Factory

6.3.1 Introduction
Pakistan Ordnance Clothing Factory was established under the POFs
Board Ordinance 1961 to meet the clothing requirements of Pakistan Armed
Forces.

6.3.2 Comments on Audited Accounts

6.3.2.1 Comments on audited accounts are included in the Commercial Appendix

to Appropriation Accounts of the Defence Services for the year 2017-18.

6.3.3 Compliance of PAC Directives:

Audit Year Total Full Partial Outstanding Paras % of

Paras Compliance Compliance compliance
2007-08 07 06 01 2.2.6 86
2009-10 05 05 0 - 100
2013-14 06 01 05 5.3.1,5.3.2&5.3.2.1,5 17
.3.3,5.3.4.1,5.3.4.2
Total 18 12 06 67

The overall compliance of PAC directives was not satisfactory and needs
improvement.

6.3.4 Audit Paras

6.3.4.1 Irregular appointment of contract employees - Rs. 6.21 million

According to Establishment Division letter No.F3/1/2008-SP dated

October 22, 2014, “Initial appointment shall be made strictly in accordance with
the provisions contained in the Recruitment Rules of the post concerned. In the
absence of Recruitment Rules, Ministries/Divisions/Attached Departments/
Subordinate Offices/ Autonomous Bodies/ Semi-Autonomous Bodies/
Corporations/Companies/ Authorities etc are first required to frame the

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Recruitment Rules and lay down the eligibility conditions for such appointments.
No recruitment shall be made in the absence of approved Recruitment Rules”.
Moreover, NOC from Establishment Division shall continue to be obtained for all
recruitment.

During the audit of POF Clothing Factory for the years 2016-18, it was
observed that staff in different categories were appointed on contract basis for
initial period of 01 year extendable with the approval of Chairman POF Board if
so required. A payment of Rs. 6.21 million was made on account of pay &
allowances till June 30, 2018. However, it was observed that POF management
did not get their Recruitment Rules approved from the Establishment Division,
Government of Pakistan. Moreover, NOC for these appointments was also not
obtained from the Establishment Division, Government of Pakistan.

Audit was of the view that the appointments were made without approved
Recruitment Rules and obtaining NOC from the Establishment Division and
payment of Rs. 6.21 million on account of salary was held irregular.

The matter was reported to the management and to PAO on December 12,
2018 but no reply was received till the finalization of this report.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the reasons of appointment of staff in

violation of Establishment Division, Government of Pakistan’s instructions
besides fixing responsibility.

6.3.4.2 Loss due to expenditure incurred over and above the estimated cost
– Rs. 20.57 million

According to Factory Accounts Rule – 46 the Cost Cards are to be totaled

on completion of the work / warrant and cases in which the actual cost differs
from the standard estimate by more than 10% are to be reported to the
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Management for information and ascertaining the reasons for such abnormal
variation.

During the audit of POF Clothing Factory for the years 2016-18, it was
observed that the management incurred actual cost of Rs. 116.27 million against
estimated cost of Rs. 95.71 million of 21 warrants i.e. variation of 11 to 212%.
This resulted into expenditure of Rs. 20.57 million over and above the estimated
cost during the year under review.

Audit was of the view that the management was required to investigate
the increased cost over and above the estimates but it failed to do so which was
held irregular.

The matter was reported to the management and to PAO on December 12,
2018 but no reply was received till the finalization of this report.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter of abnormal variation against

the Estimated Cost besides fixing responsibility.

6.3.4.3 Loss due to non-realization of export proceeds – Rs 25.55 million

According to Govt. of Pakistan Ministry of Defence Production Division

(DPD) letter No. 1/6/73-TS/DP-2 dated August 22, 1973, a minimum of advance
of 50% of the value of the order in Foreign Exchange may be asked for at the
time of signing the contract, the balance to be recoverable on presentation of
shipping documents against an irrevocable confirmed Letter of Credit to be
opened within 30 days of the signing of the Contract.

During the audit of POF Clothing Factory for the years 2016-18, it was
observed that store valuing Rs. 25.55 million was exported to Tajikistan in
August 2016. The sales proceed could not be realized up till now despite lapse of
186
considerable period of more than two years. The management was requested to
provide the terms & conditions of export to Tajikistan but the same was not
provided to audit. Thus, due to non-recovery of sales proceed against the export;
POCF may sustain loss of Rs 25.55 million.

Audit was of the view that the management was required to export the
store through Letter of Credit but it exported without any Letter of Credit which
resulted into non realization of sales proceed valuing Rs. 25.55 million.

The matter was reported to the management in May 30, 2018 and to PAO
on December 12, 2018. The management in its reply dated July 02, 2018 stated
that the PPRA Rules are not applicable on the company. The reply was irrelevant
as the management was required to ensure the realization of sales proceeds which
was not done.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the reasons under which the recovery

could not be made from the client besides recovery the amount.

6.3.4.4 Non reporting of contracts above Rs 50 million to NAB

According to Government of Pakistan Ministry of Law & Justice O.M.

No.F.8(8)/2008 A.1 dated March 16, 2009, “it is the statutory obligation under
Section 33-B of the National Accountability Ordinance, 1999 that copies of all
contracts of Rs. 50 million or more negotiated by Federal or Provincial
Government Ministry / Division / Departments and agencies must be furnished to
National Accountability Bureau, Islamabad within such time as is reasonably
practicable from the date of signing of such contracts”.

During the audit of POF Clothing Factory. for the years 2016-18 it was
observed that five contracts valuing Rs. 443.82 million were awarded whose

187
value was more than Rs. 50.00 million but the management failed to forward a
copy of the contracts to NAB which was clear violation of rules.

Audit was of the view that award of contracts valuing Rs. 443.82 million
was violating of Government instructions.

The matter was reported to the management and to PAO on December 12,
2018 but no reply was received till the finalization of this report.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the matter of non-adherence of rules

besides fixing responsibility.

6.3.4.5 Loss due to sale of product below the marginal cost - Rs. 5.82 million

According to Para – 3.3 of the Appendix “A” to POF Board letter No

4600/50/1/PC-IV/50/Secretary dated September 20, 2013 “Chairman POF Board
may fix the sale price, both for export as well as civil market between full and
marginal cost. In case of special circumstances where market forces demand
further reduction in price, decision at board level will be taken to allow the sale
below marginal cost. It may however, be ensured that prime cost is recovered in
any case. This option may be availed in exceptional cases and on case to case
basis”.

During the audit of POF Clothing Factory for the years 2016-18, it was
observed that Class-II Extract No. 18791 dated October 26, 2015 was approved
by the G.M. Coordination for manufacturing of 68,000 Trousers (Drill Khaki)
valuing Rs. 66.44 million @ Rs. 977.00 each. The rates however were revised to
Rs. 1,041.37 per Trouser. Audit further observed from the record that the
marginal cost of the consignment was Rs. 76.63 million @ Rs. 1,127 per trouser
whereas the management sold it below the marginal cost of Rs. 70.81 million
@ Rs. 1,041.37 in violation of POF Board’s instructions.

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 Thus, POCF management violated the POF Board’s instructions by
selling the above said products below the marginal cost due to which POCF
sustained loss of Rs. 5.82 million.

The matter was reported to the management and to PAO on December 12,
2018 but no reply was received till the finalization of this report.

Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends to investigate the reasons due to which the product

was sold below the marginal cost in violation of POF Board’s instruction besides
fixing responsibility and recover the amount.

6.3.4.6 Un-justified hiring of casual tailor - Rs. 12.81 million

According Para-06 of the POFs Ordnance 1961, “the principal function of

the Board shall be to manage and administer the affairs of the factories and to run
them on sound commercial lines so as to adequately meet during war and peace
the needs of the defence of the country and to utilize the surplus capacity of the
factories to meet the needs of the civilian population”.

During the audit of POF Clothing Factory for the years 2016-18, it was
observed that the management hired casual tailors on piecework basis and an
amount of Rs. 12.81 million was paid to the tailors despite the fact that regular /
permanent tailors remained idle during the said period and payment of Rs. 49.62
million was paid as idle hours.

Audit was of the view that when Permanent tailors were available and
they were idle, hiring of Casual Tailors and payment of Rs. 12.81 million was
unjustified.

The matter was reported to the management and to PAO on December 12,
2018 but no reply was received till the finalization of this report.
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 Despite repeated requests, the PAO did not convene meeting of the DAC.

Audit recommends investigating the matter of hiring of casual tailors in

spite of permanent tailors remaining idle besides fixing responsibility.

6.3.4.7 Non replacement of rejected store - Rs 21.18 million

According to Clause – 9 of the Contract agreement the supplier will

replace deficient, defective or wrong stock if so found at consignee and during
checking / utilization after receipt.

During the audit of POF Clothing Factory for the years 2016-18, it was
observed that contract No.20-LP-47-Pur-Clo dated September 20, 2017 valuing
Rs. 21.181 million for supply of 25984 meter Cloth Nylon, 1000 Den was
awarded to M/s Arshad Textile Mills Ltd. Faisalabad. As per agreement, the
supplier was required to deliver a quantity of 10,000 meters by October 31, 2017
and the remaining quantity 15,984 meters by November 30, 2017. The firm
supplied the store on February 20, 2018, which was rejected by the inspection
authorities vide their letter dated April 24, 2018. The management of Clothing
Factory vide letter dated April 28, 2018 informed the rejection of store to the
firm. It is worth mentioning here that a considerable period had lapsed but the
rejected store was neither replaced nor was any action initiated against the
supplier to date as per provision of the contract dated September 20, 2017.

Audit was of the view that due to non-replacement of rejected store, the
production activities for which the store was procured was badly affected.

The matter was reported to the management and to PAO on December 12,
2018 but no reply was received till the finalization of this report.

Audit recommends Investigate the matter of non-replacement of rejected

store Initiate the action against defaulter under intimation to audit.

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6.4 Wah Industries Limited

6.4.1 Introduction

Wah Industries Limited “the Company” was incorporated in 1958 as

public limited company under Companies Act, 1913 (now Companies Ordinance,
2017). The Company is fully owned by Pakistan Ordnance Factories (POFs). The
Company is engaged in manufacture and sale of 12 bore ammunition and sale of
civil products produced by POFs. The Company also acts as commission agent
for POFs to facilitate its sale of obsolete/surplus stores and scraps generated in
POFs. The registered office of the Company is situated at The Mall, Wah Cantt.

6.4.2 Comments on Audited Accounts

6.4.2.1 Comments on audited accounts are included in the Commercial Appendix

to Appropriation Accounts of the Defence Services for the year 2017-18.

6.4.3 Compliance of PAC Directives

Audit Total Full Partial Outstanding % of

Year Paras Compliance Compliance Paras
Compliance
1992-93 04 03 01 87 75
1994-95 07 06 01 105 86
1999-00 24 23 01 104 96
2001-02 06 05 01 49 83
Total 41 37 4 90

The overall compliance of the PAC directives was satisfactory which

needs to be continued.

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6.4.4 Audit Paras

6.4.4.1 Irregular appointment and regularization of officer - Rs 2.05 million

According to Rule-3 (iii) (a) of the Establishment Rules of the

Establishment Division, Government of Pakistan, “the condition of open
advertisement may be dispensed with the approval of the Chief Executive, if it is
proposed to appoint a retired civil servant or a retired officer of the Armed Forces
or retired judge of the Supreme Court on contract basis.”

During the audit of Wah Industry Limited for the year 2016-17, it was
observed that the management appointed Major (R) Naeem Ahmed as Manager
Operation on contract basis on January 23, 2017 for one year without press
advertisement and dispensation in this regard from Chief Executive. Furthermore,
the following irregularities were observed:

i. No NOC was obtained from Ministry of Defense.

ii. The services of the officer were regularized after completion of one year
from the date of his contract appointment and placed in BS-18.
iii. 13 advance increments were granted to the officer at the time of fixation
of pay in BPS-18 on regularization of his services.

This resulted into irregular appointment, regularization and payment of

pay and allowances of Rs 2.05 million. The entire procedure of contract
appointment, regularization and fixation of pay was held irregular.

The DAC in its meeting held on December 19 to 21, 2018 directed the
management to hold a fact-finding inquiry to confirm that the appointment had
been made through proper procedure and remuneration was fixed as per rules.
Fact Finding Inquiry was not carried out by the management till the finalization
of this report.

Audit recommends compliance of DAC directive.

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6.4.4.2 Irregular award of contract on direct contracting basis - Rs. 112.47
million

According to Rule 42(c) of Public Procurement Rules “a procuring

agency shall only engage in direct contracting if:

i. The procurement concerns the acquisition of spare parts or supplementary

service from the original manufacturer or supplier.
ii. Only one manufacturer or supplier exists for the required procurement.
iii. Where a change of supplier oblige the procuring agency to acquire
material having different technical specification.

During the Audit of Wah Industry Limited for the year 2016-17, it was
observed that the management obtained quotation from M/s Ghori Brothers for
procurement of deodar wood on May 28, 2017. After two months, the
management approached M/s Hamza Enterprise and collected quotation on July
21, 2017. The offer of M/s Hamza Enterprise was accepted and procurement
order for supply of 55,000 cft deodar wood worth Rs. 112.47 million was placed
on the firm on August 25, 2017 with delivery period up to December 31, 2017.
Furthermore, 20% mobilization advance of Rs. 22.49 million was also paid to the
contractor against the contract of procurements. The contractor failed to supply
the subject store till date. The award of contract on direct contracting basis in
deviation of laid down procedure of the Public Procurement Rules needs
justification.

Audit was of the view that the management was required to make the
procurement through open competition but same was procured through direct
contacting without any justification, thus held irregular.

During DAC meeting held on December 19 to 21, 2018 management

informed the Committee that the case is subjudice. The DAC directed to
management to pursue the case actively.

Audit recommends compliance of the DAC directive.

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6.4.4.3 i Irregular procurements - Rs 296.97 million
ii Loss due to rejecting the lowest bidder - Rs 36.03 million

According to Rule -36 (b) (v) & (viii) of PPRs, the procuring agency shall
evaluate the technical proposal in a manner prescribed in advance, without
reference to the price and reject any proposal which does not conform to the
specified requirements; and after the evaluation and approval of the technical
proposal the procuring agency, shall at a time within the bid validity period,
publicly open the financial proposals of the technically accepted bids only. The
financial proposal of bids found technically non-responsive shall be returned
un-opened to the respective bidders; and the bid found to be the lowest evaluated
bid shall be accepted.”

During the audit of Wah Industries Limited for the year 2016-17, it was
observed that the management sold tenders to 12 registered firms for
procurements of bulletproof jackets on June 03, 2016. In response, 9 firms
submitted their bids. However, contrary to the above laid down procedure
financial bids were opened on June 21, 2016 and the process of technical
evaluation was started in July 2016 after opening of financial bids. M/s Alone
Ranger, Peshawar was the lowest bidder with Rs 40,000 per unit for large size
Bullet Proof Jacket and Rs 38,000 per unit for medium size Bullet Proof Jacket
while, M/s Lyra (Pvt) Limited was 2nd lowest bidder with Rs 44,535 per unit for
both sizes of Bullet Proof Jackets. The competent authority approved placement
of orders worth Rs 296.97 million on 2nd lowest bidders i.e. M/s Lyra (Pvt)
Limited on July 25, 2016. Technical evaluation report was received on September
21, 2016 which rejected the first lowest offer on the basis of minor short
comings. Thus, by ignoring the first lowest bid, the formation was put to loss of
Rs 36.03 million.

Audit was of the view that the management was required to open the
technical bids and after technical qualification, financial bids should have been
opened but management opened financial bids before technical evaluation, which
was against the provisions of the PPRs hence held irregular.
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 The matter was reported to the management on May 30, 2018. The
management in its reply dated July 02, 2018, stated that the PPRA Rules are not
applicable on the company. The reply was not convincing because PPRA Rules
are applicable on all Federal Government organizations owned and controlled by
the Government.

The DAC in its meeting held on December 19 to 21, 2018 directed to hold
an inquiry as to why technical and financial bids/offers were opened
simultaneously against the standards procurement procedure/rules. No inquiry
was conducted by the management till the finalization of this report.

Audit recommends compliance of DAC directive.

195
 Chapter-7
Ministry of Energy
(Power Division)

7.1 National Engineering Services Pakistan (Pvt.) Ltd

7.1.1 Introduction

The Company was incorporated in 1973 under the Companies Act 1913
(now Companies Act 1984). It is wholly owned by the Government of Pakistan
and is engaged in providing engineering consultancy services through its
Division Offices at Lahore, Islamabad, Karachi, Peshawar and Quetta in Pakistan
and Masqat, Oman, Riyadh, Qatar and Kabul abroad.

7.1.2 Comments on Audited Accounts

7.1.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the years 2016-17 & 2017-18 till December 31,
2018.
7.1.2.2 Audit recommends that the annual audited accounts of the past years be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

7.1.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
1991-92 05 04 1 754 80
1995-96 06 04 2 252,254 67
1998-99 01 0 01 295 -
2006-07 10 08 02 206,207 80
2007-08 02 0 02 178&178.1,178.2 -
2009-10 10 06 04 239,240,241,242 60
2010-11 24 17 07 25.1.2.1,25.1.2.4,25.1.2.5,2 71
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 5.1.2.8,
25.1.4.2,25.1.4.3,25.1.4.5
2013-14 32 23 09 18.1.2.2, 18.1.4.1, 18.1.4.4, 72
18.1.4.10, 18.1.4.5,
18.1.4.6, 18.1.4.12,
18.2.2.5, 18.2.2.7
2016-17 21 01 20 18.1.4.1,18.1.4.5,18.1.4.2,1 5
8.1.4.6,18.1.4.3,18.1.2.6,
(18.1.1&18.1.2,18.1.2.1,18.
1.2.2,18.1.2.3,18.1.2.4,18.1.
3,18.1.4.4,18.1.4.7,18.1.4.8,
18.1.4.9,18.1.4.10,18.1.4.11
,18.1.4.12,
Total 111 63 48 57

Overall compliance of PAC directives was not satisfactory which needs to

be improved.

7.1.4 Audit Paras

7.1.4.1 i. Irregular appointment of Mechanical Engineer (Gr-11) due to

granting of undue favor and non-verification of foreign degree-
Rs. 8.75 million
ii. Excess payment of salary due to irregular enhancement of pay
& allowances - Rs. 1.95 million
According to clause-08 (a & b) of eligibility criteria for induction and
promotion of NESPAK, all inductions shall be made on the basis of applications
received in response to the requirements as given in advertisements. The
anticipated requirements for hiring of staff shall be determined by the concerned
Division Head and were approved from Managing Director for publication of
advertisement in important daily newspapers of all provinces of Pakistan as well
as on the NESPAK website. The advertisement shall be prepared and forwarded
by the concerned Division Head to the Human Resources Division for
publication.

During the audit of NESPAK for the year 2017-18, it was observed that
the management appointed Mr. Naveed Ahmed Malik as Principal Engineer
(Grade-11) w.e.f. March 03, 2016. The officer possessed BSc (Mechanical)

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Engineering from a foreign university i.e. Manuel L. Quezon University,
Philippines. The degree was not verified from HEC by management. Only three
candidates were shortlisted for interview, which indicated that short-listing was
not on merit as, in Pakistan, sufficient number of engineers were available.
Further, out of three shortlisted candidates, one was absent in interview and 2nd
was rejected by interview committee by granting less marks in interview despite
the fact that the qualification of said candidate was MSc. Mechanical Engineering
and selected candidate had only BSc Mechanical Engineering. Furthermore, after
only one year, his services were regularized w.e.f. January 16, 2017 in violation
of service regularization policy. Hence, said appointment and payment of
Rs. 8.75 million (Rs. 250,000 per month average salary x 35 months from
February 2016 to December 2018) on account of salary was held irregular.

Moreover, on the request of officer, the management granted five points

per year on foreign experience against the standard 4.5 points per year due to
which his credit points were increased. The said activity was performed just to
create basis to enhance the salary of the officer and resultantly, the management
enhanced his pay by Rs 55,626 per month from the date of appointment. Thus,
the excess salary of Rs. 1.95 million (Rs. 55,626 per month x 35 months) was
also paid.

Audit was of the view that the management was required to make
appointment on merit and avoid additional incentive but the same was not done
and undue-favor was extended to the employee.

During DAC held on January 7, 2019, the management informed that

verification of degree was in process. The DAC directed to produce record
regarding appointment process, degree verification and increasing of salary based
on foreign experience to Audit for consideration.

Audit recommends compliance of the DAC directive.

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7.1.4.2 Irregular appointment of Senior Engineer (Gr-09) and two Junior
Engineers (Grade-08a) -Rs. 4.27 million

According to order of the Supreme Court of Pakistan, passed in Human

Rights Case No.104 dated December 26, 1992 (circulated by the Cabinet
Division), the Court observed that the Federal Government, Provincial
Government, Statutory bodies and the Public Authorities were making initial
appointments, both adhoc and regular, to posts without publicity and properly
advertising the vacancies and at times by converting adhoc appointments into
regular appointments. This practice was prima facie violation of Fundamental
Rights (Article-18 of the Constitution) guaranteeing to every citizen the freedom
of profession. It was ordered that the violation of this Fundamental /Human Right
should be discontinued forthwith. Steps shall immediately be taken to rectify, to
bring the practice in accordance with the Constitutional requirements.

During the audit of NESPAK for the year 2017-18, it was observed that
the management appointed Mr. Muhammad Danish as Senior Engineer (Grade-
09) w.e.f. February 20, 2018, Mr. Muhammad Faizan Qureshi as Junior Engineer
(Grade-08a) w.e.f. September 22, 2017 and Ms. Fatima Ashfaq as Junior
Engineer (Grade-08a) w.e.f. January 01, 2018 without following competitive
procedure. These officers were appointed directly, being top position holders,
from UET, Lahore & UET, Taxila respectively. The BOM in its meeting 243th
held on April 04, 2016 accorded approval for direct appointment in NESPAK
without advertisement, of top position holder of selected twelve universities only.
The said decision was also not vetted by the BoDs. Furthermore,
Mr. Muhammad Danish was recommended for appointment as Junior Engineer
(Grade-08a) and accordingly, the Managing Director accorded approval but the
management appointed him as Senior Engineer (Grade-09) which was also a
violation of Managing Director’s approval. Hence, due to appointment without
following any competitive procedure, employment of one officer as Senior
Engineer (Grade-09) &two as Junior Engineers (Grade-08a) and payment of
Rs. 4.27 million on account of salary were held irregular.

199
 Audit was of the view that the management should have made
appointment of eligible candidates through competitive procedure but the same
was not done and favor was granted to the employees.

The DAC in its meeting held on January 7, 2019 directed the management
to get the policy formally approved by the BoD for appointment of top position
holder in relaxation of competitive appointment process and produce relevant
record for verification to audit. No record was provided to audit till the
finalization of this report.

Audit recommends compliance of the DAC decision.

7.1.4.3 Irregular regularization of employees on partial Appraisal Rating -

Rs 109.62 million
According to order dated December 27, 2011, an employee shall be
considered eligible for regular cadre if he/she earns an outstanding performance
report during the tenure of his/her contract employment. The regular cadre shall
be effective on completion of at least one-year service. If an employee does not
qualify the above criteria based on one-year performance, he/she shall be
considered eligible for conversion into regular cadre as and when he/she earns
two “very good” performance reports during the period of contract employment.
The effective date of regular cadre in this case shall be upon the completion of at
least two years of his/her services.

During the audit of NESPAK for the year 2017-18, it was observed that
the management regularized the services of 58 employees based on partial
performance reports. These employees were inducted on contract basis for a
period of one year. Some employees were regularized based on less than one-year
service and some of them were regularized during an extended contract period of
a further six months. These employees were regularized by Ex-MD based on six
months partial annual performance review report and approval for regularization
was also not obtained from BoDs. The APRRs were endorsed by those officers
who were not the reporting officer/authorized officer in these cases. The APRRs
200
of some of these employees was “very good” and these could be regularized only
after completion of minimum two years services. Therefore, conversion of
contractual cadre into regular cadre resulted in irregular payment of Rs 109.62
million (58 employees x avg. salary/month Rs 105,000 x 18 months)

Audit was of the view that the management should have followed the due
procedure for regularization of services but the same was not done.

During DAC meeting held on January 7, 2019, the management informed

that an inquiry was conducted in the mater and report has been submitted to the
BoD. The DAC directed to produce approval of BoD to Audit for consideration.
No approval of BoD was provided to audit till the finalization of this report.

Audit recommends compliance of the DAC directive.

7.1.4.4 Irregular appointment of Senior Engineer (Gr-10) without following

appointment process - Rs. 14.52 million

According to clause-08 (a & b) of eligibility criteria for induction and

promotion of NESPAK, all inductions shall be made on the basis of applications
received in response to the requirements as given in advertisements. The
anticipated requirements for hiring of staff shall be determined by the concerned
Division Head and were approved from Managing Director for publication of
advertisement in important daily newspapers of all provinces of Pakistan as well
as on the NESPAK website. The advertisement shall be prepared and forwarded
by the concerned Division Head to the Human Resources Division for
publication.

During the audit of NESPAK for the year 2017-18, it was observed that
the Mr. Muhammad Arshad Farooq joined NESPAK as Procurement Specialist in
May 15, 2007 and resigned from service w.e.f. October 03, 2007. After four and
half months, in January 2008, Mr. Muhammad Farooq, Project Manager (Job
No. 2945) ER Division, Islamabad requested management for appointment of

201
Arshad Farooq on regular/contact basis on the pretext that the officer had already
worked in NESPAK as Contracts Engineer. The client approved his name and
was comfortable in working with him. The management appointed
Mr. Muhammad Arshad Farooq as Senior Engineer (Grade-10) on contract basis
w.e.f. January 22, 2008 without following any appointment process. Just after
one year and three months, his services were regularized w.e.f. April 04, 2009.
Hence, due to appointment without following any competitive procedure,
employment as Senior Engineer (Grade-10) and payment of Rs. 14.52 million
(Rs. 110,000 per month average salary x 132 months from January, 2008 to
December, 2018) on account of salary were held irregular.

Audit was of the view that the management should have appointed
eligible candidate through competitive procedure but the same was not done and
favor was granted to the employee.

During DAC meeting held on January 7, 2019, the management informed

that Mr. Mohammad Arshad, Farooq joined NESPAK after resigning from his
previous job. The DAC observed that appointment process was not followed and
directed to hold fact-finding enquiry.

Audit recommends compliance of the DAC directive.

7.1.4.5 Irregular appointment of Junior Engineers (Planning) - Rs. 5.040

million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

202
 During the audit of NESPAK for the year 2017-18, it was observed that
the management appointed 04 Junior Engineers (Planning) for Structural
Engineering Division in Grade-08A from March 2017 to December 2017. The
advertisement was published on December 20, 2016 with closing date of
December 26, 2016, which showed that only six days were provided to apply for
the post. 184 candidates initially shortlisted by HR Department were sent to
concerned division for technical short-listing. However, only eight candidates
were shortlisted for interview. The management issued interview call letters to
only four candidates who were already working in NESPAK Foundation on daily
wage basis. The selected candidates had BSc. Civil degree plus one to two years’
experience only. More than 25 candidates with MSc. Structural Engineering
along with BSc Civil qualification and experience of more than three years were
not shortlisted by the management, which showed undue favor. Thus, the whole
appointment process along with payment of Rs. 5.04 million on account of pay &
allowances were held irregular.

Audit was of the view that the management should have appointed the
employees by ensuring transparency in appointment process but the same was not
done and favor was granted to successful candidates.

During DAC meeting held on January 7, 2019, the management informed

that the advertisement was published on December 20, 2016 whereas the last date
of submission was December 26, 2016. As a result, the response was seven days.
The DAC observed that due appointment process was not followed and short
listing of candidates having higher education and more experience was not made.
The DAC directed to hold fact-finding inquiry and the report should be shared
with the Audit.

Audit recommends compliance of the DAC directive.

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7.1.4.6 Irregular hiring of the sub-consultant (M/s Royal Haskoning)
- Rs. 24.05 million

According to Rule 12(1) & (2) of PPRs 2004, procurements over one
hundred thousand rupees and up to the limit of two million rupees shall be
advertised on the Authority’s website in the manner and format specified by
regulation by the Authority from time to time. All procurement opportunities
over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation.

During the audit of NESPAK for the year 2017-18, it was observed that
the management entered into a consultancy agreement with M/s Pakistan Power
Park Management Company Ltd (PPPMCL) on June 01, 2014 for the project,
“Consultancy Services for preparation of Concept Design Report of 6600 MW
Pakistan Power Park at Gaddani, Baluchistan”. The management hired
sub-consultant M/s Royal Haskoning DHV on June 10, 2014 for Preparation of
Concept Design Report for US$ 290,950 and made payment of US$ 218,212
(Rs. 24.05 million @ 110.20 per US$) for submission of Draft Concept Design
Report and remaining amount could not be paid due to stoppage of work. Audit
observed that processes of press advertisement and tendering, as required under
PP Rules, was not followed. Therefore, award of work and payment of
Rs. 24.05 million to the international consultant in selective manners was
considered irregular.

Audit was of the view that violation of PP Rules resulted in irregular

selection of sub-consultant and payment of Rs. 24.05 million.

During DAC held on January 7, 2019, the management informed that

NESPAK prepared detailed scope of consultancy work in which off shore,
activities were also involved. NESPAK selected M/s Royal Haskoni as a foreign
sub consultant after inquiry about their capability. The DAC was not satisfied
with the reply and directed to hold fact-firing inquiry at Ministry level regarding
selection of M/s Royal Haskoni in non-transparent manner.
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 Audit recommends compliance of the DAC directive.

7.1.4.7 Irregular appointment due to non-verification of degrees of employees

at the time of appointment-Rs. 8.75 million

According to Cabinet Secretariat (Establishment Division) vide D.O. No.

6(28)2011-DG-II dated March 08, 2011, all the Autonomous bodies/Companies,
Corporations were required to take the measures to authenticate
degrees/certificates of all the employees of their organization. It would be of
concerned Head of Organization to have the degrees/certificates verified.

During the audit of NESPAK Regional Office Islamabad for the year
2017-18, it was observed that the management appointed Mr. Waqas Elahi,
Sub-Engineer in Grade-06, Mr. Manzar Iqbal, Laboratory Technician in Grade-07
and Mr. Muhammad Asim Shehzad, Sub-Engineer in Grade-07 during 2009,
2010 and 2015 respectively. At the time of appointment, the management did not
verify the educational certificates of these employees from concerned
boards/universities. The degrees were verified from concerned boards/
universities by the management with delay of 03 to 09 years and three degrees
were proved bogus. Consequently, the management dismissed these employees
from service during 2018. Due to non-verification of degrees at the time of
appointment, the appointment of these employees and payment of salary of
Rs. 8.75 million was irregular.

Audit was of the view that the management should have appointed the
employees after verification of degrees from concerned boards/universities but
the same was not done and favor was granted to the employees.

During DAC held on January 7, 2019, the management informed that due
to the stay granted by NIRC, disciplinary action against the employees could not
be taken. The DAC observed that verification of degrees was made after laps of
five years despite direction of Ministry during 2013. The DAC directed that legal
action may be initiated against the responsible.
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 Audit recommends compliance of the DAC directive.

7.1.4.8 Irregular posting on deputation and subsequent promotion of the

officer - Rs. 2.88 million

According to NESPAK Memo No. 099/1201/AA/53M/16105-34 dated

February 27, 2013; the management decided that in future deputation of
NESPAK employees to private companies/competitors shall not be allowed.
Moreover, the employees who were currently on deputation shall report back to
NESPAK on completion of their deputation period.

During the audit of NESPAK for the year 2017-18, it was observed that
Mr. Abdul Hamid Senior Sociologist (Grade-10) of Agriculture Division was
posted in Asian Development Bank (Pakistan Resident Mission) on deputation
basis w.e.f. March 15, 2012 to February 28, 2013. As per above said NESPAK
policy, the officer was required to re-join NESPAK w.e.f. March 01, 2013 but
instead, the management granted an extension in deputation period from March
01, 2013 to November 30, 2014. The posting of officer on deputation in a foreign
financial institute was not approved by Government of Pakistan through
administrative ministry. Moreover, the officer was promoted as Principal
Sociologist (Grade-11) w.e.f. July 01, 2017. Due to long leave in promotion year,
the credit points based on Annual Performance Appraisal Reports (APARs) could
not be assigned to the officer but the same was done. As the promotion of officers
in NESPAK was done by considering APARs of the officers, the said officer was
not eligible for promotion which resulted in irregular promotion and payment of
salary to officer of Rs. 2.88 million (Rs. 160,000 average salary per month x 18
months from July 01, 2017 to December 31, 2018).

Audit was of the view that the management should not have extended the
deputation period in contravention of its own policy as well as without approval
of Government of Pakistan for posting in foreign international financial institute.

206
 During DAC meeting held on January 7, 2019, the management informed
that the deputation was approved by the former Managing Director. Latter
extension was also granted by the Managing Director. Moreover, the promotion
was made as per NESPAK criteria. The DAC was not satisfied with the reply and
directed to hold fact-finding inquiry.

Audit recommends compliance of the DAC directive.

7.1.4.9 Irregular appointment of candidates at lowest position on merit list -

Rs. 3.90 million

According to clause-08 (d) of eligibility criteria for induction and

promotion of NESPAK, a merit list will be prepared based on marks obtained in
the interviews by the concerned Division Head/Office. Recruitments will then be
made in the order of merit from these merit lists as and when required.

During the audit of NESPAK for the year 2017-18, it was observed that
the management made advertisements on October 19, 2016 and July 09, 2017 for
the appointment of Senior Architects (Grade-09) and Senior Engineers
(Construction) Grade-09. During review of appointment it was observed that for
the posts of Senior Architects (Grade-09) in response to advertisement dated
October 19, 2016, 06 candidates were recommended for appointment but the
management appointed 05 candidates as Senior Architects (Grade-09) during
July, 2017 and one candidate at serial No. 05 of the merit out of six
recommended candidates was rejected by management on the plea that the
experience required for the post was 04 to 08 years. However, the rejected
candidate had experience of 08 years and 16 days, which indicated that only
sixteen days experience was excess than the required experience. For the posts of
Senior Engineers (Construction) Grade-09 in response to advertisement dated
July 09, 2017, 08 candidates were recommended for appointment but the
management appointed 07 candidates as Senior Engineers (Construction)
Grade-09 during November, 2017 and one candidate at serial No. 04 of the merit
out of eight recommended candidates was rejected by the management on the

207
plea that the experience required for the post was 02 to 07 years. However, the
candidate had experience of 07 years and 05 months, which indicated that only
five months experience was excess than the required experience. The
appointment of candidates having additional experience could have proved an
asset for the company but the management rejected candidates just to extend
favor to the other candidates standing lower in merit list. Hence, the appointment
of two candidates (one Senior Architect, Grade-09 and one Senior Engineer
(Construction), Grade-09) despite having lower position on merit list than
rejected candidates and payment of salary of Rs. 3.90 million(130,000 per month
average salary x 30 months of both officer upto December, 2018) was held
irregular.

Audit was of the view that the candidates having extra experience were an
asset for the company and management should appoint/consider the candidates
on merit basis rather than rejection of candidates having some extra experience.

During DAC meeting held on January 7, 2019, the management explained

that the criteria mentioned in advertisement was observed, and induction was
made in line with the NESPAK induction rules and policies. The DAC was not
satisfied with the explanation of management, as two employees recommended
for appointment were not appointed. The DAC directed to hold fact-finding
inquiry at Ministry level.

Audit recommends compliance of the DAC directive.

7.1.4.10 Irregular expenditure on hiring of vehicles without obtaining

competitive bids - Rs 13.71 million

According to Clause 8 & 9 of Public Procurement Rules-2004, a

procuring agency shall devise annual planning for all proposed procurements
with the object of realistically determining the requirements of the procuring
agency. A procuring agency shall announce in an appropriate manner all

208
proposed procurements for each financial year and shall proceed accordingly
without any splitting or regrouping of the procurements so planned.

During the audit of NESPAK for the year 2017-18, it was observed that
the management incurred expenditure of Rs 13.71 million on hiring of vehicles
for various jobs. Hiring of vehicles was made without proper planning and by
splitting the cost of hiring in order to keep, cost of each hiring below the
NESPAK prescribed financial limit of Rs 500,000 to avoid tendering.
Consequently, the management not only violated PPRs 2004 but also deprived
the company of the benefit of competitive bidding. As the vehicles were hired in
violation of rules, thus the whole expenditure of Rs 13.71 million was considered
irregular.

Audit was of the view that said services were hired in deviation of proper
procedures on splitting basis without keeping in view the actual annual
requirements.

The DAC in its meeting held on January 7, 2019, observed that

requirement was splitted upto to the level of Rs. 500,000 to avoid the tendering
process. The DAC directed the management to follow due process for hiring of
vehicle.

Audit recommends compliance of the DAC directive.

7.1.4.11 Irregular appointment of officer as 3D Presenter/Graphic Designer

(Grade-09) - Rs. 2.21 million
According to Rule-5(5)(a) of the Public Sector Companies (Corporate
Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.
209
 During the audit of NESPAK for the year 2017-18, it was observed that
the management published advertisement on September 18, 2016 for appointment
of 3D Presenter/Graphic Designer for Karachi Office. The management
shortlisted only one candidate for interview. Consequently, the candidate i.e.
Mr. Naeem Javed was appointed as 3D Presenter/Graphic Designer (Grade-09)
w.e.f. July 27, 2017. In fact due to widespread utilization of modern computer
technologies it is difficult to understand that only one relevant candidate applied
for the post which prima facie showed that the short-listing was made just on
favoritism basis. The list and profiles of applicants who applied for the post were
demanded from management but the same were not provided to audit.

Audit was of the view that the appointment and payment of salary of
Rs. 2.21 million (130,000 per month average salary x 17 months upto December
2018) were held irregular.

During DAC meeting held on January 7, 2019, the management explained

that Mr. Naeem Javed Khan went through the entire process of recruitment. The
DAC directed to provide complete record regarding appointment process of said
employee. No record was provided to audit till the finalization of this report.

Audit recommends compliance of the DAC directive.

7.1.4.12 Loss due to non-renting of vacant space - Rs. 4.50 million

According to bid submitted by KP Economic Zone Development &

Management Company, Peshawar regarding hiring of ground and 1st floors of
NESPAK Peshawar, Rs. 37.50 per Sq. Ft was offered for 20,000 Sq. Ft area of
both floor.

During the audit of NESPAK for the year 2017-18, it was observed that
the management constructed NESPAK House Peshawar for establishment of
Regional office by incurring a cost of Rs. 150.88 million. The NESPAK
Peshawar Regional Office was shifted into second floor of said building and the
210
basement was utilized for parking of vehicles. The management tried many times
to lease out the vacant space i.e. ground and 1st floors having area of 10,000 Sq.
Ft. each since July, 2015 but unfortunately, due to non-willingness of any party,
the vacant floors could not be leased out.

The management again tried to lease out the vacant space and published
tender on May 27, 2018. Only one party i.e. KP Economic Zone Development &
Management Company (a state owned company of KP Government), participated
in the tender and offered Rs. 37.50 per Sq. Ft for 20,000 Sq. Ft area of both
floors. However, management refused to accept the offer with the reasons that
NESPAK offices of upcoming projects would be shifted into these floors. Audit
observed that both floors were lying vacant as not a single office was shifted.
Thus, due to imprudent decision of management, NESPAK suffered a loss of
Rs. 4.50 million (Rs. 37.5 per Sq. Ft x 20,000 Sq. Ft x 06 months) from July 2018
to December 2018.

Audit was of the view that the management was required to lease out the
vacant floors rather to keep the building vacant for expected projects but the same
was not done, due to which the company sustained loss.

During DAC meeting held on January 7, 2019, the management informed

that tender of hiring out the vacant building (portion) was advertised five times
but no suitable client was found interested. The DAC directed to retender the
vacant space in the interest of NESPAK.

Audit recommends compliance of the DAC directive.

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7.1.4.13 i Loss due to irregular payment of pay & allowances to Ex-MD
for no- work period after superannuation - Rs. 15.75 million
ii Loss due to non-recovery of salaries of employees and rent of
vehicles from Ex-MD - Rs. 20.24 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. According to the minutes of BoD
meeting dated September 25, 2017, the management was directed to recover the
rent of vehicles, furnishing items and salaries of personnel from ex MD.

During the audit of NESPAK for the year 2017-18, it was observed that
the then MD Mr. Amjad Ali Khan retired on superannuation on April 09, 2017
and was not eligible for continuation of services as MD for 2nd term of three
years. Contrary to that, the officer was again appointed as MD for a further three
years vide letter June 28, 2016 without considering the superannuation date of the
officer. The officer filed a petition in Lahore High Court regarding retirement
notification, which was decided in favor of officer on June 28, 2018 by a single
judge bench. The management filed an intra court appeal, which was accepted on
July 13, 2018 in favor of NESPAK with the remarks, “the judgment passed by
the learned single judge was not sustainable at law”. The officer during
reinstatement period i.e. June 28, 2017 to July 13, 2018 claimed pay, allowances,
and fringe benefits valuing Rs. 15.75 million for no-work period i.e. April 10,
2017 to June 28, 2017, which was paid by the management. The payment for the
period for which no services were rendered was held irregular.

Furthermore, the officer retained two vehicles, one motorcycle, various

furnishing items and five NESPAK personnel at his residence beyond the
prescribed entitlement during his posting as MD which were returned by ex-MD
during September 2017 i.e. five months after his retirement. The BoD in its 145th
meeting held on September 25, 2017 directed the management to recover the rent

212
of vehicles, furnishings items and salaries of personnel from ex-MD but no action
was taken by management. Thus, due to non-compliance of the Board’s
directions, the company also sustained loss of Rs. 20.24 million.

Audit was of the view that the management was not required to make
payment of salary for no-work period to a superannuated officer and to ensure the
compliance of Board’s directives to recover the rent of vehicles, furnishing items
and salaries of personnel from ex MD but the same was not done due to which
the company sustained loss.

During DAC meeting held on January 7, 2019, the management explained

that the matter was subjudice. The DAC directed to take action as per Court
decision.

Audit recommends compliance of the DAC directive.

7.1.4.14 i. Loss due to non-claiming of financing charges on account of

delay in payments - Rs. 6.94 million
ii. Loss due to non-recovery of consultancy fee from client
- Rs. 15.05 million

According to Clause-6.5 of special conditions of contract (Part-B

regarding construction supervision of re-modelling works of Warsak Canal
System), if the client delayed the consultants’ payment more than fifteen days
after submission of consultants’ invoices, financing charges @ KIBOR plus two
percent per annum shall be paid to the consultants for each day of the delay.

During the audit of NESPAK for the year 2017-18, it was observed that
the management made an agreement with Irrigation Department, Government of
Khyber Pakhtunkhwa, Peshawar regarding provision of construction supervision
of re-modelling works of Warsak Canal System in 2012. Part-A of the contract
pertained to design consultancy and survey and Part-B of the contract pertained
to construction supervision. Part-B of the contract i.e. construction supervision

213
started w.e.f. November 01, 2013. The consultant raised invoices upto September
2018 of Rs. 181.33 million on account of payment for consultancy supervision to
client. Out of said amount, the clients made payment of
Rs. 132.52 million by causing delay of more than six months after deducting
retention money, withholding tax, mobilization advance and the payment valuing
Rs. 15.05 million for the period from January, 2018 to September, 2018 was
outstanding from client. The management did not claim financing charges on
account of late payments from the client besides efforts for recovery of balance
amount, which resulted in further delay in payment due to which the company
suffered loss of Rs. 6.94 million on account of non-recovery of financing charges
due to delay in payments.

Audit was of the view that the management should have claimed the
financing charges from client in pursuance of agreement clause as well as making
efforts for the recovery of balance amount but the same was not done due to
which the company suffered loss.

During DAC meeting held on January 7, 2019, the management informed

that the client did not delay the payment intentionally but it was delayed due to
delay in release of funds from the KP Govt. The DAC directed that remaining
recovery along with financing charges may be pursued vigorously.

Audit recommends compliance of the DAC directive.

7.1.4.15 i. Loss due to non-receipt of consultancy fee for delay period -

Rs. 13.01 million
ii. Non-inclusion of consultancy services fee receivable in books of
company - Rs. 6.64 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,

214
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives and employees and claiming of
expenses.

During the audit of NESPAK for the year 2017-18, it was observed that
the management entered into an agreement with M/s UET Taxila on July 10,
2017 for design and construction supervision regarding construction of students’
hostels valuing Rs. 11.15 million. The contract was delayed due to
non-completion of work by the contractor on account of different reasons.
NESPAK also provided consultancy services during contract completion delay
period without confirmation from client for payment of services for the said
period. The project was completed on June 30, 2017 and NESPAK raised
invoices of Rs. 26.04 million on account of consultancy services but the client
made payment of Rs. 13.04 million and balance payment of Rs. 13.007 million
was not made by the client due to delay in contract completion. Furthermore,
against receivable amount of Rs. 13.01 million, NESPAK included an amount of
Rs. 6.36 million as receivable in books of accounts as on June 30, 2018 and
remaining amount of Rs. 6.64 million was not included in books of accounts due
to which company accounts were understated and did not show the true picture.

Audit was of the view that before provision of consultancy services for
contract completion delay period, the management should have settled the terms
and conditions for receipt of consultancy charges with client but the same was not
done due to which the company suffered loss. Further, the non-inclusion of
receivable valuing Rs. 6.64 million in books of accounts also needs to be
investigated.

During DAC meeting held on January 7, 2019, the management informed

that the client was assuring that, the balance payment would be released as soon
as approval of Extension of Time by the competent authority. The DAC directed
to hold fact-finding inquiry for continuation of work without extension of
contract and the report should be shared with the Audit.

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 Audit recommends compliance of the DAC directive.

7.1.4.16 Loss on account of excess payment of rent due to defective agreement

– Rs. 71.74 million

According to Section-5 of Urban Rent Restriction Ordinance, 1959

(Updated as on January 14, 2010), the rent of a residential as well as
non-residential building shall stand automatically increased at the end of every
three years of its tenancy by twenty-five per cent of the rent already being paid by
the tenant.

During the audit of NESPAK Regional Office Karachi for the year
2017-18, it was observed that the management made two agreements with
National Insurance Company Ltd to acquire a total space of 15,801 sq. ft. on 12 th
& 13th floors and 5,300 sq. ft. on 4th floor w.e.f. September 01, 2007 and April
01, 2007 for establishment of NESPAK Regional Office and A&P Division
Office respectively. Both agreements were extended time to time and as per
agreements, the monthly rent was increased @ 10% p.a. in violation of above
said rule. As per Urban Rent Restriction Ordinance, 1959, the monthly rent was
to be increased @ 25% after three year but the same was not done due to which
the company paid excess rent to lessor and sustained a loss of Rs. 71.74 million.

Audit was of the view that the management should have negotiated with
the lessor to review the rent rates as per prevailing rules to avoid further loss and
excess rent paid should also be adjusted from the payment of rent for future
period otherwise agreements should be terminated under the conditions of
contracts.

During DAC meeting held on January 7, 2019, the management informed

that the lease agreement was made as per rules at the rental ceiling as the building
is situated in Cantt area. The DAC directed to produce relevant supporting
document regarding situation of building in cantonment area for verification to
Audit.
216
 Audit recommends compliance of the DAC directive.

7.1.4.17 Loss due to late dismissal from service despite proven fake degree
Rs. 4.86 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK Regional Office Islamabad for the year
2017-18, it was observed that the management appointed Mr. Ashraf Ali as
Inspector/Superintendent in Grade-07 w.e.f. August 07, 1994 based on three year
Diploma in Associate Engineering (Civil) granted by Sindh Board of Technical
Education. At the time of appointment, the management did not get the
educational certificates of the employee verified from the concerned board. The
official was promoted as Draftsman in Grade 08B w.e.f. September 13, 2007 and
subsequently promoted in Grad-08A as Associate Engineer. During 2013, the
management requested the Sindh Board of Technical Education for verification
of Diploma. The Board vide his letter dated May 02, 2013 informed that the said
diploma was forged. Consequently, the management issued show cause notice to
the employee on May 08, 2013 and initiated inquiry against the accused vide
letter dated July 10, 2013. The accused did not appear before the inquiry officer
despite repeated notices and filed a petition in National Industrial Relations
Commission, Islamabad in March 2014, which was dismissed by the court. The
departmental inquiry continued for four and a half years just to prove that the
degree was bogus which the board already proved in 2013. Finally, the accused
was dismissed from service w.e.f. November 07, 2018 based on bogus degree.
There was no need for detailed inquiry and employee should have been dismissed
immediately. Thus, due to unnecessary detailed enquiry for four and half years,
217
the accused continued to receive irregular pay and allowances which caused loss
of Rs. 4.86 million (Rs. 90,000 average salary per month x 54 months) to the
company.

Audit was of the view that had management dismissed the employee from
service immediately after proving bogus degree, the irregular payment of salary
and allowances could have been saved but the same was not done and favor was
granted to the employee.

The DAC in its meeting held on January 7, 2019 directed the management
to lodge FIR against the employee and fix responsibility for delay in initiation of
legal course against the employee despite of proving bogus degree.

Audit recommends compliance of the DAC directive.

7.1.4.18 Loss due to non-receipt of retention money and consultancy fee from
client - Rs 10.00 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK Regional Office Peshawar for the year
2017-18, it was observed that the management executed a contract agreement
with Communication and Works Department for engineering consultancy
services of detailed design & construction supervision of establishment of Gaju
Khan Medical College Swabi in December 2013 for Rs. 15 million. The client
made payment of Rs. 5.415 million and remaining amount was not paid by the
client till date despite completion of contact since June 30, 2016, Furthermore, in
218
pursuance of Clause 3.4 (4) of the contract, the client withheld retention money
Rs. 541,500 @10% of amount paid which was to be released upon completion of
defect liability period. The project was completed on June 30, 2016 and defect
liability period concluded on June 30, 2017 but the management failed to get
released the same as well as balance amount receivable from the client was also
not paid due to which the company sustained loss of Rs. 10.00 million.

Audit was of the view that the management should have made efforts for
early receipt of retention money and recovery of receivable from the client but
the same was not done.

During DAC meeting held on January 7, 2019, the management explained

that the payment was withheld due to no-availability of funds. The DAC directed
to get the acknowledgement from client for consideration of audit.

Audit recommends compliance of the DAC directive.

7.1.4.19 Loss due to provision of defective services resulted in non-receipt of

consultancy cost - Rs. 17.30 million

According to Clause-3.1 of General Conditions of Contract between

M/s UET, Lahore and NESPAK regarding consultancy services i.e. Architectural
and Engineering Design and Resident Construction supervision of Innovation
Centre at UET Narowal campus, The consultants shall perform the services and
carry out their obligations with all due diligence, efficiency and economy, in
accordance with generally accepted professional techniques and practices and
shall observe sound management practices and employ appropriate advanced
technology and safe methods. As per clause 3.4, the consultants are liable for the
consequences of errors and omissions on his part or on the part of the employees
and if client suffers any losses or damages as a result of proven faults, errors or
omissions in the design of a project, the consultants, shall make good such losses
or damages.

219
 During the audit of NESPAK for the year 2017-18, it was observed that
the consultancy services provided by NESPAK were not upto the required
stipulations and the client raised many objections regarding removal of faults in
services provided by the NESPAK. The management raised invoices for
Rs. 29.63 million during the period from January 2016 to October 2018 but the
client paid only Rs. 12.34 million and balance amount of Rs. 17.30 million was
withheld due to provision of defective services. The client also requested
NESPAK for deployment of less staff due to slow pace of work by contractor but
the same was not followed/observed. NESPAK suffered loss of Rs. 17.30 million
due to defective work.

Audit was of the view that due to defective work NESPAK sustained loss.

During DAC meeting held on January 7, 2019, the management informed

that delay was due to revised instructions of HEC. The drawings were submitted
in time and the claim of NESPAK was never refuted by client. The DAC directed
to produce relevant record for audit verification. No relevant record was provided
to audit till the finalization of this report.

Audit recommends compliance of the DAC directive.

7.1.4.20 Appointment of terminated employee as Senior Architect (Gr-10)

without following appointment process - Rs. 9.90 million

According to clause-08(a & b) of eligibility criteria for induction and

promotion of NESPAK, all inductions shall be made on the basis of applications
received in response to the requirements as given in advertisements. The
anticipated requirements for hiring of staff shall be determined by the concerned
Division Head and were approved from Managing Director for publication of
advertisement in important daily newspapers of all provinces of Pakistan as well
as on the NESPAK website. The advertisement shall be prepared and forwarded
by the concerned Division Head to the Human Resources Division for
publications.

220
 During the audit of NESPAK for the year 2017-18, it was observed that
Ms. Wajiha Rehan joined NESPAK as Jr. Architect w.e.f. August 1999 and
performed services till September 2006 as regular employee of the company.
During September 2006, she applied for ex-Pakistan leave (without pay) but the
company rejected her leave. Consequently, without permission of company, she
absconded from official duty and left Pakistan for Beijing with family. Thus, due
to misconduct, the company terminated her services. Later on, she came back in
2011 and requested NESPAK for rejoining of services. The management
accepted her request and directed to join duty as Senior Architect w.e.f. May 16,
2011 on daily wage basis. Just after three months, she was appointed as Senior
Architect (Grade-10) on contract basis w.e.f August 03, 2011 without following
any appointment process. Later on, her services were regularized w.e.f. February
03, 2014. After termination of her services based on misconduct i.e. absconding
from duty, she was not eligible for re-appointment. Hence, her re-employment as
Senior Architect (Grade-10) and payment of Rs. 9.90 million on account of salary
was held irregular.

Audit was of the view that the management should have made
appointment of eligible candidate through competitive procedure and
re-appointment of already terminated employee under misconduct should be
avoided but the same was not done and favor was granted to the employee.

During DAC meeting held on January 7, 2018, the management informed

that Ms. Wajiha Rehan was re-inducted after fulfilling the codal formalities. The
DAC observed that appointment process was not followed and directed to hold
fact-finding enquiry.

Audit recommends compliance of the DAC directive.

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7.1.4.21 i. Loss due to continuation of consultancy services despite hiring of
another consultant by client - Rs. 6.50 million
ii. Non-inclusion of consultancy services fee receivable in books of
company - Rs. 1.50 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK for the year 2017-18, it was observed that
the management made two agreements with M/s Baluchistan Engineering
Services Agency (BESA) in March 2015 for feasibility study for Geometric
Improvements at Koyala Phattak Intersection and Car Parking Plaza, Quetta
valuing Rs. 11.00 million. During execution of contract, the client hired another
consultant for said assignment. NESPAK was required to stop the work due to
breach of contract by client but NESPAK also continued to work on the
assignment and completed the contract. Resultantly, the client not made the
payment of work done valuing Rs. 6.50 million which was ultimately a loss to the
company. Furthermore, against receivable amount of Rs. 6.50 million, NESPAK
included an amount of Rs. 5.00 million as receivable in the books of accounts as
on June 30, 2018 and remaining amount of Rs. 1.50 million was not included in
books of accounts.

Audit was of the view that provision of consultancy services after hiring
of another consultant by the client should be stopped by NESPAK but the same
was not done due to which the company suffered loss. Further, the non-inclusion
of receivable valuing Rs. 1.50 million in books of accounts also needs to be
investigated.

222
 During DAC meeting held on January 7, 2019, the management explained
that the matter was subjudice. The Committee directed to take action as per
Court, decision.

Audit recommends compliance of the DAC directive.

7.1.4.22 Loss due to execution of work beyond scope of contract - Rs 22.07

million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK HO Lahore for the year 2017-18, it was
observed that Water Resources Division, Lahore entered into an agreement with
Punjab Irrigation Department Lahore for consultancy services for development of
water management system and decision support system for efficient irrigation
water management in Punjab (Job No.3621). The management raised
supplementary invoice No. 02 dated May 30, 2017 for Rs 80.33 million against
the amount already withheld by the client. The client refused to accept complete
claim and deducted an amount of Rs. 22.07 million on account of incurring and
claiming of expenditure out of contract scope, which showed that the expenditure
was incurred by the management without any limitation with the intention to
charge to client but the client refused the same.

Audit was of the view that management raised excess invoices just to
provide the coverage of additional expenditure incurred out of contract scope but
the client refused to pay the same due to which company suffered loss.

223
 During DAC meeting held on January 7, 2019, the management explained
that the client did not agree with the justification regarding required assessment.
However, it was expected that in the extension phase, NESPAK have good
chance of winning various projects in future. The DAC directed the hold a
fact-finding inquiry and share the inquiry report with Audit.

Audit recommends compliance of the DAC directive.

7.1.4.23 Loss due to hiring of Human Resources without determining actual

requirement - Rs. 395.41 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK for the year 2017-18, it was observed that
the management placed technical and non-technical human resources in different
projects. These human resources were deployed in excess of actual requirement
of the project resulting in burden of 214,372 idle person-hours on the company.
This scenario indicated that posting of excessive human resources on projects
was made just to accommodate the human resources hired in excess of actual
requirements. The hiring of excess human resources was unjustified as NESPAK
foundation had database of technical and non-technical human resources and said
database could be utilized to hire the human resources at the time of human
resources requirements on emergent basis for specific project. The excess human
resources hired equivalent to 214,372 idle man hours were charged to overheads
which was additional financial burden and caused loss of Rs. 395.41 million to
the company.

224
 Audit was of the view that the management was required to hire and post
the employees on projects by determining actual requirement to avoid idle
hours/loss to the company but the same was not done due to which the company
suffered loss.

During DAC meeting held on January 7, 2019, the management informed

that the idle hours were attributed to project finished in 2017-18 due to
non-acquisition of new projects. The DAC directed to devise strategy for full
utilization of manpower.

Audit recommends compliance of the DAC directive.

7.1.4.24 i. Non-receipt of retention money withheld by the client without

any authorization - Rs. 32.86 million
ii. Loss due to withholding of Escalation invoices by the client
without any justification - Rs. 26.07 million
According to general and special conditions of contract (Part-B regarding
construction supervision of re-modeling works of Warsak Canal System), no
clause was included for deduction of retention money from the invoices
submitted by the consultant. As per clause-6.2(a) of special conditions of contract
(Part-B regarding construction supervision of re-modeling works of Warsak
Canal System), remuneration paid in local currency pursuant to the billing rates
agreed for each person shall be adjusted in July of every year, subject to
maximum of prevalent Consumer Price Index (CPI) as per given formula plus
salary revision due to statutory notification.

During the audit of NESPAK for the year 2017-18, it was observed that
the management made an agreement with Irrigation Department, Government of
Khyber Pakhtunkhwa, and Peshawar regarding provision of construction
supervision of re-modeling works of Warsak Canal System during 2012. Part-A
of the contract i.e. design consultancy and survey, was completed by the
consultants and payments were made by clients on account of consultancy after
225
deducting the retention money in light of Consultancy Agreement-Part-A. Part-B
of the contract i.e. construction supervision, was started w.e.f November 01,
2013. In this segment, no clause regarding deduction of retention money was
included. However, the client deducted retention money from monthly invoices
of consultants resulting in deduction of Rs. 32.86 million up to December 2017 in
violation of agreement. Furthermore, the consultant raised invoices of escalation
during execution of Part-B of contract, paid by the client upto August 2016 but
stopped the payment by client w.e.f. September 2016. The management raised
escalation invoices upto December 2017, showing receivable of Rs. 26.07
million. Due to non-payment of escalation, the management also stopped raising
escalation invoices w.e.f January, 2018 which showed that the earlier invoices
were raised by management just to cover the unnecessary expenditure which was
not reimbursed by the client otherwise escalation could not be minimized in these
months.

Audit was of the view that had the management made efforts for receipt
of retention money and escalation withheld by client, the company could avoid
huge loss but the same was not done. The management may explain reasons for
non-recovery.

During DAC meeting held on January 7, 2019, the management informed

that the matter was taken up with the client in numerous correspondence and
meetings. The DAC directed that recovery may be pursued vigorously and
progress achieved got verified from Audit.

Audit recommends compliance of the DAC directive.

7.1.4.25 Loss due to incurrence of heavy expenditure on project of UET Taxila

– Rs 29.58 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due

226
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK for the year 2017-18, it was observed that
the management made an agreement with M/s UET Taxila on July 10, 2013 for
design and construction supervision regarding construction of students’ hostels.
The project was completed on June 30, 2017. The NESPAK raised invoices of
Rs. 26.04 million on account of consultancy services. NESPAK incurred
Rs. 55.63 million on this project under Job No. 3539 upto June 30, 2017 resulting
in loss of Rs. 29.58 million due to incurring of heavy expenditure on this project.
The main component of expenditure was remuneration of human resources,
which showed that excess human resources were deployed on the project without
ascertaining the actual requirement at site.

Audit was of the view that the management was required to incur
expenditure keeping in view the scope of work to make the project profitable but
the same was not done due to which the company suffered loss.

During DAC meeting held on January 7, 2019, the management explained

that the project was acquires at bare minimum consultancy fee to enhance
business. The DAC observed that excessive expenditure was incurred and
directed to hold facts finding inquiry and share the report with audit. No report
was provided to audit till the finalization of this report.

Audit recommends compliance of the DAC directive.

7.1.4.26 Decrease in business acquisition despite direction of BoD resulting

in non-receipt of loan from Qatar Office - Rs. 53.21 million

According to the approval of Committee on International Operations,

dated January 25, 2016, loan of Qatari Riyal 1.996 million was to be released by

227
NESPAK Muscat Office to NESPAK Qatar Office, which was to be returned by
December 2016.

During the audit of NESPAK for the year 2017-18, it was observed that
the management released an amount of Qatari Riyal 1.25 million (equivalent to
Rs 32.51 million) to Qatar Office during February 2016 to June 2017 out of the
approved loan and remaining amount of loan i.e. Qatari Riyal 746,000
(equivalent to Rs 20.70 million) was released to Qatar Office on November 30,
2017 in light of approval of Committee on International Operations dated
October 16, 2017 with the direction to repay the amount of loan upto June 2018.
However, the Qatar office could not repay the same.

Audit observed that the business acquisitions were reducing time to time
and Qatar Office was also suffering loss from its business operations. The BoDs
in its meeting No. 146 held on October 20, 2017 also directed to work hard and
put in more efforts for acquiring new business and increase the financial
performance by at least 20% upto June, 2018 but the management of Qatar Office
failed to do so due to which business performance of Qatar Office declined even
more during 2017-18.

Audit was of the view that the management was required to follow the
BoDs and Committee’s directions for increase in business performance and
repayment of loan amount of Rs. 53.21 million (Rs 32.51 million + Rs 20.70
million) but the same was not adhered.

During DAC meeting held on January 7, 2019, the management informed

that political and financial situation of Qatar was now improving. The DAC
directed that appropriate action may be taken to void further loss in future as well
as recovery of outstanding loan.

Audit recommends compliance of the DAC directive.

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7.1.4.27 Loss of rental income due to defective agreement - Rs. 36.05 million

According to Section 10(1) of Islamabad Rent Restriction Ordinance,

2001, the rent of a residential as well as non-residential building shall stand
automatically increased at the end of every three years of its tenancy by
twenty-five per cent of the rent already being paid by the tenant.

During the audit of NESPAK Regional Office Islamabad for the year
2017-18 it was observed that management made two agreements with Pakistan
Services Ltd and Hashwani Hotels Ltd on March 08, 2012 to lease out a total
space of 24,071 sq. ft. on ground, 1st & 2nd floor and 4500 sq. ft. on upper
basement respectively w.e.f. April 01, 2012 for five years. As per agreement, the
monthly rent was increased @ 5% p.a. in violation of above said rule. These
agreements were extended for further five years w.e.f. April 01, 2017 with the
same condition of increase in monthly rent @ 5% p.a. As per Islamabad Rent
Restriction Ordinance, 2001, the monthly rent was to be increased @ 25% after
three years but the same was not done due to which the company sustained loss
of Rs. 36.04 million.

Audit was of the view that the management should have made agreements
by including increase in rent @ 25% after every three years under the rental rules
but the same was not done due to which company sustained loss.

During DAC meeting held on January 7, 2019, the management explained

that after detailed deliberation package deal was agreed between NESPAK and
M/s PSL with monthly rent of Rs. 40/sqft with an increase of 5% increment
annually. The DAC observed that 5% increase was against the provision of
Islamabad Rent Restriction Ordinance, 2001 and directed to provide detail
justification for consideration of audit.

Audit recommends compliance of the DAC directive.

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7.1.4.28 Loss due to non-receipt of consultancy fee from client - Rs 18.26
million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives, employees, and claiming of
expenses.

During the audit of NESPAK for the year 2017-18, it was observed that
the management executed an agreement with Transport & Mass Transit
Department, Government of Sindh for engineering consultancy services for
preliminary design, bidding documents and evaluation of bid invitations of
Karachi Circular Railway Project on August 24, 2017 for Rs. 43 million. The
consultant submitted preliminary design and bidding documents to client and
raised invoices of Rs. 18.26 million but said amount has not been paid by the
client so far despite provision of services, due to which the company sustained
loss of Rs. 18.26 million.

Audit was of the view that the management should have made efforts for
early receipt of consulting fee from the client but the same was not done.

During DAC meeting held on January 7, 2019, the management explained

that several meetings have been held with the client to fulfill their contractual
objections. The DAC directed to pursue recovery vigorously.

Audit recommends compliance of the DAC directive.

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 Chapter-8
Finance Division

8.1 House Building Finance Company Limited

8.1.1 Introduction

House Building Finance Company Limited (HBFCL) is an unlisted public

company, incorporated on June 13, 2006 under the Companies Ordinance, 1984.
The Company has taken over all assets, running business, contracts, liabilities
and proceedings of the House Building Finance Company (HBFC), established in
1952 under the House Building Finance Company (HBFC) Act 1952 (XVIII of
1952) by the Government of Pakistan on December 31, 2006, pursuant to a
Vesting Order SRO.1/2007 dated July 25, 2007 issued by the Finance Division–
Government of Pakistan.

8.1.2 Comments on Audited Accounts

8.1.2.1 The working results of the company during the year 2017 as compared to
previous years are tabulated below:
(Rs in million)
% %
2017 Inc/ 2016 Inc/ 2015
(Dec) (Dec)
Net rental markup/return/interest income 2,268.56 47.42 1,538.83 6.73 1,441.8
Various Reversal/ (provision) made (net) 681.46 - (851.44) (72.21) 491.57
Reconciliation adjustment (0.75) 189.29 0.84 (91.21) 9.56
Reversal of rental income due to relief
(7.405) (25.13) (9.89) (55.85) (22.40)
package
Other Income 185.84 (31.99) 273.25 381.67 56.73
Total Income 3,040.823 217.69 957.16 (2.32) 979.88
Administrative and other charges (1,025.89) (41.96) (1,767.65) 3.32 (1,710.82)
Profit/(loss) before allocation for SBP
2,013.88 - (835.86) 17.17 (728.70)
share
Share of results of associate 1.43 (79.51) 6.98 (28.55) 9.77
Profit/(loss)before taxation 2,013.88 - (835.86) 14.70 (728.70)
Taxation (393.79) 1,209.13 (30.08) (75.59) (123.25)
Profit/(loss) after taxation 1,620.09 - (865.95) 1.64 (851.96)
(Source: Annual Audited Accounts)

Net rental markup/return/interest income are increased by 47.42% in 2017, from

Rs.1,538.83 million in 2016 to Rs.2,268.56 million in 2017.
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 8.1.2.2 Various Reversal/ (provision) made (net) showed positive results in 2017,
Rs.681.460 million in 2017 from loss/negative value of Rs.851.449 million in
2016.

8.1.2.3 The total income increased by 217.69%% during the year, from Rs.957.16
million in 2016 to Rs.3,040.82 million. Administrative and other charges are
decreased by 41.96% during year under review, from Rs.1,767.65 million in 2016
to Rs.1,025.89 million in 2017.

8.1.2.4 Profit after tax is recorded at Rs.1,620.09 million in 2017 as compared to

loss of Rs.865.95 million in 2016.

8.1.3 Compliance of PAC Directives

Breakup of
Total No. of Compliance Compliance %age of
Audit Year compliance
Directives reported awaited compliance
awaited
1994-95 14 9 5 37,38,39,41 &42 64
1998-99 2 1 1 82 50
2000-01 5 2 3 101,102&103 40
2001-02 5 4 1 95 80
2002-03 3 2 1 56.1 67
2003-04 14 8 6 41.4,41.5,41.6,42,4 57
3&48
2004-05 3 - 3 29,30&31 -
2005-06 14 11 3 56.1,57&58 79
2006-07 5 4 1 38 80
2007-08 8 3 5 43,44(a),44(b), 38
44 (c)& 44(d)
2010-11 10 6 4 7.1.2.1, 7.1.2.3, 60
7.1.4.1, 7.1.4.4
2013-14 12 1 11 6.1.2, 6.1.3.1, 8
6.1.3.2, 6.13.3,
6.1.3.4, 6.1.3.5,
6.1.3.6, 6.1.3.7,
6.1.3.8,6.1.3.9
&6.1.3.10
2016-17 1 - 1 6.1.4.2 -
Total 96 51 45 - 53%

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 The overall compliance of PAC directives needs improvement.

8.1.4 Audit Paras

8.1.4.1 Non-production of record - Rs. 30.00 million

Section 14 of the Auditor General of Pakistan ‘Functions powers Terms

and conditions of Service Ordinance 2001, provides that the officer in-charge of
any office or department shall afford all facilities and provides record for audit
inspection and comply with requests for information in as complete from as
possible and with all reasonable expedition (Sub Section-2).Any person or
authority hindering the Auditorial functions of the Auditor General regarding
inspection of accounts shall be subject to disciplinary action under relevant E &
D Rules (Sub Section-3).

During audit of House Building Finance Company (HBFC), Karachi for

the year 2017, it was observed that management paid an amount of Rs.30.00
million on account of canteen subsidy allowance to its employees. However, the
record were called for from the management on October 12, 2018 vide requisition
No.25. But the management failed to produce the same.

Audit is of the view that non-production of record was concealment of

fact from audit due to which audit could not ascertained the authenticity of the
expenditure.

The matter was reported to the management in October, 2018 but, no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter and responsibility may be

fixed on the person(s) at fault.

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8.1.4.2 Non-recovery of decreed amount - Rs. 76.756 million

According the Section 19 (1) of the Financial Institutions (Recovery of

Finances) Ordinance 2001, upon pronouncement of judgment and decree by
Banking Court, the suit shall automatically stand converted into execution
proceedings without the need to file a separate application and no fresh notice
need to be issued to the judgment-debtor in this regard. Particulars of the
mortgaged, pledged, or hypothecated property and other assets of the judgment-
debtor shall be filed by the decree-holder for consideration of the Banking Court
and the case will be heard by the Banking Court for execution of its decree on the
expiry of 30 days from the date of pronouncement of judgment.

During audit of House Building Finance Company Limited (HBFC),

Zonal Office Hyderabad for the year 2017, it was observed that in 75 cases the
courts awarded decree in favour of HBFC more than 2 years ago. However, the
management failed to recover the decreed amount Rs. 76.756 million
(Annex-24).

Audit is of the view that non recovery of decreed amount shows slackness
on the part of management and prevalence of weak internal controls.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter and responsibility may be

fixed on the person at fault besides recovery of the amount.

8.1.4.3 Non-obtaining of post-dated cheques - Rs. 64.455 million

As per House Building Finance Company (HBFCL) Circular No. 40 dated

July 14, 2004 applicant(s)/ co-applicant(s) will submit 36 post-dated cheques
along with an additional cheque of total outstanding balance before release of

234
investment instead of submission of post-dated cheques for entire repayment
period as per repayment schedule at once’.

During audit of HBFCL (HO) for the year 2017, it was observed that 43
costumers deposited post-dated-cheques against investment of Rs. 56.975 million
which were exhausted and no fresh cheques for subsequent period were obtained.
Similarly, the management of HBFCL, Zonal Office Hyderabad was also not
obtained post dated cheque from 6 customers against investment of Rs. 7.480
million. The details of 6 customers are as under:
Sr. No. Account No Assignment Date Investment Amount
1 9040005994 3/21/2016 1,793,000
2 9040004872 3/4/2015 2,495,000
3 9040004302 8/21/2014 2,000,000
4 9040004211 7/17/2014 500,000
5 9040003254 5/8/2013 500,000
6 9040000615 2/4/2009 192,600
Total 7,480,600

Audit is of the view that the management failed to secure the interest of
company may not be able to file case against the customers in case of default.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that to safeguard the interest of company, postdated

cheques should be collected from the customers besides matter may be
investigated and responsibility may be fixed on the person(s) at fault.

8.1.4.4 Irregular disbursement of loans beyond prescribed Area limit -

Rs.138.349

As per clause-E (iii) of the Operational Circular No.475 dated October 01,
2007 the District / locality-wise investment limit for urban areas of Hyderabad,
Quetta & Peshawar is up to Rs.5,000,000.

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 During audit of (HBFCL) (ZO), Hyderabad for the year 2017 it was
observed that management sanctioned loan to 16 customers more than the
prescribed limit of Rs.5.000 million. This result into irregular sanction of loan
amounting to Rs. 138.349 million (Annex-25).

Audit is of the view that undue favour was extended to the customers by
granting loans beyond the approved area limit which indicates poor financial
management and weak internal controls.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that matter may be investigated and responsibility may

be fixed on the person(s) at fault.

8.1.4.5 Irregular appointment of head of I.T - Rs. 22.640 million

Clause-3.7.1.1 of Human Resource Manual of House Building Finance

Company Limited (HBFCL) states that vacancies should be advertised in
appropriate newspapers and journals. Further clause 59-A of Articles of
Association of HBFCL provides that Professional Board of Directors and
management will be installed in the Company. With corporatization, the Board of
Directors will ensure that human resources with relevant skills are included in the
Company. The board / management will be competent to decide all human
resources matters. The deputation of any professional in the relevant field, if
considered essential by the Board of Directors, will be made subject to clearance
of ‘fit and proper” criteria laid down by the State Bank of Pakistan from time to
time.

During audit of HBFCL for the year 2016, it was observed that an
advertisement was published by the management through consultants i.e.
M/s. KPMG & Fulcrum Pvt Ltd on December 03, 2014 and April 08, 2015 for
appointment of Head of IT. In response 30 candidates applied for the post out of
236
which 11 candidates were shortlisted and interviewed. Meanwhile, two directors
resigned from the board and the board became dysfunctional and management
appointed Mr. Yousuf Nasir as EVP on secondment from UBL for a period of
two (02) years at a monthly salary of Rs.1,331,805 excluding other allied benefits
against last monthly gross salary of Rs.672,475 drawn by him from UBL in
violation of the above rule. This resulted into irregular appointment of Head of IT
and the payment of Rs. 22.640 million (Rs.1,331,805 per month @ 17 months)
on account of salary is held irregular and un-justified.

Audit is of the view that the management had misconstrued article 59-A
of articles of Association and appointed Mr. Yousuf Nasir from private sector on
secondment / deputation in the Public Sector Company. Thus undue favour was
extended to the incumbent.

The matter was reported to the management in August, 2017 and in

November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.1.4.6 Irregular/un-authorized appointment of EVP - Rs. 14.678 million

Clause 3.7.1.1 of Human Resource Manual of House Building Finance

Company Limited (HBFCL) states that vacancies should be advertised in
appropriate newspapers and journals. Further, According to the Establishment
Division O.M dated December 05, 1990 and December, 04 2007, the
re-employment after the age of superannuation in the government,
semi-government, autonomous bodies and semi-autonomous bodies was required
to be made by obtaining approval of the Prime Minister.

During audit of House Building Finance Company Limited (HBFCL) for

the year 2016, it was observed that an advertisement was floated by the
management for the post of Executive Vice President (EVP)/Chief Internal
Auditor through HR consultants i.e. M/s. KPMG & Fulcrum Pvt. Ltd. In response

237
08 candidates applied and out of which five 05 candidates were shortlisted.
Meanwhile 02 directors resigned from the board and the board became
dysfunctional and management appointed Mr. Abdul Waheed as EVP-Chief
Internal Auditor on secondment from UBL to HBFCL for a period of two (02)
years at a monthly salary of Rs. 1,086,563 excluding other allied benefits, against
his last monthly gross salary of Rs. 411, 787 from UBL. It is pertinent to
mention here that Mr. Abdul Waheed did not possess the requisite criteria of age
and qualification at the time of appointment. This resulted into irregular
appointment of Chief Internal Auditor and irregular payment of salary Rs. 14.678
million

Later on, after attaining the age of superannuation on March 31, 2016 he
was re-appointed as Head of Internal Audit on contact basis for the period w.e.f
April 01, 2016 to January 31, 2018 at a monthly salary Rs. 843,579 including all
other perquisites without taking the approval from the Prime Minister.

Audit is of the view that the appointment of the officer was made in
contravention of the HR Manual and Establishment Division. Thus, undue favour
was extended to the incumbent.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility should be fixed on the person(s) at

fault.

8.1.4.7 Irregular appointment of CFO - Rs. 12.186 million

Clause 3.7.1.1 of Human Resource Manual of House Building Finance

Company Limited (HBFCL) states that vacancies should be advertised in
appropriate newspapers and journals. Further, clause 3.1.9 states that HBFC
would promote its own Human Resource in accordance with its own overall
policy and appointment on deputation would not be made. Furthermore, clause

238
59-A of Articles states that Professional Board of Directors and management will
be installed in the Company. With corporatization, the Board of Directors will
ensure that human resources with relevant skills are included in the Company.
The board / management will be competent to decide all human resources
matters. The deputation of any professional in the relevant field, if considered
essential by the Board of Directors, will be made subject to clearance of ‘fit and
proper” criteria laid down by the State Bank of Pakistan from time to time.

During audit of HBFCL for the year 2016, it was observed that in April
2016 management appointed Mr. Ashraf Ali Velji as CFO on secondment from
UBL on the same terms and conditions i.e. by allowing 20% deputation
allowance on his total cash drawings at M/s UBL at a monthly salary of
Rs. 870,460 excluding other allied benefits against a monthly gross salary of
Rs. 415,000 from UBL. Resultantly, the management had misconstrued article
59-A of Articles of Association and appointment was made from private sector
on secondment in the Public Sector Company. Furthermore, the appointment was
made without advertisement and on secondment by the management is also a
clear violation of clause 3.7.1.1 and 3.1.9 of its HR Manual.

Audit is of the view that undue favour was extended to the incumbent.
Hence, the appointment of the incumbent and payment of Rs. 12.186 million
(Rs. 870,460 per month x 14 months) incurred on account of salary was also
irregular.
The matter was reported to the management in June, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter and responsibility may be

fixed on the person(s) at fault.

8.1.4.8 Loss due to imposition of penalty - Rs. 9.80 million

Rule 23 of General and Financial Rules states that every Government

officer should realize fully and clearly that he would held responsible for any loss
239
sustained by Government through fraud or negligence on his part and that will
also be held responsible for any loss arising from fraud or negligence on the part
of any other Government officer to the extent to which it may be shown that he
contributed to the loss by his own action or negligence.

During audit of House Building Finance Company (HBFCL)for the year

2017, it was observed that the management violated various instructions/ orders
due to which State Bank of Pakistan imposed penalties of Rs. 9.800 million on
the Company during the period July, 2015 to June, 2017 (Annex-26).

Audit is of the view that it was the prime responsibility of the

management to avoid such violations of regulations and directives of SBP. The
management failed to exercise due care and showed negligence which resulted
into loss to the Company.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that action may be taken against the person(s) found at
fault for such violations and recover the amount from them to avoid such
penalties in future.

8.1.4.9 Irregular payments of bonus to employees – Rs. 8.732 million

Finance Division (Regulation Wing) through OM dated November 30,

2001 directed that the payment of bonus by autonomous bodies/semi-autonomous
bodies/Corporations requires approval by administrative Ministry and
concurrence of Finance Division.

During audit of House Building Finance Company Limited (HBFCL)

(Zonal Office) Islamabad for the year 2015, it was observed that management
paid bonus amounting to Rs.7.505 million to the officers and staff working under

240
their administrative control in 7 different branch offices without approval of the
Finance Division. The detail is as under:

Name of Office Total Amount (Rs.)

District Office Islamabad 888,000
Branch Office Rawalpindi 1,785,000
Branch Office Jhelum 363,000
Branch Office Mirpur 343,000
Branch Office WahCantt 533,000
Branch Office Attock 540,000
Grand Total: 7,505,000

Similarly, in 2015 the Zonal Office Lahore also disbursed an amount of

Rs.1.217 million on account of bonus. This resulted in irregular payment of
bonus of Rs.8.732 million.

Audit is of the view that the payment of bonus without obtaining approval
of the Finance Division held irregular and against the policy as mentioned above.

The matter was reported to the management in June, 2016 and in

November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.1.4.10 Irregular disbursement of loan against single valuation - Rs.6.165

million

According to HBFCL Circular/Instruction No.44/2014 dated March 17,

2014 all credit proposals seeking finance of Rs.2.5 Million & above for
renovation of house/flat shall be subject to two valuation reports by two different
approved valuators on HBFCL panel.

During audit of House Building Finance Company Limited, (HBFCL)

Karachi for the year 2017, it was observed that management sanctioned loan

241
Rs. 6.165 million (account No. 9480000927) on the basis of single valuation
report instead of two valuation reports in violation of the above circular. This
resulted into irregular disbursement of loan Rs. 6.615 million.

Audit is of the view that management failed to observe the policy and this
shows prevalence of weak internal controls.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends matter may be investigated and responsibility may be

fixed on the person(s) at fault.

8.1.4.11 Irregular payment of fees to advocates/lawyers/firms - Rs. 1.970

million

According to the Para-2(ii) of the policy, no department/government or

semi-government or public corporate body would pay to their counsel/legal
advisor fee exceeding Rs. 100,000 including cumulative fee of similar or
connected cases, without prior intimation and approval of the Ministry of Law,
Justice and Human Rights. In case the fee is less than Rs.100, 000 even then the
same will be paid in consultation and with approval of this Ministry. Any failure
doing so will render the engagement of advocate/counsel etc., null and void and
the fee involved will not be paid to such advocate/counsel.”

During audit of HBFCL (HO) for the year 2013, it was observed that the
management engaged four lawyers / advocates / firms in 04 different court cases
on a fee exceeding the prescribed limit of Rs. 100,000 without obtaining
approval of the Ministry of Law and Justice Division. This resulted into irregular
payment of Rs. 1.970 million.

The matter was reported to the management in November, 2016. The

management in its reply stated that the Board was empowered to engage the

242
lawyers at higher fees. The reply was ot tenable as concurrence of Ministry of
Law was not obtained. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.1.4.12 Irregular Insurance of vehicle from private insurer – Rs. 1.409 million

As per clause-166(3) of Insurance Ordinance-2000 all insurance of

business relating to any public property, or to any risk or liabilities pertaining to
any public property shall be placed with National Insurance Company Limited
only and shall not be placed with any other insurer.

During audit of House Building Finance Company Limited (HBFC) for

the year 2014 it was observed that the management got insured its vehicles worth
Rs. 40.183 million from private company M/s Takaful Pakistan Limited instead
of NICL and premium of Rs.1.409 million was paid in violation of above rule.
The detail is as under:

(Amount in Rs.)
Particulars Quantity Rate Sum Covered Contribution
Motor Car 88 3.1% 34,562,500 1,071,438
Motor Cycle 186 6.0% 5,620,100 337,206
Total 40,182,600 1,408,644

Audit was of view that undue favour was extended to private insurance
company which shows weak internal controls in the company.

The matter was reported to the management in January 2015 and in

November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

243
8.1.4.13 Blockade of funds due to non-recovery o f loans from various schemes
- Rs. 6,722.596 million

Section 15(4) of Financial Institutions (Recovery of Finance) Ordinance,

2001, states that where a mortgager fails to pay the amount and after the due date
given in the final notice has expired, the financial institution may, without the
intervention of any Court, sell the mortgaged property or any part thereof by
public auction and appropriate' the proceeds thereof towards total or partial
satisfaction of the outstanding mortgage money.

During audit of the House Building Finance Company Limited (HBFCL)

for the year 2017, it was observed that management sanctioned and disbursed an
amount of Rs. 6,722.596 million to borrowers in various schemes for a period of
20 years. However, these borrowers failed to pay their loan installments despite
lapse of more than 40 to 50 years but management failed to sell the mortgaged
property to recover the outstanding loans. This resulted into non recovery of
Rs. 6,722.596 million. The details are as under:

Sr. Number of Defaulter amount

Name of the scheme
No. Accounts (Rs. in million)
1 Interest Bearing Scheme 1,178 87.887
2 ShandarGhar Scheme 1,056 301.282
3 Profit Loss scheme 5,434 652.606
4 Simplified Scheme 5,377 717.724
5 New Simplified Scheme 12,019 2,772.751
6 GharAasan scheme 6,256 1,465.238
7 GharAasan (flexi) scheme 3,601 622.841
8 Goth Abad Scheme 1,077 102.267
Total 6,722.595

Audit is of the view that non recovery of loans shows poor financial
management and weak internal controls.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

244
 Audit recommends that investigate the matter and responsibility may be
fixed on the person(s) at fault, besides recovery of the amount.

8.1.4.14 Non-recovery of loan from a defaulting customer - Rs.1.58 million

As per Clause 1 of the terms and conditions of the loan granted by House
Building Finance Company Limited (HBFCL) in case partner fails to pay any of
installments, within 10 days of its becoming due and payable to HBFC, the
guarantor will pay the same with 07 days of the receipt of notice in writing.

During audit of HBFCL, Zonal Office Hyderabad for the year 2017 it was
observed that in December 2015 an amount of Rs.5 million was sanctioned
against account No.904000573-9 for renovation of House. However, customer
after paying meager amount of Rs.628,793 failed to pay 20 installment involving
an amount of Rs.1,577,645 as on December 31, 2017.

Audit is of the view that due to negligence of the management regarding

initiate the action for the recovery of loan/auction of mortgaged property in time,
the Company had to sustain expected loss of Rs.5.00 million.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter and responsibility may be

fixed on the person at fault besides recovery of the amount.

8.1.4.15 Irregular retention of car by Ex-Vice President - Rs. 0.720 million

Rule-38(1) of GFR states that it is primarily the responsibility of the

departmental authorities to see that all revenue or other debts due to government,
which have to be brought to account, are correctly and promptly assessed,
realized and credited to Public Account.

245
 During audit of HBFCL, Karachi for the year 2017, it was observed that
Mian Abdul Qadeer, Vice President, who retired on superannuation on February
15, 2018 but did not return the Toyota Corolla valuing Rs.0.720 million and no
action was taken by the management

Audit is of the view that management extended undue favor to its

ex-employee by not recovering the car.

The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that vehicle may be recovered and action may be

taken to against the person(s) found at fault.

8.1.4.16 Non-submission of Widows cases to the Ministry of Finance for

settlement of loans –Rs. 500 million

The Widows (Protection & Maintenance) Bill, 2015 provides and

maintenance of neglected, abandoned and destitute widows by establishing
welfare Board for such widows and for mater connected therewith or incidental
thereto. The Ministry of Finance has accorded an amount of Rs. 500 million to
provide relief to widows whose late husbands’ had borrowed loan from HBFCL.

During audit of House Building Finance Company Limited (HBFCL), for

the year 2017, it was observed that the government allocated funds amounting to
Rs. 500 million as relief package to widows of borrowers by writing-off their
outstanding loans during the financial year 2017-18. In this regard management
identified 1,432 eligible cases out of which loans in 383 cases amounting to
Rs. 83.868 million were written off and no action was taken the remaining cases.

Audit is of the view that due to slackness and inefficiency management

failed to provide relief to eligible cases.

246
 The matter was reported to the management in October, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter and responsibility may be

fixed on the person(s) at fault besides action may be taken regarding the
remaining cases.

8.1.4.17 Non-collection of sale deeds from the Registrar Office against loans -
Rs.79.986 million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 stats that the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the
Public-Sector Company, which may include the Procurement of goods and
services so as to enhance transparency in procurement transactions, marketing of
goods to be sold or services to be rendered by the Public-Sector Company.

During audit of House Building Finance Company Limited (HBFCL)

Zonal Office (ZO) Hyderabad it was observed that an amount of Rs. 79.986
million was disbursed to 19 customers. However, the sale deeds were not
collected from the Registrar Office. Further, the internal audit also raised the
issue but despite of that the same was remained unresolved (Annex-27).

Audit is of the view that non collection of legal documents shows weak
internal controls and negligence of the management.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that to safeguard the interest of HBFCL required legal

documentation as per procedure must be completed and pending documents
should be got cleared and obtained from sub registrar at the earliest.

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8.1.4.18 Blockade of fund due to non- utilization of plot - Rs. 30.010 million

Rule 5 (1) of the Public-Sector Companies (Corporate Governance)

Rules, 2013 states that the Board shall exercise its powers and carry out its
fiduciary duties with a sense of objective judgment and independence in the best
interests of the company.

During audit of House Building Finance Company Limited (HBFC) Zonal

Office, Hyderabad for the year 2015 & 2016, it was observed that in year 1988
management purchased a plot measuring 2,471 sq yards amounting to Rs.30.010
million for construction of residential apartments but same has remained
unutilized which resulted into blockade of funds.

Audit is of the view that non utilization of plot shows poor financial
management as this not only resulted in blockade of funds but management has
failed to achieve the desired objectives.

The matter was pointed out to the management in April, 2017 and in
November, 2018 but, no reply was eceived. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.1.4.19 Loss due to illegal retention of public assets by Ex-MD - Rs. 5.145
million

Rule-10 of GFR provides that every Public Officer is expected to exercise

the same vigilance in respect of expenditure incurred from public moneys as a
person of ordinary prudence would exercise in respect of expenditure of his own
money.

During audit of House Building Finance Company Limited (HBFCL) for

the year 2017, it was observed that management incurred an amountRs. 5.145
million on purchase of two vehicles and other valuable for the use of Mr. Pervez
248
Said, Managing Director. In May 2017 his service tenure expired, but he did not
return the company assets. A letter was written to him on April 26, 2017 to return
company’s assets. Further, the Board in its meeting held on May 24, 2017
directed for early recovery of company assets as per law and an FIR was lodged
on May 31, 2017 in Sadder South Police Station. Despite of that, the
management failed to retrieve the assets. The detail is as under:
Sr. Amount
Particulars
No. (Rs.)
1 Vehicle No. BDG-267 (Toyota Corolla Altis 1.8, Model 2015) 2,4 92,500
2 Vehicle No. BFL-660 (Toyota Corolla Model 2016) 2, 652,320
3 iPhone 5(s)
4 Apple 1Mac 27
5 Apple Mac Book air
6 Mac Book Operating System (Two CD/DVD)
7 iPad Apple- mini 32 GB
8 iIPhone 6 plus
9 Apple USB Drive
10 Apple iPhone 6 plus
11 Accessories & Adaptor
12 Hard Disc 2 terabyte (Portable)
Total 5,144,820

Audit is of the view that non recovery of company’s assets shows

inefficiency and slackness on the part of management.

The matter was reported to the management in October, 2018 but, no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing of responsibility on person(s) at fault besides

early recovery.

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8.2 Pakistan Security Printing Corporation (Pvt.) Limited
8.2.1 Introduction

Pakistan Security Printing Corporation (PSPC) is a private limited

company governed under the Companies Ordinance, 1984 and was wholly owned
by the Government of Pakistan up to June 13, 2017. Effective June 14, 2017, the
Corporation has become subsidiary of State Bank of Pakistan. The Corporation is
principally engaged in the printing of currency and prize bonds on behalf of State
Bank of Pakistan. During the year in accordance with the decisions taken in the
Corporation’s extra ordinary general meetings held on December 27, 2016 and
January 06, 2017, a subsidiary Company i.e. National Security Printing
Company (Pvt) Ltd. (NSPC) was formed and the assets and liabilities pertaining
to the Corporation’s non-currency business were transferred to NSPC through a
business transfer agreement dated May 18, 2017. Subsequently the Board of
Directors of the Corporation in its meeting held on May 18, 2017 approved the
distribution, effective May 19, 2017 of the Corporation’s shares in NSPC to
every shareholder, whose name was appearing in the register of members of the
Corporation with the ratio of 1 share of NSPC for 1000 shares held in the
Corporation as dividend in specie.

8.2.2 Comments on Audited Accounts

8.2.2.1 The working results of the Corporation for the year ended June 30, 2018
as compared with those of previous years are given below as under:
(Rs. in million)
% %
2017-18 Inc/ 2016-17 Inc/ 2015-16
(Dec) (Dec)
Sales 12,214.28 28.89 9,476.19 21.70 7,786.29
Cost of Sales (9,362.22) 31.74 (7,106.57) 14.28 (6,218.58)
Gross Profit 2,852.06 20.36 2,369.63 51.15 1,567.71
Administrative Expenses (591.42) 14.80 (515.16) 5.00 (490.65)
Other Income 376.98 (45.09) 686.50 33.46 514.39
Financial charges (3.27) 71.20 (1.91) 1.60 (1.88)
Share of profit from 691.42 22.93 562.45 47.32 381.79

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 associates excluding
dividend
Profit before taxation 3,107.33 3.89 2,990.90 50.21 1,991.08
Profit after taxation 2,059.21 0.70 2,044.94 48.56 1,376.47
(Source: Annual audited accounts)

During the year under review, sales increased by 28.89% from Rs.9,476.19
million in 2016-17 to Rs.12,214.28 million in 2017-18, whereas cost of sales also
showed increasing trend and increased by 31.74%, from Rs.7,106.57 million in
2016-17 to Rs.9,362.22 million in 2017-18.

8.2.2.2 Administrative expenses increased by 14.80% from Rs.515.16 million in

previous year to Rs.591.42 million during current year. Other income is
decreased by 45.09% as compared to prior year. Company received sizable share
of profit from associates of Rs.691.42 million as compared to Rs.562.45 million
of previous year.

8.2.2.3 Profitability position of the company showed marginal improvement, as

compared to previous year.

8.2.3 Compliance of PAC Directives

Breakup of
Audit Report Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
2002-03 4 3 1 67.2 75
2007-08 5 2 3 49.2&50 40
2010-11 13 - 13 7.3.1, 7.3.2, -
7.3.2.1, 7.3.2.2,
7.3.2.3, 7.3.2.4,
7.3.3, 7.3.4.1,
7.3.4.2, 7.3.4.3,
7.3.4.4, 7.3.4.5&
7.3.4.6
2013-14 7 4 3 6.2.2.1, 6.2.2.3, 57
6.2.2.5& 6.3.3
Total 29 9 20 - 31%

The overall compliance of PAC directives needs improvement.

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8.2.4 Audit Paras

8.2.4.1 Irregular procurement of Varnish - Rs. 86.580 million

Rule-12 of the Public Procurement Rules, 2004 provides that all

procurement opportunities over two million rupees should be advertised on the
Authority’s Website as well as in other print media or newspapers having wide
circulation. The advertisement in the newspapers shall principally appear in at
least two national dailies, one in English and the other in Urdu.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that management purchased UV Varnish 20,000 kg
at a total cost of Rs. 86.580 million from SICPA Ink Pakistan Ltd (SIPPL)
without calling tender. Management declared U-V varnish “as propriety item”
without formulation of competent fora. This resulted into irregular procurement
of Rs.86.580 million.

Further, while SICPA supplied varnish having expiry date was only 03
months from the date of manufacturing instead of six months. Hence,
procurement of varnish amounting to Rs.3.700 million (200 x 5 x 3,700) was loss
to the Corporation.

Audit is of the view that undue favour was extended to the supplier by
procuring directly from the supplier. Thus, the Corporation deprived from the
benefits of competitive bidding.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing the responsibility on the person(s) found at

fault.

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8.2.4.2 Irregular procurement of vehicles - Rs. 44.876 million

According to the Finance Division (Expenditure Wing) office memo

No.F.7 (1)Exp-IV/2016dated 29th July, 2016 states that “there will be complete
ban on purchase of all types of vehicles both for current as well as development
expenditure except operational vehicles of law enforcing agencies for which
NOC from Finance Division would be required.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that management had procured 34 vehicles valuing
Rs.44.876 million in violation of directives regarding Austerity Measures. The
details are as under:

No. of
Sr. Cost of per Total Cost
Vehicle(s) Description vehicles
No. vehicle (Rs.)
Purchased
1 Honda Civic 1.8 navigation and multimedia 3 2,363,000 7,089,000
2 Toyota Corolla XLI 1300 CC 7 1,764,000 12,348,000
3 Honds BRV 1500 CC 1 2,667,500 2,667,500
4 Toyota Revo 3000 CC 1 4,299,000 4,299,000
5 Honda City Aspire 1.3 Prosmatic 1 1,547,000 1,547,000
6 Suzuki cultus 1000 CC 3 1,250,000 3,750,000
7 Suzuki Mehrn 800 CC 18 732,000 13,176,000
Total Cost 44,876,500

Audit is of the view that procurement of vehicles in violation of the

Austerity Measures issued by the Finance Division indicates weak internal
controls and poor financial management.

The matter was reported to the management in August 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

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8.2.4.3 Irregular hiring of services - Rs.22.867 million

According to the Rule-12 of PPRA-2004 all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that management hired services of M/s. A.F
Ferguson & Co. Chartered Accountant and M/s. Maxim Advertising Company
(Pvt.) Ltd amounting to Rs.15.00 million and 7.867 million respectively. The
hiring of services was made without tendering and in violation of above rules.
Thus the payment of Rs. 22.867 million was held irregular.

Audit is of the view that undue favour was extended to the Chartered
Accountant and Corporation deprive from the benefits of competitive bidding

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing the responsibility on the person(s) found at

fault.

8.2.4.4 Loss due to in admissible payment - Rs. 8.421 million

According to Govt. of Pakistan, Finance Division Notification dated

November 27, 2013 the allowance, fee, honararium etc in excess of six hundred
thousand rupees per annum received by a civil servant as member of the Board of
Directors of any one or more statutory Corporation, companies, autonomous
bodies, institutions, societies etc,. whether fully or partially owned or controlled
by the Federal Government, shall be credited to the General Revenues.

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 During audit of Pakistan Security Printing Corporation of Pakistan
(PSPC) for the year 2015-16, it was observed that excess payment of Rs. 4.681
million was made to the Managing Director and Executive Director over and
above the admissible amount of Rs. 0.600 million per year as Directors Fee on
attending Board Meetings. The detail is as under:

Total Admissible Excess

Sr. Period of
Designation of officer amount paid payment payment
No. payment
(Rs.) (Rs.) (Rs.)
(A) (B) (A-B)=C
1. Director/ 2015 2,781,000 600,000 2,181,000
CEO, SPL
-do- 2016 3,000,000 600,000 2,400,000
2. Director/ED, PSP to 2015 & 2016 1,300,000 1,200,000 100,000
SPL
Total 4,681,000

Moreover, Mr. Muhammad Misbah Tunio, a BS 21 officer, was posted on

deputation as Chief Executive Officer/Managing Director of PSPC in April 2014.
Later on, in August 2014 the MD, PSPC was also appointed as CEO, Security
Papers Limited (SPL) and was allowed fixed remuneration of Rs.110,000 per
month w.e.f September 2014 from the budget of SPL. Hence, payment of
Rs.3.470 million (110,000 X 34) was irregular.

Audit is of the view that the management extended undue favour to the
officers at Corporation cost.

The matter was reported to the management in June, 2017 and in

November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.2.4.5 Irregular payment of Bonus to MDs - Rs. 4.556 million

According to Finance Division (Regulation Wing), O.M.No.F.3 (5)

R.12/80(R-14)2002-154 dated March 18, 2002 Managing Directors and Members
255
of the Board of Directors of autonomous/semi-autonomous bodies/public
Corporation/organizations are not entitled to receive bonuses.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2015-16, it was observed that management paid an amount of Rs.4.556
million to its Managing Directors on account of bonus/ex-gratia during 2014-15
& 2015-16 in violation of Finance Division orders. The detail is as under:

2014-15 2015-16 Total

Name of MD/CEO
Ex-gratia Bonus Ex-gratia Bonus Amount (Rs.)
Mr. Rizwan - 847,000 - - 847,000
Ahmed, Ex-MD
Mr. Muhammad 1,142,772 936,931 768,000 861,000 3,708,703
Misbah, MD
Total 1,142,772 1,783,931 768,000 861,000 4,555,703

Audit is of the view that the payment of bonus to the CEO was not
admissible as per Finance Division’s order as mentioned above. Thus, undue
favour was extended to the MDs at Corporation cost which was irregular

The matter was reported to the management in June, 2017 and in

November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.2.4.6 Irregular appointment of MD - Rs. 4.24 million

Public Sector Companies (Corporate Governance) Rules, 2013 states

under the section 5 of the sub-section 2 that the Board shall evaluate the
candidates based on the fit and proper criteria and the guidelines specified by the
Commission for appointment to the position of the chief executive, and
recommend at least three individuals to the Government for appointment as chief
executive of the Public Sector Company. On receiving concurrence of the
Government, the Board shall appoint the chief executive in accordance with the

256
provisions of the Ordinance. The Board shall also be responsible for development
and succession planning of the chief executive.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that in June 2017 the Board of Directors appointed
Mr. Haroon Rasheed Malik as MD without following the Public Sector
Companies (Corporate Governance) Rules, 2013. Record of
selection/appointment the merit/transparency in appointment was not produced to
audit hence audit could not verify. Resulting in the payment of Rs.4.24 million on
account of pay and allowances was irregular.

Audit is of the view that undue favour was extended to the MD which
indicates weak internal controls.

The matter was reported to the management in August, 2018. The

management stated in its reply that appointment of the Managing Director was
made strictly in compliance with all the legal formalities as per Corporate
Governance Rules and under Article of Association of PSPC. The reply was not
tenable as the Corporate Governance Rules were not followed. DAC meeting was
not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

8.2.4.7 Irregular procurement of white offset paper - Rs. 2.831 million

According to the Rule-42 (C) (IV) of PPRA-2004 repeat orders not

exceeding fifteen per cent of the original procurement provided that the procuring
agencies shall specify appropriate for a vested with necessary authority to declare
an emergency.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that initially in April 2017 management approved

257
purchases of 540 reams of white offset papers on the basis of repeated order 15%
of previous/last quantity i.e. 3,600 reams from M/s Diamond Packages amounting
to Rs.1.528 million. However, the record revealed that actual repeated purchase
order was of 1,000 reams of offset white papers worth Rs.2.831 million in April
2017. This resulted into the repeated order was 28% which is excess of the repeat
order limit i.e. 15%, was held irregular.

Audit is of the view that undue favour was extended to the supplier and
Corporation deprived from the benefits of competitive bidder.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing the responsibility on the person(s) found at

fault.

8.2.4.8 Irregular payment of Bonus to MD - Rs. 2.122 million

According to Finance Division (Regulation Wing), O.M.No.F.3 (5)

R.12/80(R-14)2002-154 dated March 18, 2002 Managing Directors and Members
of the Board of Directors of autonomous/semi-autonomous bodies/public
Corporation/organizations are not entitled to receive bonuses.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that the Board of Directors in its meetings332nd
and 338thheld on February 23, 2017 and June 09, 2017approved ex-gratia and
bonus amounting to Rs.2.122 million and paid to Mr. Muhammad Misbah Tunio,
Managing Director. The payments were made in violation of the Finance
Division orders.

Audit is of the view that undue favour was extended to the then MD and
paid bonus and ex-Gratia in violation of rule.

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 The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the persons at fault

besides recovery of the amount.

8.2.4.9 Inadmissible payment of Fuel Allowance to MD - Rs. 1.891 million

According to Cabinet Secretariat (Cabinet Division) letter No.6/7/2011-

CPC dated December 12, 2011, the transport monetization policy shall be strictly
adhered by all Ministries/Divisions/Attached Departments and Sub-ordinate
Offices and its overall compliance as per defined parameters shall be the
responsibility of all Principal Accounting Officers by obtaining Certificates from
each of the entitled officer in BS-20 to BS-22 including himself/herself that
he/she is not in possession or in use of any project vehicle or the departmental
operational/general duty vehicle, as well as, any vehicle of an organization or
body corporate in his ex-officio capacity as member of its Board, except the only
vehicle allocated to him through this Monetization Policy.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2015-16, it was observed that Mr. Muhammad Misbah Tunio, a BS 21
officer, was posted on deputation as Chief Executive Officer/Managing Director
of PSPC in April 2014. As per Last Pay Certificate (LPC) issued by Accountant
General Pakistan Revenue Islamabad, the transport monetization allowance of
Rs. 65,960 per month was included in his consolidated salary fixed by PSPC. In
addition to transport monetization allowance two 1600 CC Cars in Karachi
(Vehicle No. AZD-377 & AWU-818) were also provided to him. Furthermore,
fuel allowance of Rs. 49,750 per month in lieu of 500 liters was also paid to the
officer, which was not admissible under government rules.

Audit is of the view that payment of Rs.1.891 million on account of fuel

allowance to the CEO was not admissible as per Finance Division’s order as

259
mentioned above. Thus undue favour was extended to the CEO at Corporation
cost which was irregular.

The matter was reported to the management in June 2017 and November,
2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.2.4.10 Non-recovery of trade receivables - Rs. 3,794.830 million

According to 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 duly credited in the Public Account.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that an amount of Rs.3,794.83 million was
outstanding against various customers on account of trade receivables as on June
30, 2018. The detail is as under:
(Rs. in million)
Sr. Outstanding
Description of debtor(s)
No. Amount
1 State Bank of Pakistan 1,702.619
2 Commercial Bank (OSP) 16.814
3 Govt. Deptt/Agencies 77.283
4 Prize Bonds 0.157
5 Passports 860.329
6 Directorate General Pakistan Post 1137.629
Offices (DG-PPO)
Total 3794.83

Audit is of the view that management failed to recover trade receivables

from customers as mentioned above, which shows negligence on the part of the
management.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

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 Audit recommends that responsibility may be fixed on the person(s) at
fault besides recovery of the amount.

8.2.4.11 Loss due to incomplete work/job - Rs. 8.765 million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 states that the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the
Public-Sector Company, which may include the Procurement of goods and
services so as to enhance transparency in procurement transactions, marketing of
goods to be sold or services to be rendered by the Public-Sector Company.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that management started the work of printing of
various old series prize bond and consumed and incurred an amount of Rs.8.765
million on account of paper, ink, labour & overhead cost. However, the jobs were
not completed / finished due to issuance of new series of the prize bonds.
Keeping in view that SBP should have intimated to PSPC to stop the further
printing of the old series prize bond which had not been done by SBP. Thus,
Corporation had to suffer loss of Rs. 8.765 million. The detail is as under:

Sr. Labour&
F.O Paper Ink Total WIP
No Description Quantity Overhead
No. (Rs.) (Rs.) (Rs.)
. (Rs.)
1 Y-990 Rs. 50 Prize bonds 15 25,930 2,683 17,694 46,307
2 Z-233 Rs. 50 Prize bonds 452 1,520,655 139,614 337,568 1,997,855
3 Z-850 Rs. 100 Prize bonds 403 2,342,439 46,503 337,190 2,726,132
4 Z-810 Rs. 500Prize bonds 481 2,561,240 390,064 1,043,217 3,994,521
Total 8,764,815

Audit is of the view that due to negligence and lack of communication

between PCP and SBP the Corporation had suffered loss.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.
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 Audit recommends fixing the responsibility on the person(s) found at
fault.

8.2.4.12 Loss due to depletion of obsolete inventory - Rs. 38.500 million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 stats that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the
Public-Sector Company, which may include the Procurement of goods and
services so as to enhance transparency in procurement transactions, marketing of
goods to be sold or services to be rendered by the Public-Sector Company.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that store inventory valuing Rs.38.500 million has
become obsolete and no more usage in future. It is pertinent to mention here that
denomination of Rs. 5 bank note paper has been stopped since long by SBP.
Further, it was also observed that shelf life of the ink was two years but same is
lying in the store for more than five years which resulted in loss of Rs. 38.500
million. The details are given below:

Sr. No. Description of inventory Amount (Rs.)

1 Rs. 5 Paper 30,605,712
2 RS 10 old paper 3610
3 Prize Bond Paper 536,427
4 Rs. 5 offset inks 2,152,795
5 Prize bond Ink 651,420
6 Offset Ink OSP 4,549,931
Total 38,499,895

Audit is of the view that management should have been kept inventory
level as per indent / schedule of delivery given by the SBP, so that excess stock
of inventory level could have been avoided.

262
 The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter, besides fixing the

responsibility on the person(s) found at fault.

8.2.4.13 Irregular appointment of Mechanical Engineer – Rs. 17.645 million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 stats that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the
Public-Sector Company, which may include the Procurement of goods and
services so as to enhance transparency in procurement transactions, marketing of
goods to be sold or services to be rendered by the Public-Sector Company.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that in December 2006 management appointed to
Mr. Muhammad Shahid Ahmed as Mechanical Engineer. Later on in July 2010
management promoted him to the position of Senior Manager. However,
evaluation report revealed that out of four members, two members of the
selection committee did not recommend for selection, one member recommended
to hold and only one member recommended for selection as Mechanical
Engineer. This resulted into irregular selection. Thus payment of Rs.17.645 on
account of salary is held irregular (Annex-28).

Audit is of the view that undue favour was extended to the incumbent as
the selection committee did not recommend for promotion. This indicate that
nepotism and favoritism prevailing in organization.

The matter was reported to the management in August, 2018. The

management in its reply stated that as per PSPC service clause 7.2.3 Managing
Director is competent authority. The reply of the management is not tenable as

263
the selection committee did not recommend him for selection. DAC meeting was
not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

8.2.4.14 Irregular payment of Special Management Allowance - Rs. 7.870

million

According to Establishment Division OM. No. 1/13/87-R.1, dated

December 12, 1994, the officer on deputation is entitled to draw pay in BPS as
admissible under the government from time to time. According to Finance
Division OM No.F.15 (13)R-14/82 dated Sep 05, 1982, the funds provided,
acquired or generated by the autonomous/semi-autonomous bodies and
Corporations are public funds, which cannot be utilized at the sole discretion of
the management. The funds should be utilized with due care and caution strictly
in accordance with the prescribed rules or specific orders of the Government.

During audit of Pakistan Security Printing Corporation (PSPC) 2015-16,

it was observed that an amount of Rs.7.870 million was paid to its Managing
Director and Executive Director posted on deputation basses under the head of
account of special management allowance @ of Rs.130,000 and Rs.100,000 per
month w.e.f. April 2014 and March 2015 respectively. The detail is as under:

Sr. Monthly No. of Total

Name of officers
No. Payment month Amount (Rs.)
1 Mr. Muhammad Misbah Tunio, M.D 130,000 39 5,070,000
2 Mr. Shamsuddin Soomro, E.D. 100,000 28 2,800,000
Total 230,000 67 7,870,000

Audit is of the view that the payment of special management allowance to

MD and ED was not admissible as per rule which was irregular. Thus, undue
favour was extended to them at Corporation cost resultantly loss of Rs.7.870
million.

264
 The matter was reported to the management in June, 2017 and November,
2018. but no reply was received. DAC meeting was not convened despite
requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.2.4.15 Irregular / unjustified enhancement in price of paper - Rs. 6.672

million

Under the clause No. 04 of the Trade Agreement between PSPC and SPL
it is agreed that the selling price of banknote and N.J stamp paper will be
mutually reviewed / negotiated on the yearly basis. The value of sales and
purchase transaction between SPL and PSPC will be determined in accordance
with cost plus markup method for transfer pricing prescribed by the companies
ordinance 1984.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that the management issued indent on 30 January,
2017 to M/s. Security Paper Limited (SPL) for prize bond paper of Rs. 750/- of
3369 reams. In response of that, management of SPL quoted sale price of
Rs. 17,880/- per reams. However, quoted price of bond paper @ Rs. 17,880
found 12% increased as compared to last purchase made in April, 2014.
Although, 32.5% increased in the price was already passed on last purchase in
April, 2014. Management also informed to SPL that annual price increase in
current purchases should be 2.7%, whereby, the revised price of the prize bond
paper should be Rs. 16,329/- per reams. Apart from above, management accepted
the price of Rs. 17,880 per reams which is against the essence of the trade
agreement and business norms. Subsequently, management paid an amount of
Rs. 6.672 million (17,880-15,900) =1980*3369) to M/s. SPL which stands
irregular / unjustified.

Audit is of the view that management should have been revised the price
according to the spirit of the trade agreement clause which had not been done by

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the management. This is serious negligence on the part of the management not to
compliance the trade agreement clause.

The matter was reported to the management in Audit, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) found at fault.

8.2.4.16 Irregular payment of fees to Govt. nominee’s members - Rs. 4.187

million

According to the Finance Division OM No.F.2(5)R-1/97 dated February

02, 2007 payment of fee to government officers nominated to attend the
meetings of the bodies or institutions is unjustified as full account is taken of
these duties in adjusting their work and should therefore be stopped”.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that management paid an amount of Rs.4.186
million to Govt. nominated Board Members fee on account of attending the
Board Committee Meetings. The detail is as under;

Sr. Name of Director(s) & belonging ministry Total Director Amount

No / institutions Meeting Fee per Paid in Rs.
attended meeting
1 Mr. Muhammad Tanvir Butt, MoF 26 62,500 1,625,000
2 Mr. RiazRiazuddin, SBP 19 62,500 1,187,500
3 Mr. Fakir Syed Shaharyaruddin, 8 62,500 500,000
DG, PPO
4 Mrs. RubinaTayyab, DG PPO 14 62,500 875,000
Total 4,187,500

Audit is of the view that undue favour was extended to the government
officers by paying meeting fee at Corporation cost.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.
266
 Audit recommends that responsibility may be fixed on the person(s) at
fault besides recovery of the amount.

8.2.4.17 Irregular payment of income tax – Rs. 1.492 million

According to the Sections 12 and 13 of Income Tax Ordinance, 2001

“every employer paying salary to an employee shall, at the time of payment
deduct tax from the amount paid at the employee’s average rate of tax computed
at the rates specified in Division I of the First Schedule on the estimated income
of the employee chargeable under the head “salary” for the tax year in which
payment is made”.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2014-15, it was observed that the management calculated the amount of total
income tax liability in respect of the Managing Director and Executive Director
for the tax years 2015 and 2016 amounting to Rs. 1.492 million (1.216 + 0.276)
and paid to the officers in the name of “Special Management Allowance”.

Audit is of the view that as per above rule, the management was required
to deduct income tax at source from the pay and allowance of the officers and
deposited with the Income Tax Authorities instead of paying the same on behalf
of the above officers which was irregular and unjustified (Annex-29).

The matter was reported to the management in June, 2016. The

management in its reply stated that the payment of Income Tax by the Company
on behalf of MD & ED was made with the approval of BoD. Further, the amount
of expense charged to Company’s accounts hence, there was no additional burden
on the Company. The management reply was got verified by the audit and found
not tenable, as payment of Income Tax is the responsibility of an individual and
no new allowance can be sanctioned to employees without the approval of
Ministry of Finance. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

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8.2.4.18 Blockage of fund due to unnecessary procurement of parchment paper
– Rs. 1.276 million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 states that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of o3rbjective judgment and independence in the best interest
of the company. The Board shall also formulate significant policies of the
Public-Sector Company, which may include the Procurement of goods and
services so as to enhance transparency in procurement transactions, marketing of
goods to be sold or services to be rendered by the Public-Sector Company.

During audit of Pakistan Security Printing Corporation (PSPC) for the

year 2016-17, it was observed that in January 2017 management procured 100
reams Parchment Un W/M Paper Size 24X36” 120 GSM by declaring Proprietary
item and direct contract awarded to M/s. Security Paper Limited (SPL) for
Rs.2.553 million against annual consumption requirement of 50 reams. Hence,
procurement of 50 extra reams worth Rs.1.276 million was unnecessary which
caused blockage of funds.

Audit is of the view that the procurement of 50 extra reams worth

Rs.1.276 million above the annual requirement shows lack of procurement
planning by the management, which caused blockage of funds.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

8.2.4.19 Loss due to non-implementation of ERP System - Rs. 1.200 million

As per clause 9 (c) of the agreement with M/s. Auriga Associates, if work
progress is delayed by Auriga, or if the quality of work is not to the satisfaction

268
of Pakistan Security Printing Corporation (PSPC), a written warning by PSPC
may be given to Auriga, however, PSPC has the right to give notice of contract
termination with or without such warning.

During audit of PSPC for the year 2015-16, it was observed that in 2002
management awarded a contract for development and implementation of ERP
System as Phase-I and Phase-II to M/s. Auriga Associates (Pvt.) Ltd. for Rs. 9.75
million. Phase-I includes development of modules regarding Ledger/Budget,
Purchase, Store Accounts, Payroll/Wages and complete payment of Fixed Assets.
However, modules of budget and payroll could not function at all for which
Rs. 1.20 million was paid to M/s. Auriga Associates (Pvt.) Ltd.

Audit is of the view that the management should have recovered amount
of Rs.1.20 million from M/s. Auriga Associates (Pvt.) Ltd. Due to
non-implementation of ERP System.

The matter was reported to the management in March, 2013 and

November, 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

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8.3 State Bank of Pakistan
8.3.1 Introduction

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 SBP Act in 1994, the
Central Board of Directors was enlarged and now consists of the Governor,
Secretary Finance Government of Pakistan and seven directors nominated bythe
Federal Government. From these seven directors, one Director from each
province is nominated while ensuring representation to agriculture, banking and
industrial sectors.

Strategic objectives are:

i. Broadening Access of Financial Services.

ii. Ensuring viability of the Financial Sector.
iii. Maintaining Price Stability with Economic Growth.
iv. Exchange and Reserve Management.
v. Strengthening the Payment System.
vi. Human Resources Development.
vii. Information Technology Development.

8.3.2 Comments on Audited Accounts

8.3.2.1 The working results of the Company for the year 2017-18 as compared to
previous years are tabulated below:
(Rs in million)
2017-18 % Inc/ 2016-17 % Inc/ 2015-16
Dec Dec
Discount, Interest / Markup 321,606.85 23.30 260,870.6 3.1798 252,831.07
and / or return earned
Interest / Mark up Expense (31,842.39) 49.00 (21,368.8) 4.8348 -22,454.48
Net Income 289,764.46 21.00 239,501.8 5.3326 227,376.59
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 Commission Income 4,083.40 57.60 2,591.2 35.723 1,909.18
Exchange (loss) / gain-net (72,280.20) - 24,569.6 (4.69) 25,779.37
Dividend income 415.00 (96.60) 12,248.8 0.184 12,226.34
Other operating income 1,298.09 126.00 574.4 -79.16 2,756.11
Other income net 796.53 163.70 302.0 78.066 16.96
Total operating income-net 224,768.69 (19.70) 279,814.1 3.5548 270,208.56
Note Bank printing Charges 9,362.22 2.60 9,128.0 18.074 7,730.74
Agency Commission 10,945.40 13.10 9,679.3 7.9238 8,968.64
Loan and advances (0.022) (99.60) (6.139) -0.76
other doubtful assets 76.15 (352.10) 16.842 -86.21
Total Provision / (reversal) 36.65 - (3.97) -94.53
Total direct operating income 204,461.08 (21.7) 261,005.35 2.88 253,690.21
General administrative and 27,703.66 20.80 22,941.75 (5.40) 24,250.58
other expenses
Net profit for the year 175,672.65 (26.20) 238,063.60 3.8 229,353.12
(Source: Annual Audited Accounts)

During the year under review, Discount, Interest / Markup and / or return earned
have been increased by 23.30%, from Rs.260,870.62 million is 2016-17
Rs.321,606.85 million in 2017-18.

8.3.2.2 Interest / Mark up Expense raised by 49.0% as compared to previous

year, from Rs.21,368.84 million in 2016-17 to Rs.31,842.38 million in 2017-18.
Divided income has been decreased by 96.60%, from Rs. 12,248.84 million in
2016-17 to Rs.415 million in 2017-18. Moreover agency commission expense is
increased by 13.10% from Rs.9,679.30 million in 2016 -17 to Rs.10,945.40
million in 2017-18.

8.3.2.3 Besides high increase in other operating income and other income net by
126% and 163.30% respectively, net profit of State Bank of Pakistan has
decreased by 26.20% from Rs.238,063.60 million in 2016-17 to Rs.175,672.65
million in 2017-18.

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8.3.2.4 General administrative expenses are increased by 20.80% from
Rs.22,941.75 million in 2016-17 to Rs.27,703.66 million in 2017-18, whereas net
profit for the year has been decreased by 26.20%, from Rs.238,063.60 million in
2016-17 to Rs.175,672.65 million in 2017-18.

8.3.3 Compliance of PAC Directives

Breakup of
Audit Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
2005-06 13 11 2 73& 76 85
2006-07 9 3 6 43.2, 43.3, 44, 46, 33
47& 48
2007-08 5 2 3 51.2, 52&53 -
2008-09 5 4 1 63 80
210-11 12 - 12 7.4.1, 7.4.2, 7.4.2.1, -
7.4.2.2, 7.4.2.3,
7.4.2.4, 7.4.2.5,
7.4.3, 7.4.4.1,
7.4.4.2, 7.4.4.3 &
7.4.4.4
2013-14 24 1 23 6.3.2.1, 6.3.2.2, 4
6.3.2.3, 6.3.2.4,
6.3.2.5, 6.3.2.6,
6.3.2.7, 6.3.2.8,
6.3.2.9, 6.3.2.10,
6.3.3, 6.3.4.1,
6.3.4.2, 6.3.4.3,
6.3.4.4, 6.3.4.5,
6.3.4.6, 6.3.4.7,
6.3.4.8,
6.3.4.9,6.3.4.10,
6.3.4.11& 6.3.4.12
2016-17 4 4 6.3.4.1,6.3.4.8, 6.3.4.4, -
6.3.4.5
Total 72 21 51 - 29%

The overall compliance of PAC directives needs improvement.

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8.3.4 Audit Paras
8.3.4.1 Fake NTN used by the exporter - Rs. 20.909 million

As per Para 10.3 of the State Bank of Pakistan (SBP),for verification of

NTN of exporters, the entries in the prescribed proformas “EE-1 and EF-1” are
verified with correct NTN # recorded in ITRS data. In ITRS, an exporter is
identified/traced through his NTN.

During audit of SBP, Banking Services Corporation (BSC) Sukkur, for

the year 2013-14, it was observed that M/s New Raja Commission Shop
performed total transactions amounting to 24.860 million during 2011 to 2013.
According to the EE-1 statements out of total transactions only Rs. 3.951 million
was made on correct NTN bearing No.1405502-3 whereas, Rs. 20.908 million
through fake NTN No. 0872539-0.

Audit is of the view that SBP extended undue favour to the exporter and
did not verify the entries of NTN in EE-1 and EF-1 as a result of which exporter
enjoyed the benefit of concessionary financing scheme of Rs. 20.909 million.
(Rs. 24.860 million – Rs. 3.951 million)

The matter was reported to the management in January, 2015. The

management in its reply dated April 09, 2015 admitted the fact of fake NTN as
pointed out by audit. The management further stated that neither exporter got any
undue benefit nor limit was exceeded. The management’s reply was not tenable
as NTN number used in the transaction could not be verified from active tax
payer list of FBR. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.3.4.2 Non-recovery from Pakistan Railways - Rs. 45,936.00 million

Rule 38 of G.F.R. provides that it is primary responsibility of the

departmental authorities to see that all revenues or other debts due to government,
273
which have to be brought to account are correctly and promptly assessed, realized
and credited to the public account.

During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17, it
was observed that an amount of Rs.45,936.00 million was outstanding against
Pakistan Railways. Moreover, overdraft facility provided to Pakistan Railways
was capped at Rs. 40,000.00 million in February, 2010. Further, study of minutes
showed that from November 2011 onward, Pakistan Railways was not in
financial position to pay back the outstanding mark-up which become of
Rs. 5,936.00 million by June, 2015.

Audit is of the view that the management is un-able to recover huge

amount of Rs. 45,936.00 million from Pakistan Railways which shows poor
financial management.

The matter was reported to the management in August, 2018. DAC

meeting was held on October 23, 2018. The management explained that
subsequent to improvement in the financial condition of Pakistan Railways, the
Bank has initiated recovery of the outstanding amount w.e.f. September 16, 2016.
An amount of Rs.1.00 million is being recovered from Pakistan Railways for
each working day. So far, an amount of Rs.412.00 million has been recovered
from the Pakistan Railways. SBP is pursuing recovery of the remaining
outstanding amount. DAC directed the management to get the amount verified
from audit.

Audit recommends implementation of the DAC directives.

8.3.4.3 Non-production of record - Rs. 886.068 million

Section-14(2) of the Auditor General’s (Functions, Powers and Terms and

Conditions of Service) Ordinance 2001 states that the officer in-charge of any
office or department shall afford all facilities and provide record for audit
inspection and comply with requests for information in as complete form as

274
possible and with all reasonable expedition. Further the Public Accounts
Committee directives, issued vide OM No.F-10(1)/2000/2004-PAC dated Jun 03,
2004 requires all PAOs Ministry/Divisions to make available all
information/record to Audit as and when required by them, otherwise disciplinary
action will be initiated against person(s) responsible for the delay under Section-
14(2) of the Auditor General’s Ordinance No. XXIII of 2001.

During audit of State Bank of Pakistan (SBP), Banking Services

Corporation (BSC), Hyderabad for the year 2016-17, it was observed that
auditable record under various heads valuing Rs. 886.068 million was not
produced to audit. Hence, the authenticity of Rs.886.068 million could not be
ascertained (Annex-30). Further, Record pertaining to the purchase of vehicles
was also not produced.

Audit is of the view that non-production of record / information is

violation of the Auditor-General’s Ordinance 2001, and the directives of PAC.

The matter was reported to the management in September, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view to fixing of

responsibility on the persons at fault.

8.3.4.4 Irregular / unjustified payment to PSPC - Rs. 45,631.446 million

The prices of banknotes printed by Pakistan Security Printing Corporation

(PSPC) were fixed by the Finance Division (Cost Accounts Organization) on the
basis of bank notes price fixation formula of 1991. However, in November 2011,
PSPC and Finance Division decided that the price fixation formula of 1991
would be revised and PSPC will conduct cost audit of their accounts and provide
information with regard to the fixation of banknote prices. SBP may
provisionally release 50% of the outstanding dues to PSPC. Price Fixation

275
formula of 1991 will be revised after the prices of banknotes already fixed for
year 2010-11 are materialized.

During audit of State Bank of Pakistan (SBP) for the year 2016-17, it was
observed SBP & PSPC did not fix prices of banknotes printed by PSPC and both
mutually agreed to fix the price at increase of 3% from the price of last years.
Thus, the increase in the price was held irregular, as the prices were fixed by
mutual agreement and without conducting cost audit. The year-wise banknote
printing cost paid to PSPC is as follows:

Sr. Paid to PSPC

Financial Year
No. (Rs. in million)
1 2010-11 4,575.741
2 2011-12 5,689.529
3 2012-13 5,634.372
4 2013-14 6,146.145
5 2014-15 6,690.484
6 2015-16 7,730.740
7 2016-17 9,164.435
Total 45,631.446

Audit is of the view that without conducting the Cost Audit, it is not
possible to calculate the actual cost of printing of banknotes. This act of
management is an extra financial burden to the State Bank of Pakistan.

The matter was reported to the management in August 2018. DAC

meeting was held on October 23, 2018. The management explained before the
DAC that in light of recommendation of the meeting dated 15.11.2011, the
banknote printing prices for the year 2011 and onwards were mutually agreed
between SBP and PSPC, and duly endorsed by M/o Finance. As per practice in
vogue since 2012 up to 2017, the mutually agreed printing prices were forwarded
to M/o Finance for approval and issuance of notifications. Therefore, payments to
PSPC were processed as per notified banknote printing prices. M/s. A.F.
Ferguson & Co. Chartered Accountants were hired by PSPC to carry out the
procedures relating to costing of banknotes printed by PSPC. The DAC directed

276
the management to provide the copies of approval accorded by Ministry of
Finance regarding the mutual agreed price of printing of Bank notes to Audit for
verification. However, no document was provided to the audit till the finalization
of this report.

Audit recommends implementation of the DAC directives.

8.3.4.5 Irregular procurement of medicines - Rs. 129.556 million

Rule-12 of PPRA-2004 stipulates that all procurement opportunities over

two million rupees should be advertised on the Authority's website as well as in
other print media or newspapers having wide circulation. The advertisement in
the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During audit of State Bank of Pakistan, Banking Services Corporation

(SBP, BSC) Karachi, for the year 2014-15, it was observed that the management
incurred an amount of Rs. 129.556 million on the procurement of medicines from
different suppliers without calling tender. Further the management of SBP
Muzaffarabad also purchased medicines amounting to Rs. 1.898 million from
different suppliers without calling tender.

Audit is of the view that on-tendering deprived the Bank from the benefits
of competitive bidding and this shows poor financial management.

The matter was reported to the management in March, 2016. The

management in its reply dated June 06.2016 stated that the procurement of
medicines by the Bank is carried out under PPR 42, clause “c” which allows
direct contracting and does not come under Rule 12. The reply was not tenable as
the tender was required to be floated to avail competitive rate for procurements of
medicine. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

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8.3.4.6 Irregular procurement of vehicles during ban period - Rs. 69.609
million

According to the Finance Division OM. No.F.7(1)Exp-IV/2016 dated

July 29, 2016 there will be complete ban on purchase of all types of vehicles both
for current as well as development expenditure except operational vehicles of law
enforcing agencies for which NOC from Finance Division would be required.

During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17, it
was observed that management procured vehicles amounting to Rs. 69.609
million without considering directives of the Finance Division (Expenditure
Wing) Austerity Measures for Financial Year 2016-17. Thus, the procurement of
vehicles was held irregular (Annex-31).

Audit is of the view that non-observance of austerity measures issued by

the Finance Division was shows poor financial management.

The matter was reported to the management in August, 2018. In DAC

meeting held on October 23, 2018, the management stated the office
memorandum under reference was not applicable to the SBP being established
under SBP Act, 1956. The DAC directed the management to refer the case to the
BoD for its clarification.

Audit recommends implementation of the DAC directives.

8.3.4.7 Non-compliance of NAB Ordinance - Rs. 54.495 million

According to clause 33-B of NAB Ordinance 1999 all Ministries,

Divisions and Attached Departments of the Federal Government, all departments
of Provincial and local governments, statutory Corporations or authorities
established by the Federal Government or Provincial Government and holders of
public office shall furnish to NAB a copy of any contract, entered into by such
Ministries, Divisions and Attached Departments of the Federal Government, all
departments of Provincial Government or local government, statutory
278
Corporations or authorities established by the Federal Government or Provincial
Government or such holder of public office on its behalf, as the case may be, of
the minimum monetary value of fifty million rupees or more, within such time as
is reasonably practicable from the date of signing such contract.

During audit of State Bank of Pakistan (SBP), Banking Services

Corporation (BSC), Hyderabad for the year 2016-17, it was observed that the
management entered into an agreement with M/s. See Sam Solutions Pvt. Limited
for supply, Installation, testing, commissioning and maintenance of Desktop
banknote sorting and authentication machines valuing Rs.54.495 million.
However, the copy of contract was not furnished to NAB which was violation of
above ordinance.

Audit is of the view that non-submission contract to NAB was negligence

of the management which shows weak internal controls.

The matter was reported to the management in September, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter with a view to fixing of

responsibility on the person(s) at fault besides, furnishing copy of the contract to
NAB under intimation to audit.

8.3.4.8 Unjustified and irregular payment of salary - Rs. 40.380 million

As per condition No.11 of contract renewal dated October 14, 2009, the
officer was required to identify and develop/train successor during contract
period as requirement of the job.

During audit of State Bank of Pakistan (SBP) for the year 2011-12, it was
observed that management appointed Mr. Asad Qureshi on contract basis as
Executive Director (ED), Financial Markets and Reserves Management
(FM&RM) w.e.f. Jul 01, 2007 for a period of two years. Before appointment on
279
contract, he was serving on deputation in SBP for the last two years. The
anomalies in contract appointment were highlighted by the Commercial Audit in
the year 2007-2008.

After expiry of contract on Jun 30, 2009, SBP renewed the same w.e.f. Jul
1, 2009 for further two years with the condition of identification and development
of successor during contract period which was later on again renewed for 2 years
w.e.f. Jul 1, 2011. This indicates that the Human Resources Department (HRD)
neither prepared succession policy to avoid such proposal for contract renewals
nor the concerned officer identified his successor.

Audit is of the view that regular employee should have been recruited
through open market in order to substitute the supposedly indispensible officer.
Contrary to this undue favour was extended to the officer which resulted into
unjustified payment of Rs. 40.38 million from August 2009 to Jun, 2012.

The matter was reported to the management in June, 2013. The

management in its reply dated May 23, 2013 maintained that the concerned
officer’s failures of succession planning are availability of shorter time span and
criticality & technicality of his position. Secondly management did not fill the
executive position of the said officer due to non-availability of requirement in the
market. The reply is not tenable as the department concerned did not make any
serious efforts for the substitution of this executive position. DAC meeting was
not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.3.4.9 Irregular payments of fee to Advocates - Rs. 38.240 million

The Law and Justice Division vide its DO. No.5(1)/2009-LA dated
February 24, 2009 reiterated its earlier instructions with the observation that a
number of advocates were placed on the panel on exorbitant professional fee

280
exceeding the limit of Rs.100,000 without consultation with this Division, which
is required to be discontinued and the appointments/placements earlier made,
need to be regularized accordingly. The Law Division requested the Auditor
General of Pakistan to direct the Commercial Audit Department not to clear fee
of counsel engaged by the autonomous organizations without concurrence of this
Division.

During audit of State Bank of Pakistan (SBP) for the year 2016-17, it was
observed that the management paid an amount of Rs.38.240 million to 14
different advocates on account of legal charges without consultation with the Law
and Justice Division because the payment exceeded the prescribed limit of
Rs.100,000 as mentioned above (Annex-32).

Audit is of the view that the payment in violation of Ministry of Law,

Justice and Human Rights policy circulated by the Ministry which held irregular.

The matter was reported to the management in August, 2018. DAC

meeting was held on October 23, 2018. The management stated before the DAC
that the SBP is a corporate body established under the SBP Act 1956. Thus, the
directives were not applicable to the SBP. The DAC directed the management to
explain their position before PAC.

Audit recommends implementation of DAC directives.

8.3.4.10 Irregular hiring of services of external auditors - Rs. 14.00 million

According to the Rule-12 (2) of PPRA-2004 “all procurement

opportunities over two million rupees should be advertised on the Authority’s
website as well as other print media or newspapers having wide circulation. The
advertisement in the newspaper shall principally appear in at least two national
dailies, one is English and the other in Urdu”.

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 During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17, it
was observed that management appointed two audit firms namely M/s. A.F
Ferguson & Co. and M/s Ernst & Young FRSH & Co. for the external audit
without advertisement at total fee of Rs. 14.00 million in violation of above rules.
Thus, the payment of Rs.14.00 million was held irregular.

Audit is of the view that undue favour was extended to audit firms and
bank deprived from the benefits of competitive bidding.

The matter was reported to the management in August 2018. In DAC

meeting was held on October 23, 2018, the management stated that SBP is a
corporate body established under the SBP Act 1956 and the hiring of reputed firm
was made with the approval of the Board. Thus the appointments of the external
auditors are made in accordance with the provisions of prevailing/respective law
i-e Section 43 of the SBP Act 1956. The DAC directed that the management
explain the factual position before PAC.

Audit recommends that responsibility may be fixed on the person(s)

found at fault.

8.3.4.11 Unjustified payment due to irregular appointment - Rs. 3.780 million

According to the advertisement published in Daily Dawn dated May 16,

2013, the required qualification for recruitment of Divisional Head, External
Relation Department (ERD) was Master degree or equivalent in Mass
Communication/ Journalism, Business Administration, Economics, Finance or a
related discipline duly recognized from university approved by HEC.

During audit of State Bank of Pakistan (SBP) for the year 2011-12, it was
observed that in response to the advertisement 1118 candidates applied for the
post and out of them 12 were short listed and finally one Mr. Khubaib Usmani
was appointed as DH, ERD on April 21, 2014 who was M.A. English in third
class and did not possess the right qualification as prescribed above. As such the
appointment was irregular and the emoluments drawn by the incumbent worked
282
out up to April, 2015 amounting to Rs.3.780 million was also held to be
unjustified.

Audit is of the view that undue favour was extended to the incumbent
instead of adopting merit base recruitments system.

The matter was reported to the Bank in April, 2015. The management in
its reply dated July 03, 2015 stated that the required qualification was Master
degree or a related discipline with relevant experience. The reply is unacceptable
as person appointed did not have required qualification. DAC meeting was not
convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.3.4.12 Non-recovery from money changer – Rs. 493.673 million

Rule 38 of G.F.R. provides that it is primary responsibility of the

departmental authorities to see that all revenues or other debts due to government,
which have to be brought to account are correctly and promptly assessed, realized
and credited to the public account.

During audit of State Bank of Pakistan (SBP) for the year 2016-17, it was
observed that in January 2000 the management paid Rs. 1,508 million as advance
for purchase of US$ to Malik Muhammad Boston a money changer. Out of which
an amount of Rs.1,04 million was adjusted in five installments on supply of
dollars. However, Rs. 493.673 million remained outstanding against him. Further,
management took up the matter with arbitrator and last hearing of the case was
held in March, 2012. Since then no hearing has been held and huge amount is
outstanding against Malik Muhammad Boston.

Audit is of the view that due to negligence of the management, the

amount remained unrecovered.

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 The matter was reported to the management in August, 2018. The
management in its reply dated August 17, 2018 stated that the case is under
arbitration and scheduling of the hearing and the subsequent judgment for the
case are not in the direct control of the bank. However SBP is in constant pursuit
for the resolution of the matter and has requested the sole arbitrator to fix the date
of next hearing. The reply was not tenable as the management paid huge amount
as advance without obtaining security/guarantee. DAC meeting was not convened
despite requests by audit.

Audit recommends investigating the matter with a view to fix

responsibility on the person(s) at fault besides recovery of the amount.

8.3.4.13 Non-utilization of Grant / Fund issued by Ministry of Finance -

Rs. 90.00 million

Clause 2.1 of Memorandum of Understanding dated April 13, 2009 states

that the Ministry of Finance through the State Bank of Pakistan will make
available the requisite funds required to enable the Pakistan Remittance Initiative
to commence its operation and take all necessary steps and actions to enhance the
flow of remittances and to create investment opportunities in Pakistan for
overseas Pakistanis.

During audit of Pakistan Remittance Initiative (PRI) for the years 2015-16
& 2016-17, it was observed that management of PRI surrendered the amount of
Rs. 90.00 million to the Ministry of Finance. The management initiated
preliminary work on remittance Hub during 2009-10 but the work on PRI HUB
could not be progressed due to changes in the top management of SBP.
Therefore, unspent amount of Rs. 90.00 million had been surrendered.

Audit is of the view that due to negligence of the management, the grant
could not be utilized to enhance the flow of remittances and to create investment
opportunities for overseas Pakistanis.

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 The matter was reported to the management in August, 2018. The
management in its reply dated September 17, 2018 stated that work on the project
was stopped due to changes at the top management of SBP and resulted in saving
of the funds required to initiate the project. The reply is not tenable as after lapse
of more than 6 years management failed to execute the enhancement of flow of
remittances. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on person(s) at fault.

8.3.4.14 Un-Justified payment of Dis-location Area Allowance - Rs.10.39

million

According to Para 10(i) of GFR every Public Officer is expected to

exercise the same vigilance in respect of expenditure incurred from public
moneys as a person of ordinary prudence would exercise in respect of
expenditure of his own money.

During audit of State Bank of Pakistan (SBP), Banking Services

Corporation (BSC) Islamabad, for the year2014-15 & 2015-16, it was observed
that the management incurred an amount of Rs.10.39 million on account of
Dis-location Area Allowance without justification. The dislocation allowance is
given to hard/remote areas and Islamabad does not fall in such area. Resulting in
payment of Rs.10.390 million is irregular.

Audit is of the view that undue favour was extended to the employees at
the cost of SBP funds. This indicates weak internal controls.

The matter was reported to the management in November, 2017 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate matter with a view to fixing of

responsibility on the person(s) at fault besides recovery of the amount.

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8.3.4.15 Loss due to payment of extension charges to CDA - Rs. 5.270 million

Rule 23 of GFR provides that every Government officer should realize

fully and clearly that he will be held responsible for any loss sustained by
Government through fraud or negligence on his part.

During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17, it
was observed that Capital Development Authority (CDA) allotted land measuring
3472.22 sq. yard. to SBP in September 12, 1996 at Sector G-5/2, Islamabad on
the condition that the construction shall be completed in all respects within 04
years from the date of issue of the allotment letter. In year, 2017, SBP decided to
start construction and applied for NOC from CDA, CDA demanded extension
charges for period October, 2000 to December 2017. Accordingly management
paid Rs.5.270 million.

Audit is of the view that 17 years delay in start of construction work on

the plot caused an extra financial loss to SBP amounting to Rs. 5.270 million.
This was slackness on the part of management due to which construction of work
could not be initiated as per time frame.

The matter was reported to the management in August, 2018. DAC

meeting was held on October 23, 2018. The management stated that the bank
completed construction on the plot immediately after its allotment but could not
materialize its plans owing to certain unavoidable development. The DAC
directed that the factual position may be explained before PAC.

Audit recommends investigating the matter with a view to fix

responsibility on the person(s) at fault.

8.3.4.16 Irregular expenditure without budget allocation - Rs.4.484 million

As per SBP (HO) Letter No. AD. Budget-/3997/1-2014 budgetary

allocation should not be considered as monetary approval for incurrence of

286
expenditures. Separate basis while incurring the expenditures. The expenses
should be prioritized depending upon the actual operational needs and the Chief
Managers/ HODs must ensure that the expenditures are within the allocated
budget. In case of any expenditure is going to exceed the limits, prior approval of
Accounts Department must be sought.

During audit of State Bank of Pakistan (SBP), Banking Services

Corporation (BSC) Islamabad, for the year 2015-16, it was observed that
management procured different equipment’s valuing Rs.4.484 million without
allocation of capital budget.

Audit is of the view that the expenditure without allocation budget is

irregular.

The matter was reported to the management in June, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate matter with a view to fixing of

responsibility on the person(s) at fault besides recovery of the amount.

8.3.4.17 Non-completion of the PRI Call Centre Project - Rs. 2.953 million

According to Rule 10 of GFR, every 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 prospect of expenditure of his own
money.

During audit of Pakistan Remittance Initiative (PRI) for the years 2015-16
& 2016-17, it was observed that in December 2016, management entered into an
agreement with M/s Softech Microsystems for supply, installation, integration,
maintenance & support of IP based call contact solution for PRI with contract
price of Rs. 2.953 million. The project timeline was 24 four weeks. However, the
project is still incomplete after lapse of 02 years.

287
 Audit is of the view that project should have completed till June, 08, 2017
as per contract but due to negligence of the management the project is still under
process.

The matter was reported to the management in August 2018.The

management in its reply dated September 17, 2018 stated that IP based online
operations / automation of PRI call centre was delayed due to some technical
issues. Further, full payment has not yet been paid to the contractor. The reply of
the management is not tenable as the call centre was still non-operational. DAC
meeting was not convened despite requests by audit.

Audit recommends that fixing of responsibility on the person(s) at fault.

8.3.4.18 Non- recovery of mobilization advance - Rs. 2.943 million

Rule 38 of G.F.R. provides that it is primary responsibility of the

departmental authorities to see that all revenues or other debts due to government,
which have to be brought to account are correctly and promptly assessed, realized
and credited to the public account.

During audit of State Bank of Pakistan (SBP) Lahore for the year
2015-16, it was observed that an amount of Rs. 2.943 million was given to
M/s. Zore Eng.(Pvt.) Ltd on account of mobilization for construction of new
office building at Lahore in 2007-08. However, after lapse of a period of 10 years
the said amount is still unadjusted.

Audit is of view that non-recovery or adjustment of mobilization

advances as on June 30, 2016 shows negligence at the part of the management.
Resultantly, Rs. 2.943 million is stuck-up for last 10 years.

The matter was reported to the management in May, 2017 and November,
2018, but no reply was received. DAC meeting was not convened despite
requests by audit.

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 Audit recommends fixing responsibility on the person(s) at fault.

8.3.4.19 Avoidable expenditure on purchase of gift items - Rs. 2.598 million

As per GFR 10 every public officer is expected to exercise the same

vigilance in respect of expenditure carried out from public money as a person of
ordinary prudence would exercise in respect of expenditure of his own money.

During audit of State Bank of Pakistan (SBP) Lahore for the year
2015-16, it was observed an amount of Rs. 2.598 million was incurred on
procurement of gift items for retired employees without having any provision.

Audit is of the view that neither financial prudence was followed nor
austerity measures adopted as per policy guidelines of Government of Pakistan.
There is no any provision for procurement of gift items for the retired employees.
Thus, expenditure of Rs. 2.598 million was held is irregular.

The matter was reported to the management in May, 2017and November,

2018, but no reply was received. DAC meeting was not convened despite
requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

8.3.4.20 Wasteful expenditures incurred on renovation - Rs. 2.463 million

As per Rule 23 of GFR every Government officer should realize fully and
clearly that he will be held responsible for any loss sustained by Government
through fraud or negligence on his part.

During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17, it
was observed that the management carried out renovation works in August 2015
at cost of Rs. 0.681 million at Governor Guest House in Quetta. Further in March

289
2016 just after six months of completion of renovation works management hired
an interior decorator for interior designing at cost of Rs.1.782 million.

Audit is of the view that due to poor planning management has to incur
expenditure twice on repair.

The matter was reported to the management in August, 2018. DAC

meeting was held on October 23, 2018. The management stated in DAC meeting
that the special budget of Rs.0.7 million for essential work was allocated for
2014-15. Accordingly work was awarded to lowest bidder. Further, Rs.2.00
million was allocated for 2015-16. Hence, there was no splitting in cost /financial
loss. The DAC directed the management to get the record verified from audit. No
progress was reported till the finalization of this report.

Audit recommends implementation of DAC directives.

8.3.4.21 Loss due to undue favor extended to Foreign Supplier in payment of

withholding tax – Rs. 2.394 million

Section 152 of the Income Tax Ordinance, 2000 states every person
paying an amount of royalty or fess for technical services to a non-resident
person that is chargeable to tax under section 6 shall deduct tax from the gross
amount paid at the rate specified in Division IV of Part I of the first Schedule.
Further, it was mutually agreed between both parties all taxes and duties would
be applicable in service provider’s country shall be borne by the Service provider
and all taxes and duties applicable in Bank’s country shall be borne by the Bank
(SBP).

During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17, it
was observed that management awarded a contract to M/s. CMA Small System
AB, Sweden for up gradation of Real Time Gross Settlement (RTGS) system
amounting to US$ 180,000. However, SBP instead of deduction of withholding

290
tax paid an amount of Rs.2.394 million (180000*12.67%*105.00) on behalf of
Service Provider. This resulted into irregular payment of Rs.2.394 million.

Audit is of the view that payment of withholding tax was responsibility of

service provider. Thus, undue favour was extended to the Foreign Service
supplier / contractor which indicate weak internal controls.

The matter was reported to the management in August, 2018. The DAC in
its meeting held on October 23, 2018 directed the management to obtain opinion
of the FBR in the case to resolve the issue.

Audit recommends implementation of DAC directives.

8.3.4.22 Loss due to exchange of plot - Rs. 7.329 million

As per Rule 23 of GFR every Government officer should realize fully and
clearly that he will be held responsible for any loss sustained by Government
through fraud or negligence on his part.

During audit of State Bank of Pakistan (SBP) for the year 2016-17, it was
observed that management exchanged SBP residential colony plot at Khuzdar
measuring 03 acres located about 8 KM away from the main RCD highway
which was allotted to SBP by the Government of Baluchistan (GoB) in 1985 for
construction of staff colony in Khuzdar against cost of Rs. 653,400. In 2009
management decided to surrender this plot to Provincial Government after refund
of amount deposited for the purpose or at a negotiated price whichever was
higher. Consequently, in the light of the Central Board decision, GoB offered to
lease the land measuring 4 acres for Rs. 7.98 million @ Rs. 40 per square feet
which was accepted by the management subject to adjustment of the price of plot
being surrendered. As agreed by the Senior Secretary Revenue GoB,
management was required to pay the difference of amount of Rs. 7.329 million
subject to condition that if the acquiring agency failed to start the construction
work within 3 years then the lease shall be liable for cancellation. However,
291
proposal was approved by the Governor of State Bank of Pakistan vide
Governor’s Memorandum No: 52/2016 dated: October 18, 2016.

Audit is of the view that the above mentioned plot was allotted in 1985
against the cost of Rs. 653,400 only and the management did not initiate any
action to construct staff colony at Khuzdar plot even after the lapse of
considerable time. The matter was brought into the Central Board after 19 years
and it was decided to exchange the existing plot with another plot with difference
amount. Resultantly, the management paid an extra amount of Rs. 7.329 million
to GoB for exchanging of plot.

The matter was reported to the management in August 2018. DAC

meeting was held on October 23, 2018 that the above audit objection is a
repetition of Audit Para No.6.3.4.5 printed in the ARPSE for the audit year
2013-14 and the same was under discussion of PAC. Audit expressed its opinion
that nature of this para is different from the para No. 6.3.4.5 para stands. DAC
directed the management to submit revised reply.

Audit recommends investigating the matter with a view of fixing

responsibility on the person(s) found at fault.

8.3.4.23 Mis-procurement of consultancy service from M/s. New Vision

Engineering - Rs. 3.072 million

According to the Rule-12 of PPRA-2004 all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During audit of State Bank of Pakistan (SBP-HO) for the year 2016-17,
while scrutiny of the records it was observed that the M/s. New Vision
Engineering Consultant was appointed as consultant with approval of the

292
competent authority for construction of RCC boundary wall around open plot for
SBP office building at Gwadar. However, fee of the consultancy work decided
5.25% of the cost of project / completed works. Later on, consultant had
submitted revised cost estimated amounting to Rs. 58.509 million. Accordingly,
consultant fee becomes of Rs. 3.072 million. Further record revealed that the
geotechnical investigation was a primary requirement of design which was
ignored by the consultant during preliminary design. According to the clause 2
part-V of the agreement, it was the consultant’s responsibility to suggest soil
investigation tests.

Audit is of the view that appointment of M/s. New Vision Engineering as

a consultant was without calling a tender. This is tantamount to be a gross
violation on the part of the management. Management should have advertised
the tender according to PPRA-2004.However, laid down procedures had not been
followed by the management. As a result violation of PPRA- 2004, deprived off
the management to get more competitive prices from other bidders. Hence,
contract was signed against the consultancy fee amounting to Rs. 3.072 million
held irregular / unjustified.

The matter was reported to the management in August 2018. DAC

meeting was held on October 23, 2018. The management explained that the
project was awarded for Rs.44.90 million against initial internal estimate of
Rs.64.17 million. Based on this expectation, the tender notice was published on
PPRA and SBP websites. Further, the consultant provided the designs on the
assumed bearing capacity of the soil. SBP did not agree to the proposal and
advised the consultant to prepare estimate based on Geotechnical investigation.
Accordingly, the Geotechnical investigation was carried out through a separate
contract from another firm following PPRA rules. Audit expressed its opinions
that contract of consultancy was awarded without contract. DAC directed the
management to get the record verified from the audit.

Audit recommends investigating the matter with a view of fixing

responsibility on the person(s) found at fault.
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8.4 SME Bank Limited

8.4.1 Introduction

SME Bank Limited was formed and incorporated on October 30, 2001, as
a public limited company under the Companies Ordinance, 1984 (now
Companies Act 2017). The prime objective of the Bank was supporting and
developing SME sector of the country. Total paid up capital of the Bank was
Rs 2,390 million, out of which Rs 2,244 million (93.89%) is owned by the
Government of Pakistan. Other shareholders are NBP (2.56%), UBL (1.66%),
HBL (0.830%), MCB (0.62%), ABL (0.32%) and IDBP (0.12%). The Bank was
operating through a network of 13 commercial banking branches.

The Bank obtained its business commencement certificate on April 16,

2005, which became effective from the date of its issue. The main objectives of
Bank were:

i. To support, develop and promote SMEs by providing them with the

necessary technical and financial assistance.
ii. To concentrate on value addition and export oriented SMEs.
iii. To enable SMEs to play a vital role in stimulating GDP growth, create job
opportunities and reduce poverty.

The Bank was on the list of Privatization Commission of Pakistan.

Further, the Bank sustained loss of Rs 282.157 million during the year ending on
December 31, 2015 and had an accumulated loss of Rs 2,296.21 million at
year-end based on which the external auditors raised their concerns about the
material uncertainty of the Bank as a going concern.

294
8.4.2 Comments on Audited Accounts

8.4.2.1 The financial performance of the Bank for the year ended December 31,
2017 as compared to previous years was as follows:
(Rs in million)
2017 %Inc/ 2016 %Inc/ 2015
(Dec) (Dec)
Mark-Up/return/interest earned 649.28 5.56 615.07 (12.79) 705.27
Mark-Up/return/interest expensed 520.41 17.95 441.20 1.13 436.28
Net Mark-up/interest income 128.87 (25.88) 173.87 (35.36) 268.99
Reversal of provision against non (16.88) 702.90 (2.10) (96.66) (62.87)
performing advances-net
Reversal of Provision for diminution in 0.70 (62.16) - -
the value of investment
Total Provision (16.81) 73.85 (64.27) 2.23 (62.87)
Net Mark-up/interest income after 145.68 (38.83) 238.13 (28.24) 331.85
provision
Non Mark-up/interest
Free commission and brokerage 11.74 (6.25) 12.52 13.59 11.02
Dividend income 0.50 0.00 0.50 (64.30) 1.39
Gain on sale of securities 10.01 (69.42) 32.7330 0.61 32.54
Other income 2.49 64.19 1.52 (49.04) 2.98
Total non-mark-up/interest income 24.74 (47.67) 47.27 (1.39) 47.934
170.41 (40.29) 285.40 (24.85) 379.79
Administrative expenses 840.25 13.50 740.332 14.74 645.25
other provisions/write offs 51.170 2,610.28 1.89 (77.20) 8.282
other charges - - - 0.83
Total non-mark-up/interest expenses 891.42 20.10 742.22 13.43 654.358
Loss before taxation 721.01 57.83 456.82 66.38 274.570
Taxation 426.98 65.77 257.58 3,294.97 7.587
Profit (loss) after taxation 294.02 47.57 199.24 (29.39) 282.157
(Source: Annual Audited Accounts)

The markup/return/interest earned increased by 5.56% from Rs. 615.07 million in

2016 to Rs 649.28 million in 2017, whereas, markup/ return/interest expenses
also increased by 17.95% from Rs. 441.20 million in 2016 to
Rs. 520.41 million in 2017, whereby reducing the net margin of the bank from
Rs. 173.87 million in 2016 to Rs. 128.87 million in 2017. Expensive borrowing
needs to explained.

295
8.4.2.2 Balances with other banks increased by 167.89% from Rs. 4.23 million as
on December 31, 2016 to Rs. 11.32 million as on December 31, 2017. Detail of
balance with each bank alongwith amount and rate of interest thereon may be
explained.

8.4.2.3 The accumulated loss of the bank as on Dec, 31.2017 stood at Rs. 3.01
billion and equity of the bank was in negative by Rs. 406.36 million. The bank
was also deficient with the Minimum Capital Requirement by Rs. 10,406 million.
The above position casts significant doubts on the bank’s ability to continue as a
going concern. Remedial measures were required.

8.4.2.4 The external auditors of the bank qualified their report regarding
treatment of deferred tax assets of Rs. 465.20 million based on expected net profit
arising from the privatization of the Bank. Details of deferred credits along with
latest position of qualification need to be explained.

8.4.2.5 Provision against non-performing loans and advances stood at Rs. 2.10
million in 2016 and increased to Rs. 16.88 million in 2017 (702.910%). Details of
non-performing loans along with reasons need to be explained.

8.4.2.6 Provisions against land and other assets amounting to Rs. 51.17 million
were made in the accounts for the year 2017. Details of provisions along with the
reasons may be explained.

8.4.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No % of

Paras Compliance Compliance compliance
1990-91 04 02 02 221,225 50
1991-92 03 02 01 210 67
1992-93 06 05 01 73 83
1993-94 12 09 03 53,54,57 75
1994-95 10 03 07 68,74,76,77,79,81,125 30
1995-96 04 02 02 88,96 50
1996-97 11 09 02 66,71 82
1997-98 13 12 01 79 92
296
 1998-99 10 07 03 84,85,86 70
1999-00 21 13 08 110,121,122,124,125,1 62
26,127,129
2000-01 23 0 23 86,88,89,91, 92,94,95, -
97,98, 99, 100,
101,102,104,106,107,1
08,109,110,111,112,11
4,115
2001-02 07 02 05 144,145,146,147,148 29
2002-03 15 11 04 72&72.1,73,74,77 73
2003-04 15 06 09 67,68,69,70,71,73,(74, 40
75,76-CIRC)
2004-05 05 04 01 47-CIRC 80
2005-06 11 06 05 88.4,89,90,91,92 55
2006-07 14 06 08 53,54,55,56,57,58,59,6 43
0
2007-08 07 05 02 55,56 71
2008-09 07 0 07 64,65,66,67,68,69,70 -
2009-10 08 05 03 70.3,70.4,71 63
2013-14 12 01 11 6.5.1&6.5.2.1,6.5.2.2,6 8
.5.2.3,6.5.4.4,6.5.4.1,6.
5.4.2,6.5.4.5,6.5.4.3,6.
5.2.4,6.5.2.5,6.5.3
2016-17 15 0 15 (6.4.1&6.4.2,6.4.2.1,6. -
4.2.2,6.4.2.3,6.4.2.4,6.
4.2.5,6.4.2.6,6.4.2.7,6.
4.3,6.4.4.1,6.4.4.2,6.4.
4.3,6.4.4.4,6.4.4.5,6.4.
4.6)
Total 233 110 123 47

Overall compliance of PAC directives was not satisfactory which needs to

be improved.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the entity was
not undertaken during subject period.

297
8.5 Zarai Taraqiati Bank Limited

8.5.1 Introduction:

In pursuance of Section-3 of Agricultural Development Bank of Pakistan

(ADBP) (Re-organization and Conversion) Ordinance 2002, ZTBL was
incorporated as a public limited company under the Companies Ordinance 1984
(now Companies Act 2017) on October 23, 2002. All assets, contract, liabilities,
proceedings and undertakings of ADBP were transferred to and vested in ZTBL
on December 14, 2002 at a total worth of Rs 8.70 billion. Out of total issued
shares of 1,252.24 million, 1,251.19 million are held by Federal Government,
remaining shares are held by four Provincial Governments and Erstwhile East
Pakistan. The Bank’s principal office is situated at 1-Faisal Avenue, Zero Point
Islamabad.

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. The Bank was disbursing loans of two
categories i.e. production loans for short term and development loans for
long-term purposes. The Bank was being operated through 32 Zones with a total
number of 460 branches. On December 31, 2016, the net advances amounted to
Rs 141.27 billion (2015: Rs 134.69 billion).

8.5.2 Comments on Audited Accounts

8.5.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017 till December 31, 2018.
8.5.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

298
8.5.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compli
ance
1989-90 19 14 05 226,230,233,234,235 74
1990-91 14 10 04 174,175,176,178 71
1991-92 13 06 07 154,155,148,150,152,151,153 46
1992-93 18 12 06 8,16,17,18,19,21 67
1993-94 17 10 07 9,11,12,13,15,16,22 59
1994-95 19 13 06 7,12,15,20,14,22 68
1995-96 24 15 09 8,13,14,16,17,18,19,23,28 63
1996-97 06 04 02 7,11 67
1997-98 18 11 07 46,49,53,56,58,59,62 61
1998-99 10 05 05 68,70,73-S,74-S,75-S 50
1999-00 11 01 10 1.2,1.3,1.4,2.1,2.2,3.1,3.2,4.1, 9
4.2,5
(SAR-141)
2000-01 14 06 08 68,72,73,74,76,79,75,80 43
2001-02 10 05 05 133,134,135,138,139 50
2002-03 02 01 01 69 50
2003-04 10 05 05 62.6,62.2,62.4,64,65 50
2004-05 03 01 02 45,46 33
2005-06 14 07 07 80.5,80.6,81,82,84,85,86 50
2006-07 14 07 07 62.6,63,64,65,66,67,68 50
2007-08 11 07 04 59,60,61,62 64
2008-09 14 06 08 71.3,72,73,74,75,76,77,78 43
2009-10 07 02 05 74,75,76,77,79 29
2013-14 13 0 13 6.6.4.2,6.6.4.3,6.6.4.1,6.6.1&6 -
.6.2.1,6.6.2.4,6.6.2.8,6.6.4.4,6.
6.2.2,6.6.2.3,6.6.2.5,6.6.2.6,6.
6.2.7,6.6.3
2016-17 21 01 20 6.5.4.1,6.5.2.8,6.5.2.4,(6.5.1 5
&
6.5.2,6.5.2.1,6.5.2.2,6.5.2.3,6.
5.2.5,6.5.2.6,6.5.2.7,6.5.2.9,6.
5.3,6.5.4.2,6.5.4.3,6.5.4.5,6.5.
4.6,6.5.4.7,6.5.4.8,6.5.4.9,6.5.
4.10
Total 302 149 153 49
299
 Overall compliance of PAC directives was not satisfactory which needs to
be improved.

8.5.4 Audit Paras

8.5.4.1 Loss due to embezzlement in Branch - Rs. 631.66 million

According to Clause 33.1 (i) of the ZTBL HR Manual 2012, the minor
penalties will be (a) Censure (b) Freezing of salary at the existing level for
specified period (c) Recovery from salary and or terminal benefits of the whole or
part of any pecuniary loss caused to the Bank (g) Compulsory Severance (h)
Removal from service (i) Dismissal from service. It was further stated that where
an employee has been found guilty of willfully committing an act of defalcation
or embezzlement, the minimum punishment shall be anyone of the punishments
provided for at (g) (h) and (i) in addition to (c) above.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
bank manager and other staff approved / sanctioned many loan cases in favor of
different borrowers and embezzled the amount. On inquiry by the Head Office,
the charges were established / approved against the accused employees and
accused were punished. The aggregate amount of punishment was approximate of
Rs. 9.01 million. Later on the management conducted complete internal audit of
the branch. In Internal audit, it was established that bank suffer a loss to the tune
of Rs. 631.66 million. The management decided to lodge complaint in NAB
against the accused.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that the some of the employees were in litigation; and case was
referred to NAB for investigation. Reply was not convincing as no document was
produced by the management in support of reply.

During DAC meeting held on December 31, 2018, the management

explained that case has been referred to NAB for detailed investigation. Audit
300
informed that amount of para has been revised from Rs 9.01 million to
Rs. 631.66 million in light of case referred to the NAB. The DAC directed the
management to vigorously follow the case in NAB.

Audit recommends compliance of DAC directive.

8.5.4.2 Loss due to embezzlement of funds through NIFTS - Rs 37.78 million

According to Clause 33.1 (i) of the HR Manual 2012, in case where an

employee has been found guilty of willfully committing an act of defalcation or
embezzlement, the minimum punishment shall be anyone of the punishments
provided for at (g) (h) and (i) in addition to (c) above. On imposition of penalty at
(f) above, the salary of the concerned officer/executive shall be reduced by 10%
of his/her current salary for the period of penalty.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
Manager and staff of ZTBL Khairpur Mirs Branch committed fraud. The
employees issued bogus cheques to different parties having nil or less balance in
their accounts while these cheques were presented to the branch for clearance
through NIFT, the cheque were cleared by the branch staff without considering
the actual balance by debiting the ‘income heads (7103)’ and crediting the ‘NIFT
clearance account (3504)’. When the higher authorities noticed these transactions,
the accused, managed to burn all relevant record including CCTV Cameras etc.
Inquiry committee was constituted to probe into the matter which ascertained that
the total loss suffered by the bank was Rs. 37.78 million.

Audit was of the view that that the management failed to recover the
amount of penalties imposed on accused along with mark up. Only an amount of
Rs. 2.00 million was recovered till the close of audit without recovery of markup.
Furthermore, management should recover the amount of Rs. 11.33 million from
M/s KSSL on account of share of Mr. Sikandar Abbas Dasti (teller) being KSSL
employee.

301
 The matter was reported to the management on September 11, 2018 and
to PAO on October 17, 2018. The management in its reply dated September 19,
2018 stated that some of the employees were in litigation however, recovery from
some employees was initiated and recovery documents will be provided for
verification. Reply was not convincing, as management not provided any
documents for verification.

The DAC in its meeting held on December 31, 2018, directed the
management to vigorously follow up the case in FIA for early finalization.

Audit recommends compliance of DAC directive.

8.5.4.3 Irregular expenditure over and above the approved budget - Rs. 10,380
million

According to Finance Division O.M No: F.15(13)-R 14/82

dated: September 05, 1982, funds provided, acquired or generated by the
autonomous bodies, semi-autonomous bodies and corporations are public funds
which cannot be utilized at the sole discretion of the management. The funds
should be utilized with due care and caution strictly in accordance with the
prescribed rule or specific orders of the Government.

During the audit of Zarai Traqiti Bank (ZTBL) Head Office for the
financial year 2017 it has been observed that management incurred expenditure
of Rs. 10,380 million over and above the approved budget under the following
heads:
(Rs in million)
S Particulars Approved Actual Excess % of
No budget Rs. Rs. variance
Rs.
1. Provision for staff retirement 688.00 11,037.00 10,349.00 1604
benefits plan
2. Rent, Taxes & Insurances etc 217.00 239.00 22.00 1.10
3. Legal & Professional Charges 56.00 60.00 4.00 1.70
4. Depreciation 366.00 372.00 6.00 1.20
10,380.00
302
 The financial discipline of the bank was not good which resulted into
excess expenditure of Rs. 10,380 million from approved budget for the financial
year 2017.

Audit was of the view that excess expenditure than the approved budget
was irregular as the prior approval of BoD was not obtained.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated increase in expenditure of staff retirement benefits was due to
increase in pension factor in light of the Supreme Court decision. However no
evidence to that effect was provided. Further expost facto approval from BoD for
incurrence of excess expenditure in all heads was still not obtained.

The DAC in its meeting held on December 31, 2018 directed the
management to take up the matter to the BoD for ratification of excess
expenditures incurred in the case.

Audit recommends compliance of the DAC directive.

8.5.4.4 Irregular hiring of consultancy firm at higher rates - Rs 4.85 million

According to clause 29 of PPRs 2004, the procuring agencies shall

formulate an appropriate evaluation criterion listing all the relevant information
against which a bid is to be evaluated. Such evaluation criteria shall form an
integral part of the bidding documents. Failure to provide for an unambiguous
evaluation criteria in the bidding documents shall amount to mis-procurement.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management decided for refurbishment and remodeling all floors of ZTBL main
building Islamabad in 2009. The EOI was called for on February 15, 2009 and in
response 17 firms showed interest and submitted company profile on March 09,
2009. No bidding documents were prepared by the management and a
questionnaire was developed for bidders, which did not include the evaluation
303
criteria / method to shortlist the firms as required under PPRs. The President
ZTBL called for the presentation to all firms and M/s Zaheer A. Sheikh &
Associate (another consultant who originally did not submit bid) was specially
allowed by the management to participate in the presentation. After two or three
presentations, the management shortlisted M/s Zaheer A. Sheikh & Associate and
consultancy contract was awarded to said firm.

Audit was of the view that selection process of the consultant for
refurbishment of head office building was not transparent and prima facie favor
was granted to the consultant in selection process. Thus, the payment made to the
consultant till now is considered as irregular.

The matter was reported to the management on September 14, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that initial advertisement was just for information further evaluation
criteria was mentioned in questionnaire. Management reply was not acceptable as
serious violations in hiring process were observed.

The DAC in its meeting held on December 31, 2018, directed the
management to hold a fact finding inquiry in the case and furnish its report to
audit & Ministry within 45 days. The DAC further directed that inquiry
committee will be headed by president ZTBL and one member (not below the
rank of Dy. Secretary) from M/o Finance. Its ToRs includes the contents of audit
Para.
Audit recommends compliance of the DAC directive.

8.5.4.5 Irregular procurement of land - Rs 45.28 million

According to Part-II, clause 4 of Land Acquisition Act 1894. ‘whenever it

appears to the Collector of the District that land in any locality is needed or is
likely to be needed for any public purpose or for a Company, a notification to that
effect shall be published in the official Gazette, and the Collector shall cause
public notice of the substance of such notification to be given at convenient

304
places in the said locality. Further, as per clause 38 of Land Acquisition act, (1)
the Executive District Officer (Revenue) may authorize any officer of any
Company desiring to acquire land for its purpose to exercise the powers
conferred by sub-section (2) of section 4 of this act.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management planned to purchase land / plot for its branches in Bahawalnagar
Zone, Rahim Yar Khan Zone and Chillianwali Branch of Sargodha Zone. The
management procured the land / plot without involving the collector of land
revenue / EDO (Revenue) in violation of above provisions of Land Acquisition
Act 1894. The management floated an Expression of Interest (EOI)/ Tender in
newspapers and after fulfilling necessary formalities land was purchased in 2009
from different parties without any survey and need assessment. This resulted into
irregular purchase of land valuing Rs 45.28 million.

Audit was of the view that land for the bank was required to be procured
through land acquisition collector. Furthermore, there was no urgency for such
procurement as the plots / land procured was still lying idle and was not utilized
by the bank even after lapse of more than nine years. The procurement of land in
violation of Land Acquisition Act 1894 showed prima facie melafide intention of
the management.

The matter was reported to the management on September 14, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that land procured in transparent manners after fulfilling all codal
formalities. Management point of view was not acceptable, as the same was
required to be procured under Land Acquisition Act.

The DAC in its meeting held on December 31, 2018 directed the
management to hold a fact finding inquiry and submit its report within one month
to audit & Ministry. The DAC further directed the management to furnish a
comparison of schedule rates (announced by relevant Board of Revenue

305
authorities) that were prevalent at the time of purchase of plots/land as well as
current prevailing schedule rates in the respective three sites.

Audit recommends compliance of the DAC directive.

8.5.4.6 Irregular hiring of second lowest contractor - Rs. 75.14 million

According to Clause 38 of PPRs 2004, “the bidder with the lowest

evaluated bid, if not in conflict with any other law, rules, regulations or policy of
the Federal Government, shall be awarded the procurement contract, within the
original or extended period of bid validity. As per clause 33 (1) of PPRs 2004, the
procuring agency may reject all bids or proposals at any time prior to the
acceptance of a bid or proposal. The procuring agency shall upon request
communicate to any supplier or contractor who submitted a bid or proposal, the
grounds for its rejection of all bids or proposals, but is not required to justify
those grounds.

During the audit of the ZTBL (HO) for the year 2017, it was observed that
the management decided to refurbish Ground, Mezzanine, second and 3rd floor
of ZTBL main building head office Islamabad. For this purpose, Eleven (11)
prequalified firms were contacted for submission of technical and financial
proposals. Six (6) firms had participated in this process and out of them four
firms were declared technically qualified by the consultant. The financial
proposals of technically qualified firms were opened in presence of head office
procurement committee on April 12, 2016. The engineering estimates of work as
prepared by the consultant were Rs. 78.66 million. The financial proposals of all
these firms were as follows:

Sr. Name of firm Corrected amount Position

No. by consultant after
rebate
1 M/s Capital Builders, Islamabad. 72,128,172 1st lowest
2 M/s Quality Pvt. Ltd. Lahore. 83,206,273 2nd lowest
3 M/s Rehman Construction & Interior 98,200,867 3rd lowest
Lahore.
4 M/s B.R Construction Company Islamabad. 112,701,333 4th lowest
306
 The procurement committee instead of allotting the work to the lowest
contractor rejected all bids and decided to go into the rebidding process at some
later stage.

Later on the management again called for submission of renewed/valid

PEC registration certificate and submission of bids. The consultant estimated the
whole work at the cost of Rs. 88.08 million. The results of technical and financial
bids are summarized as below:
Sr. Name of firm Results of Results of Position
No. Technical Financial
bid bid
1 M/s Capital Builders, Islamabad. Qualified 69,513,977 1st lowest
2 M/s Quality Pvt. Ltd. Lahore. Qualified 88,244,222 3rd lowest
3 M/s Rehman Construction & Interior Lahore. Not qualified Not opened -
4 M/s B.R Construction Company Islamabad. Qualified 79,500,000 2nd lowest

As per the above stated table M/s Capital Builders Islamabad stand lowest
on 2nd time but the management again illegally ignored the 1st lowest bidders i.e.
M/s Capital builders who quoted Rs. 69.51 million and the contract was awarded
to the next bidders i.e. M/s BR construction company at a total cost of Rs. 75.52
million (after considering 5% rebate). The original quoted price of the firm was
Rs. 79.500 million. Audit was of the view that after considering the rebate the
firm is still on higher side, hence the public exchequer suffered loss.

The matter was reported to the management on September 14, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that the opportunity was given to the first lowest contractor to explain
its implementation strategy which did not timely respond due to which contract
was awarded to 2nd lowest contractor. Management reply was not acceptable as
the clear violations of PPRA were observed in award of contract.

The DAC in its meeting held on December 31, 2018, directed the
management to hold a fact finding inquiry in the case and furnish its report to
audit & Ministry within 45 days. The DAC further directed that inquiry
307
committee will be headed by president ZTBL and one member (not below the
rank of Dy. Secretary) from M/o Finance.

Audit recommends compliance of DAC directive.

8.5.4.7 Irregular grant of subsequent loans to defaulters - Rs. 61.03 million

According to clause 2.5.1 of Credit Manual, applications for additional

loans can be entertained only if the request for additional loan is genuine,
previous loan has been properly utilized, and the borrowers or any of their
relatives are not defaulters. Similarly as per clause 2.5.8 (a)& (b) Subsequent
disbursement in loan cases falling in NPLs categories will be made on the next
day of complete closure of loan accounts or 95% of the previous sanctioned
amount on the same day. No enhancement of loan was allowed in these cases.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management granted subsequent loans to various borrowers wherein the
borrowers were already defaulters and fall under the categories of
Non-Performing Loans (NPL).

Weak internal controls led to increase in the number of cases of

Non-Performing Loans (NPLs) which ultimately resulted in increase in litigation
expenses and also increased the ratio of bad debts.

Audit was of the view that the management was required to take
necessary steps to strengthen the internal controls so that such kind of violations
may not be repeated.

The matter was reported to the management on September 14, 2018 and
to PAO on December 10, 2018. The management in its reply dated September 19,
2018 stated that borrower was not in default at the time of sanctioning of second
or third loan. Management reply was not based on facts.

308
 The DAC in its meeting held on December 31, 2018, directed the
management to take necessary steps for early recovery of Non-performing loan
(NPLs) cases pointed out by audit. The DAC also directed to review existing
loaning policy of the bank ensuring that no loan facility shall be provided to any
bank defaulter in future.

Audit recommends compliance of DAC directive.

8.5.4.8 Irregular procurement of vehicles - Rs. 196.26 million

According to the Government of Pakistan vide Finance Division letter No.

7(1) Exp. iv/2016-540 dated July 26, 2017, there will be a complete ban on
purchase of all types of vehicles (excluding motorcycles) both for current as well
as development expenditure except operational vehicles of law enforcing
agencies for which NOC from Finance Division would be required. Same kind of
instructions was also issued in financial year 2016-17.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management procured vehicles worth Rs 196.26 million. The vehicles were
purchased as per bank policy for utilization of same in head office and in field
audit offices. Further, it was observed that Car Loan Depreciation Policy of the
bank allowed the executives to purchases car at book value after five years. The
applicable depreciation rate on vehicles was 20% and book value of vehicle
becomes zero. The rule allowed an executive to purchase more than three to four
vehicles in entire service, which create additional burden on bank. This policy
needed to be reviewed in best interest of bank. This resulted into irregular
purchase of vehicles valuing Rs 196.26 million.

The matter was reported to the management on September 14, 2018 and
to PAO on December 10, 2018. The management in its reply dated September 19,
2018 stated that said instructions were not applicable to the bank. The reply was
not acceptable and clarification may be sought from Finance Division regarding

309
observations of austerity measures. Furthermore, list of those beneficiaries who
availed more than one vehicle under CLDP be provided to audit.

The DAC in its meeting held on December 31, 2018, directed the
management to refer the matter of car loan depreciation policy (CLDP) to the
BoD for review and decision in the matter.

Audit recommends compliance of DAC directive.

8.5.4.9 Irregular payment of Personal Pay - Rs. 32.16 million

According to Chapter 6.2(vi) of HR Manual of the ZTBL, Personal pay

can only be paid to the Deputy Manager /Assistant Manager in Medium Branches
@ Rs. 1500 and in Large Branches @ Rs. 2000. There is no provision of personal
pay admissible to bank staff posted in head office.

During the audit of ZTBL (HO) for the year 2017, it was observed that
many employees posted in head office were drawing personal pay with
two-nomenclature i.e ZTBL Personal Pay and Personal Pay RTP (Reckonable to
pension). On further verification, it was noticed that only ‘personal pay RTP’ was
a kind of personal pay eligible only to those staff that were on maximum stage of
his relevant pay scale. Management did not provide satisfactory reply against
other kind of personal pay RTP. Thus, the payment of personal pay to the tune of
Rs 32.16 million (Rs 2.680 million x 12) was considered irregular.

Later on it was explained by the management that personal pay was

granted to those employees who were appointed under SR-1961 and opted
SR-2005. Some of these employees were later on again reverted to SR-1961 in
light of directions of the court. However, most of them were still working on pay
scale of SR-2005. As the salary benefit under SR-2005 is higher than those of
SR-1961, thus personal pay to these employees was granted to save them from
financial loss suffered due to reversion.

310
 Audit was of the view that as the reversion was made in light of court
decision and at the option of the employee, thus grant of personal pay on this
ground was irregular and recoverable. Further, court decision was not
implemented in letter & sprite hence whole process needs to be reviewed.

The matter was reported to the management on September 14, 2018 and
to PAO on October 18, 2018. During DAC meeting held on December 31, 2018,
the management explained that personal pay was granted to the staff who
reverted from SR-2005 to SR-1961 to save them from financial loss. The DAC
directed the management to furnish revise reply and confirm / certify that no
further litigation is pending in any court of law. Further, DAC also directed the
management to take up the case in BoD for early resolution of the issue.

Audit recommends compliance of DAC directive.

8.5.4.10 Non recovery of advances from dismissed / severance employees -

Rs 6.02 million

According to para-15 (iv) and (v) of Staff Regulation 2005 of ZTBL, all
deductions from the salary of an employee against all outstanding liabilities shall
be completed on or before the employee attains the age of 59 years. No loan shall
be granted to any employee without security.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management dismissed compulsory retired ten (10) employees from bank service
during 2017. The different advances amounting to Rs. 6.02 million outstanding
against them were still recoverable.

Audit was of the view that the management was required to recover the
outstanding advances valuing Rs 6.02 million against dismissed / compulsory
retired employees but no recovery was effected.

311
 The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that all cases belong to those employees who were terminated /
dismissed from service. Furthermore, some were in court of law to seek remedy.
Reply was not acceptable as court cases were not pursued properly which
resulted into non-recovery.

During DAC meeting held on December 31, 2018, audit pointed out the
correction of amount in title of para as Rs. 6.02 million. The management
informed that necessary steps are being taken for initiation of liquidation process
for early recovery of outstanding amount. The DAC directed the management to
provide case wise detail to audit. The recovery suits may be filed wherever
necessary.

Audit recommends compliance of DAC directive.

8.5.4.11 Non-recovery of advances from ex-employees - Rs 43.55 million

According to clause 18.5 (x)(d) of HR Manual, where an

Officer/Executive attains the age of superannuation, the outstanding amount of
loan, if any, shall be adjusted out of the severance benefits payable. The
concerned Drawing and Disbursing Officer shall indicate the same in the No
Demand Certificate (NDC).

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management granted loan to different employees. These loans were required to be
adjusted / recovered within the specified period before retirement or accepting
resignation of the employee. However, these employees had left the service of
bank. An amount of Rs. 43.55 million was still pending against ex-employees of
the bank, which was not recovered.

312
 Audit was of the view that due to lose internal control, while processing
the final settlement of employees did not recover/deduct the amount due to them,
which caused loss to the bank.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that it is being ensured that all the superannuating and resigned
employees were produced NDC. However, this amount belongs to those
employees terminated / dismissed on disciplinary grounds and their outstanding
amount could not be adjusted.

Audit was of the view in such cases said amount should be recovered
from their CP fund balance besides other punitive measures taken against
employees.

The DAC in its meeting held on December 31, 2018 could not discuss the
para due to no submission of working paper by the management.

Audit recommends to justify the position for issuance of NDC without

adjustment of advances, investigate the matter and fix responsibility on persons at
fault and necessary revision be made to fix recovery period of loan / advances
specially motor car advance and HBA advance which was on longer side.

8.5.4.12 Non-recovery of penalties imposed by SBP - Rs 58.05 million

According to sub section (3) of Section 25 of Banking Company’s

Ordinance 1962, , ‘if any default was made by a banking company in complying
with the policy determined under sub-section (1) or direction given under
subsection (2), every director and other officer of the banking company and every
other person who was knowingly a party to such default shall, by order of the
State Bank, be liable to a penalty of an amount which may extend to twenty
thousand rupees and, where the default was a continuing one, of a further amount

313
which may extend to one thousand rupees for every day after the first during
which the default continues.

During the audit of ZTBL (HO) for the year 2017, it was observed that an
amount of Rs. 58.35 million was appearing in GL No. 8989 relating to SBP
penalties. The management was unable to effect recovery.

Audit was of the view that the management had not maintained internal
control over instructions/policies issued by the regulator, which caused
imposition of penalty of Rs 58.35 million.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 again stated that said penalties were neither imposed by the SBP. Reply was
not convincing the management committed to provide necessary record against
the transactions under GL head 8989 at earliest.

The DAC in its meeting held on December 31, 2018 directed the
management to take necessary measures for early recovery of SBP penalties from
guilty persons.

Audit recommends compliance of DAC directive.

8.5.4.13 i Loss due to payment of additional markup on Preference Shares

Rs 1,906.15 million
ii Irregular purchase of ZTBL shares by the SBP

According to Section 20 of the State Bank of Pakistan Act 1956, there

were restrictions on SBP to certain business, which the Bank may not transact. As
per sub clause (i) & (ii) the Bank shall not, except as authorized under this
Act- (2) purchase its own shares or the share of any other bank or of any
company, or grant advances or loans upon the security of any such shares.

314
 During the audit of the ZTBL (HO) for the year 2017, it was observed that
SBP entered into a settlement agreement with the ZTBL on April 18, 2017 for
restructuring of SBP debts amounting to Rs. 94,616.00 million. The management
agreed to issue 5,446,153,632 numbers of redeemable preference shares valuing
Rs. 54,461.53 million carrying annual profit / return @ 7.5% p.a. Furthermore,
the management also issued 4,015,599,174 numbers of ordinary shares valuing
Rs. 40,155.99 million to SBP against settlement of outstanding markup. This
resulted into increase in equity of the bank and SBP possessed largest equity
stockholding in ZTBL due to which ZTBL now become a subsidiary of the SBP.
It was also worth mentioning here that said deal was also not favorable for ZTBL,
initially the ZTBL obtained 45 credit lines from SBP to the tune of Rs. 54,461.53
million (including subordinate loans) at an average markup of 6.08%. Now the
bank had issued preference shares worth Rs. 54,461.53 million bearing markup
@ 7.5% which resulted into annual excess burden of Rs. 773.35 million.

Audit was of the view that SBP purchased ZTBL shares in violation of
above provisions of SBP Act 1956. As SBP was now major shareholder in ZTBL,
and there was an issue of conflict of interest, thus it may affect the SBP’s role as
regulator of the bank.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that said settlement was made in the light of directions of Federal
Govt. Audit was of the view that management should have watched and
communicated the interest of bank. Further necessary steps (like creation of
reserve fund etc) should have been taken so that additional burden may be
avoided at the time of repayment of principal amount in 2025.

The DAC in its meeting held on December 31, 2018, directed the
management to take up the matter before the BoD for further deliberation on the
issue.

315
8.5.4.14 Loss due to unjustified writing off the project loans - Rs. 270.28
million

According to clause 1 of SBP Circular No. Circular No. 06 of 2007 dated

June 05, 2007, bad / irrecoverable loans may be continued to be written off by
banks themselves with the approval of BoD. According to clause 4 of said
circular, before considering write off proposals placed before the competent
authority will ensure (along with other conditions) that (ii) Confirmation by the
concerned official of the branch/office duly countersigned by the authorized
official(s) of the office higher than the originating branch/office that borrower or
his guarantor has no known means of repayment and (vi) No write off will be
allowed where forced sale value of securities held, is more than the recoverable
outstanding amount.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management written off 27199 loan cases worth Rs. 1,831.44 million in 2016.
These cases include an amount of Rs. 270.28 million on account of seven loan
cases sanctioned in favor of M/s Saudi Pak Kalabagh Live Stock Company
limited. An amount of Rs. 90.00 million was sanctioned in favor of said company
during the period from 1984 to 1990 and total default period was 30 years. The
loan was shifted to SAM on December 31, 2005 and at that time Rs. 63.30
million was outstanding as principal and Rs. 309.48 million was outstanding as
Markup/return and other charges. Thus, total outstanding amount was Rs. 372.78
million. The collateral against these loan cases was 100 acres agriculture land
situated in village Massan Tehsil Essakhel Distt. Mianwali, building & civil
work, project machinery and equipment, residential house No. 431, BSA Ahmad
Park Ichara and House No 3, Street 62 F-6/3 Islamabad (comprising on
approximately 10 kanal area). It was also worth mentioning here that the case
was decreed by the court in favor of ZTBL and the same was at execution stage.
The management entered in a settlement agreement with the loanee company and
wrote off an amount of Rs. 270.28 million after recovery of Rs. 102.49 million.
As the collateral of the loan was sufficient, enough to repay bank loans, thus
there was no need to write off the loans. The beneficiary owners were going to

316
sell a part of loan collateral property (100-Acre land) to third party. Thus,
beneficiaries of the borrower created a business interest, which was violation of
above said instructions of the SBP.

Audit was of the view that while writing off the loans of above referred
cases the instructions of SBP were ignored and management prima facie extended
undue favor to the borrowers.

The matter was reported to the management on September 14, 2018 and
to PAO on December 10, 2018. The management in its reply dated September 19,
2018 stated that SBP team during its routine audit did not raise any objection on
writing off the loans. Audit demanded the SBP report for verification which was
not provided to audit.

During DAC meeting held on December 31, 2018, the management

explained that writing off the said loans was made in light of SBP circular dated
June 05, 2007. The DAC directed the management to get the relevant record
verified by audit. No record was produced till the finalization of this report.

Audit recommends compliance of DAC directive.

8.5.4.15 Loss due to procurement of Penaflex Sign Boards at higher rates -

Rs 26.52 million

According rule 4 of PPRs 2004, ‘Procuring agencies, while engaging in

procurements, shall ensure that the procurements are conducted in a fair and
transparent manner, the object of procurement brings value for money to the
agency and the procurement process is efficient and economical. Further, the
objective of ZTBL expenditure policy is to serve as guideline for prudent use of
approved budget and financial powers. Moreover, it aims to improve the
efficiency and effectiveness of the bank regarding the allocation of expenditure

317
 During the audit of ZTBL (HO) for the year 2017, it was observed that the
management floated tender in newspapers for the procurement of Backlit
Penaflex Sign Boards at ZTBL branches. The tender was opened on December
26, 2016 and was handed over to consultant for technical evaluation. The four
firms were shortlisted and lowest rate was Rs. 12225.12 per sf ft. The competent
authority did not accord the approval and bidding process was scrapped. Finally
the contract was awarded to M/s Insight Solutions (Pvt) Ltd being lowest and
procurement order was issued to the firm at the rate of Rs. 1180 per sq ft for 460
branches assuming requirement of 100 sq. ft for each branch. The management
can award contract while the tender was floated second time. M/s Insight initially
quoted rates of Rs. 719.20 per sq. ft. but later on same firm quoted Rs. 1180 per
sq. ft. Thus the bank suffered loss of Rs. 26.52 million.

Audit was of the view that management of the ZTBL prima facie
procured the said items on higher rates, which resulted into loss to the public
exchequer to the tune of Rs. 26.52 million. This loss should be recovered from
faulted person.

The matter was reported to the management on September 14, 2018 and
to PAO on October 17, 2018. The management in its reply dated September 19,
2018 stated that procurement of Penaflex was made in transparent manner. The
reply is not tenable as due consideration to safeguard public interest was not
made by the management and procurement was on higher rates.

During DAC meeting held on December 31, 2018, audit pointed out there
was no issue on selection of a single bidder if the bidder is lowest. The DAC
directed the management to hold a fact finding inquiry in the case and submit the
report to audit / Ministry within one month.

Audit recommends compliance of the DAC directive.

318
8.5.4.16 Excess cost incurred due to non-preparation of cost estimates -
Rs 13.52 million

According to rule 8 of PPRs-2014, all procuring agencies shall devise a

mechanism, for planning in detail for all proposed procurements with the object
of realistically determining the requirements of the procuring agency, within its
available resources, delivery time or completion date and benefits that are likely
to accrue to the procuring agency in future.

During the audit of ZTBL (HO) for the year 2017, it was observed that
procurement committee awarded the procurement contract to the lowest bidder
i.e. M/s Insight Solutions (Pvt) Limited at total price of Rs. 54.280 million based
on estimated quantity of 46,000 sq. ft at the rate of Rs. 1180 sq. ft. However, it
was observed that management had not prepared the cost estimates and rough
assumption was made that 100 sqft was required for each branch and total 460
branches was selected. This resulted into the total quantity of 46000 sq. ft at the
rate of Rs 1180 per sq. ft. Later on while making payments to the supplier it was
observed that up till June 2018, the supplier completed the work in 197 out of
total 460 branches and billed for 31,160.05 sq. ft. while as per estimate this
quantity should be 19,700 (197 X 100). Thus, excess quantity of 11,460.05 sq. ft
(31,160.05 – 19,700) was claimed by the party. This resulted into overpayment of
Rs. 13.52 million (11460.05 x Rs 1180) due to poor work estimates and
ultimately affect the budget of the bank.

The matter was reported to the management on September 14, 2018 and
to PAO on October 17, 2018.The management in its reply dated September 19,
2018 stated that the presumed quantities were on tentative basis to obtain per sq.
feet rate. The reply was not acceptable as the quantities can easily be assessed.

The DAC in its meeting held on December 31, 2018, directed the
management to furnish a certificate that no loss had occurred due to wrong
estimates. Further, matter may be referred to the BoD for deliberation and
decision.

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 Audit recommends compliance DAC directive.

8.5.4.17 Procurement of land at higher rates - Rs. 11.53 million

According to clause 23 of Land Acquisition Act 1894, regarding the

Matters to be considered in determining compensation as per sub clause (1) In
determining the amount of compensation to be awarded for land acquired under
this Act, the Court shall take into consideration, the market-value of the land, the
damage sustained by the person interested and as per sub-clause (2) In addition to
the market-value of the land as above provided, the Court shall award a sum of
twenty-five per centum on such market-value if the acquisition has been made for
a Company.

During the audit of ZTBL for the year ended 2017, it was observed that
management of the ZTBL had purchased plots/land directly from owners without
involvement of District collector in violations Land Acquisition Act. The said
plot was purchased at higher rates and in district Rahim Yar Khan, the bank
suffered loss of Rs. 11.53 million as detailed below:

Sr. Zone & Branch Plot size *Assessed Rate paid Difference Total over
No. Rate per payment
Marla
1 Rahim Yar Khan 87 Marla 32,500 165,000 132,500 11,527,500
*Schedule rate plus 25% compulsory acquisition charges

Similarly, a piece of land measuring three kanals was procured by the

ZTBL near Kharian-Mandi Bahauddin road at the rate of Rs.148,000 per marla.
The said plot was an agriculture land and away from main road. The front from
main road (Kharian – Mandi Bahauddin Road) of said plot was owned by the
Provincial Government. Local management had not made proper assessment of
said plot and did not focus to obtain schedule rates of relevant district revenue
authorities. The amount paid by the management was on higher side. The piece of
land remained idle since its procurement and there is no plan, in near future, to
construct a building on it.

320
 Audit was of the view that management of ZTBL had prima facie
procured these plots (Both at Rahim Yar Khan and Challianwala) at higher rates
and the bank suffered heavy losses. Further, there was no urgency as the procured
plot was still vacant and no construction was started till date.

The matter was reported to the management on September 14, 2018 and
to PAO on October 18, 2018. The DAC in its meeting held on December 31,
2018, directed the management to hold a fact finding inquiry and submit its
report within one month to audit & Ministry. The DAC further directed the
management to furnish a comparison of schedule rates (announced by relevant
Board of Revenue authorities) that were prevalent at the time of purchase of
plots/land as well as current prevailing schedule rates in the respective three sites.

Audit recommends compliance of the DAC directive.

8.5.4.18 Unjustified payment of SAM incentive - Rs 45.32 million

According to Special Assets Management (SAM) incentive notification,

the SAM incentive was admissible to the employees of ZTBL against cash
recovery in loan cases, who were shifted to SAM category upto 2012.

During the audit of ZTBL (HO) for the year 2017, it was observed that
SAM recovery incentive amounting to Rs. 45.32 million (Rs. 3.78 million x 12)
was paid to the bank employees during the year under review without extension
of the incentive scheme after 2012. Thus approximate total payment of Rs. 45.32
million was considered as unjustified.

Audit was of the view that SAM incentive was required to be paid only on
100% closure of loan cases. Further, as the BoD decision for payment of SAM
incentive was only for 2012 and the extension of payment of SAM incentive by
executive order was required to be ratified from BoD.

321
 The matter was reported to the management on September 14, 2018 and
to PAO on December 10, 2018. The management in its reply dated September 19,
2018 stated that relevant record in soft form was provided to ZTBL Field Audit
Department for onward submission to commercial auditors. Reply was not
convincing as same was not provided to audit for verification till finalization of
this report.

The DAC in its meeting held on December 31, 2018, referred the case to
the Board of Director for decision on SAM incentive.

Audit recommends compliance of DAC directive.

8.5.4.19 Loss due to irregular writing off project loans - Rs. 107.62 million

According to the ZTBL SAM Settlement Policy 2012, the said policy was
only for general credit schemes directly pertaining to Agriculture loaning and
there was no provision of settlement of project loans. The said policy was again
revised vide letter dated June 24, 2015 under clause 7, it was decided by the
competent authority for inclusion of SAM project loan cases in settlement policy.
As per said clause, all project loans will only be settled on recovery equal to 1.5
times of principal disbursed. This policy did not follow the guideline provided
by SBP vide its circular June 05, 2007.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management settled an amount of Rs. 107.62 million in five project loan cases.
These project loan cases were settled by the Head Office Write Off and
Remission Committee on recommendations of Zonal Write Off and Remission
Committee. Audit observed that as these cases were initiated based on SAM
Policy guidelines of ZTBL issued vide circular dated April 30, 2012 wherein no
provision existed for write off / remission of project loans. Furthermore, while
settling the loan cases the management did not focus on SBP’s guidelines
circulated vide SBP Circular No. dated June 05, 2007. Thus, the write off /

322
remission of loans worth Rs. 107.62 million as calculated by the management
was considered as irregular and unjustified.

Sr Name of Loan Amount Amount Amount Amount Amount

# Borrower case # disbursed already outstanding recovered Write off /
recovered under Remission
policy
1 M/s Fresh Juice 2546 64.57 24.89 126.41 73.56 50.49
M/s Modern
2 Leather 4317 24.90 13.67 53.70 23.59 30.23
Industries
M/s Bandagi
3 1747 1.83 3.82 2.05 0.19 2.05
Agro Services
M/s Sheikh
4 N/A 0.63 0 N/A 0.07 0.44
Steel Pressing
M/s Hyderabad
5 Beverage Co. 93810 14.60 22.00 24.41 20.91 24.41
Ltd
Total 107.62

It was clear from the above table that the management had written off an
amount of Rs. 107.62 million in above five loan cases in violation of SBP
guidelines.

Audit was of the view that the management granted undue favor to the
borrowers by writing off loans, which could have been recovered through court.
Prima facie management included clause 7 in SAM settlement notification dated
June 24, 2015 regarding settlement of all project loans even though this was not
discussed in relevant BoD meeting. Thus public exchequer suffered heavy losses
to the tune of Rs. 107.62 million.

The matter was reported to the management on September 14, 2018 and
to PAO on December 10, 2018. The management in its reply dated September 19,
2018 stated that cases were written off by the management as per policy approved
by the BoD. Management reply was not acceptable as the policy for writing off
the project loans was introduced in 2015 and some of the cases for writing off the
project loans were initiated in 2014.

323
 During DAC meeting held on December 31, 2018, audit pointed out that
there was no proposal for writing off the project loans in ZTBL Circular No.
R&SAMD/8/2012 dated April 30, 2012. Later on the BoD in its meeting held on
dated June 17, 2015 allowed that all project loans cases can also be written off.
This clause was inserted in violation of BoD decisions. The DAC directed the
management to get the policy of 2015 reviewed by the BoD and relevant record
be verified from audit.

Audit recommends compliance of the DAC directive.

8.5.4.20 Loss due to late verification of degree - Rs 2.95 million

According to Cabinet Secretariat (Establishment Division) vide D.O. No.

6(28)2011-DG-II dated March 08, 2011, all the Autonomous bodies/Companies,
Corporations were required to take the measures to authenticate
degrees/certificates of all the employees of their organization. It would be of
concerned Head of Organization to have the degrees/certificates verified.

During the audit of ZTBL (HO) for the year 2017, it was observed that the
management appointed Ms. Arifa Malik as OG-II on May 07, 2012. While
applying for the post she mentioned MBA as her qualification and provided
copies of Bachelor & Master Degrees duly verified by Higher Education
Commission. These attested copies were again referred to Higher Education
Commission for re-verification, which were proved as fake. The competent
authority dismissed her from service with immediate effect and ordered recovery
of all the financial benefits of Rs 2.95 million availed by her during the period of
service.

Audit was of the view that the management was required to verify the
documents of employee after her appointment but same was done late which
resulted in loss to the public exchequer of Rs 2.95 million. It was further added
that said issue was initially highlighted by audit through audit report for the year
2013-14 but management instead of taking prompt action delayed the verification

324
process upto 2017. This resulted in increase in amount of pay & allowances to the
said candidate.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that necessary action was already taken and employee was dismissed
from service. Reply was not convincing as reasons for prolong delay in
verification of degree were not submitted by the management.

The DAC in its meeting held on December 31, 2018, observed

with great concern that the degrees/certificate of Ms. Arfa Malik was verified by
the management after considerable delay. The DAC directed the management to
take necessary steps for early recovery of pay & allowances and get relevant
record verified by audit. The DAC further directed to review the existing
procedure of verification of degrees of newly appointees and the bank should
verify the testimonial without involving the concerned appointees.

Audit recommends compliance the DAC directive.

8.5.4.21 Loss due to non-recovery of penalty and official vehicle from

employee – Rs 9.18 million

According to para 4 (i) Chapter 23 of ZTBL HR Manual, it was the duty

of every employee of the Bank, who comes to possess, receive, obtain any
information regarding involvement / indulgence of any employees in corruption
or corrupt practices directly or indirectly, or activity on part of an employee that
falls within the ambit of corruption or corrupt practices, to report the same to the
President or Head, I&C Department. Failure on part of the employees in meetings
this obligation shall be deemed as abetment/connivance in the offense, and shall
be cognizable under the regulations.

During the audit of ZTBL (HO) for the year 2017, it was observed that
fourteen (14) officers/officials were involved in inefficiency, negligence,

325
misconduct, embezzlement and misappropriation. The disciplinary proceedings
were initiated against them and found guilty. The competent authority imposed
penalty on officers/officials in shape of recovery, which was still outstanding
against them. Furthermore, it was observed that the Suzuki Cultus Car was also
given to Mr. Nazir Ahmed Tabassum, Senior Vice President for his official-cum-
private use which was also not returned to the Bank.

Audit was of the view that the management was required to take concrete
steps for the recovery of amounts embezzled by officer/officials. However, no
steps were taken in this regard.

The matter was reported to the management on September 11, 2018 and
to PAO on October 18, 2018. The management in its reply dated September 19,
2018 stated that necessary steps were taken against the accused. The reply was
not acceptable as penalty and vehicle were still recoverable.

During DAC meeting held on December 31, 2018, the management

apprised that recovery of Rs. 26,750 has been made from Mr. Qudrat ullah.
Further, efforts are being made to recover remaining amount. The DAC directed
the management to get the relevant record verified from audit and take necessary
steps for early recovery of outstanding amount and vehicle at the earliest.

Audit recommends compliance of the DAC directive.

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8.6 Kissan Support Services (Pvt.) Limited
8.6.1 Introduction
Kissan Support Services (Pvt) Ltd (the company) was incorporated as a
private limited company on September 19, 2005 under the Companies Ordinance,
1984. It is a subsidiary of Zarai Traqiati Bank Limited, which holds 100% shares.
The registered office of the company is situated at Zarai Taraqiati Bank Limited,
Head Office 1-Faisal Avenue, Zero Point, Islamabad.

The company’s principal business was to provide consultancy, advisory,

agency and other support services on contractual basis or otherwise to ZTBL. In
the year 2016, the company changed its Memorandum of Association and now
the company can provide services/ undertake business with other corporate sector
as well.

8.6.2 Comments on audited accounts:

8.6.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017 till December 31, 2018.
8.6.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

8.6.2.3 The working results of Kissan Support Services (Pvt) Limited for the year
2017 are as under:
(Rs. in million)
2016 % Inc/ 2016 % Inc/ 2015
(Dec) (Dec)
Revenue 1,243.54 13 1,102.24 28.59 857.17
Cost of services 1,085.41 16 937.84 26.94 738.83
Gross profit 158.13 (4) 164.40 38.93 118.33
Administrative expenses 42.37 8 39.21 24.91 31.39
Operating profit 115.76 (8) 125.19 43.98 86.95
Other income 39.31 30 30.33 8.63 27.92
327
 Financial charges 0.01 (71) 0.04 - 0.04
Profit before taxation 155.06 0 155.48 35.40 114.83
Provision for taxation 49.55 (2) 50.57 14.05 44.34
Profit after tax 105.51 1 104.91 48.83 70.49
(Source: Annual Audited Account)

Revenue of the company increased from Rs. 1,102.24 million in 2016 to

Rs. 1,243.54 million in 2017 registering a 13% increase, whereas, service charges
the main source of revenue decreased from Rs. 189.86 million in 2016 to
Rs 181.81 million in 2017. The management needs to look into the situation.
8.6.2.4 Cost of services increased from Rs 937.84 million in 2016 to Rs 1,085.41
million in 2017 by registering an increase of 16%. The increase in cost of
services affected the gross profit of the company which decreased by 4% during
the year 2017. The management needs to control the increase in cost of services.
8.6.2.5 Adjustment of Rs 3.53 million was made in operating fixed assets
(vehicles) have been during the year 2017. The basis of adjustment and
documentary evidence in support of the amount adjusted may be provided to
audit.
8.6.2.6 Expenditure of Rs 78.26 million was incurred on sports activities during
the year 2017. Detailed breakup of the expenditure alongwith list of sports
tournaments held during the year may be provided.

8.6.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No % of
Paras Compliance Compliance compliance
2013-14 05 01 04 6.7.4.2,6.7.4.3,6.7.4.4,6.7. 20
4.1
2016-17 08 0 08 6.6.2.5, (6.6.1 & -
6.6.2,6.6.2.1,6.6.2.2,6.6.2.
3,6.6.2.4,6.6.2.6,6.6.3)
Total 13 01 12 8

Overall compliance of PAC directives was very poor which needs

immediate attention of PAO.

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 Chapter-9
Ministry of Industries and Production

9.1 Export Processing Zones Authority

9.1.1 Introduction

The Export Processing Zones Authority (hereinafter referred to as “EPZA

/ the Authority”) was established by the Government of Pakistan on Feb 06, 1980
through Export Processing Zones Authority Ordinance, 1980. The main objective
of the Authority is to plan, develop, manage and operate Export Processing Zones
(EPZ) in Pakistan in order to invite / help foreign investors.

9.1.2 Comments on Audited Accounts

9.1.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts.

9.1.3 Compliance of PAC Directives

Breakup of
Audit Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
2000-01 1 - 1 194 -
2006-07 1 - 1 Annex-I Item-8 -
2010-11 8 4 4 11.1.4.1, 11.1.4.2, 50
11.1.4.3&
11.1.4.5
Total 10 4 6 - 40%

The overall compliance of PAC directives needs improvement.

329
9.1.4 Audit Paras
9.1.4.1 Non-recovery of annual ground rent and other charges from industries
- US$ 256,272 (Equivalent to Rs. 28.702 million)

Rule-5 of Public Sector Companies (Corporate Governance) Rules, 2013

states that the board shall exercise its power and carry out its fiduciary duties
with a sense of objective judgment and independence in the best interest of the
company.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18 it was observed that an amount of US$ 256,272 was outstanding against
investors on account of annual ground rent, electricity and water charges which
caused blockage of funds. The detail is as under:

Sr.
Head of account Amount in US$
No.
1. Annual Ground Rent 229,375.92
2. Electricity charges 22,849
3. Water charges 4,047.33
Total 256,272.25

Audit is of the view that the management was unable to recover above
expenses from various investors, which shows negligence and inefficiency on the
part of management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that an
amount of US$ 34,000 recovered and remaining cases were lying pending in the
courts. DAC directed the management to pursue the case on priority and further
directed that the recovered amount be got verified by Audit. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

330
9.1.4.2 Irregular deposit of funds without Board’s approval - Rs.1,146 million
(US$.8.269 million)

As per Finance Division OM.No.F.4 (1)2002-BR II dated July 02, 2003

the process of selection of banks should be transparent, therefore, prior to placing
deposits with a bank, where working balance exceeds Rs.10 million, the selection
of banks as well as terms of deposits will be approved by the Board of
Director/governing body on the basis of competitive bids from at least
3 independent banks.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that the management placed funds of US$ 8.269 million
(equivalent to Rs.1,146 million) in foreign currency account in various banks
without the approval of BoD (Annex-33).

Audit is of the view that as per above mentioned rule, the management
was required to obtain Board of Director’s approval before placing the funds into
banks. However, the requisite approval of the Board was not obtained, thus
violating the above rule and need to be justified.

The matter was reported to the management in October 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that the
Board of Directors of EPZA has delegated the powers to the Chairman EPZA in
order to run the affair of the Authority under Rule 12(1) of EPZA Ordinance IV
of 1980, in its first meeting held on July 20, 1980, therefore, Board’s approval
was not required. DAC directed the management to place the matter in BOD for
ex-post facto approval and further directed to constitute an investment committee
comprising members from Board. However, no progress was reported till
finalization of this report.

Audit recommends implementations of DAC directives.

331
9.1.4.3 Irregular revision of pay - Rs.52.00 million

According to GoP O.M.No.F.4.(3) R-4/2011 dated August 04, 2017, the

revision of pay scale and grant of Adhoc Relieve Allowance 2017 shall also be
admissible to the employees of those Autonomous /Semi-Autonomous Bodies
and Corporations which have adopted different pay-scale/Allowances with the
concurrence of standing committee of Finance Division on recommendation of
their respective Board of Directors. It is also clarified that the Autonomous
/Semi-Autonomous Bodies and Corporations will forward the cases of
Executive/Supervisory Staff with the recommendation of their respective Board
of Directors for concurrence of Finance Division to the revision of pay scale and
grant of Adhoc Relief Allowance 2017.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that the management allowed Adhoc Relief Allowance,
2017 to its employees after gating the approval from its BoD (Annex-34). The
Board accorded ex-Post facto approval in its 120th’meeting held on June 06,
2018 subject to clearance from Ministry of Finance. However, concurrence of
Finance Division had not been obtained so far.

Audit is of the view that undue favour was extended to the Employees at
company cost.

The matter was reported to the management in October 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that
undertaking was signed by the all officers and case of Revision of Pay has
already been forwarded to Finance Division through MOI&P. DAC decided to
expedite the case and concurrence of the Finance Division be obtained under
intimation to Audit. However, no progress was reported till finalization of this
report.

Audit recommends implementations of DAC directives.

332
9.1.4.4 Irregular appointment of Daily wages Employees - Rs.8.486 million

As per Establishment Division OM No. 06/02/2000, the appointment on

contract basis in Autonomous/Semi- Autonomous bodies, Corporation, Public
Sector Companies etc can be through open advertisement in the leading and
regional newspapers indicating prescribed academic and professional
qualification, experience, age provincial/regional quotas etc. Selection should be
made through regularly constituted Selection Committees/Board.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that management appointed sweepers, watchman and
security guards at the lump-sum salary of 15,000 per month for each employee.
However, these employees were appointed without observing codal formalities
and in violation of above rules, resultantly the payment of Rs.8.486 million was
irregular. The detail is as under:

Number of Total salary paid

Category of employees
employees during the year (Rs.)
TOC watchmen 39 6,008,128
Sweepers (D/W) 09 1,746,819
Security Guards (D/W) 05 731,404
Total 8,486,351

Audit is of the view that undue favour was extended to the employees as
appointment was made irregularly which indicates weak internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that Rs.6
million were recovered out of Rs.8.486 million. DAC directed the management to
recover the remaining amount and further directed to avoid cash payment in
future and take action against the persons at fault who made such irregular
appointment. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

333
9.1.4.5 Loss due to un-accounted for units of Electricity - Rs. 33.287 million
Rule.5 of Public Sector Companies (Corporate Governance) Rules, 2013
states that the board shall exercise its power and carry out its fiduciary duties
with a sense of objective judgment and independence in the best interest of the
company.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that the management purchased electricity from
K-Electric in bulk. The Electricity was further distributed to industries situated at
EPZA. However 2,030,956 units valuing Rs.33.287 million remained
unaccounted for. This resulted into loss of Rs.33.287 million. The detail is as
under:

Per unit Loss of

Unit Cost of Unit Lost
cost electricity (col.3
purchased electricity consumed Units
(col.2/1) x 5)
(1) (2) (3) (4) (5) (6)
(Nos.) (Rs.) (Rs.) (Nos.) (Nos.) (Rs.)
53,527,051 877,181,358 16.39 51,496,095 2,030,956 33,287,369

Audit is of the view that due to negligence of the management authority

sustained loss which indicates weak internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that
EPZA purchased Electricity from KESC in bulk and distributed among the
investors. The percentage of losses 3.79% was nominal. DAC directed to
minimize the losses in future and recover the loss. However, no progress was
reported till finalization of this report.

Audit recommends implementations of DAC directives.

334
9.1.4.6 Loss due to un-accounted for gallons of water - Rs.11.861 million

Rule.5 of the Public Sector Companies (Corporate Governance) Rules,

2013 states that the board shall exercise its power and carry out its fiduciary
duties with a sense of objective judgment and independence it the best interest of
the company.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that the management purchased water from KW&SB in
bulk. This water was further distributed to industries situated at EPZA. The
authority raised bills to the industries on the basis of readings obtained from
respective meters. Thus, during review of record it was noticed that 49,015,538
gallons of water valuing Rs.11.862 million were not account for, which caused
loss the authority. The detail is as under:

Per 1000
Gallons Cost of Loss of gallons
gallon Gallons
purchased Gallon Lost gallons (col.3 x 5)
cost consumed
Rs. Rs. Rs.
(col.2/1)
(1) (2) (3) (4) (5) (6)

228,730,700 55,352,917 .0.242 179,715,162 49,015,538 11,861,760

It is evident from the above position that the management purchased

228,730,700 gallons from KW&SB whereas, bills charged from the industrials of
179,715,162 gallons.

Audit is of the view that due to negligence of the management authority

sustained loss which indicates weak internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that
notices have already been issued to all the investors to replace the meter
immediately and the same also be got verified from KW&SB. DAC directed the
management to conduct an internal inquiry regarding delay in replacing the
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defective meters and recover the dues within 15 days and get it verified from
Audit. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.1.4.7 Loss due to imprudent investment - Rs.2.830 million

As per Finance Division OM No.F.4 (1)2002-BRII dated July 02, 2003

the process of selection of banks should be transparent, therefore, prior to placing
deposits with a bank, where working balance exceeds Rs.10 million, the selection
of banks as well as terms of deposits will be approved by the board of
director/governing body on the basis of competitive bids from at least
3 independent banks.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18 it was observed that the management invested huge funds in local and
foreign currency in different banks working at zone premises for the period of
one year. However, instead of the deposits to highest bidders, the investments
were split among the banks. The Allied Bank of Pakistan in the first case, United
Bank of Pakistan in the second, Silk bank in the third and fourth case, quoted
highest rates. However, management split the investment amount among all the
banks which caused loss to the authority for Rs.2.830 million (Annex-35).

Audit is of the view that undue favour was extended to the Banks and
authority was deprived from the benefits of higher rates.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that
EPZA does not invest whole amount of fund in one bank to diversify the risk.
DAC directed the management that whole process of this approval of minutes
and investment be got verified from Audit. However, no progress was reported
till finalization of this report.

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 Audit recommends implementations of DAC directives.

9.1.4.8 Non-verification of degrees/certificate of the employees

Rule-5 of Public Sector Companies (Corporate Governance) Rules, 2013

states that the board shall exercise its power and carry out its fiduciary duties
with a sense of objective judgment and independence it the best interest of the
company.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that more than 500 employees are working in EPZA on
permanent and contract basis, but the degree of these employees were not verified
from the institutions/ Universities.

Audit is of the view that non-verification of degrees/certificates shows

negligence of the management and indicates weak internal controls prevailing in
the organization.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 07 & 08, 2019. The management informed that 58
employees’ degrees were not verified and only 02 foreign employees’ degrees
and 06 local employees’ degrees were declared fake by HEC. DAC directed the
management to give list of verified degrees to Audit for verification, and
remaining degrees be verified within 15 days otherwise action be taken against
the concerned fake degree holders under intimation to audit. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.1.4.9 Non-segregation of properties in books of accounts

As per section-10 IAS-40 if the owner uses part of the property for its
own use and part to earn rentals or for capital appreciation and the portion can be
sold or leased out separately, they are accounted for separately. Therefore, the
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part that is rented out is investment property. If the portion cannot be sold or
leased out separately, the property is investment property only if the
owner-occupied portion is insignificant.

During audit of Export Processing Zone Authority (EPZA) for the year
2017-18, it was observed that number of acres of land of EPZA to be used for
lease/rent purpose for industries, warehouse or commercial purpose. So far, 264
industrial units have undertaken the units of land for industrial purpose in phase-I
and phase-II. However, the management has not defined these properties as
investment properties in their books of accounts. These properties are presently
being reported in the books of accounts as administrative properties, which is a
violation of above mentioned IAS.

Audit is of the view that non-segregation of properties shows slackness

of the management which indicates poor financial internal controls.

The matter was reported to the management in October l, 2018. DAC

meeting was held on January 07 & 08 2019. DAC directed the management to
conduct fact finding inquiry at Ministry level regarding non finalization of
audited accounts since 2007-08 and further directed to segregate the properties in
books of accounts within six months. However, no progress was reported till
finalization of this report.

Audit recommends implementations of DAC directives.

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9.2 Pakistan Industrial Development Corporation
9.2.1 Introduction

Pakistan Industrial Development Corporation (Private) Limited (PIDC)

was incorporated on January 01, 1985 under the Companies Ordinance 1984.
Pursuant to an order of Federal Government, the business, project properties and
all the shares held by ex-Pakistan Industrial Development Corporation in the
capital of the managed companies and subsidiaries were transferred to and vested
in the Company with effect from April 01, 1985. The Company was established
to set up/manage and/or run a project/undertaking or business.

During the year ended June 30, 2008, the Government of Pakistan
Ministry of Industries, Production & Special Initiatives, through letter dated
August 24, 2007 took a step to consolidate and improve the management of
Pakistan Automobile Corporation Limited (PACO). Accordingly, PACO was
administratively merged with PIDC as a wholly owned subsidiary. The
Government of Pakistan also vide Ministry of Industries’ letter dated September
11, 2008, took another step to merge Ghee Corporation of Pakistan (Private)
Limited (GCP) with PIDC.

9.2.2 Comments on Audited Accounts

9.2.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

9.2.3 Compliance of PAC Directives

Breakup of
Audit Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
1994-95 74 71 3 67, 69& 70 96
1997-98 74 73 1 180 99
1998-99 20 17 3 137,138&141 85
2005-06 8 7 1 108 88
2006-07 5 4 1 94 80

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 2008-09 4 3 1 104 75
2009-10 3 2 1 197.1 67
2013-14 4 1 3 8.1.2.1, 25
8.1.2.2& 8.1.3
Total 192 178 14 - 93%

The overall compliance of PAC directives was satisfactory which needed

to be maintained.

9.2.4 Audit Paras

9.2.4.1 Wasteful expenditure on non-operational units - Rs.435.89 million

Rule 5 of Corporate Governance Rules, 2013 states that company's assets

and resources are not used for private advantage and due economy is exercised so
as to reduce wastage. The Rule 4(3) states that the Chief Executive is responsible
for implementation of strategies and policies approved by the Board, making
appropriate arrangements to ensure that funds and resources are properly
safeguarded and are used economically, efficiently and effectively and in
accordance with all statutory obligations.

During audit of Pakistan Industrial Development Corporation (PIDC)

Karachi, for the years 2016-17 to 2017-18, it was observed that the management
released funds amounting to Rs. 435.89 million to its non-operational subsidiary
companies to meet their expenditure i.e employee’s salaries, utility bills, payment
of rent taxes, rent and miscellaneous expenses etc. The summary of total
expenditure on non-operational units of PIDC as at 30-06-2018 is as under:

Sr. Expenditure incurred

Name of units
No. (Rs. in million)
1 Sindh Engineering Ltd. 200.00
2 Morafco Industries Ltd. 148.22
3 Suraj Ghee Industries 87.67
Ltd.
Total 435.89

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 Audit is of the view that the management failed to exercise control over
the spending/releasing of funds, which resulted into wasteful expenditure
amounting to -Rs.435.893 million. This showed poor financial management.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. DAC decided that the matter be referred
to MOI&P for further decision and progress be intimated to Audit. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.2 Non-recovery of outstanding dues from TUSDEC - Rs.28.598 million

Rule-38 (1) of GFR provides that it is primarily the responsibility of the

departmental authorities to see that all revenue or other debts due to government
which have to be brought to account, are correctly and promptly assessed,
realized and credited to Public Account.

During audit of Pakistan Industrial Development Corporation (PIDC)

Head office for the year 2015-16, it was observed that the management allotted
area of 285,975 Sq.Ft to Technology Up-gradation & Skill Development
Company (TUSDEC), Lahore situated at State Cement Corporation Building,
Cement and Research & Development Institute, Kot LakhPat, Lahore since 2008
without fulfilling legal requirements i.e. Tenancy Agreement with tenant.

Audit is of the view that had such a large area been rented out to any other
tenant then an amount of Rs.28.597 million (285,975 Sq.Ft @ Rs.100/-per Sq. Ft.
Per Month) could have been earned by PIDC. Thus, an amount of Rs.28.597
million was still outstanding against TUSDEC.

The matter was reported to the management in March, 2017 and

November, 2018. DAC meeting was held on January 15, 2019. The management
informed that MOI&P requested PIDC to condone the rent in respect of

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TUSDEC office. Audit contended that as rent cannot be condoned and it needs to
be recovered. DAC directed the management to get verified the instruction of
MOI&P and revise the agreement on reasonable rent with the approval of BOD.
However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.3 Non-recovery of the outstanding rent from tenants - Rs.13.530 million

Rule-38(1) of GFR provides that it is primarily responsibility of the

departmental authorities to see that all revenue or other debts due to government,
which have to be brought to account, are correctly and promptly assessed,
realized to public account.

During audit of Pakistan Industrial Development Corporation (PIDC) for

the years 2016-17 to 2017-18, it was observed that an amount of Rs.13.530
million was laying outstanding on account of rent against the various tenants of
the PIDC buildings as on 30th June 2018. Detail of outstanding is as under:

(Rs. in millions)
Sr. Beyond 3
Name of Party/tenants Up to 3 years Total
No years
1 M/s Chick- A- Zee 3.584 5.189 8.773
2 M/s Pakistan Dairy Development Company 2.346 - 2.346
3 MCB Bank Limited 0.784 - 0.784
4 National Bank of Pakistan 0.690 - 0.690
5 Aik Hunar Aik Nagar (AHAN) 0.373 - 0.373
6 M/s Grow Green - 0.364 0.364
7 M/s Highland Tours & Travels 0.092 0.016 0.107
8 M/s Comsats Internet Services 0.035 - 0.035
9 M/s Sui Northern Gas Pipelines 0.024 - 0.024
Total 7.928 5.601 13.530

Audit is of the view that undue favour was extended to the tenants due to
non-recovery of rent. This indicates weak internal controls.

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 The matter was reported to the management in December, 2018. DAC
meeting was held on January 15, 2019. DAC showed displeasure on the recovery
performance of the management and directed to submit detail revised reply to
audit regarding detail of recovered amount and got verified from audit. The status
of the legal cases may be intimated to audit and expedite the cases within 02
months. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.4 Loss due to non-imposition of LD charges - Rs.29.322million

As per condition (8) of the work order, in case of delay in completion of

ordered job/work, contractor shall be liable to pay to the Corporation penalty
@ Rs.1% (Rupees one percent) per day of the total amount of contract awarded
till its completion. Further, as per clause 29 of Public Procurement Rules,
Evaluation criteria: Procuring agencies shall formulate an appropriate evaluation
criterion listing all the relevant information against which a bid is to be evaluated.
Such evaluation criteria shall form an integral part of the bidding documents.
Failure to provide for an unambiguous evaluation criteria in the bidding
documents shall amount to mis-procurement.

During audit of Pakistan Industrial Development Corporation (PIDC)

Karachi, for the years 2016-17 and 2017-18, it was observed that in January 2017
management awarded a contract to M/s Trade centre for the Interior & Exterior
paint, miscellaneous, civil, electrical & other work at PIDC house, Karachi
amounting to Rs.6.883 million. As per work order, the civil work was required to
be completed within ninety (90) days from the date of receipt of work order i.e.
May 01, 2017. However, the contractor failed to complete the said work within
stipulated period as the work is still in progress. Later, it was observed that there
was no significant improvement in the progress of work and the management
proposed the termination of the contract. Despite the fact, the management
allowed an extension for (45 days) to the contractor. Thus, the management
non-imposing LD clause the Corporation sustained a loss of Rs. 29.322 million

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(68,832*426 days) as at June 30, 2018. Moreover, the contract was awarded to
incapable contractor in irregular manner.

Audit is of the view that undue favour was extended to the contractor by
non-imposition of the penalty as required under the term and conditions of the
contract.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to probe
the matter regarding irregular award of contract and further probe the actual LD
Charges on the contractor or otherwise. However, no progress was reported till
finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.5 Irregular appointment & promotion of G.M (A&P) - Rs.24.84 million

Establishment Division O.M. No.9/2/74-R.6 (Pt.2), dated January 21,

1988 states that appointment to the post shall be made by promotion on the basis
of selection by the DPC of the Ministry/Division/ Department concerned and
with the approval of the appointing authority, from amongst the regularly
appointed Stenographers of the Ministry/ Division/Department concerned.
Further, Para 4 states if no suitable person is available for promotion to the post
in the Ministry/ Division/Department concerned, the vacancy shall be filled in by
appointment from amongst the regular Stenographers, employed in other
Ministries/Divisions/Departments who fulfill the conditions for promotion to the
post as laid down in para 3 above, in consultation with the Establishment
Division.

During audit of PIDC for the years 2016-17 to 2017-18, it was observed
that in August 2007 management appointed Mr. Ashfaque Ahmed as Private
Secretary to CEO. The following irregularities were observed:

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 i. He was appointed in management group IV which was to be filled by promotion,
but he was directly appointed.
ii. The advertisement for the post of PS to CEO dated 21 July, 2007 was made just
in single newspaper (Dawn) through P.O Box as it neither mentioned name of
entity (PIDC), age, qualification nor regional/ provincial representation (quota).

iii. He was appointed during the ban period as daily wage worker.

iv. He was promoted as Deputy General Manager (DGM) to Group V from Group
IV on 3rd December, 2009 just within 26 months.

v. He was brought to administration cadre from PS/stenographer cadre against the

promotional rules and seniority principles and was posted Company Secretary &
held additional charge as MD, Pakistan Motor Car Company (subsidiary of
PIDC). Later, he was appointed as Company Secretary of PIDC on 11-01-2012
without fulfilling codal formalities (experience & qualification) and was
upgraded to group D3 (equivalent BS-20).

vi. He was promoted as General Manager (GM) dated 04-10-2012 in Grade D3

equivalent to BPS-20 (Management Grade) as Company Secretary without duly
constituted Selection Committee and without approval of Prime Minister/ Chief
Executive of Pakistan as notified by Establishment Division.

Audit is of the view that undue favour was extended to the employee as
he was holding degree of Bachelor of Commerce (B.Com) only and initial he was
appointed as Private Secretary and subsequently he was awarded promotions to
higher management cadre in contravention of the rules and against the orders of
Honorable Supreme Court of Pakistan. Thus, the payment of Rs.24.84 million
(74month X 210,000 p.m = Rs.15,540,000 and 62 month X Rs.150,000 p.m =
Rs.9,300,000) on account of pay and allowance was held irregular.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. The management informed that an
Inquiry Committee was constituted by MOI&P, wherein the Committee
recommended to immediate transfer the officer from the current position which
has been implemented. DAC directed the management to conduct a fresh inquiry
under E&D rules of PIDC as recommended by the inquiry committee of MOI&P
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within one month and report be provided to audit. However, no progress was
reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.6 Irregular appointment & promotions of GM - Rs.15.30 million

Establishment Division’s O.M.No.6/4/96-R.3, dated May 10, 1997 states

that the cases of appointment to various posts in autonomous/semi-autonomous
bodies shall be processed in accordance with the following guidelines:
Approving
Sr. No. Nature of Case/post Selection Procedure
Authority
140 Posting of government To be processed in the Secretary of
ii(c) servants of BPS 17 to 19 Ministry/Division concerned. Ministry/Division
concerned.
iii (b) Appointment to posts in Selection Board headed by the Prime Minister/
Management Grades (i.e. Secretary of Ministry Division Chief Executive
M1-M3, D1 to D3/BPS-20) concerned to consider &
recommend from a panel of three
names of each vacancy

Establishment Division’s O.M.No.1/9/80-R.2 dated 2-6-1983 states that

the President is pleased to decide that five year minimum length of service in
grade 17 for promotion to grade 18.

Further, letter No. 7(50)/90-P-II, dated 17 October, 1990 by Ministry of

Production Islamabad states (i) (a) the board of directors of company concerned
shall act as selection board for direct recruitment or promotion to posts in
management grade (BS 20 and above). The participation of nominee of the
ministry (additional secretary for M1 & M2, and joint secretary for M3) will be
necessary when the board of directors meets as Selection Board." (ii) (a) "all
appointments/ promotions in management grades will be subject to the approval
of the ministry of the production."

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 During the audit of PIDC for the years 2016-17 to 2017-18, it was
observed that in April 1997 Mr. Zahid Ur Rehman was transferred to PIDC from
Industrial Steel Pipe Limited, PIDC subsidiary and later absorbed, appointed in
PIDC in October 1997, in group E-II equivalent to BPS-17. His appointment in
group E-II equivalent to BPS-17 as per Federal Rules should have been processed
in the Ministry/Division and must be approved by the concerned Secretary of
Ministry/Division which has not been adopted. Further, he was promoted to
group E-III, equivalent to BPS-18, within 3 year and 3 month against the Federal
Govt. rules which require minimum length of service of 5 years in grade 17.

Later on, he was promoted on 01-09-2014 to group D3, equivalent to

BPS-20, without adopting due process of the law and without prescribed
Selection Board headed by the Secretary of Ministry Division concerned to
consider & recommend from a panel of three names of each vacancy and then
must be approved by Prime Minister/ Chief Executive of Pakistan. In addition,
the approval of the Ministry of the Production was not obtained as to extend
favour to Mr. Zahid Ur Rehman. Further, he has been holding dual charges,
sometimes more than dual charges, from time to times since his promotion to
group D3, equivalent to BPS-20, without recommendation of the Departmental
Promotion Committee (DPC) or the Central Selection Board (CSB) as prescribed
by the Federal Govt. which is irregular.

Audit is of the view that appointment and promotion of Mr. Zahid Ur

Rehman were irregular. His transfer, absorption and appointment in BPS-17,
promotion in BPS-18 and promotion in BPS-20 were irregular as the due process
of law was not adopted.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
Ministry’s approval regarding promotion of concerned within 07 days for
verification of Audit. However, no progress was reported till finalization of this
report.

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 Audit recommends implementations of DAC directives.

9.2.4.7 Irregular payment of Ex-gratia/Bonus - Rs.12.001 million

Finance Division OM dated Nov 30, 2001 states that the payment of
bonus of autonomous bodies /semi-autonomous bodies/ Corporations requires
approval by administrative Ministry and concurrence of Finance Division.

Service Rules of PIDC Chapter –VIII (21) “Bonus may be paid to

employees of the profit making units and the Corporation at such rate as the
Board may decide after finalization of accounts and due audit at the close of each
financial year in the light of conditions prescribed by the Federal Government”.

During audit of Pakistan Industrial Development Corporation (PIDC) for

the year 2015-16, it was observed that the management paid bonus amounting to
Rs.12.001 million to its employees during the year 2015-16. The detail as under:
(Rs.in million)
Year Amount
2014-15 4.669
2015-16 7.332
Total 12.001

Audit is of the view that the, payment of Ex-gratia/ Bonus amounting to

Rs.12.001 million without the approval of administrative Ministry and
concurrence of Finance Division is irregular and unjustified.

The matter was reported to the management in March 2017 and

November, 2018. DAC meeting was held on January 15, 2019. The management
informed that the Corporation earned profit during 2014-15. DAC directed the
management to get the record verified from audit within 07 days. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

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9.2.4.8 Irregular appointment of Junior Executive - Rs.8.537 million

According to Rule-6 of Pakistan Industrial Development Corporation

(PIDC) Service Rules 1986, all initial appointments and promotions against
sanctioned posts shall be made in consultation with the selection committee
constituted by the competent authority for the purpose in relation to each post or
grade as the case may be.

During audit of PIDC for the year 2014-15, it was observed that the
management appointed Mr. Dedar Ali Kalhoro as Junior Executive without
advertisement of the post and without any recommendations of the Selection
Committee/Board. Subsequently, the officer was promoted as Deputy Manager
(E-I) without fulfillment of the codal formalities. The degree of BA and MA
(Economic) submitted by the officer was also not got verified from the concerned
university by the management. Hence, the appointment of the officer was
irregular and the payment of Rs.8.537 million on account of Pay & Allowance
was also irregular.

Audit is of the view that undue favour was extended to the employee by
the management.

The matter was reported to the management in September, 2016. DAC

meeting was held on January 15, 2019. The management informed that
appointment was made with the approval of Ministry. DAC directed the
management to provide approval of MoI&P and verification of degree to audit
for verification. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.9 Fraudulent/Irregular appointment CIA - Rs.7.673 million

Section 22 of the Corporate Governance Rules, 2013 states that no person

shall be appointed as the Chief Internal Auditor of a Public Sector Company

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unless he has five years of relevant audit experience and is (a) member of a
recognized body of professional accountants; or (b) certified internal auditor; or
(c) certified fraud examiner; or (d) certified internal auditor; or (e) person holding
a master degree in finance from a university recognized by HEC.

During audit of PIDC for the years 2016-17 to 2017-18, it was observed
that in November 2016 management appointed Mr. Amjad Hussain as Chief
Internal Auditor (CIA). He neither possessed the requisite qualification nor did
have required experience of five (5) years in relevant audit field. He was inter
chartered accountant (mid of degree) at the time of appointment. Post was
advertised only in single newspaper (Dawn) and it did not mention qualification,
regional/ provincial representation (quota). He contract was initially for three (03)
years instead of two years. On verification of his additional academic
qualification, HEC rejected the existence of educational institutions of USA as
degree awarding institutions, as mentioned in his CV produced by him.

He was appointed without adopting due process/ mechanism which

requires the application must be processed through Head of HR department. In
letter vide IDC-2 (4623) dated 23 July, 2018 GM (Admin & HR) stated that he
was not involved in the appointment process of CIA. Further, he was applied
after due date and without NOC which was mandatory as highlighted in the press
advertisement. Thus, the payment of Rs.7.673 million on account of pay and
allowances was held irregular.

Audit is of the view that undue favour was extended to the incumbent by
appointing him in non-transparent meaner. This indicates weak internal controls.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to conduct
fact finding inquiry from the concerned Joint Secretary in MOI&P to determine
the Qualification, experience, HEC degree Verification and applying date for the
post. However, no progress was reported till finalization of this report.

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 Audit recommends implementations of DAC directives.

9.2.4.10 Irregular appointment of CFO - Rs.6.40 million

Section 14 of the Corporate Governance Rules, 2013 states that no person
shall be appointed as the chief financial officer of a Public Sector Company
unless he is- (a) a member of a recognized body of professional accountants with
at least five years relevant experience. Further, Establishment Division’s
O.M.No.6/4/96-R.3, dated 10-5-1997 the cases of appointment to various posts in
autonomous/semi-autonomous bodies shall be processed in accordance with the
following guidelines:

Sr. Approving
Nature of Case/post Selection Procedure
No. Authority
Selection Board headed by the
Appointment to posts
Secretary of Ministry Division Prime Minister/
140 in Management Grades
concerned to consider & recommend Chief
iii (b) (i.e. M1-M3, D1-
from a panel of three names of each Executive
D3/BPS-20)
vacancy

During the audit of PIDC for the years 2016-17 to 2017-18, it was
observed that in August management appointed Mr. Muhammad Sarfaraz Javed
as CFO. He was not the member of a recognized body of professional
accountants at the time of appointment as no such document was provided. He
also does not have required experience of five (5) years in the relevant field. It
was further observed that he has been appointed through the advertisement given
by KPMG firm (Private Chartered Accountants Firm) in single newspaper
(Dawn) instead of advertisement given by PIDC management under its name and
logo. Even in that advertisement placed by KPMG did not mention name of
PIDC which is no less than concealment of job opportunity for all eligible
citizens of Pakistan.

He was appointed on contract basis initially for three (03) years instead of
two years. He was interviewed twice. Firstly, he did not appear in person
(physically) before 1st interview panel conducted dated 14-07-2017 at PIDC
(HO) Karachi, but as a favour, he was interviewed through Skype. Later, another
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interview panel was constituted, as to extend him favour, on 22-07-2017. In
addition, he was appointed as CFO equivalent to BPS-20 (Management Grade)
without duly constituted Selection Committee and without approval of Prime
Minister/ Chief Executive of Pakistan as notified by Establishment Division.
Thus, the payment of Rs.6.400 million on account of pay and allowances was
held irregular.

Audit is of the view that undue favour was extended to the incumbent by
appointing him in non-transparent meaner. This indicates weak internal controls.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
the record relating to required qualification and experience of 05 years in relevant
field to audit for verification. However, no progress was reported till finalization
of this report.

Audit recommends implementations of DAC directives.

9.2.4.11 Unjustified expenditure on account of Travelling & Accommodation -

Rs.4.810 million

Para-33 of Pakistan Industrial Development Corporation (PIDC) provides

that in the case of travel by air, the counterfoil of the air ticket should be
produced when making a claim for payment indicating also the class in which the
employee travelled.

According to Rule PIDC Travelling allowance rules Para No.62 (i) to

scrutinize the necessity, frequency and duration of journey and halt for which
travelling allowance is claimed and to disallow the whole or a part of the claim in
respect of any journey or the halt if he considers that a journey or halt was
unnecessary or that a halt was of excessive nature.

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 During audit of PIDC, for the year 2014-15, it was observed that the
management paid travelling and daily allowance (TA/DA) amounting to Rs.4.810
million to their officers/executives without scrutinizing/examining their bills. The
payment of TA/DA claim seems to fictitious/bogus. During scrutiny of the
TA/DA, following discrepancies have been observed:

Approval of the competent authority /Tour programme of the officers was

not found attached with the bill.

Specific purpose of Journey was not mentioned in the bill Air tickets and
counterfoil of the boarding card was not found attached with the bill.

Audit is of the view that due to the above discrepancies the payment of
Rs.4.810 million seems to be doubtful. The irregular/doubtful expenditure on
account of TA/DA was also indicative of weak internal control prevailing in the
organization.

The matter was reported to the management in September, 2016 and

November, 2018. DAC meeting was held on January 15, 2019. DAC directed the
management to provide the original Boarding passes and airline tickets to audit
for verification. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.2.4.12 Irregular splitting of purchases - Rs.3.231 million

Rule-9 of Public Procurement Rules, 2004 states that, a procuring agency

shall announce in an appropriate manner all proposed procurements for each
financial year and shall proceed accordingly without any splitting or regrouping
of the procurement so planned. The annual requirement so determined would be
advertised in advance on the Authority’s website as well as on the website of the
procuring agency.

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 During audit of Pakistan Industrial Development Corporation (PIDC) for
the year 2011-12 to 2015-16, it was observed that management purchased
Furniture & Fixture, Sundry Equipment, Electric Equipment’s, Computers &
Ancillary Equipment, and incurred expenses an amount of Rs.3.231 million by
splitting up.

Audit is of the view that the management procurements for the year were
planned properly and requirements of all departments were obtained and made
purchases through one time open tendering process, resultantly the benefit of
economical procurements could have been achieved. The procurements of
different items valuing to Rs.3.231 million were held irregular as these
procurement s were splitting up and in violation of PPRA 2004.

The matter was reported to the management in May, 2015 and November,
2018. DAC meeting was held on January 15, 2019. The management informed
that purchases were on receipt of requisitions from different departments on need
basis and no splitting was incurred. DAC directed the management to get the
record verified from audit. However, no progress was reported till finalization of
this report.

Audit recommends implementations of DAC directives.

9.2.4.13 Irregular payment due to dual benefits rewarded to CEO - Rs.1.673

million

As per terms and conditions of the contract appointment of

Mr. Muhammad Iqbal Tabish, Chief Executive officer, (CEO) vide para 5.

a. Monthly salary Rs.450,000/- p.m

b. House rent allowance @ 150,000/- p.m
c. Entertainment allowance @ 10% of salary p.m
d. House maintenance allowance @ 10% of house rent p.m
e. Utility allowance 50,000/- p.m

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 f. 1300cc chauffer driven company maintained car with 700 litres monthly
petrol ceiling as per company policy.

During audit of Pakistan Industrial Development Corporation (PIDC)

Karachi, for the years 2016-17 and 2017-18, it was observed that Mr. Muhammad
Iqbal Tabish (CEO) was allowed Adhoc Relief Allowance Rs.45,000 and
Conveyance Allowance Rs.57,525 per month in addition to above contract
amount, which was irregular.The detail is as under:
(Amount in Rupees)
Description Amount per month No. of Months Total
Conveyance Allowance 57,525 15 862,875
Adhoc Relief Allowance 45,000 18 810,000
Total 1,672,875

Audit is of the view that undue favour was extended to the CEO at the
cost of the Company’s fund which indicates weak internal controls and poor
financial management.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to verify
the payment of conveyance allowance from audit and stop adhoc relief allowance
immediately from the salary statement. The paid amount to the officer regarding
adhoc relief allowance should recovered/adjusted from the salary/dues and also
get it verified from Audit. However, no progress was reported till finalization of
this report.

Audit recommends implementations of DAC directives.

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9.3 Pakistan Industrial Development Corporation Medical
Centre
9.3.1 Introduction

PIDC Medical Centre was established in 1959 and awarded Corporation

status in February, 1986 as a non-profit association incorporated as Public
Limited Company by Guarantee.

The activities of the center are to provide medical facilities on

non-commercial basis to the employees of PIDC (Private) Limited, its units
subsidiaries, associated companies, and other state enterprises in particular and to
public in general.

9.3.2 Comments on Audited Accounts

9.3.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

9.3.3 Compliance of PAC Directives

No PAC directives were outstanding against the organization.

9.3.4 Audit Para

9.3.4.1 Non-recovery of outstanding service charges - Rs.1.702 million

According to the Rule 4 of Public Sector Companies (Corporate

Governance) Rules, 2013 the chief executive is responsible for the management
of the Public Sector Company and for its procedures in financial and other
matters, subject to the oversight and directions of the Board, in accordance with
the Ordinance. His responsibilities include implementation of strategies and
policies approved by the Board, making appropriate arrangements to ensure that
funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.
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 During audit of Pakistan Industrial Development Corporation (PIDC)
Medical Centre (MC) for the year 2011 to14, it was observed that an amount of
Rs.1.702 million was outstanding from M/s. Pakistan Machine Tool Factory
(PMTF) on account of medical service charges since July, 2013.

Audit is of the view that due to negligence and inefficiency of the

management the amount could not be recovered.

The matter was reported to the management in July, 2015 and November,
2018. DAC meeting was held on January 15, 2019. The management informed
that out of 1.702 million, an amount of Rs.1.012 million has been
recovered/adjusted from PMTF.

DAC directed the management to got verified the recover amount from
audit and recover the reaming outstanding amount, otherwise presented before
the BoD for written off. However, no progress was reported till finalization of
this report.

Audit recommends implementations of DAC directives.

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9.4 Karachi Tools, Dies and Moulds Centre
9.4.1 Introduction
Karachi Tools, Dies and Moulds Centre (KTDMC) was incorporated in
2006 as a company limited by guarantee having share capital under section 42 of
the Companies Ordinance, 1984. The primary objective of the Company is to
establish and run an Information Technology (IT) based common facility centre
primarily for improving the skills of engineers and designers, enhancing the
quality of designing, engineering and manufacturing of local tools, dies and
moulds. The Company is a wholly owned subsidiary of Pakistan Industrial
Development Corporation (Private) Limited (PIDC) the holding company.

9.4.2 Comments on Audited Accounts

9.4.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

9.4.3 Compliance of PAC Directives

Total No. Breakup of

Audit Compliance Compliance %age of
of compliance
Year reported awaited compliance
Directives awaited
2013-14 5 1 4 8.2.4.1, 20
8.2.2.1,
8.2.2.2&
8.2.3
Total 5 1 4 - 20%

The overall compliance of PAC directives was 20%, which needed to be

improved.

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9.4.4 Audit Paras
9.4.4.1 Irregular procurement of services from suppliers amounting - Rs.3.027
million

According to Rule-20 of PPRA Rules, 2004 the procuring agencies shall

use open competitive bidding as the principal method of procurement for the
procurement of goods, services and works.

During audit of Karachi Tools, Dies and Mould Centre (KTDMC) for the
year 2015-16 it was observed that the management awarded contracts to
M/s. Executive Security (Pvt.) Ltd. for providing security services amounting to
Rs.0.880 million, supplies of water from M/s. Raja Muhammad Sarwar
Enterprises & Co amounting to Rs.0.927 million and Janitorial Services for
KTDMC Building on regular basis from M/s. Al-Basit Facilities Management
Pvt. Ltd. amounting to Rs.1.212 million.

Audit is of the view that the management procured services from the
suppliers without adopting open competitive bidding procedures by violating
PPRA Rules. Thus, the payment of Rs.3.027 million was held
irregular/unjustified.

The matter was reported to the management in November, 2016 and

November, 2018. DAC meeting was held on January 07 & 08 2019. DAC was
not satisfied with the explanation given by the management and directed the
management to give revised reply and get it verified from Audit. However, no
progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

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9.4.4.2 Irregular procurement without open tendering - Rs.2.577 million

According to the Rule 12 of PPRA Rules, 2004 all procurement

opportunities over two million rupees should be advertised on the authority’s
website as well as in other print media or newspapers having wide circulation.”

During audit of Karachi Tools, Dies and Mould Centre (KTDMC) for the
year 2015-16 it was observed that the management procured raw material of
Aluminum Casting amounting to Rs.2.577 million from the supplier M/s. Qadri
Foundry (Pvt.) Ltd. The detail is as under:

Sr. Amount
Invoice No. Descriptions
No. (Rs.)
1 9511 Aluminum Casting 713,000
2 9520 Aluminum Casting 118,220
3 9529 Aluminum Casting 333,500
4 9530 Aluminum Casting 258,060
5 9562 Aluminum Casting 555,600
6 3417 Aluminum Casting 598,951
Total 2,577,331

Audit is of the view that the management did not follow open tendering
procedure & advertisement was not launched on the authority’s website for
procurement of raw material (Aluminum Casting) having value greater than
rupees two million and also not get competitive rates by violating PPRA rules.

The matter was reported to the management in September 2016 and

November, 2018. DAC meeting was held on January 07 & 08 2019. Management
informed the DAC that M/s Qadri Foundry was the only foundry in Pakistan who
was expert in manufacturing such a large size of Aluminum casting, however
KTDMC thereafter went for open tendering after raising of audit observation by
Commercial Audit but again M/s Qadri Foundry came the lowest. DAC directed
the management to give revised reply to Audit for verification. However, no
progress was reported till finalization of this report.
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 Audit recommends that implementation of DAC directives.

9.4.4.3 Irregular payment of Performance Award/Bonus - Rs.1.805 million

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

544 dated Nov 30, 2001, applicable to all autonomous bodies/public sector
enterprises, the payment of bonus to the employees is subject to concurrence of
Finance Division. Further, the bonus should be paid to the employees on the basis
of operational profit of the organization.

During audit of Karachi Tools, Dies and Mould Centre (KTDMC) for the
year 2015-16 it was observed that the management paid an amount of Rs.1.805
million as performance award equal to one month’s basic salary to
officers/officials during the year 2015-16 on the basis of achievement of
budgeted profit instead of operational profit of the KTDMC only excluding
income from other sources. Further, the concurrence of Finance Division was
also not obtained.

Audit is of the view that payment of performance award/bonus could not

be justified because of being the violation of rules.

The matter was reported to the management in November, 2016 and

November, 2018. DAC meeting was held on January 07 & 08 2019. Management
informed the DAC that the said bonus was paid from the operational income of
the KTDMC which can be verified from the annual audited accounts. DAC
settled the para subject to verification to find that whether the company was in
operational profit or not during that period. However, no progress was reported
till finalization of this report.

Audit recommends that implementation of DAC directives.

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9.4.4.4 Irregular hiring of security services without tendering - Rs.1.505 million

According to Rule 12 of PPRA Rules, 2004 regarding procurement over

one hundred thousand rupees and up to the limit of two million rupees shall be
advertised on the Authority’s website in the manner and format specified by
regulation by the Authority from time to time. These procurement opportunities
may also be advertised in print media, if deemed necessary by the procuring
agency.

During audit of Karachi Tools Dies &Mould Center, (KTDMC) Karachi

for the year 2014-15, it was observed that the management awarded contract of
hiring for 4 security guards from M/s. Executive Security (Pvt.) Ltd in 2013
without floating tender in violation of above rule. Further on Supervisor was
hired even without agreement.

Audit was of view that undue favour was extended due to negligence by
depriving right of deserving and suitable candidates, which reflected weak
internal controls.

The matter was reported to the management in December, 2015 and

November, 2018. DAC meeting was held on January 07 & 08 2019.
Management informed the DAC that security services were hired in emergency.
DAC directed the management to give revised reply stating facts of emergency to
be verified by Audit. However, no progress was reported till finalization of this
report.

Audit recommends that implementation of DAC directives.

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9.5 National Industrial Parks Development and Management
Company
9.5.1 Introduction

The National Industrial Parks Development and Management Company

(NIPD&MC) was incorporated as a public company with a share capital limited
by guarantee on March 07, 2005 under Section-42 of the Companies Ordinance,
1984. Government of Pakistan (GoP) holds 58.31% shares and Pakistan
Industrial Development Corporation (Private) Limited (PIDC) holds 41.69 %
shares in the Company. The principal activity of the Company is establishing,
developing and managing industrial estates of parks and upgrading existing
estates and undertaking related activities.

The Company has entered into Agreements with PIDC for establishment
of Korangi Creek Industrial Park (KCIP) and Pakistan Steel Mills (PSM) in
respect of Bin Qasim Industrial Park (BQIP) Project as a consequence of which
the Company incurs expenditure on development of industrial parks on land
owned by PIDC and PSM respectively.

9.5.2 Comments on Audited Accounts

9.5.2.1 The working results of the Company for the year 2016-17 as compared
with those of the previous years are given below:
(Rs. in million)
% Inc / % Inc /
2016-17 (Dec) 2015-16 (Dec) 2014-15
Revenue 682.47 10163% 6.65 (98.09) 348.98
Development Cost (522.27) - - - (290.64)
Gross Profit 160.20 2309% 6.65 (88.60) 58.34
Administrative (108.67) 19% (91.05) (9.79) (100.93)
Expenses
Operating loss for the 51.53 - (84.4) 98.22 (42.58)
year
Other Income 77.79 109% 37.21 (54.21) 81.26
Financial Charges (0.0407) 52% (0.0267) - -

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Profit/Loss before 129.28 171% 47.63 25.67 37.9
taxation
Taxation - - (0.44) (93.17) (6.44)
Profit/(Loss) after 129.28 - (47.63) (251.40) 31.46
taxation
(Source: Annual audited accounts)

The Revenue generation shows a massive increase of 10,163% from previous

year, total revenue earned during 2016-17is Rs.682.47 million as compared to
Rs.6.65 million in 2015-16, but external auditors of the company has raised
objections on the revenue recognition policy of the company and pointed out that
revenue on the sale portion of Rs.470.70 million measuring 18.375 acres pertains
to previous year.

9.5.2.2 Administrative Expenses and Other Income has increased by 19% and
109% respectively.

9.5.2.3 The external auditors has raised objections on revenue recognition

policies, lack of independent confirmation on major receivables, capitalization of
development costs and dealing with PSM as briefly explained in note I-V of
Auditor’s Report to the members.

9.5.3 Compliance of PAC Directives

Total No. Breakup of
Audit Compliance Compliance %age of
of compliance
Year reported awaited compliance
Directives awaited
2013-14 9 3 6 8.4.4, 8.4.3, 33
8.4.2.4,
8.4.2.1,
8.4.2.2,
8.4.4.1,
Total 9 3 6 - 33%

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9.5.4 Audit Paras
9.5.4.1 Embezzlement in plot allotment - Rs.10.30 million
Condition No. (1) of the provisional allotment letter dated December
06,2016 states that the payment of remaining balance amount of Rs.19,700,000”
within 90 days of receipt of this letter by Pay Order / Demand Draft in the name
of National Industrial Parks Development and Management Company. Any
collection charges charged by bank and exchange gain / loss, in case of foreign
exchange payments, will be borne by the Allottee.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management on 06-12-2016
allotted single plot of 5 acre for Rs.50 million to Chaudhry Muhammad Aslam,
which was situated at Rachna Industrial Park (RIP) Lahore. Out of total Rs.50
million, he deposited Rs.20 million and the remaining balance of Rs.30 million
was required to be deposited but the management on 27-09-2018 said for
payment of remaining balance of Rs.19.7 million instead of 30 million.

Audit is of the view that the management incurred a loss to government

by embezzlement in plot allotment revenue collection of Rs.10.3 million.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to get the
record verified from audit within three weeks. However, no progress was
reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.2 Irregular allotment of 36 acres land and issuing 37 licenses to allottees -

Rs. 965.281 million

As per para (1) of External Auditor’s annual report for the year 2016-17,
Memorandum of Understanding MoU expired in March 2014 and terms of MOU
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have not yet been extended. Therefore, MoU is not legally enforceable and
revenue should not be recognized by the Company until the execution of revised
MoU.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that management executed 37 license
agreements relating to plots measuring 36 acres with an aggregate sale price
amounting to Rs.956.281 million. The basis of management fee and price of land
to be paid on sub-lease of industrial plots at KCIP are not specified and agreed in
the Memorandum of Understanding (MOU) signed between the Company, PIDC,
Government of Sindh and The President of Pakistan through Ministry of
Industries and Production dated March 19, 2009. Moreover, MOU expired in
March 2014 and terms of MOU have not yet been extended. Therefore, MOU is
not legally enforceable and revenue should not be recognized by the Company
until the execution of revised MOU.

Audit is of the view that the management sold 36 acres land and issued 37
licenses without execution of MOU and without approval of President of
Pakistan.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
correspondence with Government of Sindh and extension of MOU to audit for
verification. However, no progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.3 Non-recovery of revenue - Rs.296.53 million

As per Note (3.1) of External Auditor’s annual report for the year
2016-17, According to revenue recognition policy of the Company, revenue shall
be recognized using the percentage-of-completion method as development

366
progresses for each developed plot of land after execution of license agreement/
sub-lease of the industrial land / plots.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that NIP management issued 37 license
agreements pertaining to KCIP, entitling allotte33333es access to the premises
for commencement of construction work, had been executed measuring 36 acres
with an aggregate sale price amounting to Rs.956.281 million out of which 17
license agreements admeasuring 18.375 acres with an aggregate sale price
amounting to Rs.470.7 million pertains to prior year. The NIP shall transfer the
amount received from the allottees / Sub-lease holders to PIDC upon issuance of
Sub-lease Deed by PIDC to the allottees but the Sub-lease Deed has not be
executed by PIDC to the allottees. Accordingly, payable to PIDC in respect of the
value of land has not been recognized in theses financial statements.

Amount
Description
(Rs. in million)
Revenue recognized during the year 2016-17 539.747
management fees received during the year 2016-17 120
Total Revenue recognized during the year 2016-17 659.747
Total revenue to be recognized for sale price of 37 license of 36
956.281
acres land
Non-recovery of revenue during the year 2016-17 (296.53)

The above position clearly transpires that huge recovery of Rs.296.53

million is lying un-recovered till close of audit. The accumulation of huge
outstanding amount indicates that no proper system existed in the Corporation
with regard to timely recovery of un-recovered amount. With the passage of time
the chances of such recoveries become remote and they are likely to be converted
into irrecoverable/loss.

Audit is of the view that recovery of outstanding amount could not be

realized due to slackness and poor pursuance of the management, who could not
devise and launch any effective mechanism for timely recovery.

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 The matter was reported to the management in November, 2018. DAC
meeting was held on January 15, 2019. DAC directed the management to provide
relevant record to audit for verification. However, no progress was reported till
finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.4 Non-recovery of tax refunds - Rs.76.996 million

Rule 20 of G.F.R states that it is the duty of the department Controlling

Officer to see that all sums due to Government are regularly and properly,
realized and duly credit to Government Account.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that tax refund during the year was
Rs.76.996 million.

Audit is of the view that recovery of outstanding amount could not be

realized due to slackness and poor pursuance of the management.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. The management informed that
cumulative amount of tax refund is Rs.76.996 million instead of Rs.148.718
million and Rs.5.00 million has been refunded by the tax authority. DAC directed
the management to get verified the refund amount and pursue for remaining
claim vigorously. However, no progress was reported till finalization of this
report.

Audit recommends that implementation of DAC directives.

9.5.4.5 Loss due to under determining of plot value - Rs.40.00 million

Condition No (3)(a) of the terms and conditions for land at Rachna

Industrial Park states that the allottee shall pay the prices as per area wise
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division for the industrial plot at Rachna Industrial Park i.e 08 Kanal total price
Rupees 12.00 million.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed from the file of plot allotment that in
terms and conditions (3)(a) plot of 8 Kanal/01 Acre was worth Rs.12 million per
acre and 20 acres land was worth Rs.240 million but the management of NIP on
22-12-2016 allotted plot of 20 acre for Rs.200 million at 10 million per acre to
M/s Akzo Nobel Pakistan Limited, which was situated at Rachna Industrial Park
(RIP) Lahore. Hence the management incurred a loss of Rs.40 million by under
determining of plot value in violation of terms and conditions.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
relevant record to audit for verification. However, no progress was reported till
finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.6 Loss due to non-receiving of plot allotment revenue - Rs.30.00 million

Condition No. (1) of the provisional allotment letter dated December

06,2016states that the payment of remaining balance amount of Rs.19,700,000”
within 90 days of receipt of this letter by Pay Order / Demand Draft in the name
of National Industrial Parks Development and Management Company. Any
collection charges charged by bank and exchange gain / loss, in case of foreign
exchange payments, will be borne by the Allottee.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management on 06-12-2016
allotted single plot of 5 acre for Rs.50 million to Chaudhry Muhammad Aslam,
which was situated at Rachna Industrial Park (RIP) Lahore. Out of total Rs.50
million, he deposited Rs.20 million and the remaining balance of Rs.30 million
369
was required to be deposited which was not received by management and no
receivable was mentioned in accounts for the year 2016-17 & 2017-18

Audit is of the view that the management incurred a loss to government

by not receiving 30 million revenue and non-disclosing of 30 million in accounts
against Chaudhry Muhammad Aslam.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to conduct
a fact finding inquiry in detail and fix responsibility on the concerned. Also probe
the matter why the remaining amount was not shown as receivable in the balance
Sheet of the Company. However, no progress was reported till finalization of this
report.

Audit recommends that implementation of DAC directives.

9.5.4.7 Non-recovery from Khairpur project - Rs.14.079 million

Rule 20 of G.F.R states that it is the duty of the department Controlling

Officer to see that all sums due to Government are regularly and properly,
realized and duly credit to Government Account.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that receivables against Khairpur
Project Rs.14.079 million during 2017 increased from Rs.9.751 million to
Rs.14.079 million as on June 30, 2017.

Audit is of the view that recovery of outstanding amount could not be

realized due to slackness and poor pursuance of the management.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
detail of outstanding dues along with reconciled amount and get the recovered

370
amount verified from audit. However, no progress was reported till finalization of
this report.

Audit recommends that implementation of DAC directives.

9.5.4.8 Excess transfer of funds for purchase of 80 acres land - Rs.13.20

million

As per supporting email dated July 01, 2016 for fund transfer from Faysal
Bank Limited to HBL Tariq Road branch, Rs.100 million was required for the
purpose of procurement of land of Naushero Feroze Industrial Park.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that management by email dated
01-07-2016, transferred funds of Rs.100 million from Faysal Bank Limited to
NIP account maintained in Habib Bank Limited for the purpose of Procurement
of land of Naushero Feroz Industrial Park. But the land was purchased for
Rs.86.8 million, hence the management transferred excess Rs.13.2 than the
required value of land i.e. (100 million – 86.8 million = 13.2 million).

Further, it was observed that the management did not write letter to Faysal
Bank for transfer of 100 million funds directly to Habib Bank account but the
management deposited 100 million by depositing cheque no.0081588799 into
Habib Bank which was irregular way to use company funds in its own way.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
all record regarding site office plan and expenditure incurred so far including
bank statements of the amount for verification. However, no progress was
reported till finalization of this report.

Audit recommends that implementation of DAC directives.

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9.5.4.9 Non-recovery from others - Rs.9.399 million

As per Note (15.2) of External Auditors Report of NIP for the year
2016-17, this represents receivable against management consulting services
provided by the Company in respect of infrastructure development of the project.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that receivables against others stood at
Rs.9.399 million as on June 30, 2017, showing increased from Rs.5.88 million
from previous year. This indicates 62.57% increases during the 2017.

Audit is of the view that recovery of outstanding amount could not be

realized due to slackness and poor pursuance of the management, who could not
devise and launch any effective mechanism against timely recovery.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to recover
outstanding dues within 30 days under intimation to audit. However, no progress
was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.10 Loss due to non receipt of plot allotment revenue - Rs.9.00 million

Condition No. (1) of the provisional allotment letter dated September 27,
2018 states that the payment of remaining balance amount of Rs.9,000,000”
within 90 days of receipt of this letter by Pay Order / Demand Draft in the name
of National Industrial Parks Development and Management Company. Any
collection charges charged by bank and exchange gain / loss, in case of foreign
exchange payments, will be borne by the Allottee.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management on 28-11-2016
allotted plot of 1.5 acres for Rs.15 million to Mahmood Shafi Batla, which was
372
situated at Rachna Industrial Park (RIP) Lahore. Out of total Rs.15 million, he
deposited Rs.6,000,000 as a first installment and the remaining balance of
Rs.9,000,000 was required to be deposited within 90 days of receipt of NIP letter
dated:16-02-2017 but the same was not deposited within due time period in
violation of provisional allotment letter terms and conditions and this amount of
Rs.9.0 was never received by NIP management from him during the period
2016-17 and 2017-18.

Furthermore, the management provided accounts for the year 2016-17 and
2017-18 but there was no amount of receivable shown against the said customer
i.e. Mahmood Shafi Batla.

Audit is of the view that the management incurred a loss to government

by non receiving sales revenue in due time of 90 days in violation of provisional
allotment letter terms/conditions and amount of Rs.9.0 million was never
received by NIP during period 2016-17 and 2017-18, further it no receivables
were disclosed in accounts during the year 2016-17 & 2017-18.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to conduct
a fact finding inquiry in detail and fix responsibility on the concerned. Also probe
the matter why the remaining amount was not shown as receivable in the balance
Sheet of the Company. However, no progress was reported till finalization of this
report.

Audit recommends that implementation of DAC directives.

9.5.4.11 Non-approval of PC-I from planning commission of Pakistan -

Rs.434.00 million

Section 6.1 of Planning Commission provides that the projects are

identified by line Ministry/Autonomous Bodies/Attached departments, Provincial

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and district governments. After appraisal and selection Projects are sent for
approval.

During audit of Sargodha Industrial Park (SIP)) for the year 2011-12 and
2012-13, it was observed that a PC-I for SIP was prepared by the Development
Working Party (DWP) of PIDC. The same was approved by the BoD of PIDC
and Ministry of Industries on December 20, 2011. However, the same was not
sent to the Planning Commission of Pakistan for its approval as per rule
mentioned above.

The matter was reported to the management in May, 2014 and November,
2018. DAC meeting was not convened despite requests by audit.

Audit recommends responsibility should be fixed on the person(s) at fault.

9.5.4.12 Chartered Accountant annual report showing contradictory amounts

for same transaction leaving difference - Rs.87.339 million

As per chartered accountant annual accounts report of NIP for the year
2016-17 para (1) states:” As detailed in note 1.3 to the financial statements, the
Company has recognized revenue and management fee amounting to Rs. 539.747
million and Rs.120.092 million”.

As per chartered accountant annual accounts report of NIP for the year
2016-17 note (3.1) states:”The Company has recognized revenue and
management fee amounting to Rs.452.408 million and Rs.120.092 million during
the current year”

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-18, it was observed that Chartered accountant BDO disclosed
figures of revenue recognized in para (1) for Rs.539.747 and shows different
figure of same transaction in note (3.1) for Rs.452.408 million. Details of which

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are as below:

Description Rupees in million

Figures of revenue recognized during 2016-17 as per chartered
539.747
accountant report para (1)
Figures of revenue recognized during 2016-17 as per chartered
452.408
accountant report note no (3.1)
difference of figures for same transaction 87.339

Audit is of the view that in accounts of NIP Chartered accountant made

difference of 87.339 million in accounts for same transaction in two statements.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
detail record to audit for verification. However, no progress was reported till
finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.13 Irregular payment for purchase of Naushahro Feroze land - Rs.86.80

million

As per PIDC letter dated28-03-2016 for Sale Agreement of Land states

that this is with reference to your SMS of 26th March, 2016 authorizing PIDC to
conclude the subject agreement with the buyers. Furthermore, the Board of
Directors of PIDC in its 110th meeting held on 12th February, 2016 resolved that,
Mr. Deedar Ali Kalhoro, DGM (E&I), PIDC was nominated to sign the title
documents subject to fulfillment of all legal & codal formalities by NIP.
Accordingly Mr. Deedar Ali Kalhoro, DGM (E&I), PIDC concluded / executed
the “Sale Agreement of Land” duly signed by both the parties, i.e., Mr. Bisharat
Ali Memon Son of Dhani Bux (Attorney of Seller) and Mr. Deedar Ali Kalhoro,
DGM (E&I), PIDC as Purchaser on behalf of Pakistan Industrial Development
Corporation (PIDC) as approved by both the Boards, i.e., PIDC & NIP.

375
 During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that PIDC purchased land of 80 acres
at total cost Rs.86.8 million for Naushahro Feroze Industrial Project and payment
was to be made by PIDC on equal share basis to 03 land owners Sons of Dhani
Bux i.e (1) Abdul Sattar (2) Abdul Jabbar and (3) Bisharat Ali. Management of
PIDC hired M/s Lawyers & Lawyers legal consultant for transfer/mutation of
land in the name of PIDC. It was noticed that irregular payment of Rs. 86.8
million was made by NIP instead of the land was purchased by PIDC. Audit
further observed following major violations in purchase of 80 acre land:

i. That the management of PIDC made the sale agreement of land on SMS
dated:26-03-2016, without approval by Board and official correspondence.
ii. That the M/s Lawyers & Lawyers legal consultant intimated through letter
dated:12-07-2016 to the PIDC management for payment/ pay order will be
made to 03 owners of land on equal basis for which no evidence found that
the payment made by PIDC on equal basis.
iii. PIDC payment was irregularly paid by NIP management of Rs.86.8 million
by mentioning cheque No.5629650 dated:12-7-2016 no copy of cheque was
found in record.
iv. No tender document was found for purchase of 80 acre land.
v. Payment of Rs.86.8 million was paid by NIP by simply attaching printed
computer paper sale deed of immoveable property and without signing of
PIDC, 03 owners of land and witnesses.
vi. No evidence was found that the land of 80 acres was transferred in the name
of PIDC or NIP.

In the light of above mentioned facts audit of the view that the irregular
payment of Rs.86.8 million for 80 acres land was made by NIP instead of
payment to be made by PIDC and huge payment was made on blank and
unsigned sale deed on SMS basis.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide

376
detail original record of such huge purchase to audit for verification. However, no
progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.14 Irregular payment of penalty and markup - Rs.69.00 million

As per chartered accountant annual accounts report of NIP for the year
2016-17 note (20) (20.1) states that this represents Sukuk Certificates under
Musharaka arrangement with Al Baraka Bank Pakistan Limited as the Trustee
amounting to Rs.500 million. These were secured by way of mortgage of
immovable properties of the Company and ranking hypothecation charge over the
assets. The tenor of financing is 7 years maturing on September 04, 2021. First
Installment of principal was due on March 04, 2017. Profit on Sukuk Certificates
issued by the Company to Sukuk holders was payable on semi-annual basis at an
average rate of 6 months KIBOR plus 1.10% per annum. During the year these
Sukuk certificates have been repaid earlier before the due date of installment by
the Company”.

As per BoD meeting No.4/2014, dated:14-11-2014 (Penalty levied by Al

Baraka Bank Pakistan Ltd). The matter was brought to the notice of the Board
and Mr. Asad Chandna explained that initially the Bank had in total levied
approx Rs.37 million as penalty on various delayed payments over the seven
years period on Bi-annual installments payable by Ministry of Finance as per the
terms of the 2 billion Sukuk loan.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management borrowed loan of
2 billion from Al Baraka formerly known as Emirates Islamic Bank borrowed
taken in 2007 for 7 years and paid in 2014 but its final and full payment of
Rs.500 million was paid in 2017, due to delay in paying loan penalty of Rs.37
million was imposed by Al Baraka Bank in 2014 and management paid further

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markup payment of Rs.31.984 million in 2017 total Rs.68.984 million was paid
by management due to delay in payment of period of 3 year.

Further, the Chartered Accountant M/s BDO misstated this full and final
payment of loan of Rs.500 million as Sukuk Certificates under Musharaka
arrangement with Al Baraka Bank Pakistan Limited as the Trustee amounting to
Rs.500 million and mentioned tenor of financing is 7 years maturing on
September 04, 2021.

Audit is of the view that payment of Rs.500 million loan was full and
final payment of 2 billion loan borrowed by NIP in 2007 for 7 years and paid up
to 2014 but the Chartered Accountant BDO change this as Sukuk Certificates
under Musharaka arrangement with Al Baraka Bank, which are two different
statements not matching with ledger payment of Rs.500 loan and Chartered
Accountant statements.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to fix
responsibility on the person(s) who were responsible for the delay. However, no
progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.15 Non-recovery from PIDC - Rs.63.789 million

As per chartered accountant annual accounts report of NIP for the year
2016-17 note (15.1) states that this represents amounts receivable from PIDC, an
associated company on account of Cantonment Board charges pertaining to 250
acres of KCIP land amounting to Rs.60.984 million and legal charges amounting
to Rs.2.805 million (2016: Rs.2.085 million) and Rs.0.639 million on account of
development expenditure relating to Sarghoda Industrial Parks paid by the
Company on behalf of PIDC.

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 During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that from annual accounts of NIP for
the year 2016-17 it was revealed that an amount of Rs.63.789 million was lying
un-recovered against PIDC.

The above position clearly transpires that huge outstanding amount of

Rs.63.789 million is lying un-recovered as on June 30, 2017. The accumulation
of huge outstanding amount indicates that no proper system existed in the
Corporation with regards to the timely recovery of un-recovered amount. With
the passage of time the chances of such recoveries become remote and they are
likely to be converted into increase in outstanding balances.

Audit is of the view that recovery of outstanding amount could not be

realized due to slackness and poor pursuance of the management.

The matter was reported to the management in November, 2018. The

management informed that transfer fee paid to CBKC on behalf of PIDC, which
will be adjusted from the payment of undeveloped land at the time of sub-lease of
plots in KICIP. DAC directed that contention of the management be verified from
Audit. However, no progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.16 Loss due to non receipt of plot allotment revenues - Rs. 20.50 million

Condition No. (1) of the provisional allotment letter dated February 02,
2017states that the payment of remaining balance amount of Rs.20,500,000
within 90 days of receipt of this letter by Pay Order / Demand Draft in the name
of National Industrial Parks Development and Management Company. Any
collection charges charged by bank and exchange gain / loss, in case of foreign
exchange payments, will be borne by the Allottee.

379
 During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management of NIP on
28-11-2016 allotted plot of 3.5 acres for Rs.35 million to Sheikh Tahir Ahmed
Munir, which was situated at Rachna Industrial Park (RIP) Lahore. Out of total
Rs.35 million, Mr Sheikh Tahir Ahmed Munir deposited Rs.14,000,000 as a first
installment and the remaining balance of Rs.20,500,000 was required to be
deposited within 90 days of receipt of NIP letter dated:16-02-2017 but the same
was not deposited within due time period in violation of provisional allotment
letter terms and conditions and this amount of Rs.20.5 was never received by NIP
management from him during the period 2016-17 and 2017-18.

Furthermore, the management provided accounts for the year 2016-17 and
2017-18 but there was no amount of receivable was shown against the said
customer i.e Sheikh Tahir Ahmed Munir in these accounts.

Audit is of the view that the NIP management incurred a loss to

government by non receiving sales revenue in due time of 90 days in violation of
provisional allotment letter terms/conditions and amount of Rs.20.5 million was
never received by NIP during period 2016-17 and 2017-18, further it no
receivables were disclosed in accounts during the year 2016-17 & 2017-18.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to conduct
a fact finding inquiry in detail and fix responsibility on the concerned. Also probe
the matter why the remaining amount was not shown as receivable in the balance
Sheet of the Company. However, no progress was reported till finalization of this
report.

Audit recommends that implementation of DAC directives.

380
9.5.4.17 Irregular purchase of vehicles - Rs.12.397 million

Rule 12 of PPRA-2004 states that all procurement opportunities over two

million rupees should be advertised on the Authority’s website as well as in other
print media or newspapers having wide circulation. The advertisement in the
newspapers shall principally appear in at least two national dailies, one in English
and the other in Urdu

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management purchased
vehicles during the year 2016 for Rs.3.568 million and during the year 2017 of
Rs.8.829 million without tendering process in violation of PPRA Rules, 2004.
Details of additions are as below:

Vehicles additions during the year 2016 3,567,720

Vehicles additions during the year 2017 8,829,280
Value of total Vehicles additions during 2016-17
12,397,000
(Rs.)

Audit is of the view that management purchased vehicles of Rs.12.397

million by violated the PPRA rules as the procurement opportunity was not
advertised due to which NIP deprived from the benefit of competitive rate.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
documents regarding purchase of vehicles through local assembled manufacturers
at the fix price of the authorized company. However, no progress was reported till
finalization of this report.

Audit recommends that implementation of DAC directives.

381
9.5.4.18 Irregular payment of bonus - Rs.9.151 million

According to the Finance Division O.M. No. F.3 (5) R.12/80(R.14)

Vol-II/2001-544 dated November 30, 2001, the payment of bonus to the
employees is subject to concurrence of Finance Division and that should be paid
to the employees on the basis of operational profit of the organization and further
as per Finance Division (Regulation Wing), O.M.No.F.3 (5) R.12/80(R-14) 2002-
154 dated March 18, 2002 Managing Directors and Members of the Board of
Directors of autonomous/ semi-autonomous bodies/public Corporation/
organizations are not entitled to receive bonuses.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management incurred a loss
after taxation of Rs.47.632 million during the year 2016, despite of the fact the
management guaranteed bonuses amounting to Rs.9.151 million to its officers
and officials for the year 2016. Further, bonus paid without obtaining the
concurrence of Finance Division as required under the rule.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management that
ex-post facto approval from Finance Division may be obtain to regularize the
expenditure on account of bonus despite operating loss. Responsibility may be
fixed on the person(s) at fault. However, no progress was reported till finalization
of this report.

Audit recommends that implementation of DAC directives.

9.5.4.19 Loss due to irregular sale and purchase of vehicles - Rs.7.942 million

Rule 20 of G.F.R states that it is the duty of the department Controlling

Officer to see that all sum due to Government are regularly and properly, realized
and duly credit to Government Account.

382
 During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that the management sold vehicles for
Rs.4.455 million during the 2016-2017 and purchased new vehicles of Rs.12.397
million during the 2016-2017 and incurred a loss of Rs.7.942 million during the
2016-2017. Details of sale and purchase of vehicles are as below:

Amount
Description
(Rs.)
Vehicles sold during 2017 4,411,941
Vehicles sold during 2016 43,251
Total Vehicles sales during 2016-2017 4,455,192
Vehicles additions during the year 2016 3,567,720
Vehicles additions during the year 2017 8,829,280
Total Vehicles additions during the year 2016-17 12,397,000
Total loss due to sale and purchase of vehicles during 2016-2017 (7,941,808)

Audit observed following irregularities in sale and purchase of vehicles.

That the management did not include all other costs in during sale value of
vehicles and other information which is required as under:

i.Cost of repair and maintenance

ii.Cost of lubricants
iii. Cost of POL
iv. Cost diesel
v. Cost of spare parts changed
vi. Cost of spare parts purchased
vii. Cost of insurance expenses
viii. Driver salary expenses
ix. Admin expenses
x. Transfer letter of company registered numbers allotted to buyers.
xi. Evidence for vehicle transferred to buyers name and new number allotted to
them.
xii. Evidence for intimation sent to Insurance companies, Government Excise
department and ministry for selling vehicles and transferring vehicles to
buyer’s name.
xiii. Tender documents of sale of vehicles.

383
 Audit is of the view that management involved in irregular activity of sale
and purchase of vehicles and utilized Government funds carelessly causing loss
of Rs.7.942 million.

The matter was reported to the management in November 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to submit
revised reply to audit with justification that the salvage value was properly
assessed and capitalized or not and whether Condemnation Committee/Board
approval had been obtained or not. However, no progress was reported till
finalization of this report.

Audit recommends that implementation of DAC directives.

9.5.4.20 Irregular payment of annual office rent - Rs.7.780 million

According to Rule 12 of Public Procurement Rules, 2004 Procurements

over one hundred thousand rupees and up to the limit of two million rupees shall
be advertised on the Authority’s website in the manner and format specified by
regulation by the Authority from time to time. These procurement opportunities
may also be advertised in print media, if deemed necessary by the procuring
agency:

During audit of NIPD&MC (HO), Karachi for the year 2015-16, it was
observed that in June 2009 management hired an office located at 2ndfloor FTC
building measuring 6112 sq.ft. @ of Rs.332,798 per month and paid a sum of
Rs.7.780 million during 2 years . The hiring of office was made without fulfilling
codal formalities like the assessment report of covered area concurrence of
Ministry of Housing works/PPRA Rules, 2004 or advertisement.

Audit is of the view that undue favour was extended to the landlord and
office hired without approval of Ministry of Housing and works.

384
 The matter was reported to the management in November, 2016 and
November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends responsibility should be fixed on the person(s) at fault.

9.5.4.21 Irregular payment of stamp duty and other taxes - Rs.5.208 million

As per Legal Consultants letter dated04-07-2016 for Duties & Taxes of

Sale Deed in respect of property of PIDC at District Naushahro Feroze, 2.40%
Stamp Duty of Rs.2,083,200 + (2) 1.20% Registration Fee Rs.1,041,600 + (3)
1.20% Town Tax (TMO) Rs.1,041,600 + (4) 1.20% Withholding Tax
Rs.1,041,600= Total Rs.5,208,000 will be in Cash at Naushahro Feroze.

During audit of National Industrial Parks (NIP HO) Karachi for the year
2016-2017 & 2017-2018, it was observed that PIDC hired M/s Lawyers &
Lawyers legal consultant for transfer/mutation of land in the name of PIDC.
M/s Lawyers & Lawyers legal consultant written letter dated 04-07-2016 to PIDC
for duties & taxes of sale deed in respect of property of PIDC at District
Naushahro Feroze and mentioned total value of Sale Deed Rs.5.208 million to be
paid in cash at Naushahro Feroze. Audit observed following further irregularities
in payment of duties and taxes:

i. That the payment of Rs.5.208 was made by NIP instead of payment

to be paid by PIDC.
ii. The payment of Rs.5.208 was paid to M/s Lawyers & Lawyers legal
consultant in cash instead of transferring or paying into Mukhtiarkar
and Sindh revenue department account.
iii. Payment was made on simple letter basis without provided stamp
duties and tax receipts.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to get

385
verified the whole sale deed from Audit including handling of cash transaction.
However, no progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

386
9.6 Pakistan Chemical & Energy Sector Skill Development
Company
9.6.1 Introduction

Pakistan Chemical and Energy Sector Skills Development Company

(PC&ESSDC) was incorporated as a non-profit public-private partnership on
January 9, 2009. Its mandate is to promote, facilitate and provide education and
training to a young and growing rural population in various disciplines of the
chemical and energy sector in Pakistan. Its aim is to provide employment and
invest in the productivity of locals for industrial development by establishing
Vocational Education and Training Centers (VETCs), Technical Training Centers
(TTCs) and management schools. PCESSDC’s partners include Pakistan
Industrial Development Corporation (PIDC), Engro Corporation, Mari Gas
Corporation Limited, Descon Engineering and Saipem of Italy.

Objectives of the project:

The program aims to provide quality technical education offering three

year diploma in the fields of Chemical and Mechanical Technology through
establishment of a recognized standard Technical Training Centre (TTC)
supervised by Chemical and Energy Sector Skill Development Company
(CESSDC). It also aims to fill the gaps essential for imparting such education by
providing complete practical training facilities along with suitable faculty.
9.6.2 Comments on Audited Accounts

9.6.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

387
9.6.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance compliance
awaited
2013-14 5 5 8.3.1, 8.3.2.1, -
8.3.2.2, 8.3.2.3,
8.3.3
Total 5 - 5 - Nil

The overall compliance of PAC directives needs improvement.

9.6.4 Audit Paras

9.6.4.1 Irregular enhancement of pay of the CEO - Rs.8.450 million

As per Section-199 of the Companies Ordinance, 1984 the appointment of

subsequent chief executive (1) Within fourteen days from the date of election of
directors under section 178 or the office of the chief executive falling vacant, as
the case may be, the directors of a company shall appoint any Companies
Ordinance, 1984 person, including an elected director, to be the chief executive,
but such appointment shall not be for a period exceeding three years from the
date of appointment.

During audit of Pakistan Chemical & Energy Sector Skill Development

Company (PCESSDC), Daharki for the years 2016-17 & 2017-18, it was
observed that in June 2011, the management appointed a Chief Executive Officer
(CEO) at fixed salary of Rs.309,460 per month for a period of three (03) years.
However, the management not only extended the period of service but also
merged performance pay with fixed pay on the each renewal period of CEO in
violation of above rule and against the BoD approval. Moreover,
record/information was called for from the management on September 18, 2018
but the same was not provided to audit. Thus the payment of performance pay of

388
 Rs.8.450 million to CEO is irregular. The detail is as under:
(Amount in Rupees)
Initial Period Performance
Pay fixed Pay Performance % of Difference
Sr. & Extended pays
by BoD revised pays allowed Performance of Pay
No. period of increased by
initial in Per month by BoD pay payment
contract CEO
F=
A B C D E (C-D×12)
months)
1. 2009-11 309,460 309,460 - -
2. 2011-12 309,460 309,460 46,419 46,419 15% -
3. 2012-13 309,460 355,879 46,419 53,381 15% 83,544
4. 2013-14 309,460 409,261 46,419 61,389 15% 179,640
5. 2014-15 309,460 470,650 - 161,190 - 1,934,280
6. 2015-16 309,460 470,650 46,419 94,130 20% 572,532
7. 2016-17 309,460 544,624 - 235,164 - 2,821,968
8. 2017-18 309,460 547,624 - 238,164 - 2,857,968
Total pay enhanced 8,449,932

Audit is of the view that performance pay is not the part of pay therefore,
enhancement of pay is held irregular payment allowed to CEO.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed DAC
that PIDC had paid an amount of Rs. 100 million from 2008 to 2011 to
PCESSDC which is 26% of total share and remaining 74% is from the private
sector who seen the company. Further no grant has been paid by the PIDC.
Donors have conducted company Audit regularly from their Chartered
Accountant Firm. Therefore the Government Audit should not applied on the
accounts of PCESSDC. DAC advised the CEO to submit a comprehensive brief
to the Secretary, MOI&P for taking up the case with the Auditor General of
Pakistan in this regard. However, no progress was reported till finalization of this
report.

Audit recommends implementations of DAC directives.

389
9.6.4.2 Irregular pay of Shift allowance/Evening Allowance to the
Non - Teaching Staff - Rs.6.562 million

As per Rule 4 of Public Sector Companies (Corporate Governance) Rules,

2013 the chief executive is responsible for the management of the Public Sector
Company and for its procedures in financial and other matters, subject to the
oversight and directions of the Board, in accordance with the Ordinance. His
responsibilities include implementation of strategies and policies approved by the
Board, making appropriate arrangements to ensure that funds and resources are
properly safeguarded and are used economically, efficiently and effectively and
in accordance with all statutory obligations.

During audit of Pakistan Chemical & Energy Sector Skill Development

Company (PCESSDC), Daharki for the years 2016-17 & 2017-18,it was
observed that management paid extra time allowance/Evening shift allowance to
the non-teaching staff & Admin staff of Rs.6.562 million (4,835,401 + 1,726,615)
during 2016-17 & 2017-18 respectively without providing a proof/justification of
extra time services rendered by the administrative employees. Thus, the payment
of extra allowance is irregular as the company sustained operating loss of
Rs.31.78 million.

Audit is of the view, that undue favour was extended to the employees
due to payment extra allowance which was not admissible.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed DAC
that the Government Audit should not applied on the accounts of PCESSDC.
DAC advised the CEO to submit a comprehensive brief to the Secretary, MOI&P
for taking up the case with the Auditor General of Pakistan in this regard.
However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

390
 9.6.4.3 Irregular use of Cash for procurement of goods & Services - Rs.4.563
million

As per Rule 42 of the PPRA Rules-2004 procuring agency may utilize the
following alternative methods of procurement of goods, services and works,
namely(b) request for quotations.-A procuring agency shall engage in this method
of procurement only if the following conditions exist, namely(i) the cost of object
of procurement is below the prescribed limit of one hundred thousand rupees.
Rule - 9 states that a procuring agency shall announce in an appropriate manner
all proposed procurements for each financial year and shall proceed accordingly
without any splitting or regrouping of the procurements so planned. The annual
requirements thus determined would be advertised in advance on the Authority’s
website as well as on the website of the procuring agency in case the procuring
agency has its own website.

During audit of Pakistan Chemical & Energy Sector Skill Development

Company (PCESSDC), Daharki for the years 2016-17 & 2017-18, it was
observed that management procured goods and services either directly from the
suppliers or through the quotations in violation of above rules. Furthermore, it is
also worth to mention here that the period limit of petty cash was also not fixed
by the management and though frequent usage of petty cash was observed during
the periods. The details of petty cash amount utilized during the periods of
2016-17 & 2017-18 are tabulated below:

Sr. Period of used Amount of

Purposes of cash payment
No. petty cash petty cash (Rs.)
1. 2017-18 Advances for petty procurement and 1,962,227
procurement of electrical, mechanical,
chemical and general stores items
2. 2016-17 Advances for petty purchase and procurement 2,601,743
of electrical, mechanical, general store items
Total 4,563,970

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 Audit is of the view that due to non-planning and preparation of
procurement policy majority of the procurement was made through petty cash
purchases which were against the PPRA Rules-2004.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed DAC
that the Government Audit should not applied on the accounts of PCESSDC.
DAC advised the CEO to submit a comprehensive brief to the Secretary, MOI&P
for taking up the case with the Auditor General of Pakistan in this regard.
However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.6.4.4 Irregular Purchases of Vehicle without approval from the BoD -

Rs.3.530 million

According Rule-4 of the Corporate Governance Rules (Public Sector

Companies) Rules, 2013 the chief executive is responsible for the management of
the Public Sector Company and for its procedures in financial and other matters,
subject to the oversight and directions of the Board, in accordance with the
Ordinance. His responsibilities include implementation of strategies and policies
approved by the Board, making appropriate arrangements to ensure that funds
and resources are properly safeguarded and are used economically, efficiently
and effectively and in accordance with all statutory obligations.

During audit of Pakistan Chemical & Energy Sector Skill Development

Company (PCESSDC), Daharki for the years 2016-17 & 2017-18,it was observed
that management purchased a Toyota Hiace 2013 amounting to Rs.3.530 million
directly by getting quotation and without prior approval of the Board of Directors
of the company. Thus, the payment of Rs.3.530 million was irregular.

392
 Audit is of the view that undue favour was extended to the contractor and
the company deprived from the benefits of competitive rates. The procurement
without the approval of the BoD indicates poor financial controls.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed DAC
that the Government Audit should not applied on the accounts of PCESSDC.
DAC advised the CEO to submit a comprehensive brief to the Secretary, MOI&P
for taking up the case with the Auditor General of Pakistan in this regard.
However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.6.4.5 Irregular award of security contract -Rs.2.228 million

According to Rule 12 of PPRA Rules-2004 Procurement over one
hundred thousand rupees and up to the limit of two million rupees shall be
advertised on the authority website in the manner and format as specified by the
Authority from time to time.

During audit of Pakistan Chemical & Energy Sector Skill Development

Company (PCESSDC) Daharki for the years 2016-17 & 2017-18, it was observed
that the in August 2015 management hired Security Services Company for a
period of one year directly without floating the tender in violation of PPRA
Rules-2004. Further, the same was extended for a further period of two years.
This resulting in payment of Rs.2.228 million was held irregular. The detail is as
under:

S. Per Month Amount

Description Period
No per Guard Paid (Rs.)
1. Three Guards 18,700 August,2015 to August,2016 673,200
2. Three Guards 20,570 August,2016 to August,2017 740,520
3. Three Guards 22,627 August,20117 to August,2018 814,572
Total 2,228,292

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 Audit is of the view that undue favour was extended to the contractor and
the company deprived from the benefits of competitive bidding.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed DAC
that the Government Audit should not applied on the accounts of PCESSDC.
DAC advised the CEO to submit a comprehensive brief to the Secretary, MOI&P
for taking up the case with the Auditor General of Pakistan in this regard.
However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.6.4.6 Illegal auction of vehicle - Rs.1.051 million

According to Corporate Governance Rules (Public Sector Companies)

2013, Section (7) the Board shall also formulate significant policies of the Public
Sector Company, which may include the following, namely(a) the formal
approval and adoption of the annual report of the Public Sector Company,
including the financial statements (b) the implementation of an effective
communication policy with all the stakeholders of the Public Sector Company;
(h)acquisition or disposal of fixed assets and investments. Further, according to
Memorandum & Articles of Associations of PCESSDC - BoD Clause-29 the
business of the company shall be managed by BoD which shall determine
direction and scope of activities thereof in accordance (vi) to incur capital
expenditure or dispose of fixed assets. Furthermore, as per PPRA Rule-2004
Section-13 Response time sub-Section (1) however, under no circumstances the
response time shall be less than fifteen days for national competitive bidding and
thirty days for international competitive bidding from the date of publication of
advertisement or notice.

During audit of Pakistan Chemical & Energy Sector Skill Development

Company (PCESSDC), Daharki for the years 2016-17 & 2017-18, it was
observed that management sold a Hino bus model-2001donated by Mari

394
Petroleum Company (MPC) valuing Rs.1.051 million without prior approval of
the BoD. Furthermore, MPC handed over bus along with Rs.1.00 million for
repair & maintenance cost. However, after renovation of bus, the management
floated advertisement on April 13, 2018 for auction of the same. The last date for
submission the bids was fixed on April 17, 2018 (05 days period) which was also
in violation of the PPRA rules-2004.

Audit is of the view that the management failed to safeguard the interest
of company which indicates weak internal controls.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed DAC
that the Government Audit should not applied on the accounts of PCESSDC.
DAC advised the CEO to submit a comprehensive brief to the Secretary, MOI&P
for taking up the case with the Auditor General of Pakistan in this regard.
However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

395
9.7 Pakistan Gems and Jewellery Development Company
9.7.1 Introduction

Pakistan Gems & Jewellery Development Company (PG&JDC) was

incorporated in 2006 as a company limited by guarantee having share capital
under section 42 of the Companies Ordinance, 1984 (now Company’s Act 2017).
The registered office of the company is situated at suit No. 115-118, first floor,
Progressive Plaza, Beaumont Road, PIDC House, Karachi. PG&JDC became
operational in April 2007. The primary objective of the company is to promote
and develop value added gems and jewellery products.

9.7.2 Comments on Audited Accounts

9.7.2.1 The working results of company for the year ended Dec 31, 2018 as
compared to previous years are given below:
(Rs. In million)
% %
2017-18 Inc/ 2016-17 Inc/ 2015-16
(Dec) (Dec)
Income
Training Fees 8.50 (0.47) 8.54 51.42 5.64
Income from Exhibitions 0.00 (100.00) 8.31 635.40 1.13
Grant related to Investment 50.00 25.01 39.996 - -
Other Income 2.01 41.55 1.42 (67.27) 4.34
Expenditure
Direct Costs (122.37) (21.43) (155.75) 32.53 (117.52)
Administrative Expenses (43.63) (4.82) (45.84) 10.67 (41.42)
Other expense (2.46) 169.18 (0.92) 435.09 (0.17)
Excess of expenditure over (105.11) (26.40) (142.82) (1.18) (144.53)
income
(Source: Annual Audited Accounts)

The above working results of the company clearly depict that revenue/income of
the company are unable to meet its expenditure. Negative equity is accumulating
every year.

396
9.7.2.2 Excess of expenditure over income is Rs.105.11 million in 2018 as
compared to last year of Rs.142.82 million. Company is losing its balance sheet
value due to non generation of required revenues to meet its expenditures.

9.7.2.3 The statutory auditor M/s Baker Tilly Mehmood Idrees Qamar Chartered
Accountants have qualified the audit report of Pakistan Gems and Jewellery
Development Company and raised some serious qualifications; they qualified
their opinion on unfunded gratuity scheme which has been accounted for in
deferred liability for Rs.15.196 million as mentioned in note No.3.6 and qualified
their opinion on deposit of Rs.37.522 million into government treasury as
mentioned in note No.1.4 to the financial statements.

9.7.2.4 The chartered accountants has also pointed out material uncertainty of the
company’s ability to continue as going concern due to accumulated deficit of
Rs.1,536.44 million up to 2018.

9.7.3 Compliance of PAC Directives

Breakup of
Audit Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
2013-14 3 1 2 8.5.2.1& 33
8.5.3
Total 3 1 2 - 33%

The overall compliance of PAC directives needs improvement.

9.7.4 Audit Paras

9.7.4.1 Double payment of salaries to officers / staff for seven months -
Rs.14.500 million

Rule 10 (i) and (iv) of General Financial Rules (GFR) states 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

397
respect of expenditure of his own money. Public moneys should not be utilized
for the benefit of a particular person or section of the community.

During the audit on the accounts of Pakistan Gems & Jewellery

Development Company (PG&JDC) for the year 2016-17 & 2017-18, it was
observed from the payment voucher of the month of February, 2018 that, an
amount of Rs.14.500 million was paid by the management on account of salary.
This payment was made from the “Assignment Account” which was actually
meant for development expenditure. However, the monthly salaries of Head
Office staff for the months of July, 2017 to January, 2018 were already paid
every month to such employees which was evident from bank payment vouchers
and bank reconciliation statements of employees 19 in number who received
double salary for seven months. That is double payment of salaries to the staff of
Head Office, for seven months indeed from July, 2017 to Jan, 2018 which
requires recovery.

Audit is of the view that not only the management made payment of
salaries from the Assignment Account but also paid double salaries for the same
period i.e. from July 2017 to January, 2018. This issue tantamount to
embezzlement / misuse of public funds and the expenditure amounting to
Rs.14.500 million needs to be justified.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 07 & 08 2019. DAC directed the management to
conduct an inquiry to probe veracity of double payment of salary and look in to
irregular withdrawal of funds from the assignment accounts and report to Audit
within a month. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

398
9.7.4.2 Loss due to shortages of store items - Rs.1.840 million

Rule 151 of General Financial Rules (GFR) states that the head of an
office or any other officer entrusted with stores of any kind should take special
care for arranging for their safe custody, for keeping them in good and efficient
condition and for protecting them from damage or deterioration. Suitable
accommodation should be provided more particularly for valuable and
combustible stores. He 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.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the years 2016-17 & 2017-18, it was observed that in various
projects of PGJDC, materials valuing Rs.1.84 million were reported short/stolen
(Annex-36). This clearly depicts that the management was unable to protect /
safeguard the assets resulting in to loss to the company.

Audit is of the view that the management was unable to exercise due care
in protecting its available assets which resulted in a loss amounting to Rs.1.840
million.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 07 & 08, 2019. DAC directed the management to
conduct an internal inquiry at ministry level and fix responsibility on persons at
fault against missing items within a month. However, no progress was reported
till finalization of this report.

Audit recommends implementations of DAC directives.

399
9.7.4.3 Irregular appointment and extension of contract of CEO - Rs.16.316
million

As per PC-I of the Company, the salary is required to be increased to the

extent of 10% annually. Further, rule 5(2) of the Public Sector Companies Rules,
2013 states that the Board shall evaluate the candidates based on the fit and
proper criteria and the guidelines specified by the Commission for appointment to
the position of the chief executive and recommend at least three candidates to the
Government for its concurrence for appointment of one of them as chief
executive of the Public Sector Company, except where the chief executive is
nominated by the Government. On receiving concurrence or nomination of the
Government, as the case may be, the Board shall appoint the chief executive in
accordance with the provisions of the Ordinance. The Board shall also be
responsible for development and succession planning of the chief executive.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the years 2016-17 & 2017-18, it was observed that in November
2011, management appointed Mr. Bakhtiar Khan as Chief Executive
Officer(CEO) at fixed salary of Rs.300, 000 per month on contract for a period of
two (02) years. After 2 months his salary was enhanced from Rs.300, 000 to
Rs.400, 000 per month. Later on, in November 2013 his contract was further
extended for a period of two (02) years along with an increment of Rs.40,000 per
month w.e.f. July 01, 2013 with arrears of Rs.200,000. Furthermore, in December
2015 he was re-appointed as CEO for a further period of two (02) years. This
re-appointment / extension was made in violation of rule 5(2) of the Public Sector
Companies Rules, 2013 because the BoD sent only his recommendation against
the recommendation of at least three (03) candidates to the Government for its
concurrence. Thus, the payment of Rs.16.316 million on account of pay and
allowances was held irregular (Annex-37).

Audit is of the view that undue favour was extended to the CEO at
company cost which indicates poor financial management.

400
 The matter was reported to the management in November, 2018. DAC
meeting was held on January 07 & 08, 2019. DAC directed the management that
the case of CEO irregular appointment, extension and enhancement of pay within
three months of appointment be referred to MOI&P for review and necessary
action. However, no progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.7.4.4 Mis-procurement in awarding contract - Rs.3.487 million

Rule 22(2) of PPRs.-2004 states that a procuring agency shall specify the
manner and method of submission and receipt of bids in an unambiguous and
clear manner in the bidding documents. Rule 23(1) procuring agencies shall
formulate precise and unambiguous bidding documents that shall be made
available to the bidders immediately after the publication of the invitation to bid.
According to the Rule 23(2) whether open or limited, the bidding documents
shall include “form of bid”.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the years 2016-17 & 2017-18, it was observed that in April 2016
an advertisement was floated by the management for the procurement of
machinery, accessories and consumables item for Gems and Jewellery Training
and Processing Center (GJTPC) Muzaffarabad, AJK. In response, three bidders
submitted their bids. The contract was awarded to M/s Javed Sheikh Trading Co
in June 2016 amounting to Rs.3.487 million being the lowest bidder. It is worth
mentioning that no technical evaluation was made during the award of the subject
procurement. Only comparative statement of the amount quoted by the bidders
was made. The technical aspect of the items quoted was totally ignored by the
management.

Audit is of the view that undue favor was extended to the bidder as the
contract was awarded without technical evaluation.

401
 The matter was reported to the management in November, 2018. DAC
meeting was held on January 07 & 08, 2019. DAC directed the management to
inquire the matter on mis-procurement and further directed the CEO, PIDC to
arrange training classes for senior management from PPRA. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.7.4.5 Irregular direct procurement from German supplier - Rs.2.485 million

Rule 20 of the Public Procurements Rules, 2004 states that procuring

agency shall use open competitive bidding as the principle method for the
procurement of goods, services and works. As per the Rule12 all the procurement
opportunities over two-million rupees should be advertised on the Authority’s
website as well as other print media or newspapers having vide circulation.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the year 2012-13, it was observed that management awarded a
contract to German based supplier M/s. Kruess Optronic for procurement of
equipment and tools for its laboratory at Muzaffarabad, AJK GMBH valuing of
Euro 17,441 (equivalent to Rs.2.259 million) without advertising the procurement
opportunity as laid down under rule quoted above.

Audit is of the view that undue favour was extended to the supplier and
the company deprive from the benefit of competitive bidding.

The matter was reported to the management in February 2015 and

November, 2018. DAC meeting was held on January 07 & 08, 2019. DAC
directed the management to give revised reply under PPRA Rule, conduct an
internal inquiry, and arrange training classes of senior management from PPRA
under intimation to Audit. However, no progress was reported till finalization of
this report.

402
 Audit recommends implementations of DAC directives.

9.7.4.6 Loss on disposal of various items - Rs. 2.461 million

Rule 5 of Public Sector companies (Corporate Governance) Rules, 2013

states that board shall exercise its power and carry out fiduciary duties with a
sense of objective judgment and independence in the best interest of the
company.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the years 2016-17 & 2017-18, it was observed that the
management decided to vacate the rented building and machinery / equipment
and removable furniture / fixture due to closure of GJTMC, Quetta. A committee
was constituted for the purpose. In September 20, 2017 the committee obtained
rates of renovation / civil work items which are removable from the local salvage
dealers to ascertain its value as detailed below:
Sr. No. Name of Salvage Dealer Offer Price (Rs.)
1. Annar Gul 110,000 Including Removal and Transportation
2. Ahmed Shah / Abdul Manan 160,000 Including Removal and Transportation

Later on, the Committee also offered the above mentioned items to the
landlady which was accepted by her valuing Rs.200, 000. The Committee
recommended accepting the offer of the landlady being the highest without
auction / advertisement. It was worth mentioning here that the management
highlighted the subject disposal of assets by means of tender (Note no: 4.2 of
Annual Accounts for the year ended on June 30, 2018). However, subject
disposal of assets was made on quotations and offer basis to the landlady. No
reserve prices were being fixed by the management for the items. There seems to
be an undue favor extended to the landlady. Resultantly, management sustained a
loss of Rs.2.461 million.

Audit is of the view that undue favour was extended to the contractor and
valuable items were disposed off by the management on just quotation and offer
basis.
403
 The matter was reported to the management in November 2018. DAC
meeting was held on January 07 & 08, 2019. Management informed the DAC
that civil works items like electric, plumbing items could not be removed from
the project site. DAC directed the management to provide detail of all items sold,
to prove their point including auction process adopted by them. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

9.7.4.7 Non-posting of officers on key positions lying vacant since long

Rule 5 of Public Sector companies (Corporate Governance) Rules 2013

states that board shall exercise its power and carry out fiduciary duties with a
sense of objective judgment and independence in the best interest of the
company.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the year 2016-17 & 2017-18, it was observed that various key
posts were lying vacant in the company. It is a matter of utmost concern that the
key positions of the company are lying vacant from a considerable period and
there are no concrete efforts being taken by the management to fill these
positions. The detail is as under:

Sr. Number Date Since the

Name of Post
No. of Posts Post Vacant
1. Chief Executive Officer 01 17-11-2017
2. General Manager (Marketing & Quality Assurance) 01 07-04-2011
3. General Manager, Training & Development 01 26-02-2018
4. Chief Financial Officer & Company Secretary 01 20-11-2017
5. Manager Projects 01 01-05-2012
6. Manager Accounts 01 29-09-2016
7. Manager (Admin & HR) 01 02-07-2014
8. Manager (Internal Audit) 01 02-10-2013
9. Manager (Coordination) 01
10. Assistant Manager (Quality Assurance) 01 29-09-2016
11. Assistant Manager (Projects) 01 29-09-2016
404
 Audit is of the view that in absence of the key posts, functioning of the
company had been affecting badly. This shows sleekness of the management.

The matter was reported to the management in November 2018. DAC

meeting was held on January 07 & 08, 2019. DAC directed the management to
refer the case to MOI&P after getting approval from the BOD regarding
appointment against vacant post. However, no progress was reported till
finalization of this report.

Audit recommends implementations of DAC directives.

9.7.4.8 Irregular hiring of advertising agency

Rule 12 of PPRA-2004 states that all procurement opportunities over two

million rupees should be advertised on the Authority’s website as well as in other
print media or newspapers having wide circulation. The advertisement in the
newspapers shall principally appear in at least two national dailies, one in English
and the other in Urdu. Further, rule 36 (a) of PPRs.-2004 states that in Single
stage-one envelope procedure, Each bid shall comprise one single envelope
containing, separately, financial proposal and technical proposal (if any). All bids
received shall be opened and evaluated in the manner prescribed in the bidding
document.

During audit of Pakistan Gems & Jewellery Development Company

(PG&JDC) for the years 2016-17 & 2017-18, it was observed that in January
2018 an advertisement was uploaded by the management on Public Procurement
Regulatory Authority (PPRA) website for hiring the services of advertising
agency. In response, two firms i.e. M/s TNI Communications and M/s M
Communications (Pvt) Ltd submitted their proposals. On February 19, 2018
M/s M Communication was being technically qualified and hired for releases of
all advertisements of the company and its projects in print media. The firm was
hired on only technical evaluation basis by Single Stage-one envelope procedure.
However, Single stage-one envelope procedure clearly states that each bid shall

405
comprise one single envelope containing, separately, financial proposal and
technical proposal. The financial aspect of the tender was totally ignored as only
technical bids were called for by the management from the bidders. Furthermore,
the advertisement was also not floated on print media or newspapers having wide
circulation which deprived the management of getting competitive rates.

Audit is of the view that undue favor was extended to the bidder as
neither the advertisement was floated in the print media nor financial proposals
were obtained from the bidders.

The matter was reported to the management in November 2018. DAC

meeting was held on January 07 & 08, 2019. DAC directed the management to
inquire the matter on Mis-procurement and further directed the CEO, PIDC to
arrange training classes for senior management from PPRA. However, no
progress was reported till finalization of this report.

Audit recommends implementations of DAC directives.

406
9.8 Pakistan Institute of Management
9.8.1 Introduction

Pakistan Institute of the Management (PIM) was established in 1954 by

Pakistan Industrial Development Corporation (PIDC) under the Ministry of
Industries, Government of Pakistan. In December 1975, it was transferred to the
Ministry of Industries and Production, Government of Pakistan and subsequently
through SRO dated November 15th, 1976 an autonomous Board of Governors
was constituted to promote management development in the country. Its primary
mission is to serve the growing and complex need of organizational managers to
achieve managerial excellence. Toward this end, PIM seeks to contribute to the
enhancement of the managerial skills through training consultancy and research.

9.8.2 Comments on Audited Accounts

9.8.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

9.8.3 Compliance of PAC Directives

Audit Total No.
Compliance Compliance %age of
Report of Breakup of compliance awaited
reported awaited compliance
Year Directives
1998-99 5 5 6(xxv),126,127,128,129 -
Annex-I Item-
2009-10 8 - 8 09,94,94.1,94.2,94.3,94.4,95,96 -
2013-14 7 4 3 8.6.2.1, 8.6.3, 8.6.4.1 57
Total 20 4 16 20%

The overall compliance of PAC directives was 20% which need to be

improved.

407
9.8.4 Audit Paras
9.8.4.1 Irregular payment of Pay & Allowances due to non-verification of
Degrees – Rs.46.430 million

Cabinet Secretariat (Establishment Division) vide D.O. No. 6(28)

2011-DG-II dated Mar 08, 2011 circulated the directives of the Prime Minister,
according to which “ all the Autonomous bodies / Companies, Corporations were
required to take the measures to authenticate degrees/ certificates of all the
employees of their organization. It would be of concerned Head of Organization
to have the degrees/certificates verified”.

During audit of Pakistan Institute of Management for the years 2016-17

& 2017-18, it was observed that the degrees/certificates of 18 employees were
not verified during either probation period or until October, 2018 as required
under the Establishments Division instruction referred above (Annex-38). Thus,
the payment of pay & allowances amounting to Rs.46.430 million held irregular.

Audit is of the view that in the undue favour was extended to the
employees by non-verified of degrees of the employees.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that so
far degrees of 14 officers were verified. DAC directed the management to get
verified the remaining degrees of employees within one month under intimation
to Audit. However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.8.4.2 Irregular expenditure on advertisement - Rs.10.731 million

According to PID vide letter No. 18(47)/2014-Advt dated October 13,

2014 that some Ministries/ Divisions / Department/Corporations/ Autonomous
and Semi-Autonomous bodies have been releasing their advertisement to
408
newspapers through advertising agencies, by passing Press Information
Department and the Competent Authority i.e. DG/PIO has taken serious notices
of such gross violation of GOP rules and deviation from the approved policy.

During audit of Pakistan Institute of Management (PIM) for the years

2016-17 & 2017-18, it was observed that management incurred an amount of
Rs.10.731 million on account of advertisement. These advertisements were made
through private advertising agencies M/s. Arugs Advertising Pvt. Ltd. in various
newspapers for different works without obtaining NOC from DG/PIO of Press
Information Department, Govt. of Pakistan which was the clear-cut violation of
the Policy. Thus, expenditure held irregular.

Audit is of the view that undue favour was extended to the advertising
agency and against the Govt. policy.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 07 & 08 2019. Management informed the DAC that
all the advertisements were published through PID. DAC directed the
management to verify the relevant documents pertaining to entire expenditure of
Rs. 10.731 million. However, no progress was reported till finalization of this
report.

Audit recommends implementation of DAC directives.

9.8.4.3 Irregular appointment of employees on contact basis - Rs.7.972 million

According to Cabinet Secretariat, Establishment Division OM No6/2-

2000/R.3 dated May 06,2000 vacancies to be filled through contract appointment
should be advertised in leading national / regional newspapers and selection
should be made through regularly constituted Selection Committee/ Boards.
Further, as per order of Supreme Court of Pakistan passed on Human Rights case
No 104 of 1992on Dec 26,1992 (circulated by the Cabinet Division), the Court
held initial appointments both ad hoc/regular without publicity and proper
409
advertisement as violation of Fundamental Rights (Article-18 of the constitution)
and ordered to discontinue this practice forthwith.

During audit of Pakistan Institute of Management for the years 2016-17

& 2017-18, it was observed that management appointed 10 employees on
contract basis during the years 2016 to 2018. After lapse of few months 03
employees were regularized and permanent. In the process of hiring management
did not observe the prescribed procedure issued by Cabinet Secretariat,
Establishment Division and appointed the contract employees without
advertisement in leading national / regional newspapers. Thus the payment of
Rs.7.972 million on account of pay and allowances was held irregular
(Annex-39).

Audit is of the view that undue favour was extended to the employees due
to appointment of without advertisement.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 07 & 08 2019. DAC directed for inquire in to the
matter at the level of Joint Secretary, MOI&P regarding irregular appointment
and regularization within one month and report also be shared with Audit.
However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.8.4.4 Irregular award of rental agreement with JS Bank - Rs.7.956 million

As per clause-20 of PPRA-2004 regarding principal method of

procurement i.e. the procuring agencies shall use open competitive bidding as the
principal method of procurement for the procurement of goods, services and
works. Further, the vacant space in the building located in commercial area
should be let out at highest possible rate obtained through press advertisement
and lease agreement should envisage normal increase as allowed by applicable
Rent Restriction Ordinance.

410
 During audit of Pakistan Institute of Management (PIM) for the years
2016-17 & 2017-18, it was observed that management entered into an agreement
with M/s. JS Bank Limited. As per agreement PIM rented out the space of
Premises having covered area of 6,760 Sq. ft. for the period of eleven months.
The monthly rental was agreed as Rs. 663,000 which is equivalent to Rs.98/- per
Sq. ft. This rental agreement with JS Bank Limited was made directly by the
management without undergoing the procedure for tendering as mentioned in
clasue-20 of PPRA-2004.

Audit is of the view that undue favour was extended to JS Bank and
rented out at cheaper rate and the institute was deprived from benefits of
competitive rates.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 07 & 08 2019. DAC directed the management to
conduct an inquiry at internal level and get the record verified to audit whether
BOD was competent to award this contract rent agreement without proper
advertisement. In future extension in rent agreement shall not be allowed. Rather
the matter must be advertised. However, no progress was reported till finalization
of this report.

Audit recommends implementation of DAC directives.

9.8.4.5 Irregular allotment of vehicles against entitlement to general managers

Rule-10 (i) of GFR provides that every Public Officer is expected to

exercise the same vigilance in respect of expenditure incurred from public
moneys as a person of ordinary prudence would exercise in respect of
expenditure of his own money.

During audit of Pakistan Institute of Management (PIM) for the year

2012-13 it was observed that the management allotted vehicles to General
Managers against their entitlement of transport policy. The details are as under:
411
 Allotted Vehicle,
Sr. Name of Entitlement as per PIM
Designation Registration No. &
No. Officers Transport facility
Horse power
1 Syed ul Haq General Manager Toyota Corolla GLI, 1000, CC without driver
ALU-490 &1296CC with 235liters of petrol
per month
2 Aslam Soni General Manager Toyota Corolla GLI,
ACZ-107& 1296CC 1000 CC without driver
with 235liters of petrol
per month

Audit is of the view that undue favour was extended to the officer at
public cost which indicate weak financial controls.

The matter was reported to the management in December, 2013 and

November, 2018. DAC meeting was convened despite requests by audit.

Audit recommends responsibility should be fixed on the person(s) at fault.

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9.9 Pakistan Steel Mills Corporation (Pvt.) Limited

9.9.1 Introduction

Pakistan Steel Mills Corporation (Private) Limited (PSM) was

incorporated on July 02, 1968 as a Private Limited Company and is wholly
owned by the Government of Pakistan. The Corporation is engaged in the
manufacturing and sale of iron and steel products. Pakistan Steel Mills is the
Country's largest Steel Industrial undertaking.

9.9.2 Comments on Audited Accounts

9.9.2.1 The working results of the Corporation for the year 2014-15 as compared
with those of the previous years are given below:
(Rs. in million)
% %
2014-15 2013-14 2012-13
Inc / Inc /
Dec Dec
Sales-Net 7,031.72 (8.37) 7,673.65 (24.70) 10,191.17
Cost of Sales (-24,020.78) (7.64) (26,007.84) (14.54) -30,434.40
Gross Profit/(Loss) (16,989.06) (7.34) (18,334.20) (9.43) (20,243.23)
Distribution costs (291) 1.82 (285) (10.98) (320.67)
Administration expenses (2,794.63) (10.64) (3,127.37) 5.69 (2,959.01)
Other Operating Expenses (815.75) 13.65 (718) 9.28 (656.77)
Finance Cost (6,091.89) (0.50) (6,122.40) 25.23 (4889.10)
Total expenses (9,992.93) (2.54) (10,252.96) 16.17 (8,825.54)
Operating profit / (loss) (26,981.99) (5.61) (28,587.16) (1.66) (29,068.78)
Other Income 3,934.61 110.65 1,867.88 168.25 696.31
Profit (loss) before Tax (23,045.37) (13.74) (26,715.75) (5.82) (28,366.79)
Taxation (39.72) - 661.71 - (30.79)
Net Profit/ (Loss) after
(23,085.08) (11.40) (26,054.04) (8.25) (28,397.58)
Tax
(Source: Annual Audited Accounts)

The Corporation has continued to make losses during the above mentioned three
year period. The net sales during the year 2014-15 were even below the cost of
sales. In this regard PSM’s procedure for planning, establishment of sales prices
and sales plan needs to be explained and rationalized.

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9.9.2.2 The above working shows that sales has declined by 8.37%, from
Rs.7,673.65 million in 2013-14 to Rs.7,031.72 million in 2014-15, whereas cost
of sales has remained at the same levels.

9.9.2.3 Loss for the year 2014-15 is Rs 23,085.08 million and accumulated losses
amounted has reached to Rs 141,830 million. Current liabilities exceed current
assets by Rs 123,404 million.

9.9.2.4 External Auditors raised five qualifications in their report for the year
2014-15, which are appended below:

a) Non-compliance of IAS-40 “Investment Property” that unallocated land

should be classified as Investment Property instead of an item of
Property, Plant and Equipment. The area of land should have been
classified, as investment property, but it was not identified so; therefore,
the impact of this non-compliance could not quantify.
b) No formal estimation of useful life of each part of plant was made
separately since inception and a single rate of 5% is charged to whole
plant for depreciation; while IAS-16 requires review of useful life of
each year for each part of Property, Plant and Equipment. No physical
verification of immoveable fixed assets including Plant and Machinery
was made since inception; therefore, impact of this matter on carrying
value of operating assets could not be determined.
c) An amount of Rs. 2,796 million was reflected as taxes refundable in the
Corporation’s balance sheet. No communication has been observed with
the tax authorities to indicate recovery of such funds.
d) There was no system of carrying physical count and valuing the scrap
material in the Corporation. As a result, such material was reflected in
the financial statements at zero value.
e) The Corporation is in dispute with SSGCL with regard to late payment
surcharge (LPS). The management believes the decision of ECC would
prevail to waive off the surcharge. The Corporation has filed a counter-
suit against SSGCL for claiming damages owing to discontinuance of
gas supply.

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9.9.2.1 The Organization is included in Annex-2: Non-submission of Audited
Accounts

9.9.3 Compliance of PAC Directives

Audit Total No. of Compliance Complianc Breakup of %age of

Year Directives reported e awaited compliance awaited complianc
e
1990-91 6 5 1 700 83
1992-93 25 19 6 136, 137, 138, 140, 76
143& 145
1994-95 12 9 3 118, 120& 126 75
1995-96 28 26 2 121& 122 93
1996-97 36 11 25 100, 101, 111, 112, 31
113,114,117,118,123,
1.1, 1.3, 1.5, 1.8, 1.9,
1.10, 2.2, 2.3, 2.7,
2.8, 2.9, 2.10, 2.11,
2.13, 2.15& 3.1
1997-98 10 7 3 209, 210& 215 70
1999-00 10 9 1 219 90
2000-01 10 6 4 216, 218, 220& 224 60
2003-04 12 9 3 92.5, 92.6& 92.7 75
2004-05 8 5 3 65, 66& 70 63
2005-06 28 24 4 117,118,122&124 86
2008-09 16 12 4 106,107,109&110 75
2009-10 19 11 8 98.1,99,100,104,105, 58
109,110&112
2010-11 10 9 1 11.3.4.6 90
2013-14 15 2 13 8.7.1, 8.7.2.1, 13
8.7.2.2, 8.7.2.3,
8.7.2.4, 8.7.2.5,
8.7.2.7, 8.7.3,
8.7.4.2, 8.7.4.3,
8.7.4.4, 8.7.4.5&
8.7.4.6
Total 245 164 81 - 67%

The overall compliance of PAC directives needs improvement.

415
9.9.4 Audit Paras

9.9.4.1 Loss due to embezzlement of Hafta Bazar income - Rs.6.112 million

According to Rule 23 of GFR every Govt. Officers should realize fully

and clearly that he will be held personally responsible for any loss sustained by
Govt. through fraud or negligence on his part and that he will also be held
responsible for any loss arising from fraud or negligence on the part of any other
Govt. Officer by his own action or negligence.

During audit of Pakistan Steel Mills (PSM) for the year 2017-18, it was
observed that Incharge of Township Hafta Bazar retained income of Hafta Bazar
for the period of July 2015 to January, 2016 and May 2016 to March, 2017
amounting to Rs.6.112 million with connivance of PSM employees instead of
depositing the same to PSM’s account. This resulted into embezzlement of
Rs.6.112 million. It was further observed that the relevant file/record was also
mis-placed.

Audit is of the view that retention of money by the Incharge was criminal
breach of trust and shows weak internal controls.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to conduct
fresh inquire within 02 months and fix responsibility on the person(s) at fault.
However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.2 Loss due to non-recovery of electricity bills - Rs.159.744 million

Rule 38 of G.F.R. provides that it is primary responsibility of the

departmental authorities to see that all revenues or other debts due to government,

416
which have to be brought to account are correctly and promptly assessed, realized
and credited to the public account.

During audit of Pakistan Steel Mills (PSM), for the Year 2017-18, it was
observed that management provides electricity through KESC to the consumers
and the same was required to be recovered from them. However, management
failed to recover outstanding due on account of electricity charges amounting to
Rs.159.747 million. The detail of amount is as on June 30, 2018 is as under:
No. of Amount
Sr. No. Billing Location
Consumers (Rs. in million)
1 Gulshan-e-Hadeed 775 21.196
2 Steel Town 877 74.848
3 Country Club 01 63.700
Total 1,653 159.744

Audit is of the view that the management could not pursue the recovery
effectively. This indicates weak internal controls of management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to recover
the remaining amount within 02 months and recovered amount be got verified
from Audit. However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.3 Loss due to non-utilization of vacant space at FTC building - Rs.33.014

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 in the public account.

During audit of Pakistan Steel Mills (PSM), for the year 2017-18, it was
observed that management abandoned / left vacant space of 10081 Sq. Feet at
2nd Floor FTC Building, Karachi since 2015 (actual month not verified). The last
417
rent charged from tenant by PSM was amounting to Rs.634,891 per month. Due
to non-renting the vacant space, PSM sustained loss of income from July, 2015 to
October, 2018 amounting to Rs.33.014 million. It is pertinent to mention here
that PSM is totally shutdown (i.e. zero production), salaries of employees and
fixed overhead of mills is being meet from bailout package from GoP to PSM.

Audit is of the view that this state of affairs shows poor financial
management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
the record to audit for verification. However, no progress was reported till
finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.4 Loss on account of non-recovery of dues from Country Club - Rs.20.00

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 in the public account.

During audit of Pakistan Steel Mills (PSM) for the year 2017-18, the
record pertaining to the Country Club were called for from the management vide
requisition No.19 on October 29, 2018. But the same were not provided to audit
on the plea that it was a private entity. If the estimated rent of Country Club is
calculated @ Rs.2.00 million per annum, revenue of ten years would be Rs.20.00
million. The same was not collected.

Audit is of the view that as the Country Club was a private entity
however, established on the land of PSM. Hence, the terms and conditions for

418
provision land and collection of rent was fall under the jurisdiction of audit.
There for non-provision of record shows concealment of fact from audit.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. The management informed that utility
dues were outstanding for Rs. 24.00 million. Their electivity was disconnected
but, later resorted on the condition of early deposit. DAC directed the
management to place a legal notice for revision of lease as it had expired in 2015
and recover utility charges within 02 months. However, no progress was reported
till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.5 Non-recovery from M/s Marigold Educational Society - Rs.9.893

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 in the public account.

During audit of Pakistan Steel Mills (PSM) for the year 2017-18, it was
observed that the management failed to recover an amount of Rs.9.893 million on
account of rent from M/s Marigold Educational Society. PSM filed the case in
court of law which was decreed in favor of the PSM. The Honorable court also
directed the PSM to arrange the fresh addresses of the Judgment Debtor for
issuance of notices for compliance of order.

But the management failed to do so. The detail is as under:

(Amount in Rs.)
Sr.
Premises / Land Party Name Rent Receivable
No.
1 Makhdoom Bilawal Sec. Marigold Educational 3,483,541
School GH Phase-I Society
2 Rana Liaquat Ali Khan Girls -do- 3,539,278
School GH Phase-I
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 3 Muhammad Bin Qasim, -do- 2,870,450
School GH Phase-I
Total 9,893,269

Audit is of the view that the management could not pursue the recovery
case effectively. This indicates weak internal controls of management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. The management informed that matter is
subjudice. DAC directed the management to pursue case vigorously.

Audit recommends implementation of DAC directives.

9.9.4.6 Non-recovery of outstanding dues from residents of township - Rs.4.820

million

According to Rule-10 (1) of GFR provides that every Public officer is

expected to exercise the same vigilance in respect of expenditure incurred from
the Public money as a person of Ordinary Prudence would exercise in respect of
expenditure of his own money.

During audit of Pakistan Steel Mills (PSM), for the year 2017-18, it was
observed that residential estate section of township department failed to pay their
dues amounting to Rs.0.762 million. Further, Internal Audit also reported that an
amount of Rs.4.057 million was outstanding against outside parties of residential
units. Thus, Rs.4.820 million was lying unrecovered. The detail is as under:

Sr. Outstanding
Description of Allottees
No. amount (Rs.)
1 Employees 763,527
2 Outsiders 4,057,400
Total 4,820,297

Audit is of the view that the management could not pursue the recovery
effectively. This indicates weak internal controls of management.

420
 The matter was reported to the management in October, 2018. DAC
meeting was held on January 15, 2019. Management informed the DAC that
non-recovery of outstanding amount against residential units of Township
allotted to employees / others have been searched out. Notices have also been
issued for the payment of outstanding amount. DAC directed the management to
submit a revised reply and recovered amount be got verified from Audit and
outstanding amount be recovered within 02 months. However, no progress was
reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.7 Loss due to encroachment of land

According to Chapter-V Rule-23 of GFR every Govt. Officers should

realize fully and clearly that he will be held personally responsible for any loss
sustained by Govt. through fraud or negligence on his part and that he will also
be held responsible for any loss arising from fraud or negligence on the part of
any other Govt. Officer by his own action or negligence.

During audit of Pakistan Steel Mills (PSM) for the year 2017-18, it was
observed that 344 acres PSM Township land was under encroachment. As per
valuation report of M/s Iqbal A. Najee appointed by Privatization Commission
the value of land under encroachment was Rs.3.44 billion (344 acres X 10
million = 3.44 billion). The detail of encroached land is as under:

Sr. Area
Description / Name
No. (Acres)
1 Abbasia Society 100
2 Mian Khan Goth 70
3 Photo Goth 134
4 Ali Akbar 15
5 Pir Sirhindi Goth 25
Total 344

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 Audit is of the view that since 2007 to 2018 more than 11 years have been
passed but PSM management has failed to remove the encroachment. This
indicates weak internal controls and poor management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. Management informed that an inquiry has
been conducted in this regard. DAC directed the management that
recommendations of the inquiry Committee as already issued be implemented
immediately under intimation to Audit. And take up the matter with the law
enforcing agencies for early vacation of encroachment. However, no progress
was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.8 Irregular payment of house rent allowance - Rs.21.380 million

According to Rule-10 (1) of GFR provides that every Public officer is

expected to exercise the same vigilance in respect of expenditure incurred from
the Public money as a person of Ordinary Prudence would exercise in respect of
expenditure of his own money.

During audit of Pakistan Steel Mills (PSM), for the year 2017-18, it was
observed that management has allotted residential accommodation in Steel Town
to the officers and Staff through Residential Estate Section of Township
Department. Besides residential facility the management is paying them House
Rent Allowance and deduction on account of the rent from residential
accommodation is made at very nominal rate (Example shown at Annex-40). The
actual HRA payment and deduction of the officer and staff for the month of June,
2018 is depicted below:
(Amount in Rupees)
Deducted Difference
Sr. No. Description Code Paid Amount
Amount
1 HRA to Officer 640 7,311,382 4,418,142 2,893,240
2 HRA to Staff 2330 22,850,988 4,364,429 18,486,559
Total 21,379,799

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 Audit is of the view that as per other Govt. owned organization /
Corporations where housing facility is provided to employees, HRA + 5% of pay
(maintenance charges) is deducted from salaries of employees.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to revise
the rate of House Rent and get it approved from Board within 02 months.
However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.9 Excess of officers beyond approved rationalized strength

As a general establishment rule available strength/holding should not

exceed the sanctioned strength/rationalization.

During audit of Pakistan Steel Mills (PSM), for the year 2017-18, it was
observed that officers in the cadre of XENs / DMs and AXENs / AMs were in
excess than the approved limit. Hence, the prior to promotions of the officers in
the next upper cadre/ grade, rationalized policies was not revised / revisited and
the same was also not approved from the Board of Directors. The detail is as
under:

Officer designation Rationalization 2004 Holding Difference

XENs/DMs 312 1638 1326
AXENs/AMs 794 1166 372

Audit is of the view that the working strength of officers is in excess than
the rationalized policy which shows weak internal controls and poor financial
management.

The matter was reported to the management in October 2018. DAC

meeting was held on January 15, 2019. Management informed the DAC that
appointments were made with the approval of BoD. DAC directed the

423
management to provide the BoD approval to audit for verification. However, no
progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.9.4.10 Unjustified expenditures on medical treatment - Rs.22.848 million

According to Rule-10 (1) of GFR - provides that every Public officer is

expected to exercise the same vigilance in respect of expenditure incurred from
the Public money as a person of Ordinary Prudence would exercise in respect of
expenditure of his own money.

During audit of Pakistan Steel Mills (PSM) for the year 2017-18, it was
observed that an amount of Rs.22.848 million was incurred on treatment of
employees from hospitals other than Pakistan Steel Hospital which is a full fledge
100 Beds Hospital having strength of 46 Medical Officers / Specialist and 273
well equipped Paramedical Staff. Thus the expenditure was held irregular.

Audit is of the view that in present severe financial crunch an amount of

Rs.22.848 million incurred on medical treatment outside of PSH is a huge
financial burden on the organization.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to reduce
outsource payment and curtail the expenses and also provide details of payment
made to each hospital.

Audit recommends implementation of DAC directives.

9.9.4.11 Allotment of vehicles to non-entitled persons resulting in un-justified

expenditure - Rs.4.902 million

According to Govt. of Pakistan Finance Division’s OM No. F.15 (13)

R-14/82 dated September 5,1982 the funds provided, acquired or generated by
424
 the autonomous/Semi-autonomous bodies and Corporation are public funds
which cannot be utilized at the sole discretion of the management. The funds
should be utilized with due care and caution strictly in accordance with
prescribed rules and specific orders of the Government.

During audit of Pakistan Steel Mills (PSM) for the year 2016-17, it was
observed that the management provided two vehicles to the Ministry of
Production since 2010-11 to 2016-17 and incurred expenditure of Rs.5.87
million. The detail is as under:

Fuel in
Total Rate Total Repair Pay of Total
Vehicle Qty
Fuel Rs. per Fuel cost & Maint Driver Expenditure
No. (ltr per
Ltrs Ltr Rs. Rs. Rs. Rs.
month)
GP-8989 223*84 18,732 72.22 1,352,825 170,000 800,000 2,322,825
PD-867 375*84 31,500 72.22 2,274,930 196,650 108,000 2,579,580
VIP Pool
MI&P
-- 50232 72.22 3,627,755 366,650 908,000 4,902,405

The Ministry was not entitled to use PSM’s vehicles in presence of its
own budget therefore, the allotment of vehicles by the management to the
Ministry was irregular and the expenditure incurred thereon amounting to
Rs.4.902 million was un-justified.

Audit is of the view that the management extended undue favour to the
Ministry.

The matter was reported to the management in October, 2017 and

November, 2018. DAC meeting was held on January 15, 2019. DAC directed the
management to submit revised reply to audit with justification of PSM decision
to allot vehicle for use by Minister of Industries and Production. However, no
progress was reported till finalization of this report.

Audit recommends responsibility should be fixed on the person(s) at fault.

425
9.9.4.12 Loss due to hiring of valuator for calculation of employees dues -
Rs.2.00 million

According to Rule-10 (1) of GFR - provides that every Public officer is

expected to exercise the same vigilance in respect of expenditure incurred from
the Public money as a person of ordinary prudence would exercise in respect of
expenditure of his own money.

During audit of Pakistan Steel Mills (PSM), for the year 2017-18, it was
observed that in January 2018, management appointed M/s Horwath Hussain
Chaudhry & Co. (Audit Firm) as valuator at the cost of Rs.2.00 million for
valuation of outstanding dues of PSM’s ex-employees. Despite having a
full-fledged Account Department and Internal Audit, the management failed to
assess the dues i.e. gratuity, pension etc. and outsourced the job which was quite
unnecessary and unjustified. Extra expenditure so incurred may be got
regularized and job description of Director Finance may also be produced to
Audit.

Audit is of the view that the appointment of evaluator was showed

inefficiency of the accounts department and poor financial management.

The matter was reported to the management in October, 2018. DAC

meeting was held on January 15, 2019. DAC directed the management to provide
record of Board approval and advertisement for verification to audit. However,
no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

426
9.10 Pakistan Steel Fabricating Company (Pvt.) Limited

9.10.1 Introduction

Pakistan Steel Fabricating Company (Pvt.) Limited (PSFCL), a wholly

owned subsidiary of the Pakistan Steel Mill Corporation (Pvt.) Limited, was
incorporated on Jun 28, 1975 under the Companies Act, 1913 (now the
Companies Ordinance, 1984). The principal activity of the Company is the
fabrication of steel structure, production of paints and other related activities.

9.10.2 Comments on Audited Accounts

9.10.2.1 The working results of the Company for the year 2015-16 as compared
to the previous years are as under:
(Rs. in million)
% %
2014-15 Inc / 2013-14 Inc / 2012-13
(Dec) (Dec)
Sales 119.274 21.641 98.054 (10.347) 109.370
Cost of Sales (122.160) (0.978) (123.366) 22.655 (100.580)
Gross Profit/(Loss) (2.885) 111.398 (25.312) - 8.790
Administrative and
23.508 (9.088) 25.858 (1.117) 26.150
general expenses

Financial charges 0.029 (9.088) 0.018 21.641 0.061

Other income 5.299 (46.803) 9.961 57.114 6.340

Profit loss before taxation (21.226) (48.618) (41.310) 269.830 (11.170)
Taxation 23.478 - (4.700) - 0.191
Net profit/(loss) after
2.251 - (46.020) 319.126 (10.980)
taxation
(Source: Annual Audited Accounts)

The above working results disclosed that the sales of the company increased from
Rs.98.05 million in 2014-15 to Rs.119.27 million in 2015 which was increased
by 21.64%. Further net loss after taxation was Rs.46.02 million as on June 30,
2014 as compared to Rs. 2.252 million during the current year.

427
9.10.2.2 The Company has steadily increased its sales over the years whereas the
cost of sales did not significantly increase. Administrative expenses decreased by
9.08% as compared to previous year. Company registered net profit after tax for
Rs.2.251 million in 2014-15 as compared to net loss for Rs.46.020 million in
2013-14.

9.10.3 Compliance of PAC Directives

Audit Total No. Compliance Complianc Breakup of %age of

Year of reported e awaited compliance compliance
Directives awaited
1990-91 8 7 1 708 88
1995-96 12 10 2 151, 146 83
1999-00 3 1 2 228,230 33
2003-04 6 5 1 96.4 83
2006-07 2 2 102.2, 102.3 -
2009-10 6 6 Annex-i Item -
10,113,113.1,11
3.2,113.3,113.4
2010-11 4 3 1 11.4.4.1 75
2013-14 5 2 3 8.8.2.1, 8.8.2.2, 40
8.8.3
Total 46 28 18 - 61%

The overall compliance of PAC directives needs improvement.

9.10.4 Audit Paras

9.10.4.1 Embezzlement of amount of advance against the work orders -
Rs.3.216 million

According to para-23 of GFR every Government officer should realize

fully and clearly that he will be held personally responsible for any loss sustained
by Govt. through fraud or negligence on his part.

During audit of Pakistan Steel Fabricating Company Ltd. (PSFCL) for the
years 2016-17 & 2017-18, it was observed that the management drawn advance
payments against various Purchase Orders (PO) amounting to Rs.3.216 million
428
issued by Pakistan Steel Mills during the years 2015 to 2016 for the supply of
material (paint / distemper). Detail is as under:

Scheduled Order Qty. Delivered Qty.

Sr.
P.O.No date of Paint Distemper Paint Distemper
No
delivery (Ltr) (K.G) (Ltr) (K.G.)
1 448 dt:09-01-2015 07-07-15 2,540 - 540 -
2 434 dt:05-01-2015 03-07-15 2,625 - 242 -
3 677 dt:19-03-2015 14-09-15 5,400 30,150 0 192
4 683 dt: 24-03-2015 19-09-15 40 - 0 -
5 793 dt: 16-04-2015 12-10-15 - 18,645 - 0
6 106 dt: 31-07-2015 27-01-16 1,170 - 0 -
7 085 dt: 30-07-2015 26-01-16 1,740 96 0 0
8 159 dt: 17-08-2015 13-01-16 1,560 - 0 -
9 107 dt: 31-07-2015 27-01-16 1,500 - 0 -
10 158 dt: 17-08-2015 13-01-16 780 - 0 -
11 445 dt:10-12-2015 06-06-16 500 - 0 -
12 473 dt: 30-12-2015 30-06-16 120 1878 0 0
13 575 dt:10-03-2016 09-03-16 400 - 0 -
14 549 dt: 29-04-2016 28-04-17 500 - 0 -
15 559 dt: 09-05-2016 08-05-17 53 - 0 -
Total 18,928 50,769 782 192

It is evident that during the period PSM issued 15 Purchase Orders for the
supply of 18,928 Ltr paint and 50,769 K.G.distemper. Against this, PSFCL
delivered 782 Ltr. paint and 192 K.g. distemper to PSM. This resulted in loss of
Rs.3.216 million.

Audit is of the view that management failed to safeguard the interest of

the company and undue favour was extended to the officials involved in
embezzlement. This indicates weak internal controls.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that the
advance received from PSM used for procurement of raw material which was
lying at stores and could not be processed due to financial constraints. The DAC

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directed the Acting CFO of PSM to enquire in to the matter and intimate the
factual position. However, no progress was reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.10.4.2 Non-recovery/non-adjustments of outstanding balances/advances -

Rs.149.349 million

As per Rule 4(3) of Public Sector Companies (Corporate Governance)

Rules, 2013 the Chief Executive is responsible for the management of a public
sector company and for its procedures in financial and other matters, subject to
the oversight and directions of the Board. Responsibilities of CEO include
implementation of strategies and policies approved by the Board, making
appropriate arrangements to ensure that funds and resources are properly
safeguarded and used economically, efficiently and effectively and in accordance
with all statutory obligations.

During audit of Pakistan Steel Fabricating Company Ltd. (PSFCL) for the
years 2016-17 & 2017-18, it was observed that the management failed to
recover from the debtors and adjust advances to suppliers amounting to
Rs.149.349 million. Detail is as under:

Sr. Amount (Rs.)

Particulars
No. as on 30-06-2016
Non-recovery from Debtors
1 Pak Steel Mills Corporation 53,803,054
2 Others 4,844,517
3 SSGC 1,339,410
4 PECO 1,952,476
5 CDGK 20,993,714
6 M/s. G.M. Engineering 1,200,000
Non-Recovery of Earnest Money
7 Utility Store Corporation 450,000
8 State Bank of Pakistan 843,694
9 Port Qasim Authority 6,108
10 Railcop Corporation 584,680
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 Non-adjustment of Advances
11 Advances to 61 parties 63,331,000
Total 149,348,653

Audit requested the management through a Requisition dated November

27, 2018 to provide ageing of the receivable amount but no reply was received
from the management till close of audit.

Audit is of the view that the management failed to recover/adjust

advances/receivables amounting to Rs.149.349 million due to its slackness.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that
efforts were being made to resolve disputed issue for adjustment / recoveries. The
DAC directed the management that the position of adjustment / recoveries may
got verified by audit. However, no progress was reported till finalization of this
report.

Audit recommends implementation of DAC directives.

9.10.4.3 Mis-appropriation of stock - Rs.92.533 million

According to Rule (5)(a)(i) of Public Sector Corporate Governance Rules

2013, the Board of Directors shall establish a system of sound internal control,
which shall be effectively implemented at all levels within the Public Sector
Company, to ensure compliance with the fundamental principles of probity and
propriety; objectivity, integrity and honesty and relationship with the
stakeholders.

During the audit of accounts of Pakistan Steel Fabricating Company Ltd.

for the years 2016-17 & 2017-18, it was observed that stock-in-trade valued at
Rs.92.533 million was retained at different shops/stores as shown in financial
statements as on June 30, 2015.

431
 Audit personally visited PSFCL’s shops and store to verify the existences
of stock. In this regard audit randomly checks some bin cards which were not
updated since 2014. It is also pointed out that audit requested to the management
to provide the relevant record for examination through Requisition No. 03 & 08
dated27-11-2018&dated 06-12-2018 but no record received till close of audit.

Audit is of the view that in absence of completion of transactions in the

bin cards/stock register etc. there are chances of mis-appropriation of the stocks
valuing Rs.92.533 million.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that it
was not mis-appropriation but due to the non-updating of the bin cards the
material could not be issued from stores. The DAC directed the management to
ensure that updating of bin cards would be completed within 30 days and get the
position verified. However, no progress was reported till finalization of this
report.

Audit recommends implementation of DAC directives.

9.10.4.4 Loss due to short recovery - Rs.14.187 million

According to para-23 chapter -2 of GFR every Government officer should

realize fully and clearly that he will be held personally responsible for any loss
sustained by Govt. through fraud or negligence on his part.

During audit of Pakistan Steel Fabricating Company Ltd. (PSFCL) for the
years 2016-17 & 2017-18, it was observed that a project for installation of metal
beam, guard rail of Motorway (M-2) was awarded to M/s. PSFCL in 1997-98.
Total cost of the project was Rs.166.192 million, out of which an amount of
Rs.127.581 million was received leaving a balance of Rs.38.612 million which
could not be recovered upto 2017.

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 In August 01, 2017 a meeting was held in the office of Member (Finance)
NHA to resolve the long outstanding issue and it was decided to pay Rs.26.698
million as final payment to M/s. PSFCL. However, management only received
Rs.24.425 million instead of Rs.26.698 million.

Audit is of the view that actual claim of M/s. PSCL was Rs.38.612
million that was reduced upto Rs.26.698 million. Resultantly, a loss of Rs.14.187
million was suffered by PSFCL which needs to be justified.

The matter was reported to the management in December, 2018. DAC

meeting was held on January 07 & 08 2019. The management informed that the
long outstanding issues were resolved by NHA and NHA & PSM agreed on
amount of Rs. 26.698 million. After deduction of taxes, an amount of Rs.22.80
million was received. The DAC directed that the actual terms & conditions of
contract be got verified by audit. However, no progress was reported till
finalization of this report.

Audit recommends implementation of DAC directives.

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9.11 Pakistan Machine Tool Factory (Pvt.) Limited

9.11.1 Introduction

Pakistan Machine Tool Factory (Pvt.) Limited (PMTF) was established

with technical collaboration of M/s. Oerlikon Buhrle of Switzerland. It was
incorporated on Jul 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 tools, 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.

9.11.2 Comments on Audited Accounts

9.11.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

9.11.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance compliance
awaited
2007-08 7 3 4 82.1, 82.2, 82.4& 43
82.7
2009-10 5 2 3 121.1, 121.3& 40
122
2013-14 9 5 4 8.20.3, 8.20.4.3, 56
8.20.4.4&
8.20.4.5
Total 21 10 11 - 48%

The overall compliance of PAC directives needs improvement.

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9.11.4 Audit Paras
9.11.4.1 Loss due to non-installation of Separate K-Electric meters - Rs.7.350
million

Clause-5 of Public Sector Companies (Corporate Governance) Rules,

2013 states that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company.

During audit of Pakistan Machine Tool Factory (PMTF), Karachi for the
year 2015-16 it was observed that the PMTF is maintaining the staff and officers
houses comprises of 178 Nos. and 14 Nos. respectively. He further informed that
due to continuous increase in electricity tariff and old age existing network the
monthly loss on average is Rs.6,12,500/-.

Reasons for losses:

1. Tariff charged by K-Electric is higher than that from residents.

2. Line losses.
3. Slowness of meters (about 60%)
4. Meter tempering at consumers ends.

Pay back period

1. Monthly Loss Rs.612,500/-

2. PMTF estimated investment for switchover present system (this
investment may vary actual cost will be determined after survey of
K-Electric’s. Rs.6 million.

MD suggested that existing network of PMTF residential colony may

hand over to K-Electric as a replacement of the system which will save Rs. 7.35
million per year after payback period of one year rand K-Electric will provide
relief to PMTF.

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 The Boards defer the matter for installation of electric meters by
K-Electric in residential home.

The matter was reported to the management in August 2016 and

November, 2018. DAC meeting was held on January 07 & 08 2019. The
management informed that around 130 meters have already been installed in
PMTF colony and they were pursing for the remaining. DAC directed the
management to expedite the matter within one month. However, no progress was
reported till finalization of this report.

Audit recommends implementation of DAC directives.

9.11.4.2 Irregular procurement of vehicles - Rs.5.100 million

As per Finance Division Office memorandum No.7 (1) Exp-IV/2014

dated September 9, 2014, stated that there will be complete ban on purchase of all
types of vehicles both for current as well as development expenditure except
operational vehicles of law enforcing agencies.

During audit of Pakistan Machine Tool Factory (PMTF), Karachi for the
year 2015-16 it was observed that PMTF, Karachi purchased (05) vehicles during
the ban period and without approval of the Finance Division. The detail is as
under:

Vehicle & Amount

Sr. No. Quantity
Registration No. (Rs.)
1 Mehran Car 800cc VXR 01 700,000
2 Bolan Van (High roof) 01 700,000
3 Cultus 1000 cc VXR 02 20,000,000
4 Toyota car 1300 01 17,00,000
Total: Rs.5,100,000

Audit is of the view that payment of Rs.5.10 million on account of

procurement of vehicles was irregular as procurement was made in violation of
above rules.
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 The matter was reported to the management in August, 2016 and
November, 2018. DAC meeting was held on January 07 & 08 2019. DAC
directed the management to regularize the procurement of vehicles from the
Finance Division through MOI&P. However, no progress was reported till
finalization of this report.

Audit recommends implementation of DAC directives.

437
9.12 ENAR Petrotech Services (Pvt.) Limited
9.12.1 Introduction

The Company was incorporated in July, 1974 as a private limited

company and is working under the Ministry of Industries and Production. The
Company provides complete range of services including design engineering
project management, construction supervision, operational and management
services for executing projects in oil and gas sector. The Company also offers
project development / planning services and undertakes sectoral/feasibility
studies, technology evaluations and environmental impact assessments.

9.12.2 Comments on Audited Accounts

9.12.2.1 The organization is included in Annex-2: Non-submission of Audited

Accounts

9.12.3 Compliance of PAC Directives

Breakup of
Audit Total No. of Compliance Compliance %age of
compliance
Year Directives reported awaited compliance
awaited
2013-14 18 2 16 8.18.2.1, 8.18.2.2, 11
8.18.2.3, 8.18.2.4,
8.18.2.5, 8.18.2.6,
8.18.2.7, 8.18.3,
8.18.4.1, 8.18.4.2,
8.18.4.3, 8.18.4.4,
8.18.4.5, 8.18.4.6,
8.18.4.7&
8.18.4.8
Total 18 2 16 - 11%

The overall compliance of PAC directives needs improvement.

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9.12.4 Audit Paras
9.12.4.1 Mis-utilization of funds - Rs.6.00 million

According to Finance Division OM No.F-15(13) R-14/82 dated Sep 05,

1982 “the funds provided, acquired or generated by the Autonomous/Semi-
Autonomous Bodies and Corporations are public funds, which cannot be utilized
at the sole discretion of the management. The funds should be utilized with due
care and caution.”

During audit of ENAR Petrotech Services Limited (EPSL) for the year
2015-16, it was observed that the management instructed Habib Metropolitan
Bank Ltd., Karachi (HMBL) to issue a Pay Order amounting to Rs.6.000 million
in favour of EPSL on May 30, 2016. The record revealed that the Pay Order was
kept by the EPSL for about one month and then deposited in to the same bank i.e.
HMBL, Karachi on June 27, 2016.

Audit is of the view that keeping of funds in shape of PO to the tune of

Rs.6 million without any purpose was irregular.

The matter was reported to the management in October, 2016 and

November, 2018. DAC meeting was held on January 07 & 08 2019. DAC
directed the management to provide the relevant record for verification of facts
by Audit. However, no progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.12.4.2 Irregular payment on account of car maintenance - Rs.5.67 million

According to adopted and approved rules NRL by EPSL in respect of

Perquisites dated Nil, Section-(4) “ The Petrol of 235 liters Per Month and
maintained amounting to Rs.3000/- Per Month will be provided to Executive”.

439
 During audit of ENAR Petrotech Services Limited (EPSL) for the year
2013-14 & 2014-2015, it was observed that the management paid car
maintenance allowance @Rs.3000 per month to officers for allocated vehicles,
but expenditure of Rs.3.51 million was also incurred on maintenance of same
vehicles without any justification

Audit was of view that undue favour was extended to the officers at the
cost of company, which shows poor financial management.

The matter was reported to the management in October, 2015 and

November, 2018. DAC meeting was held on January 07 & 08 2019. The
management informed that payment of Car maintenance allowance had not been
paid to those employees who were provided company maintained car. DAC
directed the management to provide the relevant record for verification of facts
by Audit. However, no progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.12.4.3 Irregular payment to security guards -Rs.1.388 million

As per clause (d) of Rent Agreement, ENAR Petrotech Services Limited

(EPSL) as tenant would pay 50% charges per month for Security Guards to
PERAC Research and Development Foundation (PRDF) owner of the building.

During audit of EPSL for the year 2015-16, it was observed that the
management awarded a contract amounting to Rs.1.388 million for hiring the
services of armed security guards at PERAC Research and Development
Foundation’s (PRDF) building premises.

Audit is of the view that the management had violated the agreement
clause because EPSL was the tenant of PRDF, Karachi and as per agreement it
was the responsibility of PRDF to hire the services of armed guards and then
ENAR would pay only 50% of the security guards charges. Because of this

440
company suffered an expenditure amounting to Rs.1.388 million which is treated
irregular, unjustified and wasteful.

The matter was reported to the management in October, 2016 and

November, 2018. DAC meeting was held on January 07 & 08 2019. DAC
directed the management to provide the relevant record for verification of facts
by Audit. However, no progress was reported till finalization of this report.

Audit recommends that implementation of DAC directives.

9.12.4.4 Non-recovery of Emergency loan – Rs.1.31 million

As per authority No.16 of Statement of Authority of Board of Director

and Chief Executive, BoD is competent to give emergency loan of ENAR
employees. Further as per Para-2.2 & 2.4 of emergency loan policy, the limit of
the loan amount will be 06 basic pay (on date of payment) subject of maximum
of Rs.300,000 only and the employees, who claimed the staff loan for the first
time, will be granted interest free loan, to be paid back in 24 months. However,
after first loan, further loan will be granted on applicable interest rate i.e. KIBOR,
prevailing at the date of approval of loan.

During audit of ENAR Petrotech Services Limited (EPSL), for the year
2013-14 and 2014-15, it was observed that management granted emergency loan
of Rs.1.31 million Contractual permanent employees. The loan disbursed in 2012
without approval of the Board and was not received after lapse of more than
3 years.

Audit is of the view that undue favour was extended to the employees due
to negligence and inefficiency poor financial controls.

The matter was reported to the management in October 2015 and

November, 2018. DAC meeting was held on January 07 & 08 2019. The
management informed that emergency loan had been fully recovered in

441
subsequent years. DAC directed the management to provide the relevant record
for verification of facts by Audit. However, no progress was reported till
finalization of this report.

Audit recommends that implementation of DAC directives.

442
9.13 Technology Up-gradation and Skill Development Company

9.13.1 Introduction

Technology Up-gradation and Skill Development Company (TUSDEC) is

a Company incorporated in January 2005 and licensed under Section 42 of the
Companies Ordinance 1984. The principal activity of TUSDEC is to upgrade
technology & skills of the key and strategic Industrial Clusters and connect
Pakistan to the global value chain. TUSDEC is a subsidiary of Pakistan Industrial
Development Corporation (Pvt.) Limited (PIDC). The principal office of
TUSDEC is located at State Cement Corporation Building, Kot Lakhpat, Lahore.

9.13.2 Comments on Audited Accounts

9.13.2.1 The working results of the company for the year 2017-18 as compared to
previous years were as under:
(Rs in million)
2017-18 % Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec)

Income 67.07 42.46 47.08 11.17 41.82

Salaries, remuneration & benefits 71.72 43.67 49.92 2.32 48.76
Travelling & conveyance 5.99 38.98 4.31 14.62 3.68
Depreciation 27.22 161.57 10.40 (28.85) 13.40
Others 27.93 37.58 20.30 3.79 19.53
Total expenditure 132.86 56.43 84.93 (1.01) 85.79
Excess of expenditure over income (65.79) 13.67 (37.85) 13.92 (43.97)

Other income 7.53 72.31 4.37 (43.68) 7.76

Accumulated Deficit 308.06 124.55 137.19 32.28 103.71
Surplus/ (deficit) for the year (170.87) (33.48) (36.21)
(Source: Annual Audited Account)

Excess expenditure increased to Rs 65.79 million during 2017-18 from Rs 37.85

million during 2016-17, i.e. 13.67% increased. Management was required to
explain the reasons for further increase in expenditure.

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9.13.2.2 The amount of income tax withheld by the banks from profits on
deposits accounts and Terms Deposits Receipts (TORs) increased to Rs 20.13
million in 2017-18 from Rs 9.19 million in 2016-17, registering an increase of
119%. The management was stressed upon to make vigorous efforts for clearance
of these dues from government.

9.13.2.3 Two companies, namely Gujranwala Tools Dies and Molds Centre
(GTDMC) and Ceramics Development and Training Complex, (CDTC) were
amalgamated into TUSDEC. Management is required to intimate the future
course of action with reference to performance of these new projects after
amalgamation.

9.13.2.4 Prepayments & other receivables increased to 118.78% from Rs 5.69

million in 2016-17 to Rs 12.45 million in 2017-18. The reasons for this abnormal
increase may be intimated besides effecting their early recovery.

9.13.2.5 The expenditure on projects in progress increased by 42.174% to

Rs 621.14 million in the year 2017-18 from Rs 436.89 million in 2016-17. The
increasing trend was indication of delay in completion of projects. Reasons of
increase along with detail of projects in progress may be provided.

9.13.2.6 Trade receivables & others increased to Rs 9.34 million in 2017-18 from
Rs 0.16 million in 2016-17 registering an increase of 5701%. The management
was required to explain the reasons for such abnormal increase in trade
receivables and make efforts for their early recovery.

9.13.2.7 An amount of Rs 2.88 million was shown as short-term advance to

suppliers in the year 2017-18. Latest status of short-term advance to suppliers
may be shared with audit.

444
9.13.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
2013-14 8.10.1& -
8.10.2.1,8.10.2.2,8.10
.4.1, 8.10.4.2,
06 - 06 8.10.2.3,8.10.2.4,
Total 06 - 06 -

The compliance of PAC directives was very poor which needs immediate
attention of the PAO.

9.13.4 Audit Paras

9.13.4.1 Irregular organization of events without tendering - Rs 5.58 million

According to Rule-12 (2) of PPRs 2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of TUSDEC for the years 2015-17, it was observed that
the management did not follow PPRs when it made agreements with institutes for
organizing different events. Thus, management left project funds at the discretion
of the second party which incurred expenditure of Rs 4.919 million without
calling tenders.

Audit was of the view that by avoiding the tender process, undue favour
was extended to different parties and the company was deprived of the benefit of
competitive rates. The management should have determined the annual
requirements and procured the services after tendering.

445
 During DAC meeting held on January 11, 2019, Audit pointed out that the
said expenditures were incurred on the scheduled seminars, workshops,
conferences etc. and all the components of expenditures were recurrent in nature.
This practice was adopted by the management only to avoid PPRA Rules/Tender
procedure. Management explained that the said expenses were not recurrent in
nature and the expenses were incurred on different 25 location where these
workshops/Seminars were conducted. The DAC directed to get the record
verified from audit within two days. The requisite verification was not facilitated
by the management till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.13.4.2 Irregular appointment of External Auditors - Rs 1.11 million

According to Finance Division’s O.M. No. F.3(1)-Inv. III/80-406 dated

March 25, 1981, where appointment of Chartered Accountant Firm was to be
made by the Government, before submitting the name of the auditor(s) for
approval of the Board of Directors, the institution should get the approval of
Auditor General of Pakistan.

During the audit of TUSDEC for the years 2015-17, it was observed that
the management hired the services of Chartered Accountants without obtaining
mandatory approval from office of the Auditor General of Pakistan, Islamabad.
The hiring of Chartered Accountant Firms and payment of Rs 1.11 million for the
years 2015-16 & 2016-17 and engaging the services of M/s EY Ford Rhodes
(engagement partner) for TUSDEC Head Office, M/s Horwarth Hussain
Chaudhary & Co for CTDC and M/s Ch Safqat Ali & Co for GTDMC without
the approval of AGP was held irregular.

Audit was of the view that as the management hired its external auditors
without the consent of Auditor General of Pakistan in violation of Govt.
instructions therefore, payment of Rs 1.11 million to the auditors was considered
irregular.

446
 The DAC during its meeting held on January 11, 2019, directed the
management to observe all rules & regulations.

Audit recommends compliance of the DAC directive.

9.13.4.3 Irregular appointment of the Manager Design & Development -

Rs 6.50 million

According to Job Vacancy Statement for the post of Manager Design &
Development, “the candidate should have a degree of B.E, 7-10 years’ experience
in CAD/CAM and have a command on design software like CATIA, DEL CAM,
PRO-T etc.

During the audit of TUSDEC for the years 2015-17, it was observed that
Mr. Zaki-ur-Rehman was appointed as Manager Design & Development in
GTDMC at monthly salary of Rs 100,000 without advertisement. The candidate
appointed against the said post had qualification of DAE (equivalent to
intermediate) instead of BE (Bachelor of Engineering). Neither formal
appointment letter was issued to the officer nor it was available in his personal
file. Therefore, the said appointment was held irregular. The officer was paid
Rs 6.50 million as salary w.e.f. February 2012 to June 2017. Furthermore, the
management did not verify academic and experience certificates of the officer.

Audit was of the view that undue favor was granted which should be
enquired at Ministry level.

During DAC meeting held on January 11, 2019, the DAC directed to fix
responsibility.

Audit recommends compliance of the DAC directive.

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9.13.4.4 Irregular appointment of Chief Executive Officer - Rs 5.55 million

According to advertisement published in newspapers for the post of Chief

Executive Officer the required qualification and experience was Bachelor’s
Degree in Mechanical Engineering or MBA and preference would be given to
holders of Bachelor degree in Mechanical Engineering with MBA. Further the
candidate should have vast experience of management and the well aware of the
technological and related skills needs of the country. Candidate should have at
least 10 years of experience with a minimum of 5 years in senior management
position.

During the audit of TUSDEC for the years 2015-17, it was observed that
Mr. Muhammad Awais was appointed as Chief Executive Officer in GTDMC at
monthly salary of Rs 0.25 million on January 18, 2016 without having relevant
qualification and experience. In the BoD meeting, it was also decided to hire a
person having engineering background for the post of CEO. As per CV,
Mr. Awais was holding degree of MBA Marketing from Preston University
(black-listed by HEC in 1998) instead of engineering degree. No
evidence/certificates in support of education and experience was found in the
personal file/record of the officer. Thus due to irrelevant qualification and less
experience without support of degrees/certificates the appointment was held
irregular. The officer worked irregularly in GTDMC as CEO till September 29,
2017 for a period of 22 months and during his stay, he received salary of Rs 5.50
million which was also held irregular.

Audit was of the view that undue favor was extended to the officer instead
of observing merit.

During DAC meeting held on January 19, 2019, the management

explained that the appointment was made as per requirements published in the
advertisement, “as Bachelor’s Degree in Mechanical Engineering or MBA may
apply”. The appointed candidate had a degree of MBA. Audit contended that no
academic and experience record was available either during audit or during

448
verification. The DAC directed to get the record verified from audit within two
days. The requisite record was not provided by the management till the
finalization of this report.

Audit recommended compliance of the DAC directive.

9.13.4.5 Unjustified payment to private training institutes despite poor

monitoring results - Rs 25.80 million

According to terms of contract agreement Appendix-II of Business Rules,

violations & penalties which will be imposed in case of violations during visits
by PFU- M&E Team, a financial penalty of up to 50% on invoiced amount was
to be imposed. As per agreement, 80% of training cost would be divided by the
number of training months and paid via monthly invoice on the basis of eligible
enrolment, satisfactory attendance and performance of the trainees, and
remaining 20% would be paid after satisfactory conclusion of on job training
(OJT).

During the audit of TUSDEC for the years 2015-17, it was observed that
the management conducted the physical verification of the institutes providing
services in different trades, selected under European Community Project.
Thirteen (13) institutes were not providing training services as per contract
agreements despite directions of the Monitoring and Evaluation teams. However,
management did not consider the recommendations /remarks and continued
payments to the institutes having poor performance and un-satisfactory
attendance record. An amount of Rs 25.80 million was paid without observing
contract clauses and without deduction of OJT from the invoices of the institutes.

Audit was of the view that the management was required to take action in
the light of detailed remarks of Physical Assessment Committee but no action
was taken against the institutes and payment released was held irregular.

449
 During DAC meeting held on January 11, 2019, Audit pointed out that the
subject amount was disbursed to the training institutes which had poor
performance, fake training activities, non-availability of trainers and trainees and
non-availability of equipments etc. highlighted by the monitoring & inspection
team. Management explained that the penalties had been imposed on the said
institutes. The DAC did not accept the view point of the management and
directed to probe the matter at Ministry level.

Audit recommends compliance of the DAC directive.

9.13.4.6 Fictitious payment of stipend to trainees under PSDF Scheme -

Rs 1.08 million

According to Rule-2 of Business Rules, Appendix-B of Punjab Skill

Development Fun, in case of missing unverified CNICs, PSDF will withhold
training cost of such trainees since inception. The same amount will be released
only when PSDF receives valid CNICs for such trainees.

During the audit of GTDMC Gujranwala for the years 2015-17, it was
observed that the management paid an amount of Rs 1.08 million to students of
different trades whose CNICs were not entered with the payment vouchers when
examined on test check basis. Hence, these payments were made without
verification of CNIC in violation of the above-referred criteria.

Audit was of the view that the figure of Rs 1.08 million has been taken on
sample basis and consists of one year data i.e. 2015-16 therefore, the chances of
fake payments made in previous years cannot be ruled out. In some cases the
names of students were entered /written by hand without CNICs. Thus, the
process of such disbursements under Punjab Skills Development Fund (PSDF)
could not be termed fair and transparent and the payment made during the year
was held fictitious.

During DAC meeting held on January 11, 2019, Audit pointed out that
names of the students without CNIC numbers were inserted with pen at the
450
bottom of system-generated reports, which creates ambiguity. The management
explained that no payment was made without the registration/verification of
CNIC and all the record was available. The DAC directed the management to get
the record verified by audit within 2 days. The requisite record was not provided
for verification to audit till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.13.4.7 Non-conducting of technical inspection of idle/out of order machines

- Rs 333.73 million

According to agenda item-I of 18th BoD meeting held on December 31,

2015, BoD members suggested a technical report on idle machines to be prepared
for which a technical team may be constituted to prepare the report after third
party evaluation.

During the audit of TUSDEC for the years 2015-17, it was observed that
major machines of GTDMC were out of order since inception, which affected the
operation of the center. The said situation/scenario also indicated an alarming
situation regarding doubtful existence of complete structure and parts installed in
the said machines valuing Rs 333.73 million. A case of leakage/theft of machine
part by the technician Mr. Tehmas Fiaz was also observed. During visit of
machine hall and surrounding lobby, the Maintenance Engineer also pointed out
that four out of five generators were out of order and most parts of these faulty
generators were missing even before his appointment. Moreover, the
logbook/work load and work utilization sheet of the running machines were not
produced to audit. At this stage, a detailed technical inspection needs to be
conducted by the Ministry for all machines.

The DAC in its meeting held on January 11, 2019, directed to probe the
matter at Ministry level and a certificate regarding current status of machines
about their functionality may be produced. The requisite probe was not carried
out till the finalization of this report.

451
 Audit recommends compliance of the DAC directive.

9.13.4.8 Doubtful/fake inspection reports of machines – Rs 16.49 million

According to Schedule-D of the General Clause of the Contract under

heading Installation/Commissioning, “Installation/Commissioning & training of
all above machines will be completed within 1 or 2 weeks from the date of
delivery”.

During the audit of TUSDEC for the years 2015-17, it was observed that
the management issued purchase order/Letter of Intent No. 1064 dated May 30,
2016 and No. 1284 dated December 13, 2017 to the vendors M/s K.M.
Enterprises and M/s Waseer Impex for supply of Induction Hardening Machinery
and Electro Plating Equipment valuing Rs 7.24 million and Rs 5.48 million
respectively. As per clause 26.2 and Schedule-D of contract agreement, buyer
(TUSDEC) was bound to conduct inspection of machinery according to the
specification within one or two weeks from the date of the delivery. On April 19,
2017, a letter was issued by M/s K.M Industries to TUSDEC regarding expected
delivery schedule of Induction Hardening Machine till April 21, 2017. An office
note was also submitted by Manager Technical intimating that the said machine
was delivered and commissioned at site on April 21, 2017.

However, as per Delivery Note dated August 23, 2016, the machine was
delivered on August 23, 2016 and as per inspection report, the machine was also
inspected on August 29, 2016, which was contradictory. Moreover, as far as
electroplating equipment was concerned, two inspection reports of the same
machine on the same date were found. The first report dated December 18, 2017
indicated that the machine was not installed, while second inspection report
indicated that the machine was installed/commissioned successfully and
operational training was also provided to the staff. Furthermore, an inspection
report was also found indicating an advance date of inspection i.e November 25,
2018, which was not yet arrived. This resulted in fake inspection against purchase
order No. 1280 to M/s EES for supply of four modules valuing Rs 3.771 million.

452
 Audit was of the view that due to internal controls weakness, fake
inspection reports were prepared which was held irregular.

The DAC in its meeting held on January 11, 2019 directed to probe the
matter at Ministry level. The requisite probe was not carried out by the ministry
till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.13.4.9 i Commissioning of machine with expired warranty -

Rs 18.22 million
ii Commissioning of machines having warranty near to expiry -
Rs 17.07 million

According to Clause 28.3 of GCC of the contract agreement, the supplier

will furnish a full comprehensive warranty certificate, certifying that the goods
supplied conform exactly to the specifications laid down in the contract. The one
year warranty period will commence from the date of commissioning of the
machine or 14 months from the date of delivery at site, whichever comes first.
Moreover, according to Schedule-D of the General Clause of the Contract under
heading Installation/Commissioning, “Installation/Commissioning & training of
all above machines will be completed within 1 or 2 weeks from the date of
delivery”.

During the audit of TUSDEC for the years 2015-17, it was observed that
the machines with expired warranty valuing Rs 18.216 million and machines
having a warranty near to expiry valuing Rs 17.07 million were installed in ESCs
project at Light Engineering Unit Center (LEUC). The said machines remained
idle even after lapse of more than 12 months from the date of delivery. The
TUSDEC management was bound to get commissioning /installation of
Machinery within 1 or 2 week after the delivery date. The installation of
machines with expired warranty valuing Rs 18.22 million and machines having
warranty near to expiry valuing Rs 17.07 million was held irregular by audit and
needs justification.
453
 Audit was of the view that due to weak internal controls TUSDEC
management could not get the machines commissioned within given timelines
which resulted into irregular payments.

The DAC in its meeting held on January 11, 2019 directed to probe the
matter at Ministry level and a certificate be submitted through Ministry regarding
smooth functioning of machines. The requisite probe was not carried out by the
ministry till the finalization of this report.

Audit recommends compliance of the DAC directive.

454
9.14 Pakistan Hunting and Sporting Arms Development
Company
9.14.1 Introduction

Pakistan Hunting and Sporting Arms Development Company is a

Company limited by guarantee having share capital duly incorporated under
Section 42 of the Company Ordinance, 1984 on September 29, 2006. The
Company obtained the requisite certificate of business under Section 146(2) of
Companies Ordinance 1984 and was thus entitled to commence business with
effect from April 25, 2007. The Company was formed with the primary objective
to uplift, develop and build hunting and sporting sector of Pakistan for exports
and commercial activities with a view to generate foreign exchange and to
develop quality and capacity to eventually compete in the international market.
The registered office of the Company is situated at Ground Floor, State Life
Building, The Mall, Peshawar.

The Company is a subsidiary of PIDC and fully owned by the GoP and
has paid-up capital of Rs 86.49 million. The Company is working under the
administrative control of Ministry of Industries and Production.

9.14.2 Comments on Audited Accounts:

9.14.2.1 The working results of the Company for the year 2017-18 as compared
to previous years are given below:
(Rs in million)
% Inc / % Inc /
2017-18 2016-17 2015-16
(Dec) (Dec)
Income from Training Center
3.80 782.37 0.43 - -
(CFTC)
Profit on investment 0.11 - - 2.78
Profit on Bank Account 1.87 177.63 0.67 6.30 0.64
Other income 1.21 - - - 2.05
Total income 6.99 532.19 1.11 (79.78) 5.47
Administrative expenses 23.02 21.28 18.98 32.65 14.31
455
Marketing expenses 0.33 (87.50) 2.60 (35.37) 4.02
Financial expenses 0.09 2,900.00 0.03 (91.43) 0.04
Total Expenditure 23.433 8.57 21.58 17.52 18.37
(Deficit) of income over
(16.44) (19.71) (20.47) 58.77 (12.90)
expenditure
Actuarial (loss)/gain (0.52) (242.58) 0.36 - -
(Deficit) for the year (16.96) (15.68) (20.11) 55.95 (12.90)
Accumulated deficit 150.08 (212.74) (133.12) 17.80 (113.01)
(Source: Annual Audited Accounts)

The Company incurred total expenditure of Rs 23.43 million as against the total
income of Rs 6.99 million resulting in deficit of Rs 16.44 million in the year
2017-18.Although the company has generated an income of Rs 3.80 million from
Common Facility Training Center (CFTC), yet there is a huge gap between the
income and expenditure. No income was earned from sale/export of hunting
arms, which was the major objective of establishment of the company. The other
main source of income was profit on bank accounts, which could cover only a
small fraction of its expenditure. The management must justify the non- operation
and failure to achieve its objectives of foreign exchange generation. Serious
efforts may be made to generate revenues from the operations; otherwise, audit
would recommend the liquidation of the Company.

9.14.2.2 Accumulated deficit increased to Rs 150.08 million in 2017-18 as

compared to Rs 133.12 million in 2016-17. The continuous losses and
accumulation of huge deficits indicated serious doubts about the Company’s
ability to continue as a commercial concern.

9.14.2.3 Company started procurement/installation of plant and machinery in

2015-16. During the year 2016-17, an addition of Rs 31.41 million and in
2017-18, an addition of Rs 1.00 million was shown in Plant &Machinery, which
showed a very poor pace of work. No production from this plant was started for
last three years. Slow pace of work and non-commencement of production need
justification alongwith fixation of responsibility for such low performance.

456
9.14.2.4 Capital work in progress showed an amount of Rs 1.87 million as final
settlement with M/s KM Enterprises for purchase of universal milling machine,
which was subsequently rejected. Detailed record, alongwith penalties imposed
for this settlement, may be provided to audit.

9.14.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras % of

Paras Compliance Compliance No compliance
2013-14 8.15.2.3,8.15.2.2, 17
8.15.2.4,8.15.2.5,
06 01 05 8.15.2.6
Total 06 01 05 17

Compliance of the PAC directives was very poor which requires immediate
attention of the PAO.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the
entity was not undertaken during subject period.

457
9.15 Furniture Pakistan (Pvt.) Limited

9.15.1 Introduction

The Furniture Pakistan Company is limited by guarantee and was

incorporated on August 06, 2007 under Section-42 of the Companies Ordinance,
1984 (now Companies Act 2017). The company is a wholly owned subsidiary of
Pakistan Industrial Development Corporation (Pvt) Ltd (PIDC), Ministry of
Industries & Production. The registered office of the company is situated at 4-A
Lawrence Road, Lahore. The overall objective of the company is to promote,
develop and upgrade furniture sector of Pakistan and to strengthen and support
the technical capabilities thereof to enhance competitiveness of the sector.

9.15.2 Comments on Audited Accounts

9.15.2.1 The working results for the year 2017-18 as compared to the previous
years are as under:
(Rs in million)
2017-18 % Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec) (restated)
Income
Profit on bank accounts 2.12 436.62 0.40 (12.97) 0.45
Income from projects 2.74 82.31 1.5040 (27.06) 2.06
Gain on disposal of fixed asset 0.54 - - - -
Other income 0.11 (62.79) 0.30 100 0
Total income 5.52 150.84 2.20 (12.55) 2.52
Expenditure
Salaries & Wages 16.24 (1.28) 16.45 (51.76) 34.10
Advertisement 0.40 (45.47) 0.74 (35.68) 1.15
Legal & professional charges 0.71 (2.22) 0.72 (44.20) 1.29
Other expenses 36.94 13.57 32.53 (19.71) 40.51
Total expenditure 54.29 7.63 50.44 (34.54) 77.06
Surplus/ (deficit) for the year 48.77 1.10 (48.24) (35.29) (74.54)
(Source: Annual audited accounts)

458
The company continued to be in deficit from 2013-14 to 2017-18. In 2017-18, the
deficit was at Rs 48.77 million. Efforts need to be made to further reduce the
deficit to make the company a going concern.

9.15.2.2 Cash deposits with commercial banks in current accounts increased

from Rs. 8.81 million in 2016-17 to Rs. 42.30 million, carrying 3% to 3.5%
markup as on June 30, 2018. The management was required to determine its
working balance requirements and investment of surplus funds in the light of
Finance Division (Budget Wing) Office Memo No.F.4(1)/2002-BR.II, dated: July
02, 2003 at better interest rates but no such action was taken by the management,
which may result in loss of interest income. This needs explanation.

9.15.2.3 As per Statement of Income and Expenditure for the year ended June
30, 2018, management incurred an expenditure of Rs. 1.83 million on technical
assistance. The nature of the expenditure along with the benefits may be
elaborated.

9.15.2.4 The Capital Work in Progress was Rs 69.31 million as on July 01, 2017,
which increased to Rs. 114.65 million as on June 30, 2018. Early completion of
the building / plant & machinery was stressed upon the management.

9.15.2.5 As per Statement of Financial Position as June 30, 2018, tax refund due
from Government increased from Rs 3.05 million during the year 2010-11 to
Rs 6.42 million during the year 2017-18. Previously, the company had exemption
certificate under section 2 (36) of Income Tax Ordinance, 2001 and tax payable
was subject to 100% tax refund under section 100(C) of the Ordinance. The
certificate expired in 2016 but no action was initiated for the renewal of the
certificate, which needs justification. Moreover, early action may be taken for the
renewal of certificate.

9.15.2.6 As per Note No: 1.2 to the Financial Statements, Securities and
Exchange Commission of Pakistan had granted license under Section 42 of the
Companies Ordinance 1984, upto August 03, 2012. It had to be renewed for a

459
further period of five years but the license had not been renewed. Reasons for
non-renewal of the license may be explained, besides expediting the same.

9.15.2.7 As per Note No: 5.1 to the Financial Statements, an amount of Rs.2.961
million was receivable from parent company i.e PIDC, but the expenditure on
registration fee of land owned by parent company was incurred by the
management. The same was outstanding for a long time. Early recovery of the
same is stressed.

9.15.3 Compliance of PAC Directives:

There was no pending PAC directive for compliance.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the
entity was not undertaken during subject period.

460
9.16 State Engineering Corporation (Pvt) Ltd
9.16.1 Introduction

State Engineering Corporation (Pvt.) Ltd. (SEC) was incorporated in 1973

under the Companies Ordinance 1913 (now Companies Act 2017) with a paid up
capital of Rs. 836 million fully subscribed by the Federal Govt. The Corporation
is working under the administrative control of Ministry of Industries and
Production. As at June 30, 2016, the company has fully paid up Capital of
Rs. 889.96 million. Moreover the company also has Govt. Equity Fund of
Rs 2,250.00 million (Rs. 1,173.00 million on June 30, 2009) representing the
funds available for issue of shares to GoP.

The registered office of the company is situated at Third Floor, Software

Technology Park, (STP-I), 5-A Constitution Avenue, F-5/1, Islamabad. The
Corporation manages and controls important segments of Engineering Industry of
Pakistan. The industrial units are dealing in designing, engineering,
manufacturing and supply of light, medium and heavy engineering plants and
machinery.

The core objectives of the Corporation are as follows:

 To promote Industrial Self-reliance and build a sound technical/Industrial

base in the country.
 To upgrade facilities for maximum possible indigenization and
maintenance of technological edge over other domestic competition.
 To induct local and foreign Private Sector Partners, whenever possible, to
promote joint ventures with them for achieving higher operational
efficiencies.

The following companies are functioning under the control of the Corporation:

i. Pakistan Machine Tool Factory (Pvt.) Limited (PMTF)

ii. Heavy Electrical Complex (Pvt.) Limited (HEC)
iii. ENAR Petrotech Services (Pvt.) Limited
461
9.16.2 Comments on Audited Accounts

9.16.2.1 The working results of the Corporation for the year 2017-18 as compared
to previous years are given below:
(Rs in million)
2017-18 % Inc / 2016-17 % Inc / 2015-16
( De c ) ( De c )
Income
Service charges 55.00 25.00 44.00 0.00 44.00
Interest income 3.80 20.25 3.16 107.89 1.52
Grant income - - 0.25 (64.29) 0.70
Total income 58.80 24.02 47.41 2.57 46.22
Expenditure
Operating expenses 56.97 45.74 39.09 7.45 36.38
Operating Profit/(loss) 1.84 (77.86) 8.31 (15.55) 9.84
Profit/(loss) before Taxation 1.86 (77.62) 8.31 (15.55) 9.84
Taxation 4.40 3.77 4.24 50.53 2.81
Profit / (loss) after Taxation (2.55) (162.5) 4.08 (41.96) 7.03
Accumulated profit/ (loss) (1,520.73) 0.17 (1,518.19) (0.27) (1,522.27)
(Source: Annual Audited Accounts)

The External Auditors of the corporation reported the following qualification,

which needs to be resolved. On September 10, 2017, a fire broke out in the
Industrial Facilitation Centre Building – Software Technology Park where the
Corporation’s office was situated on the 3rd floor and destroyed all the records
and data since its inception up till September 10, 2017. Consequently, the
External Auditors were unable to obtain sufficient appropriate audit evidence
about the total expenses other than salaries paid by the Corporation during the
period of July 1, 2017 to September 10, 2017, which amounts to Rs. 2.81 million.

9.16.2.2 Provision of Rs. 2.44 million and Rs. 4.85 million was made on account
of staff gratuity and leave encashment respectively. These provisions were made
without getting actuarial valuation. The management was stressed upon to get
actuarial valuation of these account heads to provide the factual position in the
accounts.

462
9.16.2.3 Salaries allowances and benefits under major head of operating expenses
which increased by 54.33 % from Rs. 31.38 million in the year 2016-17 to
Rs. 48.42 million in the year 2017-18. The abnormal increase in the salaries,
allowances and other benefits needs justification.

9.16.2.4 Advances as on June 30, 2018 included Rs 15.04 million

(2017: Rs 9.61 million) as advances to employees registering an increase of
56.40%. The abnormal increase in advances to employees at the time when
company’s financial position was not sound and needs justification.

9.16.2.5 Loan from Government included a loan of Rs. 38.15 million received for
mutation of 1776.17 kanal of land in the name of Heavy Electrical Complex (Pvt)
Limited (HEC) located at Village Usman Khattar to transfer in the name of the
company. The terms & conditions for repayment of loan alongwith current status
of mutation of land in the name of HEC may be intimated.

9.16.2.6 The head due from associated undertakings included an amount of

Rs. 227.57 million which was past due 90 days. These dues were increased by
23.84 % in the year under review as compared to previous year
(2016-17: Rs. 183.76 million) which shows that dues were not timely recovered
from the associated undertakings. The reasons for non-recovery of dues from the
associated undertakings need explanation.

9.16.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance
compliance
1996-97 05 04 01 163 80
1998-99 04 03 01 257 75
1999-00 06 0 06 319,320,321,322,323 -
,324
2000-01 05 04 01 296 80
2002-03 03 01 02 89&90,90.2 33
2003-04 05 02 03 102&102.1,102.4 40
2005-06 06 02 04 129.1,129.2,129.4,13 33
463
 0
2008-09 22 21 01 120.1 95
2009-10 4 03 01 129 75
2013-14 07 01 06 8.17.2.6,8.17.1&8.17 14
.2.1,8.17.2.2,8.17.2.3
, 8.17.2.4,8.17.2.5
Total 67 41 26 61

The compliance of the PAC directives was not satisfactory especially

during 1999-00, 2002-03, 2003-04, 2005-06 and 2013-14, which need attention
of the PAO.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the
entity was not undertaken during subject period.

464
9.17 Heavy Electrical Complex (Pvt.) Limited

9.17.1 Introduction

The Company was incorporated as a Private Limited Company on

December 09, 1991, fully owned by State Engineering Corporation (Pvt.) Limited
Ministry of Industries and Production, Government of Pakistan. The registered
office of the company is situated at Third Floor, Software Technology Park,
(STP-I), 5-A Constitution Avenue, F-5/1, Islamabad. The Company is engaged in
the manufacturing and repair of power transformers.

9.17.2 Comments on Audited Accounts

9.17.2.1 The working results of the Company for the year 2017-18 as compared to
the preceding years were tabulated below:
(Rs in million)
2017-18 % Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec)
Sales 259.00 (71.52) 909.52 34.34 677.03
Cost of sales 229.90 (71.24) 799.40 44.73 552.32
Gross profit/(loss) 29.10 (73.57) 110.12 (11.70) 124.71
Operating expenses
Administrative expenses 59.42 15.59 45.35 (2.18) 46.36
Selling & distribution 10.60 (31.02) 15.51 (2.45) 15.90
expenses
Operating profit/(loss) (40.92) (183.07) 49.26 (21.11) 62.44
Other income 8.92 (35.27) 13.78 53.79 8.96
Financial charges 37.73 4.49 36.11 (8.47) 39.45
Profit/(loss) for the year (69.73) (358.93) 26.93 (15.63) 31.92
before tax
Taxation 0.15 (98.35) 9.10 19.89 7.59
Profit/(loss) after taxation (69.58) (490.02) 17.84 (26.67) 24.33
(Source: Annual Audited Accounts)

The Chartered Accountants in their qualified opinion expressed that during the
financial year 2015-16, the portion of land measuring 1,746.9 kanals, held by the
Company was not appearing in the fixed asset record of the Company but was
transferred to State Engineering Corporation (Private) Limited, the parent
465
Company, in its name through mutation signed by the Assistant Director, Land
Records Tehsil, Taxila on Jun 29, 2016, for nil consideration, which was not the
fair value. The value determined as per revenue assessment rate by Assistant
Director Land Records Tehsil Taxila was Rs 533.06 million, as explained in note
5.4 to these financial statements. The same land in prior years, vide letter No. 5
(46) /2006- HMC dated December 17, 2012 from Ministry of Production, was
transferred from the Company to a related party, Heavy Mechanical Complex
(Pvt) Limited. The management did not produce sufficient and appropriate
supporting documents of these transactions relating to land to the chartered
accountancy firm. The land was neither recognized in prior years as fixed asset
nor was its disposal recorded in the books of accounts of the Company for the
year as no consideration was paid/ received on this acquisition/ disposal.
Furthermore, appropriate legal advice in this regard was not sought to regularize
the matter. Therefore, audit was unable to confirm the accuracy and completeness
of land held by the Company. The management may review the case and factual
position may be intimated to audit.

9.17.2.2 The chartered accountancy firm in their qualified opinion on the audited
accounts further expressed that the balance under the head “trade debts” included
receivables relating mainly to late delivery charges of Rs. 111.34 million which
were outstanding for more than three years; against which provision of only
Rs 32.61 million was appearing in the last year’s financial statements. No further
provision for the remaining amount was created during the year against these
balances, whose recovery seemed doubtful. The management was stressed upon
to review the issue of doubtful receivables and updated status may be intimated to
audit.

9.17.2.3 During the year 2011, Sarhad Development Authority (SDA) cancelled
the leasehold land of the Company measuring 11 acres, costing approximately
Rs. 3.00 million which was included in the operating assets as at June 30, 2016.
The Company went into litigation against SDA on cancellation of lease and the
matter is currently pending adjudication. Current status of case may be intimated
to audit.

466
9.17.2.4 The sales of the Company decreased by 71.52% to Rs 259.00 million in
2017-18, (2016-17): Rs 909.52 million) while the cost of sales decreased by
71.24% to Rs 229.90 million in 2017-18 (2016-17: Rs 799.40 million ).The huge
decrease in sales as compared to previous year resulted in decrease in Gross
Profit by 73.57% to Rs 29.10 million during 2017-18 (2016-17:Rs 110.12
million). The Company sustained loss of Rs. 69.58 million in 2017-18 as
compared to the profit of Rs. 17.84 million earned during 2016-17, which showed
huge decline in the performance of the Company during the year under review.
The reasons for huge decrease in sales, which ultimately resulted in loss, need
justification.

9.17.2.5 Administrative expenses included salaries, wages and benefits, which

increased by 35.09% to Rs 34.63 million during 2017-18 (2016-17: Rs 25.64
million). Similarly, repair & maintenance expenses increased by 88.43% to
Rs 2.82 million during 2017-18 (2016-17: Rs 1.50 million).The abnormal
increase in expenditure on account of salaries, wages benefits and repair &
maintenance needs justification.

9.17.2.6 Selling and distribution expenses included salaries & benefits which
increased by 42.63% to Rs 6.94 million during 2017-18 (2016-17: Rs 4.86
million) despite the fact that sales of the company decreased by 71.52% as
compared to previous year. The abnormal increase in salaries and benefits under
selling & distribution expenses despite decrease in sales shows that increase in
salaries was not based on performance of the employees which needs
justification.

9.17.2.7 Certain ex-employees of labour contractor were in litigation with the

company for their outstanding dues claiming Rs. 4.67 million and, in case of
unfavorable decision; the company shall be required to pay the said amount.
Current status of the case may be intimated to audit.

9.17.2.8 The Bank of Khyber has issued guarantee of Rs. 230.98 million in
favour of DESCOs and WAPDA against different contracts. Complete detail of

467
contract agreements against which Bank of Khyber issued guarantees, along with
current status of those contract agreements, may be made known to audit.

9.17.2.9 During the year under review, the company has changed depreciation
method of plant and machinery from capacity utilization basis to 2.5% per annum
on written down value basis. Due to change in accounting estimates, the
depreciation charge for the current year on plant and machinery amounts to
Rs. 15.35 million. Had there been no change in accounting estimate, the
depreciation charge for the current period would have been Rs. 6.24 million.
Reasons for changing depreciation method which increased depreciation charge
to Rs. 15.35 million from Rs. 6.24 million may be intimated to audit.

9.17.2.10 The Company has plant capacity of 2.928 million MVA on three shift
basis as per PC-I whereas practical capacity was 1.33 million MVA against
which the company could obtain actual production of 0.35 million MVA as
compared to actual production of 1.10 million MVA of the previous year. Less
utilization of plant capacity needs justification.

9.17.2.11 The Company has Contributory Provident Fund Scheme for benefit of
all its permanent employees under the title “HEC – Employees Provident Fund”.
The size of the fund as at June 30,2018 was Rs. 9.07 million (2017: Rs. 5.69
million). On the other hand, provision for gratuity of Rs 9.23 million has been
created. This shows that the Company has devised Contributory Provident Fund
scheme as well as gratuity scheme for employees pensionary benefits in violation
of policy of Finance Division issued vide O.M. dated October16, 1984. Finance
Division vide O.M. dated January 21, 2015 directed that the same policy would
remain intact. Reasons for violation of Finance Division’s policy may be
investigated with a view to fix responsibility thereof and recovery of the overpaid
amount.

468
9.17.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No %

Paras Compliance Compliance of compliance
1995-96 05 04 01 190 80
1996-97 05 04 01 169 80
1998-99 03 02 01 262 67
2000-01 04 03 01 299 75
2002-03 09 07 02 103.5,103.8 78
2003-04 05 0 05 104.2,107&107.1,10 -
7.2,104&104.1,
108.3
2005-06 06 05 01 132.3 83
2006-07 05 04 01 107.1 80
2007-08 03 02 01 80.2 67
2009-10 03 02 01 132 67
2013-14 04 01 03 8.19.1&8.19.2.1,8.1 25
9.2.2,8.19.2.3,
8.19.2.4,8.19.2.5,8.1
9.2.6,8.19.2.7,8.19.4
.1,8.19.4.3, 8.19.4.5
Total 52 34 18 65

Overall compliance of PAC directives was not satisfactory which needs to

be improved.

9.17.4 Audit Paras

9.17.4.1 Irregular procurement on direct contracting basis - Rs 8.18 million

According to Rule 42- (c) of PPRs-2004, a procuring agency shall only

engage in direct contracting if the procurement concerns the acquisition of spare
parts or supplementary services from the original manufacturer or supplier, or
only one manufacturer or supplier exists for the required procurement.
Furthermore, the procuring agency shall specify the appropriate fora, which may
authorize the procurement or proprietary object after due diligence.

469
 During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was observed that the management procured material worth Rs. 8.18
million from M/s SGWI Associates Lahore on direct contracting basis without
press advertisement. It was also observed that M/s SGWI Associates Lahore was
neither the sole proprietor of the goods procured nor the authorized agent of the
manufacturer.

Audit was of the view that the procurement of goods in violation of PPRA
Rules was irregular.

During DAC meeting held on January 11, 2019, management appraised

that the material was procured from SGWI as per written requirement of NTDC.
The DAC directed the management to submit revised reply accordingly and
further directed to inquire the matter at Deputy Secretary level within 14 days
after receipt of revised reply. Inquiry report was not submitted by the
management till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.17.4.2 Irregular procurement of vehicles during ban period - Rs 4.80 million

According to para-1 (I) of Government of Pakistan Finance Division

(Expenditure Wing) OM No. F.7 (1) Exp-IV/2016-510 dated July 25, 2016
regarding austerity measures for the financial year 2016-17, “there will be a
complete ban on purchase of all types of vehicles both for current as well as
development expenditure except operational vehicles for law enforcing agencies
for which NOC from Finance Division would be required”.”

During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was observed that the management procured four Suzuki Cultus
worth Rs. 4.80 million from Suzuki Taxila Motors in violation of above
instructions. The procurement of vehicles without approval of the Finance
Division was held irregular.
470
 Audit was of the view that the management was required to refer the case
to Finance Division but no such action was taken by the management.

The DAC in its meeting held on January 11, 2019, directed the
management to get the matter regularized from Finance Division. The
management was unable to submit the case for regularization to Finance Division
till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.17.4.3 Irregular payment of pays & allowances due to non-verification of

degrees - Rs 22.51 million

According to Establishment Division (Management Services Wing),

Islamabad OM No. 6(28)2011-DG-II dated March 08, 2011, it will be the
responsibility of concerned Secretary & head of the department/ organization to
have the degrees/ certificates verified. They should satisfy themselves of the
genuineness of the degrees/ certificates which are required for the post as per
rules. Any foreign degree/ diploma should be got verified from HEC. A
certificate, along with list of officers whose degree/ certificate have been verified,
should be furnished to said division within 45 days.

During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was observed that degrees/ certificates of 10 out of 21 regular
employees were not verified after a lapse of more than eight years of issuance of
instructions by Government. Moreover, not even a single degree/certificate of
contract employees as well as employees hired through third party contractor was
verified despite the fact that Establishment Division in March 2011 directed to
get the degrees verified from the respective universities within 45 days.

Audit was of the view that the management failed to comply with the
directions of Establishment Division regarding verification of degrees of
employees despite lapse of eight years. In the absence of the verification of

471
degrees, the payment of pay & allowances amounting to Rs 22.51 million was
held irregular and unjustified.

During DAC meeting held on January 11, 2019, management apprised

that verification of degrees was in process. The DAC directed the management to
get the degrees verified from quarter concerned within 30 days. Process of the
verification of degrees was not completed till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.17.4.4 Irregular hiring and subsequent extension of labor contractor in

violation of the PPRs - Rs. 105.41 million

According to clause 12(1) of PPRs-2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of Heavy Electrical Complex (HEC) Hattar for the years
2016-18, it was observed that the management awarded manpower labor contract
agreement to M/s Zeb Enterprises for three months’ period on September 26,
2016 whereas payment of Rs 105.41 million was disbursed upto June 30, 2018
without any competitive process. The contract was extended repeatedly uptill
September 30, 2018 in violation of the PPRs.

Audit was of the view that award of contract and subsequent extensions to
the contractor were serious violation of PPRs.

The DAC in its meeting held on January 11, 2019, directed the
management that it was clear cut violation of PPRA Rules and matter be
regularized from PPRA and further directed to hire the labour contractor as per
PPRA requirement. The case for regularization was not submitted by the
management to PPRA till the finalization of this report.
472
 Audit recommends compliance of the DAC directive.

9.17.4.5 Irregular appointment of officers - Rs 17.30 million

According to para-(III) (b) & (c) of Cabinet Secretariat Establishment

Division OM No.6/2/2000-R.3 dated May 6, 2000, “vacancies should be
advertised in leading national and regional newspapers and selection should be
made through regularly constituted Selection Committee /Boards. “According to
para-2 (ii) of State Engineering Contract Employment Policy 2004, “appointment
in Executive Grades EPS-1 to EPS-V shall be made in accordance with
recruitment procedure.

During the audit of Heavy Electrical Complex (HEC) Hattar for the years
2016-18, it was observed that, contrary to the above, the management recruited
Assistant Manager EPS-II and Dy. Manager EPS-III through labour contractor on
89 days contract without open competitive selection process. The recruitment
through labour contractor was made to avoid the competitive selection process
i.e. test / interviews. The contract period of the officers was also being regularly
extended since 2015 and officers were working till date. This resulted into
irregular appointment and payment of Rs. 17.30 million.

Audit was of the view that the management was required to appoint the
employees after advertisement and through proper procedure but appointments
were made through labour contractor without open competitive process, which
was held irregular.

The DAC in its meeting held on January 11, 2019, directed the
management to inquire the matter at Deputy Secretary level. Case was not
inquired till the finalization of this report.

Audit recommends compliance of the DAC directive.

473
9.17.4.6 Irregular hiring of accommodation - Rs 12.08 million

According to Federal Government Policy, vide OM No. F-2(3) 2003,

dated July 31, 2004, the Government allowed hiring of residential
accommodation at six specified stations i.e. Islamabad, Rawalpindi, Lahore,
Karachi, Peshawar and Quetta. It was the responsibility of the respective Ministry
/Division /Department to hire Government residential accommodation for their
employees within their budgetary resources. Furthermore, according to para-03 of
Ministry of Finance Government of Pakistan (Regulation Wing –II) OM No. F.15
(5)R14/91-423 dated June 25, 1992, “Corporations /Companies wherein
Government owns major or part shares cannot allow excess benefits to the
employees of the corporations which were otherwise not admissible under
Government Policy.”

During the audit of Heavy Electrical Complex (HEC) Hattar for the years
2016-18, it was observed that HEC was located in Hattar District Haripur Khyber
Pakhtunkhwa. Contrary to the policy whereby the above six stations were
specified by the Ministry of Housing and Works, the management allowed hiring
of accommodation to 21 employees at Sawabi, Chakwal, Haripur, Taxila, Wah
Cantt. & Havalian. This resulted into irregular payment of Rs. 12.08 million.

Audit was of the view that the management was required to allow hiring
at the specified stations only, but it allowed hiring at non-specified stations,
which was held irregular.

The DAC in its meeting held on January 11, 2019 directed to get the
clarification from Ministry of Housing & Works and approval from Finance
Division. The requisite clarification from Ministry of Housing & Works and
approval from Finance Division was not obtained by the management till the
finalization of this report.

Audit recommends compliance of the DAC directive.

474
9.17.4.7 Regularization of officers in violation of directives of Privatization
Commission - Rs 8.83 million

According to para-04 (d) of Privatization Commission OM No.

PC/GEN/2005 dated November 28, 2005, regarding privatization of State
Enterprise Units directions by the Commission, “no induction of employees
under any category either through the company or through contractors.”
Furthermore, as per para-04 (g), any promotion / up-gradation may also be made
in consultation with Privatization Commission.

During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was noticed that the company was on the approved list of
Privatization Commission. The management regularized the services of Dy.
Managers/ Assistant Managers serving on contract vide State Engineering
Corporation letter dated September 01, 2010. Therefore, irregular expenditure of
Rs. 8.82 million was incurred.

Audit was of the view that the management was required to obtain the
approval of Privatization Commission for the regularization of above employees.

The DAC in its meeting held on January 11, 2019, directed the
management to inquire the matter at Deputy Secretary level for regularization of
officer in violation of Privatization Commission directions. Inquiry Report was
not submitted till the finalization of this report.

Audit recommends compliance of the DAC directive.

9.17.4.8 i Excess payment of interest due to non-competition with other

banks – Rs 14.80 million
ii Irregular payment of interest - Rs 66.28 million

According to minutes of 57th meeting of BoD held on October 27, 2015

the Managing Director/CEO and Company Secretary were authorized to enter
into agreement with other banks/financial institution for banking and financing
475
facilities. According to Clause (12)2 of PPRs 2004, all procurement opportunities
over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was observed that the management, during 61st meeting of BoD held
on August 31, 2017, apprised the Board that although Bank of Khyber (BoK)
already sanctioned the regular financing facility of Rs.400.00 million @ KIBOR
plus 2.5% interest for the year 2017-18 but the bank did not concede the HEC’s
requests for reducing the markup rates. In order to create healthy competition,
HEC needed to have Financing Facilities from some other Bank(s). The
Company Secretary informed that the BoD had already authorized the Managing
Director/CEO and Company Secretary to enter into agreement with other
banks/financial institutions for banking and financing facilities in its 57th
meeting on October 27, 2015. Accordingly, BoD desired to utilize the earlier
authorization for the purpose as and when needed. The directions of BoD were
not followed in letter and spirit and management was still paying the interest
@ KIBOR plus 2.5% and paid interest of Rs 66.28 million during 2016-18 in
violation of BoD directions and sustained loss of Rs 14.80 million.

Audit was of the view that management was availing the credit facility for
many years from BOK at KIBOR plus 2.5% and this loss could be accumulated
many times, if the period prior to 2016-17 were also considered. Had the
competitive process been adopted and the instructions of BoD followed
diligently, management could have avoided the huge financial burden.

The DAC in its meeting held on January 11, 2019, directed the
management to submit revised reply with proper justification. The revised reply
was not submitted by the management till the finalization of this report.

Audit recommends compliance of the DAC directive.

476
9.17.4.9 Mis-procurement from M/s Affaq Corporation -Rs 3.24 million

According to Clause 42C(v) of the PPRs 2014, the procuring agency may
utilize the following alternative methods of procurement of goods, services and
works in case of any emergency. And as per section 2 (g), emergency means
natural calamity, disaster, accident, war and operational emergency which may
give rise to abnormal situation requiring prompt and immediate action to limit or
avoid damage to person, property or the environment. As per rule 12 (2) of PPRs-
2014, procurement over two million should be advertised on PPRA’s website as
well as in other print media/newspapers. Furthermore, detailed procedure for
appointment of consultants is described in Rule 39 to 54 of PPRs 2014.

During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was observed that the management paid Rs 3.24 million to
M/s Affaq Corporation for purchase of 28 Panel Type Radiators @ Rs. 115,830
including 17% GST by invoking emergency clause. The management
participated in tender issued by TESCO for purchase of transformers and
subsequently LOI and purchase order were issued to HEC on November 03, 2016
and December 13, 2016 for delivery of transformers within 60 days. The
management took lenient action for procurement of raw material during
November 03, 2016 to December 18, 2016 (44 days), and decided to purchase the
Panel Type Radiators by invoking emergency clause from M/s Affaq Corporation
to avoid proper procedure.

Audit was of the view that as the management invoked emergency clause
without the approval of competent authority, resultantly purchase was considered
irregular.

The DAC in its meeting held on January 11, 2019, directed the
management to clarify whether HEC management can invoke emergency clause
without approval of competent authority. The requisite clarification was not
submitted by the management till the finalization of this report.

477
 Audit recommends compliance of the DAC directive.

9.17.4.10 Weak internal control and poor financial management due to non-
existence of CFO and Board Secretary

According to Rule 14(3) of the Public Sector Companies (Corporate

Governance) Rules, 2013, “The company secretary shall be responsible for
ensuring that Board procedures are followed, and that all applicable laws, rules
and regulations and other relevant statements of best practice are complied with.
Where the company secretary is not separately appointed, the role of company
secretary may be combined with chief financial officer or any other member of
senior management.”

During the audit of Heavy Electrical Complex (HEC), Hattar for the years
2016-18, it was observed that due to non-availability of CFO and Company
Secretary, Mr. Muhammad Zahoor (DGM) Finance, was performing duty as head
of Finance as well as Company Secretary since July 07, 2007. After
advertisement the HR Committee of SEC Board of Directors held on March 6,
2017, shortlisted three candidates for each post of CEO and CFO of Heavy
Electrical Complex. The post of CEO was filled in July 2017 but due to unknown
reasons the post of CFO could not be filled. The DGM Finance, could not
perform his duties in compliance of corporate governance rules as per statutory
requirements.

In addition, the following shortcomings in the working of finance

department were also noticed:

i. Non-availability of Fixed Assets Register

ii. Non-availability of allocation method for direct and indirect labour
hours
iii. Non-availability of per unit utilization of scrap material
iv. Wrong calculation of depreciation
v. Non-competitive process for availing credit line facility
vi. Under-utilization of credit line facility of Rs. 550 million

478
 Audit was of the view that the jobs of CFO and Company Secretary were
full time commitments and could not be efficiently performed as part time.
Therefore, the non-appointment of CFO since long was unjustified.

The DAC in its meeting held on January 11, 2019, directed the
management to remove shortcomings pointed out by the audit within 45 days. No
progress was reported till the finalization of this report.

Audit recommends compliance of the DAC directive.

479
9.18 Industry Facilitation Centre (Pvt.) Limited

9.18.1 Introduction

Industry Facilitation Centre (Pvt) Limited (formerly State Enterprises

Display Centre (Pvt.) Limited) was incorporated on September 03, 1989 under
the Companies Ordinance 1984 (now Companies Act 2017). The initial purpose
of the Company was to construct a building for display and exhibition of all kinds
of manufactured and semi-manufactured goods produced by public and private
sector enterprises in Pakistan. It was, however, later used as Awami Markaz
under the directive of the Federal Government. The new name of the Company is
Industry Facilitation Centre (Pvt.) Limited (IFC).

9.18.2 Comments on Audited Accounts

9.18.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the years 2017-18 till December 31, 2018.
9.18.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

9.18.2.3 The working results of the Company for the year 2016-17 as compared
to previous years are as under:
(Rs. in million)
2016-17 % Inc/ 2015-16 % Inc / 2014-15
(Dec) (Dec)
Income
Income from Property 102.96 27.60 80.69 8.69 74.24
Direct cost (41.17) 0.02 (41.16) 11.88 (36.79)
Gross Profit 61.80 56.34 39.53 5.55 37.45
General & Administrative expenses (36.41) 52.03 (23.95) 20.41 (19.89)
Finance cost (0.003) 85 (0.02) - -
Other Income 10.60 (21.48) 13.50 24.31 10.86

480
Profit before Taxation 35.97 23.78 29.06 2.25 28.42
Taxation (27.07) 38.96 (19.48) (6.66) (20.87)
Profit for year after Taxation 8.90 (7.10) 9.58 26.89 7.65
Earnings per Share 7.21 (7.09) 7.76 27.00 6.11
(Source: Annual Audited Accounts)

The overall income of the Company increased by 27.60% to Rs 102.96 million in

2016-17 (Rs. 80.69 million 2015-16) whereas direct cost increased by 0.02%
during current year 2016-17 as compared to the previous year. Similarly the
general and administrative expenses also increased by 52.03% to Rs 36.41
million during current year as compared to previous year Rs. 23.95 million.
Resultantly, the profit before taxation for the year showed increase of only
23.78% to Rs. 35.97 million (Rs. 29.06 million 2015-16). The management was
therefore, stressed upon to exercise control over the expenses.

9.18.2.4 Advance against shares issued increased to Rs. 446.63 million at the end
of year 2016-17, which increased from Rs 102.68 million at the end of previous
year while the paid-up share capital stood at Rs. 123.46 million against
authorized share capital of Rs. 150.00 million. As such, the adjustment of
advance against the existing authorized share capital was not possible without its
enhancement. Reasons for getting such huge amount of advance instead of
making the company a self-sustained unit needs to be elucidated.

9.18.2.5 Cash at Bank was increased to Rs. 362.38 million at the close of current
year as compared to Rs. 139.96 million at the end of previous year registering an
abnormal increase of 158.92%. The main reasons for such increase in current
accounts instead of TDR’s/investment were the non-observance of standing
instructions regarding maintenance of its current accounts by the management.
Reasons for such weaknesses need to be elaborated, besides ensuring the transfer
of surplus funds from the current accounts to the TDRs. /investment

9.18.2.6 Investment properties were appearing in the Balance Sheet for

Rs. 229.95 million as on June 30, 2017 as against Rs. 126.23 million of previous
year, registering an increase of 82.17%. This included an amount of Rs. 115.44
million on account of building under construction. Reasons for non-completion of
481
the project for the last several years need to be explained, besides making
strenuous efforts for its early completion. Furthermore, the escalation affect due
to delay in completion may also be worked out and intimated to audit.

9.18.2.7 Rent receivable was decreased to Rs. 26.18 million as on June 30, 2017
as compared to Rs. 29.14 million at the end of previous year showing a nominal
decrease of 10.16%, whereas, the total amount of security deposits from the
tenants was only Rs. 12.62 million as on June 30, 2017. Out of total rent
receivables, an amount of Rs. 0.320 million was shown as doubtful, which
showed that management did not pay due attention to recovery of rent. Strenuous
efforts were required to recover the rent from the tenants.

9.18.2.8 General and administrative expenses increased to Rs. 36.41 million as on

June 2017 as compared to Rs. 23.95 million at the close of the previous year,
registering an increase of 52.03% over the previous year. This included an
amount of Rs. 2.92 million as bad debts. Details and reasons for declaring bad
debts need to be provided besides controlling the expenses for improvement of
financial health of the company.

9.18.2.9 Other receivables stood at Rs. 6.02 million as on June 30, 2017 (2015-16
Rs. 6.20 million). The amount included electricity charges from tenants and CFP
payment to MD. Reasons due to which the amount could not be recovered needs
to be elaborated.

9.18.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras % of
Paras Compliance Compliance no compliance
2013-14 02 02 -
Total 02 02 -

Compliance of the PAC directives was satisfactory and needs to be carried on.

Note: Audit paras’ portion for the entity has not been compiled as audit of the
entity was not undertaken during subject period.

482
9.19 National Fertilizer Corporation (Pvt.) Limited
9.19.1 Introduction
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 wholly owned subsidiaries including three
institutes of engineering and one marketing company. The Company’s main
source of income includes dividend from investment in subsidiary companies and
return on bank deposits and other investments.
Due to privatization of all fertilizer manufacturing units of NFC, the
principal activities of the Corporation like manufacturing, buying, selling,
exporting and importing all types of chemical fertilizers were stopped. However,
marketing and selling of fertilizer imported by Trading Corporation of Pakistan is
being carried out by the subsidiary company National Fertilizer Marketing
Limited (NFML). Likewise, two training institutes are running independently.

9.19.2 Comments on Audited Accounts

9.19.2.1 The working results of the Corporation for the year 2017-18 as
compared with the previous years are given below:
(Rs in million)
2017-18 %Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec)
Income
Dividend 11.54 (40.55) 19.41 (98.23) 1,098.89
Profit on bank deposits 301.03 (3.13) 310.77 (39.42) 513.00
Other income 28.20 5131.54 0.54 (90.22) 5.51
Total income 340.77 3.04 330.72 (79.55) 1,617.41
Expenses
Administrative expenses 149.16 (13.92) 173.27 24.18 139.53
Finance charges 0.09 (26.67) 0.12 (23.57) 0.16
Total expenses 149.25 (13.93) 173.39 24.13 139.69
Profit before taxation 191.52 21.73 157.33 (89.35) 1,477.72
Taxation 57.46 17.33 48.97 (84.41) 314.15
Profit after taxation 134.06 23.72 108.36 (90.69) 1,163.58
(Source: Annual Audited Accounts)

483
The profit after taxation of the company increased from Rs108.36 million in
2016-17 to Rs 134.07 million in 2017-18 registering an increase of 23.72 %
which was mainly due to increase in other income and reduction of admin
expenses by 13.92%. However, main source of income of NFC is profit on bank
deposits. Efforts need to be made to decide the fate of NFC, either by assigning
some function to the Company or otherwise, steps should be taken for its winding
up.

9.19.2.2 Capital Work in progress indicated that the Company incurred a sum of
Rs 46.45 million in 2017-18 and Rs 43.12 million 2016-17 for vehicle, land and
other items. This represents expenditure incurred on new project of the company
(NFC Institute of Engineering and Technology Nausharo Feroz). Status of the
project with regard to hiring of the contractor for building and infrastructure work
alongwith contract cost and tentative completion period for the Institute need be
explained.

9.19.2.3 Other Long Term investments included investment in the Sanofi-Aventis

Pakistan Limited, which raised in the market from Rs 138.08 million as on June
30, 2016 to Rs 454.29 million as on June 30, 2017. It was suggested by audit
during last year audit comments for disposal of investment because there was a
boom in the market at that time and prices were at peak but management did not
give any weightage to audit advice. However, the value of this investment has
again reduced in the market in 2017-18 and reached to Rs 273.60 million as on
June 30, 2018. The issue needs immediate attention and clarification.

9.19.2.4 Receivable from NFC Residencies was outstanding as Rs 69.04 million,

Rs 49.04 million and Rs 52.51 million as on June 30, 2016, June 30, 2017 and
June 30, 2018 respectively. Interest of Rs 2.90 million was charged on this loan
during 2017-18 @ 6% whereas no interest was charged in previous years.
Reasons for non-charging of interest in previous years needs to be justified.

9.19.2.5 The salary package of three executive and one chief executive was
Rs 21.60 million during 2017-18, which was on the higher side if we compare
with salary packages of M1, M2 and M3 scales introduced by government for top
484
executives of public sector organizations. Payment of high salaries to the
executives of such a company which has practically no work since last many
years seems questionable. Matter may be placed before the Board for
consideration.

9.19.2.6 The Director fee paid by NFC was Rs 13.11 million in 2016-17 and
Rs 5.85 million in 2017-18. The number of Directors were seven in both years
thus average fee paid to each Director was Rs 1.87 million in 2016-17 and
Rs 0.84 million in 2017-18 whereas as per government instructions the active
government officers working as Directors in companies are bound to deposit
Directors fees beyond Rs 0.60 million in government treasury. Evidence for
deposit of additional amount in government treasury by government side
Directors need be provided.

9.19.2.7 Deposit with bank for Project Account included an amount of Rs 920.96
million as on June 30, 2018 which represents the amount invested in term deposit
receipts with different banks earmarked for the purpose of establishment of NFC
Institute of Engineering and Emerging Technologies, Lahore with an exclusive
section for female students wholly funded by NFC through its own sources.
These deposits carrying markup at a rate ranging from 6.05% to 7.10% for a
maturity ranging from 3 to 6 months. Since management does not have any
immediate plan to start the project in next few months, therefore, investment in
short term period of 3 to 6 months is not a prudent decision. Need for shifting of
funds from short term to long term period according to need of the management
is stressed upon the management.

9.19.2.8 Investment in subsidiary companies indicated that NFC owned 100%

shares of NFC Institute of Engineering and Technological Training (Private) Ltd,
(IETT) Multan at Rs 25.00 million, whereas books of IETT Multan showed nil
investment of NFC. Necessary reconciliation in this regard needs be conducted to
arrive on the same page. The management should clarify this variation.

485
9.19.2.9 Dividend of Rs 11.71 million was received in 2016-17 from the
investment made in Industry Facilitation Center but no dividend was received
during 2017-18 from this investment, which needs justification.

9.19.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras % of

Paras Compliance Compliance No compliance
1995-96 36 35 1 36 97
1999-00 28 27 1 294 96
2000-01 35 33 2 271,273 94
2001-02 17 16 1 286 94
2006-07 23 22 01 118.3 96
2010-11 06 05 01 11.13.2.5 83
2013-14 03 02 01 8.22.2.2, 67
Total 148 140 8 95

The compliance of the PAC directives was satisfactory; efforts need to be made
for 100% compliance.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the entity was
not undertaken during subject period.

486
9.20 NFC Institute of Engineering and Technological Training
(Pvt.) Limited, Multan
9.20.1 Introduction

The company was incorporated on June 26, 1984 as a Private Limited

Company under the name “NFC Technical Training Centre (Pvt) Limited”.
Subsequently the name of the Company was changed to “NFC Institute of
Engineering and Technological Training (Pvt) Limited” on August 30, 1994.
Later on, all assets properties, rights and interests of whatever kind, used, enjoyed
possessed, owned or vested in or held in trust by and liabilities legally subsisting
against the company were transferred to NFC Institute of Engineering and
Technology in accordance with the provisions of NFC Institute of Engineering
and Technology Multan Act, 2012 passed by the National Assembly on 8th
October 2009 and by the Majlis-e- Shoora (Parliament) in its joint sitting on 5th
April 2012 which was published in “ The Gazette of Pakistan” on 8th May 2012
and recognized as Degree Awarding Institute. The Institute is engaged in
educational and training programs leading to higher degree in the field of
Engineering.

9.20.2 Comments on Audited Accounts

9.20.2.1 The working results of the Institute for the year 2017-18 as compared to
the previous years are given below:
(Rs in million)
2017-18 %Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec)
Income
Tuition and training fee and 507.79 15.66 439.03 8.58 404.34
other income
Expenditure
Teaching 316.19 20.69 261.97 39.98 187.15
Training 15.01 18.37 12.68 (20.03) 15.85
Admin and general 83.45 17.46 71.04 25.66 56.54
Bank charges 0.25 19.32 0.21 40.82 0.15
Total expenditure 414.89 19.94 345.90 33.20 259.69
Surplus before taxation 92.90 (0.25) 93.13 (35.62) 144.65
487
 Taxation - - - - 2.80
Surplus after taxation 92.90 (0.25) 93.13 (34.34) 141.85
(Source: Annual Audited Accounts)

The income of the Institute increased by 15.66 % in 2017-18 as compared to

previous year whereas teaching, training and administration & general expenses
disproportionately increased by 20.69%, 18.37% and 17.46 % respectively which
resulted in decrease in surplus of income over expenditure from Rs 93.13 million
in 2016-17 to Rs 92.90 million in 2017-18. Efforts need to be made to control the
expenses of the Institute so that the profitability trend could be maintained in
coming years. However, reasons need to be explained for extraordinary increase
in teaching, training and administration & general expenses.

9.20.2.2 Capital work in progress increased from Rs 138.06 million as on June

30, 2017 to Rs 193.08 million as on June 30, 2018. Early and timely completion
of civil work is stressed upon the management in order to avoid time over-run
and escalation factors.

9.20.2.3 Balance in short term investments with banks increased from Rs 830.00
million as on June 30, 2017 to Rs 875.00 million as on June 30, 2018 (5.42%
increase over previous year), whereas profit from this investment decreased from
Rs 52.40 million in 2016-17 to Rs 51.90 million in 2017-18 (0.94% decrease over
previous year). Decrease in profit in 2017-18 despite increase in investment as
compared to previous year needs to be clarified.

9.20.2.4 Receivables from ‘Institutes and others’ increased from Rs 4.21 million
as on June 30, 2017 to Rs 8.38 million as on June 30, 2018 (98.98 % increase
over previous year). Reasons for abnormal increase under this head need to be
explained.

9.20.2.5 Land freehold of the Institute has been appearing in the books of
accounts at a cost of Rs 36.97 million since the beginning. The Institute is
situated on precious land of many acres in the city of Multan but the management
has never revalued its value. Need for revaluation of the land of the Institute from

488
any independent source is stressed upon the management so that the financial
statements of the Institute may depict a true and fair value of the assets.

9.20.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras %

Year Paras Compliance Compliance No of compliance
2013-14 04 03 01 8.23.2.3 75
Total 04 03 01 75

The compliance of the PAC directive was satisfactory however; efforts

need to be made for 100% compliance by PAO.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the
entity was not undertaken during subject period.

489
9.21 NFC Institute of Engineering and Fertilizer Research
Faisalabad

9.21.1 Introduction

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 programs leading to higher degree in the
field of Chemical Engineering since 1998. Later on, it started disciplines of
Electrical Engineering, Mechanical Engineering and Computer Sciences in 2003,
2004 and 2007 respectively. 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.

9.21.2 Comments on Audited Accounts:

9.21.2.1 The working results of the Institute for the year 2017-18 as compared to
previous years are as under:
(Rs in million)
2017-18 %Inc/ 2016-17 %Inc/ 2015-16
(Dec) (Dec)
Income
Tuition fee 331.10 6.69 310.35 44.02 215.49
Research income 4.41 34.18 3.29 - -
Other income 20.86 37.65 15.16 (82.61) 87.17
Total income 356.37 8.39 328.79 8.63 302.66
Expenses
Teaching expenses 227.65 9.86 207.22 10.77 187.08
Research and development 16.78 7.55 15.61 11.07 14.05
Administrative expenses 90.22 13.29 79.64 4.08 76.51
Total expenses 334.65 10.64 302.46 8.94 277.64
Profit before taxation 21.73 (17.48) 26.33 5.244 25.02
(Source: Annual Audited Accounts)

490
The income of the Institute increased by 8.39 % in 2017-18 as compared to
previous year whereas the total expenditure increased by 10.64% in 2017-18 as
compared to 2016-17. The disproportionate increase in expenditure as compared
to income resulted in reduction of profit before tax from Rs 26.33 million in
2016-17 to Rs 21.73 million in 2017-18 registering a decrease of 17.48% in
2017-18 over previous year. The expenses of the Institute particularly under the
head of Administrative expenses needs to be controlled which were due to
increase in number of employees from 266 as on June 30, 2017 to 304 as on June
30, 2018. The reasons for hiring of additional employees without enhancing its
business need to be justified with facts and figures.

9.21.2.2 Capital work in progress carried nil balance as on June 30, 2018 as
against Rs 0.58 million as on June 30, 2017. On the other hand, retention money
was outstanding as Rs 10.55 million as on June 2018 as compared to Rs 10.81
million as on June 30, 2017. The management of the Institute should clarify the
non-clearance of retention money.

9.21.2.3 Current Liabilities as on June 30, 2018 included deferred taxation and
provision for tax of Rs 33.01 million and Rs 8.72 million respectively. On the
other hand, the head current assets included advance tax of Rs 5.08 million as on
June 30, 2018. Settlement of issues with Tax authorities is stressed upon the
management.

9.21.2.4 Advances and Prepayment included other receivables of Rs 16.02

million as on June 30, 2018 as compared to Rs 15.60 million as on June 30, 2017.
Nature, detail and reasons of their non-recovery need to be explained.

9.21.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No %

Year Paras Compliance Compliance of compliance
2010-11 05 03 02 11.15.2.2,11.15.4.1 60
2013-14 04 03 01 8.24.2.2 75
Total 09 6 3 67

491
 The compliance of the PAC directives was not satisfactory which need
immediate attention of the PAO.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the entity was
not undertaken during subject period.

492
9.22 Small and Medium Enterprises Development Authority
9.22.1 Introduction
Small and Medium Enterprises Development Authority (SMEDA) was
created under a notification dated October 13, 1998 issued by the Prime Minister
of Pakistan office and is working under the Ministry of Industries, Government of
Pakistan. On August 12, 2002, an Ordinance was promulgated for the
establishment of SMEDA as an autonomous body under the Federal Government
for encouraging and facilitating the development and growth of small and
medium enterprises in Pakistan.

SMEDA was primarily working as an apex policymaking body for

economic and commercial development of Small and Medium Enterprises
(SMEs). The primary objective of the Authority is to provide a fresh impetus to
Pakistan’s economy through launching aggressive SMEs support programs. The
head office of SMEDA is situated on the sixth floor, LDA Plaza, Egerton Road,
Lahore.

9.22.2 Comments on Audited Accounts

9.22.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the years 2017-18 till December 31, 2018.
9.22.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

9.22.2.3 The working results of the Authority for the year 2016-17 as compared

493
to previous years are as under:
(Rs in million)
% Inc % Inc/
2016-17 / (Dec) 2015-16 (Dec) 2014-15
Income
Grant from Government of Pakistan 232.03 3.10 225.05 17.107 190.77
Income from projects 8.50 - - -
Income from services 1.27 (52.84) 2.70 (44.62) 4.87
Other income 1.22 26.09 0.97 8.17 0.89
Total Income 243.02 6.25 228.72 16.37 196.54
Expenditure
Salaries, wages and other benefits 133.48 17.22 113.87 10.12 103.41
Traveling and vehicle running 23.21 0.93 23.00 9.02 21.10
Repair and maintenance 4.22 33.10 3.17 0.76 3.15
Depreciation 5.18 (20.87) 6.55 (16.76) 7.87
Rent Rates 21.58 11.78 19.31 8.00 17.88
Projects expenditure 8.92 158.43 3.45 36.96 2.52
Provision for staff gratuity 21.15 26.82 16.68 12.42 14.83
Other expenditure 36.33 (13.62) 42.06 57.10 26.77
Total expenditure 254.08 11.39 228.09 15.47 197.53
(Deficit)/surplus of income over
(11.05) (1858.19) 0.63 - (0.99)
expenditure
Fund balance (45.01) (33.95) (1.82) (34.58)
(Source: Annual Audited Accounts)

Income from services of the Authority decreased from Rs 2.70 million in 2015-16
to Rs 1.27 million in 2016-17 by 52.84% and ultimately management had to rely
on Government grants, which have increased from Rs 225.05 million in 2015-16
to Rs 232.03 million in 2016-17. Efforts need to be made to enhance the income
from services so that dependency on Government grants could be reduced.

9.22.2.4 Salaries, Wages and other benefits of other permanent staff increased by
18.19% from Rs 106.39 million in 2015-16 to Rs 125.75 million in 2016-17. The
increase in salary packages of other staff needs clarification.

494
9.22.2.5 Training and conference expenses increased by 66.41% from Rs. 3.23
million in year 2015-16 to Rs. 5.38 million in year 2016-17 which needs
clarification.

9.22.2.6 Income from services decreased from Rs. 2.70 million in 2015-16 to
Rs. 1.27 million in 2016-17 decreased by 52.84%, which needs clarification.

9.22.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending % of

Paras Compliance Compliance Paras No compliance
2003-04 02 0 02 120&121 -
2004-05 02 01 01 77 50
2006-07 04 03 01 86.3 75
2009-10 07 05 02 114.4 71
,114.6
Total 15 9 6 60

Overall compliance of PAC directives was not satisfactory which needs to

be improved.

9.22.4 Audit paras

9.22.4.1 Irregular award of contract at higher rates - Rs 1.25 million

According to clause 36 (b) (ix) of PPRs 2004, the bid found to be the
lowest evaluated bid shall be accepted.

During the Audit of SMEDA, Sialkot Business and Commerce Centre

(SBCC), Sialkot, for the year 2016-18, it was observed that the management
floated tender in the daily newspaper “The Nation” dated April 24, 2016 for
procurement of eighty one (81) air conditioners along with accessories. In
response to the tender, eight (8) bidders participated in the bid. Out of these
bidders, M/s Greaves Air Conditioning (Pvt.) Ltd. quoted the lowest rates of
Rs 13.73 million. During technical evaluation, the management disqualified the
lowest bidder (M/s Greaves) on the ground that the bidder did not mention the
495
specifications of temperature. During examination of the relevant record of tender
submitted by the bidder, it was revealed that the bidder provided the
specifications of temperature i.e. 82.7/ 67. Contrary to the above, management
rejected the first lowest bidder and accorded undue benefit by awarding contract
to M/s Humak Engineering Pvt. Ltd. at a cost of Rs 14.98 million on June 21,
2016. This resulted into irregular award of contract valuing Rs 14.98 million.

Audit was of the view that award of contract by the management to

second lowest bidder was irregular.

The matter was reported to the Ministry and management on October 11,
2018.The DAC in its meeting held on January 11, 2019 directed to probe the
matter at Ministry level. The inquiry was not conducted by the ministry till the
finalization of this report.

Audit recommends compliance of the DAC directive.

9.22.4.2 Wasteful expenditure on third party performance evaluation of

SMEDA - Rs 2.45 million
According to Ministry of Industries & Production letter No. 3(2)/2015-
ME-I dated May 06, 2015, the administrative Ministry directed SMEDA to
conduct third party performance evaluation for three years 2011-14 and
compliance report be furnished to the Ministry on priority basis. As per Terms of
References (ToRs) issued by Ministry of Industries & Production, the Firm/
consultant will complete the assignment within thirty (30) days from award of
contract. The scope of work as per ToRs was as under:

i. Examine and analyze;

a. SMEDA Products & Services Portfolio
b. Over the counter Products & Services
c. Business Development Services
ii. Sector/ Cluster Development Initiatives
iii. SMEDA’s Demonstration Projects (PSDP) and other strategic initiatives
iv. Research, policy and advocacy activities
496
 During the Audit of Small and Medium Enterprises Development
Authority (SMEDA) for the year 2016-18, it was observed that M/s SKP
Consulting Limited was awarded the contract amounting to Rs 4.90 million being
the lowest bidder on January 28, 2016. The management allowed 120 days for
completion of the assignments against Ministry directions of 30 days.
Management paid Rs 2.45 million to the consultancy firm. Due time for
submission of report by the consulting firm as per contract was May 28, 2016
(120 days) but after lapse of considerable time i.e. 27 months, Performance
Evaluation Report as per ToRs was not furnished by the consulting firm. The
management just encashed the performance guarantee Rs 0.49 million but did not
initiate legal action against the firm.

Audit was of the view that the management neither followed the
instructions of administrative ministry nor initiated legal action against the
consulting firm for its blacklisting.

The matter was reported to the Ministry and management on October 11,
2018.The DAC in its meeting held on January 11, 2019 directed to take the
matter to BoD and Ministry of Industries and Production for review. No progress
was reported till the finalization of this report.

Audit recommends compliance of the DAC directive.

497
9.23 Spun Yarn Research & Development Company (SYRDC),

9.23.1 Introduction

Spun Yarn Research and Development (R&D) Company was

established/incorporated on June 27, 2011. The principal office of the Company
is situated at House No.1 Green Homes, Nawabpur Road, Multan. A Company
was established under section 32 of Companies Ordinance, 1984 under Ministry
of Industries & Production (MOIP) owned by the Federal Government. The
Company runs as a joint venture between the Government of Pakistan and private
investor, with around 37% Government of Pakistan shareholding and around 63%
private party shareholding. The purpose of the project is to consume left over
waste of cotton ginning industry to produce useful raw material for next
processes. The proposed facility aims to consume waste of cotton spinning
industry in the form of card fly and dropping to convert it into valuable market
product.

9.23.2 Comments on Audited Accounts

9.23.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
9.23.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

9.23.3 Compliance of PAC Directives:

There were no pending PAC directives for compliance.

498
9.23.4 Audit Paras

9.23.4.1 Irregular purchase of raw material - Rs 373.41 million

According to Rule 9 of PPRs 2004, a procuring agency shall announce in

an appropriate manner all proposed procurements for each financial year and
shall proceed accordingly without any splitting or regrouping of the procurements
so planned. The annual requirements thus determined would be advertised in
advance on the Authority’s website as well as on the website of the procuring
agency in case the procuring agency has its own website.

During the audit of Spun Yarn Research & Development Company

(SYRDC) for the years 2011-18, it was observed that the management executed
purchase agreements with different parties and purchased raw material amounting
to Rs 373.41 million without getting any competitive rates during the years 2015
to 2018.

Audit was of the view that the management was required to purchase the
raw material considering the annual requirements/ targets. Due to the absence of
purchase plan as well as approval of the board with respect to PC-I, the
procurement of raw material was considered irregular.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.23.4.2 Irregular purchase of cables - Rs 5.85 million

According to Rule 12(2) of PPRs 2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement

499
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of Spun Yarn Research & Development Company

(SYRDC) for the years 2012-18, it was observed that the management purchased
electric cable amounting to Rs 5.854million without advertisement from
M/s Pakistan Cables Private Limited during 2014-15 in violation of Public
Procurement Rules.

Audit was of the view that the management was required to follow PPR
rules and obtain competitive rates during procurement of electric cables.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.23.4.3 Irregular purchase of land at higher rate - Rs 8.05 million

According to PC-I of Spun Yarn Research & Development Company

(SYRDC) dated December 2009 the estimated capital cost of land was Rs 5.00
million. According to advertisement in the Daily Mail (English) dated December
29, 2011, industrial plot measuring 12-16 kanals was required at Multan to
establish facilitation center. Preference was to be given to the industrial plot
situated at main road, MEPCO Grid Station and near Industrial Gas Pipelines.

During the audit of Spun Yarn Research & Development Company

(SYRDC) for the years 2012-18, it was observed that the management purchased
land at the cost of Rs 13.05 million during March, 2012 inspite of the fact that
estimated cost of land was Rs 5.00 million as per approved in PC-I dated
December 2009. The management purchased agricultural land instead of
industrial plot in violation of advertisement. Management delayed the purchase of

500
land despite availability of sufficient funds which resulted in extra payment of
Rs 8.05 million (i.e. Rs 13.05 million - Rs 5.00 million).

Audit was of the view that management was required to revise the PC-I
with respect to increase in cost of land from the competent forum but no approval
was obtained from the competent authority. Furthermore, the plot was required to
be purchased in the industrial area instead of agricultural land.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.23.4.4 Irregular appointment on contract basis - Rs 12.45 million

According to order of the Honorable Supreme Court of Pakistan, passed

on Human Rights Case No.104 of 1992 on December 26, 1992 (circulated by the
Cabinet Division), the Court observed that the Federal Government, Provincial
Government, Statutory bodies and the Public Authorities are making initial
appointments, both adhoc and regular to posts without publicity and properly
advertising the vacancies and at times by converting adhoc appointments into
regular appointments. This practice is prima facie violation of Fundamental
Rights (Article-18 of the Constitution) guaranteeing to every citizen’s freedom of
profession. It was ordered that the violation of this Fundamental/Human Right
should be discontinued forthwith. Steps shall immediately be taken to rectify, so
as to bring the practice in accordance with the Constitutional requirements.

During the audit of Spun Yarn Research & Development Company

(SYRDC), for the years 2012-18, it was observed that the management appointed
twenty two (22) employees on contract basis without advertisement during the
years 2010 - 2018 and paid an amount of Rs 12.45 million. Thus, the appointment
as well as payments were considered irregular due to noncompliance of orders of
Supreme Court of Pakistan.
501
 Audit was of the view that the compliance of instructions issued by
Supreme Court of Pakistan as well as Government of Pakistan is mandatory.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.23.4.5 Unjustified expenditure on account of stipend to trainees - Rs 15.00

million

According to Rule 5(5) of Public Sector Corporate (Governance Rules)

2013, the Board shall establish a system of sound internal control, which shall be
effectively implemented at all levels within the Public Sector Company, to ensure
compliance with the fundamental principles of probity and propriety; objectivity,
integrity and honesty and relationship with the stakeholders.

During the audit of Spun Yarn Research & Development Company

(SYRDC) for the years 2012-18, it was observed that the management incurred
expenditure of Rs.15.00 million on account of stipend to various trainees during
the year 2015-16 without necessary provision in PC-I.

Audit was of the view that the management was required to make
expenditure as per provisions of the approved PC-I but expenditure was incurred
without any provision in approved PC-I which was unjustified.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

502
9.23.4.6 Non-conducting the physical verification of assets - Rs 132.14 million

According to Rule 159-A of General Financial Rules, physical

verification of all stores should be made at least once in every year under rules
prescribed by competent authority.

During the Audit of Spun Yarn Research & Development Company

(SYRDC) for the years 2012-18, it was observed that the company had fixed
assets worth Rs 132.14 million as on June 30, 2017.The existence of company
assets was not checked through an independent body to ensure physical existence
at any specific date in violation of above referred rules. During site visit of
SYRDC, it was observed that machinery & equipment, furniture & fixtures and
tools amounting to Rs 132.14 million purchased for the project was lying in the
unit No. 2 & 3 of LCDC in shabby / poor condition.

Audit was of the view that the management was required to conduct
physical verification of the assets but the same was not done.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.23.4.7 Non-insurance of company assets - Rs 39.78 million

According to Clause 166 (2a) and (3) of Insurance Ordinance, 2000, all
insurance business relating to any public property, or to any risk or liability
appertaining to any public property, shall be placed with the NICL only and shall
not be placed with any other insurer.

During the Audit of Spun Yarn Research & Development Company

(SYRDC) for the years 2012-18, it was observed that the management purchased
different assets worth Rs 39.78 million during the period from 2012-18. It was
503
the responsibility of the management to get the company assets insured as per the
above said govt. instructions from NICL to safeguard against any loss.

Audit was of the view that all the Government assets were to be insured
from M/s National Insurance Company Limited.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

504
9.24 Leather Crafts Development Company (LCDC) Multan

9.24.1 Introduction

Leather Craft Development Company was established/incorporated on

May 31, 2010. The principal office of the Company is situated at House No.1
Green Homes, Nawabpur Road, Multan. A Company was established under
section 32 of Companies Ordinance, 1984 under Ministry of Industries &
Production (MOIP) owned by the Federal Government. The Company run as
joint venture between the Government of Pakistan and private investor, with
around 47% Government of Pakistan shareholding and around 53% private party
shareholding. The primary goal of the project is to generate economic activity is
Southern Punjab and provide employment to the local people based on their
indigenous strength.

9.24.2 Comments on Audited Accounts

9.24.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
9.24.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

9.24.3 Compliance of PAC Directives:

There were no pending PAC directives for compliance.

505
9.24.4 Audit Paras

9.24.4.1 Irregular procurement of roof slabs - Rs 3.82 million

According to Rule-12(2) of the PPRs 2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of Leather Crafts Development Company (LCDC) for

the years 2011-18, it was observed that the management issued purchase order
dated August 21, 2014 for precast roof slabs and girders to M/s Izhar Group of
Companies Multan amounting to Rs 3.82 million on quotation basis in violation
of the above said rules.

Audit was of the view that the management was required to make
procurement through competitive process but the same was not done. Hence,
purchase of roof slabs in violation of PPRs was considered irregular.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.24.4.2 Unjustified appointment of Chief Executive Officer - Rs 16.00 million

According to order of the Supreme Court of Pakistan passed on Human
Rights case No.104 of 1992 on December 26, 1992 (circulated by the Cabinet
Division), the Court observed that the Federal Government, Provincial
Government, Statutory bodies and the Public Authorities are making initial
appointments, both adhoc and regular to posts without publicity and properly
advertising the vacancies and at times by converting adhoc appointments into

506
regular appointments. This practice is prima facie violation of Fundamental
Rights (Article-18 of the Constitution) guaranteeing to every citizen’s freedom of
profession.

During the audit of Leather Crafts Development Company (LCDC) for

the year 2011-18, it was observed that BoD in its second meeting held on October
31, 2011 appointed Khawaja Muhammad Ali Yousaf as Chief Executive Officer
of the company at monthly salary of Rs 200,000. The officer was also the Chief
Executive Officer & Chairman of the Spun Yarn Research & Development
Company (SYRDC) established on June 27, 2011 till to date and was drawing
salary and fringe benefits from both companies. The appointment as CEO was
made in violation of Honorable Supreme Court decision and as well as being the
Chairman/CEO of SYRDC. Resultantly the said officer was working in two posts
simultaneously (in LCDC & SYRDC). Hence, the appointment as CEO in LCDC
and payment thereof valuing Rs 16.00 million was considered irregular and
unjustified.

Audit was of the view that the officer could not work as CEO in two
companies simultaneously. Furthermore, the appointment was made in violation
of Supreme Court of Pakistan decision.
The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.24.4.3 i Non conducting the physical verification of assets –Rs 11.60 million
ii Non utilization of assets purchased for the projects lying in store since
long - Rs 4.46 million

According to rule 159-A of General Financial Rules, physical verification

of all stores should be made at least once in every year under rules prescribed by
competent authority.

507
 During the audit of Leather Crafts Development Company (LCDC) for
the years 2011-18, it was observed that company had fixed assets worth
Rs 11.60 million as on June 30, 2018. The existence of company assets was not
checked through an independent body to ensure physical existence at any specific
date in violation of above referred rules. During site visit of unit 2 & 3 of LCDC,
it was observed that machinery & equipment, furniture & fixtures and tools
amounting to Rs 4.46 million purchased for the project was lying in the store
room shabby/ poor condition.

Audit was of the view that the management was required to verify the
physical existence of the assets but the same was not done.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

9.24.4.4 Unjustified expenditure on training - Rs 16.86 million

According to clause 6 of PC-I, the training courses to produce workers for

value added sector of leather was scheduled as two courses of leather
manufacturing and two courses of cutting & pattern. Further, stipend of Rs 2,000
per month would be given to each student.

During audit of Leather Crafts Development Company (LCDC) for the

years 2011-18, it was observed that the management incurred expenditures of
Rs 16.86 million on stipend to various trainees during the year 2015-16. Contrary
to the PC-I requirement the management conducted more than two courses for
each student. Furthermore, it was also observed that these trainees did not join
any leather industry as no documents / evidence was available with the
management. Thus, public funds were not utilized with due care and caution and
this resulted into wasteful expenditure of Rs 16.86 million. Further, the

508
management did not execute the project in spite of lapse of considerable period as
required in PC-I.

Audit was of the view that the management was required to conduct two
courses instead of more than two according to PC-I provisions which was serious
lapse on the part of management.

The DAC in its meeting held on January 11, 2019, discussed the issue and
decided that the Ministry will review both the projects and then the matter would
be discussed again.

Audit recommends compliance of the DAC directive.

509
9.25 Utility Stores Corporation of Pakistan (Pvt.) Limited

9.25.1 Introduction

Utility Stores Corporation of Pakistan (Pvt.) Limited (the Company) was

incorporated on September 03, 1971 as Private Limited Company under
Presidential order issued vide President Secretariat U.O dated March 26, 1971.
The Corporation is registered under Companies Ordinance 1984 (now Companies
Act, 2017) with its registered office at Islamabad.

The Company has paid up capital of Rs 737.73 million fully owned by the
Government of Pakistan. The Company is working under administrative control
of Ministry of Industries and Production. The key objectives of the Company
were to:

i. Undertake the procurement of essential consumer goods from domestic and

external sources.
ii. Ensure the availability of quality goods in adequate and regular quantities
and market them at prices lower than the market, through a chain of store
operations.

9.25.2 Comments on Audited Accounts

9.25.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
9.25.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

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9.25.2.3 The working results of the Corporation for the year 2016-17 as
compared to previous years were given below:
(Rs in million)
2016-17 % Inc/ 2015-16 % Inc/ 2014-15
(Dec) (Dec)

Sales 53,619.49 10.34 48,593.95 (13.44) 56,137.24

Subsidy 4,250.60 138.87 1,779.47 (38.08) 2,873.87
Cost of sales 53,231.90 14.53 46,478.52 (15.25) 54,838.87
Gross Profit 4,638.20 19.08 3,894.90 (6.65) 4,172.24
Selling and Distribution
expenses 7,322.38 13.73 6,438.67 11.69 5,764.66
Administrative expenses 412.68 1.39 407.02 55.72 261.38
Finance Cost 46.75 4.68 44.66 (2.85) 45.97
Other Income 306.14 (21.87) 391.83 22.52 319.80
Loss before taxation 2,837.47 8.98 2,603.62 64.79 1,579.97

Taxation 536.55 14.08 470.34 (24.49) 622.90

Loss after taxation 3,374.02 9.76 3,073.96 39.54 2,202.87
Loss per share 45.74 9.77 41.67 39.55 29.86
(Source: Annual Audited Accounts)

Loss of the corporation increased from Rs. 2,603.62 million during 2015-16 to
Rs. 2,837.47 million during 2016-17 despite the fact that the subsidy from
Federal Government increased by 138.87 % from Rs. 1,779.47 million during
2015-16 to Rs. 4,250.60 million during 2016-17, which needs explanation.

9.25.2.4 Sales of the corporation increased by 10.34% i.e. from Rs. 48,593.95
during 2015-16 to Rs. 53,619.49 during 2016-17 whereas Selling & Distribution
Expenses increased by 13.73% i.e. from Rs. 6,438.67 million during 2015-16 to
Rs. 7,322.38 during 2016-17. Disproportionate increase in selling & distribution
expenses needs explanation.

9.25.2.5 As per qualification of the Chartered Accountants, the title of leasehold

land and building at Roti Plant, Karachi acquired by the Company in 1999 from
Privatization Commission, Government of Pakistan at a revalued amount of
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Rs 571.85 million had not been transferred in the name of the Company which
needed justification.

9.25.2.6 As per qualification of the Chartered Accountants interest free long-term

loan amounting to Rs 500 million from Ministry of Industries and Production had
not been shown at amortized cost as required by the International Accounting
Standard 39, which needed justification.

9.25.2.7 The corporation had a Tax Refund due from the government valuing
Rs. 2,753.45 million for the last many years, which needs early recovery to
reduce the ever-increasing financial crunch of the corporation.

9.25.2.8 The Trade and other payables of the corporation increased from
Rs. 44,963.34 million during 2015-16 to Rs. 49,453.01 million during 2016-17.
The non-payment of Trade and other payables despite having bank balance of
Rs. 712.27 million as on June 2017 needs justification.

9.25.2.9 The provision for slow moving items charged on the basis of actual
damaged, expired and obsolete goods received from the regions increased from
Rs. 1.67 million during 2015-16 to Rs. 166.88 million i.e. 9,904.62% increase.
The management required immediate attention to curb the tendency of increase in
damaged, expired and obsolete goods.

9.25.2.10 The management had made 100% provision of Rs. 193.71 million for
the trade debts considered doubtful during the year 2016-17, which requires
explanation.

9.25.2.11 The shortage in stocks recoverable from store incharges valuing

Rs. 1,419.79 million as on June 30, 2016 increased to Rs. 1,447.21 million as on
June 30, 2017. The provision for doubtful debts (shortage in stocks recoverable
from store incharges) increased from Rs. 42.16 million as on June 30, 2016 to
Rs. 249.47 million as on June 30, 2017 i.e 491.76% increase. Effort needs to be

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 made for an early recovery of the shortage amount besides minimizing the
chances for shortage.

9.25.2.12 The provision for miscellaneous receivable increased from Rs. 0.99
million as on June 30, 2016 to Rs. 2.79 million as on June 30, 2017 i.e. 182.56%
increase. Efforts need to be made for an early recovery of the miscellaneous
receivable for an early payment of Trade and other payables of the corporation.

9.25.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No % of

Paras Compliance Compliance
Compliance
1990-91 03 02 01 250 67
1992-93 05 02 03 149,150,151 40
1994-95 08 05 03 156,157,160 63
1995-96 13 12 01 131 92
1997-98 02 01 01 214 50
1998-99 07 06 01 172 86
1999-00 04 01 03 251,252,253 25
2002-03 08 07 01 142.4 88
2005-06 05 04 01 147.3 80
2006-07 07 05 02 87.2,87.4 71
2007-08 07 02 05 89.2,89.3,90,91,93 29
2008-09 06 04 02 116,118 67
2009-10 12 06 06 117.2,117.4,118,120, 50
122,123
2010-11 14 06 08 11.6.2,11.6.4.1,11.6.4 43
.2,11.6.4.3, 11.6.4.4,
11.6.4.6, 11.6.4.7,
11.6.4.8,
2013-14 09 02 07 8.25.2.5,8.25.1&8 22
.25.2.1,8.25.2.3,
8.25.2.4,8.25.2.6,
8.25.2.7,8.25.2.8
Total 110 65 45 59

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 Overall compliance of PAC directives was not satisfactory which needs to
be improved.

9.25.4 Audit Paras

9.25.4.1 Embezzlement of subsidy on Atta – Rs 75.69 million

According to serial No: 3(i), (ii), (iii) of the GM Procurement (Wheat/

Wheat Flour) USC Head Office letter No: 4092/MAR/W&WF dated July 03,
2013, allocation of Atta would be made according to demand/ population. As per
Senior GM Operation/ Procurement (ATTA) USC Head Office letter No:
4092/MAR/W&WF dated July 22, 2013, Atta cannot be purchased from
pre-qualified flourmills out of zone.

During the audit of USC Zonal Office Lahore for the year 2017-18 it was
observed:

i. The management of Sheikhupura & Gujranwala Regions in

collaboration with flour mills sold out the allocated Atta (100,000
bags each) in open market instead of stores and made up the
documentation for procurement of Atta. This resulted into
embezzlement of subsidy due to bogus supply of Atta to the poor
citizens of Pakistan valuing Rs. 24.000 million @ Rs. 120 per bag.
ii. Regional Manager, Sheikhupura prepared debit vouchers for
procurement of Atta valuing Rs 6.80 million from M/s Khawaja Flour
Mills & National Flour Mills Shahpur Kanjran Lahore in one day
despite the fact that these mills had no physical existence.
iii. Against the allocation of 100,000 bags, Atta Regional Management
Gujranwala procured 134,496 bags of Atta valuing
Rs 83.39 million. This resulted into excess procurement of 34,496
bags Atta valuing Rs. 21.39 million without approval of USC head
office.

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 iv. Regional Manager Gujranwala prepared bogus debit vouchers for the
procurement of 21,105 bags of Atta valuing Rs. 13.09 million from
M/s Nasir Flour Mills Lahore (outside the jurisdiction of RM
Gujranwala) during the period July 09, 2013 to August 07, 2013 and
obtaining signatures of different store Incharges forcibly.
v. Regional Manager Gujranwala procured 16,795 bags of Atta valuing
Rs 10.41 million from M/s Chenab Flour Mills Gujrat (outside the
jurisdiction of RM Gujranwala) during July 22, 2013 to August 07,
2013.

Audit was of the view that regional management violated the USC head
office instructions but no action was taken.

The matter was reported to the management on October 14, 2018 and to
PAO on October 13, 2018. During DAC meeting held on January 25, 2019,
management apprised the committee that same observation was already printed in
Special Audit Report relating to Mr. Hassan Ali Bhatti and Nedeem Ashar Gill of
Sheikhupura Region and there was no loss to the corporation. Audit contended
that no action was taken against RM Gujranwala. The DAC directed to inquire
the matter at Ministry level.

Audit recommends compliance of DAC directives.

9.25.4.2 Loss due to embezzlement in US Pak Secretariat Utility Store Karachi

– Rs. 118.70 million

According to Clause-7.06 of the Chapter-7 (Damages/ Losses) of Stores

Operations Manual 1982, the following procedure will be adopted to minimize
damages: (a) on receipt of good from suppliers, the Incharge Warehouse will
check the contents of packages and satisfy himself as to the number / quality/
quantity in accordance with the GRN; (b) any damages within the warehouse will
be the responsibility of Incharge Warehouse/ the person causing damage/
discrepancy; (c) from warehouse to stores the responsibility for damages will

515
devolve in the Delivery Clerk/ Loader as the case may be; and (d) after receipt at
store point, the Incharge Store will be responsible for all damages/ discrepancies
and will be called upon to make good the loss so caused to the corporation.

During the audit of Utility Stores Corporation (USC) for the year 2017-
18, it was observed that the Zonal Manager Karachi on February 20, 2018
intimated the embezzlement of Rs. 118.70 million in US Pak Secretariat Store,
US Farer Road Karachi and some other stores of Karachi Region. The 26th
Executive Board Meeting (EBM) held on March 05, 2018, constituted an internal
audit team to carry out the audit of US-Pak Secretariat Store and all the stores of
USC Karachi North & South Region. A Fact Finding Inquiry was also carried out
to fix responsibility on the responsible officers/ officials involved in
misappropriation/ embezzlement of Government funds. Audit demanded the
Audit Report of US Pak Secretariat Karachi Stores along with Fact Finding
Report but same were not provided.

Audit was of the view that weak internal controls and poor vigilance
resulted in embezzlement cases at Quetta Region in 2012 and now in Karachi
Region in 2018.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that Fact Finding has been carried out along with Special
Audit of the Karachi Regions and case was referred to NAB. The Committee
directed to pursue the case with NAB and affect recovery.

Audit recommends compliance with DAC directives.

9.25.4.3 Loss due to massive embezzlement in Sargodha Region - Rs. 9.06

million

According to USC Circular Order bearing No: 501/Acctt/2006 dated:

December 30, 2006, in case of any violation or lapse/ violation in performance of
516
these duties the official concerned shall be duly accountable for the loss, if any,
arising from such lapse/ violation of duty.

During the audit of Utility Stores Corporation for the year 2017-18, it was
observed that the management dismissed two employees of Sargodha Region on
the following charges of embezzlement, misconduct, inefficiency, negligence and
dereliction:

i- Sales worth Rs 985,690 were under- booked in Cash in Transit (CIT) of

relevant stores and credited to other irrelevant stores;
ii- Disparity between CIT Schedules sent to USC Head Office & maintained
at region and non recovery of Rs 883,263;
iii- Embezzlement of Rs. 19.98 million through excess crediting of sales to
stores accounts.
Afterwards an amount of Rs 12.785 million (Rs 9.81 million in cash and
Rs 2.98 million from the salary) was recovered. This resulted into embezzlement
of Rs. 9.06 million through excess credit of sales into stores account by the above
culprits.

Audit was of the view that the management was required to take strict
disciplinary action against the culprits and recover the embezzled amount but no
further recovery was effected from the culprits till the close of audit which was an
undue favour. Furthermore, weak internal controls resulted into embezzlement of
Rs. 9.06 million.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that an amount of Rs. 6.4 million has been recovered. The
Committee directed to get the recovery verified and make efforts for balance
recovery.

Audit recommends compliance of the DAC directive.

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9.25.4.4 Loss due to dacoity in warehouses of Rawalpindi (North) & (South)
Regions - Rs. 9.54 million

According to circular order No.4/SO&S/2007 dated January 24, 2007 and

No.06/SOS/2010 dated June 03, 2010, the regional manager and store in-charge
were responsible to ensure the safe and secure operation of stores and to ensure
that proper security measures have been adopted and security guards/chowkidars
deployed at warehouse/stores are available and performing their duties as per
instructions issued from time to time.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that an incident of dacoity took place in the branded
goods warehouses of USC Rawalpindi (North) and Rawalpindi (South) Regions
on midnight of 17 & 18 February 2018, wherein the dacoits broke the locks of
warehouses and entered both warehouses of the regions and took away the stock
in bulk. As per initial investigations, loss of Rs. 9.54 million was assessed. Fact
Finding Inquiry was ordered by the then Managing Director, which was under
process. FIR was also lodged and investigation in this regard was pending with
police authorities and no accused was arrested by the police authorities till the
close of audit.

Audit was of the view that poor watch & ward conditions of these
warehouses by private security guards resulted in loss of Rs. 9.54 million. The
management was required to include necessary clauses to safeguard against these
incidents but contract with security agencies were not revised despite frequent
incidents of dacoity.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that claim of the NICL could not be completed due to non-
finalization of the Fact Finding Inquiry. The Committee directed to complete the
same within 15 days.

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 Audit recommends compliance of the DAC directive.

9.25.4.5 Irregular upgradation of accounts cadre of USC - Rs. 21.11 million

According to Cabinet Division (Establishment Division) Government of

Pakistan OM No: 01/13/96/R/6 dated: August 10, 2016, the competent authority
was pleased to approve up-gradation/ grant of higher scale to following
ministerial posts as mentioned against each w.e.f July 01, 2016:

S No Designation of Exiting Up-graded Remarks

the posts pay scales pay scales
1. Assistant BPS-15 - The existing incumbents are granted
Incharge BPS-16 as one time dispensation. The
posts of Assistant Incharge (BPS-15)
are henceforth decided a dying cadre.
2. Assistant BPS-14 BPS-15
3. Upper Division BPS-09 BPS-15
Clerk
4. Lower Division BPS-07 BPS-09
Clerk

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that BoD adopted the above Office Memorandum of
Cabinet Secretariat in its 139th meeting held on February 10, 2017. While
adopting the above OM the BoD also decided to upgrade the posts of Senior
Accounts Assistant (BS-14)/ Senior Audit Assistant (BS-14) Accounts Assistant
(BS-14)/ Audit Assistant (BS-14)/ Junior Accounts Assistant (BS-9) without
obtaining the approval of Finance Division. This resulted into irregular up-
gradation and payment of Rs. 21.11 million.

Audit was of the view that the management was required to obtain the
prior approval of the Finance Division, Government of Pakistan for upgradation
of the accounts cadre but no approval was obtained.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
519
management apprised that BoD has granted the approval for the up-gradation of
Accounts Cadre employees. The Committee did not accept the plea of the
management and directed to submit revised reply.

Audit recommends to obtain ex-post facto approval of the Finance

Division under intimation to audit.

9.25.4.6 Irregular continuation of security agreement with M/s Ghosia Guards

and Management Services (Pvt) Ltd - Rs. 56.99 million

According to Clause-4 of contract agreement on September 01, 2016, the

agency shall be registered with the concerned authorities of the Federal/
Provincial Government and should fulfill the conditions laid down by such
authorities. Moreover, according to Clause-17 of contract agreement on
September 01, 2016, the agency shall deposit performance security @10% of the
total yearly estimated contract value.

During the audit of USC Zonal Office Lahore for the year 2017-18, it was
observed that the management awarded contract for the provision of security
services to M/s Ghousia Guards and Management Services (Pvt) Ltd through
tendering w.e.f September 01, 2016 to August 31, 2017 and made a payment of
Rs 56.99 million. The registration certificate of the security agency from the
concerned authorities of the Federal/ Provincial Government were not obtained,
and performance security of only Rs 500,000 was obtained instead of the required
Rs 2.85 million @10% of the total yearly estimated contract value, which was in
violation of the above quoted clause of the contract agreement.

Audit was of the view that management failed to fulfill requirements.

The matter was reported to the management on October 14, 2018 and to
PAO on October 13, 2018. During DAC meeting held on January 25, 2019,
management apprised that they invited tenders twice but same were rejected due
to higher rates and security amount was being recovered. DAC was not satisfied

520
with the explanation of the management and directed to re-tender the services and
effect recovery of the 10% security.

Audit recommends compliance of the DAC directive.

9.25.4.7 Irregular payment of honorarium to daily wage employees - Rs 43.21

million

According to engagement letter, appointment of the Daily Wage

employees was on fixed pay.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that Board of Directors approved the payment of
honorarium to daily wage employees on account of performing duty beyond
normal duty during the month of Ramzan 2017 & 2018 @ Rs 7000 & Rs 5000
respectively. As per terms and conditions of the employment of daily wage
employees, they were not entitled to any other benefit except fixed wages hence
payment of honorarium to daily wage employees valuing Rs 43.21 was held
irregular.

Audit was of the view that the BoD was required to amend the term and
conditions of the appointment of these daily wage employees for the eligibility
for payment of honorarium otherwise, they were not entitled to receive
honorarium.

The matter was reported to the management on October 14, 2018 and to
PAO on October 13, 2018. During DAC meeting held on January 25, 2019,
management apprised that BoD approved the payment of honorarium to daily
wage employees due to work beyond normal hours during Ramzan. The DAC
directed the management to submit detail revised reply.

Audit recommends compliance with DAC directives.

521
9.25.4.8 Irregular procurement of branded sugar - Rs. 990.05 million

According to Clause (12) (2) of PPRs 2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu. According to Clause (12) (3) of PPRA Rules 2004,
in cases where the procuring agency has its own website it may also post all
advertisements concerning procurement on that website.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the management procured a quantity of 20 M. Ton branded
sugar valuing Rs. 2,325.42 million from M/s Chashma Sugar Mill Unit I & II and
M/s Premier Sugar Mills without advertisement on Authority’s website nor in
newspapers in violation of the above quoted rule of PPRs. The management
directly entered into an agreement with above sugar mills without any bid or
tender which was held irregular. Furthermore, management did not obtain earnest
money/ security money valuing Rs. 600,000 from the suppliers.

Audit was of the view that the management was required to advertise the
opportunity on Authority web site and in newspapers but no such action was
taken by management.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that PPRA was not applicable in case of procurement of
branded sugar. Committee was not satisfied with the explanation of the
management and directed to hold inquiry for violation of the PPRs at Ministry
level.

Audit recommends compliance of the DAC directive.

522
9.25.4.9 Irregular appointment of daily wage employee without approval of
the USC head office - Rs. 11.24 million

According to letter No: 237-Estt/DW dated September 13, 2012 from

Sr. GM (HR&A), all Regional Manager/Accounts Officer were directed that no
payment will be made to the daily wagers who were engaged without approval of
the USC Head Office and in case of 2nd violation of the head office directions,
RM/AO would be responsible for the requisite amount which would be recovered
from the salary of RM/AO.

During the audit of Utility Store Corporation (USC) for the year 2017-18
it was observed that the management of 13 regional offices engaged a large
number of daily wage employees or continued the engagement of daily wage
employees after the termination of their engagement period without obtaining any
approval from head office during 2009 to 2012. Therefore, the engagement and
payment of wages to these employees valuing Rs. 11.24 million was irregular.

Audit was of the view that the regional management was required to
either terminate the engagement of daily wage employees after expiry of
approved engagement period or obtain the approval of the USC head office for
the re-engagement of these daily wage employees but no such approval was
obtained.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that after retrenchment of 246 employees they got stay
orders from NIRC and case was still pending. The DAC directed to pursue the
court case.

Audit recommends compliance of the DAC directive.

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9.25.4.10 Irregular engagement /hiring of casual labor without advertisement
– Rs. 41.61 million

According to Rule-12 (ii) of PPRs 2004, all procurement opportunity over

two million rupees should be advertised on the Authority’s website as well as in
other print media or newspaper having wide circulation.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the management was hiring the services of casual labour for
loading and un-loading of commodities in warehouses from open market without
adopting competitive bidding as required under the rules, therefore, the
re-imbursement of bills on account of labour charges of Rs 41.61 million was
held irregular.
Audit was of the view that the management was required to engage the
labor contractor on competitive rates but it failed to comply with the PPRs.
Therefore, payment of Rs. 41.61 million to casual labor was held irregular.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised the committee that they hire casual labour on need basis.
The Committee was not satisfied with the reply of the management and directed
to submit revised reply.

Audit recommends compliance of the DAC directive.

9.25.4.11 Irregular payment of sales commission on deficient sales targets -

Rs. 66.89 million

According to Clause-5 (a) of Public Sector Companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
control, which shall be effectively implemented at all levels within the Public
Sector Company, to ensure compliance of the principle of probity and propriety
entails that company’s assets and resources are not used for private advantage

524
and due economy is exercised so as to reduce wastage. The principle shall be
adhered to, especially (i) handling of public funds, assets, resources and
confidential information by directors, executives and employees; and (ii)
claiming of expenses.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the management made payment of sales commission valuing
Rs. 66.89 million despite the fact that regional sales staff was deficient in
achievement of sales targets i.e out of total sales targets of Rs. 64,023.60 million
for the year 2017-18 they achieved only sales worth Rs. 29,972.20 million hence
achievement was only 54%. This resulted into unjustified payment of sales
commission valuing Rs. 66.89 million.

Audit was of the view that the payment of sales commission incentive
despite deficiency in achieving the sales targets was an extra financial burden on
the corporation. Furthermore, management did not formulate any policy
regarding payment of sales incentive and sales commission. Therefore, payment
of commission valuing Rs. 66.89 million was considered irregular.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised the committee that the amount also includes shoplifting
allowance to sales staff. The committee directed the management submit revised
reply.

Audit recommends compliance of DAC directives.

9.25.4.12 Non-recovery from various organizations - Rs. 360.22 million

According to Clause-5 (a) of Public Sector Companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
controls, which shall be effectively implemented at all levels within the Public
Sector Company to ensure compliance of principle of probity and propriety

525
entails that company’s assets and resources are not used for private advantage
and due economy is exercised so as to reduce wastage especially with respect to
(i) handling of public funds, assets, resources and confidential information by
directors, executives and employees; and (ii) claiming of expenses.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that an amount of Rs. 360.22 million was outstanding against
various organizations from 2004 to 2015 which showed that no serious efforts
were made by the management for recovery of the above outstanding amount.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that main amount relates to Emergency Relief Cell,
Pakistan Bit ul Mal and National TB Control Programme for which efforts were
being made. Committee was not satisfied with explanation of the management
and directed to pursue the recovery.

Audit recommends compliance of DAC directives.

9.25.4.13 Non-recovery/ adjustment of sales return, stocks transferred to other

regions – Rs.2,185.86 million

According to clause-5 (a) of Public Sector Companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
controls, which shall be effectively implemented at all levels within the Public
Sector Company, to ensure compliance of principle of probity and propriety
entails that company’s assets and resources are not used for private advantage
and due economy is exercised so as to reduce wastage especially with respect to
(i) handling of public funds, assets, resources and confidential information by
directors, executives and employees; and (ii) claiming of expenses.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that in several cases stocks valuing Rs. 2,185.86 million

526
were returned to suppliers/transferred to other regions/warehouse adjustments etc
through stock debit notes but no confirmation of recovery/adjustment from these
suppliers/Regions was available in the record of the respective region.

Audit was of the view that the management of respective regions was
required to confirm the receipt/ return of stock to suppliers but no confirmation
was received even lapse of ten years which was objectionable and showed poor
performance/ weak internal controls.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that it was an ongoing process and only SDNs for the
period prior to introduction of Accounting Software were pending. The
Committee directed to clear the same at an early date.

Audit recommends compliance of DAC directives.

9.25.4.14 Non termination of the services of excess daily wage employees hired
after January 2017 - Rs 33.36 million

According to Minutes of 22nd Executive Board Meeting (EBM) held on

January 31, 2018, the committee decided that excessive manpower hired after
January 2017, should be relieved in view of the grievances of the CBA
highlighted during National Assembly Standing Committee meeting held on
January 31, 2018.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that during National Assembly question dated: January
31, 2018, CBA Union representative agreed to retrench the excess daily wage
employees of the corporation recruited after January 2017. The management
failed to terminate the services of 278 daily wage employees hired after January
2017 despite the orders of the Executive Board dated January 31, 2018 and
agreement with CBA Union. This resulted into irregular continuation of the 278

527
daily wage employees and payment of salary and wages valuing Rs 33.36 million
(Rs 15000 per month x 8 months x 278).

Audit was of the view that the management was required to immediately
terminate the services of excess daily wage employees of the corporation in view
of the present financial crunch of the company.

The matter was reported to the management on October 14, 2018 and to
PAO on October 13, 2018. During DAC meeting held on January 25, 2019,
management apprised that after retrenchment of 246 employees, they got stay
orders from NIRC and case was still pending. The DAC directed to pursue the
court case.

Audit recommends compliance of the DAC directive.

9.25.4.15 Appointment of Legal Advisors without approval of Law & Justice

Division - Rs 12.88 million

According to Para-V of the letter of Government of Pakistan Ministry of

Law, Justice and Human Rights Division dated: June 3, 2015, every Government
Department or Semi Government or Public Corporate Body shall seek
concurrence of the Law, Justice and Human Rights Division for engagement of
lawyer where professional fee exceeds Rs. 300,000. In such a case concerned
department will send a panel of at least three advocates for selection of one of
them along with proposed professional fee for approval of Law, Justice and
Human Rights Division.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that BoD in its 131st meeting held on January 08, 2016
formally approved the appointment of legal counsel Mian Shafqat Jan Advocate
Supreme Court, Senior Partner Khan & Muezzin Barrister, Advocates & Legal
Counsel and payment of legal fee amounting to Rs. 500,000 in connection with
filing of writ petition No 3944/2015 on behalf of Board of Directors before

528
Islamabad High Court, Islamabad. Management moved the case for the approval
of legal fee of Rs. 500,000 to Law, Justice and Human Rights Division through
administrative ministry. The Law, Justice and Human Rights Division regretted
to concur on the payment of the fee to advocate engaged by USC on their own
without following the prescribed procedure and without lawful authority. The
USC Head Office and Regional management also hired the services of legal
counsels without forwarding the panel for the approval of the Law, Justice and
Human Rights Division and made payment of legal fee of Rs. 13.68 million
which was held irregular.

Audit was of the view that the management was required to forward a
penal of legal counsel for the approval of Law, Justice and Human Rights
Division but it appointed legal counsel at its own in violation of the prescribed
procedure and without lawful authority by the division.

The matter was reported to the management on October 14, 2018 and to
PAO on October 13, 2018. During DAC meeting held on January 25, 2019,
management apprised that same para was printed which was settled by the DAC.
Audit contended that the current para was regarding payment of Rs. 0.80 million
to Mr. Ahsan Amin Gill, Rs. 1.07 million to other legal Advisors and Rs. 11.59
million by Regional Offices. The Committee settled the para to the extent of
Rs. 0.80 million paid to Mr. Ahsan Amin Gill and directed to justify the payment
to other legal advisors.

Audit recommends obtain ex-post fact approval of the Law, Justice and
Human Rights Division in each case under intimation to audit.

9.25.4.16 Stores continuously running in losses - Rs. 310.71 million

According to Clause-3.09 & 3.12 of the Chapter-3 of the Stores

Operational Manual 1982, the Regional Managers / Area Managers must analyze
the performance and commercial viability of each store and devise ways and
means for sale promotion at each ale outlet. The Regional Managers must follow
529
a proper monitoring system to identify unviable stores, which should be
eliminated according to a suitable plan. The stores, which were serving no
socioeconomic purpose, should be closed.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that 1678 stores in 25 regions sustained loss of
Rs. 310.71 million but no corrective measures were taken by either head office or
regional management. A legislative body of the Senate on May 05, 2016 gave six
months’ time to Utility Stores Corporation of Pakistan (USC) to improve its
performance and stop corruption; otherwise, they would recommend the
government to wind it up as it had no purpose to continue. The committee was of
the view that department was involved in massive corruption and
mismanagement.

Audit was of the view that the management was required to take measures
to improve the sales of these stores but no action was taken and stores were
continuously running into loss.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised the committee that they had moved case to Government
and a rehabilitation plan of loss-making stores was also under consideration. The
Committee pended the para for PAC.

Audit recommends compliance of the DAC directive.

9.25.4.17 Loss due to non-execution of the decree against ex-employee -

Rs.1.22 million

According to Clause-7.06 of the Chapter-7 (Damages/ Losses) of Stores

Operations Manual 1982, the following procedure will be adopted to minimize
damages: (a) on receipt of good from suppliers, the Incharge Warehouse will
check the contents of packages and satisfy himself as to the number / quality/

530
quantity in accordance with the GRN; (b) any damages within the warehouse will
be the responsibility of Incharge Warehouse/ the person causing damage/
discrepancy; (c) from warehouse to stores the responsibility for damages will
devolve in the Delivery Clerk/ Loader as the case may be; (d) After receipt at
store point, the Incharge Store will be responsible for all damages/ discrepancies
and will be called upon to make good the loss so caused to the corporation.

During the audit of Utility Stores Corporation for the year 2017-18, it was
observed:

i. Management appointed Mr. Muhammad Ghazanfar s/o Sherbaz Khan

of Rawalpindi as Store Manager in Islamabad Region vide office order
dated: August 29, 1998 on personal guarantee of Mr. Muhammad
Ameen s/o Sarwar of Rawalpindi. The Store Manager embezzled an
amount of Rs. 1.22 million during September 14, 1998 to December
14, 1998.
ii. Charge sheet was issued on December 31, 1998. The Inquiry Officer
issued final show cause notice on March 15, 1999 but accused did not
appear before the committee.
iii. On the recommendation of the inquiry officer, the officer was
dismissed from service.
iv. The court announced the case in favour of the USC in February 2000
and management filed execution petition in March 2000 but since then
the execution petition was not finalized and matter was subjudice.

This resulted into loss due to non-recovery of Rs. 1.22 million from the
culprit since 1998.

Audit was of the view that weak internal controls resulted into
embezzlement of Rs. 1.22 million by ex-employee. The management was
required to actively pursue the execution petition but no recovery was affected
despite engagement of best legal counsels.

531
 The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that the case was pending in the court and would be
adjourned. The Committee pended the para being subjudice.

Audit recommends pursue the execution petition vigorously for an early

recovery.

9.25.4.18 Loss due to dumping of inventory of Awami Markaz Islamabad and

payment of building rent – Rs. 24.80 million

According to clause-5 (a) of Public Sector Companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
controls, which shall be effectively implemented at all levels within the public
sector company, to ensure compliance with the fundamental principles of probity
and propriety; the principle of probity and propriety entails that company’s assets
and resources are not used for private advantage and due economy is exercised so
as to reduce wastage. The principle shall be adhered to, especially with respect to
the following, namely (i) handling of public funds, assets, resources and
confidential information by directors, executives and employees; and (ii)
claiming of expenses.

During the audit of Utility Stores Corporation for the year 2017-18, it was
observed that:

i. Management transferred huge inventory of Awami Markaz Islamabad

valuing Rs. 5.30 million during 1992 and dumped at the upper storey of
the Islamabad Region Warehouse. Afterwards management hired the
warehouse from M/s Bakhat Amin & Co Islamabad in 1992 @ monthly
rent of Rs. 0.75 million to store the inventory of ghee and sugar of
Islamabad Region and Internal Audit Department.
ii. The regional management time and again requested the head office
management to make decision either to sell the saleable items out of the

532
 inventory of Awami Markaz Islamabad or dispose of the same to clear the
space for storage of sugar and ghee/ oil at warehouse Islamabad Region.
iii. During 36th Executive Board Meeting held on June 20, 2018, Managing
Director informed that process for shifting of Audit Department from I-10
Islamabad to I-9 Islamabad would be accelerated which will save the cost
of rent being paid by USC for hiring of building.
iv. However, no shifting had taken place till the close of audit which resulted
into loss of Rs. 5.30 million and extra expenditure on hiring of building
for warehouse valuing Rs. 19.50 million (Rs.750,000 x 26 months).

Audit was of the view that the management was required to decide the
fate of inventory of Awami Markaz Islamabad lying in the warehouse of
Islamabad Region for the last 26 years but due to mismanagement no executive
decision was taken. Management was also required to de-hire the warehouse of
ghee and sugar to avoid recurring extra expenditure on rent but no decision was
taken till the finalization of this report.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that they had vacated the space hired for the warehouse.
Committee showed displeasure over dumping of inventory since 1992 and
directed to arrange sale of the saleable inventory.

Audit recommends compliance of the DAC directives.

9.25.4.19 i. Unjustified charging of profit on banks balances - Rs 419.25

million
ii. Irregular retention of profit by National Bank of Pakistan
– Rs 8.29

According to Sr. No 2 of Terms and Conditions of agreements with MCB,

MCB will calculate profit on daily basis (compound interest method) on closing
balance of the day on the very next day @ 10.50% P.A and disbursement will be
made on 1st of every month.
533
 During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that:

i. A comparison of Bank Receipt Voucher No. 13 dated May 07, 2018

regarding sales proceeds received in main collection account of MCB
bearing No 181 G-9 Markaz Islamabad with three other bank accounts
offering daily product basis profit revealed that banks were offering
special approved rates without any agreement up to certain limits set by
the bank itself.
ii. In MCB and UBL, the banks were offering maximum special rates to
the corporation up to 5.25% and 5.65% without any set terms and
conditions of deposit limits.
iii. Audit demanded the details of process of retaining these banks on
different slabs/profit rates, which was not provided for clarification.
iv. As per bank statement of HBL transpired that bank was crediting the
profit @ 4.675% instead of offered rate of 6.07% with one month
impact of Rs. 289,611. This was an instance of one bank in one month,
so an analysis of the data of all banks for a whole year may reveal a
greater impact.

Details of monthly balances details of main collection accounts bank were

as under:

Name of Banks Offered rate on daily product Amount of balances based on

profit basis month of May & June 2018
(%) (Rs.)
MCB 5.25 232,716,578.40
UBL 5.650 87,418,362.53
HBL 6.07 9,279,268.09
NBP 5.50 on 6 return on balance 89,840,029.72
419,254,238.74

The management extended undue favour to National Bank of Pakistan by

accepting six monthly credit of corporation’s sales proceeds instead of credit on

534
daily basis like other main collection banks. Therefore, NBP credited net profit of
Rs. 8.29 million less withholding tax after six months in January 13, 2018.

Audit was of the view that the management should have negotiated an
interest rate favorable to corporation on deposits of its wide network of stores.
Due to poor financial management, every bank was paying its own per day
interest rate by setting the limit on daily deposits of stores. Therefore, either
management failed to perform its statutory obligation or the same was an
extension of undue financial favor to the bank at the cost of the corporation.
Thus, retaining of the banks offering their own determined rates without any
policy may cause loss on average daily balance of Rs. 419.25 million to the
corporation.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that NBP was crediting the interest after six months as per
their system. The Committee was not satisfied with the reply and directed to
submit revised reply.

Audit recommends compliance of DAC directives.

9.25.4.20 Recurring losses due to non-closure of unviable stores - Rs. 14.03

billion

According to Clause-3.09 & 3.12 of the Chapter-3 of the Stores

Operational Manual 1982, the Regional Managers / Area Managers must analyze
the performance and commercial viability of each store, devise ways, and mean
for sale promotion at each ale outlet. The Regional Managers must follow a
proper monitoring system to identify unviable stores, which should be eliminated
according to a suitable plan. The stores which were serving no socioeconomic
purpose should be closed.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that the management opened 5,000 stores upto union
535
council level during the year 2008 on the direction of Federal Government for
provision of essential commodities on subsidy basis. The Federal Government in
the year 2012-13 discontinued the provision of subsidy on above-mentioned
commodities. Economic Coordination Committee in its meeting held on April 15,
2014, decided to discontinue the subsidy on sugar, due to which more than 2,000
stores operating in rural areas became commercially unviable and had serious
impact on overall sales of company. Presently 472 stores were making sales less
than
Rs. 100,000. As per sales reports of first quarter of the 2016-17, at least 64%
stores were running in losses and present position was even worse. The Board
Audit Committee also decided to hold accountable the employees responsible for
the losses. The sales of the company decreased considerably during last five years
as detailed below:
(Rs. in billion)
S No Year Sales Net Loss

1. 2013-14 87.349 0.202

2. 2014-15 59.011 2.203
3. 2015-16 50.373 3.074
4. 2016-17 59.005 3.854
5. 2017-18 4.700*
Total 14.033
(budged figure)

Audit was of the view that due to mismanagement, inefficiency and

corruption management was sustaining recurring losses due to non-closer of the
unviable stores. Management was required to present the case with full facts and
figures to administrative ministry for the closure of unviable stores and reduce
the ever increasing losses of the corporation otherwise the corporation could
become bankrupt.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that they had moved case to Government and a

536
rehabilitation plan of loss making stores was also under consideration. The
Committee pended the para for PAC.

Audit recommends compliance of the DAC directive.

9.25.4.21 Loss due to non-recovery of balances appearing in Memorandum

Register - Rs. 1,708.95 million

According to Clause-7.06 of the Chapter-7 (Damages/ Losses) of Stores

Operations Manual 1982, the following procedure would be adopted to minimize
damages; a. on receipt of good from suppliers, the Incharge Warehouse will
check the contents of packages and satisfy himself as to the number / quality/
quantity in accordance with the GRN. b. any damages within the warehouse will
be the responsibility of Incharge Warehouse/ the person causing damage/
discrepancy. c. from warehouse to stores the responsibility for damages will
devolve in the Delivery Clerk/ Loader as the case may be. D After receipt at store
point, the Incharge Store will be responsible for all damages/ discrepancies and
will be called upon to make good the loss so caused to the corporation.

During the audit of Utility Stores Corporation for the year 2017-18, it was
observed that heavy recoverable balances of Rs. 1,708.95 million from serving,
ex-employees, court cases and NICL cases were appearing in shortage
recoverable register (Memorandum Register) maintained in 15 Regional Offices.
This resulted into loss due to non-recovery of Rs. 1,708.95 million.

Audit was of the view that due to slackness of regional management huge
amount were recoverable since long. Management did not accounted for interest
due from the defaulter employee @ 18% per annum above the 2% shortage,
which needs to be recovered.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised the committee that these were the balances recoverable

537
from serving employees, ex-employees, court cases and NICL cases. The
Committee directed to pursue the recovery.

Audit recommends compliance of DAC directives.

9.25.4.22 Expected loss due to non-return of damaged/ expired items to

vendors - Rs. 125.37 million

According to Clause-7.06 of the Chapter-7 (Damages/ Losses) of Stores

Operations Manual 1982, the following procedure will be adopted to minimize
damages; a. on receipt of good from suppliers, the Incharge Warehouse will
check the contents of packages and satisfy himself as to the number / quality/
quantity in accordance with the GRN. B. any damages within the warehouse will
be the responsibility of Incharge Warehouse/ the person causing damage/
discrepancy. c. from warehouse to stores the responsibility for damages will
devolve in the Delivery Clerk/ Loader as the case may be. d. After receipt at store
point, the Incharge Store will be responsible for all damages/ discrepancies and
will be called upon to make good the loss so caused to the corporation.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that in 30 regional warehouses huge inventory of damaged /
expired items was available but no efforts were made to return the same to
respective vendors which result into loss of Rs. 125.37 million.

Audit was of the view that there was no control on regional warehouses of
the Stores Operation and Sales (SO & S) Department of USC head office and
regional management was at liberty to furnish whatever demand of branded and
commodity items without any analysis of sales and stock previously held.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that it was an ongoing process in which USC arrange
return of damaged/ expired items from vendors. The Committee directed the

538
management to get the expired/ damaged items of Lahore Region verified by
Audit.

Audit recommends compliance of DAC directives.

9.25.4.23 Loss due to excess consumption of poly/ shopping bags - Rs 14.27

million

According to Clause-5 (a) of public sector companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
control, which shall be effectively implemented at all levels within the public
sector company, to ensure compliance of the principle of probity and propriety
entails that company’s assets and resources are not used for private advantage
and due economy is exercised so as to reduce wastage especially with respect to
(i) handling of public funds, assets, resources and confidential information by
directors, executives and employees; and (ii) claiming of expenses.

During the audit of Utility Stores Corporation for the year 2017-18, it was
observed that Incharge of warehouse of 23 regions consumed excess poly/
shopping bags against prescribed limit of actual stock sold which resulted into
loss of Rs. 14.27 million.

Audit was of the view that the management and accounts staff of the
respective regions were required to check the excess consumption of poly/
shopping bags but they failed to do so which resulted into loss of Rs. 14.27
million.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that they have consumed the ploy/ shopping bags in
accordance with sale. The Committee directed to get verify the consumption of
poly/ shopping bags of Lahore Regions.

Audit recommends compliance of the DAC directive.

539
 9.25.4.24 Dumping of stocks of Coca Cola in Multan Zone due to excess
procurement and non-lifting of stocks - Rs. 1.90 million

According to Clause-5 (a) of Public Sector Companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
control, which shall be effectively implemented at all levels within the Public
Sector Company, to ensure compliance of the principle of probity and propriety
entails that company’s assets and resources are not used for private advantage
and due economy is exercised so as to reduce wastage especially with respect to
(i) handling of public funds, assets, resources and confidential information by
directors, executives and employees; and (ii) claiming of expenses.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that Zonal Manager Multan requested Senior GM (Coordination)
USC Head Office Islamabad on November 30, 2017 and to General Manager
(M&B) Head Office on December 13, 2017 to approach M/s Coca Cola to revise
the price of 78,583 bottles of Coke, sprite, Fanta valuing
Rs. 7.343 million to be expired on February 17, 2018 and March 26, 2018 being
un-seasonal and sale was very slow. The GM (M&B) on January 19, 2018
directed the M/s Coca Cola to lift back the stock near to expiry/ excess stocks
from regions of Multan Zone without investigating the matter regarding
procurement of excess stocks. According to USC Finance-III record dated:
August 31, 2018 vendor had lifted a quantity of 62,388 bottles valuing Rs. 5.45
million instead of 78,583 bottles valuing Rs. 7.34 million hence a quantity of
16,195 valuing Rs. 1.90 million was not lifted by the vendor which was a loss to
the company.

Audit was of the view that the management was required to investigate
the matter regarding excess procurement of stocks without keeping in view the
sales pattern of the Multan Zone and non-sales of the same but no action was
taken by the General Manager (M&B).

540
 During discussion on October 04, 2018, management stated that an
inquiry was conducted into the matter and stocks have been lifted by the vendors
and clearance certificates have been issued by the regions of Multan Zone. The
reply was not convincing, as entire stocks were not lifted by the vendors.
Furthermore, management did not provide the copy of inquiry report and proof
regarding adjustment of stocks in the books of accounts.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that the stocks were liquidated and there was no loss to
USC. The Committee directed the management to provide record of the
liquidation of stocks for verification. The documents regarding liquidation of
balance stocks worth Rs.1.896 million was not provided till the finalization of
this report.

Audit recommends compliance of DAC directives.

9.25.4.25 Irregular procurement of sub-standard ghee/ oil and non-deduction

of penalty from vendor - Rs. 25.50 billion

According to clause-5 (a) of Public Sector Companies (Corporate

Governance) Rules, 2017, the Board shall establish a system of sound internal
control, which shall be effectively implemented at all levels within the Public
Sector Company, to ensure compliance of the principle of probity and propriety
entails that company’s assets and resources are not used for private advantage
and due economy is exercised so as to reduce wastage especially with respect to
(i) handling of public funds, assets, resources and confidential information by
directors, executives and employees; and (ii) claiming of expenses. Moreover,
according to clause-2(d) of the agreement dated: October 21, 2014 between USC
and M/s Oil World Mill would provide the goods in accordance with PSQCA’s
approved specification strictly in accordance with USC Purchase Orders.

During the audit of Utility Stores Corporation (USC) for the year
2017-18, it was observed that the management was marketing utility ghee/
541
cooking oil under a bipartite agreement with M/s Oil World (Pvt) Ltd for the last
eleven years. On October 26, 2016 District Drug Inspector / Food Authority,
Mirpur (A&JK) alongwith Extra Assistant Commissioner inspected the Utility
Stores Mirpur City and seized substandard adulterated stocks of utility ghee/ oil
after checking the sample from NIH Laboratories on November 8, 2016 which do
not confirm to the cooking oil standard prescribed by PSQSA. On the direction of
Chief Justice of Pakistan in a suomoto notice on January 05, 2017 PSQCA
Report depicted that stocks of M/s Oil World were found non-conforming to
PSS-221/2010 by PSQCA and USC management decided to stop the purchase
and sale of utility ghee/ oil. A stock of 3029.143 m. ton utility ghee/ oil was lying
in the warehouses/ stores as on January 13, 2017 when honorable Supreme Court
took notice of the subject case, while stock of 1803.29 million was sold during
January 10, 2017 to January 13, 2017 and stock of 1225.853 m. ton was returned
to vendors / ghee mills during January 13, 2017 to April 30, 2017 total value
Rs. 25,500.00 million. The Management failed to deduct penalty for supply of
substandard ghee/ oil to utility stores corporation valuing Rs. 3.03 million they
also paid commission on sale of substandard utility ghee to its sales staff
amounting to Rs. 859.37 million during 2017-18 which was held irregular.

Audit was of the view that the management was required to obtain quality
certificate on quarterly basis from the vendors but no quality certificate was
obtained. Furthermore, administrative ministry was required to investigate the
matter with a high level inquiry committee but no action was taken against the
officers/ officials responsible for procurement and sale of substandard utility
ghee/ oil. Furthermore, management was required to deduct penalty from the
pending payments of the vendors but payments were released without any
deduction in violation of the above clause of the agreement, which was undue
favour.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that USC stopped the sale of utility ghee after court
commitment and un-sold stocks were returned to the respective vendors and
542
penalty was also recovered from vendors except M/s IFFCO. Accepting the
explanation of the management Chairman DAC settled the para. Audit did not
agree with the decision and asked the management to affect recovery of Rs.1.95
million from IFFCO and fix responsibility of the loss which resulted into huge
decrease in corporation sales.

Audit recommends compliance of DAC directives.

9.25.4.26 Loss due to less deduction of withholding income tax from vendors -
Rs 152.33 million

According to Section 153 (1) (a), Changes in withholding provisions of

Income Tax Ordinance 2001, Finance Act 2016, deduction of tax at source for
sale of rice, cotton seed oil and edible oil under withholding income tax regime,
tax @ 1.5% of gross amount and for sale of any other goods (i) in the case of
company filer was @ 4% and (ii) in case of non-filer @ 8%.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the management ignored the clause of withholding of income
tax as per standing instructions of the above noted criteria and extended undue
benefit to the vendors of ghee & oil at the cost of public exchequer. Audit
checked the payment of ghee & oil brands companies on test check basis for the
period 2016-17 up to cut off date i.e. January 2017 (as intimated by Finance II )
when rate of withholding tax changed from 1.5% to 4%. Thus, due to delay in
implementation of withholding rates @ 4% on the invoices of vendors of ghee &
oil w.e.f July 01, 2016 to June 30, 2017 or before as per the above mentioned
criteria resulted into loss of Rs. 152.33 million.

Audit was of the view that due to imprudent decision of the management
to charge less withholding tax from the payments of vendors proved that
management either failed to perform its statutory obligation regarding deduction
of tax or the same was just an eyewash to extend undue financial favour to the
vendors/ firms at the cost of public exchequer.

543
 The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised the committee that there was no loss to the national
exchequer as it was not Final Tax Liability since there was clarity on the issue by
FBR. The Committee considering the facts of the issue settled the para subject to
settlement of Final Tax Liability.

Audit recommends compliance of the DAC directives.

9.25.4.27 Huge inventory of Chakki Basin lying in the stores and warehouses -
Rs. 20.92 million

According to decision of the 143rd meeting of USC Board held on April

10, 2018, Zonal Managers should generate the demands after reviewing the
Region wise statistical data of last three years procurement, sales and closing
stocks. If the stocks are build up due to excess procurement, then Zonal Managers
should be held accountable.

During the audit of USC Zonal Office Lahore for the year 2017-18 it was
observed that the management procured a quantity of 131.428 m. ton valuing
Rs. 20.92 million chakki basin for 2018 but it could not be transferred to stores
and since then and was lying in the stores and warehouses of zone which might
cause a loss to the corporation.

Audit was of the view that the management was required to raise demand
of chakki basin as per actual requirement but demand was raised without keeping
in view the sales of the item and climatic effects and possibility of worms on
chakki basin due to long storage.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that the stocks were procured keeping in view of the last

544
year sales and efforts were being made to sale the stocks till March 2019. The
Committee directed to liquidate the stocks at an early date.

Audit recommends compliance of DAC directives.

9.25.4.28 Loss due to theft of polythene bags - Rs.0.95 million

According to circular order No.4/SO&S/2007 dated January 24, 2007 and

No.06/SOS/2010 Dated June 03, 2010, the regional manager and store in charge
are responsible to ensure the safe and secure operation of stores. Ensure that
proper security measures have been adopted and security guards/chowkidars
deployed at warehouse/stores are available and performing their duties as per
instructions issued from time to time.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that an incident of theft and sales of USC polythene bags in open
market took place in Chakwal Region. As per Assistant Vigilance Officer Report,
a vehicle (Mazda Truck No: LES 4996) loaded with 20 sacks of USC polythene
bag worth Rs. 53,900 was caught by a Police which were reportedly being sold to
somewhere in Muridke. The management ordered a fact finding inquiry. As per
Fact Finding Report the shopping/ polythene bags were short from very
beginning, Incharge Warehouse does not gave any attention to the shortages. The
incident of selling shopping / polythene bags on August 7, 2014 was claimed as
wastage by Incharge Warehouse, which was actually shortage worth Rs. 1.49
million. A surprise audit of warehouse (commodity) of USC Chakwal Region
was carried out on August 9, 2014 and shortage detected of stocks / polythene,
shopping bags amounting to Rs.1.28 million. Consequently after through inquiry,
charges were proved and authority on January 11, 2017 decided that culprits
should deposit Rs. 1.28 million.

Audit was of the view that the management was required to finalize the
inquiry and affect recovery from the culprits but no action was taken which was
held irregular. Furthermore, shortage of stocks and embezzlement by employees

545
was an inherent problem of the corporation over the years but USC Board of
Directors had no Whistle Blowing Policy which results in frequent cases of
shortages and embezzlement.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that an amount of Rs. 325,000 has been recovered from the
culprits. The Committee reduced the para to the extent of recoverable amount of
Rs. 949,696.

Audit recommends compliance of DAC directives.

9.25.4.29 Purchase and sale of ghee / cooking oil declared unfit for human
consumption by Punjab Food Authority - Rs. 3,412.26 million

According to Clause-7.06 of the Chapter-7 (Damages/ Losses) of Stores

Operations Manual 1982, the following procedure will be adopted to minimize
damages, a. on receipt of good from suppliers, the Incharge Warehouse will
check the contents of packages and satisfy himself as to the number / quality/
quantity in accordance with the GRN. b. any damages within the warehouse will
be the responsibility of Incharge Warehouse/ the person causing damage/
discrepancy. c. from warehouse to stores the responsibility for damages will
devolve in the Delivery Clerk/ Loader as the case may be. d. After receipt at store
point, the Incharge Store will be responsible for all damages/ discrepancies and
will be called upon to make good the loss so caused to the corporation.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the management made procurement and sale of certain
commodities which failed in PFA sample tests of Kausar Banaspati, Zaiqa
Banaspati, Mujahid Banspati, Gaye Banspati, Darja-e-Awal Banspati/ cooking
oil, Hafeez Banspati, Handi Cooking Oil, Handi Banspati, Soya Supreme
Banspati despite declaration unhealthy/ harmful for human consumption.

546
 Audit was of the view that quality control of the oil and other edible
products in USC was very poor. In this year of information technology
management was continuing with ancient manual system without any innovation
which resulted into procurement and sale of ghee brands declared unfit for human
consumption by Punjab Food Authority. Board and its committees were in the
knowledge of this declaration by the Punjab Food Authority but management
continued with the procurement and sale of unfit ghee brands and playing with
lives of poor Pakistani peoples. The management was also required to have a
close liaison with Punjab Food Authority to avoid procurement and sale of items
unfit for human consumption.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that they awarded the contract to M/s Kausar Ghee after
clarification from Punjab Food Authority. The Committee settled the para to the
extent of M/s Kausar Ghee and directed to submit detailed reply for remaining
companies.

Audit recommends compliance of DAC directives.

9.25.4.30 Excess procurement of ghee and oil products from New Sohail
Dairies products - Rs. 7.80 million

According to Paragraph-1& 3 of the Circular Order No: 131/SOS/2018-

568 dated: May 03, 2018, all ZMs and RMs will be held accountable for accuracy
of demands and any disproportionate leftover stock will be considered as
negligence and misconduct. To avoid over stocking in warehouses each incharge
will prepare demand of fast selling items only for the quantity required for 15
days. All concerned must be vigilant of seasonal / quick perishable stock.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the management of Sahiwal, Okara, Sialkot, Gujranwala,
Lahore (North) and Lahore (South) regions issued excessive purchase orders for

547
the procurement of ghee and oil products of M/s Dalda Foods, Habib Oil Mills
and New Sohail Dairies without keeping in view the previous sales pattern in
violation of above referred directives of USC head office. This resulted into
procurement of excessive ghee / oil from these producers. A large quantity was
478.40 m. ton ghee /oil valuing Rs. 100.14 million was lying in warehouses of
respective regions and same was shifted / transferred to other regions to
normalize the excess quantity purchased. Thus, purchase of excess stocks was
held irregular.

Audit was of the view that the USC head office management was required
to inquire the matter regarding excess procurement of Dalda/ Habib Oil stocks by
ZM/ RMs of Sahiwal, Okara, Sialkot, Gujranwala, Lahore North and Lahore
South regions but no action was taken against the persons involved in excess
procurement. Furthermore, the status of the sale of transferred stocks in
respective regions was not available with the management.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that the stocks have been lifted by M/s Dalda Oil and
Habib Oil Mills and same was verified by Audit. The Committee accepted the
explanation of the corporation and para to the extent of M/s Dalda Oil and Habib
Oil Mills was settled. The committee further directed to get the stock lifting by
M/s Shail Dairies verified from Audit.

Audit recommends compliance of DAC directives.

9.25.4.31 Loss due to less achievement of sales target - Rs 17,226.56 million

According to Clause-3.07 of the USC Stores Operational Manual 1982, in

order to provide a guideline to all Regional Managers, sales target excluding sales
of confiscated goods based on their previous performance and on minimum sales
turn over expected for each division were fixed for each financial year. The sales
targets for individual stores were also fixed by the Head Office. The regional

548
sales targets are subject to revision, based on the decrease or increase in the
number of stores.

During the audit of Utility Stores Corporation (USC) for the year 2017-18
it was observed that the corporation sustained the loss of Rs. 17,226.56 million
due to non-achievement of sales targets set for Ramazan Package 2018 by zones
despite the fact that the management claimed Ramzan subsidy from the
government of Pakistan. Further probe in to the matter revealed that sales targets
were fixed by considering the actual sales of Ramzan 2017 but sales fallen short
of Rs. 8,907.81 million i.e. 53% short of the previous year sales targets.

Audit was of the view that the zonal management could not ensure the
achievement of sales targets fixed by the head office or the head office
management not consulted the zonal managers while setting targets of Ramzan
sales. Thus, non achievement of sales targets was termed as in-efficient
performance of Zonal Managers, causing the loss to the corporation.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that sales targets fixed for Ramzan 2018 could not be
achieved due to non-availability of stocks as per requirement. The Committee
was not satisfied with the explanation of the management and directed to submit
revised reply.

Audit recommends compliance of the DAC directive.

9.25.4.32 Non-compliance of the Public Sector Companies (Corporate

Governance) Rules 2013

According to Rule-5(7) (j), 5(7) (m) and 5(7) (n), (Public Sector
Companies (Corporate Governance) Rules 2013, the Board shall establish a
system of sound internal control, which shall be effectively implemented at all
levels within the Public Sector Company, to ensure compliance with the

549
fundamental principles of probity and propriety; objectivity, integrity and honesty
and relationship with the stakeholders. The Board shall also formulate significant
policies of the Public Sector Company, which may include the following,
namely: (j)Corporate social responsibility initiatives including, donations,
charities, contributions and other payments of a similar nature; (m) health, safety
and environment; (n) development of whistle-blowing policy and protection
mechanism;

During audit of Utility Stores Corporation (USC) for the year 2017-18 it
was observed that following instances of non-compliance of the requirements of
the Public Sector Companies (Corporate Governance) Rules 2013 were observed
as detailed below:

S. Required rule Non compliance

No
1. Rule 5(7)(j), The Board has not formulated significant policies
5(7)(m) and regarding Corporate Social Responsibility, Health
5(7)(n) Safety and Environment, Whistle Blowing Policy
and Protection Mechanism.
2. Rule 5(2) The Board has not formulated succession planning of
the Chief Executive.
3. Rule 5 Sub The company has not uploaded the Code of Conduct
Clause 4 on company’s website.
4. Clause-5 (5b) (ii) The Board has not developed and enforced an
appropriate conflict of interest policy.
5. Clause-5 (5b) (vi) The Board has not developed and implemented a
policy on anticorruption to minimize actual or
perceived corruption in the company.
6. Clause-5 (6) The Board has not developed a vision or mission
statement and corporate strategies of the company.
7. Clause-8 A mechanism for the evaluation of the Board’s
performance is not yet in place.
8. Clause-10 The Board has not approved the profit and loss
account for and balance sheet as at the end of the
third quarter of the year and it has also not placed the

550
 annual financial statements on the company’s
website.
9. Clause-11 There was no orientation course arranged by the
company for the board during the year.
10. Clause-13(1) The Board did not appoint a separate Company
Secretary (CS) and Chief Internal Auditor (CIA)
since the last CS and CIA has resigned. Currently the
Chief Financial Officer (CFO) is acting as the CS
and there is no acting CIA of the company.

The non-compliance was since 2013 i.e. adoption of the Public Sector
Companies (Corporate Governance) Rules 2013 which was highly objectionable
and requires immediate attention of the Board of Directors.

Audit was of the view that due to lack of supervision and oversight by the
Board, above non-compliance occurred. Furthermore, Board was required to
arrange immediate compliance of the above rules but no effort was make to
comply the same.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that they were arranging compliance of the Corporate
Governance Rules. The Committee directed to arrange full compliance of the
subject rules.

Audit recommends the compliance of the DAC directive.

9.25.4.33 Non appointment of Chief Internal Auditor & Company Secretary

According to Rule 25 of the Public Sector Companies (Corporate

Governance) Rule 2017, whoever fails or refuses to comply with, or contravenes
any provision of these rules, or knowingly and willfully authorities or permits
such failure, refusal or contravention shall, in addition to any other liability under
the ordinance, be punishable with fine. In the case of continuing failure, to a
further fine, as provided in sub- section (2) of section 506 of the ordinance. USC
551
BoD in its 117 meeting held on May 16, 2014 approved the post of chief internal
auditor of the company.

During audit of Utility Stores Corporation (USC) for the year 2017-18 it
was observed that company had terminated the services Chief Internal Auditor
and Company Secretary in 2017. Since than these vacancies were falling vacant
and CFO was given the additional charge of Company Secretary which was held
irregular being violation of Corporate Governance Rules 2017. During BoD in its
139th meeting held on February 10, 2017 it was informed that SECP had issued
the Show Cause Notice to all the Board Members on account of non-compliance
of the Public Sector Companies (Corporate Governance) Rules, 2017. The
company had taken up the matter with SECP and it was informed that Audit of
the financial statements for the year ended June 30, 2016 is under process and on
finalization of Audit Compliance Report will be submitted to SECP but since
than no progress was made in this this regard. Furthermore, as per report of the
external auditors of the company M/s BDO EBRAHIM & CO Chartered
Accountants for the year ending June 30, 2012 & 2016-17 also showed their
reservations in management letter in this regard.
.
Audit was of the view that Board was required to immediately appoint
CIA and Company Secretary but these vacancies were vacant for the last year,
which was held irregular.

The matter was reported to the management on October 14, 2018 and to
PAO on October 14, 2018. During DAC meeting held on January 25, 2019,
management apprised that hiring process was initiated. The committee directed to
complete the hiring process at the earliest.

Audit requires compliance of the SECP Rules and DAC directive.

552
9.26 Aik Hunar Aik Nagar
9.26.1 Introduction

Aik Hunar Aik Nagar (AHAN) is a limited company by guarantee,

incorporated on October 17, 2007 under Section 42 of the Companies Ordinance
1984. The Company is wholly owned subsidiary of Pakistan Industrial
Development Corporation (Pvt.) Ltd (PIDC), Ministry of Industries and
Production, Government of Pakistan. The overall objective of the Company is to
uplift, develop and build up the capacity of artisans and poor producer groups in
Pakistan by providing support in cluster formation, product development,
marketing entrepreneurship, linkages with relevant institutions and to establish
and arrange for the pilot projects or do any other activity to achieve
aforementioned objectives.

AHAN has provided a platform for rural artisans and craft persons to
place and promote their products in better markets through establishing linkage
and participation in exhibitions and fairs. It conducted data collection exercise on
non-farm product sector such as, carpet, silver jewelry, wood work, ceramics,
leather, straw work, textile and ajrak.

9.26.2 Comments on Audited Accounts:

9.26.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
9.26.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

553
9.26.2.3 The working resulted of the company for the year 2016-17 as compared
to the previous years are as under:-:
(Rs in million)
% Inc/ % Inc
2016-17 Dec 2015-16 /Dec 2014-15
Income
Grant income 18.54 (72) 66.26 (50) 131.51
Trading income-net 2.57 335 0.59 (82) 3.26
Other income 5.79 15 5.03 (40) 8.41
Total Income 26.90 (63) 71.87 (50) 143.18
Expenditure
Programme activities cost 27.38 (69) 89.37 31 68.40
Administrative Costs 39.54 (26) 53.51 (24) 70.03
Total Expenditure 66.92 (53) 142.88 3 138.43
Deficit before provision of tax -40.02 (44) -71.01 (1595) 4.75
Provision for taxation
Deficit for the year -40.02 (44) -71.01 (1595) 4.75
(Source : Annual Audited Accounts)

The company has a deficit of Rs 40.02 million in 2017 and Rs 71.01 million in
2016 and accumulated deficit amounting to Rs 490.30 million .The company
incurring continuous operational losses and is dependent on continuous
support/funding from Government of ,Pakistan through Industrial Development
Corporation (PIDC). Efforts need to make enhance the company’s ability to
continue as going concern.

9.26.2.4 Trading income was 9.5 % of total income during 2017 and 0.82 %
during 2016. Management should control cost of production and increase cluster
support sales by introducing new market strategy.

9.26.2.5 An amount of Rs 3.04 million was showed as gain on disposal of

property and equipment during 2017. However, detail of disposal was not
available. Management should have provided detail and approval of competent
authority.

554
9.26.2.6 External Auditor of the company during 2014 reported that auditors
were unable to satisfy with inventories quantities. Management should have
maintained inventory management system to ensure the true value of stock and
assets. Physical existence of stock and inventory was not ensured.

9.26.2.7 Company entered into two projects “Central Craft Development

Project”(CCDP) and “Northern Punjab Craft Development” (NPCDP) with
Pakistan Industrial Development Corporation which was revised into new project
National Craft Development Project . The management of Company received
Rs 150.42 million against approved funding of Rs 159.9 million. However,
Rs 9.48 million not received against the NPCDP. Similarly in Rural Craft
Development Project (RCDP) the company received Rs 134.13 million against
Rs 200 million from Holding company PIDC . The reason may be explained for
non recovery against agreed amounts.

9.26.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No % of

Paras Compliance Compliance compliance
2013-14 8.13.1&8.13.2.1,8.13.2
.2,8.13.2.3,8.13.2.4,8.1
3.2.5,8.13.2.6,8.13.2.7,
8.13.2.8,8.13.4.1,8.13.
10 0 10 4.2
Total 10 0 10

Compliance of the PAC directives was very poor which requires

immediate attention of the PAO.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the entity was
not undertaken during subject period.

555
 Chapter-10
Ministry of Information, Broadcasting and National
History & Literary, Heritage Division

10.1 Pakistan Television Corporation Limited

10.1.1 Introduction

Pakistan Television Corporation Limited (PTVC) was established as an

un-quoted public limited company under Companies Act 1913 (Now Companies
Act 2017) on Nov 26, 1964. All its shares are held by Government of Pakistan.
There is no change in the pattern of shareholding of company since incorporation.

The main purpose and objectives of the corporation are:

i. To provide television broadcasting services by telecasting programs of all

kinds, news pictorials and documentaries, local and foreign films of all
kinds and nature for the purpose of disseminating information,
education and entertainment.
ii. To carry out instructions of the Government of Pakistan with regard to
general pattern or policies of programs, announcements, news etc.
iii. To carry on the business of commercial advertisement by selling
programs and advertising time of television stations either directly or
through advertising agencies or by setting up advertising agencies or by
other means.

10.1.2 Comments on Audited Accounts

10.1.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
10.1.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

556
10.1.2.3 The working results of the corporation for the year 2016-17 as compared
to previous years were as under:
(Rs in million)
2016-17 %Inc 2015-16 %Inc 2014-15
Restated /(Dec) Restated /(Dec) Restated
Revenue net 10,160.60 2.15 9,947.07 (8.98) 10,928.52
Operating expenses 7,238.75 (6.06) 7,705.69 3.45 7,448.71
Admn expenses 3,568.04 (1.82) 3,634.05 43.74 2,528.28
Finance cost 31.25 (32.49) 46.29 8.99 42.47
Total expenditure 10,838.03 (4.81) 11,386.03 13.64 10,019.46
Operating profit / (677.42) (52.92) (1,438.97) - 909.06
(loss)
Other operating 59.31 (59.94) 148.06 (33.51) 222.67
Income/ (loss)
Profit /(loss) before (618.11) (52.12) (1,290.91) - 1,131.73
tax
Taxation 30.65 (22.89) 39.75 (3.24) 41.08
Profit/(loss) after tax (648.76) (51.25) (1,330.66) - 1,090.66
Earnings/ (loss) per (15.25) (51.25) (31.28) - 25.64
share
(Source: Annual Audited Accounts)

The revenue of the corporation increased by 2.15% to Rs 10,160.61 million in

2016-17 from Rs 9,947.07 million in 2015-16 which was mainly due to increase
in income from license fee collection by 21.61% to Rs 7,235.54 million in
2016-17 from Rs 5,949.72 million in 2015-16. However income from advertising
decreased by 29.72 % to Rs 2,424.95 million in 2016-17 from Rs 3,450.24
million in 2015-16. The decrease in advertising income may be explained. Efforts
need to be made to boost advertising income so that operating loss could be
eliminated.

10.1.2.4 Operating expenditure included current affairs program expense which

increased by 19.72% to Rs 169.85 million in 2016-17 from Rs 141.87 million in
2015-16. The increase in current affairs programme expense may be clarified.

10.1.2.5 Salaries, wages and other benefits included PTVC/CPF loan amounting
to Rs 0.12 million and Rs 2.42 million written off in 2016-17. Detail of CPF

557
written off along with factors leading to non-recovery of CPF loan may be
explained.

10.1.2.6 Capital work in progress slightly decreased by 4.77% from Rs 783.91

million in 2015-16 to Rs 746.51 million in 2016-17. The projects for provision of
television facilities / services in remote areas were started and could not be
completed even after lapse of more than eight years. Reasons for not completing
the projects may be explained. Project wise details along with actual date of
completion of each project may be provided.

10.1.2.7 Long term loans included loan amounting to Rs 47.35 million given to
PTV Foundation. The loans were interest free and terms of payment have not
been decided. There was chance of impairment loss for the amount as decision to
wind up foundation was made by the BoDs. The corporation has made provision
for doubtful receivables of Rs 40 million. The reasons for non deciding the terms
of repayment may be explained. Steps need to be taken for recovery of loan from
foundation.

10.1.2.8 Trade debtors of the corporation stood at Rs 2,489.76 million as at June

30, 2017. These included a sum of Rs 2,466.49 million receivable from
advertisers and considered as unsecured. Party wise aging of trade debts and
chances of its recovery need to be elaborated.

10.1.2.9 Receivable on account of program sales increased to Rs 314.80 million

as at June 30, 2017 from Rs 314.72 million as at June 30, 2016. Reasons for
increase and chances of its recovery need to be elaborated. Breakup of the same
along with their aging may also be explained alongwith supporting documents.
.
10.1.2.10 External auditors of the corporation reported the following qualification
which needs to be removed / resolved:

i) The corporation has not prepared consolidated financial statements as

required by Section 237 of Companies Ordinance 1984, and by IAS -27

558
 consolidated and separate financial statement and IFRS -3 (Business
combination) of its subsidiaries. The factors of the failure to consolidate
subsidiaries could not be determined.

ii) The Corporation has retained the pension fund with itself and not invested
in the fund name. The present value of defined benefit obligation as at
year end amounts to Rs 12805.20 million against fair value of its plan
assets of Rs 641.08 million, which is in excess of Rs 12164.12 million
and the accumulated loss of the Corporation amounted to Rs 2526.91
million (2016: Rs 1716.65 million) which costs significant doubt about
the entity’s ability to pay off the excess liability.

10.1.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras % of

Paras Compliance Compliance No compliance
1989-90 09 08 1 478 89
1990-91 06 04 2 362,364 67
1991-92 07 06 1 312 86
1992-93 05 3 2 212,214 60
1994-95 05 02 3 223,225,228 40
1996-97 05 03 2 184,187 60
1997-98 09 05 4 121,122,123,124 56
1998-99 06 04 2 1.1.4,2.1.1(SAR- 67
55)
1999-00 09 02 7 165,166,168,169, 22
170,172,173
2000-01 18 06 12 133,134,137,170, 33
(1.1,1.1.1,1.1.3,1.
1.2,1.1.5,1.1.6,1.1
.7,4.11)
2001-02 03 02 1 158 67
2002-03 09 05 04 166.1,166.3,166.4 56
,166.7
2003-04 08 06 02 126.2,130 75
2004-05 03 01 02 79,81 33
2005-06 12 10 2 154.2,154.4 83
2006-07 21 10 11 121.8,122,124,12 48
6,127,128,129,13
559
 0,133,121.6,123
2007-08 06 05 01 100&100.1 83
2008-09 13 05 08 138,139,140,141, 38
142,143,144,145
2009-10 13 04 09 152,153,154,1 31
56,157,158,15
9,160,
155
2010-11 23 17 06 12.3.2.5,12.3.2.6, 74
12.3.2.7,12.3.2.13
,
12.3.4.5,12.3.4.7
2016-17 10 0 10 8.2.4.2,8.2.4.8, -
(8.2.1 &
8.2.2,8.2.3,8.2.
4.1,8.2.4.3,8.2.
4.4,8.2.4.5,8.2.
4.6,8.2.4.7)
Total 200 108 92 54

Overall compliance of PAC directives was not satisfactory which needs to

be improved.

10.1.4 Audit paras

10.1.4.1 Irregular expenditure due to retention of staff over and above the
sanctioned strength - Rs 130.66 million

According to Rule 5.04 of Chapter-5 of PTV Service Rules, actual staff

strength of any unit of the Corporation will, at no time except with the prior
permission of the MD exceed its sanctioned staff strength.

During the audit of PTVC for the years 2016-18 it was observed that
excess staff was appointed in different categories over and above the sanctioned
strength resulting into irregular expenditure of Rs 130.66 million on pay and
allowances from July 2016 to June 2018.

560
 Audit was of the view that the management has hired staff against the
sanctioned strength which was held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the staff has not exceeded from the overall sanction
strength. The DAC directed that the procedure of posting staff over and above the
sanction strength may be reviewed.

Audit recommends compliance of the DAC directive.

10.1.4.2 Irregular appointment of Design Coordinator - Rs 2.78 million

According to para 4 of the minutes of 184th meeting of BoD dated: April

23, 2009, job applications for various categories shall be received on a regular
basis for which a data base was to be maintained. To further strengthen the data
base, advertisement would be placed on PTVC website and newspapers
periodically, inviting applications.

During the audit of PTVC for the years 2016-18, it was observed that
Mrs. Saira Qamar was appointed as Coordinator in Design Department on
contract basis at ETV Channel (PTV Home) Islamabad on monthly consolidated
emoluments of Rs 100,000 per month on July 04 2016 for a period of one year
without advertisement and she joined PTVC on July 13, 2016.

Further, just after four months of her appointment she was placed in
professional pay scale (PS-1) equal to pay group-9 of PTV scales (controller)
w.e.f November 25, 2016 vide office order dated November 30, 2016. Her salary
was increased and fixed at Rs 117,000 per month alongwith mobile charges of
Rs 3,000 per month, 4000 calls of office and 1600 calls at residence. She was
paid Rs 2.78 million from July 13, 2016 to July 2018. This resulted into irregular
appointment of Design Coordinator without advertisement and payment of pay
and allowances of Rs 2.78 million.

561
 Audit was of the view that her appointment without advertisement and
subsequent placement in professional pay scale after four months was not
covered under the terms and conditions of the appointment letter, hence
considered irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC in its meeting held on January 16, 2019
directed that the case may be placed before BoD.

Audit recommends compliance of the DAC directive.

10.1.4.3 Irregular retention of employees despite bogus degrees -

Rs 21.61 million

According to Rule 11.01 (XXII) of PTVC Employees Service Rules,

giving false, incorrect or inaccurate information regarding name, age, father’s
name, qualification or previous service and experience, or anything related to
previous employment at the time of employment is treated as mis-conduct.

During the audit of PTVC for the years 2016-18 it was observed that the
degrees of four officials were declared as bogus by the concerned institutes but
they were still working and their cases have not been finalized for disciplinary
action by the competent authority. Non-finalization of the cases would extend the
benefit to the delinquents to manage relief from the Courts. This resulted into
irregular retention of employees whose degrees were declared bogus and payment
of pay and allowances of Rs 21.61 million.

Audit was of the view that the management was required to terminate the
services of these employees but it failed to do so. Furthermore, payment of
Rs 21.61 million to these employees was held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the cases are under process. The DAC directed that
562
the employees should be terminated immediately and the case may be referred to
FIA for lodging FIR and recovery of illegal salary drawn.

Audit recommends compliance of the DAC directive.

10.1.4.4 Non-recovery of Islamabad Club Membership Fee - Rs 4.50 million

According to minutes of 216th meeting of BoD held on May 10, 2018, the
BoD resolved to recover the Islamabad Club Membership Fee from whole time
working Directors of PTV.

During the audit of PTVC for the years 2016-18, it was observed that the
management paid Islamabad Club Membership Fee in respect of following four
Directors during 2012-13:

S.No. Name Amount

(Rs)
1. Mr. Qazi Mustafa Kamal, Ex-Acting Director 1,500,000
2. Mr. Asadullah Khan, Ex-DAP 1,500,000
3. Mr. Asad Ahmed Jaspal, Director Security 1,500,000
4. Mr. Fakhar Hameed, Director IT 1,500,000
Total 6,000,000

The management was failed to recover the membership fee from these full
time Directors of PTVC except Late Fakhar Hameed Ex-Director, IT. This
resulted into non recovery of Rs 4.50 million from full time Directors.

Audit was of the view that the management was required to recover the
member ship fee from full time Directors as per directives of the PTVC BoD but
it failed to do so.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the recovery orders were issued but the officers have
563
got stay order from Islamabad High Court against the recovery. DAC deferred the
case being subjudice.

Audit recommends recovery in pursuance of BoD decision after court

decision.

10.1.4.5 Irregular induction of staff against prescribed criteria -

Rs 1,117.57 million

According to Rule 5.07 Chapter-5 of PTVC Service Rules, the age of a

person at the time of entry into Corporation’s service shall not be less than 18
years and not more than 35 years. Furthermore educational qualification would
be at least 2nd Division.

During the audit of PTVC for the years 2016-18 it was observed that the
management inducted staff against the prescribed criteria of age limit of 35 years
and 2nd Division. The matter regarding relaxation in the criteria for regularization
of staff was placed before the BoD in its 200th, 202th and 212th meetings but the
Board did not agree to relax the criteria. The BoD in its 213th meeting held on
October 31, 2016 again discussed granting waiver in the criteria already
prescribed and advised the management to fix responsibility as how ineligible
persons were inducted in gross violation of PTV Rules. The management of
PTVC did not take any action as per BoD directions. This resulted into irregular
induction of staff and payment of pay and allowances valuing Rs 1,117.57
million.

Audit was of the view that as per criteria for induction, the upper age limit
was 35 years with 2nd Division but the above mentioned employees did not meet
the criteria. The induction was made in disregard to the prescribed criteria and
held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During its meeting held on January 16, 2019, DAC
directed to fix responsibility as the appointments were made against the
564
prescribed procedure/criteria. The DAC also directed to share inquiry report with
audit.

Audit recommends compliance of the DAC directive.

10.1.4.6 Irregular payment of pay & perks to ex-Chairman PTVC and payment
of advertisement charges - Rs 117.19 million

According to Clause-95 of Memorandum and Articles of Association of

PTVC, the BoD shall elect a Chairman of the company from amongst the
Directors representing Government of Pakistan to preside over there meeting.
Furthermore, according to Clause-95-A, Chairman shall not be entitled to any
remuneration. However, he may be paid all or any of the expenses incurred in
attending the BoD meetings or representing the company in any matter. The
position of such Chairman shall be mainly honorary in nature and under no
circumstances he shall be considered to be in the service of the Company.

During the audit of PTVC for the years 2016-18, it was observed that
Ministry of Information, Broadcasting and National Heritage appointed
Mr. Attaul Haq Qasmi as member and Chairman of the BoD for a period of 3
years vide Notification dated December 23, 2015. The Chairman assumed the
charge w.e.f December 23, 2015. The management vide office order dated
February 29, 2016 in pursuance of Ministry of Information Broadcasting and
National Heritage letter dated February 29, 2016 fixed salary Rs 1.50 million per
month (net of taxes). The Chairman was also entitled to T.A/D.A, Medical and
Entertainment Allowance. The Chairman remained posted w.e.f December 23,
2015 to December 18, 2017 and tendered his resignation w.e.f December 19,
2017. The management made payment of pay/perks w.e.f December 23, 2015 to
December 18, 2017 valuing Rs 53.39 million. Furthermore, management also
made payment of Rs 62.80 million as advertisement charges for the TV Programe
of the Chairman i.e “Khoay Hoaoon Ki Justaju” which was held irregular. This
resulted into irregular payment of pay & perk and advertisement charges
amounting to Rs 116.19 million (Rs 53.39 million + Rs 62.80 million).

565
 Audit was of the view that according to Memorandum and Articles of
Association, the post of the Chairman was honorary and payment of pay/perks to
ex-Chairman was not in line with Memorandum and Articles of Association of
PTVC and held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management stated that the case for appointment of Mr. Attaul Haq Qasmi,
Ex-Chairman PTVC was also under hearing before Honorable Supreme Court of
Pakistan which has been decided on November 08, 2018. As per decision, the
learned Court has declared his appointment as illegal and ordered to recover
pay/perks and other expenses of Rs 197.87 million from M/s Attaul Haq Qasmi
@50%, Pervaiz Rasheed, Ex-Minister for Information @20%, Ishaq Dar,
Ex-Finance Minister @20% and Fawad Hassan Fawad, Ex-Secretary to the Prime
Minister @10%. DAC directed to pursue the recovery and get it verified from
Audit.

Audit recommends compliance of the DAC directive.

10.1.4.7 Irregular purchase of SMD screen - Rs 3.60 million

According to Rule 12 (2) of PPRs 2004, all procurement opportunities

over 2 million should be advertised on the authority’s website as well as in other
print media or news papers having vide circulation. Furthermore, according to
Clause-42 (C-II) of PPRs 2004, Procuring Agency shall only engage in direct
contracting if the following conditions exist namely: only one manufacturer or
supplier exist for the required procurement. Provided that procuring agencies
shall specify the appropriate fora which may authorized procurement of propriety
object after due diligence.

During the audit of PTV Sports for the years 2016-18 it was observed that
management purchased Surface Mount Device(SMD) Screen 10 X 13 feet
valuing Rs 3.600 million from M/s M. Ahmad Trading Karachi and executed

566
agreement dated May 24, 2017 on the basis of single quotation (i.e direct
contracting) stating propriety item without observing PPRs. This resulted into
irregular purchase of SMD Screen valuing Rs 3.60 million.

Audit was of the view that direct contracting could be made only on
availability of single supplier/manufacturer whereas as per Finance Manager note
dated July 11, 2017, there were a number of firms and companies dealing with
SMD rental and sale business i.e. M/s Optimum Technology Karachi, M/s Smart
One Technologies Lahore and M/s OAS Enterprises Karachi. The management
did not identify the appropriate authority to declare this procurement as propriety
item which was also in violation of PPRs.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018 but no reply was received till the finalization of this
report.

The DAC in its meeting held on January 16, 2019, pended the para till
next DAC meeting.

Audit recommends to justify purchase of SMD Screen in violation of PP

Rules and waiving off purchase procedure as MD was not authorize to waive off
purchase procedure. Regularize the expenditure from the competent authority.

10.1.4.8 i Irregular payment to Director Sports for hosting sports

programmes - Rs 8.18 million
ii Excess payment of Talent Fee – Rs 4.09 million

According to clause 1.08 of Booking and Fee Structure Policy, the

employee of PTVC in special circumstances was allowed to participate in PTV’s
programmes as script writer, or performer. Employee so booked for PTV’s
progrmmes including Directors, Controller, General Managers and other officers
of substantive Group-9 will be paid 50% of prescribed fee for which contract
would be got signed .The Board in its 216th meeting held on May 10, 2018

567
debarred appearance of PTV employees on PTV screen as well as on the private
channels as anchors/compare/news casters/performer.

During the audit of PTVC for the years 2016-18, it was observed that
Dr. Nouman Niaz was appointed as Director (Sports) on regular basis w.e.f
February 19, 2014. He was also hosting sports programme regularly since his
appointment @ Rs 150,000 per programme and received payment of Rs 8.18
million during 2014-18 for appearance in programmes in contravention of
Booking and Fee Structure Policy as special permission was not obtained in this
regard. Furthermore, the participating employee was required to be paid 50% of
prescribed fee but full fee was paid resulting into excess payment of Rs. 4.09
million which was held irregular. Dr. Nouman Niaz also continued hosting of
sports programme even after debarring by Board in its 216th meeting and received
an amount of Rs 8.18 million which was held irregular.

Audit was of the view that the management was required to pay only 50%
of the prescribed fee to Director Sports but full fee was paid. Furthermore, the
management required to stop the hosting of sports programme by Director Sports
but no action was take in this regard which showed weak internal controls.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC during its meeting held on January 16, 2019
recommended that the case may be placed before BoD.

Audit recommends compliance of the DAC directive.

10.1.4.9 Irregular appointment of Chief Commercial Officer at exorbitant

remuneration - Rs 7.50 million

According to Para 4 of the procedure approved by the BoD in its 184th

meeting held on April 23, 2009 for induction of fresh and experienced
professionals in PTVC, applications for various categories shall be received on a
regular basis for which a database to be maintained. To further strengthen the
data base advertisement will be placed on PTVC website and news papers
568
periodically inviting applications. According to Rule 6.07 of PTVC Employees
Service Rules, appointment to all posts in Group-7 and above will be made
strictly and exclusively on the basis of merit.

During the audit of PTVC for the years 2016-18, it was observed that
the management appointed Mr. Ameen Akhtar as National Sales Manager on
contract basis w.e.f August 01, 2007, the officer had resigned w.e.f September
08, 2017. The management again appointed the officer as Chief Commercial
Officer on contract basis at Central Sales Office, Karachi at exorbitant salary of
Rs 1.50 million per month vide appointment letter dated March 20, 2018. He
submitted his joining on March 30, 2018. The appointment was approved by MD
on March 07, 2018 and the officer was paid Rs 7.50 million upto August 2018.
The appointment was termed irregular on the following grounds:-

i. Criteria approved by BoD for appointment of professionals was not

followed as vacancy was not advertised.
ii. Application of the official for appointment as Chief Commercial
Officer was not on record.
iii. Educational certificates were also not on record.
iv. Verification of educational certificates was also not made as per
Government instructions.

The services of the officer were hired exclusively for increase in

advertising income but revenue from advertisement decreased since his
appointment till June 2018 as detailed below:

Month 2016-17 2017-18

(Rs in million) (Rs in million)
April 112.762 141.909
May 104.876 19.068
June 800.894 330.748

Audit was of the view that the appointment of Chief Commercial Officer
was made against prescribed procedure hence held irregular.

569
 The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019
management explained that the appointment of Chief Commercial Officer
without advertisement was made keeping in view of his expertise in the
marketing field. The DAC directed to place the case before the BoD.

Audit recommends compliance of the DAC directive.

10.1.4.10 Irregular payment of Producer Allowance - Rs 5.90 million

According to the minutes of 163th meeting of Board of Directors held on
October 26, 2004, producer allowance of Rs 2,000 per month was approved for
all producers for the period they will be actively involved in the production of
programmes. The payment of the said allowance would be subject to good
quarterly report from the General Manager of the respective TV Centre.

During the audit of PTVC for the years 2016-18, it was observed that 123
producers were working at the following channels/centers and drawing producer
allowance and an amount of Rs 5.904 million was paid during 2016-17 &
2017-18. The payment of said allowance was subject to good quarterly reports of
producers from the respective Television Centre. However the management did
not consider quarterly reports of GMs for the payment of said allowance and
payment of producer allowance was made as routine as per detail given below:-

Name of channel/centre No. of Rate No. of Total amount

producer per months (Rs)
month
PTV Centre Lahore 19 2000 24 912000
PTV Sports/Training Academy 12 2000 24 576000
PTV Centre Karachi (PTV Home, PTV 37 2000 24 1776000
National, Sports Current Affairs)
PTV Centre, Multan 6 2000 24 288000
ETV Centre, PTV Home, Islamabad 22 2000 24 1056000
PTV Centre, Peshawar 22 2000 24 1056000
AJK TV Centre 5 2000 24 240000
Total 5,904,000

570
 Audit was of the view that payment of producer allowance was made in
violation of Board decision hence, held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the case for approval of the competent authority
regarding recovery of producer allowance from the producers who were not
covered under the approved criteria for payment of producer allowance is under
submission. The DAC directed to recover the producer allowance from the
ineligible producers.

Audit recommends compliance of the DAC directive.

10.1.4.11 Irregular appointment of PTVC employee in Associated Press of

Pakistan - Rs 6.46 million

According to Rule 11.01 (xxii) of PTVC Employees Service Rules, giving

false, incorrect or inaccurate information regarding name, age, father’s name
qualifications or previous service and experience or anything related to previous
employment at the time of employment is treated as miss conduct.

During the audit of PTVC for the years 2016-18, it was observed that
Mr. Gull Hassan was engaged as Resource Person (IT Deptt) on March 01, 2000.
His services were regularized as Associate Graphic Engineering I.T (Group-4)
vide letter No. HP/159/IT/10816 dated January 13, 2012 w.e.f January 11, 2012.
It was noticed that management on May 29, 2017 asked Associated Press of
Pakistan to confirm/verify employment of the official in APP. The Associated
Press of Pakistan on June 05, 2017 confirmed that he was appointed Video News
Editor w.e.f September 13, 2007. His contract services were regularized as video
News Editor in Grade-III w.e.f August 14, 2012. After coming to know that the
official is having dual appointment was charge sheeted on June 07, 2017. In the
meanwhile official tendered his resignation from APP w.e.f June 05, 2017. The
inquiry officer in his report dated July 11, 2017 found him guilty. Accordingly

571
his services were terminated w.e.f June 07, 2017 vide office order dated January
03, 2018. No criminal case was lodged against the culprit. He served in APP
w.e.f September 13, 2007 to June 05, 2017 and also drawn salary of Rs 6.46
million from PTV.

Audit was of the view that due to loose internal controls of the
corporation the official illegally got employment in APP and also drawn salary
from PTV, which was held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the official has been terminated from the service of
PTV. The DAC recommended that the employee should be terminated from both
organizations and recovery of illegal salary drawn be recovered beside lodging
FIR.
Audit recommends compliance of the DAC directive.

10.1.4.12 Irregular appointment of anchor twice on contract basis

– Rs 16.85 million

According to para-04 & 05 of the minutes of 184th meeting of PTVC

Board of Directors held on April 23, 2009, the job applications for various
categories shall be received on a regular basis for which a database is being
maintained. To further strengthen the database, advertisements will be placed on
PTV website and newspapers periodically, inviting applications. Suitable
candidates will be picked up from the existing database for interview/written test
for fresh inductions by the selection board and finalization of terms and
conditions of the selected candidates.

During the audit of PTVC for the years 2016-18, it was observed that
Ms. Nusrat Haris, was appointed as Anchor Person/Host for morning show
Subhai Nou” on contract basis at TV Centre, Karachi for one year against
monthly salary of Rs 200,000 on July 14, 2010 without observing the above
criteria. Her contract and pay was extended/revised during July 2010 to April
572
2013 and payment of Rs 9.20 million was made. The lady tendered her
resignation w.e.f April 14, 2013 without serving notice and thus she was required
to pay one month’s basic pay of Rs 190,322 in lieu of notice period but she did
not deposit the same.

The lady was appointed as anchor current affairs after four years on
contract basis for one year against monthly salary of Rs 450,000 per month vide
appointment letter dated May 05, 2017 without following approved criteria. The
application for the job and joining report was not available on record. She was
paid Rs 7.65 million from April 01, 2017 to August 31, 2018. The appointment
letter was issued on May 05, 2017 however her pay was started w.e.f April 01,
2017. The total payment on account of salary w.e.f July 14, 2010 to April 13,
2013 and from April 01, 2017 to August 31, 2018 worked out Rs 16.85 million.

Audit was of the view that the two times appointment of the lady anchor
was against the prescribed procedure and pay was increased before expiry of
contract hence, held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the appointment has been made as per approved
criteria of the Board. The DAC directed to place the case before BoD.

Audit recommends compliance of the DAC directive.

10.1.4.13 Irregular induction of staff on fake degrees - Rs 20.17 million

According to the judgment of Honorable Supreme Court of Pakistan

(Case 2009 SC MR 1497) no leniency should be shown in favour of employees
possessing fake/bogus degrees/certificates. The Honorable Supreme Court of
Pakistan authorizes to examine the possibility of getting registered criminal case
against such employees so that in further no one should dare to commit such
mis-conduct. Further, the authority awarding punishment of dismissal from
service to an employee cannot re-instate him in service.

573
 During audit of PTVC for the years 2016-18, it was observed that degrees
of 51 employees inducted during 1997 to 2016 against different posts were
declared bogus/fake by concerned universities/institutes. A sum of
Rs 20.17 million (on average basis) was fraudulently drawn by these officials.
Although the services of these employees have been terminated but criminal
cases were not registered against them.

Audit was of the view that management did not immediately send the
degrees for verification after employment which showed slackness on the part of
management. The payment of Rs 20.17 million paid to these employees was
irregular and needs recovery.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC during its meeting held on January 16,
2019, directed that the employees should be terminated immediately and the case
may be referred to FIA for lodging FIR and recovery of illegal salary drawn.

Audit recommends compliance of the DAC directive.

10.1.4.14 Non-recovery of TV license fee - Rs 1,960.36 million

According to the Television Receiving Apparatus Rules 1970, the

Government of Pakistan levied TV license fee on each and every TV set holder
who has to pay monthly TV license fee @ Rs 35 per domestic and Rs 60 for
commercial TV set. Under Agreement of 2004, the fee was to be collected
through monthly electricity bills.

During the audit of PTVC for the years 2016-18, it was observed that an
amount of Rs 2,345.92 million of TV license fee was recoverable from domestic

574
& commercial consumers since 2004-2005 to March 2018 as per detail given
below.

S.No Name of Total No. of Recoverable amount Category

Distribution default of TV license fee for Domestic &
Companies consumers the period 2004-05 to Commercial)
31-03-2018
1. FESCO 30,674 6,394,384 Domestic
2. IESCO 30,639 7,709,729 Domestic
3. GEPCO 21,465 4,834,493 Domestic
4. LESCO 287,154 81,475,334 Domestic
5. QUESCO 100,706 197,072,948 Domestic
6. MEPCO 151,430 37,525,423 Domestic
7. SEPCO 349,011 967,190,098 Domestic
8. HESCO 399,326 697,033,169 Domestic
9. PESCO 226,254 303,584,207 Domestic
Total (Category-A) 1,596,659 2,302,819,785
1. FESCO 694 314,668 Commercial
2. IESCO 1,000 497,275 Commercial
3. GEPCO 709 268,866 Commercial
4. LESCO 8,711 4,447,146 Commercial
5. QUESCO 709 1,613,527 Commercial
6. MEPCO 3,793 1,739,777 Commercial
7. SEPCO 4,490 17,437,659 Commercial
8. HESCO 5,287 14,347,080 Commercial
9. PESCO 1,620 2,432,038 Commercial
Total (Category-B) 27,013 43,098,036

Audit was of the view that the management failed to recover the long
outstanding TV license fee from chronic defaulters which resulted in non
recovery of Govt. dues valuing Rs 2,345.92 million.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that recovery of Rs 385.56 million has been made out of
total recoverable amount of Rs 2,986.01 million and verified by audit. The DAC
directed that recovery for balance amount be made and reduce the para to
Rs. 1,960.36 million.

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 Audit recommends compliance of the DAC directive.

10.1.4.15 Loss of income due to non-reduction of service fee on collection of

TV license fee - Rs 101.84 million

According to Ministry of Water & Power Notification No.15(134)/2016-

DISCO-1 dated June 07, 2016, the service fee collected by Electric Distribution
Companies on the collection of TV license fee through electricity bills reduced to
Rs 1 from Rs 5 per paid bill w.e.f April 04, 2016.

During the audit of PTVC for the years 2016-18, it was observed that the
management executed agreements with PEPCO and KESC for collection of TV
license fee through monthly electricity bills. As per agreements Rs 5 was to be
deducted from each paid bills as service fee. According to above notification the
service fee was subsequently reduced to Rs 1 w.e.f April 01, 2016. However,
KESC was not considered for inclusion in the said decision resulting into loss of
income due to excess charging of service fee as worked out below:

Description
Domestic & Commercial Consumers during 2017-18 2121647 Nos.
Total service charges by KESC @ Rs 5 per bill per month Rs. 10,608,235
Service fee required to be charged @ Rs 1 per bill Rs. 2,121,647
Difference per month Rs. 8,486,588
Total loss for the year Rs. 10,839,056

Audit was of the view that the management was required to take up the
matter with the Govt. but steps were not taken in this regard. Non inclusion of
KESC in the said notification resulted into income loss to PTVC.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the Minister for Information has taken up the matter
with Minister for Power. The DAC directed to continue efforts for reduction of
service fee from KESC.

576
 Audit recommends compliance of the DAC directive.

10.1.4.16 Shortage of store items - Rs 11.97 million

According to Rule-5(5)(a) of the Public Sector Companies (Corporate

Governance) Rules, 2013, the principle of probity and propriety entails that
company's assets and resources are not used for private advantage and due
economy is exercised so as to reduce wastage. The principle shall be adhered to,
especially with respect to handling of public funds, assets, resources and
confidential information by directors, executives and employees and claiming of
expenses.

During the audit of PTVC for the years 2016-18, it was observed that
physical verification of stores of PTVC (HQs) and PTV Centre Lahore was
carried out on April 30, 2017 and again on April 30, 2018 and shortage valuing
Rs 11.97 million was detected. No action against the defaulters for shortage of
stores was initiated even after lapse of a considerable period.

Audit was of the view that the management was required to investigate
the matter and take action against the persons at fault but no action was taken.
Non-initiation of action against the defaulters indicated slackness on the part of
management.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that missing inventory item has been traced out. The
DAC directed to get the short items verified from Audit.

Audit recommends compliance of the DAC directive.

577
10.1.4.17 Overpayment due to agreements without sales tax - Rs 23.50 million

According to instructions issued by PTVC HQ vide circular

No.DCF(Tax)/clarifications/81 dated December 16, 2015, all agreements (local
or international) must be made on total amount/gross amount basis instead of
agreeing the term on net of tax basis. This is due to the fact that under the
provisions of the Ordinance the tax born by PTVC on behalf of other party may
not be claimed as admissible deduction.

During the audit of PTVC for the years 2016-18, it was observed that the
management procured nine programs/dramas from private production houses by
agreeing the term on net of tax i.e. exclusive of sales tax of the total cost against
above instructions resulting into over payment of Rs 23.50 million. As per Note
of PTVC Tax Manager dated May 11, 2017, net of tax agreements were strictly
prohibited as per instructions refereed above and advised that the cost of the
programe be considered inclusive of GST. The instructions were not adhere to
and the agreements with the production houses were made excluding GST and
thus excess payment was made to the production houses and corporation was put
to loss of Rs 23.50 million.

Audit was of the view that cost of programme should also be included
GST which was not done resulting into over payment of Rs 23.50 million which
was held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the sales tax refund has been claimed from CBR. The
DAC directed to get the sales tax refund verified from Audit.

Audit recommends compliance of the DAC directive.

578
10.1.4.18 Loss due to launching non-viable programme” celebrity lounge”
without approval of competent authority - Rs 5.50 million

According to Rule 23 of GFR, every Government officer should realize

fully and clearly that he will be held personally responsible for any loss sustained
by Government through fraud or negligence on his part.

During the audit of PTVC for the years 2016-18, it was observed that
PTVC Centre, Karachi launched a programme titled “celebrity lounge” on PTV
network during quarter October-December 2017 & January-March 2018. The
programme was launched without the approval of MD. The rating of the
programme remained at 01 which was very low. The cost per episode stood at
Rs 466,763 during quarter October-December 2017 and at Rs 454,687 during the
quarter January-March 2018. The revenue per episode remained at Rs 249,019 at
average which was far less than per episode cost and thus sustained loss of
Rs 5.50 million as worked out below:

Period Cost 13 Episode Income Loss

(Rs) (Rs) (Rs)
Oct-Dec 2017 6,067,919 4,836,627 1,231,292
Jan-Mar 2018 5,910,931 1,637,873 4,273,058
11,978,850 6,474,500 5,504,350

The programme was continued despite low rating and stopped in June,
2018.

Audit was of the view that the programme was aired on PTV network
which was not commercially viable and the same was launched without the
approval of the Managing Director authority which caused loss of Rs 5.50 million
to the corporation.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the issue is under inquiry. The DAC directed to
complete the inquiry and share with audit.
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 Audit recommends compliance of the DAC directive.

10.1.4.19 Fake claim of POL for generator at RBS Turbat - Rs 11.00 million

According to Rule-23 of GFR Vol-1, every Government officer should

realize fully and clearly that he will be held personally responsible for any loss
sustained by the Government through fraud or negligence on his part.

During the audit of PTVC for the years 2016-18 it was observed that
Mr. Khurshid Anwar, Senior Engineer Incharge remained posted at RBS Turbat
w.e.f March 02, 2000 to December 20, 2013 and submitted POL bills of
generator to PTVC HQ for payment. The electricity supplied by the Islamic
Republic of Iran in costal areas of Baluchistan including Turbat in 2005, there
was no load shedding as reported by Quetta Electric Supply Company vide letter
dated March 25, 2014. The matter for claiming POL bills of generator despite the
fact that there was no load shedding at Turbat was proved by an initial inquiry
committee constituted by the management. As per preliminary inquiry report
there was no load shedding at Turbat but generator worked for more than 200
hours per month and POL bills of 2300 liters per month were constantly claimed.
After the transfer of Mr. Khurshid Anwar on December 20, 2013 Mr. Zahir
Hussain, Engineer was posted as Incharge RBS Turbat. He also continued this
practice for sending bills of POL of generator for payment. However bills
submitted by him were not paid and after inquiry his services were terminated
w.e.f January 02, 2018. This resulted into payment of fake POL bills of the
generator of RBS Turbat valuing Rs 11.00 million.

Audit was of the view that due to weak internal controls of the company
Mr. Khurshid Anwar succeeded to claim POL bills without any load shedding
which was loss to the corporation.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the accused has been terminated from the services of
580
PTVC. Audit contented that there was no mention about the fake claim of POL
bills in the termination orders and suggested to work out the amount of fake bills
of POL for effecting recovery. The DAC directed to work out and recover the
fake claims of POL bills from the accused.

Audit recommends compliance of the DAC directive.

10.1.4.20 Non-adjustment of salary advance - Rs 6.77 million

According to PTV Head Quarters, Islamabad Office Order
No. HPP/2014/186 dated November 11, 2004 &Office Order No. HP/2014/139
dated January 06, 2006 the advance against salary was to be adjusted from the
salary in three equal installments before the closing of the financial year
2004-2005 & 2005-06.

During the audit of PTVC, Lahore for the years 2016-18, it was observed
that an amount of Rs. 6.765 million was outstanding against 573 employees on
account of advance against salary. The advances against salary on the eve of
Eid-ul-Azha 2005, Eid-ul-Fitr 2006 and Eid-ul-Fitr 2010 were given to theses
employees which were to be adjusted from salary in three equal installments
before the closing of the financial years 2004-2005 & 2005-2006. Advance
against salary on Eid-ul-Fitr 2010 given in anticipation of ex-gratia which was
not approved by the BoD was also required to be adjusted from the salary.
However, the advances were not adjusted and deferred for adjustment from
commutation of the employees at the time of retirement. An amount of Rs 6.77
million was outstanding since 2004-05 and 2010.

Audit was of the view that the advances were required to be recovered
from the salary of the employees within three equal installments but same were
deferred till retirement of the employees which was held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC during its meeting held on January 16,

581
2019, directed that the recovery of the advances be made from the salary of the
employees concerned.

Audit recommends compliance of the DAC directive.

10.1.4.21 Non-transparent hiring of equipment &hall for Ramzan

Transmission - Rs 11.18 million

According to Rule 12 (2) of PPRs 2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of PTVC Centre, Lahore for the years 2016-18, it was
observed that the management hired equipments from different parties for
conducting Ramzan Iftaar Transmission 2016 titled “Ramzan Allah Ka Ehsaan”
without observing PPRA Rules 2004 as detailed below:

S.No. Suppliers Name Description Amount

(Rs.)
1. M/s Royal Caterers, Lahore Set Material & Props 3,000,000
2. M/s Royal Caterers, Lahore Hiring of Hall 3,750,000
3. M/s Ad Mills, Lahore Hiring of Lights 1,888,410
4. M/s Idrees Sound, Lahore Hiring of Sound 900,000
5. - Hiring of JIbs 665,000
6. M/s Al-Jannat, Lahore Hiring of SMDs 450,000
Screen
7. - Hiring of Chillers 525,000
Total 11,178,400

While approving the Programme Budget Estimates M.D waived off the
purchase procedure.

582
 Audit was of the view that hiring of equipments & hall without
advertisement as against the PPRs, was held irregular. Moreover, M.D had no
authority to waive off purchase procedure under PPRs.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC during its meeting held on January 16,
2019, recommended that the case may be placed before the BoD.

Audit recommends compliance of the DAC directive.

10.1.4.22 Loss of income due to non-collection of PTV license fee from Bulk
Meter Consumers – Rs 574.65 million

According to Television Apparatus (Possession &Licensing) Rules, the

Govt. of Pakistan levied Rs 35 per month TV license fee for domestic consumer
and Rs 60 for Commercial TV set.

During the audit of PTVC for the years 2016-18, it was observed that
3637 Bulk Consumers (Private/Govt. Institutes, Housing Societies) were
registered with PEPCO as per Asstt. Controller Revenue (CS) note
No.PTV(HQs) note No.PTVC-RD-403/Audit/77 dated August 08, 2018.
However, PTVC was collecting PTV license fee from only 267 Bulk Consumers.
Thus, the corporation was deprived of license fee income of Rs 574.65 million as
worked out below:

Description Total Nos. & Amount

(Rs)
Total Consumers of 267 Bulk Meters 108,356 Nos.
Average consumers per bulk meter of 267 bulk meters 406 Nos.
(108,356/267)
Average consumers per Bulk meter of 3,370 Bulk Meters 1,368,220 Nos.
Rate of fee per consumer per month Rs. 35
Loss of income per month (1,368,220 x 35) Rs. 47,887,700
Total loss for one year (47,887,700 x 12) Rs. 574,652,400

583
 The management did not collect actual date of bulk meters/consumers
from PEPCO for recovery of license fee from the remaining bulk meters owners
which showed slackness on the part of the management.

Audit was of the view that the actual data of bulk consumers was not
collected and the corporation was deprived of license fee due to non-recovery of
license fee from the total bulk meters consumers registered with PEPCO.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. During DAC meeting held on January 16, 2019,
management explained that the legal notice to the defaulter bulk consumers are in
process of issuance. The DAC directed to make efforts for recovery of PTV
License Fee from the bulk meter consumers.

Audit recommends compliance of the DAC directive.

10.1.4.23 Unjustified hiring of various equipments - Rs 30.13 million

According to rule 12 (2) of PPRs 2004, all procurement opportunities
over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.
During the audit of PTVC, Islamabad for the years 2016-18, it was
observed that PTV Sports, PTV Home, PTV Karachi and PTV Lahore incurred
an expenditure of Rs. 30.13 million on acquiring of equipments like SMD Screen,
Jibs, LED lights, Props and Set Materials during 2016-17 & 2017-18 for
recording programmes on rental basis. The equipments were hired from the
parties without going through the tendering process as per PPR hence held
irregular. Furthermore, the equipments hired were of fixed asset nature and
usable for every programme for longer period hence, the decision for hiring
instead of purchase was not justified at all.

584
 Audit was of the view that by avoiding tender process undue favor was
extended to the parties and the corporation was deprived of the benefit of
competitive rates. The hiring of equipments amounting to Rs. 30.13 million was
made in contravention of PPRs and thus held irregular.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC during its meeting held on January 16,
2019, recommended that the case may be placed before the BoD.

Audit recommends compliance of the DAC directive.

10.1.4.24 Irregular deduction of Punjab Sales Tax Rs 54.10 million

According to PTVC, Head Quarters letter No. Nil dated June 19, 2017,
PTVC entered into contract with PEPCO for collection of TV license fee, PEPCO
has in term asked DISCO’s for said collection. Hence sales tax is required to be
charged by DISCO’s to PEPCO instead of PTVCL.

During audit of PTVC, HQ, Islamabad for the years 2016-18 it was
observed that Faisalabad Electric Supply Company (FESCO) and Multan Electric
Supply Company (MEPCO) was deducting Punjab Sales Tax Rs 41.68 million
and Rs 12.43 million respectively from TV license fee collected by them since
July 2014 as against the above criteria. In this regard an amount of Rs 54.10
million has been deducted upto June 2018.

It is pointed out that no other DISCO’s was deducting sales tax from
collection of TV license fee except the above two DISCO’s. The deduction of
sales tax was being shown as receivables in the accounts. Management has not
effectively taken up the matter with concerned authorities for resolving the issue..

Audit was of the view that the DISCO’s are rendering services to PEPCO
as PTVC has not entered into any contract with DISCO’s, hence deduction of
sales tax from the collection of TV license fee is held irregular.

585
 The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC during its meeting held on January 16,
2019, directed that the efforts may be continued to resolve the matter.

Audit recommends compliance of the DAC directive.

586
10.2 Pakistan Broadcasting Corporation Limited

10.2.1 Introduction

Pakistan Broadcasting Corporation was established under the Pakistan

Broadcasting Corporation Act 1973, Pakistan Broadcasting Corporation (PBC) is
a Federal Government Corporation being managed through Ministry of
Information and National Heritage.

10.2.2 Comments on audited accounts

10.2.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the years 2013-14 to 2017-18 till December 31,
2018.
10.2.2.2 Audit recommends that the annual audited accounts of the past years be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

10.2.3 Compliance of PAC directives

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
1990-91 06 04 02 354,359 67
1991-92 11 10 01 300 91
1992-93 07 05 02 205,209 71
1993-94 10 08 02 182,183 80
1994-95 05 04 01 219 80
1996-97 06 04 02 180,182 67
1997-98 09 08 01 115 89
1998-99 28 26 02 1.1, 8 (SAR-56) 93
1999-00 06 02 04 159,160,162, 163 33
2000-01 04 03 01 127, 75
2003-04 17 14 03 124.4,125,130 82

587
2006-07 03 01 02 120.1,120.2 33
2007-08 19 13 06 94.3,94.4,99,100,102,105 68
2008-09 15 08 07 132,133,134,135,131.5,13 53
1.6,136
2009-10 02 0 02 148,149 -
2010-11 12 09 03 12.2.1,12.2.2,12.2.2.4 75
2016-17 09 0 09 8.1.4.3, (8.1.1 -
&8.1.2,8.1.3,8.1.4.1,8.1.4.
2,8.1.4.4,8.1.4.5,8.1.4.6,8.
1.4.7)
Total 169 119 50 70

Overall compliance of the PAC directives was not satisfactory and needs
immediate attention of the PAO.

10.2.4 Audit paras

10.2.4.1 Non transparent appointment of Resource Persons on contract basis -

Rs 31.87 million

According to Establishment Division OM dated April 17, 2003 (referring

to a decision of Supreme Court of Pakistan) (i) all initial appointments should be
made through open advertisement (ii) all selections for appointment should be
through duly constituted Selection/ Promotion Committee/Board (iii) there
should be pre-determined criteria for each post (iv) no provision for relaxation of
rules should be given in favor of any individual.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that the management appointed 114 Resource
Persons on contract basis without press advertisement and written tests. The
resource persons were appointed on simple application by Director General PBC
without Selection Board Committees. This resulted into irregular appointment
and payment of pay and allowances worth Rs 31.14 million upto June 30, 2018.

Audit was of the view that the appointments were made at the cost of
public exchequer depriving the deserving persons.
588
 The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30, 2019,
directed the management that the case may be placed before the BOD for
approval/ regularization.

Audit recommends compliance of the DAC directive.

10.2.4.2 Irregular award of contract for marketing rights to disqualified firm,

non recovery of outstanding dues - Rs 5.92 million

According to Rule-36 (b) (viii) of PPRs 2004, after the evaluation and
approval of the technical proposal, the procuring agency, shall at a time within
the bid validity period, publicly open the financial proposals of the technically
accepted bids only. The financial proposal of bids found technically
non-responsive shall be returned un-opened to the respective bidders. Moreover,
according to para-11 of the contract signed between Pakistan Broadcasting
Corporation (PBC) and M/s Sacom Media Communication Consultant Islamabad,
“recovery cheques against the invoices shall be collected by firm in the name of
PBC and deposited in PBC Account No. DC-655/77 HBL Foreign Office Branch
Islamabad under intimation to the Central Sales Office Islamabad.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was noticed that the management invited Expression of Interest
(EOI) for the award of marketing and sales rights of PBC FM channels across the
country on December 15, 2015. In response nine (9) firms submitted their
technical proposals. The technical evaluation committee recommended /qualified
technical proposal of four (4) firms on January 08, 2016 and rejected /disqualified
five (5) firms including M/s Sacom Media Communication Consultant
Islamabad. The management awarded contract /agreement on April 11, 2017 to
M/s Sacom Media Communication Consultant, Islamabad for marketing and
sales rights of PBC FM channels valid up to December 31, 2017 despite
disallowed/ disqualified by the technical evaluation committee.

589
 Furthermore, the following irregularities were also observed in this case:-
a. The firm secured business of Rs.5.92 million of PBC till date, however,
the amount received was directly credited to their own account instead of
PBC in violation of caluse-11 &12 of the contract and paid only a sum of
Rs.1.61 million.
b. The contract of the firm was expired in December 2017 however the firm
continued its business till date without any extension in the
contract/agreement.

Keeping in view the above facts the award of sales/marketing rights to

technically disqualified firm and execution of the contract in violation of the
contract/agreement was considered irregular.

The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30, 2019,
directed that the recovery already made may be verified and complete recovery
may be made within 120 days.

Audit recommends compliance of the DAC directive.

10.2.4.3 Irregular appointment of employees –Rs 29.25 million

According to Establishment Division S.R 0248(i)/88 dated April 07,

1988, a candidate must possess the educational qualifications and experience and
must be within the age limit as mentioned against the post commenced below:

i. LDC Matric with typing speed 30 w.p.m

ii. Stenotype Metric, with 80/40 w.p.m in short hand and typing respectively.
iii. Stenographer intermediate with 100/50 w.p.m speed in short hand and
typing respectively.
During the audit of Pakistan Broadcasting Corporation (PBC) for the
years 2016-18 it was observed that the management appointed 201 LDC, Steno
typist and Stenographer during 2007-08 in PBC Scale No. 2, 3 and 4 respectively,
however, the relevant criteria was not followed in letter & spirit as no practical
590
test was carried out in order to judge the ability of typing speed, which was the
basic condition of the direct appointment, only written test of the general
knowledge was conducted which was not requirement in the case of the
appointment against the above referred posts.

Audit was of the view that due to violation of the above referred criteria,
appointment against these posts cannot be considered on merit. Therefore,
expenditure of Rs 29.25 million incurred on the pay & allowances was held
irregular.

The matter was repeatedly brought to the notice of the management and
Ministry through Audit Inspection Reports for the year 2007-08 to 2015-16 but
neither any action was taken against above irregular appointment by the
management nor furnished plausible reply to audit.

The matter was reported to the management on October 10, 2018 and to
PAO on October 25, 2018. The DAC in its meeting held on January 30, 2019,
directed the management that the case may be referred to Establishment Division
for regularization.

Audit recommends compliance of the DAC directive.

10.2.4.4 Irregular appointment of HRM Officer – Rs 5.66 million

According to the Establishment Division vide their OM No. 4/1/93-R-1

dated February 23, 2009, duly communicated to PBC through controlling
Ministry vide U.O dated March 03, 2009, NOC was required to be obtained from
the Establishment Division regarding availability of staff in the surplus pool
before recruitment in vacant posts.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that the management appointed Ms Faryal Malik
as Human Resources Management Officer on August 24, 2009 at monthly pay of
Rs 50,526. The management published advertisement in the daily Jang on August
591
17, 2009 for walk in interview at PBC head office on August 21, 2009. The lady
was appointed without any written test (NTS or other) merely on the assessment
of a tailor made committee. Since inception of PBC in 1948 and their subsequent
conversion into corporation in 1972 the organization did not have their approved
Appointment, Promotion and Transfer Rules as required under PBC Act.

The management accommodated the officer through re-designation of the

post of Administrative Officer as HRM Officer by D.G PBC on August 24, 2009
i.e. on the date of issuance of appointment letter. The appointment of the officer
was also seriously viewed by the PBC BoD in its 366 meeting held on March 04,
2010 in which it was observed that in draft rules there was no post of HRM
Officer. A sub-committee of the Board Members was constituted in March 2010
to investigate the matter and report to the board. Neither the inquiry was finalized
nor any action was taken in line with the instructions contained in the above
letter.

Audit was of the view that the appointment/selection of the officer as well
as subsequent increase in the pay was held irregular. The employee was paid an
amount of Rs 5.66 million (approx. @Rs 50,526 pm X 112 months) on account
of pay & allowances since the date of appointment.

The matter was brought to the notice of PBC/Ministry through Audit

Inspection Reports for the year 2014-15 and 2015-16. The DAC in its meeting
held on January 30, 2019, deferred the para as the matter is subjudice.

Audit recommends explain reasons for violation of Establishment

Division’s instructions. Fix responsibility for the irregular appointment and take
action against the responsible. Get approved Appointment, Promotion and
Transfer Rules as required under PBC Act.

592
10.2.4.5 Irregular payment of shift allowance to news staff - Rs 1.37 million

According to para-12 (1) of Rules of Business 1973 Government of

Pakistan, “No Division shall, without previous consultation with the Finance
Division, authorize the issue of any orders, other than orders in pursuance of any
general or special delegation made by the Finance Division, which will affect
directly or indirectly the finances of the Federation.”

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that contrary to the above instructions of the
Federal Government, the management approved shift allowance to the News staff
on April 10, 2018. Furthermore, it was observed that PBC was receiving grant in
aid from the Federal Government on annual basis and approved annual budget for
the year 2017-18 reflected deficit budget of Rs. 1.57 billion.

Audit was of the view that the available resources of PBC were
in-sufficient to meet the approved expenditure for the year 2017-18.The
management approved additional allowance to the employees of the organization
without concurrence of the Finance Division. Thus expenditure of Rs. 1.37
million incurred from April 2018 to August 2018 on the said allowance was
considered irregular.

The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30,
2019, directed the management that the case may be placed before the BOD
for approval/ regularization.

Audit recommends compliance of the DAC directive.

593
10.2.4.6 Ill-planed expenditure on establishment of Pakistan Institute Of
Broadcasting & Information Technology - Rs 56.25 million

According para-3.4 of Project Management Guidelines Planning

Commission Government of Pakistan “at the project preparation stage, various
indicators such as input, baseline data, outputs and outcome, are determined over
the life of project. In addition, viability of the project in terms of financial and
economic indicators is also determined, which focus on financial and economic
viability of the project. Another important aspect which needs to be considered is
the sustainability aspect after completion; how it would yield the required
output/outcome.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18, it was observed that development project “Establishment of
Pakistan Institute of Broadcasting & Information Technology at Islamabad” was
approved by Central Development Working Party (CDWP) on July 20, 2005 at a
cost of Rs.62.94 million with completion period of 18 months. It was observed
that expenditure of Rs.56.25 million was incurred on civil works through Pak
PWD against the allocated budget of Rs.34.38 million. In 2010 revised PC-I
costing Rs.134.44 million was submitted to Planning & Development Division
for approval of CDWP in the Planning & Development Division, Ministry of
Information & Broadcasting constitute the committee on February 02, 2012 by
consisting representative of Pak PWD, Ministry of Housing of Works, Ministry
of Planning & Development for the best possible solution of the project but report
of the committee was still awaited even after lapse of six years. Thus, the
expenditure incurred Rs.56.25 million on construction of building was considered
wasteful because the objective set in PC-I of the project could not be achieved
even after lapse of 13 years.

Audit was of the view that PC-I of the project was prepared without
proper planning and necessity of the requirement.

594
 The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30,
2019, directed to hold an inquiry and share report with Audit within 60 days.

Audit recommends compliance of the DAC directive.

10.2.4.7 Loss due to non recovery of rent of shops from M/s Khattak Sons since
2005 – Rs 9.67 million

According to lease agreement between Pakistan Broadcasting Foundation

(PBF) and M/s Khattak Sons (Pvt) Ltd on December 31, 2004, it was decided
that PBF will provide 5 canal land situated at Radio Colony, Rawat to
M/s Khattak Sons for construction of shops from their own funds. M/s Khattak
Sons was bound to pay monthly rent of Rs 50,000 to PBF.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that M/s khattak Sons constructed shops at the
land of PBF but Rs 9.67 million was not paid to PBC/PBF on account of rent of
shops since 2005.

Audit was of the view that management did not take strenuous efforts to
recover the rent from concerned party for the last 13 years hence PBC suffered
loss to the extent of Rs 9.67 million.

The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30,
2019, deferred the para as the matter is subjudice.

Audit recommends investigate reason for non recovery of rent from party
in violation of agreement and fix responsibility. Recover the rent amount from
concerned party or from the persons held responsible.

595
10.2.4.8 Non-receipt of outstanding amount from different private advertising
agencies/clients - Rs 10.92 million

According to Clause-06 of terms and condition of Transmission Contract,

90 days credit facility to Government Clients dependable Advertising Agencies
would be provided.

During the audit of Pakistan Broadcasting Corporation ( ZSO, Karachi,

Islamabad& Lahore) for the years 2016-18 it was observed that the management
sold out air time to the private clients/advertising agencies on credit basis in
violation of above said rule as this credit based facility was admissible only to
Government client dependable advertising agencies. The receivable from these
clients was Rs 10.92 million lying outstanding since 2012-13.

Audit was of the view that the management was required to sell air time
to private clients on cash basis because credit facility was admissible only to
Government clients secured advertising agencies.

The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30,
2019, directed to hold inquiry report be shared with audit with 45 days.

Audit recommends compliance of the DAC directive.

10.2.4.9 Non-adjustment/recovery of TA/DA &others advances from employees

/ ex-employees - Rs 5.72 million

According to Para 273 of PBC Accounting Manual, all the advances

drawn by employees for TA/DA, whether for inland or tour abroad should be
adjusted immediately after performance of the tour.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that the management did not recovered advances

596
and other inadmissible payments from the employees/ex-employees as
considerable time of more than ten (10) years was lapsed.

Audit was of the view that the management was required to make serious
efforts for recovery from existing or ex-employees.

The matter was repeatedly brought to the notice of the management and
Ministry through Audit Inspection Reports for the year 2007-08 to 2015-16 but
neither any action was taken against above irregular appointment by the
management nor furnished plausible reply to audit.

The DAC in its meeting held on January 30, 2019, directed that
recovery may be verified and inquiry report be shared with Audit.

Audit recommends compliance of the DAC directive.

10.2.4.10 Loss due to irregular award of land on lease to M/s SNK Enterprises
- Rs. 1.66 million

According to Ministry of Housing and Works Rules for entering into an

agreement regarding renting out of buildings, the rent of building should be
enhanced @ 25% after every three years.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that the management leased out plot measuring
four (4) kanal at HPT Peshawar to M/s SNK Enterprises Peshawar for thirty (30)
years on monthly rent of Rs. 154,000 vide lease agreement dated June 13, 2008.
Contrary to the above referred instructions the increase in annual rent was agreed
@ 15% after three years as per para-1(a)(i) of the lease agreement. Thus, the
organization was put to loss of Rs.1.66 million from July 1, 2011 to June 30,
2018.

Audit was of the view that slackness on the part of management resulted
in undue favour to the tenant and loss of Rs 1.66 million to the corporation.
597
 The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC meeting held on January 30, 2019,
directed that efforts for recovery may be continued.

Audit recommends compliance of the DAC directive.

10.2.4.11 Loss due to non recovery of sales income from marketing company -
Rs. 5.00 million
According para-11 of the contract agreement signed between Pakistan
Broadcasting Corporation (PBC) and M/s Avenue International Pvt. Ltd,
“recovery cheques against the invoices shall be collected by firm in the name of
PBC and deposited in PBC Account No. DC-655/77 HBL Foreign Office Branch
Islamabad under intimation to the Central Sales Office Islamabad.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was noticed that the management entered into a contract/
agreement with M/s Avenue International Pvt. Ltd for award of marketing and
sales rights of PBC channels FM-101, FM-93, FM-94 and Medium Waver
Network stations on non exclusive basis on public private partnership basis in the
ratio of (70: 30) on April 07, 2017 valid up to December, 31 2017.The firm
secured business /commercials worth Rs. 5.002 million for PBC during the period
from April to August 2017. However, it was observed that the management failed
to collect share of income according to agreement. The cheques of business
/commercial secured were collected and deposited by the firm in its own account
instead of PBC account mentioned in the contract/ agreement. The firm went into
default and the contract/ agreement was expired in December 2017 and not a
single penny was received from the firm till date.

Audit was of the view that the management suffered loss of sales income
Rs.5.00 million due to irregular execution of sales contract.

598
 The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30,
2019, directed that case may be filed for recovery.

Audit recommends compliance of the DAC directive.

10.2.4.12 Unjustified retention of staff on monthly consolidated contract -

Rs 10.17 million

According to Establishment Division OM dated May 06, 2000 (i) all

initial appointments should be made through open advertisement (ii) all
selections for appointment should be through duly constituted Selection/
Promotion Committee/Board (iii) there should be pre-determined criteria for each
post (iv) no provision for relaxation of rules should be given in favor of any
individual.

During the audit of Pakistan Broadcasting Corporation (PBC) for the

years 2016-18 it was observed that the management engaged 107 employees of
various cadres on monthly contract basis without any approved qualification and
posted at various units of PBC throughout Pakistan. The pay of the employees
having same qualification was different from each other. Furthermore, the
retention of the monthly contract employees was not justified in the context of
decreased operational activities of the corporation. Hence, Rs 10.17 million per
annum (spent on pay of 107 employees) was considered irregular and unjustified.

Audit was of the view that the management was retaining unnecessary
employees only to oblige them at the cost of other deserving persons.

The matter was reported to the management on September 27, 2018 and
to PAO on October 17, 2018. The DAC in its meeting held on January 30, 2019,
directed that the case may be placed before the BOD for approval/ regularization.

Audit recommends compliance of the DAC directive.

599
10.3 National Book Foundation
10.3.1 Introduction

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 on 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.

10.3.2 Comments on Audited Accounts

10.3.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.

10.3.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

10.3.2.3 Working results of the Foundation for the year 2016-17 as compared
with previous years are as under:-
(Rs in million)
2016-17 % Inc/ 2015-16 % Inc/ 2014-15
(Dec) (Dec)
Sales 331.943 (2.05) 325.265 9.54 296.95
Cost of sales 250.445 1.90 245.771 2.51 239.748
Gross profit 81.498 2.52 79.494 38.97 57.201
Admn &general expenses 208.864 (1.42) 211.872 721.85 25.78
Financial charges 0.170 (47.69) 0.325 71.05 0.19
Operating profit/ (loss) 127.537 (3.89) 132.703 324.79 31.24
Other income 32.262 39.99 23.046 39.33 16.54
Profit/ (loss) for the year 74.689 92.78 38.744 (18.91) 47.78

600
 Provision for taxation 16.752 251.93 4.760 (63.94) 13.2
Net profit (loss) for the year after 57.936 70.48 33.984 (1.70) 34.57
taxation
(Source: Annual audited accounts)

As per Note 18, PLS & Current Account of Foundation increased to

Rs 224.62 million in 2016-17 from Rs 185.63 million in 2015-16 (increase by
21%). Foundation was required to determine its working capital or day to day
expenses and made investment of surplus funds in terms of TDRs rather than PLS
Accounts to earn maximum interest after getting better rates.

10.3.2.4 As per Note 14.1 provision for slow moving stocks of foundation of
Rs 646,941 was shown in annual accounts for the years 2015-16 and 2016-17
respectively. Efforts should be made to sell the stock.

10.3.2.5 The work in progress valuing Rs 18.56 million remained stagnant hence
the project was not completed. Early completion of the project was stressed upon
the management.

10.3.2.6 As per Note 7, trade other payables, the amount for “Others” increased
by 157% i.e. Rs 7.90 million in 2016-17 from Rs 3.07 million in 2015-16. Detail
of increase in other payable may be explained .

10.3.2.7 As per Note 17, receivable from employees increased by 1052% i.e.
from Rs 0.75 million in 2015-16 to Rs 8.64 million in 2016-17. Detail of
irregularities /increase in receivables from employees alongwith latest status of
inquiry may be explained.

10.3.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending % of

Paras Compliance Compliance Paras No compliance
2003-04 04 0 04 34&34.1,34. -
2,34.3,34.4
2009-10 02 01 01 61 50
Total 06 01 05 17

601
 Overall compliance of PAC directives was poor which needs immediate
attention of PAO.

10.3.4 Audit Paras

10.3.4.1 Irregular appointment beyond the age of superannuation - Rs. 3.44

million

According to the Establishment Division vide O.M. No. 4/2/90-R-1-1

dated December 05, 1990 and subsequent instructions issued vide letters dated
May 26, 1999 and December 04, 2007 instructed that the re-employment after the
age of superannuation in the government, autonomous bodies, semi-autonomous
bodies was required to be made by obtaining the approval of Prime Minister.

During the audit of National Book Foundation (NBF) for the years
2012-17 it was observed that Mr. Shaukat Ali working as Data Control Operator
(DCO) NBF was retired on superannuation w.e.f. July 04, 2014. His services
were hired as Assignment / Contractor for a period of two months w.e.f. July 07,
2014 at a total remuneration of Rs.80,000. The contract was executed on July 07,
2014 for preparation of Draft Service Rules and Revised Act of NBF. His
services were continued as Stenographer with the approval of Managing Director
NBF vide office order dated September 17, 2014 w.e.f. September 09, 2014 (till
further orders) at a monthly remuneration of Rs.40,000 since then he remained in
service of NBF. An amount of Rs.1.840 million was paid for the period July 07,
2014 to May 31, 2018. Similarly Mr. Asghar Abid a PTV employee retired on
attaining the age of superannuation was engaged on contract as Public Relation
Officer for six months w.e.f. February 07, 2014 at a monthly remuneration of
Rs.30,000. His contract period was extended time & again and an amount of
Rs.1.60 million was paid to the concerned. The appointment as well as payment
of pay & allowances valuing Rs 3.44 million was irregular as approval of the
competent authority was not obtained.

The DAC in its meeting held on December 18, 2018 directed the
management to take effective steps for the constitution of Board and the matter
602
may be placed before BOG for regularization being the competent authority
under NBF’s Act.

Audit recommends the compliance of DAC directives.

10.3.4.2 Irregular appointment of Advisor - Rs. 2.40 million

According to Clause-3 of Establishment Division M.S Wing’s U.O.

No.11-3/2001-MSWIII dated January 25, 2002, the client organization was
required to ascertain as to whether or not the required expertise was available
within the organization / government. In case the expertise was available in
house, reasons for not undertaking the assignments internally may be spelled out
and detailed justification including the following be given for hiring of
consultants.

During the audit of National Book Foundation (NBF) for the years
2012-17 it was observed that the management appointed Prof. Dr. Attaullah
Attash as “Advisor Text Books” vide office order dated May 22, 2014 on
contract basis for six months at monthly lump sum assignment fee Rs.50,000.
The contract period was continuously extended after expiry. Last extension was
granted for 89 days w.e.f February 16, 2018 vide letter dated February 19, 2018
and an amount of Rs. 2.40 million was paid since November 22, 2014 to May 15,
2018.The appointment was irregular because the prescribed procedure was not
observed and post was not published in the press. The Advisor was appointed by
the Managing Director NBF on the grounds that there was no Text Books
Development Expert in NBF for checking the errors and discussion with authors
and the applicant being an author of many books and was a Text Book
Development Specialist. As proper procedure for appointment of Advisor was not
followed therefore the appointment as well as payment of Rs. 2.400 million was
held irregular.

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 Audit was of the view that the management was required to appoint the
Advisor after following the prescribed procedure but no procedure was adopted
which resulted into irregular engagement of Advisor.

The DAC in its meeting held on December 18, 2018 directed the
management to take effective steps for the constitution of Board and the matter
may be placed before BOG for regularization being the competent authority
under NBF’s Act.

Audit recommends the compliance of DAC directives

10.3.4.3 Inadmissible payment due to unauthorized promotion of employees -

Rs. 1.23 million

According to Rule-7 (Sub Rule-7.8.1) of NBF Service Rules, an employee

of NBF would be eligible for promotion on a higher vacant post provided he
possessed the requisite educational, technical and other professional qualification
and considered fit in all respects for promotion subject to fulfillment of such
other conditions as laid down by the NBF from time to time.

During the audit of National Book Foundation (NBF) for the years
2012-17 it was observed that certain employees were promoted w.e.f. January 07,
2011 to BS-16 vide office order dated January 07, 2011. The employees were
again promoted as Assistant Director BS-17 w.e.f. May 30, 2012 after a period of
17 months without observing the prescribed rules / laid down criteria. The
promotion of employees was unauthorized because they neither possessed
prescribed qualifications nor the required length of five (5) years service was
fulfilled. An amount of Rs.1.23 million being the difference of pay in BS-16 and
17 was paid. As the employees were not eligible for promotion therefore the
difference of pay and allowances Rs.1.23 million drawn by the employees was
inadmissible.

604
 Audit was of the view that the management was required to promote the
employees as per prescribed procedure but promotions were made in violation of
relevant rules which was held irregular.

The DAC in its meeting held on December 18, 2018 did not agree with
the point of view of the department and deputed Deputy Secretary (Admin),
NH&LH Division as a fact finding inquiry officer to investigate the matter, fix
responsibility and submit a report to DAC within one month.

Audit recommends the compliance of DAC directives.

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 Chapter-11
Ministry of Information Technology and Telecommunication

11.1 Pakistan Software Export Board (Guarantee) Limited

11.1.1 Introduction

Pakistan Software Export Board (Guarantee) Limited (“the Company”)

was incorporated in Pakistan under the repealed Companies Ordinance, 1984
(now the Companies Act 2017) on June 13 1998 as company limited by
guarantee not having share capital to carry on business activities previously
performed by the Pakistan Software Export Board more independently,
effectively and dynamically. The registered office of the Company is situated at
2nd floor, Evacuee Trust Complex, Sector F-5/1 Islamabad. The company is fully
owned and controlled by the Federal Government through Ministry of
Information Technology.

The principal objective of the company is to make Pakistan a preferred

destination for the business process outsourcing, placing Pakistan key player in
the global information technology market, creating an environment that is
conducive for IT business in the country and develop and strengthen domestic IT
industry through various support programs and projects to deliver high value
added services and enhance IT and IT enabled services export from Pakistan.

11.1.2 Comments on Audited accounts

11.1.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
11.1.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

606
11.1.2.3 The working results of the Board for the year 2016-17 as compared to
previous years are as under:-
(Rs in million)
Particular 2016-17 Inc/ 2015-16 Inc/ 2014-15
(Dec) (Dec)
Revenue
Federal govt. grant 86.75 (1.68) 88.24 41.65 62.29
Amortization of deferred grant in 17.32 (2.04) 17.68 (2.54) 18.14
kind
Revenue from bandwidth and 51.71 (1.81) 50.79 26.94 40.01
related services
Registration and renewal fee 23.74 14.24 20.78 8.56 19.14
Other income 7.94 (33.05) 11.86 55.03 7.65
Total 187.46 (1.00) 189.35 28.61 147.22
Expenditure
Salary allowances and benefits 80.49 8.10 74.46 14.67 64.93
Data node bandwidth and related 20.68 0.44 20.59 18.06 17.44
charges
Rent, rate and taxes 10.27 9.72 9.36 10.50 8.47
Exhibition and seminars 14.99 (3.85) 15.59 49.75 10.41
Other expenses 33.30 (12.07) 37.87 (10.13) 42.14
Total 159.73 1.18 157.87 14.87 137.44
Surplus before taxation 27.73 (11.88) 31.47 221.78 9.78
Taxation 2.72 (29.53) 3.86 - (4.00)
Surplus after taxation 25.01 (9.42) 27.61 377.68 5.78
(Source: Annual Audited Accounts)

Revenue from bandwidth and related services increased only by 2% from

Rs. 50.79 million in 2015-16 to Rs. 51.71 million in 2016-17. The expenditure
incurred on data node bandwidth and related charges remained almost the same
as of previous year i.e Rs 20.68 million as compared to Rs 20.59 million during
2015-16. This indicated the stagnant position in the revenue as well as
expenditure which showed that the management was not putting much effort by
adopting innovative and modern techniques or expanding its activities to enhance
self generating revenue. The management was stressed upon to adopt immediate
measures for enhancing self generating funds.

11.1.2.4 Federal Government grant decreased by 2% from Rs. 88.24 million in

2015-16 to Rs. 86.75 million during the year 2016-17. Major portion of grant i.e
92% (Rs. 80.490 million) was spent on salaries, allowances and other benefits of
607
the employees of the Board. Due to excessive expenditure on salaries and
allowances, the management did not have funds from Federal Government grant
to utilize on the functions assigned to the Board. The management needs to look
into the situation and spend more of the budgets on the designated functions to
achieve objectives assigned to the Board.
11.1.2.5 The expenditure incurred on exhibitions and seminars decreased by
3.58% as compared to the previous year i.e from Rs 15.59 million (2015-16) to
Rs 14.99 million (2016-17). This also indicated that the management was not
focusing on major functions for achievement of its objectives as per
Memorandum of Association which needs justification.

11.1.2.6 Assets related to PSDP and other project restricted funds include cash
with banks in current accounts Rs. 47.67 million as of June, 30 2017. The reason
of placement of PSDP funds in current account with Habib Bank Limited and
detail regarding the actual date of release of these funds and updated status of
utilization may be provided to audit.

11.1.2.7 Capital works in progress –civil works stood at Rs. 20.18 million as on
June 30, 2017. The updated status of the civil works and its adjustment
documents, if any, may be provided to audit.

11.1.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras % of
Year Paras Compliance Compliance No compliance
2004-05 01 0 01 82 -
2005-06 01 0 01 159 -
2008-09 04 03 01 147 75
2010-11 17 02 15 13.1.1,13.1.2.2,13 12
.1.2.3,13.1.3,
13.1.4.1,13.1.4.3,
13.1.4.4,13.1.4.5,
13.1.4.6,13.1.4.7,
13.1.4.8,13.1.4.9,
13.1.4.10,13.1.4.1
1,13.1.4.12
Total 23 05 18 22
608
 Overall compliance of PAC directives was very poor especially during the
year 2004-05, 2005-06 and 2010-11, which needs immediate attention of PAO.

11.1.4 Audit Paras

11.1.4.1 Irregular award of work - Rs 21.35 million

According to Rule-42 (C) (iv) of PPRs-2004, “Repeat orders exceeding

fifteen percent of the original value of contract shall not be awarded”. Moreover,
according to Rule-42 (C) (iii), a procuring agency shall only engage in direct
contracting if, a change of supplier would oblige the procuring agency to acquire
material having different technical specifications or characteristics and would
result in incompatibility or disproportionate technical difficulties in operation and
maintenance: Provided that the contract or contracts do not exceed three years in
duration.

During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18, it was observed that the management signed contract with M/s Bestel
(Pvt) Ltd on February 23, 2009 for providing network/ support staff for a period
of one year at STP Shaheen Complex, Lahore. The contract was extended seven
times on yearly basis after expiry of each contract period till May 31, 2017.

Audit was of the view that under PPRA-2004, repeat orders exceeding
15% of the original value of contract cannot be awarded. Moreover, no contract
can be extended for more than three years. The management granted undue
favour to the contractor by granting extension in contract period seven times in
violation of PPRs, which was held irregular alongwith payment of Rs. 21.35
million made to the contractor during 2010 to 2017.

During DAC meeting held on January 08, 2019, management informed

the DAC that contract was awarded to M/ Bestel for providing network/ support
staff at STP Shaheen Complex Lahore to the IT companies. Although extension
in the contract agreement was granted in violation of rules but the additional cost
involved in extensions was not exceeding 15% of the contract rates. The DAC
609
directed the management to provide cost benefit analysis to audit. DAC further
directed to obtain clarification from PPRA regarding competent authority for
regularization of violation of rules and irregular expenditure in the result of that
violation and initiate the case accordingly.

Audit recommends compliance of the DAC directive.

11.1.4.2 Irregular appointment of officer on fake documents - Rs. 1.02 million

According to Pakistan Software Export Board Service Rules approved

criteria for recruitment of Marketing Officers, “the individual must have 16
years’ education from Higher Commission of Pakistan (HEC) recognized
institute with a minimum of two years’ relevant experience.” Furthermore,
according to Rules “Contract post means a post for a specific period or
assignment and shall either be on fixed amount for the assignment or on monthly
remuneration.”

During the audit of Pakistan Software Export Board (PSEB) for the
years2016-18, it was observed that the management called applications for
recruitment of Marketing Officer on contract basis through advertisement dated
August 07, 2016. The applicants were required to submit their applications to
Pakistan Testing Services up to August 24, 2016 and offer letter was issued to
Miss Maryam Khan on October 24, 2016. Test result from Pakistan Testing
Services was received on October 25, 2016 after appointment of Marketing
Officer. Following irregularities were also observed during scrutiny of personal
file of the officer.

a. The individual remained a regular student till August 22, 2016 and
qualified her Master of Business Administration in August 2016. Fake
one-year experience certificate was produced which did not fulfill the
requisite criteria for the post.

610
 b. The post was advertised on contractual basis, whereas, offer letter was
issued on contractual basis till the age of superannuation instead of fixed
contractual period in clear violation of PSEB Service Rules.
This resulted into irregular appointment payment of Rs. 1.020 million to
the officer till date.

Audit was of the view that the management was required to terminate the
services of the officer appointed on fake documents but undue favour was
extended at the cost of public exchequer.

During DAC meeting held on January 08, 2019, management apprised the
committee that the appointment of the officer concerned was made based on
BBA and not based on MBA. Audit contended that the incumbent did not possess
the required experience. The DAC directed to constitute a Fact Finding
Committee to inquire the facts of the case after proper verification from the
quarters concerned and submit report within one month.

Audit recommends compliance of the DAC directive.

11.1.4.3 Irregular appointment of Project Manager - Rs. 1.70 million

According to agreement signed with National ICT R&D Fund and

Pakistan Software Export Board (PSEB) regarding Prime Minister’s ICT
Internship Programme the following criteria was approved for appointment of
Project Manager of the Programme.

a. 16 years of education MBA Project Management or equivalent.

b. Minimum 5 years’ experience required in similar assignments.

During the audit of Pakistan Software Export Board (PSEB) for the
years2016-18, it was observed that the management made advertisement for
recruitment of Project Manager in Prime Minister’s ICT Internship Programme
on December 16, 2016. Six candidates were called for interview based on test
results received from Pakistan Testing Services. The individual who secured
611
highest marks in PTS and interview was ignored and Mr. Abdul Qayoom was
appointed Project Manager at gross salary of Rs.100,000 per month. The
individual selected do not fulfill the requirement necessary for the post. He
completed Master of Project Management in October 2014 and possessed no
relevant post qualification experience. No proof of requisite experience for the
post was provided by the individual nor demanded by the management. The
individual joined his duties in PSEB on May 24, 2017 in response to appointment
letter dated May 23, 2017 without provision of medical fitness certificate from
the authorized hospital. The probation period of the officer was still not cleared
even after lapse of more than one year due to his poor performance. Thus,
irregular payment on account of pay and allowances Rs. 1.70 million was made
to the officer.
Audit was of the view that the management was required to make the
appointment as per approved criteria but appointment was made in violation of
the same, which was held irregular.

During DAC meeting held on January 08, 2019, management apprised the
committee that the appointment of the officer concerned was made based on
BBA and not based on MBA. Audit contended that the incumbent did not possess
the required experience. The DAC directed to constitute a Fact Finding
Committee to inquire the facts of the case after proper verification from the
quarters concerned and submit report within one month.

Audit recommends compliance of the DAC directive.

11.1.4.4 Irregular appointment of Project Officer CMMI - Rs. 2.45 million

According to approved PC-I the project “enhancing IT export through

industry support programme” the following criteria was approved for recruitment
of Project Officer CMMI.

a. 16 years degree in computer science from a university /institute

recognized by HEC. Certification in PMP shall be preferred.
b. Minimum 3 years of commercial experience.
612
 During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18, it was observed that the management advertised the post of Project
Officer CMMI on August 7, 2016. Eight candidates were called for interview
based on test results received from Pakistan Testing Services. Mr. Fakhar Javed
Cheema was appointed as Project Officer on contract basis on November 21,
2016. It was observed that the individual completed his MS Project Management
from National Defense University Islamabad in February 2016 and does not
possess the requisite post qualification experience mentioned in the approved
PC-I of the Project.

Audit was of the view that the management was required to appoint the
candidate who fulfilled the required experience but it failed to do so, therefore his
appointment as well as payment of pay and allowances of Rs 2.45 million held
irregular.

During DAC meeting held on January 08, 2019, management apprised the
committee that the appointment of the officer concerned was made based on BS
Computer Science and not on the basis of MS Project Management and had
required experience as well. Audit contended that the incumbent did not possess
the required experience. The DAC directed to constitute a Fact Finding
Committee to inquire the facts of the case after proper verification from the
quarters concerned and submit report within one month.

Audit recommends compliance of the DAC directive.

11.1.4.5 i. Loss due to non-recovery of cost of land from CAA- Rs. 332.80
million
ii. Loss due to non-recovery of interest on retention of funds
- Rs. 199.68 million

According to Para-26 of General Financial Rules, it is the duty of the

departmental Controlling officers to see that all sums due to Government are
regularly and promptly assessed, realized and duly credited in the Public
Account.

613
 During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18 it was noticed that the management deposited an amount of Rs. 332.801
million as partial payment out of Rs. 646.305 million (total cost of land) on May
8, 2008 to Civil Aviation Authority (CAA) for allotment of 6 acres land at AIIA,
Lahore for establishment of IT Park under the Project titled “Purchase of land
from CAA at JIA, Karachi and AIIA, Lahore for establishment of IT Parks”. The
CAA did not allot the required land to PSEB on July 11, 2018 and informed
PSEB that CAA Board in its 175th meeting held on April17, 2018 accorded
approval for cancellation of lease of 6 acres land allotted to PSEB with
re-imbursement of deposited funds. The Ministry of IT & T on March 29, 2018
and PSEB on August 15, 2018 initiated case with CAA for re-imbursement of
Rs. 332.80 million along with interest of 10 years. Later on, CAA vide letter
dated September 22, 2018 informed the management that case of refund of
Rs. 332.80 million without interest was under process at Headquarters CAA,
Karachi. However, neither the principal amount nor interest thereon had so far
been recovered from the quarter concerned. Thus due to non-recovery of cost of
land i.e. Rs. 332.80 million and interest of Rs. 199.68 million thereon, for 10
years, PSEB was likely to sustain loss of Rs. 532.48 million. Furthermore, Govt
exchequer was also put to loss of Rs. 15.78 million due to non-registration of
lease agreement.

Audit was of the view that the management was required to recover the
principal alongwith interest from CAA but nothing was recovered so far, which is
loss to the Board.

During DAC meeting held on January 08, 2019, management explained

that the lease of the proposed land could not be finalized due to non-release of
funds by the Planning Division and later on land earmarked for IT Park has been
occupied by the PHA Government of Punjab. The DAC directed the management
to pursue the recovery of Rs. 332.20 million along with interest from CAA and
strenuous efforts may be made with Lahore Knowledge Park Company for
obtaining alternate land for establishment of IT Park under intimation to audit.

614
 Audit recommends compliance of the DAC directive.

11.1.4.6 In-ordinate delay in completion of development project - Rs. 37.60

million

According to Para 10.1 A xv. A (xv) of Project Management Guidelines

of Planning Commission Government of Pakistan, “strong check should be
exercised on time over-runs and cost over-runs. For this purpose, frequent
revisions of scope and design of the projects should be avoided. Acquisition of
land where required should be completed in the minimum time. Efficient and
honest officers should be made responsible for supervision, implementation and
timely completion of the projects. Any instances of mal-administration,
corruption, lapses and pilferage should be seriously investigated and those found
responsible should be severely dealt with”.

During the audit of Pakistan Software Development Board (PSEB) for the
years 2016-18 it was observed that PC-I of the Project “Site Development and
Construction of Boundary Wall at PSEB’s site for establishment of IT Park at
Chak Shahzad”, Islamabad was approved by the DDWP in its meeting held on
March 18, 2013 at a total cost of Rs. 37.60 million. As per approved PC-I the
project was required to be completed in 24 months i.e up to March 2015.The
management failed to start the execution of the project as per timeline approved
in PC-I. In April 2015, case for extension in completion time of project was
submitted to the controlling ministry in spite of the fact that the project was not
even started. Further two years extension in completion time up to June 30, 2017
was granted by the controlling ministry in May 2015. The management failed to
complete the project even in the extended time and same was still in progress as
on October 2018. The land for the said project was acquired in 2006 at a cost of
Rs. 157.79 million on 33 years lease from Capital Development Authority
(CDA). Depreciation of leasehold was being charged @ 3.33% in the annual
accounts and management wasted 12 years lease rights of the allotted land
without any benefit.

615
 Audit was of the view that the management was required to carry out the
project as per provisions of the PC-I but it failed to fulfill the same, which
resulted into inordinate delay in completion of development project.

During DAC meeting held on January 08, 2019, management informed

the committee that main reason of inordinate delay in the project was non-release
of funds by the Planning Division and dispute of land. DAC directed to get the
relevant record regarding release of funds and phase wise completion of the
project verified from Audit. The DAC further directed the management to make
efforts for completion of the project within the extended period i.e June 30, 2019
and get it verified from Audit. The project was not completed till the finalization
of this report.

Audit recommends compliance of the DAC directive.

11.1.4.7 Non-achievement of CMMI training objectives - Rs. 10.15 million

According to Managing Director, approval dated December 2, 2014

regarding training of IT Industry staff on “Introduction to CMMI for
Development vl.3 course”. The objectives of the training were to train 30 plus
employee of those 15 IT Companies, which are interested to acquire CMMI
certifications in collaboration with PSEB. Once the resource pool of IT Industry
is developed/ trained, PSEB shall offer subsidized CMMI Certifications to the IT
Industry in the next phase.

During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18 it was observed that the management awarded contract to M/s Infogistic
Lahore for training of 30 participants on “Introduction to CMMI for
Development V1.3 course” at cost of Rs.2.63 million vide contract dated January
19, 2015. In step-II, Four participants were selected and trained on “Intermediate
Concept of CMMI” held at CMMI Institute USA at a cost of
Rs. 3.15 million in August 2015.Furthermore, in step-III four participants were
selected and trained on “Standard CMMI Appraisal Method for Process

616
Improvements (SCAMPI)” held at CMMI Institute USA at a cost of Rs. 4.37
million in December 2017. It was observed that under para-7 of the undertaking
the participants were bound to provide appraisal services to the local IT Industry
for at least three years. However, the management failed to start CMMI
Certification to the local IT Industry till date. Furthermore, two participants left
the CMMI Auditors Training Programme in step-III and under the training bond,
they were liable to refund the training cost of Rs 10.15 million to PSEB, which
was not done. Hence, PSEB was likely to sustain loss of Rs. 10.15 million due to
non-recovery of training cost and the management could not achieve the
objectives of the project and expenditure of Rs. 10.15 million was wasted.

Audit was of the view that the management was required to ensure that
trainee should have provided appraisal services to the local IT Industry for at
least three years but it failed to ensure the same due to which training objectives
were not achieved.

During DAC meeting held on January 08, 2019, management informed

the committee that the individuals from public as well as private sector were
selected in accordance with the criteria provided in the PC-I. Audit contended
that the individuals from private sector for CMMI training were included in the
PC-I against the objective of the company envisaged in the Articles of
Association. Moreover, no individual has yet completed the CMMI Certification.
The DAC directed to get the relevant record for process of selection of public as
well as private individuals verified from Audit. Moreover, recovery action be
initiated against individuals who left the training incomplete, according to bonds
signed by them.

Audit recommends investigate the reason of non-achievement of training

objectives and fix responsibility. Recover the cost of training from the trainees
left the PSEB CMMI Auditor training within bond period.

617
11.1.4.8 Loss due to non-receipt of subsidy on space procurement and booth
construction - Rs 1.47 million

According to Para-26 of General Financial Rules, it is the duty of the

departmental controlling officers to see that all sums due to the Government are
regularly and promptly assessed, realized and duly credited in the Public
Account.

During the audit of Pakistan Software Export Board for the years
2016-18, it was observed that the management participated in exhibition named
“Mobile World Congress 2017” held in Barcelona, Spain during February 27,
2017 to March 2, 2017with five IT companies. The Director General (IM-II) of
Trade Development Authority, Pakistan (TDAP) vide his email dated August 16,
2016 addressed to MD, PSEB intimated the decision of competent authority of
TDAP that instead of organizing the participation by TDAP, the Authority has
allocated the forth coming Mobile World Congress February /March 2017
Barcelona, Spain to PSEB to organize itself as an allocated fair and terms and
conditions shall be as follows:

i. TDAP shall provide 40% space rent (i.e covered area of 22 sq. m only)
ii. 30% cost of customized pavilion construction only (excluding
accessories).
iii. The subsidy shall be released after the conclusion of the event and upon
submission of original attested/ verified space rent and pavilion
construction voucher/ invoices, which shall be attested by the commercial
councilor, Madrid.
PSEB incurred an amount of GBP 21,307 equivalent to Pak Rs. 2.88
million on space cost and Euro 8,900 equivalent to Pak Rs. 1.07 million on booth
construction for participation in MWC. An amount of Rs. 1.47 million was
required to be recovered from TDAP as 40% space rent and 30% cost of
customized pavilion construction as agreed by the competent authority of TDAP.
However, PSEB management neither received the subsidy amount from TDAP
despite elapse of more than one & half year nor took up the matter with TDAP
for its early recovery. Thus due to non-receipt of subsidy amount on account of
618
40% space rent and 30% cost of customized pavilion construction, PSEB was
likely to sustain loss of Rs. 1.47 million.

Audit was of the view that the management was required to recover the
subsidy amount from TDAP but it failed to do the same which resulted into loss
of Rs. 1.47 million.

The DAC During its meeting held on January 08, 2019 directed the PSEB
to make strenuous efforts for recovery of Rs. 1.47 million from TDAP under
intimation to audit.

Audit recommends compliance of the DAC directive.

11.1.4.9 Loss of store/inventory due to fire - Rs. 20.62 million

According to Chapter- III Para-151 of General Financial Rules, “the head

of an office or any other officer entrusted with stores of any kind should take
special care for arranging their safe custody, for keeping them in good and
efficient condition and for protecting them from damage or deterioration. Suitable
accommodation should be provided more particularly for valuable and
combustible stores. He should maintain suitable accounts and inventories and
prepare correct returns in respect of the stores in his charge with a view to
prevent losses through theft, accident, fraud or otherwise and to make it possible
at any time to check the actual balances with the book balances and the payment
to suppliers, etc.”

During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18, it was observed that the management established Software Technology
Park in 1999 in Awami Markaz Building to provide bandwidth and collocation
services to 30 Information Technology Companies. Inventory /Networking
equipment worth Rs 24.44 million was procured and installed for the purpose.
Fire in the building broke out on September 10, 2017 and Telecom and

619
Networking Equipment worth Rs. 20.62 million was completely burnt. Fact
finding inquiry committee was constituted on the same day to assess:
a) The overall damage in term of quantity and financial worth.
b) Determine PSEB roles and responsibilities with respect to Software
Technology Park.
c) Determine the established standing operating procedures (SOPs) for declaring
such building as Software Technology Park. If such SOPs are not established,
what were the reasons for not prioritizing the same by the concerned
organization to avoid such incidents.

The inquiry committee assessed PSEB’s financial loss of Rs. 20.620

million due to complete destruction of Telecom /Networking Equipment.
Furthermore, the committee expressed that none of the IT Park was owned by
PSEBs or Ministry of Information Technology, therefore, no SOP was in place.
Moreover, PSEB management did not get the Telecom /Networking Equipments
insured to safe guard the government property.

Audit was of the view that Telecom/Networking equipment worth

Rs. 24.44 million were purchased from the public funds. However, no action was
taken to safeguard the assets from possible loss. Resultantly the Government
ex-chequer suffered a loss of Rs. 20.62 million.

The DAC during its meeting held on January 08, 2019 directed the
management to pursue the claim with the Committee constituted by the Federal
Government and inform the Audit accordingly.

Audit recommends compliance of the DAC directive.

11.1.4.10 Non-transparent/ irregular appointment of Manager Domestic

Business and payment of pay& allowances - Rs. 19.07 million

According to Job Description of Manager Domestic Business, the

required qualification for the post was sixteen years of education having Master
degree in MBA Business, Marketing or Management from a reputable university
620
along with five years of progressively responsible experience in I.T systems,
strategic planning or project management and working in the public sector.

During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18 it was observed that the management advertised the post of Manager
Domestic Business in press on May 29, 2005 with Master degree in MBA
Business, Marketing or Management from a reputable university along with five
years of progressively responsible experience in I.T systems, strategic planning
or project management and working in the public sector. The selection committee
(comprising of three PSEB officers) shortlisted twenty (20) candidates including
Mr. Sajid Iqbal working as Assistant Project Officer in PSEB for interview was
finally appointed as Manager Domestic Business. In this appointment, the
following discrepancies were noticed:

i. In press nine (9) different job categories were advertised but appointment
against Manager Domestic Business was made.
ii. The appointment of candidate serving in PSEB was made by ignoring
four (4) candidates having requisite qualification and sufficient
experience required for the post.
iii. The selected officer has one-year degree of “Executive Master in Business
Administration” issued by Preston University, Kohat in October 2004
which had no equivalency with required degree of MBA for the post
because the required qualification of the post was sixteen (16) years of
education with MBA degree whereas the officer concerned had only
fifteen (15) years of education with one year MBA-Executive degree.
iv. The officer concerned did not complete the credit hours required to
complete the MBA degree, as official transcript issued by the university
showed forty four (44) credit hours against the required one hundred and
two (102) hours for authentic MBA Degree.
v. In the presence of eligible candidature, / management decision to select
/appoint its own in eligible officer against the post of Manager was
non-transparent / irregular.

621
 All the above facts tantamount to non-transparent appointment and
payment of pay & allowances worth Rs. 19.07 million since his appointment till
June 2018 was also held irregular.

During DAC meeting held on January 08, 2019, management apprised the
committee that the officer concerned was already working in the relevant
department as Assistant Project Officer and was qualifying the prescribed criteria
of qualification and experience therefore, he was selected for the said post. Audit
contended that the officer concerned did not possess the qualification required for
the said post. DAC directed to constitute a Fact Finding Committee to inquire the
facts of the case after proper verification from the concerned quarters and submit
reports within one month.

Audit recommends compliance of the DAC directive.

11.1.4.11 Amortization of leasehold land without any benefit - Rs. 170.01

million

According to Capital Development Authority (CDA), letter No.

CDA/EM-27(2515)/2006/3370 dated July 13, 2006 an area of 14.49 acres (70131
sq. yards.) land @ Rs 2,250 per sq. yards at National Park Area, Islamabad was
leased out to PSEB for 33 years extendable for further two terms of 33 years for
establishing Information Technology Park. Total value of land was Rs. 157.795
million. Similarly, land measuring 32.89 acre (159187.60 sq. yards) valuing
Rs. 358.17 million was also allotted by CDA to PSEB in National Park Area
@ Rs. 2,250 per sq. yards vide letter CDA.EM.II/DD-I/G-S-27 (2515)08/504
dated February 02, 2008.

During the audit of Pakistan Software Export Board (PSEB) for the years
2016-18, it was observed that the management failed to start the construction of
IT Park despite expiry of twelve (12) years lease period till date i.e October 2018.
An amount of Rs 170.01 million was charged as amortization of leasehold land
without its utilization. The PC-I of IT Park on this land was prepared after expiry
622
of 10 years lease period and construction could not be started till date. Moreover,
expiry of more than 1/3rd of the lease period will affect at the time of availing
foreign loan facility, as financial institution will come with more strict terms &
conditions for loan facility. In view of the above, the expenditure of Rs. 170.00
million was charged on amortization of leasehold land for twelve (12) years
without utilization and without obtaining any benefit.

Audit was of the view that the management was required to start the
construction work soon after acquisition of land but project was not started even
after expiry of 12 years lease period, which was mismanagement.

During DAC meeting held on January 08, 2019, management apprised the
committee that Exim Bank of Korea conducted detailed feasibility of the report
from September 2015 to October 2016. The PC-I of this project was approved by
Executive Committee of National Economic Council (ECNEC) in its meeting
dated December 20, 2016 and loan agreement with Korean Exim Bank was
signed on March 22, 2017. DAC directed the management to provide the copies
of the loan agreement with Exim Bank to audit to examine the terms and
conditions of the loan. Moreover, record of selection of consultant for the project
may be got verified from audit.

Audit recommends compliance of the DAC directive.

623
 Chapter-12
Ministry of National Health Services Regulation and
Coordination

12.1 National Institute of Health Biological Production Division

12.1.1 Introduction

The Biological Production Division (BPD) was established in 1967 as

National Health Laboratories, subsequently under an Ordinance in 1980, the
laboratory was converted into Body Corporate namely National Institute of
Health (NIH) currently under the administrative control of Ministry of National
Health Services Regulation and Coordination (NHR&C) Government of
Pakistan. All the Assets and Liabilities of the laboratories were taken over by
NIH. Currently the BPD is working as a production unit of NIH.

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 Defense Forces of
the country. Its main source of income is sale of its Biological Products. The
management prepares separate Pre-format Accounts on the commercial activities
of BPD.

The Director General Federal Audit, Islamabad conducts the regularity

audit of NIH. The Director General of Commercial Audit & Evaluation Lahore
conducts the certification audit of Pre-format Accounts and regulatory audit of
BPD activities only.

12.1.2 Comments on the Audited Accounts

12.1.2.1 The working results of Pre-format Accounts of Biological Production

624
Division for the year 2017-18 as compared with those of the previous years are
tabulated below:
(Rs in million)
2017-18 %Inc/ 2016-17 %Inc/ 2015-16
(Dec) (Dec)
Income
Sale of vaccines 197.42 2.54 192.53 17 164.07
Sale of animals 1.77 45.08 1.22 1441 0.07

Total 199.19 2.81 193.75 18 164.05

Expenditure
Cost of Production 156.09 22.67 127.24 10 116.01
Gross Profit 51.73 (19) 63.87 33 48.04
Operating Expenses 45.85 0.43 45.65 14 40.18

Net Profit Transferred 5.86 (67.80) 18.20 132 7.86

to Balance Sheet
(Source: Annual Audited Accounts)

Sales of the Division increased from Rs. 193.75 million in the year 2016-17 to
Rs. 199.19 million in 2017-18 registering increase of 2.81%. Whereas, the cost of
Production increased from Rs. 127.24 million in 2016-17 to Rs. 156.09 million in
2017-18 registering increase of 22.67%. Resultantly Gross Profit of the Division
decreased by 19% from Rs. 63.87 million in 2016-17 to Rs. 51.73 million in
2017-18. The management needs to exercise strict control over expenditure to
continue the production of vaccine at economical cost.

12.1.2.2 Measles vaccine 180,000 ml manufactured during the year 2017-18.

However, no quantity was sold during the year. The reason of non- selling of the
vaccine may be provided.

12.1.2.3 According to statement of wastages/rejection for the year 2017-18

vaccine worth Rs.4.64 million rejected/ wasted during the year. Typhoid vaccine
quantity of 50,600 ml rejected against the manufactured quantity of 240,000 ml
during the year, which is 21% of the manufactured quantity. The management
needs to look into the huge ratio of rejection of vaccine.
625
12.1.2.4 Production of the following vaccine remained nil during the year
2017-18. The management needs to justify the nil production of these vaccines
during the year:

S Vaccine Production
#
1 CHOLERA VACCINE Nil
2 ANTI RABIES VACCINE (HUMAN): Nil
3 ANTI RABIES VACCINE (ANIMALS): Nil
4 ANTI DIPHTHERIA SERUM: Nil
5 ANTI RABIES SERUM: Nil

12.1.2.5 According to statement of withdrawal from National Bank of Pakistan

NIH Branch for the year 2017-18 an amount of Rs 2.91 million was spent on
purchase of machinery /equipment. However, no addition was shown in the
relevant head during the year.

12.1.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras % of

Paras Compliance Compliance No compliance
2002-03 04 03 01 86.1 75
2013-14 01 0 01 Annex-2 -
(Non-
submission of
A/cs)
Total 05 03 02 60

Overall compliance of PAC directives was not satisfactory especially for

the year 2013-14, which needs to be improved.

626
 Chapter-13
Ministry of National Food Security and Research

13.1 Pakistan Agricultural Storage and Services Corporation

Limited
13.1.1 Introduction

Pakistan Agricultural Storage and Services Corporation Limited

(PASSCO) was incorporated on August 31, 1973 as a non-listed public limited
company. It is involved in the implementation of the Federal Government’s
policy of support price program of food grains, equitable distribution of food
commodities and maintenance of their reserve stock.

The objectives of the Corporation are to purchase, acquire, sell, supply,

market, distribute, exchange, and dispose of, import, export and store agricultural
commodities. The Corporation is under the administrative control of Ministry of
National Food Security and Research.

13.1.2 Comments on Audited Accounts

13.1.2.1 The working results of the Corporation for the year ended March 31,
2018 as compared to the previous years are as under:

(Rs in million)
2017-18 % Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec)
Sales 27,231.09 131.69 11,753.31 (25.40) 15,755.70
Cost of sales 27,855.04 95.61 14,240.40 (32.23) 21,013.08
Gross (loss)/ profit (623.95) (74.91) (2,487.09) (52.69) (5,257.38)
Allowance for incidentals 2,195.91 (21.00) 2,779.65 (4.73) 2,917.76
Profit/ (loss) after allowance for 1,571.96 437.31 292.56 (87.50) (2,339.62)
incidentals
Operating expenses 1,744.01 28.96 1,352.39 5.80 1,278.28
Administrative and general 533.14 (0.46) 535.58 43.48 373.28
expenses of Head Office

627
 Administrative and general 1,105.94 (2.66) 1,136.12 34.74 843.19
expenses of Field Offices
Cost differential 9,152.48 (3.58) 9,492.69 (38.44) 15,421.45
Other operating income 181.44 (8.93) 199.25 (11.64) 225.50
Profit from operations 7,522.78 8.08 6,960.42 (35.63) 10,812.59
Finance cost 6,798.24 4.69 6,493.74 (20.26) 8,143.99
Profit/ (Loss) before tax 724.55 55.26 466.68 (82.51) 2,668.59
Taxation 315.83 155.77 123.48 (44.34) 221.84
Profit/ (Loss) for the year 408.72 19.09 343.19 (85.97) 2,446.75
Accumulated Profit 6,697.07 6.50 6,288.35 5.77 5,945.16
(Source: Annual Audited Accounts)

Although allowance for incidentals was decreased from Rs 2,779.65 million in

2016-17 to Rs 2,195.92 million (21%) in 2017-18, the same is still on the higher
side due to retention of excessive stock, which required to be maintained at
minimum level.

13.1.2.2 Abnormal increase of stores and spares from Rs 66.47 million in

2016-17 to Rs 110.24 million (66%) in 2017-18, which was due to 242%
increase in stocks of polythene sheets and 204% of fumigation chemicals.
Despite disposal of stock, this abnormal increase in stock needs to be justified.

13.1.2.3 Under head recoverable from Government of Pakistan, amount claimed

for the year 2016-17 was Rs 9,492.69 million, which increased the recoverable to
Rs 45,992.42 million in 2016-17. Out of which Rs 27,756.00 million (60%) was
recovered in 2016-17. However, in 2017-18 the amount claimed was Rs 9,152.48
million which reduced the receivable Rs 27,388.90 million but only 17% amount
valuing Rs 4,785.00 million was received from GoP in 2017-18, which needs
justification.

13.1.2.4 In 2017-18 delivery expenses, renovation of plinths, tarpaulins/Gunji

Kits and Misc. Expenses were increased by 39%, 78%, 168% and 300%, whereas
the cost of labor charges, fumigation and Matting/polythene charges were
decreased by 4.5%, 13.28% and 34.58% respectively under different heads of
operating expenses needs clarification regarding huge variation as well as
increase and decrease in different heads.
628
13.1.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras % of

Year Paras Compliance Compliance No compliance
1988-89 11 09 02 297,300 82
1989-90 07 05 02 318,319 71
1990-91 07 05 02 233,237 71
1991-92 07 06 01 222 86
1992-93 14 12 02 121,122 86
1993-94 06 04 02 100,102 67
1995-96 15 12 03 105,106,108 80
1996-97 15 12 03 118,122,123 80
1997-98 05 04 01 98 80
1999-00 04 03 01 141 75
2002-03 04 02 02 82.1,82.3 50
2004-05 03 0 03 53,54,55 -
2006-07 10 07 03 74,75,76 70
2008-09 23 14 09 80, 61
82,83,84,86,87,9
0,91,93
2009-10 11 09 02 81,82 82
2010-11 22 15 07 8.1.1,8.1.2.9,8.1. 68
4.5,8.1.2.7,
8.1.4.1,8.1.4.2,1
6.2.2.4
2013-14 11 0 11 11.1.1,11.1.2.1,1 -
1.1.2.2,11.1.2.3,
11.1.3,11.1.4.1,1
1.1.4.2,11.1.4.3,
11.1.4.4,11.1.4.5
,11.1.4.6
Total 175 119 56 68

Overall compliance of PAC directives was not satisfactory especially for

the year 2004-05 and 2013-14, which needs to be improved.

629
13.1.4 Audit Paras
13.1.4.1 Non production of record

According to Section-14(1)d. & (3) of the Auditor General's (Functions,

Powers and Terms and Conditions of Service) Ordinance, 2001, the officer
incharge of any office or department shall afford all facilities and provide record
for audit inspection and comply with requests for information in as complete a
form as possible and with all reasonable expedition. Any person or authority
hindering the auditorial functions of the Auditor General regarding inspection of
accounts shall be subject to disciplinary action under relevant Efficiency and
Discipline Rules, applicable to such person.

The National Assembly Secretariat issued instructions of the Public

Accounts Committee to all the Principal Accounting Officers, Ministries
/Divisions/Heads of Departments vide OM dated Jun 03, 2004. “Make available
all information/record to Audit as and when required by them. Otherwise,
disciplinary action will be initiated against person(s) responsible for the delay
under Section-14(2) of the Auditor General’s Ordinance No. XXIII of 2001.”

During the audit of PASSCO for the year 2017-18, it was observed that
46 employees were appointed during 2013 and their employment was later on
terminated as a result of different inquiries conducted by FIA, M/o NFS & R,
Member Finance (PARC) and Member C&M (PARC). Based on said facts
complete files regarding termination and subsequent reappointment of contract
employees, alongwith personal files were demanded but same were not provided
to Audit. In addition to that, certain other record was also requisitioned from the
management but the same was not provided despite repeated written and verbal
requests. Due to non-provision of record, audit was unable to complete the audit
assignment satisfactorily.

The DAC in its meeting held on January 14, 2019 directed that the
relevant record may be immediately produced to Audit. The DAC further

630
directed that non-production of record would not be tolerated at all. No record
was produced by the management till the finalization of this report.

Audit recommends compliance of the DAC directive.

13.1.4.2 Irregular payment of bonus to employees - Rs 70.75 million

According to Government of Pakistan Finance Division OM

No.F.3(5)R.12/80(R.14) VoI.II/2001-544 dated November 30, 2001, certain
autonomous bodies/semi-autonomous bodies, corporations are not following the
Government instruction and making payment of bonus to their employees
without approval of Finance Division (Regulation Wing). Bonus paid in disregard
of Government Policy is tantamount to financial irregularity.

During the audit of PASSCO for the year 2017-18, it was observed that
the management paid bonus of Rs.70.75 million to employees and deputationist
without obtaining administrative approval of the Ministry and concurrence of the
Finance Division in contravention of Government policy.

Audit was of the view that PASSCO was nonprofit organization and all
the expenditure of the corporation was borne by the Government of Pakistan.
Hence, undue favour was extended to employees at the cost of public exchequer
which was held unjustified and in violation of the above referred instructions.

The DAC in its meeting held on January 14, 2019 directed to refer the
matter to Finance Division (Regulations Wing) for advice. The case was not
referred to Finance Division (Regulations Wing) for advice till the finalization of
this report.

Audit recommends compliance of the DAC directive.

631
13.1.4.3 Irregular contribution to PASSCO Benevolent Fund - Rs. 18.05
million
According to Finance Division letter No F.15 (13) R-14/82 dated
September 5, 1982, the funds provided, acquired or generated by
autonomous/semiautonomous bodies and corporations are public funds, which
cannot be utilized at the sole discretion of the management. The funds should be
utilized with due care and caution strictly in accordance with prescribed rules.
Further, as per Section-III (6) of Book for Administrative and Financial Powers
for PASSCO Management, Revision of pay scales and allowances of employees
is the Power of BoD as per policy of GOP.

During the audit of PASSCO for the year 2017-18, it was observed that
the management created Staff & Officers Benevolent Fund in which employees
& corporation made contributions at a specified rate. During the year 2017-18, an
amount of Rs 18.05 million was contributed by the corporation to the fund
without approval of BoD & concurrence of Ministry of Finance. Managing
Director, PASSCO approved amendments in Staff/Officers Benevolent Fund and
also increased the rate of contribution by PASSCO from 2.5% to 4% and 2.5% to
5% for staff & officers respectively. It was pertinent to mention here that another
fund named PASSCO Employees Welfare Trust Fund was also being
managed/operated for the welfare of employees.
Audit was of the view that contribution towards Benevolent Fund by
PASSCO involving huge financial impact was being paid by GOP in shape of
incidental claims. Hence, approval from M/o Finance was required to be
obtained. Furthermore, increase in rate of contribution was not in the financial
power of Managing Director, therefore, all the payment made on account of
contribution to benevolent fund by PASSCO was held irregular.

The DAC in its meeting held on January 14, 2019 directed to refer the
matter to Finance Division for advice. The case was not referred to Finance
Division for advice till the finalization of this report.

Audit recommends compliance of the DAC directive.

632
13.1.4.4 Irregular award of advance increments and wrong fixation of pay of
officers - Rs 20.60 million

According to Finance Division letter, No F.15 (13) R-14/82 dated

September 5, 1982, the funds provided, acquired or generated by
autonomous/semiautonomous bodies and corporations were public funds, which
cannot be utilized at the sole discretion of the management. The funds should be
utilized with due care and caution strictly in accordance with prescribed rules.

During the audit of PASSCO for the year 2017-18, it was observed that
the management granted two to fifteen advance increments to thirteen officers
appointed from 2006 to 2012 whereas they were supposed to be on initial stage of
the pay scale. An inquiry was also conducted by Ms. Rubina Safir in which it was
observed by the inquiry officer that mismanagement was committed which
should be rectified. A number of officers were appointed overage/without
advertisement and granted number of advance increments. The GM (F&A) was
requested by GM (HR) to work out the overdrawn amounts but no record
regarding pay fixation was available in personal files. This resulted in irregular
award of excess increment valuing Rs. 20.60 million.

Audit was of the view that the management was required to take action
against the officers responsible for mismanagement & irregularities in fixation of
pay and also work out the overdrawn amount and recover the same from officers
but no action was taken.

The DAC in its meeting held on January 14, 2019 directed that the matter
may be investigated through a Fact Finding Inquiry at the level of Ministry. The
Fact Finding Inquiry was not conducted till the finalization of this report.

Audit recommends compliance of the DAC directive.

633
13.1.4.5 Irrational purchase of wheat and loss due to sale below the cost
- Rs 3,624 million

According to Government Policy, PASSCO was mandated to maintain

1.00 million tons wheat as the Federal Strategic Reserve and 0.040 million tons
as SAARC Food Bank Reserve till March 31, of every year. Further, requirement
of agencies as allocated wheat quota was 0.42 million tons. These reserves cannot
be disposed-off without prior permission of Federal Government.

During the audit of PASSCO for the year 2017-18, it was observed that
the management was maintaining wheat stock above the required limit, which
caused huge cost on account of markup and storage cost every year as detailed
below:

Opening stock as on 01.04.2017 1,602,579 M. ton

Procurement Crop 2017 and climate gain 901,167 M. ton
Total stocks available 2,503,746 M ton
Annual requirement of Strategic Reserve, Govt. 1,456,942 M ton
agencies quota and SAARC Food Reserve Bank
Excess stock 1,046,804 M ton

The stock of 500,000 m. ton was sold to private parties @ 32,000 per m.
ton against the procurement cost of Rs.39,248.68/m. ton (32,500 cost of wheat +
Rs. 6,748.68/m. ton incidental). Excess procurement of wheat caused loss to the
tune of Rs. 3.415 billion, which needs to be justified. As per policy of PASSCO,
old stock was required to be disposed-off first, but after sale of 500,000 m. ton a
stock of 48,344 m ton from crop year 2015 was still lying with PASSCO.

Audit was of the view that the procurement and disposal should be made
in a rational way. Hence, sale of wheat below the purchase price caused huge
loss to Government.

634
 The DAC in its meeting held on January 14, 2019 directed to review the
Wheat Disposal Policy by Ministry. The policy was not reviewed till the
finalization of this report.

Audit recommends compliance of the DAC directive.

13.1.4.6 Excess payment of leave encashment and non-compliance of DAC

Directive-Rs 108.98 million

According to standing instructions of the Federal Government, earned

leave was admissible to employees for a maximum of 365 days based on basic
pay drawn by the employee. Further, the DAC in its meeting held on January 30,
2018 directed the management to refer the case to Finance Division for
regularization.

During the audit of PASSCO for the year 2017-18, it was observed that an
amount of Rs 108.98 million was paid as leave encashment during the year
2017-18 to employees. The said amount was calculated on gross salary instead of
basic pay in violation of the above quoted rule of Federal Government. The
matter was also reported to the management during the year 2016-17 and DAC
directed the management to refer the case to Finance Division for regularization.
The management instead of regularization from the Finance, continued payment
of leave encashment during the year 2017-18 as well. The payment of Rs 108.98
million on account of leave encashment was considered irregular.

The DAC in its meeting held on January 14, 2019 directed to refer the
matter to Finance Division for advice, through the respective administrative
section of Ministry. The case was not referred to Finance Division for advice till
the finalization of this report.

Audit recommends compliance of the DAC directive.

635
13.1.4.7 Lavish expenditure on establishment of Guest House at Islamabad -
Rs 22.96 million

According to Finance Division letter No F.15 (13) R-14/82 dated

September 5, 1982, the funds provided, acquired or generated by
autonomous/semiautonomous bodies and corporations are public funds, which
cannot be utilized at the sole discretion of the management. The funds should be
utilized with due care and caution strictly in accordance with prescribed rules.

During the audit of PASSCO for the year 2017-18, it was observed that
the management established a guest house along with Liaison Office Islamabad
w.e.f. July 2016 to March 2018 and incurred Rs 22.96 million on rent of
residential building and salaries and other administrative expenses (excluding
liaison office related expense) and all these expenditure were being charged to the
incidental charges for handling and carrying of wheat, which were subsequently
borne by the Government of Pakistan, and in case of delay in payments by GOP,
PASSCO claimed additional interest on these receivables.

Audit was of the view that expenditure incurred on the guest house was
more than the income it generated and that the expenditure incurred for the said
purpose in previous years may be excluded from the receivable incidental charges
from the Government of Pakistan.

The DAC in its meeting held on January 14, 2019 directed to justify the
utility of maintaining the facility and rationalize its rent. Management was also
advised to pursue an alternate proposal with the Ministry. No justification was
provided by the management till the finalization of this report.

Audit recommends that the operations of the guest house may be made
profitable by rationalizing its rent and ensuring its availability to all interested
instead of few officials of PASSCO. Further decision of the DAC may be
complied.

636
13.1.4.8 Wasteful expenditure on unnecessary establishment of procurement
Centre at Sargana village - Rs 3.87 million

According to clause 16(d) of Wheat Procurement Policy 2017, maximum

economy will be exercised for hiring of land/sites for PCs-cum-RVs. However,
priority will be given to the sites, which have been vacated through the disposal
of stocks.

During the audit of PASSCO for the year 2017-18, it was observed that a
new PC cum RV was established within already available centers having very
small number of villages i.e. 07 villages/mouzas in Zonal Office Vehari (Mailsi
Project). In year 2016, there were eleven centers in Mailsi Project, which
increased to twelve in 2017 and thirteen in year 2018. Average number of
villages per center ranged between 10 to 31 in said project. However, it was
observed that three nearby centers contain only 06 to 07 village per center and a
new center i.e. Sargana was established without justification. Detail of
expenditure on newly established center is given here under:

Rent of Construction of expenditure Pay of Centre Total

site plinths 2016-17 & Incharge & expenditure
2017-18 75,000 pm
300,000 674,044 1,095,172 1,800,000 3,869,216

Audit was of the view that two nearby centers were already established
with less than 10 villages per center as compared to 30 villages per center in other
areas of same project; hence, there was no need to establish a new center.

The DAC in its meeting held on January 14, 2019 discussed the para at
length and it was directed to formally frame a policy through the Competent
Authority regarding establishment of such centers. Matter would be settled
subject to framing of policy. No policy was framed in this regard till the
finalization of this report.

Audit recommends compliance of the DAC directive.

637
13.1.4.9 Loss due to imprudent decision and provision of dry ration to regular
field staff - Rs 81.98 million

According to 10 (1) GFR Vol-I, every public officer was expected to

exercise the same vigilance in respect of expenditure incurred from public money
as person of ordinary prudence would exercise in respect of expenditure of his
own money. Further, as per serial (g) of minutes of the Zonal Heads’ meeting
held on 2nd August 2017, to upkeep the image of PASSCO, dry rations for field
staff was allowed/granted as field incentive but the expected positive
effects/gains have not been achieved. It has seriously been observed that this
incentive is being misused by PASSCO staff.

During the audit of PASSCO for the year 2017-18, it was observed that:

i. An incentive of dry ration @ Rs. 3,575 per head was recommended by the
board comprising all the GMs. The incentive was allowed w.e.f April 01,
2015 to all the regular staff, chowkidars and daily wagers posted at PCs
& Godowns without approval of BoD & Ministry of Finance.
ii. Later on, the management realized that the incentive was misused and no
positive gain was achieved and expenditure of dry ration was also
irrational. The Acting General Manager (Field) vide notification dated
August 24, 2017 issued revised rates @ Rs 2,140 per head and payment
of the same to regular staff in the field was also discontinued w.e.f
September 01, 2017. This resulted into irregular grant of field incentive
to regular field staff valuing Rs 47.15 million excluding regular
chowkidars.
iii. The rate of field incentive was later on rationalized w.e.f September 01,
2017 therefore, an amount of Rs. 34.957 million on account of dry ration
paid to daily wagers and chowkidars was loss to the corporation.

Audit was of the view that, field incentive in shape of dry ration was
required to be allowed to chowkidars and daily wager (low paid staff).

638
Furthermore, had the outcome of the incentive given to field staff been assessed
in a timely manner, a huge amount of Rs 81.98 million could have been saved.

The DAC in its meeting held on January 14, 2019 directed that the matter
may be referred to BoD for regularization. The matter was not referred to BoD
till the finalization of this report.

Audit recommends compliance of the DAC directive.

639
13.2 Livestock and Dairy Development Board

13.2.1 Introduction

Livestock and Dairy Development Board (the company) was incorporated

in Pakistan as a Guarantee Limited Company on October 27, 2005 and is
registered under Section 42 of the repealed Companies Ordinance, 1984 as a
non-profit organization. The company's registered office is located at Ex-Milk
Plant Building, Gate No. 2, National Agriculture Research Centre, Main Park
Road, Islamabad. The principal activity of the company is to promote and
facilitate livestock development (including dairy, meat poultry and allied areas)
in Pakistan

13.2.2 Comments on Audited Accounts

13.2.2.1 The working results of Livestock and Dairy Development Board for the
year 2017-18 are as under:
(Rs. in million)
2017-18 Inc / 2016-17 Inc / 2015-16
(Dec) (Dec)
Income
Grant income recognized 27.75 (26.03) 37.528 102 18.59
Income on Investments 12.59 15.18 10.936 (18) 13.37
and bank deposits
Other income 0.38 533.33 .060 567 0.009
Total 40.78 (15.95) 48.525 52 31.970
Expenditure
Administrative expenses 17.18 91.95 8.954 (29) 12.660
Program expenses 10.57 (63) 28.574 381 5.940
Total 27.75 (26.05) 37.528 102 18.590
Taxation - - -
Surplus after taxation 12.97 18.23 10.966 (18) 13.380
(Source: Annual Audited Accounts)

Grant income of the Board decreased from Rs.37.528 million to Rs. 27.755
million during the year under review registering decrease of 26%. The reasons of
640
decreased grant allocation from the Federal Government may be provided to
audit.

13.2.2.2 Salaries and wages under the budget head “administrative expenses”
increased by more than 100% from Rs. 6.49 million to Rs. 13.04 million as on
June 30 2018 inspite of the fact that the grant from the Federal Government
decreased by 26% during the year. The reasons of abnormal increase in salaries
and wages during the year 2017-18 may be provided to audit.

13.2.2.3 An amount of Rs.10.57 million receivable from the Federal Government

under different projects was written off. The reason/justification for the written
off amount and administrative approval of Board of Directors may be provided.

13.2.2.4 Program expenses remained nil as on June 30, 2018 against the actual
expenditure of Rs. 28.57 million during the year 2016-17. The
reasons/justification of nil expenditure during the year under review may be
provided to audit.

13.2.2.5 According to notes 9 & 11 of the accounts, short term investment and
cash and bank balances stood at Rs.231.06 million as on June 30, 2018. However,
it was observed that only a sum of Rs. 4.14 million was spent on the function of
the Board during the year 2017-18. The management needs to justify legal status
of investment instead of spending on functions assigned to the Board.

13.2.2.6 Fixed assets Rs.5.56 million acquired from Public Sector Development
Funds (PSDP) during the year 2016-17. The entire amount was charged to
depreciation during the year 2016-17. The depreciation policy and reasons of
depreciating the entire value of asset in the year of acquisition may be provided
to audit.

641
 Chapter-14
Ministry of Maritime Affairs

14.1 Gwadar Port Authority

14.1.1 Introduction

Gwadar Port Authority (GPA) was established as a separate organization,

after promulgation of the GPA ordinance No.LXXVII of 2002 dated October 17,
2002, for construction, operations, management, and maintenance of Gwadar
Deep Water Port.

The Government of Pakistan has adopted the landlord concept for

development of Gawadar Port. This means that GPA will drive the overall
development of the port and will raise the funds for development of general port
infrastructure (primarily dredging of channels and construction of breakwaters),
while private sector investors will be the primary source for the development of
terminals and cargo handling capacity. Reputable private investors/operators will
be sought on a BOT (Build-Own-Transfer) basis for the design, construction and
operations of the various terminals that are foreseen. In the longer term, as much
as possible, different cargo types will be handled by dedicated terminals. This
will allow for terminals to be developed and operated by dedicated operators who
are specialized in these particular operations.

14.1.2 Comments on Audited Accounts

14.1.2.1 The Organization is included in Annex-2: Non-submission of Audited
Accounts

14.1.3 Compliance of PAC Directives

Total No. Breakup of %age of

Audit Compliance Compliance
of compliance complianc
Year reported awaited
Directives awaited e
2013-14 5 1 4 16.1.2, 16.1.3.1, 20
16.1.3.2 &
16.1.3.3
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 2015-16 5 1 4 17.1.4.1, 17.1.4.2, 20
17.1.4.3, 17.1.4.4
Total 10 2 8 - 20%

The overall compliance of PAC directives needs improvement.

14.1.4 Audit Paras

14.1.4.1 Excess payment of mobilization advance to contractor - Rs. 26.353

million

Clause- 60.12 of the contract agreement states that (a) An interest free
mobilization advance up to 10% of the contract price stated in the letter of
acceptance shall be paid by the Employer to the Contractor in two equal parts
upon submission by the Contractor of a Mobilization Advance Guarantee/Bond
for the full amount of the advance in the specified from a scheduled bank in
Pakistan acceptable to the employer. (b) This advance shall be recovered in equal
installments; first installment at the expiry of third month after the date of
payment of first part of advance and the last installment two months before the
date of completion of the works as per clause 43.

During audit of Gwadar Port authority (GPA) for the year 2016-17, it was
observed that the management entered into a contract with M/s. Shaheen
construction Company amounting to Rs. 527.058 million for construction of
Commercial Complex–I at Gwadar on December 29, 2016. An amount of
Rs. 79.059 million @ 15% was paid to the contractor instead of Rs. 52.706
million @ 10% in violation of above agreement. Resultantly, excess amount of
Rs. 26.353 million was paid.

Audit is of the view that the undue favour was extended to the contractor
which indicates poor financial management and weak internal controls.

The matter was reported to the management in October, 2017 and

November, 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.
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 Audit recommends fixing responsibility on the person(s) at fault.

14.1.4.2 Non-deduction of retention money – Rs. 3.692 million

Clause 60.2 of the Conditions of Contract of Bidding Form for Civil

Works, states that the percentage of retention money @ 10% of the amount of
Interim payment Certificate should be deducted.

During the audit of Gwadar Port Authority (GPA) for the year 2017-18, it
was observed that 10% retention money amounting to Rs.3.692 million was not
deducted from the payment bills of the contractors. The details are as under:
(Rs. in million)
10% Retention
Name of Contractor Amount
money
M/s RAB Construction Company 34.919 3.492
M/s Coastal Construction Company 2.001 0.200
Total 3.6921,929

Audit is of the view that undue favour was extended to the contractors by
non-deduction of retention money, showing poor financial management and weak
internal controls.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that the recovery may be made and responsibility may
be fixed on person (s) at fault.

14.1.4.3 Non-conducting physical verification of fixed assets - Rs. 12,273.305

million

Rule-151 of GFR provides that the head of an office or any other officer
entrusted with stores of any kind should take special care for arranging their safe
custody, keeping them in good and efficient condition and protecting them from
loss, damage or deterioration. He should maintain suitable accounts and
644
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 balance
and the payment to suppliers, etc.

During audit of Gwadar Port authority (GPA) for the year 2017-18,
physical verification of Fixed Assets of Rs. 12,273.305 million was not carried
out by the management in violation of above rule .

Audit is of the view that no estimation of useful life of each part of plant
was made separately since inception, which is violation of IAS-16. Due to
non-carrying out of physical verification of immoveable fixed assets, the impact
of assets could not be determined.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to intimate reasons/circumstances under which the

physical verification of assets could not be carried out and to ensure the regular
annual physical verification of assets in future.

14.1.4.4 Less deduction of withholding Income Tax - Rs.5.099 million

Section 153 of the Income Tax Ordinance, 2001 provides that withholding
income tax on execution of contracts in the case of other than companies
taxpayers, is 7.5% on filers.

During audit of Gwadar Port Authority (GPA) for the year 2017-18, it
was observed that the management paid an amount of Rs.973.156 million to
seven (7) different contractors against their claims/bills. However, the income tax
was deducted @ 7% instead of 7.5%, resulting in less deduction of tax of

645
 Rs.5.099 million. The detail is as under:
(Rs. in million)
Total amount Tax deducted @ Tax require to be Less deduction of
7% deducted @ 7.5% tax @ 0.5%.
973.156 68.121 72.988 5.099

Audit is of the view that less deduction of withholding income tax from
the claims/bills is violation of above mentioned rules which indicates poor
financial management and weak internal controls.

The matter was reported to the management in August, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to fix responsibility on person(s) at fault besides

recovery of the amount.

646
14.2 Korangi Fisheries Harbour Authority

14.2.1 Introduction

The Korangi Fisheries Harbour Authority (KoFHA) was established

under Ordinance No. XVI of 1982 for making all arrangements for planning,
construction, operation, management and maintenance of Korangi Fisheries
Harbour for exploiting fisheries resources beyond territorial waters.

The Harbour was completed in 1992 at a cost of Rs. 938.14 million

including foreign component of Rs.644.24 million (US$ 26.121 million) financed
by Asian Development Bank.

14.2.2 Comments on Audited Accounts

14.2.2.1 The Organization is included in Annex-2: Non-submission of Audited

Accounts

14.2.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance awaited compliance
2003-04 5 4 1 180.2 80
2013-14 8 1 7 16.2.2.1, 13
16.2.2.2,16.2.2.3,
16.2.2.4, 16.2.2.5,
16.2.3 & 16.2.4.1
17.2.4.1, 17.2.4.4,
17.2.2.1, 17.2.3,
2015-16 7 1 6 17.2.4.2, 17.2.4.3 14
Total 20 6 14 - 30%

The overall compliance of PAC directives was 30%, which needs to be

improved.

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14.2.4 Audit Paras
14.2.4.1 Non-recovery of various charges - Rs. 8.800 million

As per Agreement, Lease allottee hereby agrees with the Authority. To

pay all rents, taxes, rates, royalties (if any be payable), duties, charges and any
impositions whatsoever which may now or hereafter be charged or be imposed
upon or be payable in respect of the plot and structures, thereon or any business
conducted therein under any law for the time being in force.

During audit of Korangi Fisheries Hourbour Authority (KoFHA)for the

years 2016-17 & 2017-18, it was observed that management failed to collect the
outstanding dues of Rs. 8.800 million from Business units/Companies on account
of various charges. The detail is give as under:

Sr.
Title of A/c Amount
No.
1 Electricity Charges 3.737
2 Water charges 2.130
3 Ground Rent 1.883
4 Berthing charges 1.050
Total 8.800

Audit is of the view that undue favour was extended to the parties, shows
poor financial controls, resulting blockage of funds.

The matter was reported to the management in December, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault, besides early recovery of the amount.

648
14.2.4.2 Non-production of record

Section-14(2) of the Auditor General’s (Functions, Powers and Terms and

Conditions of Service) Ordinance 2001 states that the officer in-charge of any
office or department shall afford all facilities and provide record for audit.
Further the Public Accounts Committee directives, issued vide OM No.
F-10(1)/2000/2004-PAC dated Jun 03, 2004 requires all PAOs of Ministries /
Divisions to make available all information/record to Audit as and when required
by them, otherwise disciplinary action will be initiated against person(s)
responsible for the delay under Section-14(2) of the Auditor General’s Ordinance
No. XXIII of 2001.

During audit of Korangi Fisheries Harbour Authority (KoFHA) for the

years 2016-17 & 2017-18, it was observed that 58 employees were shown in the
record as on March 2018 and 66 employees in April, 2018. This indicated that
08 new employees were appointed. The record was called for relating to
appointments, but the management failed to produce the same, which is violation
of above Ordinance.

Audit is of the view that non-production of record shows concealment of

facts from audit.

The matter was reported to the management in December, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

14.2.4.3 Irregular award of security Services Contract - Rs. 6.300 million

According to Public Procurement Rule (PPRA )12 (2) 2004 "all

procurement opportunities over two million rupees should be advertised on the
Authority’s website as well as in other print media or newspapers having wide

649
circulation. The advertisement in the newspapers shall principally appear in at
least two national dailies, one in English and the other in Urdu.”

During audit of Korangi Fisheries Harbour Authority for the years

2016-17 & 2017-18, it was observed that a security contract was awarded to
M/s. Pacific Security Services without competitive bidding in violation of PPRA
rules. Thus, the payment of Rs. 6.300 million was held irregular.

Audit is of the view that undue favour was extended to the contractor and
authority was deprived from the benefits of competitive bidding.

The matter was reported to the management in December, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the persons at fault

besides adopting corrective measures to avoid recurrence in future.

14.2.4.4 Unjustified decrease in revenue of berthing charges - Rs. 4.878 million

Rule-4 of GFR states that all transactions to which any officer of

Government is a party in his official capacity must be brought to account without
delay. Further, Rule No. 24 of the Korangi Fisheries Harbour Authority
Ordinance, 1982 for Recovery of dues as arrears of land revenue states that “All
fees and sums due on account of property for the time being vested in the
Authority and all arrears of tolls, charges, rates and dues imposed under this
Ordinance or any rules or regulations may be recovered as arrears of land
revenue, in addition to the other modes provided by this Ordinance.

During audit of Korangi Fisheries Harbour Authority (KoFHA) for the

years 2016-17 & 2017-18, it was observed that revenue of berthing charges
decreased from Rs. 13.435 million in 2016-17 to Rs. 8.557 million in 2017-18
despite increase in number of boats and local trips as compared to previous year.
Details are as under:

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 Description 2016-17 2017-18 Difference
Berthing charges (Rs. in million 13.435 8.557 (4.878)
Total local trips 1,229 1,851 622
No. of Boats 150 210 60
Quantity of Fish(MT) 12,818 17,871 5,053

Audit is of the view that 37% decrease in the berthing charges shows
inefficiency and negligence of the management.

The matter was reported to the management in December, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

14.2.4.5 Non-adjustment of advances - Rs. 4.400 million

As per rule-5 of GFR Advances made for public expenditure will be held
under objection until a detailed account duly supported by vouchers is furnished
in adjustment of them.

During audit of Korangi Fisheries Harbour Authority (KoFHA) for the

years 2016-17 & 2017-18, it was observed that most of the payment for purchase
of stores and maintenance work was made in advance prior to the actual
procurement or service completion, which is in violation to above rule.
Moreover, no adjustments of advances were available, which makes it doubtful
that whether the expenditure was actually incurred for the job specified or not.
Thus the payment of Rs.4.400 million as advance was held irregular.

Audit is of the view that undue favour was extended to the suppliers /
contractors by making payments in advance. This indicates weak internal
controls.

The matter was reported to the management in December, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.
651
 Audit recommends that responsibility may be fixed on the persons at fault
besides adjustment of advance amount.

14.2.4.6 Irregular payment of overtime allowance - Rs. 4.827 million

As per Finance Division (Regulation Wing) No.F.4(1)R-5/2010 dated

August 09, 2012, “ the overtime admissible to staff car drivers/dispatch riders
from Rs. 20 per hour to Rs. 25 per hour subject to maximum limit of Rs. 150 per
day w.e.f. August 01, 2012. The existing condition that the overtime allowance to
staff car drivers/dispatch riders will only be paid if it has been verified by the
officer concerned will continue to apply. Further, According to G.F.R. rule 10
(iv) Public moneys should not be utilized for the benefit of a particular person or
sector of the community. As per rule 11 “Each head of a department is
responsible for enforcing financial order and strict economy at every step.

During audit of Korangi Fisheries Harbour Authority for the years

2014-15, 2016-17 & 2017-18, it was observed that management paid an amount
of Rs. 4.827 million on account of overtime allowance to employees (other than
drivers/dispatch riders), despite the facts that organization is presently not
executing its core function of deep sea fishing. Moreover, the allowance is paid in
cash instead of crossed cheques, therefore the authenticity of payment could not
be verified.

Audit is of the view that undue favour was extended to the employees at
organization cost. This indicates weak internal controls.

The matter was reported to the management in November, 2015 and

December, 2018. The management in its reply dated December 5, 2018 stated
that the operations of Harbour remain open 24 hours. The officials are essentially
required to perform duties round the clock. The payment of overtime is relating
to the performing of duties after office hours and on holidays and has no
connection whether department is meeting expenses from grant or from own

652
revenues. The reply was not tenable as explanation of the management was
unsatisfactory. DAC meeting was not convened despite requests by audit.

Audit recommends that the payment of overtime allowance should be

discontinued immediately. Moreover the detail of amount paid to each individual
should be provided to Audit with supporting evidences. Responsibility may be
fixed on the persons at fault.

14.2.4.7 Loss of revenue due to non-auction of Fish

Section-30 of Korangi Fisheries Harbour Authority’s Act says that the

Authority shall frame rules for appropriate arrangements for a wholesale auction
of fish on the Harbor area, and cause the auction fees to be received there from to
be credited to the account of the Authority for the purpose of funding of the
operation, maintenance, repair and up-keep of the Harbor area.

During audit of Korangi Fisheries Harbour Authority for the years

2016-17 & 2017-18, it was observed that no such auction was being held during
the years under review, which shows inefficiency and negligence on the part of
the management, causing financial constrains resulting into dependence on the
Government grants.

Audit is of the view that management failed to exercise its due functions
to generate revenue to become a self sustainable organization.

The matter was reported to the management in December, 2018 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the persons at fault

besides adopting measures to generate revenue.

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14.3 Pakistan National Shipping Corporation
14.3.1 Introduction

Pakistan National Shipping Corporation (the Holding Company), its

subsidiary companies and associates (together ‘the Group’) were incorporated
under the provisions of the Pakistan National Shipping Ordinance, 1979 and the
Companies Ordinance 1984, respectively. The group is principally engaged in the
business of shipping, including charter of vessels, transportation of cargo and
other related services.

Commercial Operations

During the year under review, PNSC and its vessel-owning subsidiary
companies lifted 13.326 million freight tons of cargo (Dry-Bulk 1.181, Liquid
Bulk 11.782, Slot Charter 0.363) as compared to Rs.16.277 million freight tons of
cargo in the previous year.

14.3.2 Comments on Audited Accounts

14.3.2.1 The working results of the Corporation for the year 2017-18 as
compared with those of the previous years are given below:
(Rs. in million)
Variance Variance
Unit 2017-18 2016-17 2015-16
(%) (%)
No. of Ships No. - 9 - 9
Cargo carried
by owned and million
12.797 (10.536) 14.304 7.340 13.326
chartered tons
vessels
Operation
Rs in Million
Revenue
Own vessels ” 5,738.182 12.282 5,110.499 (25.880) 7,017.359
Chartered
” 4,139.771 (42.309) 7,175.737 34.110 5,350.482
vessels
Total income
from shipping ” 9,877.953 (19.601) 12,286.236 (0.066) 12,367.840
business
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Rental Income ” 192.344 0.467 191.449 8.690 176.144
Other income ” 1,743.175 (23.514) 2,279.086 40.080 1,627.014
Total revenue ” 11,813.472 (19.945) 14,756.770 4.130 14,171.020
Operating
Rs in Million
expenses
Fleet expenses
Direct and
” (7,820.782) (11.447) (8,831.707) (0.510) (8,877.180)
indirect

Admin
” (1,063.571) 5.611 (1,007.062) 8.760 (925.910)
expenses
Other
expenses
” (924.142) (45.127) (1,684.156) (3.210) (1,739.930)
including
Finance Cost
Total expenses ” (9,808.495) (14.878) (11,522.925) (1.140) (11,655.647)
Operating
” 2,104.439 (38.685) 3,432.174 11.650 3,073.933
profit/(loss)
Profit/(Loss)
before ” 1,854.037 (40.226) 3,101.763 23.320 2,515.352
Taxation
Profit/(Loss)
” 1,641.121 (33.741) 2,476.815 6.620 2,323.054
after Taxation
(Source: Annual Audited Accounts)

During the year 2017-18, the operational revenue earned by the Corporation
through its own vessels was Rs.5,738.182 million as compared to that of the
previous year Rs.5,110.499 million showing an improvement of 12.28%.

14.3.2.2 The revenue through chartered Vessel was Rs.4,139.771 million as

compared to that of previous year Rs.7,175.737 million registering a significant
decline of 42.31%. The decline in chartered revenue by Rs.3,035.966 million in
2017-18 as compared to previous year is the prime contributor in attaining
reduced total income of Rs.9,877.953 as against Rs.12,286.23 million of that last
year.

14.3.2.3 Other income remained Rs.1,743.175 million in 2017-18 as compare to

Rs.2,279.086 million of previous year so registering decline of 23.51%.

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14.3.2.4 The major decline in chartered vessel revenue and other income led to
fall in total revenue to Rs 11,813.472 million in 2017-18 as compare to
Rs 14,756.77 million of that of last year registering decline of 19.95%

14.3.2.5 Total expense reduced to Rs.9.959.435 million in 2017-18 as compare

to Rs.11,522.925 million of that previous year reflecting decrease of 13.569.This
decrease is contributed by significant fall in fleet expenses and other expenses.

14.3.2.6 Operating profit remained limited to Rs.2,104.439 million in 2017-18 as

compare to that of previous year profit of Rs.3,432.174 million registering
decline by 38.68%.

14.3.2.7 The fall in operating profit in 2017-18 is caused by relatively higher

decline in revenues Vs related expenses. Profit before tax and after tax also
revealed decline in 2017-18 by 40.23% and 33.74% respectively.

14.3.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance awaited compliance
2003-04 6 5 1 181 83
2006-07 18 17 1 189 94
2008-09 5 4 1 212 80
2013-14 10 7 3 16.3.2.1, 16.3.4.2 & 70
16.3.4.4
2015-16 11 1 10 17.3.2.1, 17.3.2.2, 9
17.3.2.3, 17.3.2.4,
17.3.3, 17.3.4.1,
17.3.4.2, 17.3.4.3,
17.3.4.4, 17.4.2.1
2016-17 5 - 5 15.3.4.1, 15.3.4.2, -
15.3.4.3, 15.3.4.4,
15.3.4.5
Total 55 34 21 - 62%

The overall compliance of PAC directives needs improvement.

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14.3.4 Audit Paras
14.3.4.1 Loss due to transportation of Furnace Oil of wrong specification -
Rs. 1,731.77 million

As per clause-10 (b) of the agreement, “quantities and quality of crude oil
delivered hereunder shall be determined by the Company or the Company’s
supplier’s personnel, and certificates of quality and quantity of net crude oil after
deduction of any measurable sediments and water received at discharge port in
accordance with standard practice. However, the Carrier may at own expense, but
jointly with the Company’s supplier or the Company, measure the quantity of
crude oil delivered, at loading port and received at the discharge port, and inspect
before delivery and after discharge the quantity of such crude oil delivered to the
vessel or received in Company’s tank.”

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2014-15, it was observed that PNSC ship, MT Quetta carried 69,272 MT
Low Sulphur Furnace Oil (LSFO) from Fujairah to Karachi for Pakistan State Oil
(PSO). The ship arrived at Karachi on April 02, 2015. A survey was carried out at
Loading Port according to which the LSFO was as per required specification.
However, on survey at arrival port Karachi, the Hydrocarbon Development
Institute of Pakistan, (HDIP) found that the LSFO was not as per specification
due to which PSO did not allow to decant the fuel. Resultantly PNSC had to pay
cost of fuel Rs.1,731.77 million (US$ 250 /pmt x 69,272 x Rs. 100) on account of
substandard fuel imported for PSO. Thus, loss amounting to Rs.1,731.77 million
was incurred to PNSC.

Audit is of the view that the Corporation suffered loss due to changes in
specifications at the discharging Port Karachi, which indicates poor management
and weak internal controls.

The matter was reported to the management in October, 2015 and

November, 2018. DAC meeting was not convened despite requests by audit.

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 Audit recommends fixing responsibility on the person(s) at fault.

14.3.4.2 Non-recovery of demurrage from PSO - Rs. 1,540.413 million

Rule 4 of the Public Sector Companies (Corporate Governance) Rules,

2013 states that the chief executive is responsible for implementation of strategies
and policies approved by the Board, making appropriate arrangements to ensure
that funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17 it was observed that the management failed to recover demurrage
charges of Rs. 1,475.298 million from Pakistan State Oil (PSO) since 2013 in
violation of above agreement. Moreover, no late payment surcharge was
imposed. Moreover, an amount of Rs. 65.115 million (pertaining to PNSC and
its subsidiary companies) was also found outstanding against PSO on account of
“Heating Claim Receivables” as on June 30, 2017.The said amount is lying
un-recovered since 2012 to 2016. This resulted into recovery of Rs.1,540.413
million.

Audit is of the view that non-recovery of demurrage charges along with

LPS shows negligence and poor financial management in PNSC.

The matter was reported to the management in November, 2017 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault besides, recovery of the amount.

14.3.4.3 Loss due to payment of demurrage charges on chartering of ships for

PSO -Rs. 892.229 million

According to Rules-20 & 23 of GFR, every Government officer should

realize fully that he will be held responsible for any loss sustained by the
658
Government through fraud or negligence on his part or on the part of any other
officer to the extent to which it may be proved that he contributed through his
own negligence or action.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2014-15, it was observed that the management chartered ships from private
parties for transportation of oil for Pakistan State Oil, Pak Arab Refinery,
National Refinery Limited and Pakistan Refinery Limited. Total 116 voyages
were chartered by PNSC during 2014-15, out of which 64 were charted for PSO
and 52 for other companies. The detail is as under:
(Rs. in million)
No. of
Voyages Amount of Percentage
Sr. Voyage for
Companies incurring Demurrage (%) of total
No. which ships
demurrage paid amount
hired
1 PSO 64 61 892.229 92.45
2 Other Companies 52 22 72.395 7.504
(PRL, NRL, PARCO,
etc)
Total 116 83 964.624 100%

Above table shows that out of total 64 voyages chartered for PSO,
demurrage charges of Rs. 892 million in 61 cases were paid by PNSC. Further
the voyages were delayed very long and demurrage was paid for more than
Rs. 10.00 million in 54 voyages each. On the other hand, out of 52 voyages of
other companies, 22 voyages were delayed and no individual case involved the
figure of Rs.10 million.

The reason of the payment of demurrage charges in PSO cases was

non-deploying ships by PNSC as per scheduled laycans, the ships neither reached
in time on loading port nor on discharge port resultantly, the ships had to wait for
many days till next availability of berthing at loading/discharge ports. The
expenditure of Rs. 892.229 million incurred on account of demurrages for
chartering for PSO due to excess utilization of time at loading and discharging
port mostly in the Ships chartered for PSO is held irregular and doubtful.

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 The matter was reported to the management in November, 2015 and
November, 2018. DAC meeting was not convened despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.3.4.4 Non-recovery of outstanding dues from various parties - Rs. 715.454

million

Rule 4 of the Public Sector Companies (Corporate Governance) Rules,

2013 states that the chief executive is responsible for implementation of strategies
and policies approved by the Board, making appropriate arrangements to ensure
that funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that an amount of Rs. 715.454 million was lying
outstanding against various parties on account of Trade Debts as on June 30,
2017 (Annex-41).

Audit is of the view that accumulation of outstanding amount and

non- recovery from the parties concerned shows weak internal controls regarding
the recovery of outstanding amount.

The matter was reported to the management in November, 2017 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the persons at fault

besides recovery of the amount.

14.3.4.5 Loss due to chartering of ships through an agent - Rs. 331.122 million

Rule-5 of the Public Sector Companies (Corporate Governance) Rules,

2013 stats that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of

660
the company. The Board shall also formulate significant policies of the Public
Sector Company, which may include the Procurement of goods and services so as
to enhance transparency in procurement transactions, marketing of goods to be
sold or services to be rendered by the Public Sector Company.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2014-15, it was observed that the management placed its bulk carrier ships
for chartering to other parties through an agent M/s Optima Chartering Ltd during
the period July 2014 to June 2015. PNSC sustained loss of Rs. 331.122 million
on 12 voyages of these 04 ships. The details are as under:

(Rs. in million)
Sr.
Name of Ship No. of Voyages Loss
No.
1. Sibi 02 38.754
2. Malakand 05 256.798
3. Hyderabad 02 12.399
4. Multan 03 23.171
Total 12 331.122

The above table shows that although PNSC was suffering continuously
losses on chartering its ships through the Agent M/s Optima Chartering Ltd even
then, the management persisted with the same agent who was offering low rates
as compared to prevailing market rates.

Audit observed that the management failed to formulate polices/SOPs as

per the Corporate Governance Rules, 2013 as the opportunity was offered
through e-mails to selected agents and in most of the cases, M/s Optima
Chartering Ltd won the contracts.

Audit is of the view that PNSC’s own human resources were not utilize
properly as its Commercial Department is responsible to chartering of ships, this
department is constantly watching the market trends of ship chartering, which
could have easily avail the best rates in the market. Whereas, the management

661
gave their ships in the hands of the agent. Due to such improper handling of the
ships, PNSC sustained a loss of Rs. 331.122 million during the year 2014-15.

The matter was reported to the management in November, 2015 and

November, 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.3.4.6 Losses in the voyages of PNSC Ships - Rs.292.177 million

Rule-5 of the Public Sector Companies (Corporate Governance) Rules,

2013 stats that the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the Public
Sector Company, which may include the Procurement of goods and services so as
to enhance transparency in procurement transactions, marketing of goods to be
sold or services to be rendered by the Public Sector Company.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that 05 different vessel (subsidiary companies of
PNSC operational with the vessel) performed total 24 voyages during the year
under review. However, during operational activities, these companies sustained
net loss of Rs. 292.177 million. The detail is as under:
Sr.
Ship No. of voyages Net loss
No.
1 Multan 06 66.781
2 Malakan 02 63.042
3 Hyderabad 02 59.553
4 Chitral 03 55.967
5 Sibi 11 46.834
Total 24 292.177

Audit is of the view that due to ineffective planning and non-assessment

of the productivity feature for the voyages, the management has exposed the
Corporation to a huge loss of Rs.292.177 million.
662
 The matter was reported to the management in November, 2017 but no
reply was received. DAC meeting was not convened despite requests by audit.

Audit recommended that investigate the matter with a view to fixing of

responsibility on the person(s) at fault.

14.3.4.7 Non-recovery of Hull Claim Receivables - Rs. 32.389 million

Rule 4 of the Public Sector Companies (Corporate Governance) Rules,

2013 states that the chief executive is responsible for implementation of strategies
and policies approved by the Board, making appropriate arrangements to ensure
that funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Pakistan National Shipping Corporation, (PNSC) for the

year 2016-17 it was observed that dry-docking and repair work of two (02) PNSC
vessels (Multan & Lahore) was carried out during the year under review. For this
purpose an amount of Rs. 79.979 million was paid in advance to the client
companies. However, work was carried out by the clients Rs. 47.590 million.
Whereas, Rs. 32.389 million was lying outstanding as on June 30, 2017.

Audit is of the view that non-recovery of outstanding amount shows

inadequate financial management and weak internal controls.

The matter was reported to the management in November, 2017 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault besides recovery of the amount.

7.3.4.8 Non-recovery from temporary agents - Rs. 27.292 million

Rule 4 of the Public Sector Companies (Corporate Governance) Rules,

2013 states that the chief executive is responsible for implementation of strategies
663
and policies approved by the Board, making appropriate arrangements to ensure
that funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that an amount of Rs. 27.292 million was lying
receivable against sundry debtors (temporary agents) as on June 30, 2017.
Resultantly, amount was stuck-up since long.

Audit is of the view that that non-recovery of outstanding amount shows

inadequate financial management and weak internal controls.

The matter was reported to the management in November 2017, but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault besides recovery of the amount.

14.3.4.9 Non-recovery of Additional War Risk Receivables - Rs.16.642 million

Rule 4 of the Public Sector Companies (Corporate Governance) Rules,

2013 states that the chief executive is responsible for implementation of strategies
and policies approved by the Board, making appropriate arrangements to ensure
that funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that an amount of Rs. 16.642 million were lying
outstanding against four subsidiary companies of PNSC on account of Additional
War Risk receivables as of June 30, 2017. The amount is lying un-recovered from
2011 to 2016.

Audit is of the view that that non-recovery of outstanding amount shows

inadequate financial management and weak internal controls.
664
 The matter was reported to the management in November, 2017 but no
reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault besides recovery of the amount.

14.3.4.10 Non-recovery from Agents and other parties - Rs. 13.774 million
Rule 4 of the Public Sector Companies (Corporate Governance) Rules,
2013 states that the chief executive is responsible for implementation of strategies
and policies approved by the Board, making appropriate arrangements to ensure
that funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Pakistan National Shipping Corporation (PNSC), for the

year 2016-17 it was observed that an amount of Rs. 13.774 million was lying
outstanding against agents and other parties on account of freight as of June 30,
2017.

Audit is of the view that that non-recovery of outstanding amount shows

inadequate financial management and weak internal controls.

The matter was reported to the management in November, 2017 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault besides recovery of the amount.

14.3.4.11 Loss due to imprudent investment in Companies’ Shares - Rs. 13.415

million

Sr. No.6 of Memorandum issued by Finance Division dated July 02, 2003
states before making any investment under this policy, it would be necessary for
public sector entities to set up in-house professional treasury management

665
functions. Specifically, they would need to have an Investment Committee (IC)
with defined investment approval authority. Transactions above the approval
authority of the IC will be subject to approval of the Board of Directors or an
equivalent forum.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2015-16, it was observed that PNSC sustained loss of Rs.13.42 million
(Annex-42) because of continuance of share investment in Siemens and PSO
companies despite sharp devaluation of their share value. This investment could
easily have been divested and invested in Pakistan Investment Bond (PIB) as
Rate of Return on PIB was 14.47% in 2008 for tenor of ten years. Total market
value of Siemens share in year 2008 was Rs. 9.742 million. If funds were
invested at 14.47%, PIB offer rate in 2008 for tenor of ten years, its profit would
have become Rs. 12.687 million. Whereas, PNSC has earned “cash dividends on
shares” of Rs.3.453 million only for the same period. Thus, PNSC incurred loss
of Rs. 9.234 million (Rs. 12,687,007 – Rs. 3,453,000 = Rs. 9.234 million).
Similarly, PSO shares devalued sharply during 2015 and 2016 which required to
be divested in PIB which offered 8.06% in year 2015. The total cash dividend
PNSC earned in years 2015 and 2016 was Rs. 2.993 million. Therefore, for any
Public Sector Enterprise (PSE), investment in shares is always risky; it is always
advisable to invest in PIB and Treasury Bills which are more secure investments
and preferred by the Investment Committees of all PSEs.

The matter was reported to management in October, 2016. The

management replied that PNSC has earned Cash Dividends of Rs. 3.453 million
on Siemen shares from 2008 to 2016 and Rs. 2.993 million on PSO shares. The
reply was not satisfactory as the combined profit in form of cash dividends of
Siemen and PSO was Rs. 6.446 million which was much lower than profit
management could have earned from PIB investment. Hence, PNSC sustained
loss of Rs. 13.42 million. DAC meeting was not convened despite requests by
audit.

Audit recommends fixing responsibility on the person(s) at fault.

666
14.3.4.12 Outstanding insurance claims of Vessels - Rs.119.626 million

Section 118(I) of the Insurance Ordinance 2000 stipulates “it shall be

implied term of every contract of Insurance that where payment on a policy
issued by an insurer becomes due and the person entitled thereto has complied
with all the requirements, including the filing of complete papers, for claiming
the payment, the Insurer shall, if he fails to make the payment within a period of
ninety days from the date on which the payment becomes due or the date on
which the claimant complies with the requirements, whichever is later, pay as
liquidated damages.”

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that in 2016 the management lodged three claims
with National Insurance Company Limited (NICL) on account of Hull &
Maintenance amounting to Rs.119.626 million. However, the same were not
received despite lapse of more than 03 years resulting, blockage of funds.

Audit is of the view that non-recovery of the claims shows poor financial
management an inordinate delay on the part of the management.

The matter was reported to the management in November, 2017, but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter with a view to fix

responsibility on the person(s) at fault beside recovery of the claim.

14.3.4.13 Loss due to delay in chartering of tanker - Rs. 12.623 million

As per Job description of PNSC, the General Manager (Commercial

Division) was required to perform Utilize Vessels allocated in the most profitable
manner; prepare and maintain vessel schedule and ensure proper execution of the
voyage, etc.

667
 During audit of Pakistan National Shipping Corporation (PNSC) for the
year 2014-15, it was observed that the management received a request from PSO
for chartering tanker for the import 65,000 MT Furnace Oil from Fujairah to
Karachi on May 25, 2015. The loading was scheduled on June 02-04, 2015.
However, the management initiated the case for the chartering after lapse of
11 days and chartered a ship New Naxos on June 15, 2015. This resulted not only
the delay in the loading/unloading of this shipment but the next schedule
shipment from the same Port to Karachi for loading laycan on June 17-19, 2015
was also delayed. Due to such lapse, Corporation sustained extra expenditure on
account of demurrage charges US$ 126,225 equivalent to Pak Rs. 12.623 million.

Audit is of the view that the management did not utilize the vessel in
profitable manner due to which the cargo could not be brought in time to the
country and PNSC had to bear extra expenditure of Rs. 12.623 million which was
loss to the Company.

The matter was reported to the management in November, 2015and

November, 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.3.4.14 Loss due to shipment of crude oil through foreign Flag Tankers -
Rs. 2.156 million

Under the provision of rules 20 & 23 every government officer should

realize fully that he will be held responsible for any loss sustained by the
government through fraud or negligence on his part or on the part of any other
officer to the extent to which it may be proved that he contributed through his
own negligence or action.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that the management chartered two foreign Flag
Tankers for the shipment of crude oil during the year 2016-17. An expenditure of
668
Rs. 73.252 million was incurred on the voyages against the freight income of
Rs. 71.096 million. This caused loss of Rs. 2.156 million to the Corporation. The
detail is as under:

(Amount in Rs.)
Sr. Voyage Freight
Name of vessels Expenses Net Profit/Loss)
No. No. income
1 M.T Lion 0003 37,197,788 38,947,604 1,749,816
2 M.T Morning Glory 0003 33,897,952 34,304,286 406,334
Total : 71,095,740 73,251,890 2,156,150

Audit is of the view that non-commercially viable decision indicates poor

financial management and weak internal controls.

The matter was reported to the management in November, 2017, but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

14.3.4.15 Irregular appointment of employees without approved Service Rules

Section-38 of Pakistan National Shipping Corporation (PNSC) Ordinance,

1979 states that, the Federal Govt. may by notification in the official Gazette,
make rules for the purpose of giving effect to the provisions of this Ordinance.

During audit of PNSC for the year 2014-15, it was observed that the
management failed to formulate service rules in accordance with the above
provisions i.e. regional quota, advertisement, age, qualification, experience, pay
and allowances sanctioned strength. Furthermore, incomplete service rules so
prepared by the management were also not approved by the Federal Govt. thus;
all the appointments made contrary to the above rules were held irregular.

Audit is of the view that in the absence of Service Rules duly approved by
the Federal Government, all appointments made and annual pay and allowances
paid worth Rs. 1,263.024 million was also irregular.
669
 The matter was reported to the management in December, 2015 and
November, 2018, but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.3.4.16 Irregular payment of demurrage - Rs.303.443 million

As per Job description of Pakistan National Shipping Corporation
(PNSC), the General Manager of Commercial Division was required to perform:
 Utilize vessels allocated in the most profitable manner
 Prepare and maintain vessel schedule
 Ensure proper execution of the voyage, etc

During audit of PNSC for the year 2016-17, it was observed that the
management chartered ships from private parties for carrying crude oil for 04
clients. Due to delays in the voyages, the management had to pay an amount of
Rs.303.443 million on account of demurrages on shipment during the year
2016-17. The break-up of such demurrages paid is appended below:
(Rs. in million)
Sr. Demurrage
Party Voyage Items
No. Amount
1. PSO V.C Crude Oil 275.448
2. PRL ” ” 10.924
3. PARCO ” ” 9.426
4. NRL ” ” 7.645
Total: 303.443

Demurrage is not an expense of routine nature but a kind of penalty

imposed by the port authorities against abnormal detention of vessels beyond the
permissible time limit.

Audit is of the view that due to payment of huge demurrage charges the
Corporation sustained a loss of Rs.303.443 million which could have been
avoided had the proper / timely arrangement been made by the management.

670
 The matter was reported to the management in November, 2017 but no
reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault.

14.3.4.17 Irregular issuance of stores for Vessels amounting to Rs. 22.197

million

Under the provision of GFR-20 & 23 every Government officer should

realize fully that he will be held responsible for any loss sustained by the
Government through fraud or negligence on his part or on the part of any other
officer to the extent to which it may be proved that he contributed through his
own negligence or action.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that various types of spares / items amounting to
Rs.22.197 million were procured and issued to different vessels during the year
under review. However, the replaced items declared condemned did not return to
the workshop. The vessel wise detail of stores issued is appended below:

Sr. Amount
Vessel Name
No. (Rs.)
1. Chitral 154,304
2. Hyderabad 112,727
3. Malakand 165,472
4. Multan 172,465
5. Sibi 193,433
6. Shalamar 4,846,408
7. Lahore 6,659,580
8. Karachi 5,434,054
9. Quetta 4,458,690
Total: 22,197,133

Audit is of the view that the items declared condemned /un-repairable/un-

serviceable should have been taken on charge properly and disposed off to realize
671
the revenue, by adopting prescribed procedure. This indicates poor financial
management and weak internal controls.

The matter was reported to the management in November, 2017, but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that investigate the matter with a view to fixing of

responsibility on the persons at fault.

14.3.4.18 Irregular procurement of Spares for M.V. Multan - Rs. 5.561 million

As per Rule-12 of PPRA Rules 2004, procurements over one hundred

thousand rupees and up to the limit of two million rupees shall be advertised on
the Authority’s website in the manner and format specified by regulation by the
Authority from time to time. These procurement opportunities may also be
advertised in print media, if deemed necessary by the procuring agency.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17, it was observed that management issued three purchase orders for
the procurement of spare parts for M.V. Multan to three different suppliers for
US$ 53,155 (equivalent to PKR 5.561 million) without competitive bidding as
required under PPRA rules.

Audit is of the view that undue favour was extended to the suppliers and
the Corporation was deprived from the benefit of competitive bidding.

The irregularity was pointed out to the management in November, 2017

but no reply was received. DAC meeting was not convened despite requests by
audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault.

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14.3.4.19 Non-payment of EOBI Contribution - Rs. 2.671 million

Chapter-ii (3) EOBI Act 1976 states that Compulsory Insurance: All
employees in an industry or establishment shall be insured in the manner
prescribed by or under this Act.

During audit of Pakistan National Shipping Corporation (PNSC) for the

year 2016-17 it was observed that the management has not paid Pension
contribution to EOBI amounting to Rs.2.671 million on behalf of low paid
employees working in PNSC on daily wages in accordance with the prevailing
labor laws in the country. It is obvious from the above that an amount of Rs.2.671
million (i.e. 265 x 840 x 12 = Rs.2,671,200) per annum is lying payable to EOBI
on account of contribution during the period under review.

Audit is of the view that Government of Pakistan has protected the

interest of low paid workers in the country through EOBI Act 1976 applicable on
all firms, industries and commercial organizations to safeguard them through
various schemes. The PNSC is also covered under EOBI Act and is bound to pay
contribution on behalf of registered employees working directly or through third
party contract in PNSC. Due to non-payment of contribution, the low paid
workers of the Corporation have been deprived from the benefits of pension,
insurance and medical facilities as provided in the Act.

The matter was reported to the management in November, 2017 but no

reply was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s) at

fault, besides, payment of contribution to EOBI as per rules and regulations.

673
14.4 Port Qasim Authority
14.4.1 Introduction

Port Qasim Authority was established in 1973 under the Port Qasim
Authority Act, 1973 (the PQA Act). The principal activities of the Authority are
to provide services of ship movement, storage, berthage, wharfage, and towage,
etc., besides developing and managing an industrial and commercial estate within
its occupied area. The location of operations and principal office of the Authority
is situated at Port Muhammad Bin Qasim, Karachi.

14.4.2 Comments on Audited Accounts

14.4.2.1 The Organization is included in Annex-2: Non-submission of Audited
Accounts
14.4.3 Compliance of PAC Directives

Audit Year Total No. of Compliance Compliance Breakup of compliance %age of

Directives reported awaited awaited compliance
1999-00 5 2 3 67, 68 & 70 40
2000-01 13 10 3 59, 62 & 64 77
2003-04 5 3 2 182 & 183 60
2005-06 14 11 3 225.1, 225.4 & 228 79
2006-07 1 1 194 -
2007-08 -
2008-09 5 3 2 213 & 214 60
2013-14 13 5 8 16.4.3.1, 16.4.3.2, 38
16.4.3.3, 16.4.3.4,
16.4.3.5, 16.4.3.8,
16.4.3.10 & 16.4.3.11
2015-16 18 1 17 17.4.4.1, 17.4.4.3, 6
17.4.4.5, 17.4.4.10,
17.4.4.15, 17.4.3,
17.4.4.2, 17.4.4.4,
17.4.4.6, 17.4.4.7,
17.4.4.8, 17.4.4.9,
17.4.4.10, 17.4.4.11,
17.4.4.12, 17.4.4.13,
17.4.4.14
2016-17 2 2 15.4.4.5, 15.4.4.1 -
Total 76 40 41 - 53%
Percentage 82 %
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 The overall compliance of PAC directives needs improvement.

14.4.4 Audit Paras

14.4.4.1 Non-recovery of wharfage charges - Rs. 1,159.294 million

Rule-4 of Public Sector Companies (Corporate Governance) Rules, 2013

states that the chief executive is responsible for implementation of strategies and
policies approved by the Board, making appropriate arrangements to ensure that
funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that in June, 2014 a contract for handling the LNG ships was signed
between PQA and Pakistan State Oil (PSO). According to the agreement PSO
was responsible to pay handling / wharfage charges to PQA @ Rs. 87 per cubic
meter for providing berthing and handling facilities at port. From July 05, 2016 to
June 30, 2017, fifty eight vessels carrying LNG arrived at the port. However,
PSO stopped payment of above charges on plea that wharfage charges are not
applicable on import of LNG. Subsequently, an amount of Rs.1,159.294 million
was outstanding as on June 30, 2017.

Audit is of the view that due to negligence of the management, the

amount was not recovered.

The matter was reported to the management in May, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends responsibility may be fixed on the person(s) at fault

besides recovery of the amount.

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14.4.4.2 Non-recovery of fixed charges from Pakistan Steel - Rs.618.172
million

Rule-23 of GFR states that every Government officer should realize fully
and clearly that he would be held personally responsible for any loss sustained by
Government through fraud or negligence on his part and that he will also be held
personally responsible for any loss arising from fraud or negligence on the part of
any other Government officer to the extent to which it may be shown that he
contributed to the loss by his own action or negligence.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that in July 2015 a berth was allotted to Pakistan Steel, against which
management raised bills on account of fixed charges / Port on quarterly basis.
However, management failed to recover the same and an amount of Rs. 618.172
million was lying outstanding against Pakistan Steel Mills (PSM) as on June 30,
2017.
Audit is of the view that due to negligence of the management, the
amount was not recovered.

The matter was reported to the management in May, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends responsibility may be fixed on the persons at fault

besides recovery of the amount.

14.4.4.3 Loss due to onetime relaxation for transfer of open plot - Rs.500.00
million

As per terms & conditions of transfer letter dated February 03,2016 in

favour of Siddique Energy Limited: (a) to submit plans for construction for
approval by PQA for the above said plot within 03 months of issuance of letter of
transfer or possession by PQA whichever is earlier and (b) to commence
construction work on the above plot within 06 months of issuance of letter of
transfer or possession by PQA whichever is earlier (c) entitling PQA to cancel the
676
allotment/ lease/ transfer/ mutation of the said plot and take immediate
repossession of the same in the event of our negligence, omission or failure to
submit the plan and/ or commence construction within the stipulated periods
mentioned above.
.
During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that in February 2016 a plot measuring 100 acres was transferred in
favour of M/s. Siddique Energy Limited for Coal Based Power Plant and Ash
Handling Facilities. As per terms and conditions of transfer letter, the party was
required to submit plans of construction for approval by PQA within 03 months
and to commence construction work within 06 months of issuance of transfer
letter but since transfer of plot, M/s. Siddique Energy Limited did not start any
activity on subject plot and the plot remained open. However, in January 2018 the
same plot was transferred to M/s. Port Qasim Electric Power Company Private
Limited.

As per amendments in LAP dated June 04, 2015, allotments made or

transfers executed subsequent to this B.R., allottee / transferee having open plot
shall not be allowed further transfer. The Board in its meeting held on May 23,
2017 allowed one time relaxation to M/s. Siddiq Sons for further transfer of the
plot to M/s. Port Qasim Electric Power Company (Pvt.) Ltd. As M/s. Siddique
Energy Limited has not followed the terms and conditions of the transfer letter,
the plot should have been cancelled and PDCs amounting to Rs.500.00 million
(Rs.5.00 million per acre x 100 acres) should have been forfeited. Due to non
cancellation of plot and non forfeiture of PDC amount, PQA sustained a loss of
Rs.500.00 million.

Audit is of the view that open plot was not transferable as per LAP
amendment of 2015. Hence, the transfer of open plot to Port Qasim Electric
Power Company Private Limited is irregular as the management has violated the
provisions of LAP to extend undue favour to the party.

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 The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

14.4.4.4 Loss due to non-recovery of transfer surcharge - Rs.150.00 million

Minutes of 164 BoD dated June 04, 2015 provides, Subject to the
provisions of Land Allotment Policy, a transfer surcharge shall be imposed on
each event of transfer of interest in any form. Transfer Surcharge is Rs.1.5
million per acre.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that in April 2007 management allotted land measuring 100 acres in
favour of M/s. South Asia Steel Works Pakistan Ltd. for the purpose of Down
Steel Stream Plant. However, due to non-imposition of transfer surcharge the
authority sustained a loss of Rs.150.00 million.

Audit is of the view that this shows negligence on the part of the
management which indicates poor financial management and weak internal
controls.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault besides recovery of the amount.

14.4.4.5 Loss due to short collection of non-utilization fees – Rs. 135.00 million

As per Land Allotment Policy of Port Qasim Authority, the allottees were
required to start physical execution of the project within the time specified in
PQA’s Land Allotment Policy, 2000. In case of default, Non-Utilization Fee
678
(NUF) will be realized on specified rates. Further, the allotment letter dated
January 06, 2007 states that allottee shall start the work on the plot within (06)
months from the date of possession of plot and infringement of any term &
conditions of this letter of allotment will lead for cancellation of plot and
forfeiture of deposited amounts.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that in January 2007 management allotted land measuring 100 acres to
M/s. South Asia Steel Works Pakistan Ltd. for the purpose of Down Steel Stream
Plant. The work on the plot was required to be started within 06 months from the
date of possession of the plot. However, since possession in April 2007, no work
was executed by allottee till 2014. Thus, NUF amounting to Rs.275.000 million
from the period from January 01, 2008 to December 31, 2015 was required to be
recovered; however, Board resolved that NUF shall not be charged for a period of
05 years from the date of allotment from the allottee till June 2012 in violation of
Land Allotment Policy. Thus, an amount of Rs.140.000 million w.e.f. July 01,
2012 to June 30, 2016 was billed. However, Rs.135.000 million for period
January 01, 2008 to June 30, 2012 was not charged. This resulted into short
realization of NUF Rs.135 million.

Audit is of the view undue favour was extended to the allottee due to
non-collection of NUF. This indicates weak financial management.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter and fix responsibility on the

person(s) at fault besides recovery of the amount.

14.4.4.6 Non-recovery of revenue from debtors - Rs. 67.582 million

Rule.5.(1) of Public Sector Companies (Corporate Governance)

Rules,2013 state that the board shall exercise its power and carry out its fiduciary

679
duties with a sense of objective judgment and independence it the best interest of
the company.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that PQA is responsible to collect revenue and other receivable from
parties. However, audit observed that a huge amount of Rs. 202.832 million was
unrecovered from various parties (Annex-43).

Audit is of the view that the management is un-able to recover such a

huge amount of Rs.67.582 million from various customers despite the lapse of
more than one year which shows negligence/slackness of the management.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault besides recovery of amount from defaulters.

14.4.4.7 Loss due to non-imposition of transfer surcharge - Rs.50.88 million

As per amended Land Allotment Policy - 2015, and Minutes of 164th

BoD dated June 04, 2015 says that Subject to the provisions of this Policy,
transfer surcharge shall be imposed on each event of transfer of interest in any
form. Transfer Surcharge of North West Industrial Zone (NWIZ) of PQA is
Rs.2.00 million per acre.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that M/s. Fauji Oil Terminal and Distribution Company (FOTCO) was
allotted plot No.B-08 to B-13 measuring 25.44 acres in NWIZ, PQA for oil
storage facilities. FOTCO requested for transfer of lease hold rights of their 25.44
acres in the favour of Fauji Trans Terminal Limited (FTTL). As per Policy, a
transfer surcharge shall be imposed on each event of transfer of interest in any
form. The Board resolved that transfer surcharge shall not be imposed on the
transfer of 25.44 acres of land by M/s. FOTCO to M/s. Fauji Trans Terminal
680
Limited (FTTL) in violation of the Land Allotment Policy which resulted into
loss of Rs.50.88 million (Rs.2.00 million/acre x 25.44 acre = Rs.50.88 million).

Audit is of the view that undue favour was extended to the allottee this
indicates weak internal controls.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter and fix responsibility on the

person(s) at fault besides recovery of the amount.

14.4.4.8 Non-furnishing details of the contracts to NAB - Rs. 939.371 million

According to the NAB Ordinance, 1999 all statutory Corporations or

authorities established by Federal Govt. shall furnish to NAB a copy of any
contract entered into by such entity minimum monetary value of 50 million or
more, within such time as is reasonably practicable from the date of signing such
contract. Further, as per rules all procuring agencies whether within or outside
Pakistan shall post contract awards over fifty million rupees on PPRA website on
the proform as set out to these regulations.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that the management neither posted the contracts valuing more than Rs.
50 million on PPRA website nor furnished the same to the NAB, which is
violation of above rules of PPRA as well as NAB Ordinance. The details are as
under:

Sr.No Contractor name Contract (Rs. in million)

1. PSO Supply of diesel 806.139
2. M/s. But Brothers Transport service 133.232
Total 939.371

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 Audit is of the view that non-compliance of Govt. directives indicates
weak internal controls prevailing in the organization.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

14.4.4.9 Irregular payment of pension through open cheque/cash - Rs. 222.019

million

According to Finance Division’s Notification No. 12(9)-

Reg.6/2012.pt1453, dated January 5, 2016 the Banks (Main Branch or dealing
Wing) and Accounts offices shall carry out reconciliation on quarterly basis
regarding new pension issued, pension transferred to heirs, pension transferred to
other places, pension stopped/restored, pension discontinued, pension amended,
on the basis of full details and particulars of pensioners. Reconciliation statement
shall be signed by the officers of B-17 or above/equivalents in Banks and copies
shall be retained as permanent record. Any discrepancy shall be resolved within
six weeks. The responsibility for disciplinary action and reporting to crime
investigation agencies, if needed, will rest with the end where fraud.

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that management paid an amount of Rs. 222.019 million on account of
pension to its pensioners through open cheques/cash instead of bank and crossed
cheque.

Audit is of the view that disbursement of pension Rs. 222.019 million

irregular as the payment of pension was made in violation of directives of
Finance Division and the State Bank.

The matter was reported to the management in October, 2017 and

November, 2018. DAC meeting was not convened despite requests by audit.
682
 Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.10 Irregular allocation of vehicles to the officers - Rs. 100.674 million

According to the Resolution No.1457 resolved in the PQA’s Board of

Director’s meeting held on September 15, 1987, all Managers/equivalent officers
be allocated one Suzuki Van for operational/official duty of their respective
departments.

During audit of Port Qasim Authority (PQA) for the year 2013-14, it was
observed that the management allocated 94 vehicles of higher version to the
Managers and equivalent grade officers instead of allocating them Suzuki Vans in
contravention of vehicle allocation policy as laid down by the Board of Directors.
The detail of such vehicles and expenditure thereof are given below:

Depreciation of Repair &

Fuel Amounts
S. No of vehicles for 05 years Maintenance
Vehicle Type for 05 year
No. vehicle (apx) (5yearapx)
(Rs.)
(Rs.) (Rs.)
1. Toyota Corolla 1 2,772,000 1,200,000 250,000

2. Suzuki Cultus 83 2,220,000 58,100,000 20,750,000

3. Suzuki Mehran 3 1,662,000 1,500,000 750,000

5. Suzuki Swift 5 - 5,500,000 1,250,000

6. Suzuki Jimny 2 2,220,000 2,000,000 500,000

94 8,874,000 68,300,000 23,500,000

Total 100,674,000

The above table indicates that due to unauthorized allocation of vehicles

unnecessary expenditure of Rs.100.674 million on account of fuel, repair &
maintenance, and depreciation charges was incurred by PQA during five years.

Audit was view of the that allocation of vehicles in such a manner was
irregular and undue favour extended to the officers.

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 The matter was reported to the management in August, 2015 and
November, 2018 but no reply was received. DAC meeting was not convened
despite requests by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.11 Irregular purchase of Bungalow - Rs. 86.472 million

Rule-10 of Public Procurement Rule-2004 stated that specifications shall

allow the widest possible competition and shall not favour any single contractor
or supplier nor put others at a disadvantage. Specifications shall be generic and
shall not include references to brand names, model numbers catalogue numbers.
or similar classifications. However if the procuring agency is convinced that the
use of or a reference to a brand name or a catalogue number is essential to
complete an otherwise incomplete specification, such use or reference shall be
qualified with the words “or equivalent.

During audit of Port Qasim Authority (PQA) for the year 2013-14, it was
observed that the management invited bids through press for purchase of a
bungalow for commercial use i.e. for setting up its liaison office on December 23,
2009. The terms & conditions of the required property were set in a manner
which did not allow widest possible competition such as location from FTC
Building to Karsaz, ground plus one storey on about 2,000 square yards, spacious
garden, adequate car parking etc. Subsequently, the management purchased a
residential bungalow No.39-Z/1, measuring area of 1,800 square yards situated at
Block-6, Pakistan Employees Cooperative Housing Society (PECHS) Karachi at
the cost of Rs. 86.472 million.

Audit is of the view that the requirements were not set as per the rule,
therefore, the procurement of a bungalow was irregular and also mis-procurement
under Rule-50 of PPR-2004. Moreover, the purchase of residential building for
commercial purpose was also illegal under the Karachi Building Control
Authority (KBCA) Byelaws.

684
 The matter was reported to the management in May, 2015 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.
Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.12 Loss due to irregular award of contract of Rs.9.394 million and its
extension without justification- Rs.70.454 million

According to Rule-38 of Public Procurement Rule, 2004 provide that the

bidders with the lowest evaluated bid, if not in conflict with any other law, rules,
regulation or policy of the Federal Government shall be awarded the procumbent
contract, within the original or extended period of bid validity. Further, rule 12
provide that all procurement opportunities over two million rupees should be
advertised on the Authority’s website as well as in other print media or
newspapers having wide circulation. The advertisement in the newspapers shall
principally appear in at least two national dailies, one in English and the other in
Urdu.

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that in December, 2014 management called bids through press tender
for manning, operation and maintenance of PQA seven (07) crafts. In response
following bids were received.
(Rs. in million)
Sr. 1st year of
Name of party 2nd Year 3rd Year Total
No. operation
175.5
M/s M. 4.683x 4.831 5.111 x 12
Rates of 1 02
International 12=56.198 x12=57.972 =61.332
1st (A)
Tender 210.2
M/s Bharia 5.293 5.822 x12 6.404 x12
2 28
Foundation x12=63.516 =69.864 =76.848
(B)
Rates of 184.8
M/s Bharia 5.078x12= 5.135x12 5.194x12 =
2nd 1 84
Foundation 60.936 =61.620 62.328
Tender (C)
Total Loss C-A = 9.394 9.394

685
 However, the management scrapped the tender without any justification.
The same were called again and only M/s Bahria Foundation participated in the
bidding process and contract was awarded accordingly. Thus, due to scrapping of
first tender wherein M/s. M. International was the lowest bidder, this resulted
into loss of Rs.9.394 million to the organization.

Moreover, the contract was awarded for a period of 03 years up-to April,
2015 amounting to Rs.184.92 million per year. However, the management further
extended the contract from April 2015 to March 2016 valuing to Rs.70.454
million in violation of the above rules.

Audit is of the view that undue favour was extended to the contractor by
ignoring first lowest contractor and granting subsequent extension of contract
which indicates poor financial management and weak internal controls.

The matter was reported to the management in July, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view of fixing

responsibility on the person(s) at fault.

14.4.4.13 Irregular award of transport contract - Rs.66.379 million

Rule 36(b)(viii) of Public Procurement Rules-2004 states that after

evaluation and approval of the technical proposal the procuring agency shell, at
the time within the; bid validly period, publicly open the financial proposals of
the technically accepted bids only. The financial proposals of bids found
technically non-responsive shall be returned unopened to the respective bidders
and (ix) bid found to be the lowest evaluated bid shall be accepted.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that a press tender was floated on November 19, 2016 for hiring of
transport. In response, five bidders participated and M/s. But Brothers Transport
and M/s. Banaras Petroleum Services qualified in both technical and financial
686
bids. However, after opening the financial bids, Central Procurement Committee
conducted two inspections on March 24, 2017 and March 30, 2017 to verify the
condition of buses. Buses of M/s. But Brothers Transport was found
unsatisfactory, therefore the bid of lowest bidder was rejected and contract was
awarded to M/s. Banaras Petroleum Services at contract price of Rs.4,330 per bus
per day at total contract price of Rs. Rs.66.379 million. Resultantly, rejection of
bid of the lowest bidder on the basis of inspections of buses made after opening
of financial bid was irregular.

Audit is of the view that undue favour was extended to contractor and
contract was awarded in non-transparent manner.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view of fixing

responsibility on the person(s) at fault.

14.4.4.14 Loss due to non-imposition of liquidated damages - Rs.59.900 million

As per clause 3.19 of Implementation Agreement, completion of the

project will be 36 months from the date of effectiveness of Agreement. Further,
clause 18.25 of Implementation Agreement, If the company shall fail to achieve
completion of the project in time then the company shall be liable to pay
liquidated damages for every day of delay, such damages not exceeding
Rs.100,000 (Rupees one hundred thousand only) per day.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that in November 2010, an Implementation Agreement (IA) was signed
between PQA and M/s. Pakistan International Bulk Terminal Pvt. Ltd. (PIBT) for
establishment of a dedicated Coal and Clinker/Cement Terminal at Port
Muhammad Bin Qasim, Karachi for 30 years.

687
 As per Implementation Agreement, project was to be completed by May
12, 2015, however, the contractor failed to complete the project/work within the
stipulated period. Board Resolution No. 32/2016 dated 25.05.2016 also allowed
M/s PIBT to continue the work up to 31-12-2016 subject to payment of LD.
However, management failed to imposed LD amounting to Rs. 59.900 million
(Rs. 100,000 x 599 days).

Audit is of the view that undue favour extended to the contractor which
indicates poor financial controls.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view fixing of

responsibility on the person(s) at fault besides recovery of the amount.

14.4.4.15 Irregular appointment and regularization of three officers -

Rs. 57.311 million

Establishment Division O.M. No.8/10/2000-CP.I dated March 21, 2000

and May 10, 1997 states that the concerned department should specifically justify
that why it is not possible to fill in a vacancy in accordance with the procedure
laid down in the Civil Servants (Appointment, Promotion and Transfer) Rules,
1973 and the Recruitment Rules and where it is considered necessary to fill in a
post on contract, it shall only be for a period not exceeding two years. The
professional qualifications, experience, and age limit (where necessary) required
for the post, shall be prescribed in consultation with the Establishment Division.

During audit of Port Qasim Authority (PQA) for year 2015-16, it was
observed that three officers of Prime Minister’s Secretariat and Establishment
Division are working on deputation basis in PQA on contract basis for a period of
2 years. Meanwhile, they were absorbed in PQA without fulfillment of the codal

688
formalities. Thus, the payment of Rs.57.311 million on account of pay and
allowance was irregular. The detail of the officers is as under:

Sr. Date of Absorbed/

Name Parent Office Appointed As
No. Appointment Regularized
1 Prime Dy Manager
Mr. Akhtar Javed Minister’s (Vigilance/Equipment
09-03-2010 31-Jan-2012
Secretariat Yard) Bs-17
2 Prime
Mr. Mehmood
Minister’s 05- 03-2009 27-Oct-2010
Zamir Farooqui Dy Secretary BS-18
Secretariat
3 Lt. Col. (Retd)
Establishment Director (Security &
Tanveer Ud Din 07-Oct-2009 27-Nov 2010
Division transport) BS-19
Farooqui

Audit is of the view that undue favour were extended to the officer due to
absorption in authority in irregular way. This indicates weak internal controls.

The matter was reported to the management in May, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view fixing of

responsibility on the person(s) at fault.

14.4.4.16 Irregular award of contract for chartering Pilot Boat - Rs. 45.625
million

As per Rule-31of PPRA-2004, no bidder shall be allowed to alter or

modify his bid after the bids have been opened. However the procuring agency
may seek and accept clarifications to the bid that do not change the substance of
the bid.

During audit of Port Qasim authority (PQA) for the year 2016-17, it was
observed that the management awarded a contract amounting to Rs. 45.625
million for hiring of Pilot boat to M/s Ocean World Pvt. Limited by waiving main
conditions of contract/tender specially related to the Fitness of the Boat and
replacement of boat during the days in case the contracted boat is not available,

689
which is violation of tender conditions and PPRA Rules. Further, the contract
was awarded without competition as only one bidder participated since the
specifications were so framed to benefit the specific bidder.

Audit is of the view that the management extended undue favour to the
contractor by waiving main conditions of the tender which indicates poor
financial management and weak internal controls..

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault.

14.4.4.17 Irregular appointment of Director Accounts - Rs. 38.864 million

The Establishment Division O.M.No.3/1/92-R.2 dated January 02, 1992

regarding recruitment for the Federal Services/Autonomous Bodies/ Corporations
states that the vacancies in each Ministry/Division/Department/autonomous
body/Corporation, as per the provincial/ regional quotas, shall be advertised
through National/ provincial/regional newspapers and electronic media on
Sundays.

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that in February 2012, the management appointed Mr. Farukh Jamil as
Director (Accounts) and Mr. Muhammad Yahya as Director (Revenue) in
BPS-20 without following the laid down procedure as stated above. Moreover,
the candidates did not possess the relevant experience as well.

Audit is of the view that appointments of officers were irregular and

undue favour was extended to them. Thus, the payment of Rs.38.864 million on
account of pay and allowances was also irregular.

690
 The matter was reported to the management in July, 2017 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends fixing of responsibility on the person(s) at fault.

14.4.4.18 Irregular award of contract to disqualified bidder – Rs. 30.660

million

According to Rule-36 of PPRA-2004 the procuring agency shall evaluate

the technical proposal in a manner prescribed in advance, without reference to the
price and reject any proposal which does not conform to the specified
requirements. During the technical evaluation no amendments in the technical
proposal shall be permitted. After the evaluation and approval of the technical
proposal the procuring agency, shall at a time within the bid validity period,
publicly open the financial proposals of the technically accepted bids only. The
financial proposal of bids found technically nonresponsive shall be returned un-
opened to the respective bidders;

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that notice for inviting tenders for hiring of one Pilot Boat for a period
of one year contract was published on March 02, 2016. Two bidders M/s. Ocean
World (Pvt.) Ltd. and M/s. Seamax Marine Services submitted bids on April 21,
2016. Technical evaluation was carried out on March 29, 2016 and M/s. Seamax
Marine Services was found technically qualified whereas the offer of M/s. Ocean
World was disqualified being non-responsive. However, the financial bids were
opened and tender was awarded to M/s. Ocean World for Rs.84,000 per day,
being the lowest bidder for a period of one year amounting to Rs.30. 660 million
(Rs.84,000/- x 365 days).

Audit is of the view that undue favour was extended to a technically

disqualified bidder. Hence, award of contract of Rs.30.660 million to M/s. Ocean
World and payments made in this regard are held irregular and unjustified.

691
 The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

14.4.4.19 Irregular award of contract for hiring of pilot boat – Rs. 30.240
million

According to Rule-30 of the Public Procurement Rule all bids shall be

evaluated in accordance with the evaluation criteria and other terms and
conditions set forth in the prescribed bidding documents. No evaluation criteria
shall be used for evaluation of bids that had not been specified in the bidding
documents.

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that in June 2016 the management awarded a contract for hiring of pilot
boat for a period of one year to M/s Ocean World amounting to Rs. 30.24
million. However, in May 2016 technical offer of M/s Ocean World (Pvt.) was
found non-responsive and was disqualified. Thus, the award of contract to non-
qualified bidder is held irregular.

Audit is of the view that undue favour was extended to the contractor and
award of to disqualified Firm showed poor internal controls.

The matter was reported to the management in July, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view of fixing

responsibility on the person(s) at fault.

692
14.4.4.20 Irregular appointment of Deputy Manager - Rs. 21.792 million

As per Establishment Division OM dated March 21, 2000, where it is

considered necessary to fill in a post on contract, it shall only be for a period not
exceeding two years. The professional qualifications, experience, and age limit
(where necessary) required for the post, shall be prescribed. The post should be
advertised and selection made by a Departmental Selection Committee (DSC)

During audit of Port Qasim Authority (PQA) for the year 2015-16 it was
observed that the management appointed Mr. Saqib Fatimi as Deputy Manager
(BPS-17) in August 2007 on contract basis for a period of 02 years without
recommendations of the Departmental Selection Committee (DSC) which was
obligatory for contract appointments. Moreover, the officer has no relevant
experience. Thus, the appointment was irregular and payment of Rs. 21.792
million on account of pay and allowances was unjustified. Moreover, in July
2010 his services were regularized, which was contradictory to the above rule.

Audit is of the view that undue favour was extended to the officer.

The matter was reported to the management in July, 2017 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.21 Irregular appointment of Deputy Manager - Rs. 20.247 million

As per Establishment Division’s O.M.No.3/1/92-R.2, dated January 2,

1992, Sl. No. 76, the vacancies in each Ministry/Division/ Department/
Autonomous Body/Corporation, as per the provincial/ regional quotas, shall be
advertised through National/ provincial/regional newspapers and electronic media
on Sundays.

693
 During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that in November, 2007 Mr. Mughisul Wara Fasihi appointed as Deputy
Manager (Finance) on contract basis for a period of two years in BPS-17 without
advertisement and fulfillment other codal formalities. Moreover, he was
regularized as Deputy Manager (Finance) in BPS-18 in March, 2010 without
observing the rules. Thus, the payment on account of pay and allowance
Rs. 20.247 million was held irregular.

Audit is of the view that neither the post was advertised nor relevant rules
& regulations were observed in appointment and subsequent regularization of the
service. Thus, undue favour was extended to the employee by ignoring the rules
& regulations.

The matter was reported to the management in July, 2017 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.22 Irregular payment on account of overtime to security guards -

Rs.14.400 million

Corporate Governance Rules, 2013 section 4(3) states that chief executive
is responsible for implementation of strategies and policies approved by the
Board, making appropriate arrangements to ensure that funds and resources are
properly safeguarded and are used economically, efficiently and effectively and
in accordance with all statutory obligations.

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that the management had hired services of security guards from Pak-
Navy on deputation basis for operational area, escorting LNG carriers and paid
amount of Rs. 14.434 million on account of over time. The defence related
employees are not entitled to draw overtime allowance because it falls under their

694
essential requirements of duty to provide security at the time of duty. However,
the payment of overtime to the mariners is irregular.

Audit is of the view that undue favour was extended to the security
guards. This indicates poor financial management and weak internal controls.

The matter was reported to the management in July, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault besides recovery of amount.

14.4.4.23 Irregular appointment of DM Security - Rs. 9.765 million

According to Esta Code (Sr. No. 66), the application for appointment in
other offices should be forwarded through proper channel. Further, as per
advertisement three (03) years’ experience in Security function was required for
appointment against the post of Deputy Manager (Security).

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that an advertisement was published in Daily “Dawn” dated March 19,
2010 for the post of Deputy Manager (Security). In response management
appointed Mr. Wajid Hayat Khan, serving in FIA (Cyber Crime Circle). The
following short comings were noticed in his appointment:

i. As per rules the application was required to be routed through proper

channel whereas the management accepted his application addressed
directly to the Secretary PQA.

ii. The said applicant wrongly showed him serving as ‘Security Officer’ in
FIA whereas he was Assistant Sub-Inspector.

695
 iii. Required experience was 03 years in ‘Security functions’ whereas he had
only 02 years’ experience in Cyber Crime Circle which is computer based
activity.

Moreover, the officer manipulated his attachment with Joint Maritime

Information Organization (JMIO) and was relieved from PQA on November 26,
2012 at a time when the authority was facing acute shortage of employees and
was managing manpower through deputation from other departments like
Pakistan Navy. During the period of attachment with JMIO, the salary and other
allowances of the officer were being paid by the authority. He was repatriated in
PQA in April 2013 and attached with Ministry of Ports & Shipping in May 2013
without observing the formal channel and during the ban period on
posting/transfer of all PQA employees imposed by the Honorable Supreme Court
of Pakistan. This resulted in irregular payment of Rs.9.765 million on account of
pay and allowances. The detail is as under:

Amount P.M. Total Amount

Description No. of Months
(Rs.) (Rs. in million)
Monthly Salary 100,000 96 9.600
Conveyance Allowance 5,000 33 0.165
Total: - - 9.765

Audit is of the view that undue favour was extended to the incumbent
which indicates weak internal controls prevailing in the organization.

The matter was reported to the management in June 2018, but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

14.4.4.24 Irregular employment after superannuation age - Rs.4.800 million

According to Establishment Division, Govt. of Pakistan O.M

No.4121901-r-I-I dated December 05, 1990 and subsequent instructions issued
through letters dated May 26, 1999 and December 04, 2007 the re-employment
696
after the age of superannuation in the government, semi-government, autonomous
bodies and semi-autonomous bodies was required to be made by obtaining the
approval of Prime Minister.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that Mr. Jawaduddin Ather Chughtai, Director (Channel Dredging)
BPS-19 was retired from service on 31-03-2016 after attaining the age of
superannuation. Then management requested the Ministry to re-employ him on
contract basis for a period of two years. In August 2016 Ministry of Ports &
Shipping allowed to re-appoint him as Manager Hydrography in BS-19 without
approval of the competent authority i.e. Prime Minister. Thus, an amount of
Rs.4.800 million (Rs.200,000 per month x 24 months) was paid to him on
account of salary was irregular.

Audit is of the view that undue favour was extended to the incumbent
which indicates weak internal controls and nepotism in PQA.

The matter was reported to the management in June, 2018, but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

14.4.4.25 Non-reconciliation of revenue - Rs.14,968.00 million

The challans issued and revenue deposited against these challans must be
reconciled by the accounts/finance department.

During audit of Port Qasim authority (PQA) for the year 2016-17, it was
observed that the Port generated revenue of Rs. 14,968.000 million from port
operation, but the management did not reconcile the challans against which the

697
revenue collected from customers. The head-wise detail of revenue is given as
under:

Sr.
Head of revenue (Rs. in million)
No
1. Fixed revenue income 272.323
2. Ship movement and services 2,400.103
3. Berthing fee 897.092
4. Wharf age 1,257.943
5. Storage and demurrage 60.964
6. Towing & pilot age 4,953.796
7. PQA royalty 2,046.425
8. Gate pass money 72.000
9. Weighment charges 11.101
10. Industrial and commercial estate 2,997.015
Total 14,968.762

Audit is of the view that non-reconciliation of revenue shows negligence

of the management and indicates weak internal controls prevailing in the
organization.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to fix responsibility on the person(s) found at fault

besides reconciliation of the revenue.

14.4.4.26 Loss of due to non-completion of project – (US$ 80 million)

- Rs. 8,000 million

According to Clause 3.19 of the Implementation Agreement dated

November 06, 2010 the completion period of the project will be 36 months from
the date of effectiveness of the agreement. Port Qasim Authority (PQA) entered
into implementation agreement (IA) with Pakistan International Bulk Terminal
(PIBT) on November 06, 2010 for establishment of Coal and Clinker/ Cement
Terminal on 30 years on Build Operate and Transfer (BOT).

698
 During audit of PQA for the year 2015-16, it was observed that the
project of Coal and Clinker Cement Terminal was required to be completed on
May 12, 2015 i.e. in 36 months. However, due to non-completion of project
within stipulated time PQA had sustained a loss of Rs.8,000 million on account
of revenue in terms of royalty.

Audit is of the view that due to ill-planning and poor financial

management the PQA is sustaining heavy losses in shape of royalty/revenue.

The matter was reported to the management in July, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter and fix responsibility on the

person(s) at fault.

14.4.4.27 Loss due to non-operation of boat Jatli - Rs. 89.837 million

Rule-20 & 23 of GFR states that, “Every Government officer should

realize fully that he will be held responsible for any loss sustained by the
Government through fraud or negligence on his part or on the part of any other
officer to the extent to which it may be proved that he contributed through his
own negligence or action.”

During audit of Port Qasim Authority (PQA) for the year 2013- 14, it was
observed that the Pilot Boat Kalri was shifted to Karachi Shipyard & Engineering
Works for repair work in March 2014. The concerned boat remained with
KS&EW from March 2014 to May 2015. The record did not mention any
progress of repair work or docking after lapse of more than one year to till
finalization of audit nor KS&EW submitted any bill after June 2014 for
adjustment, as concerned record was silent. The above position indicates that the
management did not take action for early repair of said boat and let the crucial
boat idle for more than a year due to which PQA sustained a loss of Rs. 41.910
million.

699
 In addition to above, an amount of Rs. 47.927 million was incurred on the
repair and maintenance of survey boat Jatli during the years 2008-09 to 2013-14.
But the boat remained non operational during the year 2013-14. The record
revealed that the Board of Directors had approved the replacement of the survey
boat Jatli during the year 2010-11 vide BOD 81st meeting held on June 17, 2006
but the management did not replace the said boat.

Hence, PQA sustained a loss of Rs. 41.910 million due to letting the new
boat Kalri idle for more than a year and incurring expenses of Rs. 47.927 million
on non operational boat Jatli. As such the authority sustained total loss of
Rs. 89.837 million on non-operation and repair and maintenance on two boats.

The matter was reported to the management in June, 2015 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.28 Loss due to excess reservation of vehicles in central pool – Rs. 59.018
million
As per Port Qasim Authority (PQA) Board of Directors’ Resolution No.
2953 dated December 10, 1996, following number of vehicles were reserved for
staff cars /central pool vehicles as under:

1. Operation Division 1000/800 cc 01

2. Planning & Development Div 1000/800 cc 01
3. Coordination Div 1000/800 cc 01
4. Technical Div 1000/800 cc 01
5. A & P Div 1000/800 cc 02
6. Finance Div 1000/800 cc 01
7. Secretariat 1000/800 cc 02
8. Transport 1000/800 cc 06
Total: 15

700
 During audit of PQA for the year 2013-14, it was observed that the
management allocated 35 vehicles in reserve/ central pool against 15 vehicles,
which were required to be reserved as staff car for each department. Resulting 20
vehicles were reserved in excess of approved allocation by the Board, which was
violation of Board of Director’s resolutions as mentioned above. The detail of
loss due to irregular reservation of vehicles as Pool vehicles is attached as
Annex-44. Resultantly, PQA sustained a loss of Rs. 59.018 million.

Audit is of the view that the management did not manage properly
resources of PQA and misuse the vehicles.

The matter was reported to the management in July, 2015 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends to fix responsibility on the person(s) at fault.

14.4.4.29 Irregular payment on account of repair and maintenance of Pilot

Boat Kalri - Rs. 36.757 million

Rule-20 & 23 of GFR states that, every Government officer should realize
fully that he will be held responsible for any loss sustained by the Government
through fraud or negligence on his part or on the part of any other officer to the
extent to which it may be proved that he contributed through his own negligence
or action.

During audit of Port Qasim Authority (PQA) for the year 2013-14, it was
observed that the contract for “repair work of Pilot Boat Kalri was awarded to
M/s Karachi Shipyard & Engineering Works in 2014. PQA paid 50% advance
payment to KSEW Rs. 26.351 million and Rs. 10.406 million in March and June
2014.

The record revealed that the boat remained with KSEW for more than a
year and no progress came to know after lapse of more than one year from March
701
2014 to June 2015. Further M/s KSEW also did not submit bill up till June 2015
for adjustment.

The above position indicates that the concerned management did not care
properly the crafts due to which millions of rupees were being incurred on repair
and maintenance every year and new crafts remain idle for years due to which
PQA deprived an amount of Rs. 78.667 million.

The matter was reported to the management in June, 2015 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.
Audit recommends fixing responsibility on the person(s) at fault.

14.4.4.30 Poor performance of law firms - Rs. 26.471 million

Rule 4(3) of the Corporate Governance Rules, 2013 states that the chief
executive is responsible for implementation of strategies and policies approved
by the Board, making appropriate arrangements to ensure that funds and
resources are properly safeguarded and are used economically, efficiently and
effectively and in accordance with all statutory obligations.

During audit of Port Qasim Authority for the year 2016-17, it was
observed that management engaged various Legal Firms, Advocates / Counsels to
plead the 81 cases pending with different courts of law. An amount of Rs. 26.471
million was incurred. However, the cases are still lying pending in the courts of
law after lapse of a considerable period.

Audit is of the view that due to poor performance of the legal firms /
advocates with regards to pursuing and getting the litigation cases disposed off in
favour of the authority. It is obviously the result of the lack of communication
between the management and Legal Advisors.

The matter was reported to the management in May, 2018, but no reply
was received. DAC meeting was not convened despite requests by audit.
702
 Audit recommends responsibility may be fixed on the person(s) found at
fault and hectic efforts may be made to get the cases settled without further loss
of time.

14.4.4.31 Loss due to wastage of water - Rs. 25.724 million

Rule 4(3) of the Corporate Governance Rules, 2013 states that the chief
executive is responsible for implementation of strategies and policies approved
by the Board, making appropriate arrangements to ensure that funds and
resources are properly safeguarded and are used economically, efficiently and
effectively and in accordance with all statutory obligations.

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that the management purchased 547,285,772 gallons of water and
consumed 430,702,908 gallons only. The remaining quantity of 116,582,864
gallons was either wasted or misused causing loss of Rs. 25.724 million to PQA.
The detail is as under:

Water Billed Actual Water Unaccounted Rate Total loss due

by KW&SB Consumed & Water per to wastage of
Sr.
Month in Gallons to Billed By PQA Wasted 1000 water
No.
PQA in Gallons to Gallons Gallons Rs.((4X5)/1000)
Users (2-3) in Rs. Gallons)
1 2 3 4 5 6
1. July, 2015 44,863,973 36,163,144 8,700,829 204 1,774,969
2. August, 2015 44,863,973 37,285,760 7,578,213 222 1,682,363
3. September, 48,905,340 36,576,876 12,328,464 222 2,736,919
2015
4. October, 2015 44,863,973 34,485,930 10,378,043 222 2,303,925
5. November, 44,863,973 34,401,780 10,462,193 222 2,322,606
2015
6. December, 40,881,720 34,539,940 6,341,780 222 1,407,875
2015
7. January, 2016 44,111,540 32,601,960 11,509,580 222 2,555,126
8. February, 2016 47,920,180 33,997,200 13,922,980 222 3,090,901
9. March, 2016 42,913,860 38,401,600 4,512,260 222 1,001,722
10. April & May, 94,403,980 75,672,840 18,731,140 222 4,158,313
2016
11. June, 2016 48,693,260 36,575,876 12,117,382 222 2,690,058
Total 547,285,772 430,702,908 116,582,864 25,724,777

703
 Audit is of the view that due to negligence of the management, PQA
sustained loss of Rs. 25.724 million.

The matter was reported to the management in July, 2017 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends fixing of responsibility on the person(s) at fault.

14.4.4.32 Loss due waiver of mark up on late payment of land rent to

M/s. National Molasses - Rs. 9.671 million

Clause- xv of the allotment letter stipulates that in case of delay in

payment, the allottee shall have to pay the mark-up at the rate of one percent
(1%), above the commercial bank Rate.

During the audit of PQA for the year 2013-14, it was observed that two
plots bearing No. 9 and 10 measuring 02 acres were allotted to M/s. National
Molasses in the year 1991 for 10 years lease period on annual land rent of
Rs. 35.43 per square meter with five percent (5%) annual compounded increase.
The concerned allottee did not pay annual land rent and 5% increase thereon
since allotment of plot. The outstanding amount was accumulated to Rs. 18.270
million as on June 30, 2012. In July, 2002 PQA served a notice to M/s. National
Molasses due to default of annual land rent and mark up, after 10 years i.e. on
July 17, 2002. The party filed a suit against PQA against such notice in 2002. The
concerned file did not mention any proper perusal of the court case by PQA.
After 06 years of notice, PQA also filed a recovery suit in 2008 vide suit
No.1178/08 in Sindh High Court for Rs.19.408 million. However, PQA made out
of court settlement in which M/s. National Molasses agreed to pay the principal
amount of land rent and requested for the waiver of markup and maintenance
charges. The development committee approved the recommendations of the out
of court settlement and recommended the PQA Board for waiver of markup/late
payment penalty subject to payment or Rs. 9,671,346 which waived off vide by
BoD on December, 2011.
704
 Audit is of the view that waiver of mark-up/late payment surcharge
indicates that PQA extended undue favour to M/s. National Molasses since the
plot was not cancelled as per conditions of allotment letter.

The matter was reported to the management in July, 2015 and November,
2018 but no reply was received. DAC meeting was not convened despite requests
by audit.

Audit recommends to fix responsibility on the person(s) at fault.

7.4.4.33 Loss due to payment of professional qualification pay – Rs. 7.980

million

Corporate Governance Rules, 2013 section 4(3) states that chief executive
is responsible for implementation of strategies and policies approved by the
Board, making appropriate arrangements to ensure that funds and resources are
properly safeguarded and are used economically, efficiently and effectively and
in accordance with all statutory obligations. Further, Finance Division,
Government of Pakistan Vide F.No.1(2) Imp/2016-333 dated July 01, 2016
approved the “Rates of Qualification Pays” are as under:
Previous Latest Rates
Sr.
Qualification rates (2016)
No.
(Rs.) P.M (Rs.) P.M
1 SAS/PIFA 800 1,200
2 ICMA/ICWA (Part-III) 800 1,200
3 ICMA/ICWA 2100 3,100
4 Chartered Accountants 2300 3,400
Staff
5 2000 3,000
College/NMC/NDC
6 NIPA Advance Course 1000 1,500
7 Mid Career Mgt Course 500 750

During audit of Port Qasim Authority (PQA) for the year 2015-16, it was
observed that in violation of above rule management paid an amount of Rs.7.980
million on account of qualification pays to its officers @ of Rs. 20,000 p.m.

705
 resulting in loss of Rs.7.980 million. The detail is as under:

From
Sr.
Name of Employee Designation P No. 2012 to
No.
2016
1. Mr. Muhammad Yahya Dir 070280 1,140,000
(Accounts)
2. Mr. Farukh Jamil Dir (IM) 070300 1,140,000
3. Mr. Jamil Ajmal Mgr 062102 1,140,000
(Revenue)
4. Mr. Khalid Mahboob Mgr (I.A) 070320 1,140,000
5. Mr. Waseem Ahmed DM (Fin) 070180 1,140,000
6. Mr. Mughis-ul-Wara DM (Fin) 065233 1,140,000
Fasih
7. Mr. Khuram Naveed Mgr 070130 1,140,000
(expenditure)
Total 7,980,000

Audit is of the view that undue favour was extended to the officer at PQA
cost. This indicated poor financial management.

The matter was reported to the management in July, 2017 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view of fixing

responsibility on the person(s) at fault besides recovery of the amount.

14.4.4.34 Lapse of internal controls due to non-implementation of internal

audit plan and internal audit report

Rule-22 (3) of Public Sector Companies (Corporate Governance) Rule,

2013 states that internal audit reports are provided for the review of external
auditors. The external auditor shall discuss any major findings in relation to the
reports with the audit committee, which shall report mattes of significance to the
Board.

During audit of the scrutiny of the record of PQA for the year 2016-17 it
was observed that the internal audit department of PQA has not prepared internal
706
audit plan as well as internal audit report as required under the above mentioned
rule.

According to above mentioned rule the internal audit department was

responsible to formulate internal audit plan and conduct audit accordingly. The
internal audit report was required to be submitted to audit committee and share
with external audit. However the same was not conducted by the management so
far, which need to be justified.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault.

14.4.4.35 Violation of rules due to non-formulating statutory policies by the

BoD

As per Rule 5 Public Sector Enterprise (Corporate Governance), 2013

states that the board shall develop and implement a policy on “anticorruption to
minimize actual and perceived corruption in the company. Develop and enforced
an appropriate conflict of interest policy. Such policy shall clearly lay down the
circumstances of considerations when a person may be deemed to have actual of
potential conflict of interest, and the procedure disclosing such interest. Develop
whistle blow policy and protection mechanism. Formulate significant policies of
the Public Sector Company.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that following policies were required to be formulate under above
mentioned rules. However, the same were not formulated by the BoD. The detail
is as under:

1. Conflict of interest policy

2. Anti-corruption policy

707
 3. Whistle blow policy

In addition to above, the operational activities of the port were distributed

amongst different departments, such as operation, administration, maintenance,
finance, planning and development, and technical departments etc., but these
departments were performing functions without any SOPs.

Audit is of the view that non-compliance of Corporate Governance rules

shows weak internal controls.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends investigate the matter with a view of fixing

responsibility on the person(s) at fault.

14.4.4.36 Non-appointment of Professional Fund Managers

Sr. No. 3 of Finance Division OM No.F.4(1)2002-BRII dated July 02,

2003 states that the investment committee should be assisted by an investment
management unit employing qualified staff with at least 3-5 years of experience
of managing investment in debt/equity instrument. However, it will be necessary
for public sector enterprises to use the services of professional fund managers
approved by SECP.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that heavy amount of Rs. 28,968.99 million was invested in various
banks without appointment of professional fund manager, which is violation of
above orders of Finance Division, Government of Pakistan.

Audit is of the view that the management constantly violating the standing
instructions of Finance Division as stated above.

708
 The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends to investigate the matter and fix responsibility on the

person(s) at fault.

14.4.4.37 Non-verification of degrees/certificate of the employees

Rule-5(1)of Public Sector Companies (Corporate Governance) Rules,

2013 states that the board shall exercise its power and carry out its fiduciary
duties with a sense of objective judgment and independence it the best interest of
the company.

During audit of Port Qasim Authority (PQA) for the year 2016-17, it was
observed that more than 1,500 employees are working in PQA on
permanent/contract basis, but the degree of these employees were not verified
from the institutions/Universities.

Audit is of the view that non-verification of degrees/certificates shows

negligence of the management and indicates weak internal controls prevailing in
the organization.

The matter was reported to the management in June, 2018 but no reply
was received. DAC meeting was not convened despite requests by audit.

Audit recommends that responsibility may be fixed on the person(s)

found at fault besides verification of degrees /certificates.

709
 Chapter-15
Ministry of Overseas Pakistanis and Human Resources
Development

15.1 Employees’ Old-Age Benefits Institution

15.1.1 Introduction

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 grant to the insured persons
covered under the scheme. It operates 31 regional offices and 32 field offices
located in various parts of the country. Under 18th amendment in the Constitution,
EOBI has been brought under administrative control of a new ministry, i.e.,
Ministry of Human Resource Development (HRD).

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.

15.1.2 Comments on Audited Accounts

15.1.2.1 The working results of the institution of the year 2010-11 as compared to
the preceding years are given as follows:
(Rs in million)
% %
2010-11 2009-10 2008-09
Inc/(Dec) Inc/(Dec)
Income 29,310.75 6.94 27,408.27 51.16 18,132.15
Expenses:
Benefits paid (9,365.27) 59.75 (5,862.53) 1.31 (5,786.94)
Management expenses (1,469.60) 81.29 (810.62) 12.74 (718.99)
Reversal/Provision: Against other 24.00 - `-
receivables-FIBs
Donation to Prime Minister Fund 1,000.00 - (100.00)
for Malak and IDP
Taxation - (6.56) 22.14 (5.37)

710
 Total expenses 11,834.88) 77.35 (6,673.14) 0.94 (6,611.30)
Surplus for the year 17,475.88 15.72) 20,735.12 79.98 11,520.85
Fund balance 198,765.15 9.64 181,289.28 12.95 160,506.61
(Source: Annual Audited Accounts)

Income of EOBI is increased by 6.94%, from Rs.27,408.266 million in 2009-10

to Rs.29,310.753 million in 2010-11. Benefit payments showed an increase of
59.75%, from Rs.5,862.527 million in 2009-10 to Rs.9,365.274 million in
2010-11.

15.1.2.2 Management expenses rise by 81.29% from Rs.810.615 million in

2009-10 to Rs.1,469.604 million in 2010-11. Surplus for the year has decreased
by 15.72% from Rs.20,735.12 million in 2009-10 to Rs.17,475.88 million in
2010-11.

15.1.2.3 Surplus in the Fund has decreased by 15.72% from Rs 20,735.12 million
in 2009-10 to Rs.17,475.87 million in 2010-11 million.

15.1.2.4 The chartered accountants reported following observation in their audit

report:

 We did not receive confirmations from certain legal advisors during the
course of our audit and subsequently while performing procedures to verify
the events occurring after the balance sheet up to the date of audit report.
 The institution has not disclosed the effects of valuation of investment
properties subsequent to the year end up to the date of audit report that are
required to be disclosed under the applicable financial reporting standards
for non-adjusting events occurring after the reporting period.

15.1.3 Compliance of PAC Directives

Audit Total No. of Compliance Compliance Breakup of %age of

Year Directives reported awaited compliance compliance
awaited
1996-97 2 1 1 202 50
1999-00 10 9 1 135 90

711
 2000-01 11 8 3 152, 154 & 156 73
2003-04 7 4 3 134.3,134.5 & 135 57
2004-05 7 4 3 83, 88 & 89 57
2006-07 8 3 5 134.2, 135, 136, 38
138 & 139
2007-08 7 4 3 109, 110 & 111 57
2008-09 7 3 4 150, 151, 152 & 57
154
2009-10 3 1 2 163, 164 33
2010-11 6 5 1 15.1.3 83
12.1.4.3, 12.1.4.4,
12.1.4.5, 12.1.4.6,
12.1.4.8, 12.1.4.9,
2016-17 8 8 12.1.4.10, 12.1.4.11 -
Total 76 42 34 - 55%

The overall compliance of PAC directives needs improvement.

15.1.4 Audit Paras

15.1.4.1 Doubtful payment of pension – Rs. 33,252.310 million

Para-10 of GFR provides that every public officer is expected to exercise

the same vigilance in respect of expenditure incurred from public money, as
person of ordinary prudence would exercise in respect of his own money.
Further, para-309 of GFR states that every officer is responsible for collection of
Government dues or expenditure of Government money and sees that proper
accounts are maintained for the same.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2017-18, it was observed that the management paid doubtful pension
Rs. 33,252.310 million. The variation of disbursed amount during the last ten
years through NBP, TMFBL and BAFL w.e.f. January 2009 to Jun 2018 seem to
be doubtful as the Operations Department of EOBI did not carry out any
reconciliation of the above disbursement and total count of the pensioners with
banks.

Audit is of the view that non-reconciliation with the banks shows weak
internal controls and poor financial management.
712
 The matter was reported to the management in November, 2018. DAC
meeting was held on January 17 & 18, 2019. The management informed that the
audit calculated the amount by presuming that all the pensions of EOBI are paid
at a flat /minimum rate whereas, a person who has worked for 15 years, and his
last drawn minimum wages was Rs.8,000 gets Rs.5,250 per month pension which
is the minimum amount paid by EOBI.

A person who has worked for 33 years gets pension of Rs.5,280 per
month. Similarly, all insured persons working beyond minimum threshold get
their due share of Formula Pension. Hence, amount disbursed over a certain
period of time cannot be based on flat rate of pension. The DAC directed the
management to provide all the details and relevant record to audit by 24 January,
2019. However, no progress was reported til finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.2 Doubtful disbursement of pension - Rs. 3,680.712 million

Clause 6.1 of the agreement signed between EOBI and BAFL state that
BAFL shall be responsible for registration of all EOBI pensioners after biometric
verification. The registration process shall ensure that EOBI pensioners are not
troubled and registration facility is provided to at a location in close proximity to
their existing pension receiving channels BAFL shall submit a detailed transition
strategy and mechanism to EOBI for approval of the same before its execution.
Further, clause 6.2 of the agreement state that: BAFL shall be responsible for
biometric verification of EOBI pensioners every six months at locations in close
proximity to their pension receiving location.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2017-18, it was observed that in August 2015, the management entered in to
an agreement with M/s Bank Al-Falah Limited (BAFL) for a period of five years.
The purpose of this agreement was to facilitate the pensioners of EOBI to collect
their contribution and disburse pension payment through debit card. It was
713
observed that 375,456 pensioners were registered with BAFL after biometric
verification as on May 2016. Whereas, prior to this arrangement 433,880
pensioners were drawing EOBI pension through National Bank of Pakistan
(NBP). Thus, 58,424 pensioners were not registered with BAFL through
biometric verification. Therefore, payment of pension amounting to
Rs. 3,680.712 million (58,424 x 5,250) by NBP to non-verifiable pensioners was
doubtful.

Audit is of view that the disbursement of pension to 58,424 non-verifiable

pensioners shows weak internal controls.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
actual disbursement to the pensioners is less than registered person with Bank
Alfalah. The DAC directed the management that an exercise should be carried
out to verify authenticity of the 58,424 persons as pointed out by the audit who
did not turn up for biometric verification with Bank ul Falah and share the results
of this exercise with the Ministry and Audit. However, no progress was reported
till the finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.3 Wasteful expenditure due to non-operation of HVAC system

- Rs. 80.715 million

Para-23 of GFR “Every Government officer should realize fully and

clearly that he would be held personally responsible for any loss sustained by
Government through fraud or negligence on his part and that he will also be held
personally responsible for any loss arising from fraud or negligence on the part of
any other Government officer to the extent to which it may be shown that he
contributed to the loss by his own action or negligence”.

714
 During audit of Employees Old-Age Benefits Institution (EOBI) for the
year 2017-18 it was observed that in April 2011,management invited a tender
from pre-qualified contractors through daily Dawn for supply, installation, testing
and commissioning of new Air-conditioning system on a turnkey basis with
Natural Gas operated Korean origin at EOBI head office. In response 08 firms
submitted their pre-qualification documents, out of which 02 firms were
qualified. The financial standing of the tender was as under:

Difference
Sr. Offer Bid Price Bid
Name of Bidder with
No. (Rs. in million) Position
Estimation
1. M/s Iceberg Industries 71.029 1st lowest -3.75 %
2. M/s Airtech Engineers 78.538 2nd lowest 6.42 %

Accordingly PRIMACO entered in to an agreement on June 3, 2011 with

M/s Iceberg Industries amounting to Rs. 71.029 million. The completion period
of work was four months from the date of issuance i.e. June 04, 2011 and
extended to Dec 31, 2011 with revised contract Rs. 77.882 million. The
management revised contract price at Rs. 80.715 million with the variation
orders. Moreover, management also hired services of M/s Iceberg Industries to
provide maintenance service for that plant approximately Rs.3.0 million per year.
HVAC system was handed over to EOBI on March 09, 2014 after delay of two
year and nine months. Since its installation, the system has not been functioning
due to technical defect and same was not removed by contractor due to non-
payment of outstanding bills amounting to Rs.10.468 million.

Audit is of the view that due to negligence and inefficiency of the

management resulted in huge loss.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
inquiry committee in the matter has been constituted and matter has also referred
to FIA. The DAC directed the management to share the results of the inquiry with

715
the Ministry and Audit at the earliest. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.4 Double payment of pension - Rs. 27.97 million

According to the SOP Circular No.05/2017-18 dated 2nd August, 2002,
Retrieval of PR-02A u/s. 10 of EOB Act. 1976. Pension claims are settled by
Regions on the basis of Service verification rather than verification of insurable
employment / contribution payments, despite an amendment to Section 22, EOBI
Act, 1976w.e.f. June30, 2002, which requires; paid Contribution for pension
settlement, for the insurable employment after 30.06.2002. Employers generally
don't submit particulars of their employees on the prescribed format i.e. PR-02A
mandated under Rule 8 of the EOBI (constitution) Rules, 1976, which is the only
source to verification insured persons for benefits available under EOB Act,
1976.

During audit of EOBI, RO Sukkur for the years 2016-17 & 2017-18 it
was observed that management processed pension cases and awarded pension
without service verification as per required Performa of PR-02A. Further, it was
observed that management has issued two registration numbers to one/ same
person. This resulted into double payment of pension Rs. 27.97 million
(Annex-45).

Audit is of the view that due to weak internal controls double payment has
been made.

The matter was reported to the management in September 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
insurable employment of a claimant is verified on the basis of the documents
such as Joining Letter, Personnel File, Registers containing particulars of
employees, Personal Record maintained by employees to be produces before
Regional Claims Committee and the Record available with EOBI Regional
Offices in form of Employer’s File. The DAC directed the management to submit

716
revised reply to the audit. However, no progress was reported till finalization of
this report.

Audit recommends implementation of the DAC directives.

15.1.4.5 Loss due to short deposit of contribution by the employers -

Rs. 49,066.17 million
According to Act No. VII of 2016 as notified in Gazette of Pakistan vide
Notification No. F.9(32)/2015-Legis, Monthly minimum wages for unskilled
workers have been revised in the following manner:

Rs. 8,000 w.e.f. 1st July, 2012 till 30th June, 2013
Rs. 10,000 w.e.f. 1st July, 2013 till 30th June, 2014
Rs. 12,000 w.e.f. 1st July, 2014 till 30th June, 2015
Rs. 13,000 w.e.f. 1st July, 2015

A contribution equal to 5% of minimum wages has to be paid by the

Employers of all the Industrial and Commercial Organizations where EOBI act is
applicable. Contribution equal to 1% of minimum wages by the employees of
said Organizations.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2015-16, it was observed that the contribution amount was required to be
revised from Rs.480 per month to Rs. 600 and Rs.720 per month in the years
2013-14, 2014-15 and 2015-16 respectively. The management however, collected
the contribution at the previous rate of Rs. 480 per month from their 6,000,000
Insured Persons (IPs). Thus resulted into short collection of contribution
amounting to Rs.49,066.175 million. The details are as under:
(Rs in million)
Minimum Amount Amount
Amount
wages required collected Less
Less No. of
Year Rs. per to be by Collection
collection IPS
Month collected EOBI Per Year
(Rs)
(Rs) (Rs) (Rs)
2012-13 8,000 480 480 - 6.00 -
2013-14 10,000 600 480 120 6.00 8,640.00
717
 2014-15 12, 000 720 480 240 6.00 17,280.00
2015-16 13,000 780 480 300 6.429 23,146.00
Total 49,066.17

Audit is of the view that due to inefficiency of management, it could not

collect the contribution on revised rates.

The matter was reported to the management in September 2016. DAC

meeting was held on January 17 & 18, 2019. The management informed that
there are many reasons including that the employers challenged the circulars of
EOBI in all the High Courts, due to this the EOBI failed to collect the
contributions on new rates of minimum wages from almost all the employers
except few ones. The Regions could not also issue demands of contribution due
to dilemma of wages. The DAC decided to place the matter before PAC for
decision.

Audit recommends fixing responsibility on the person(s) at fault besides

recovery of the amount.

15.1.4.6 Gap between contribution collection and benefits payment -

Rs. 27,656.00 million

The provision of the Para 01.5.1 (a) of the Employees Old Age Benefits
Institution (EOBI) Operation Manual states that the DG Operation is responsible
for the core activities of EOBI i.e. collection of contributions, disbursement of
benefits, their reconciliation, inspection of regions and control of all field
activities through zonal and regional heads.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2017-18, it was observed that since last five years, the management
collection of contribution has remained less than the payment of benefits. This
has resulted into gap of Rs.27,656.40 million. The details are as under:

718
 (Rs. in million)
Deficit
Contribution collected from Benefit
Amount
Financial year Employers & Insured persons Payments
Actual Actual Actual
2013-14 12,568.000 15,860.000 -3,292.00
2014-15 12,856.607 15,812.179 -2,955.57
2015-16 14,600.600 22,580.974 -7,980.37
2016-17 18,271.550 24,150.000 -5,878.45
2017-18 18,550.000 26,100.000 -7,550.00
Total 76,846.76 104,503.15 -27,656.40

Last actuarial valuation report of EOBI fund up to June 30, 2017 indicates
that the fund would start depleting from the year 2021 and will exhaust in the
year 2029 which is very alarming situation.

Audit is of the view that non-collection of arrears shows poor financial

management and weak internal controls.

The matter was reported to the management in November 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
there are many issues i.e., legal, non-closure of units, contribution rate variable
due to different courts decisions etc due to which the Institution is unable to
collect 100% contribution. However, on the other hands the Institution is paying
same rate of benefits. The DAC directed the management to take measures to
collect contribution from active defaulters units and also increase the focus on
registration of new employers.

Audit recommends implementation of the DAC directives.

15.1.4.7 Non-reconciliation of contribution collection with banks

- Rs. 12,219.00 million

Employees Old Age Benefits Institution (EOBI) entered in to agreement

with Bank Al-Falah Limited for disbursement and contribution for a period of

719
Five years. The agreement was commenced on August 03, 2015. The provision of
the clause is as under:

Clause 6.10 of the agreement state that “Bank Al-Falah Limited (BAFL)
shall be responsible for reconciliation of bank statement and transaction data
before submitting it to EOBI. Clause 6.15 of the agreement state that “BAFL
shall be responsible for reconciliation of all funds received from EOBI, disbursed
/ credited to pensioners and contribution received. BAFL shall also provide
monthly MIS for main Collection Account, Main Disbursement Account, and
Main investment Account to EOBI. Para - 01.5.1 (a) of the Employees’ Old-Age
Benefits (EOBI) Operating Manual states that the DG Operations is responsible
for the core activities of EOBI i.e. collection of contributions, disbursement of
benefits, their reconciliation, inspection of regions and control of all field
activities through zonal and regional heads.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2017-18, it was observed that an amount of Rs.31,917.463 million were
shown on account of contribution collection during 2017-18 as per EOBI record.
Where as the Bank statement of BAFL showed collection of contribution of
Rs.19,697.467 million for same period. Resulting, in non-reconciliation of figures
between regions and the banks, amounting to Rs.12,219.995 million (Annex-46).
Similarly, the record of EOBI regional office Islamabad showed short collection
of contribution of Rs.1,107.724 million during 2016-17 and regional office,
Sukkur also showed short collection of contribution. The details are as under:

(Rs. in million)
Sr. Amount collected
Name of Bank Year Difference
No. As per Bank As per EOBI
1 Bank Alfalah 2016-17 0.421 96.456 96.372
2 National Bank 2016-17 93.569 94.661 5.280
3 Bank Alfalah 2017-18 213.745 172.978 46.863
Total 307.735 364.095 137.894

720
 Audit is of the view that above position shows serious concerns regarding
the process of reconciliation of contribution collection and disbursement of
pension.

The matter was reported to the management in November 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
amount pointed out by the audit is not short receipt of contribution but pertain to
non-reconciliation of contribution with bank al Falah and efforts are under way
for reconciliation of the said amount. The DAC directed the management to get
the amount reconciled with Bank al Falah within one month. However, no
progress was reported till finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.8 Non-collection of outstanding/arrears of contribution - Rs.9,875.934

million

As per Employees Old-Ages Benefits Institutions (EOBI) Operating

Manual, 05.11 (a) 1, All the Regional Heads have been invested with the powers
of Assistant Collector, (Grade-1) to recover the arrears of contributions as arrears
of Land Revenue the notice under section 81 will be served and (b) 7. After
service of notice u/s 81 and expiry of 15 days from the date of service of notice,
the Assistant Collector should order u/s 83 for attachment and sale of moveable
property of the defaulter. A copy of warrant shall be endorsed to the B&C
Department, head office for information. (8) if the defaulter fails to pay the dues
within stipulated time; recovery thereof shall be affected as arrears of land
revenue.

During audit of EOBI for the year 2017-18, it was observed that the
management failed to collect outstanding arrears of contribution from Employers,
Employees amounting to Rs. 9,875.934 million as on June 30, 2018 (Annex-47).

721
 Audit is of the view that due to negligence of the management, EOBI was
deprived of contribution income. This indicates poor planning and weak internal
control.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
recovery against all Insured Persons (IPs) as pointed out by the audit is not
achievable because of closure of establishments and recent Judgments of
Honorable Supreme Court of Pakistan and Sindh High Court. The DAC directed
the management to submit the revised reply to audit showing the actual amount
recovered and get it verified from audit. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.9 Short collection of contribution than targets - Rs. 4,986.47 million

The provision of the Para - 01.5.1 (a) of the Employees’ Old-Age Benefits
(EOBI) Operating Manual states that the DG Operations is responsible for the
core activities of EOBI i.e. collection of contributions, disbursement of benefits,
their reconciliation, inspection of regions and control of all field activities
through zonal and regional heads.

During audit of EOBI for the year 2017-18 it was observed that out of 39
Regions, 36 Regions failed to achieve their targets. The target for collection of
contribution was fixed Rs. 2,4050.00 million against which the Regions achieved
/ recovered Rs. 19,062.66 million, resulting in short fall of contribution collection
of Rs.4,986.47 million (Annex-48).

Audit is of the view that due to negligence and poor planning of the
management the institute was deprived of its potential revenue. This indicates
inefficiency of the management.

722
 The matter was reported to the management in November, 2018. DAC
meeting was held on January 17 & 18, 2019. The management informed that BoT
revised the target and EOBI has achieved a collection of Rs.19,062.66 million
which was 102.76% of revised. Audit pointed out that the targets were revised
after completion of the year under review, this shows that the targets were not set
on rational basis. The DAC directed the management that in future target must be
set on the basis of proper working and keeping in view the operational ground
realities.

Audit recommends implementation of the DAC directives.

15.1.4.10 Loss due to retention of investments in the category of held for

trading – Rs. 4,595.777 million

As per International Accounting Standard-39, a financial asset or financial

liability is classified as held for trading if it is acquired or incurred principally for
the purpose of selling or repurchasing it in the near term. Further, para-14 of
Application Guide of IAS-39 “Trading generally reflects active and frequent
buying and selling, and financial instruments “Held for trading” generally are
used with the objective of generating a profit from short-term fluctuations in
price or dealer’s margin”. The purpose of “held for trading” category is to earn
profit through trading.”

During audit of Employees’ Old-Age Benefits Institution (EOBI) for the

year 2017-18, it was observed that Institution sustained a loss of Rs. 4,156.043
million during the year under review due to diminution in value of equity
investments classified as “Held for Trading” as the shares of the companies were
not disposed-off despite posting of heavy losses in revenue account. Similarly in
the year 2015-16, EOBI also sustained loss of Rs.439.733 million. Thus, the
accumulated loss of Rs.4,595.777 million occurred due to imprudent investment
(Annex-49).

723
 Audit is of the view that due to negligence of the management Institute
sustained heavy losses. This indicates imprudent investment decision of
investment department.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that in
2017-18 EOBI realized capital gain of Rs.605.270 million and earned dividend
income of Rs.746.942 million in the Trading. Thus the total realized return of
Rs.1,352.213 million (from capital gain and dividends) overshadows the
diminution of Rs.329. 919 million. Audit contended that EOBI sustained a loss of
Rs. 4,595.777 million during the year under review due to diminution in equity
investments that were classified as “Held for Trading”. The DAC decided to
place the matter before PAC for decision.

Audit recommends to investigate the matter with a view to fix

responsibility on the person(s) at fault.

15.1.4.11 Irregular investment in NIT Equity Market Opportunity Fund -

Rs. 3,071.00 million

Rule-3(j) of Employees’ Old-Age Benefits (Investment) Rules, 2007 state

that, the Institution may invest money, which are not immediately required for
expenses under the Act in any collective investment scheme (fund) authorized
under Non-Banking Finance Companies (Establishment and Regulation) Rules,
2003 and offered by an Asset Management Company or an investment advisor
carrying a valid license under Non-Banking Finance Companies (Establishment
and Regulation) Rules, 2003, subject to a minimum rating of the fund of “4-Star.”

The provision of the Rule 4(2) “No investment made in any one
Corporation, company or scheduled commercial or Islamic bank under rules
3 shall exceed ten percent of the fund size in case of investment in mutual funds
under clause (j) or two and a half percent of the portfolio, whichever is less.

724
 During audit of EOBI for the year 2014-15, it was observed that an
amount of Rs.1.3 billion was invested in NIT Equity Market Opportunity Fund
(EMOF) by the EOBI on August 30, 2008. The total size of the EMOF was
Rs. 5.10 billion as on August 30, 2008 in which EOBI’s investment was 26%
whereas, other institutions also contributed i.e. NBP 35%, SLIC 29% and NICL
10%.

It was further observed that with the passage of time size of NIT-EMOF
was increased to Rs.8,226 million as on June 30, 2015 and share of EOBI
investment was also increased simultaneously uptoRs.3,071 million which was
37% of the total fund size. Audit is of the view that the investment of Rs.3,071
million in NIT-EMOF was irregular and unjustified as it was more than 10% as
on June 30, 2015 of the total fund size and in violation of EOBI investment rules.

The matter was reported to the management in October, 2015 and

November, 2018. DAC meeting was held on January 17 & 18, 2019. The
management informed that the investment was made under Rule 3 (i) of EOBI
Investment Rules and excess amount is covered under Rule 6 of the Investment
Rules. Audit contended that EOBI initially invested an amount of Rs1.3 billion in
NIT Equity Market Opportunity Fund (EMOF) which comes to 26% and was
increased to Rs.3,071 million which comes to 37% of the total fund size. The
investment was irregular and unjustified as it was more than 10% of the total
fund size and in violation of EOBI Investment Rules. The DAC directed the
management to submit revise reply to audit by January 24, 2019. However, no
progress was reported till finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.12 Opportunity loss of investment income - Rs. 1,209.89 million

Section-17(1) of Employees Old-Age Benefits Institution (EOBI)

Act1976. The Institution shall have its own fund, to be called the EOBI fund and
may incur out of the Fund such expenditure as may be necessary for the purposes

725
of this Act. Further, in 11th Emergent Meeting held on June 23, 2014 the
chairman EOBI informed that under the EOB Act 1979, the institution cannot
make donation for charitable purpose.

During audit of EOBI for the year 2017-18 it was observed that
management paid an amount of Rs. 1,271.95 million on account of donation to
Pakistan Bait-ul-Mal fund and Prime Minister Fund for flood relief from EOBI
investment account during 2009 to 2012. Later on, EOBI had approached
honorable Supreme Court of Pakistan for refund of EOBI amount. Subsequently,
SCP vide its order dated March 03, 2018 directed to Federal Government refund
the amount to EOBI and Rs.1,250 million were credits into EOBI Account. Audit
observed that had the institute invested the said amount in investment scheme
such as in Special Saving Certificate (SSC) EOBI could earn capital gain
(Annex-50).

Moreover, in response of Court order an amount of Rs. 21.95 million is

still not refunded.

Audit is of the view that donation payments were prohibited by the BoT
and cannot be used for purposed as the amount is trust fund and only for
pensioners. This indicates weak internal controls and poor financial management.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that the
payment of Rs1,271.950 million was made with the approval of the BoT of
EOBI. However, an amount of Rs1,250 million was recovered on the directives
of the Honorable Supreme Court of Pakistan and efforts are under way to recover
the remaining amount. The DAC directed the management that matter of
recovery of remaining amount along with interest from Bat-ul-Mall and NDMA
be pursued vigorously.

Audit recommends implementation of the DAC directives.

726
15.1.4.13 Extra ordinary delay in settlement of pension claims - Rs. 476.217
million

The Section-06.2.1.2.5 of the Operating Manual of Employees Old-Age

Benefits Institution (EOBI) states that:

a. Regional offices to settle all the claim cases within the stipulated time of
45 days. In case of delay, the regional office must inform the insured
person about the reasons for delay in non-settlement of his / her claim
case.
b. All claims should ordinarily be processed in the serial order. Departure
under any special circumstances may only be made by the Regional Head
with full justification thereof.

During audit of Employees Old-Age Benefits Institution (EOBI) for the

year 2017-18, it was observed that 7,559 numbers of pension claims amounting
to Rs. 476.217 million (5,250×7,559×12) were pending in all 39 Regional
Offices. The ageing of these claims were between 1 to 3 years (Annex-51).

Audit is of the view that non-settlement of claims shows poor

performance of regional offices and lack of interest towards the processing of
claim cases.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that 80%
pending cases of pensioners have been cleared and remaining will also be cleared
in due course of time. The DAC directed the management to get the record
verified from audit by January 24, 2019. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

727
15.1.4.14 Loss due to reduction in monthly rent - Rs. 112.694 million
As per clause 2.2 Agency Agreement dated 01st January 2013 between
EOBI and Pakistan Real Estate Investment & Management Company (Pvt.) Ltd.
(PRIMACO). Maintenance of its owned staff and records and separate account
for collection of rent and petty expenditure in respect of the EOBI shopping Mall
and other rental premises building shall be maintained payment of petty expenses
and other monthly bills to the contractors engaged for services in the rental
building shall be paid out of the above account after scrutiny by finance Division
of PRIMACO & verified by Internal Auditor PRIMACO.

During audit of Employees Old-Age Benefits Institution (EOBI) for the

year 2017-18 it was observed that in 2012 the management purchased a building
plot No.5, F-7 Markaz Islamabad measuring covered area 30,100 Sq. Ft. worth
Rs. 1,002 million, from Mr. Abdul Qayuum (land lord). At the time of purchase
of said property M/s MOL was house tenant and were paying rent @ Rs. 212 per
Sq. Ft. w.e.f September 24, 2011 to 23 September, 2012 for one year with 10%
annual increase in the rent. Hence after purchase of building of Mr. Syed Iqbal
Haider Zaidi (officiating Director General operation) EOBI entered in to a new
tenancy agreement on behalf of EOBI with same House tenant M/s MOL on 10th
September 2012 for one year w.e.f September 23, 2012 to September 23, 2013 on
same terms and conditions which were agreed with previous land lord Mr. Abdul
Qayuum.

Moreover, in January 2013 management entered into a further tenancy

agreement with M/s MOL for four years before expiry date of previous
agreement and also reduce their rate of rent from Rs. 212 per Sq. Ft. to Rs. 180
per Sq. Ft P.M. Resulting into institute suffered a loss of Rs.112.694 million
(Annex-52).

Audit is of the view that undue favour was extended to the tenant by
reducing the rent instead of increasing 10% PA. This indicates weak internal
controls and poor financial management.

728
 The matter was reported to the management in November, 2018. DAC
meeting was held on January 17 & 18, 2019. The management informed that
currently rent in the surrounding properties of similar nature stands between
Rs.140 to Rs.180 sq. ft. while consequent to the 10% annual increases in the rent
of this property, its rent has increased to Rs264/ per sq. ft. (From 170 per sq. ft.)
as on 30-06-2018. The DAC directed the management to refer the case to
Ministry for constituting Inquiry Committee and evaluation of rent agreement.

Audit recommends implementation of the DAC directives.

15.1.4.15 Non-completion of construction of residential building at Sialkot –

Rs. 67.375 million

The provisions of the Section-4.1 of the Agency Agreement dated June

29, 2007 between Pakistan Real Estate Investment & Management Company (the
Agent) and EOBI (the Principal) states that the Agent shall be liable to implement
the projects assigned by the Principal as per time limits and budget approved by
the Principal.

Rule-23 of GFR provides that every Government officer should realize

fully and clearly that he will be held personally responsible for any loss sustained
by Government through fraud or negligence on his part.

During audit of Employee’s Old Age Benefits Institution (EOBI) for the
year 2015-16 it was observed that, Pakistan Real Estate Investment Management
Company (Pvt) Ltd. (PRIMACO), subsidiary of EOBI awarded a contract for
construction of Residential Building at Plot No. 58A & 58B, Sabir Kamal Road
Sialkot (EOBI Project) to M/s Sultan & Sons on December 26, 2012 at a total
contract price of Rs. 58.275 million. As per contract agreement, the completion
date of the project was March 26, 2014. M/s ESS.I.AAR was appointed as a
Consultant on August 15, 2012 at a total contract price of Rs. 9.100 million. The
consultant was responsible for Survey, Feasibility study, Architecture

729
 & Engineering design, construction management & detail supervision of the
subject project. Following discrepancies/irregularities were noticed in project:-

i. The contractor and consultant failed to complete the project in the stipulated
period of time. It was due to contractor & consultant negligence, casual
attitude, poor planning and lack of interest towards quality execution. At
present, the project is still in abandoned and only 45% of the project is
completed despite of lapse of 29 months over actual date of completion.
ii. All the claimed monthly payments of consultant & contractor were paid
regularly for assuring smooth financial facilitation in the best interest of the
project. But they did not even meet the project deadlines, which resulted in
failure of project completion and EOBI was deprived from likely rental
revenue due to non-completion of the project in time.
iii. The contractor has been paid an excess amount of Rs. 2.2 million against
steel.
iv. The total cost for appointing the consultant for the project was 9.100
million which was 15.61% of the total construction cost. The same was very
high as compared to the normal consultancy fee for same nature of project.
Rs. 5.923 million have been paid to the consultant until now. This huge
amount was paid to consultant for ensuring the time quality & cost matrices
of the project, but the consultant failed to deliver.

Audit is of the view that, due to negligence and ill planning of

M/s PRIMACO, the contractor and consultant failed to complete the project in
the stipulated period of time and only 45% of the project is completed despite of
lapse of 29 months over actual date of completion. Audit also holds the view that
due to abandon of the project, the EOBI funds amounting to Rs. 67.375 million
(Rs.58.275 million + Rs.9.100 million) were not only blocked but also EOBI has
been deprived from rental revenue.

The matter was reported to the management in October, 2016. DAC

meeting was held on January 17 & 18, 2019. The management informed that the
project has been taken back by the PRIMACO from contractor on 31 July, 2018.

730
The matter is subjudice in the Lahore Civil Court due to litigation initiated by the
Contractor besides inquiry by FIA. Preparation of PC-1 for completing the
remaining work is under progress which will be submitted to the BoT for
approval in its next meeting. The DAC directed the management to furnish
payment detail of 45% completed work to the Ministry and the audit. The DAC
further directed the management to revise the reply and furnish the same to audit
by 24 Jan, 2019. However, no progress was reported till finalization of this
report.

Audit recommends implementation of the DAC directives.

15.1.4.16 Loss of contribution income due to less assessment of registered

employees - Rs.58.673 million

As per clause-12(3) 05.4.1.8 Issuance of Employees’ Old-Age Benefits

Institution (EOBI), Act, 1976 According to the law, there can be following
situations for assessment of contribution. Further, Section 12 (3) where
assessment is made on the basis of information furnished by the employer or
books of accounts and the employer raises no objection. In the first situation, the
authorized officer determines contribution on the basis of information called by
him and no dispute is raised hence, it may be called an “Admitted Assessment”
where no objection is raised. For such assessment format 002.1 has been
prescribed.

During audit of EOBI, RO Sukkur for the years 2016-17 & 2017-18 it
was observed that management assessed and registered 263 employees instead of
actual employees 4,651 were working in five sugar mills. Resultantly EOBI
sustained loss of Rs.58.673 million on account of collection of contribution
(Annex-53).

Audit is of the view that short assessment of employees caused loss to the
institute which indicates weak internal controls and poor financial management.

731
 The matter was reported to the management in September, 2018. DAC
meeting was held on January 17 & 18, 2019. The management informed that
actual numbers of insured persons registered with EOBI are more than as
reported by the audit. The DAC directed the management to provide all the
relevant record of insured person of 05 entities in question to audit for
verification till 24 January, 2019. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.17 Non-recovery of outstanding rent and utility charges - Rs.54.854

million

As per Clause 1.2 of Agency Agreement between Employees’ Old Age

Benefits Institution (EOBI) and Pakistan Real Estate Investment and
Management Company (Pvt.) Limited (PRIMACO), the PRIMACO shall be
responsible for running all rental properties of the EOBI Rent and security
deposit collected from tenants of the buildings shall immediately be deposited
into the EOBI bank account, the EOBI shall pay service charges equal to 2% of
the rent collected. Further, clause-3.5 of the standard rent agreement states that
utility bills including electricity charges is the exclusive responsibility of the
leasee on the due date.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2017-18, it was observed that an amount to Rs. 54.854 million was
outstanding on account of Rent and Electricity charges against the tenant as on
June 30, 2018.The detail is as under:

Sr. Outstanding
Name of Building
No. Amount (Rs.)
1. EOBI, House Peshawar 1,388,456
2. EOBI Reginol Office Karachi 605,452
3. Danish Group (Ex-AwamiMarkaz Karachi. 19,876,454
4. Government Agencies (Karachi) 4,628,195
5. EOBI Building, Nazimabad Karachi 4,400
732
 6. EOBI House 7-N PECHS, Karachi 1,260,250
EOBI House (Awami Markaz) Karachi.
7. 27,090,742
(Annex-54)
Total 54,853,949

Audit is of the view that it was responsibility of PRIMACO to recover the

outstanding rent and utility charges from the tenants on monthly basis but the
management failed to recover the rent charges. This shows poor performance and
in-efficiency of the management.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that an
amount of Rs. 4.100 million has been recovered whereas, cases at Sr. No. 3 & 6
are under litigation. For remaining cases efforts are under way to recover the rent
amount. The DAC directed the management to pursue the court cases &
recoveries vigorously.

Audit recommends implementation of the DAC directives.

15.1.4.18 Non-recovery of Contribution from M/s. Kiran Sugar Mill -

Rs. 38.38 million

As per clause-05.11 (a) of Employees’ Old-Age Benefits Institution

(EOBI) Operating Manual, all the Regional Heads have been invested with the
powers of Assistant Collector, (Grade-1) to recover the arrears of contributions as
arrears of Land Revenue.

During audit of EOBI, Sukkur for the years 2016-17 & 2017-18 it
was observed that M/s. Kiran Sugar Mills (Pvt). Ltd was registered with the
EOBI in July 1993. However, employer did not pay monthly contribution till the
year 2005. The employer paid contribution from 2006 to 2008 and again stopped
the payment for contribution. However, the management failed to initiate any
concrete efforts toward recovery. Resulting in non-recovery of contribution
amount to Rs.38.380 million (Annex-55).
733
 Audit is of the view that non-recovery of contribution shows poor
financial management toward recovery which indicates weak internal controls.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
recovery proceedings against M/s Kiran Sugar Mills (Pvt) Ltd are in progress and
demand & show-cause notice under section 83 of Land Revenue Act has already
been enforced. Out of total assessed amount, an amount of Rs.4.791 million has
been recovered so far. For the remaining amount, due course of action is being
followed as per law. Audit contended that M/s. Kiran Sugar Mills (Pvt). Ltd was
registered with the EOBI in July 1993. However, employer did not pay monthly
contribution till 2005. The employer paid contribution from 2006 to 2008 and
again stopped the payment for contribution. An amount of 38.38 million is
outstanding against the Mill. The DAC directed the management to revise the
reply and furnish the same to audit by 24 Jan, 2019. However, no progress was
reported till finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.19 Loss of rental income due to non-renting out of vacant spaces -

Rs. 38.28 million

As per Clause 1.2 of Agency Agreement between Employees’ Old Age

Benefits Institution (EOBI) and Pakistan Real Estate Investment and
Management Company (Pvt.) Limited (PRIMACO), the PRIMACO shall be
responsible for running all rental properties of the EOBI Rent and security
deposit collected from tenants of the buildings shall immediately be deposited
into the EOBI bank account, the EOBI shall pay service charges equal to 2% of
the rent collected.

During audit of Employees Old Age Benefits Institution (EOBI) for the
year 2017-18, it was observed that area of 44,029 sq. ft. in EOBI buildings

734
remained vacant as on June 30, 2018.Resultantly EOBI sustained a loss of rental
income Rs. 38.28 million. The detail is as under:

Vacant Area Rate per

S. Total Area (as on 30-06- Sq. ft Rent
Name of Building
No. (Sq. ft) 2018) (Avg.) (Rs.)
(Sq. ft) Rs.
1. EOBI, Islamabad 93,663 12,710 152.50 1,938,275
2. EOBI, Ex-AwamiMarkaz, Karachi 96,379 25,375 45.0 1,141,875
3. EOBI Building, Malir Karachi 24,078 2,550 17.50 44,625
4. EOBI Building, Nazimabad Karachi 24,078 2,550 17.50 44,625
5. Gul Tower. I.I. Chudrigar Road, Kar. 844 844 25.0 21,100
251,882 44,029 3,190,500
Total Loss of Rental Income (Per month) 3,190,500
Total Loss of Rental Income (Rs. 3,190,500* 12 months) 38,286,00

Audit is of the view that non-renting out area of vacant space shows poor
performance and in-efficiency of the management.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
space mentioned at Sr.No.01 as pointed out in audit para has been rented out.
Efforts are under way for renting out the remaining buildings/space. The DAC
directed the management to get the record of space rented out be verified from
audit. DAC further directed to expedite the efforts for renting out the remaining
buildings. However, no progress was reported till finalization of this report.

Audit recommends implementation of the DAC directives.

15.1.4.20 Loss due to retaining of shares transferred through plea bargain -

Rs.25.269 million

Finance Division through its OM dated July 02, 2003 issued instructions
for investment of surplus funds of the public sector enterprises. Para-5(b) of this
OM requires that “Public units should have a total return comprising the dividend
paid and appreciation in value, which exceeds the average six months’ Treasury

735
bill rate for the last three years. The formula for the calculation of the total return
would be provided by the SECP from time to time.”
During audit of Employee Old Age Benefit Institution (EOBI) for the year
2015-16, it was observed that in EOBI, the Federal Investment Bonds (FIBs)
amounting to Rs.1, 033.89 million were embezzled in the year 2000. The matter
was investigated by the National Accountability Bureau (NAB). The accused
approached NAB for settlement / plea bargain by surrendering certain properties /
assets worth Rs.804.926 million including shares of various listed companies in
September 2003. It was observed that the shares received in the year 2003 were
retained by the management till to date and then market value depreciated. This
resulted into loss of Rs.25.269 million. The details are as under:
Shares transferred through
Position as on 30-06-2016 Loss
NAB in September 2003
Name of the Value Market
Total Total
Company Total No. Rs. No. of Price Rs. in
value Rs. Market
of Shares per Shares Per million
in million value
share Share
1 2 3 4=(2x3) 5 6 7=(5x6) 8=(4-7)
Tele Card 401,600 13.00 5,220,800 401,600 3.06 1,228,896 3,991,904
Investment
Capital
4,246,917 6.10 25,906,194 4,246,917 1.09 4,629,140 21,277,054
Investment
Bank
Total 31,126,994 5,858,036 25,268,958

Audit is of the view that the shares of the above stated companies should
have been off loaded in favorable conditions to make the loss good. Instead of
doing so, the management retained the shares unnecessarily since 2003 to 2016
for 13 years and sustained loss of Rs. 25.269 million.

The matter was reported to the management in September, 2016. DAC

meeting was held on January 17 & 18, 2019. The management informed that
Audit picked up Telecard & ICIBL (plea bargain proceeds) having cost of
Rs31.126 million (0.1842%) out of 16.898 billion portfolio, and neglected the
fact that no equity portfolio in the world contains all shares at profit. The DAC
directed to place the matter before PAC.
736
 Audit recommends fixing of responsibility on the person(s) at fault.

15.1.4.21 Loss due to award of contracts at higher rate - Rs. 13,730.122 million
Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,
2013 stats that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the
Public-Sector Company, which may include the Procurement of goods and
services so as to enhance transparency in procurement transactions, marketing of
goods to be sold or services to be rendered by the Public-Sector Company.
Further, Construction material prices and labor cost in Islamabad, Pakistan the
construction charges with material depends upon the material quality Like we
have rates of LOW Quality material 1200 per square feet and high-quality
material 1700 per square feet and without material 210 per square feet including
Plumbing, marble, and electric works.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 201617 it was observed that management
awarded contracts of four project at a very high plinth area rate that incurred loss
of Rs.13,730.122 million to EOBI. The construction/plinth rates are much higher
than prevailing rates in the area. Estimates were not determined from PWD rates
or even the cost of similar buildings having similar specifications, heights;
construction and locality were also not surveyed for estimation. The detail is as
under:

Constructi
Plinth on cost (as
Covered Construction Excess
Area per
Area cost(as per Payment
Name of Project Rates Market
Sq.ft. LOA) (Rs. in
Sq.ft. Rate
(Rs.) (Rs.) million)
(Rs.) Rs.2000
per Sq.ft)
OEC Tower, Sector G- 9/4, 208,920 8,875 1854.165 417.840 1436.325
Islamabad
Construction of Multipurpose 329,537 9,286. 3060.080 659.074 2401.006
Cineplex & Commercial
Complex, Sector I-8/3,
Islamabad
737
Construction of SERENA Hotel 1,097,907 10,189 11186.574 2195.814 8990.76
& Mixed-Use Development
Project, Lahore.
EPC of Mixed Use Development 116,647 9,733 1135.325 233.294 902.031
& Commercial Complex, Johar
Town, Lahore
Total Excess 13,730.122

Audit is of the view that the management did not follow PWD schedule
rates or current market rates of similar constructions which resulted loss to EOBI.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 17 & 18, 2019. The management accepted the
contention of audit therefore, DAC directed to place the para before PAC.

Audit recommends investigation in the matter with a view to fix

responsibility on the person (s) at fault.

15.1.4.22 Loss due to award of contract at increased cost - Rs.452.000 million

According to the Clause-1.6 of Schedule-1 of the Agency Agreement

dated June 29, 2007 between Pakistan Real Estate Investment & Management
Company (the Agent) and EOBI (the Principal), the services to be provided by
the Agent includes monitoring the physical and financial progress of the projects
through specially created Project Monitoring Units.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 2016-17 it was observed that management
awarded construction work of Multi-purpose Cineplex and Commercial project
@ I-8 Markaz Islamabad to M/s Nigro-Skyways- JV at cost of Rs.2,892 million.
This was Rs.452 million higher than the original total estimated cost prepared by
engineers in March 2013.

Audit is of the view that the management awarded the contract at high
rate/cost without due diligence and taking into account the market rates/PWD
rates.
738
 The matter was reported to the management in May 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit therefore, DAC decided to place the para before PAC.

Audit recommends investigating the matter with a view to fix

responsibility on the person (s) at fault.

15.1.4.23 Irregular payment of secured advance - Rs. 159.036 million

As per clause – 3 of the additional terms and conditions of contract the

secured advance against the materials @ 75% of the market value of material
brought at sight required for project, shall be admissible to the contractor on
certification by the engineer in-charge that the material/materials qualify the laid
down specifications and necessary tests. No such advance is payable against the
perishable materials. The sum so paid shall be recovered from the running bills of
the contractor proportionate to the materials consumed.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 2016-17 it was observed that management
paid secured advance amounting to Rs.159.036 million to M/s Bhalli
Construction for construction of Commercial Complex at Johar Town Lahore, for
procurement of local and imported equipment i.e. Generators, lifts, HVAC,
protection of piles ceiling and other works without obtaining above mentioned
certification from the Engineer in-charge.

Audit is of the view that management extended undue favor to contractors

by awarding secured advance without observing required certificate of the
Engineer.

The matter was reported to the management in May 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit therefore, DAC directed to place the para before PAC.

739
 Audit recommends investigating the matter with view to fix responsibility
on the person(s) at fault.

15.1.4.24 Loss due to commencement of work without approval of building

plan Rs.93.00 million

Lahore Development Authority (LDA) is responsible for new planned

development in Lahore, Punjab, Pakistan. It is also responsible for the regulation,
issuance and permissions for new construction projects, private and commercial
development. When a person or an entity plans to construct a building, he has to
go through certain verification processes; following is a list of requirements as
mentioned by LDA:

i. Submit application along with copy of ownership certificate.

ii. Copy of CNIC.
iii. 4 original copies of building plan drawing along with A.B Form issued by
an architect & copy of physical possession certificate.
iv. After issuance & submission of building plan fee challan, applicant has to
submit application along with copy of paid challan & CNIC.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 2016-17 it was observed that management
started construction work of Mix Use Development Commercial Complex Project
Johar Town on Plot No.63A Block-25 trade phase-II M.A Johar Town without
approval of building plan from Lahore Development Authority. After the
completion of excavation work at required level Rs.93 million, contractor was
instructed by the management to suspend the work on plot No.63A and start work
on an-other Plot No.66 Johar Town phase-II Lahore which resulted in loss of
Rs.93.00 million.

Audit is of the view that due to negligence of the management EOBI

sustained loss of Rs.93.00 million.

740
 The matter was reported to the management in May, 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit therefore, DAC directed to place the para before PAC.

Audit recommends investigating the matter with a view to fix

responsibility on the person (s) at fault.

15.1.4.25 Irregular payment of legal fees at exorbitant rates - Rs.44.583 million

According to Ministry of Law, Justice and Human Rights letters dated

Feb 24, 2009 and Jan 13, 2010, no legal advisor, advocate or consultant shall be
appointed or engaged by the department, without prior approval of the Ministry.
The Ministry further directed that no department, Government/Semi Government
or Public Corporate body would pay to their council/legal advisor fee exceeding
Rs. 100,000 including cumulative fee of similar or connected cases without prior
intimation and approval of the Ministry.

During audit of Employees Old Age Benefits Institution for the year
2015-16, it was observed that EOBI engaged 18 advocates / counsel in different
court cases during the period of Ex-Chairman Mr. Zafar Iqbal Gondal from
January 2010 to April 2013 at exorbitant rates and without approval of the
Ministry of Law, Justice and Human Rights. The consolidated fee paid to these
18 lawyers was Rs. 44.583 million (Annex-56).

It was also observed that there was no criterion for fixation of fees. Cases
were assigned to the advocates without any criteria as per demand of lawyers at
the exorbitant rates since there is wide difference between fees of different
lawyers in similar nature cases. Even same lawyer was paid at different rate of
fees in similar nature cases. Moreover, fees were paid 100% in advance whereas
cases are pending in courts since many years.

The Prime Minister’s Office vide their letter dated October 10, 2013 and
October 25, 2013 directed the EOBI to furnish the detailed report in the matter. In

741
response, the EOBI informed Prime Minister’s Office on October 28, 2013 that
the payment of Rs. 44.583 million as legal fee was made to various lawyers / law
chambers during the period of Ex-Chairman Mr. Zafar Iqbal Gondal without
approval of the Ministry of Law & Justice as was required under the policy. All
these irregular payments made to different lawyers / law firms are being referred
to Ministry of Law for advice guidance to initiate appropriate action.

The matter was reported to the management in August 2016 and

November, 2018. DAC meeting was held on January 17 & 18, 2019. The
management informed that the Honorable Supreme Court in a suo-moto action
vide SMC No. 04/2016 directed the Federal Govt. that for the purpose a clear
policy and/or law should be notified in this regard. Therefore, in view of the
above directives, EOBI cannot be held accountable for any violation of such
notification since the same is held ambiguous. The DAC directed the
management to refer the case in the light of Honorable Supreme Court judgment
to Law Division for formulation of clear policy / law regarding applicability of
such notifications on the federally administered and financially controlled
departments including EOBI.

Audit recommends implementation of DAC directives.

15.1.4.26 Irregular payment of variation order - Rs.17.609 million

As per Section-44 (b) of S.R.O. 438 (1)/77, dated 12th May 1977, the
Employees’ Old-Age Benefits Act, 1976 (XIV of 1976), Board of Trustees under
Employees' Old-Age Benefits Rule 1977, have powers to approve extraordinary
expenditure not included in the approved budget for submission to the Federal
Government when it appears to the Board that such expenditure is justified.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 2016-17 it was observed that in April 2012
management issued two variation orders in respect of construction of Hotel

742
Serena Lahore Rs.2.7 million and Rs.14.909 million without approval of the BoT.
This resulted into irregular payment of Rs.17.609 million.

Audit is of the view that management extended undue favor to contractors

by making variation order payment without approval of BoD.

The matter was reported to the management in May, 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit. The DAC directed to place the para before PAC.

Audit recommends investigating the matter with view to fix responsibility

on the person(s) at fault and ex-post facto approval may also be obtained from
BoT.

15.1.4.27 Loss due to non-transferring of land in the name of EOBI -

Rs. 110.650 million

Rule-23 of GFR provides that every Government officer should realize

fully and clearly that he will be held personally responsible for any loss sustained
by Government through fraud or negligence on his part.

During audit of Employees’ Old-Age Benefits Institution (EOBI) for the

year 2015-16, it was observed that EOBI purchased 1,048 Kanals Agricultural
Land at Mauza Niaz Beg Multan Road, Lahore, through open auction from
Punjab Cooperative Board Limited (PCBL) in the year 2006 at a cost of
Rs. 1,026.202 million (including transition cost). Out of 1,048 Kanals, 935
Kanals land had been transferred to the EOBI and out of which only 810 Kanals
and 11 Marlas was mutated in the name of the EOBI. 112 Kanals and 17 Marlas
of Rs. 110.650 million were not transferred in the name of EOBI since its
purchase.

The matter was also discussed in 242nd meeting of Investment

Committee held on July 08, 2015, the Committee was informed by CEO,

743
Pakistan Real Estate Investment & Management Company (Pvt.) Ltd.
(PRIMACO) regarding illegal encroachments on the said land and also informed
that complicity between the encroachers and the ex-officials of PRIMACO
cannot be ruled out. The Committee after deliberation recommended that
M/s PRIMACO may initiate legal action for retrieval of the land from
encroachers. Disciplinary and legal action may be initiated against those officials
of PRIMACO / EOBI who are found complicit with encroachers.

Audit is of the view that despite the lapse of more than 10 years, the
whole land purchased from PCBL could not transfer in the name of EOBI. The
encroachment was result of poor monitoring of the property and collaboration
between the encroachers and the ex-officials of PRIMACO.

The matter was reported to the management in September, 2016 and

November, 2018. DAC meeting was held on January 17 & 18, 2019. The
management informed that land is not in one chunk. Out of 112 Kanals, 98
Kanals and 17 Marla has been cleared and demarcation with the assistance of
Revenue Board has been made. The DAC directed the management to get the
record of cleared land verified from audit within one week. DAC further directed
to hold fresh fact finding inquiry by the Ministry and EOBI and submit its report
to Ministry and audit. However, no progress was reported till finalization of this
report.

Audit recommends implementation of the DAC directives.

15.1.4.28 Wasteful expenditure on purchase of diesel generator - Rs.25.00

million

Rule-5 of the Public-Sector Companies (Corporate Governance) Rules,

2013 states that, the Board shall exercise its powers and carry out its fiduciary
duties with a sense of objective judgment and independence in the best interest of
the company. The Board shall also formulate significant policies of the Public-
Sector Company, which may include the Procurement of goods and services so as

744
to enhance transparency in procurement transactions, marketing of goods to be
sold or services to be rendered by the Public-Sector Company.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 2016-17 it was observed that management
paid an amount of Rs.25 million to the M/s Builder Associates Limited for
purchase of diesel generators beforehand of the OEC project completion. The
generators are on the site and idle for many years with expired guarantee/
warranty period.

Audit is of the view that payment for purchase of set of generators before
completion of the work is total wasteful expenditure.

The matter was reported to the management in May, 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit therefore, DAC directed to place the para before PAC.

Audit recommends implementation of the DAC directives.

15.1.4.29 Loss due to unjustified revision rates - Rs. 22.991 million

As per Rule-6 (g), Powers and functions of the Board of Trustees of the
Employees’ Old-age benefits (Board of Trustees) Rules, 1977 that the order
investment and disinvestment in real estate where the investment exceeds Fifty
Lac Rupees.

During audit of PRIMACO, for the year 2016-17 it was observed that in
September 2013 the Ex-CEO of the company approved variation of costly items
pertaining to architectural finishes with already approved items vide variation
order No.2 pertaining to OEC Tower without any justification and without the
approval of BoD/BoT which resulted loss of Rs.22.991 million (Annex-57).

745
 Audit is of the view that management extended undue favor to the
contractors by making unjustified revision in façade without approval of
BoT/BoD.

The matter was reported to the management in May, 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit therefore, DAC decided to place the para before PAC.

Audit recommends implementation of the DAC directives.

15.1.4.30 Unauthorized/Unjustified procurement of Crane - Rs.10.50 million

As per section-44 (b) of S.R.O. 438 (1)/77, dated 12th May 1977, the
Employees’ Old-Age Benefits Act, 1976 (XIV of 1976), Board of Trustees under
Employees' Old-Age Benefits Rule 1977. The Board shall have powers to
approve extraordinary expenditure not included in the approved budget for
submission to the Federal Government when it appears to the Board that such
expenditure is justified.

During audit of Pakistan Real Estate Investment & Management

Company (PRIMACO), for the year 2016-17 it was observed that management
released Rs.10.5 million for procurement of third tower crane for hotel project
Lahore without approval of BoT and without justifying the expenditure. Thus the
payment of Rs.10.50 million was held as unjustified.

Audit is of the view that procurement of crane without approval of BoT

shows poor financial management and weak internal controls.

The matter was reported to the management in May 2018. DAC meeting
was held on January 17 & 18, 2019. The management accepted the contention of
audit. The DAC decided to place the para before PAC.

Audit recommends investigating the matter with view to fix responsibility

on the person(s) at fault and post facto approval may also be obtained from BoD.
746
15.1.4.31 Loss due to expiry of the Bank guarantee - Rs. 4.935 million

As per Performance Bank Guarantee No. MD-1102700007 dated of

March 5, 2010 and addendum date 26th April, 2011 an amounting to
Rs. 4.935million made between the EOBI and M/s Cummins Sale & Services
Pakistan Ltd. (Supplier) the guarantee shall remain valid and in full force and
effect until EOBI shall have notified us in writing that the supplier has performed
all its obligations and discharged all its liabilities under or relating to the
Agreement, following with this guarantee shall be returned to us for cancellation.

During audit of Employees Old-Age Benefits Institution (EOBI) for the

year 2017-18 it was observed that management invited bids in November 2009
for the supply, installation, commissioning and testing of 350 KVA/280 KW
standby diesel generators for head office. In response three firms submitted their
bids. M/s Cummins Sales & Services Pakistan Ltd. (Supplier) was declared
successful being the lowest. Accordingly, a work order was issued on March 05,
2010 with start of execution of the work within 3 months. The company accepted
the work order dated March 09, 2010 and submitted work schedule and bank
guarantee of Allied Bank Ltd worth Rs. 4.355 million which was not entertained
by the management. The company also requested to EOBI for 100% advance
payment against bank guarantee. EOBI agreed and released full payment in
advance Rs. 4.935 million on the basis of new bank guarantee of M/s Allied bank
Ltd. Which was only valid for 3 months i.e. 27-01-2011 to 26-04-201. As the
Generator was not received till the expiry of Bank Guarantee, the same was
further extended from 26-04-2011 to 25-07-2011. But still he failed to supply the
Diesel Generator and no any action was taken against supply as well as
concerned officers/officials. Resultantly, the management was not in a position to
encash the Bank guarantee. It was observed that the original bank guarantee
without being encashed was still lying with the management till the time of audit.

Audit is of the view that undue favour was extended to the supplier as
bank guarantee was required to be encash without any question and without any
reference to the firm irrespective of any dispute; however, on default of the firm,
747
 the management could not encash the bank guarantee due to its expiry which was
loss to EOBI and gross negligence on the part of the management.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that said
case has been referred to FIA for investigation and recovery of amount. The DAC
directed the management to pursue the case with FIA and informed progress to
audit and the Ministry. However no progress was reported till finalization of this
report.

Audit recommends implementation of the DAC directives.

15.1.4.32 Insufficient balance to pay-off pension benefits in future

The prime objective of Employees’ Old-Age Benefits Institution (EOBI)

is to provide security and financial benefit in terms of pensions to Pakistani old
age persons employed in industrial, commercial and other establishments.

Audit observed in view of following results of management practices that,

the Employees’ Old-Age Benefits Fund (EOB Fund) will not be able to discharge
its obligations in future being insufficient for future pension liabilities.

i. The average rate of interest yielded by the assets whether invested or not,
constituting the fund has declined from 10.95% to 8.44% from 2012-13 to
2017-18, respectively this decline obviously affected the growth of the
fund.
ii. Lack of data accuracy, resulting unaccounted Contribution Receivable and
Pension Payable, to foresee its liability and assets for management purpose.
iii. Inability of EOBI to ensure completeness of Registered Employers and
Insured Persons, resulting short collection of contribution than it’s actual.
iv. Significant rise in the level of inflation.
v. Accelerated increase in number of pensioners in coming years.

748
 The Actuarial Valuation of EOBI Fund as at June 30, 2017, based on the
main valuation basis, i.e. the moderate inflation assumption, the valuation
indicates that the Fund would start depleting from the year 2021 and will exhaust
in the year 2027. Based on the main valuation basis i.e. the current scenario, the
valuation indicates that the fund would start depleting from the year 2021 and
will become negative in the year 2029. Under high inflation assumption, the fund
would start depleting from 2021 and would become negative in the year 2029.
The fund would start depleting after 04 years from the valuation date which is
very alarming.

The actuarial report also pointed out the following deficiencies on the part
of the management for which position may be elucidated:
i. The current rate of Employer’s contribution is 5%of wages and
employee contribution as at 1%. The amount of contribution in
respect of an IP is Rs.650/- per month from employer side and
Rs.130/- from employee side. It is based on monthly wages of
Rs.13,000 per month. However, on average, it’s around Rs. 8,250/-
per month and that makes contribution of Rs. 412/- from employer
and Rs. 83/- from employee per month. whereas on the benefit side,
an employee with 30 years of insurable service will get a pension of
Rs. 5,250/- p.m. where as previously he was getting Rs. 3,600 p.m.
Furthermore, the increase in minimum pension as of April 01, 2015
and increase in monthly pension by 7.8% resulted in a further strain
on the fund.
ii. The last three years witnessed (a) moderate increase in the inflation
rate and (b) a gradual decrease in the return on the long & short term
investments. The average return earned by the fund over the last 05
years is around 9.39% p.a and out of that the last year return earned
was 8.47%. The average inflation over the period of last 05 years
was 4.0% per annum.

749
 iii. It should be noted that the existing fund is insufficient itself by a
substantial margin and therefore, the reserve fund for contingency
allowance seems to be a secondary objective.
iv. Only cash flow projections were carried out after every three (03)
years or so but no calculation of Fund’s liability as at any date has
been made.
v. Lack of accurate, comprehensive and verifiable date was a major
issue faced for valuation purpose;
vi. Under the present structure of scheme, the contributions and
investment income thereon are insufficient to pay the full benefit.

In view of the above results of management practices, the Fund will not
be able to discharge its obligations in future being insufficient for future pension
benefits. Furthermore, the Employers continue to deposit the contribution on old
rate (i.e. Rs.480) instead of new rate (i.e. Rs.600, Rs.720 and Rs. 780) during the
period from July 2013 to June 2016, whereas the management has been paying
the minimum pension from Rs. 3,600 to Rs. 5,250 w.e.f April 01, 2015 to the
pensioners.

The matter was reported to the management in November, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
Actuaries reports are not providing correct position however, latest (2017)
actuarial report has been presented to CCI and Supreme Court in the Suo moto
cases. The DAC directed the management that operations of the organization
should be managed in such a way that organization be able to meet its objectives.

Audit recommends implementation of the DAC directives.

15.1.4.33 Double Payment of Pension to Widows

As per clause-22(B) of Employees’ Old-Age Benefits Institution (EOBI)

Act-1976 “Benefits” sub-clause-(3) in the case of the death of an insured persons
who had become entitled to Old-age pension or invalidity pension, before his

750
death, the surviving spouse shall, if the spouse had married the deceased person
before he had attained the minimum age prescribed for old-age pension, receive a
life pension equal to the pension of such person.

During audit of EOBI Sukkur RO for the years 2016-17 & 2017-18 it was
observed that management paid double pension to the widows of pensioners
instead of sharing equal portions of pensions between them against the same
claim numbers in violation of above rule. The details of some instances are as
under:
Last Claim paid
Sr. Name of
CNIC Claim No. during the month
No. Pensioner
of February, 2018
1. Husna Khatoon 45402-0904088-8 EAW01007 5,250
Mst. Maqsoodan 45402-0970781-6 EAX01007 5,250
2. Husna Khatoon 45204-1481256-0 EAW01268 5,250
Aamanat 45204-1481261-2 EAW01268 5,250
3. Husna Khatoon 43104-0539796-8 EAW01556 5,250
Asia Bibi 43504-0575870-8 EAW01556 5,250

Audit is of the view that the record of pension disbursement data was not
reconciled with banks which indicates poor financial controls.

The matter was reported to the management in September, 2018. DAC

meeting was held on January 17 & 18, 2019. The management informed that
duplicate amount is being recovered by stopping the pension. The DAC directed
the management to carry out the exercise in all the Regions to deduct such cases
and share the results with audit and the Ministry besides, recovery of the amount.
Audit recommends implementation of the DAC directives.

15.1.4.34 Non-compliance of Prime Minister’s directives regarding verification

of degrees
Cabinet Secretariat, Establishment Division (Management Services Wing)
through its D.O. No. 6(28)2011-DG-II, dated March 08, 2011 informed that the
Prime Minister has been pleased to direct that measures should be taken to

751
authenticate degrees / certificates of all Federal Government employees of the
respective Ministries / Divisions, their attached departments, subordinate offices
and autonomous bodies under their administrative control. The verification
process may be initiated by the respective Ministries / Divisions and Heads of
autonomous / semi-autonomous organizations at their own, and it will be the
responsibility of concerned Secretary and Head of the Department / Organization
to have the degree/ certificates verified.

During audit of Employee Old Age Benefit Institution (EOBI) for the year
2015-16, the management was requested to furnish the detail of verification of
degrees of EOBI Employees carried out by management in the light of directives
of Prime Minister. The management informed in compliance with the directives
issued by the Federal Government, in the first instance 345 numbers of
degrees/certificates were forwarded to different universities/institutions for
verification and received back only six verified degrees. Due to slow response,
reminders were again sent to all universities/institutions and out of them only
three responded with the request that they will not be able to verify such degrees
until its fee is paid. The contention of the management was not acceptable as the
Cabinet Secretariat, Establishment Division issued the directives of Prime
Minister on March 08, 2011 but despite lapse of more than five year the
management failed to comply with the directives of the Prime Minister.

The matter was reported to the management in October, 2016 and

November, 2018. DAC meeting was held on January 17 & 18, 2019. The
management informed that out of 418 degrees, 301 has been got verified.
Degrees of 03 persons were found bogus and remaining 114 degrees are under
process for sending the same to the concerned Universities / Institutions. The
DAC directed the management to get the record verified from audit and pursue
the remaining cases vigorously. However, no progress was reported till
finalization of this report.

Audit recommends implementation of the DAC directives.

752
15.2 Overseas Employment Corporation (Pvt.) Limited

15.2.1 Introduction

Overseas Employment Corporation (Private) Limited was incorporated in

July 1976 with 100% shares held by the Government of Pakistan. The registered
office of the Corporation is situated at Zero Point Islamabad. The main business
of the Corporation is to promote employment for Pakistanis in foreign countries
through recruitment of manpower and to run business of travel agency.

15.2.2 Comments on audited accounts

15.2.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.
15.2.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

15.2.2.3 Working results of the Corporation for the year 2016-17 as compared to
previous years are as under:
(Rs in million)
% Inc/ % Inc/
2016-17 2015-16 2014-15
(Dec) (Dec)
Revenue income
Service charges from :
Selectees 33.41 (42.97) 58.58 38.62 42.26
CV on line 2.09 (65.05) 5.98 (75.16) 24.07
Korean Business
Korean Language training fee 9.52 69.70 5.61 1.81 5.51
Marketing service and education
6.19 30.056 8.85 5.48 8.39
charges
Examination fee Korea 0.72 18.03 0.61 (67.03) 1.85
Pre-registration Kore 44.03 - - -

753
 Travel Agency Commission 0.49 (39.51) 0.81 (69.55) 2.66
Total revenue 96.46 19.92 80.44 (5.06) 84.73
Operating Cost 108.72 6.82 101.78 6.13 95.90
Operational (Loss)/Profit (12.33) (42.38) (21.40) 91.05 (11.17)
Financial charges 0.07 16.67 0.06 (64.71) 0.17
Other income 15.02 (46.98) 28.33 123.60 12.67
Profit (loss) before taxation 2.70 (61.04) 6.93 417.16 1.34
Taxation 2.53 (20.94) 3.20 (26.77) 4.37
Net profit / (loss) for the year. 0.16 (95.71) 3.73 - (3.03)
(Source: Annual Audited Accounts)

The revenue of the Corporation increased by 19.91 percent to Rs. 96.46 million
in 2016-17 from Rs. 80.44 million in 2015-16. The increase in revenue was
mainly because of conversion of payable of Rs. 44.034 million (refundable to
unsuccessful applicants of Korea) as income of the Corporation on the
recommendations of the committee. The rationale behind conversion of payable
amount into income of the corporation may be justified.

15.2.2.4 The service charges from selectees and CV on line abnormally decreased
by 45 % i.e Rs. 35.50 million in 2016-17 from Rs. 64.56 million in 2015-16. The
revenue from Korean Language Training fee Marketing Services and
Examination Fee has shown a nominal increase of 9.10 %. Efforts be made to
increase the revenue to make the corporation a self-sustainable concern.

15.2.2.5 The operating cost increased to Rs. 108.72 million in 2016-17 (6.82 %)
as against Rs. 101.79 million of 2015-16. The salaries and wages increase by
9.48% to Rs. 92.52 million in 2016-17 as against Rs. 84.51 million of the
previous year. The utilities increased to Rs. 2.21 million during 2016-17 as
against Rs. 1.45 million of the previous year registering an increase of 51.93%.
Efforts need to be made to minimize the operating cost of the corporation.

15.2.2.6 Cash and bank balances stood at Rs. 69.31 million as on June 30, 2017
as against Rs. 20.05 million in 2015-16 registering an increase of 245.69 %.
Included therein was an amount Rs. 23.55 million retained in saving accounts at a
754
nominal interest rate of 4.50% while another amount of Rs 45.75 million was
kept in current accounts causing loss of interest to company. The management
had not determined its working capital balance and investment of surplus funds in
profitable schemes to earn more profit. The retention of heavy funds in saving
account at lesser rate of interest and in non-interest bearing accounts need
justification. Steps for early investment of surplus funds in profitable schemes by
determining the working capital also needs to be taken to make the corporation a
self-sustaining entity.

15.2.2.7 An amount of Rs 15.64 million was invested in long term investment in

Defense Saving Certificates having face value of Rs. 9.25 million (2016
Rs. 23.07 million). The institutional investment in National Saving Schemes was
discontinued since 2011 as per decision of the Economic Coordination
Committee (ECC) of the cabinet. The un-authorized investment in National
Saving Center needs clarification.

15.2.2.8 Trade and other payables include payable on account of “Ticketing

Charges Rs 6.83 million “Services Charges” Rs 3.69 million and “Provident
Fund” Rs 5.68 million. The said liability needs to be cleared at the earliest.

15.2.2.9 Other income includes interest income on bank deposits and

investments, which was decreased to Rs. 0.29 million during the year 2016-17 as
against Rs. 6.64 million in 2015-16 registering a decrease of 95.60 %. The
abnormal decrease in income from deposits and investment needs justification.

755
15.2.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending % of

Paras Compliance Compliance Paras No complianc
e
1989-90 05 03 02 503,505 60
1990-91 05 03 02 373,376 60
1991-92 09 06 03 333,335,336, 67
1992-93 07 05 02 234,235, 71
1996-97 10 08 02 208,209 80
1997-98 07 06 01 146 86
2000-01 05 04 01 147 80
2005-06 07 06 01 169.3 86
2006-07 07 03 04 140.1,140.3,140.4 43
,140.5
2007-08 02 01 01 113 50
2010-11 05 01 04 15.2.1&15.2.2,15. 20
2.4.1,15.2.4.2
2013-14 07 05 02 12.2.2.3, 12.2.3 71
2016-17 04 0 04 (12.2.4.1,12.3.1& -
12.3.2,12.3.2.1,12
.3.3)
Total 80 51 29 64

Overall compliance of PAC directives was not satisfactory especially for

the year 2006-07, 2010-11 and 2016-17, which needs to be improved.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the
entity was not undertaken during subject period.

756
15.3 Overseas Pakistanis Foundation

15.3.1 Introduction

Under the Companies Ordinance 1984, (now Companies Act 2017). The
Foundation is administratively governed by Ministry of Overseas Pakistanis and
Human Resource Development and its affairs are run through Board of
Governors appointed by the Government of Pakistan. The Welfare Fund
established under Rule-26 of the Emigration Rules, 1979, vests in and is
controlled by the Foundation and the income and receipts related to the Fund are
reflected in the books of the Foundation. The registered office of the Foundation
is situated at Islamabad.

The main objectives, for which the Foundation was established, are:

i. To advance social welfare of the Pakistanis working overseas and

their families and dependents in Pakistan, and to contribute towards
their systematic rehabilitation on return.
ii. To establish, maintain or aid vocational training institutions for
providing training in such trades as are in demand overseas.
iii. To establish housing societies, colonies, townships for overseas
Pakistanis and their families in Pakistan and Azad Jammu &
Kashmir.

15.3.2 Comments on audited accounts

15.3.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.

15.3.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

757
15.3.2.3 The working results of the Company for the year 2016-17 as compared
to previous years are given below:

(Rs in million)
% Inc/ % Inc/
Particulars 2016-17 2015-16 2014-15
(Dec) (Dec)
Revenue
Interest Income 298.29 (8.61) 326.41 (19.90) 407.49
Housing Division Income 108.28 102.54 53.46 27.44 41.95
Welfare Division Income 3.44 54.95 2.22 2.30 2.17
Education Division Income 784.00 11.06 705.87 3.74 680.40
Publicity & Marketing Cell Income 0.14 (17.64) 0.17 142.86 0.07
Training Division Income 0.10 400 0.02 (60.00) 0.05
Other Income 51.77 (34.50) 79.04 (4.49) 82.76
Total 1,246.03 6.75 1,167.19 (3.93) 1,214.89
Expenditure
Housing Division 160.46 1.77 104.60 (7.72) 113.35
Welfare Division 695.99 66.99 416.77 93.96 214.87
Education Division 855.36 4.86 815.66 11.79 729.62
Publicity & Marketing Cell 7.67 11.64 6.87 (14.13) 8.00
Administrative 725.35 (6.19) 773.24 26.77 609.94
Provision of compensated absences - - 62.71 128.04 27.50
Provision of gratuity - - 247.86 77.78 139.42
Total 2,444.83 15.47 2,117.14 26.34 1,675.78
(Deficit)/Excess from operation - - (949.95) 106.11 (460.89)
Other expenses - - 31.88 4,208.11 0.74
Deficit before taxation 1,198.80 22.09 981.83 112.69 461.63
Deficit for the year after taxation 1,211.27 23.32 981.83 112.69 461.63
Taxation 12.460 - - - -
Total No. of employees at year-end. - 1666 (7.65) 1804
(Source Annual Audited Accounts)

The above table revealed that working results of the Company were not
satisfactory. Total income for the year 2016-17 was Rs 1,246.03 million against
which the total expenditure incurred was Rs 2,444.83 resulting in net deficit of
Rs 1,211.27 million. The interest on investment also shown a decrease of 8.62%
during 2016-17 as compared to previous year. The management was therefore,
required to explore more income generating activities, besides, exercising strict
control over expenditure in order to make the Company a self-sustaining concern.

758
15.3.2.4 Income of OPF Education Division was Rs. 784.00 million during the
year 2016-17. The income was recorded in the books on receipt basis whereas in
the light of approved accounting standards as applicable in Pakistan it should be
recorded at the time of provision of related services i.e. on accrual basis. The
matter was highlighted in the Auditor’s Report to the Members according to
which, had the revenue been accounted for in accordance with the provisions of
approved accounting standards as applicable in Pakistan, deficit for the year
would have increased by an approximate amount of Rs. 32.58 million. Proper
accounting of such income is therefore, stressed upon the management.

15.3.2.5 Creditors, accrued and other liabilities stood at Rs 786.08 million as on

June 30, 2017 including an amount of Rs 14.27 million on account of
withholding tax payable and Rs 16.48 million on account of Federal Excise Duty
Payable. Reasons for non-deposit of taxes & duties and accumulation of the same
need to be elaborated, besides, ensuring its early deposit into the Government
treasury.

15.3.2.6 Capital work in progress stood at Rs 402.36 million as on June 30, 2016
included therein is an amount of Rs 90.50 million on account of five projects like
OPS, Hango, Mirpur (AJK), Larkana, OPF Hospital, D.G. Khan and Women
Hostel & University, Quetta. No further progress was made and projects
remained at stagnant position for the last many years. Resultantly, fund to that
extant remained blocked. Reasons for blockade of funds need to be elucidated,
besides, ensuring early completion of such projects.

15.3.2.7 Expenditure on development of housing schemes stood at Rs. 5,295.26

million as June 30, 2017 (Rs. 5184.26 million in 2016) registering an increase of
2 percent. The progress of developmental work on housing schemes is very slow
which needs to be accelerated to complete the projects without delay.

15.3.2.8 Mobilization advance of Rs 46.11 million was shown against different

housing schemes as on June 30, 2017. Break up of advances with aging for which
such provision was created may be furnished for audit examination.
759
Circumstances, under which these advances were neither adjusted nor recovered
so far, also need to be elucidated.

15.3.2.9 Operating fixed assets stood at Rs 869.22 million as on June 30, 2017.
The management has no alternate policy in place to carry out periodic physical
verification of operating fixed assets. As such 100% physical verification of such
assets was never carried out. In the absence of physical verification, the existence
of such assets was open to doubt. Management is therefore, stressed upon to carry
out 100% physical verification of operating assets at an early date.

15.3.2.10 Advances deposits and other receivables stood at Rs. 388.35 million as
on June 30, 2017 as against Rs. 357.53 million (2016) registering an increase of
8 percent included is an amount of Rs. 221.21 million deducted on profit on bank
accounts of the foundation. Shown as recoverable under SRO No. 819(1)/2012
dated July 04, 2012. Refund claims in this regard were not filed. Efforts need to
be made for early recovery/finalization of the case.

15.3.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
1987-88 20 19 01 402 95
1989-90 12 09 03 508,509,518 75
1990-91 05 04 01 384 80
1992-93 05 03 02 241,243 60
1994-95 07 04 03 243,244,246 57
1995-96 10 06 04 214,216,217,218 60
1996-97 12 10 02 221,224 83
1997-98 07 05 02 156,157 71
1999-00 03 01 02 179,180 33
2000-01 14 11 03 148,151,160 79
2001-02 02 0 02 165,166 -
2003-04 19 03 16 136.2,136.4,137.2,137 16
.7,137.8,
137.10,138,140.1,140.
2,140.3,137.3,137.4,1
35.5137.6,140,140.4
2004-05 03 01 02 90,92 33

760
 2006-07 09 05 04 142.3,142.4,143,144 56
2007-08 04 01 03 113,114,115 25
2008-09 10 03 07 156.1,157,158,159,16 30
1,162,164
2009-10 08 04 04 168,170,172,174 50
2010-11 28 08 20 15.2.1&15.2.2,15.2.4. 29
1,15.2.4.2,17.1.1&17.
1.1.1,17.1.4.2,17.1.2.5
17.1.2.8,17.1.4.1,17.1.
2.2,17.1.2.3,17.1.2.4,1
7.1.2.9,17.1.2.10,17.1.
3,17.1.4.6,17.2.1&17.
2.1,17.2.3
2013-14 07 03 04 12.1.3,12.1.4.1,12.1.4. 43
2, 12.1.4.5,
2016-17 12 02 10 12.3.4.3,12.3.4.1,12.3. 17
4.5,12.3.4.6,12.3.4.7,1
2.3.4.8,12.3.4.9,
(12.2.1&12.2.2,12.2.2
.1,12.2.3)
Total 197 102 95 52

Overall compliance of PAC directives was not satisfactory especially for

the year 1999-00, 2001-02,2003-04, 2004-05, 2007-08, 2008-09, 2010-11,
2013-14 and 2016-17, which needs to be improved.

Note: Audit paras’ portion for the entity has not been compiled, as audit of the
entity was not undertaken during subject period.

761
 Chapter-16
Ministry of Planning, Development and Reform
16.1 National Logistics Cell
16.1.1 Introduction

National Logistics 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 activities mainly in the infrastructure rehabilitation, and
development sector, toll collection and other engineering related activities. It is
an attached department of Planning and Development Division of Government of
Pakistan.
The main objectives are as under:-
 Transportation of commodities from one location to other by all available
means.
 Hiring/ maintenance of storage facilities.
 Carrying out construction of roads and other engineering projects.
 Building of truck bodies and chassis of various makes.
 Revenue generation through toll collection.
16.1.2 Comments on Audited Accounts
16.1.2.1 The working results of the NLC for the year 2017-18 as compared to the
previous years are as follows:-
(Rs in million)
Description 2017-18 % Inc/ 2016-17 % Inc/ 2015-16
(Dec) (Dec)
Revenue 34,582.561 6.07 32,604.686 23.15 26,477.15
Operating Costs 31,727.873 5.75 30,004.023 24.10 24,175.40
Gross Profit 2,854.688 9.77 2,600.663 12.99 2,301.75
Administrative expenses 1,522.498 61.42 943.170 15.90 813.79
Other operating income 1,206.570 (8.21) 1,314.561 (21.30) 1,670.40
Operating profit 2,538.760 (14.58) 2,972.054 (5.90) 3,158.37
Finance costs 28.942 116.55 13.365 32.59 10.08
Net profit 2,509.818 (15.17) 2,958.686 (6.02) 3,148.29
(Source: - Annual Audited Accounts)
762
During the year 2017-18 revenue of the Cell was increased by 6.07% to
Rs 34,582.56 million (2016-17 – Rs 32,604.69 million), while, the operating cost
increased by 5.75% to Rs 31,727.87 million in 2017-18 (2016-17:
Rs 30,004.02 million). The administrative expenses were increased by 61.42% to
Rs 1,522.50 million in 2017-18 (2016-17-Rs 943.17 million). The abnormal
increase in said expenses was due to charging a provision for impairment of loan
to subsidiary company NLC Developer (Pvt) Ltd amounting to Rs 583.00 million
during the year (2016-17 – Rs Nil). The provision of such a huge amount needs
explanation.

16.1.2.2 Finance cost was increased by 116.55% to Rs 28.94 million during the
year 2017-18 (2016-17 Rs 13.37 million). The increase in finance cost was
mainly due to payment of mark-up Rs 10.86 million on borrowings (2016-17 –
Rs Nil). The said payment was made on short term borrowings of Rs 1,954.83
million availed during 2017-18 (2016-17 – Rs Nil). The balance sheet showed
that the management had sufficient amount (more than Rs 5 billion) in cash and
bank balances; on the other hand, the Cell borrowed funds from the banks, which
needs clarification.

16.1.2.3 Investment property stood at Rs 3,751.60 million as on June 30, 2018

(2016-17 – Rs 3,793.91 million). This included investment property – free hold
land of Rs 2.56 million as on June 30, 2018 (2016-17 – Rs 2.56 million). As per
note 5.1 to the accounts, this includes freehold land, leased to Qasim International
Container Terminal Pak. Ltd. The fair value of said land was
Rs 5.00 million determined based on valuation carried out by the Engineering
Pakistan International (Pvt) Ltd as at June 2007. Reasons due to which the free
hold land was valued at Rs 2.56 million in annual accounts while, the fair value
of said land was Rs 5.00 million needs clarification.

16.1.2.4 Investment property also included investment property lease hold land
Rs 4,189.36 million as on June 30, 2018 (2016-17 – Rs 4,189.36 million). As per
note 5.2, this represent payment made to CDA against purchase of plot of land
measuring 16,000 sq yards located in Blue Area, Islamabad. The note was silent

763
with regard to the transfer of title of land in the name of NLC. In case the title
has since been transferred, it was unclear why the management not classified
property under the head of operating fixed assets; position needs clarification.

16.1.2.5 Capital work in progress increased by 16.38% to Rs 1,100.63 million as

on June 30, 2018 (2016-17 – Rs 945.69 million). Early completion and
capitalization of projects is stressed upon the management. Further, capital work
in progress included advance against purchase of land of Rs 531.97 million as on
June 30, 2018 (2016-17 – Rs 403.25 million), the transfer of title of land in the
name of NLC was yet to be done. The non-transfer of title of land in the name of
NLC despite payment needs clarification.

16.1.2.6 Long term loan to wholly owned company was decreased by 24.5% to
Rs 1,958.841 million as on June 30, 2018 (2016-17 – Rs 2,595.31 million). The
decreased was not due to recovery of loan from the company but due to making
provision for impairment of Rs 583.00 million. The said treatment was due to the
reasons that the management believes financial worth of the company adequately
covers the carrying amount of NLC loan. Position needs investigation.

16.1.2.7 Long term advances and deposits increased by Rs 22.35% to

Rs 5,347.76 million as on June 30, 2018 (2016-17 – Rs 4,370.74 million). The
major portion in these advances was retention money of Rs. 5,334.38 i.e. 99.75%
of the total advances & deposits. These deposits were against projects, project
wise aging statements for retention money may be provided to audit.

16.1.2.8 An amount of Rs 12,256.71 million as on June 30, 2018 (2016-17 –

Rs 12,189.81 million) was outstanding on account of trade debts. A provision
against debts considered doubtful of Rs 1,305.44 million was also made as on
June 30, 2018 (2016-17 – Rs 683.54 million). Age analysis of trade debts,
reasons for making a provision of doubtful debts and efforts made for the
recovery of doubtful debts may be provided to audit alongwith supporting
documents.

764
16.1.2.9 Current assets included amount due from customer for construction
projects of Rs 5,376.57 million as on June 30, 2018 (2016-17 – Rs 4,014.46
million) registering an increase of 33.93%. The figure was silent by means of
note, aging analysis of receivables and reasons due to which the due amount
could not be recovered may be elucidated.

16.1.2.10 Advances, deposits, prepayments and other receivable decreased by

13.97% to Rs 3,678.41 million as on June 30, 2018 (2016-17 – Rs 4,275.50
million) but still on higher side, early recovery/adjustment of said receivables is
stressed upon the management.
16.1.3 Compliance of PAC Directives:

Audit Total Full Partial Pending Paras No % of

Year Paras Compliance Compliance compliance
1988-89 11 10 01 541 91
1989-90 23 19 04 635,640,648,650 83
1990-91 05 03 02 491,494 60
1991-92 08 07 01 458 88
1993-94 14 09 05 234,235,238,240,243 64
1994-95 11 09 02 257,264 82
1995-96 06 05 01 232 83
1999-00 11 10 01 235 91
2001-02 03 02 01 213 67
2005-06 15 13 02 212,214 87
2006-07 03 02 01 178 67
2007-08 04 01 03 154.2,154.3,155 25
2008-09 08 0 08 201,202,203,204,205 -
,206,207,208
2013-14 08 01 07 14.1.1&14.1.2.1, 12.5
14.1.4.1, 14.1.4.2,
14.1.4.3,14.1.3,
14.1.4.4
Total 130 91 39 70

Overall compliance of PAC directives was not satisfactory especially for

the year 2007-08, 2008-09 and 2013-14, which needs to be improved.

765
16.1.4 Audit Paras
16.1.4.1 Non-recovery of penalty / forfeiture of security and risk and cost -
Rs 434.48 million

According to clause 39 read with clause 60 and 61 of the agreement, in

case the contractor could not complete the work in time, he would be liable for
compensation ranging from 1 to 10%. In case the contractor abandoned the work
he would be liable for forfeiture of securities and his work would be got done
from any other contractor at the risk and cost of original contractor.

During the audit of PD (Central) NLC for the year 2017-18 it was
observed that the Project Director (North), NLC was engaged to perform the
work of “Dualization and Improvement of Sohawa-Chakwal Road” by Pakistan
Public Works Department in 2015 at an agreement cost of Rs. 4,223.54 million.
The management sublet the work among petty contractors by splitting, who could
not complete the work and agreements were terminated without forfeiture of the
security deposits/retention money of the defaulting contractors. Weak internal
and financial control resulted in non-recovery of Rs. 31.27 million.

Furthermore, the management entered into an agreement with DHA

(Phase-VIII) for its Infrastructure Development in Sector S, T, U, V, W & X at an
agreement amount of Rs.3,690.17 million with the completion period of two
years (w.e.f June 15, 2012 to June 14, 2014). M/s NLC further sublet the work to
two contractors M/s Conex and M/s Acers Construction with the accumulative
amount of these contracts up to Rs.3,822.59 million. The sub-contractors could
not complete the work as per schedule and contracts were terminated in March
2014. The management also paid an amount of Rs.306.12 million as mobilization
advance out of which it could recover only Rs.21.68 million leaving a balance of
Rs.284.44 million. The management awarded the balance work to another sub-
contractor without forfeiture of the security deposit of the defaulter contractors.

766
 Audit was of the view that weak internal and financial control resulted in
non-recovery of risk and cost from the defaulting contractors amounting to
Rs.403.20 million.

The matter was reported to the management in July 2018 and to PAO on
November 28, 2018. The management in its reply stated that it believed that
penalty should be imposed on balance works due to delay in project execution
only. In addition, client had already granted EOT without penalty, considering
the ground realities. Therefore, penalty on sub-contractor was not justifiable at
this stage. Reply was not convincing, as the management was required to
introduce a mechanism for forfeiting the retention money of the defaulting
contractors. The management in its reply relating to award of work to M/s Conex
and M/s Acers Construction stated that the work was re-sublet on the same rates.
Presently an amount of Rs.110.89 million was recoverable. Reply was not
acceptable as the management admitted that an amount of Rs. 10.89 million was
recoverable for which efforts were being made.

The DAC in its meeting held on January 24, 2019, directed the
management for recovery from sub contractor on account of risk & cost.

Audit recommends compliance of the DAC directive.

16.1.4.2 Non-recovery on account of work done - Rs. 36.62 million

According to clause 52 of general conditions of agreement, “the final bill

shall be submitted by the contractor within one month of the date fixed for
completion of the works, otherwise the Engineer-in-charge’s certificate of the
measurement and of the total amounts payable for the works accordingly, shall be
final and binding on all parties”.

During the audit of NLC Rawalpindi for the year 2016-17, it was
observed that construction works “Restoration of landslide at Jhika Gali, Murree”
was assigned to the management by the Government of Punjab (Highway

767
Division Rawalpindi) through an agreement dated April 22, 2013. The project
was completed and final bill amounting to Rs. 13.629 million was approved/
vetted by the consultant i.e. M/s NESPAK on June 22, 2016. Moreover, 2%
retention money amounting to Rs 16.57 million and escalation claim amounting
to Rs 6.42 million was also outstanding against the client despite lapse of
considerable period of 2 years but the payment was not made by the client.

Audit was of the view that due to non-recovery of Rs. 36.62 million from
the client NLC may sustain loss to that extent.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management for reconciliation of the amount and ensure recovery of the
remaining amount at the earliest.

Audit recommends compliance of the DAC directive.

16.1.4.3 Loss due to non-recovery of storage charges from custom authorities -

Rs 132.17 million

According to Para-26 of General Financial Rules, it is the duty of the

departmental Controlling officers to see that all sums due to Government are
regularly and promptly assessed, realized and duly credited in the Public
Account.

During audit of NLC Dry Port, Lahore for the year 2016-17, it was
observed that certain claim @ 40% share of handling of goods in custody against
Storage Charges pertaining to 2003 to 2005 valuing Rs 153.72 million under Para
2 (d) of Rule 201 of Custom Act, 1969 was lodged with Collectorate
(Appraisement) Mughalpura Dry Port, Lahore through CFS NLC Niaz Beg
Lahore vide letter No.28970/Custom/CFS/NLC dated January 22, 2016. The
Custom Authorities, however refunded an amount of 21.554 million to NLC Dry
Port upto June 30, 2017 but a handsome amount of Rs. 132.17 was stood
recoverable. The main reason of non-recovery was that claims were not lodged
768
in time with the custom authorities. Now due to non-availability of relevant
record, they were not willing to refund rest of claims.

Audit was of the view that due to slackness on the part of Dry Port
management, NLC sustained loss of Rs. 132.17 million on this account.

The matter was reported to the management in July, 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that due to typing error / mistake actual outstanding amount was Rs.42.6
million and an amount of Rs. 15.6 million has since been recovered. The DAC
directed the management to produce relevant record to Audit for verification
within one week and recover the remaining amount at the earliest. The requisite
record was not produced for verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.4 Loss due to non-recovery/ non-imposition of penalty - Us $ 0.548

million equivalent to Pak Rs 57.84 million

According to clause-14 (4) of maintenance agreement of scanners,

“Beyond the normal downtime of one day which does not include the routine
maintenance time i.e. half working day a month, additional five working days per
year, for each additional day of down time, the penalty is US $ 500 per unit per
day”.

During the audit of NLC Dry Port, Lahore for the year 2016-17, it was
observed that six scanners were purchased from M/s Beijing Hualixing Sci-Tech
Development Co. Ltd against contract No. dated May 15, 2004. According to
provisions of agreement, the seller was also responsible to provide the repair
& maintenance services against payment of US $ 55000 per annum per unit for a
period of 10 years including 2 years free service being warranty/ guarantee period
whereas remaining 8 years on payment. Out of six scanners, maintenance period
of one scanner installed during March 2005 at Port Qasim, Karachi, was further
extended twice i.e from March 2015 to March 2017 and March, 2017 to March,
769
2019 @ US $ 38000 and US $ 27000 respectively. Following faults occurred in
scanner installed at Port Qasim, Karachi during dates mentioned against each
fault:

Sr. # Occurrence date of fault Nature of Fault

1. Before July 2015 Panasonic Digital video Multi Placer WJ-FS38 was
faulty.
2. Since July3, 2017 till to date The new Server id faulty and wasout of order.
3. Since March 21, 2018 till to The New Check-IN Station was faulty and out of
date order.

The faults were immediately reported to the Chinese firm by NLC;

however, same were not rectified by the Chinese firm till the close of audit. As
per provisions of agreement, the management was required to impose and recover
penalty from the Chinese firm i.e. US$ 547,500 (1095 days x US $ 500) of the
period in which fault could not be removed by the Chinese firm, however penalty
was not imposed/ recovered from the firm by extending undue favour to the firm.

Audit was of the view that due to extension of undue favour to the
Chinese firm by non-imposition/ non-recovery of penalty of US $ 547,500 (since
July 2015 to June 2018) NLC sustained loss of Rs. 57.84 million.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management to produce relevant record that fault of scanners have been rectified.
The record was not provided for verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.5 Irregular appointment of Financial Advisor - Rs 3.99 million

According to Establishment Division OM No. 10/8/2014-R-II dated

September 12, 2014,in case the appointments of Consultants are made through
open competition against the pay package of BS-20 above, the said appointments
would require approval of Prime Minister and in case such Consultants are
770
appointed in BS-19 & below it would require approval of the designated
Appointing Authority i.e. from BS-17 to BS-19 Secretary of the administrative
Ministry.

During the audit of NLC Rawalpindi for the year 2016-17, the following
irregularities were observed:

i. Mr. Habib-ur-Rehman was appointed as Financial Advisor (Overseas

Projects) at a fixed monthly salary of Rs. 300,000 plus mobile facility of
Rs. 5,000 per month and office telephone of Rs. 3,000 per month for a
period of one year through an agreement commencing from June 11,
2017 to June 10, 2018.
ii. As per agreement, the officer was entitled to draw the TA/DA equivalent
to BPS-20.
iii. The officer was appointed without press advertisement, and prior
approval from the Prime Minister.
iv. Moreover, an amount of Rs. 300,000 was paid to him as bonus with the
pay of June 2017, which was his first pay after appointment in NLC.

Hence, he was not entitled for payment of bonus but the management was
also failed to provide the complete record since appointment of officer concerned
to date.

Audit was of the view that appointment of Financial Advisor without

fulfilling the codal formalities, payment of Rs. 3.99 million to the officer
concerned was irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised the committee that codal formalities were adopted before appointment
of Financial Advisor. The DAC directed the management to produce relevant
record to Audit for verification within one week and para would be considered

771
settled subject to satisfactory verification. The record was not produced for
verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.6 Irregular retention of employee beyond the prescribed period -

Rs 4.01 million

According to the General Head Quarter (GHQ) AG’s Branch (W & R

Directorate) Rawalpindi letter dated June 29, 2014, initial contract of
re-employment of Brigs/ Cols will be granted for a period of 3 years and
performance based extension of one year with the approval of COAS on the
recommendation of respective MDs/ Head of Organization for extremely
essential cases. Under no circumstances, extension beyond permissible limit be
granted.

During the audit of NLC Dry Port, Lahore for the year 2016-17, the
following irregularities were observed:

i. The management appointed Brig (Rtd) Nadeem Iqbal Raja as Director,

Dry Ports on November 22, 2013 on contract basis for a period of 2 years
on fixed monthly pay of Rs. 200,000 plus telephone facility i.e. mobile,
office and residential phone alongwith dedicated vehicle Pardo with
POL.
ii. After expiry of 3 years, NLC management extended the contract period of
the officer concerned for one-year w.e.f December 01, 2016 to November
30, 2017 and his salary was also increased to Rs 278,430 alongwith
telephone facility of Rs 3,500 (mobile), Rs 4,000 (office) and Rs 3,000
(residential).
iii. On expiry of the extended contract period of one year, the management
retained the officer on work charge basis (in BPS-20) at monthly salary
of Rs 330,933 w.e.f December 01, 2017 to February 27, 2018.
iv. However, the said officer was still working in NLC as Director, Dry Ports
to date i.e. as on August 31, 2018. The retention of officer beyond four
772
 years was clear violation of the instructions issued by the competent
authority.

The payment of Rs 3.073 million w.e.f December 2017 to August 2018 and
the increase in pay i.e. Rs 941,160 was held irregular.

Audit was of the view that retention of the officer beyond the permissible
limit and payment of Rs 4.02 million was irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised the committee that extension in service of Director Dry Ports was
granted by the GHQ AG Branch. The DAC directed the management to produce
relevant record to Audit for verification within one week. The requisite record
was not produced for verification to Audit till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.7 Irregular/ overpayment on account of increase in pay of retired

employees - Rs. 3.49 million

According to Ministry of Finance, increase in pay allowed by the

Government of Pakistan at the time of annual budget would not be admissible to
those retired armed force/ civilian officers/ staff who were re-employed in any
autonomous body/ semi-autonomous body/ corporations/ authority etc because
they were availing increase in their pension allowed by the Government of
Pakistan in the annual budget.

During the audit of PD South, NLC Karachi for the year 2016-17, it was
observed that the management allowed increase in pay of retired armed force
personals’ re-employed in NLC besides increase in their respective pensions. The
increase in pay valuing Rs. 3.49 million was not admissible to these employees
being dual benefit. Thus, payment of Rs. 3.485 million on account of increase in
pay during 2015-16 to 2017-18 was held irregular.
773
 Audit was of the view that the management was required to give only one
benefit but double benefit was allowed to these employees which was held
irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed
the management to get the matter regularized from NLB.

Audit recommends compliance of the DAC directive.

16.1.4.8 Irregular purchase of old tyres - Rs. 50.76 million

According to Clause 2.7 of the contract agreement, “the material and

workmanship of the tyres provided under the contract must be as per the
manufacturer standard and specification and free from any defects, which remain
the responsibilities of Supplier. Purchaser reserves the right to access and accept
or reject the store (not fulfilling quality standards). The Supplier will ensure that
tyres and tubes were manufactured within 5 months at the time of delivery. Tyres
and tubes of older stock than 5 months will not be accepted”.

During the audit of NLC for the year 2016-17, it was observed that the
management awarded contract dated November 09, 2016 for supply of 5300 tyres
with tubes valuing Rs. 216.24 million @ Rs. 40,800 per tyre to M/s Mantsal
Dynamic (Pvt) Ltd Lahore. As per inspection reports 1244 tyres supplied by the
firm were manufactured more than five (5) months before supply. As per
agreement, the firm was bound to deliver the newly manufactured tyres and
failure to supply the same will render either to replace or hold the payment of
supplier. However, no action was taken by the management and payment of
Rs. 50.755 million (1244 x 40,800) was released which was held irregular.

Audit was of the view that due to non-adherence of contract agreement

clauses, payment of was irregular and showed undue favour to the supplier at the
cost of public exchequer.

774
 The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management to reconcile the figure of defective tyres, provide the justification of
procurement of old tyres beyond the prescribed time limit and inquire the matter
by analyzing the benefits on extending the running warranty of the tyres.

Audit recommends compliance of the DAC directive.

16.1.4.9 Irregular purchase of steel and cement - Rs 223.79 million

According to Rule-12 (2) of PPRs-2004,all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of NLC PD South, Karachi for the year 2016-17, it was
observed that the management purchased steel and cement valuing Rs 172.52
million and Rs 51.26 million respectively from different suppliers against project
named Port Qasim Authority Pkg-IV. The procurement of steel and cement worth
Rs 223.79 million was made by obtaining three quotations from suppliers without
calling the competitive rates through press. Thus, violation of PPRs was made by
the management of NLC PD, South Karachi.

Audit was of the view that the purchase of steel and cement worth
Rs. 223.79 million without calling competitive rates in violation of PPRs was
irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, the
management apprised the committee that NLC executed different contracts with
Federal and Provincial Governments and sublet it to different contractors for their
timely completion. Therefore, it is not possible for NLC to implement PPRA in
purchase of different material for said contracts. The DAC directed the
775
management to submit a comprehensive case and seek exemption of PPRA rules
from appropriate forum i.e. PPRA through M/O PD&R.

Audit recommends compliance of the DAC directive.

16.1.4.10 Irregular award of work to un-authorized contractor - Rs. 38.52

million

According to Pakistan Engineering Council license No. 63969 issued to

M/s Mubashir Associates & Builders on October 22, 2015, which was valid up to
December 31, 2015, the contractor was entitled to award the civil works up to
Rs. 20.00 million.

During the audit of NLC PD South, Karachi for the year 2016-17, it was
observed that the management awarded contract dated May 13, 2016 valuing
Rs. 38.52 million to M/s Mubashir Associates & Builders for construction and
renovation of Canteen Stores Department (CSD), Karachi who was authorized to
get the contract/ work upto the value of Rs. 20.00 million as per license issued by
Pakistan Engineering Council (PEC). This resulted into irregular award of
contract to un-authorized contractor.

Audit was of the view that award of contract worth Rs. 38.52 million to
un-authorized contractor was irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, audit apprised
that contract was awarded in violation of PEC rules. The DAC directed the
management to obtain the exemption/ relaxation from the competent authority
within one week and para would be considered settled subject to satisfactory
verification. Exemption/ relaxation by competent authority was not produced till
the finalization of this report.

Audit recommends compliance of the DAC directive.

776
16.1.4.11 Irregular award of development contracts - Rs 952.00 million

According to Rule-12 (2) of PPRs-2004,all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of NLC PD South, Karachi for the year 2016-17, it was
observed that Port Qasim Authority (PQA) awarded project of “Development of
Infrastructure facilities in Eastern Industrial Zone” to NLC against contract
Pkg-IV dated April 25, 2009 at a value of Rs 4,260.61 million. The management
sublet the works valuing Rs 1,191.05 million on different sections of this project
to three contractors enlisted with NLC during 2009 and 2010. The value of
works/ contracts was later revised to Rs 952.00 million and amendment in
respective contracts was issued accordingly. The management awarded these
contracts to three contractors without calling competitive rates through press.
Moreover, the contractors were selected from the list of contractors registered
with NLC during 2009 and 2010. Thus, violation of PPRs was made by the
management.

Audit was of the view that award of three development contracts worth
Rs. 952.00 million without calling competitive rates in violation of PPRs was
irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management to produce relevant record regarding pre-qualification process of the
selected contractors for verification within one week to audit. The relevant record
was not provided by the management till the finalization of this report.
.
Audit recommends compliance of the DAC directive.

777
16.1.4.12 Irregular award of work beyond the financial powers - Rs. 21.48
million

According to Serial No.1 power to sanction contracts, chapter (a)

Acceptance of tenders by call (i) Power to sanction contracts/MOU for hiring of
(b) Labour and petty contracts, Project Director was competent to award of
labour contract up to Rs.10.00 million only.

During the audit of PD (Central) NLC for the year 2017-18 it was
observed that project regarding “Construction of Flyover on GT Road at Aziz
Cross Gujranwala” was awarded by the Executive Engineer, Road Construction
Division, Gujranwala Communication and Works Department, Government of
the Punjab vide Work Order dated January 30, 2016 at an agreed amount of
Rs.3,100 million. The management completed the project on self-execution basis
and awarded labour contract for “Fabrication of steel Reinforcement pile cage
except cost of steel” on August 15, 2016 to M/s Amanullah at an agreed amount
of Rs.21.48 million which was beyond the competency of the Project Director.
Weak internal and financial controls resulted in irregular award of contract
valuing Rs. 21.48 million.

The matter was reported to the management in July 2018 and to PAO on
November 28, 2018. The management in its reply admitted the facts and stated
that ex-post facto sanction was being processed to regularize the issue which will
be intimated as and when approved.

The DAC in its meeting held on January 24, 2019, directed the
management to provide ex post facto approval with justification from the
Competent Authority. Further NLC issue instructions to all Project Directors not
to go beyond financial powers.

Audit recommends compliance of the DAC directive.

778
16.1.4.13 Irregular award of construction contracts - Rs 108.88 million

According to Rule-12 (2) of PPRs-2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu”. Moreover, according to Pakistan Engineering
Council license No. 55331 Category C6 issued to M/s Bismillah Engineers
& Construction on May 08, 2015, which was valid up to December 31, 2015, the
contractor was entitled to award the civil works up to Rs. 20.00 million.

During the audit of NLC PD South, Karachi for the year 2016-17, it was
observed that the management awarded four contracts worth Rs 108.88 million to
M/s Bismillah Engineers & Construction. The value of contracts was later on,
revised to Rs 80.10 million and amendment in respective contracts was issued
accordingly. The management awarded these contracts without calling
competitive rates through press as required under PPRA, thus violation of rules
was made by the management. Furthermore, these contracts were awarded to the
contractors who were authorized to get the contract/ work upto the value of
Rs. 20.00 million only as per their license issued by PEC. Thus, the work was
awarded to the non-entitled contractor.

Audit was of the view that award of contracts worth Rs. 108.88 million
without calling competitive rates in violation of PPRs and PEC registration
requirements to the un-authorized contractors were irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019 directed the
management to verify the pre-qualification process of the selected contractors to
audit. No record was produced till the finalization of this report.
.
Audit recommends compliance of the DAC directive.

779
16.1.4.14 Purchase of construction material in violation of rules - Rs. 53.17
million

According to Rule-12 (2) of PPRs-2004,all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu.

During the audit of PD South NLC, Karachi for the year 2016-17, it was
observed that the management purchased construction material i.e. aggregate, sub
base, crush, sand, B material valuing Rs 53.17 million from M/s Al Naafe
Corporation against a project Port Qasim Authority Pkg-IV by constituting a
Purchase Committee. The procurement of construction material was made by
obtaining three quotations from suppliers without calling competitive rates
through press. Thus, violation of PPRs was made by the management of NLC
PD, South Karachi.

Audit was of the view that the purchase of construction material worth
Rs 53.17 million without calling competitive rates in violation of PP Rules was
irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that NLC executed different contracts with Federal and Provincial
Governments of Pakistan and sublet it to different contractors for their timely
completion. Therefore, it is not possible for NLC to implement PPRs in purchase
of different materials for said contracts. The DAC directed the management to
submit a comprehensive case and seek exemption of PP Rules from appropriate
forum i.e. PPRA through M/O PD&R.

Audit recommends compliance of the DAC directive.

780
16.1.4.15 Appointment of Project Director by violating rules & procedure -
Rs 39.84 million

According to the General Head Quarter (GHQ) AG’s Branch (W & R

Dte) Rawalpindi letter No. 7775/948/Gen/WR-5 dated June 29, 2014, the initial
contract of re-employment of Brigs/ Cols would be granted for a period of
3 years and performance based extension of one year with the approval of COAS
on the recommendation of respective MDs/ Head of organization for extremely
essential cases. Under no circumstances, extension beyond permissible limit be
granted.

During the audit of NLC Dry Port, Lahore for the year 2016-17, the
following irregularities were observed:

i. The management appointed Brig.(R) Shahid Majid as Project Director,

Punjab in BPS-20 on contract basis for a period of 2 years vide
appointment letter dated December 02, 2008 at monthly salary of
Rs 275,000 plus telephone facility of Rs. 15,000 and dedicated vehicle
Prado with 300 liters POL.
ii. The contract was extended up to December 02, 2011 after which he was
appointed on work charge basis w.e.f. December 03, 2011 at monthly
salary of Rs 400,000 plus other facilities he was already enjoying.
iii. The salary of concerned officer was increased to Rs 440,000 w.e.f
January 26, 2013. The services of the officer were extended up to May
31, 2014.
iv. Meanwhile, he was again appointed on contract basis vide letter dated
May 27, 2014 for a period of two years w.e.f June 01, 2014 to May 31,
2016 on fixed salary of Rs. 450,000 plus facilities already available to the
officer.
v. The salary of the officer was again enhanced to Rs. 495,225 just after
expiry of one year and again increased to Rs 643,894 w.e.f July 26, 2017
to June 30, 2018.

781
 As per rules & procedures, the officer concerned was entitled to remain in
NLC service for a maximum period of 3 years and one-year extension in contract
period was allowed with the approval of COAS. However, the management did
not obtain approval of COAS for one-year extension in contract period of the
officer after expiry of three years period. Hence, the appointment of officer after
3 years w.e.f December 03, 2011 to June 30, 2018 was made in violation of rules
& procedure.

Audit was of the view that appointment of officer in violation of standing

rules / procedure and payment of pay & allowances and bonus worth Rs 39.84
million during December 03, 2011 to June 30, 2018 was irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised the committee that extension in service of Project Director was granted
by the GHQ AG Branch. The DAC directed the management to produce and get
the extension record verified by Audit. The record was not provided for
verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.16 Loss due to imposition of penalty by the client - Rs 4.26 million

According to Clause -8 of the agreement, the completion period of work

was five (5) months from April 1, 2016 to August 31, 2016. Failing to meet the
given time line, penalty @ 1 % per day on the total cost would be levied.

During the audit of PD South, NLC Karachi for the year 2016-17, it was
observed that Canteen Stores Department (CSD) awarded contract worth
Rs 110.460 million to the management for re-construction/ renovation of CSD,
Karachi through an agreement dated April 1, 2016. The completion period of the
work was five (5) months i.e. from April 1, 2016 to August 31, 2016. The NLC
management completed the work in October 2016 and defects liability period was

782
also expired on November 2017. Final bill amounting to Rs. 5.759 million was
submitted to the client during November 2017. The client imposed penalty on the
management for delayed completion of the work and deducted an amount of
Rs 4.26 million from the final bill and paid remaining amount of the final bill i.e.
Rs. 1.5 million on May 29, 2018.

Audit was of the view that due to non-completion of work within the
prescribed time, the management sustained loss of Rs 4.26 million on account of
penalty imposed by the client.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management to submit the revise reply and get the recovery record verified from
Audit within a week. Revised reply was not submitted by the management till the
finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.17 Loss due to waiving of risk & cost amount - Rs. 4.23 million

According to Clause C (f) of Agreement No. NIIA/92/2017, “Whenever

the Accepting Officer exercises his authority to cancel the agreement under this
condition; he may complete the works by any means at sub contractor’s risk and
expense”.

During the audit of NLC Rawalpindi for the year 2016-17, it was
observed that work for construction of Main Road from Zero Point to M 1 / M 2
to New Islamabad International Airport 5.1 KM Asphalt work from RD 11+ 700
+ 206 (3.494 KM) valuing Rs. 250.944 million was awarded to M/s KK
Engineering vide contract dated November 21, 2017 with completion period of
four (4) months. The management cancelled the work on January 30, 2018 due to
poor performance on the risk & cost of the contractor. After cancellation of
contract, joint measurement was carried out and it transpired that the contractor
783
could manage to complete work of Rs 151.94 million out of total contracted work
of Rs. 250.94 million. The leftover work was completed over & above the
contracted amount by Rs 4.23 million. Audit further observed from record that
risk & cost condition was waived of /relaxed by the DG, NLC without any
provision in contract.

Audit was of the view that undue favour was extended to the defaulting
contractor at the cost of public exchequer due to which NLC sustained loss of
Rs. 4.23 million.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The management apprised the DAC in its meeting held on
January 15, 2019, that under NLC rules, risk & cost was not initiated. The DAC
directed the management to produce relevant record to Audit for verification
within one week. The record was not produced for verification till the finalization
of this report.

Audit recommends compliance of the DAC directive.

16.1.4.18 Wasteful expenditure of Us $ 150,000 equivalent to Pak Rs 15.85

million

According to GFR-10(i), “Every public officer was 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”.

During the audit of NLC Dry Port, Lahore for the year 2016-17, it was
observed that scanner valuing US $ 900,000 installed at Chamman Border was
purchased from M/s Beijing Hualixing Sci-Tech Development Co. Ltd against
contract dated May 15, 2004. As per provisions of contract agreement, the
Chinese firm was responsible to provide maintenance services for a period 10
years i.e. 2 years free of cost being warranty/ guarantee period while remaining 8
years i.e. up to October 26, 2023 on payment US $ 55000 per annum. Since
784
installation of scanner i.e. from October 26, 2013 seven complaints were reported
by the concerned staff, out of which three complaints were entertained by the
Chinese engineers within warranty/ guarantee (free of cost) period whereas
remaining faults were removed/ rectified by the NLC staff itself. This resulted
into wasteful expenditure of Rs. 15.85 million on maintenance cost of the
scanner.

Audit was of the view that maintenance services cost of US $ 150,000

equivalent to Pak Rs. 15.85 million @ Rs. 105.15 since October 2015 to October,
2018 paid to the Chinese firm is tantamount to wasteful expenditure.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that the spare parts were being replaced by the firm. The DAC directed
the management to produce relevant record to Audit for verification within one
week. The record was not submitted for verification till the finalization of this
report.

Audit recommends compliance of the DAC directive.

16.1.4.19 Loss due to non-replacement of defective tyres - Rs. 5.55 million

According to clause 2.8 of agreement, “the warrantee of the tyres will be

160,000 kms. Moreover the supplier shall ensure free of cost replacement of
defective tyres, tubes and flap rust within 15 working days vide clause-16”.

During the audit of NLC for the year 2016-17, it was observed that a
quantity of 5300 tyres with tubes valuing Rs. 216.24 million @ Rs. 40,800 per
tyre was purchased through M/s Mantsal Dynamic Lahore vide contract dated
November 09, 2016. A quantity 143 tyres supplied by the firm was found
defectives as these covered hardly 51,000 kms against the warrantee of 165,000
km. The firm replaced 7 tyres while 136 tyres were not replaced which was
against the provisions of contract agreement.

785
 Audit was of the view that due to non-replacement of defective/ rejected
tyres valuing Rs. 5.55 million, NLC sustained loss to that extent.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that replacement of the defectives tyres has been done. The DAC
directed the management to produce relevant record regarding replacement of
tyres to audit for verification within one week and para would be considered
settled subject to satisfactory verification. No record was produced for
verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.20 Non-deposit of Income Tax into Government Treasury - Rs 4.16

million

According to the provision of Section 43 (b) of Income Tax Ordinance

2001, withholding agents are required to deposit the withheld income tax with tax
authorities within stipulated period i.e. within 7 days of tax deduction.

During the audit of NLC PD, South Karachi for the year 2016-17, it was
observed that NLC (PD-South), Karachi deducted an amount of Rs 4.16 million,
as withholding tax from different contractors during the year 2010 to 2013 but
same was not deposited in government treasury till date. Non-deposit of tax
deducted at source valuing Rs 4.16 million in violation of Income Tax Ordinance
resulted in increased risk of possible mis-appropriation of government funds.

Audit was of the view that failure of the management to deposit withheld
amount of Rs 4.16 million from contractors resulted in loss to the government.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management to produce revised Accounts/tax liability record to Audit for
verification within one week and para would be considered settled subject to
786
satisfactory verification. The record was not provided by the management for
verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.21 Loss due to procurement of batteries at higher rates - Rs 1.12 million

According to Rule-38 of PPRs-2004, the bidder with the lowest evaluated

bid, if not in conflict with any other law, rules, regulations or policy of the
Federal Government, shall be awarded the procurement contract, within the
original or extended period of bid validity.

During the audit of NLC, Rawalpindi for the year 2016-17, it was
observed that tender notice for procurement of 2765 batteries was published in
the newspapers i.e. the daily Nawa-e-Waqt and the Nation Islamabad on July 26,
2015. Two firms i.e. M/s Accumulators (Pvt) Ltd (Volta/ Osaka) and
M/s Exide Pakistan participated in the bid and offered the warranty/ guarantee of
12 months from the date of manufacture or from initial charging & fitness
whichever comes earlier. M/s Pakistan Accumulators (Pvt) Ltd quoted the rates
of Rs 23.42 million whereas M/s Exide Pakistan quoted the price of Rs 24.55
million. Despite the fact, that rates of M/s Pakistan Accumulators (Pvt) Ltd were
the lowest, contract dated October 21, 2015 valuing Rs. 24.55 million was
awarded to M/s Exide Pakistan for a period of one year which was further
extended upto December 15, 2017 hence rates of first lowest bidders were
ignored. The award of contract to 2nd lowest bidder by ignoring first lowest offer
was made in violation of PPRs, hence held irregular.

Audit was of the view that due to award of contract at higher rates by
ignoring first lowest offer without any cogent reason in violation of PPRs, NLC
sustained loss of Rs 1.12 million.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019, directed the
management to produce relevant record i.e. technical speciation in bidding
787
documents to Audit for verification within one week and para would be
considered settled subject to satisfactory verification. The relevant record was not
provided to audit for verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.22 Non-deposit of EOBI contribution by the contractors - Rs 12.82

million

According to EOBI letter No. EOBI/PR/RO/2016/770 dated March 24,

2016, pursuant to the revised rates of wages, the rate of minimum wages for the
purpose of contributions payable under Section 9 & 9B of EOB Act, 1976 was
also updated and was payable by the contractors at the prescribed rates.

During the audit of NLC Dry Port, Lahore for the year 2016-17, it was
observed that the management signed agreements dated July 16, 2015 and July
16, 2016 with M/s M. Sarwar & Co., for the provision of 100 labourers at NLC
Dry Port Lahore for the years2015-16 to 2016-17. Similarly, another agreement
dated November 02, 2011 was signed with M/s Arif & Co, for provision of 400
labourers at NLC Wagha Border Terminal, Lahore for the period April 1, 2011 to
December31, 2011. The agreement was extended on yearly basis up to 2016-17
on the same terms and conditions. The contractors neither provided list of
laborers to the Project Manager nor got them registered with the EOBI. Hence,
the contractors did not deposit the employers’ as well as employee’s contribution
with the EOBI. The management did not pursue the deposit of EOBI contribution
of Rs 12.82 million with the contractor, in violation of agreements as well as
EOBI’s instructions.

Audit was of the view that the non-deposit of EOBI contribution by the
contractors lead to loss of Rs 12.82 million.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. The DAC in its meeting held on January 15, 2019 directed the
management to ensure that EOBI contribution was paid by the concerned parties
788
and produce record for verification. The requisite record was not submitted by the
management for verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.23 Un-warranted/ mis-procurement of helicopter - Euro 2.350 million

equivalent to Pak Rs. 264.50 million

According to Rule-12 (2) of PPRs-2004, all procurement opportunities

over two million rupees should be advertised on the Authority’s website as well
as in other print media or newspapers having wide circulation. The advertisement
in the newspapers shall principally appear in at least two national dailies, one in
English and the other in Urdu”. Moreover as per Rule-7 of Civil Aviation Rules
1994, “an Aircraft other than a military aircraft shall not fly in Pakistan unless it
has been included in the Pakistan Aircraft Register or has been registered in a
contracting State.

During the audit of NLC Rawalpindi for the year 2016-17, it was
observed that the management purchased helicopter model H-125 valuing Euro
2.35 million equivalent to Pak Rs 264.50 million directly from M/s Airbus
Helicopters Aero port International France through their local agent M/s Asean
International Islamabad against contract dated April 30, 2016. The helicopter was
received in NLC vide receipt voucher dated May 24, 2017. In this transaction,
following discrepancies were observed;

i. As the helicopter was purchased directly from M/s Airbus Helicopters

Aero port International France through their local agent M/s Asean
International Islamabad, hence violation of rule 12 (2) of PPRs 2004 was
made.
ii. The procurement of helicopter was made without consulting FWO and
Army, hence NLB’s instructions regarding purchase of helicopter of
specification compatible with helicopter being used by FWO and Army,
were ignored.

789
iii. Huge investment was made on helicopter without essential, regular and
future requirement as its necessary usage on as and when required basis
could availed by obtaining on rent from Pak Army or Civil Aviation. In
this way, precious funds could have been saved by transferring amount of
rent from one pocket of exchequer to the other.
iv. Certain information regarding purchase, usage and maintenance of
helicopter and staff appointed for the purpose, was requested from the
management vide requisition No.14 dated August 15, 2018 but the same
was not provided till close of audit.

Audit was of the view that helicopter was purchased without fulfilling the
codal formalities and without any essential requirement in present or near future,
hence expenditure of Euro 2.35 million equivalent to Pak Rs 264.50 million was
lavish expenditure.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that all the codal formalities were adopted before procurement. Audit
informed the committee that procurement was made in violation of PPRs and
without any exemption from the competent authority. The DAC directed the
management to submit a comprehensive case and seek exemption of PPRA rules
from appropriate forum i.e. PPRA through M/O PD&R.

Audit recommends compliance of the DAC directive.

16.1.4.24 Loss due to non-encashment of insurance guarantees against

mobilization advances - Rs. 124.44 million

According to Para 7 of SOP 1/2010 /NLC Engineers, no mobilization

advance to sub-contractors will be paid without prior approval of DG, NLC
beside it will be paid against irrevocable bank guarantees, therefore no such
clause in contract agreement be kept.

790
 During the audit of NLC PD, North Rawalpindi for the year 2016-17, it
was observed that DHA, Lahore awarded infrastructure development works
valuing Rs 6467.39 million (Package-I, II and III) to NLC vide DHA letter dated
July 30, 2012, May dated 04, 2012 and dated April 09, 2012. The completion
period in Pkg-I, was March 17, 2014, Pkg-II June 18, 2014 and Pkg-III June 14,
2014. The management sublet the work to two contractors namely M/s Conex
Pakistan and M/s Acers Construction through 12 different contracts valuing
Rs 3,822.59 million with completion period January 2014 to April 2014.
Mobilization advance of Rs. 306.117 million was also paid to the sub-contractors
against the insurance guarantees on the special approval of the DG, NLC.

The performance of the sub-contractor was very poor from the very
beginning, which was not improved despite repeated reminders. Lastly, in the
light of Board of Officers Proceeding, 04 contracts were terminated on July 12,
2013 and remaining 08 contracts were also terminated on March 07, 2014. The
management does not bothered to encash insurance guarantees lying with them at
the time of termination of contracts and waited for expiry dates i.e. September
2013 and June 2014.

According to the third party validation report carried out by

M/s JERS Engineering Consultants (JEC) during October, 2014, an amount of
Rs 133.41 million was adjusted against work done, Rs 26.59 million was adjusted
against temporary camp office constructed and an amount of Rs 124.44 million
was still outstanding against the contractors. Considerable time of four years was
lapsed but no action like arbitration or legal, initiated by the management due to
which chances of recovery of the outstanding amount were quite remote.

Audit was of the view that due to slackness of management by

non-encashment of insurance guarantee and non-initiation of arbitration / legal
action against the contractor NLC sustained loss of Rs 124.44 million.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
791
apprised that the matter is under arbitration. The DAC directed the management
to conduct facts finding inquiry on the grounds under which insurance guarantee
was not encashed and share the report with Audit and the Ministry.

Audit recommends compliance of the DAC directive.

16.1.4.25 Unverified payment - Rs. 86.50 million

According to Para-14 (a),(b),(c) and (2) of the Auditor General of

Pakistan (Functions, Powers and Terms & Conditions of Services) Ordinance ,
2001 promulgated by the President of Pakistan, the Auditor General has the
authority to inspect any office of accounts, require the record of any office for
inspection to such place as he may direct, enquire or make such observations as
he consider necessary and to call for such information as he may require for the
purpose of audit. The officer in charge of any office or department shall afford all
facilities and provide record for audit and inspection.

During the audit of NLC Rawalpindi for the year 2016-17, it was
observed that the management made payment of Rs. 47.000 million on December
14, 2016 and Rs. 39.50 million on June 08, 2017 to MO Directorate GHQ,
Rawalpindi. In order to examine the record whether the payment was made in
line with relevant rules and regulations, requisition # 14 dated August 15, 2018
was issued to the management for provision of complete relevant record. The
NLC management however, failed to provide the record till close of audit.

Audit was of the view that due to non-provision of requisite record, audit
could not ascertain the authenticity of payment of Rs. 86.50 million.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, Audit
apprised that management was failed to submit the reply to date. The DAC
directed the management to produce complete record to Audit alongwith
comprehensive reply for verification within one week. The relevant reply along

792
with complete record was not produced for verification till the finalization of this
report.

Audit recommends compliance of the DAC directive.

16.1.4.26 Loss due to ill-planned establishment of Sea Freight Services -

Rs 7.69 million

According to GFR-10(i), 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.

During the audit of NLC Rawalpindi for the year 2016-17, it was
observed that the management appointed thirteen (13) employees to carry out the
operational activities of the SBU namely NLC Sea Freight Container Terminal
during March, 2017 to extend its business through sea freight. The SBU carried
out its business from March 2017 to April 2018 during which only one business
activity was carried out and revenue of Rs. 484,850 was earned by incurring
Rs 7.69 million on pay and allowances and operational activities. The
management could not run the business of SBU successfully and ultimately SBU
was closed w.e.f 30 April, 2018 vide HQ NLC letter dated 17 April, 2018 and its
accounts record including historical data was handed over to HQ Freight
Services, Karachi.

Audit was of view that the failure of the SBU was due to improper
planning and non-preparation of feasibility study due to which expenditure
incurred on the SBU/project was wasteful.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that the subject project has been suspended. DAC directed the
management to produce relevant details of the project as well as the hiring
process of the employees and their current placement to Audit for verification

793
within one week. The relevant record was not provided by the management for
verification till the finalization of this report.

Audit recommends compliance of the DAC directive.

16.1.4.27 Award of additional work - Rs 70.74 million

According to Rule-42 (C ) (iv) of PPRs-2004, Repeat orders exceeding

fifteen percent of the original value of contract shall not be awarded.

During the audit of NLC for the year 2016-17, it was observed that the
management awarded contract dated May 4, 2012 to M/s Said Ghani & Co
valuing Rs. 237.106 million for “Restoration of land slide at Jhika Gali, Murree”.
MOU was also signed with the above contractor w.e.f May 17, 2012. After award
of contract, the contract value was increased to Rs. 307.85 million vide
amendment dated May 27, 2015. As per rules, additional work valuing Rs. 35.56
million @ 15% of the actual value of contract was admissible whereas for the
award of 30% additional works valuing Rs. 70.74 million, the management was
required to invite fresh tender, which was not done.

Audit was of the view that award of additional work valued at Rs. 70.74
million was against the provisions of PPRs, hence held irregular.

The matter was reported to the management in July 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that NLC executed different contracts with Federal and Provincial
Governments and sublet it to different contractors for their timely completion.
Therefore, it is not possible for NLC to implement PPRA in purchase of different
material for said contracts. The DAC directed the management to submit a
comprehensive case and seek exemption of PPRA rules from appropriate forum
i.e. PPRA through M/O PD&R.

Audit recommends compliance of the DAC directive.

794
16.1.4.28 Loss due to non-obtaining of performance guarantee - Rs. 35.85
million

According to Rule-39 of PPRs-2004, where needed and clearly expressed

in the bidding documents, the procuring agency shall require the successful
bidder to furnish a performance guarantee, which shall not exceed ten percent of
the contract amount.

During the audit of NLC for the year 2016-17, it was observed that the
NLC (PD-North) awarded different works valuing Rs 358.537 million through
five contracts to different contractors under project titled DHA-Ph-IV Islamabad
without obtaining performance guarantee. The contractors could not complete the
works within the allotted time and defaulted. The management accordingly,
cancelled the respective contracts. Non-obtaining of performance bond in
violation of PPRs showed that the management did not secure itself or bound the
contractors for satisfactory completion of the contracts.

Audit was of the view that due to non-obtaining of performance bond

from five contractors, NLC sustained loss of Rs. 35.85 million on account of non-
forfeiture of performance bond of defaulting contractors.

The matter was reported to the management in July, 2018 and to PAO on
October 18, 2018. During DAC meeting held on January 15, 2019, management
apprised that as per NLC SOPs performance guarantee was not required. The
DAC directed the management to produce relevant record to Audit for
verification within one week and para would be considered settled subject to
satisfactory verification.

Audit recommends compliance of the DAC directive.

795
16.1.4.29 Loss due to escalation in price - Rs. 49.90 million

According to Clause 55(6) of agreement, price variation shall be

calculated based on the quantities of item actually consumed on the work during
the month.

During the audit of PD(Central) NLC, for the year 2017-18 it was
observed that the project “Construction of Flyover on GT Road at Aziz Cross
Gujranwala” was awarded by the Executive Engineer, Road Construction
Division, Gujranwala Communication and Works Department, Government of
the Punjab vide letter dated January 30, 2016 at an agreement amount of Rs.3,100
million with the 10 months completion time. The management could not
complete the work and extension was requested repeatedly. The client department
made deduction up to Rs. 27.41 million (Rs.19.29 million + Rs.6.98 million
+ Rs.1.14 million) on account of escalation in price variation due to delay in
completion of work payment as the work was still in progress. Weak internal and
financial controls resulted in loss to NLC for Rs. 49.90 million.

The matter was reported to the management in July 2018 and to PAO on
November 27, 2018. The management replied that project was de-escalated on
work executed with in original period i-e November 30, 2016. Reply was not
tenable, because management not produced the detailed working/summary for
escalation/de-escalation in price.

The DAC in its meeting held on January 24, 2019, directed the
management for verification of escalation recovery of Rs. 38 million.

Audit recommends the compliance of the DAC directive.

16.1.4.30 Overpayment due to sanction of higher rate analysis of elastomeric

bearing PAD - Rs 111.18 million

According to para No. 6 of approved PC-I, the cost estimate was based on
the Government of Punjab, Finance Department, District wise website input rates
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2nd Bi-annual, 2013 for District Rawalpindi for schedule items whereas non-
schedule items were based on prevailing market rates for material and labour
with contractor’s profit. Further, according to para No.2 of covering memo
regarding TS estimate, the Chief Engineer clarified that (approval of) the TS
estimate does not confer any approval to the payment of rates provided in the
estimate and the same were subject to observance of strict financial regulations
and codal formalities by the competent authority (Director/Superintending
Engineer) for making the payment for different items of works included in it.

During audit of PD (Central) NLC for the year, 2017-18 it was observed
that the management entered into an agreement with Communication and Works
Department in 2013 for the construction of Fly Over on GT Road, Gujranwala at
an agreement amount of Rs. 3,455 million. Project Director (Central) NLC
awarded the work “Construction of Fly Over on GT Road, Gujranwala to
M/s Habib Construction Services (Private), Limited at an agreed amount of
Rs.484.854 million.

It was observed that the Authority got approved the rate analysis of item
“Elastomeric bearing pad of specified size (40x25 x 8.75 centimeters) and
requisite standards European equitant etc” on higher side
@ Rs 16.27 per cubic centimeter (composite rate) in estimate by obtaining
quotation/ rates and accordingly payment was released to the contractors. The
department got approved unrealistic/higher rates for elastomeric bearing pad in
the TS estimate up to Rs.8.70 per cm (14.40 – 5.70). Weak internal and financial
controls resulted in loss to government due to non-deduction of GST invoices by
the sub-contractor and non-recovery of GST worth Rs.111.18 million.

The matter was reported to the management in July 2018 and to PAO on
November 27, 2018. The management replied that the work was executed at site
according to the design, specification and approved rate analysis and paid
accordingly under the supervision of consultant staff. Therefore NLC was bound
to pay to sub-contractor the rates mutually agreed upon. Reply was not
acceptable, as the management did not explain the reasons for the acceptance of

797
unrealistic/higher rates. Furthermore, Audit requested the NLC to produce the
relevant documents regarding import of item/quotations in support of its reply.

The DAC in its meeting held on January 24, 2019, directed the
management for verification of import documents of machinery.

Audit recommends compliance of the DAC directive.

16.1.4.31 Loss due to higher rate analysis of concrete piles 1200 mm -

Rs. 47.44 million

According to Rule-23 of General Financial Rules, every Government

officer should realize fully that he would be held personally responsible for any
loss sustained by the Government through fraud or negligence on his part or on
the part of any other officer to the extent to which it may be proved that he
contributed through his own negligence or action.

During the audit of PD (Central) NLC for the year, 2017-18 it was
observed that the management entered into an agreement with Communication
and Works Department in 2013 for construction of Fly Over on GT Road,
Gujranwala at an agreement amount of Rs.3,455 million. The management
further splitted the work and sublet among the sub-contractors. The work
“Construction of Fly Over on GT Road, Gujranwala” awarded to M/s Habib
Construction Services (Private), Limited at an approved amount of Rs.483.30
million. The RAR No.19 of the contractor was paid on April 19, 2013 up to
Rs.604.82 million while management paid an amount of Rs.40.04 million to the
contractor for the item “Cast in place concrete piles 1200 mm dia including
concrete class A3 (4000 psi) excluding cost of steel reinforcement” @ Rs.22,124
per LM which was on higher side due to inclusion of excess hours of machinery.
Weak internal and financial control resulted in overpayment due to application of
higher rates worth Rs. 47.44 million.

The matter was reported to the management in July 2018 and to PAO on
November 27, 2018. The management replied that the Engineer Estimate / Rate
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Analysis of project were prepared by the consultant and approved by the XEN
Provisional Highway Division, Gujranwala and TS was accorded by Chief
Engineer (North). The reply was not convincing as higher rates were applied
which resulted into loss.

The DAC in its meeting held on January 24, 2019, directed the
management to get verified Profit & Loss statement by audit.

Audit recommends compliance of the DAC directive.

16.1.4.32 Overpayment due to payment of crane charges on higher rates -

Rs. 63.76 million

According to Rule -23 of General Financial Rules, every Government

officer should realize fully that he will be held personally responsible for any loss
sustained by the Government through fraud or negligence on his part or on the
part of any other officer to the extent to which it may be proved that he
contributed through his own negligence or action.

During the audit of PD(Central) NLC for the year 2017-18 it was
observed that the Project Director North splitted and awarded the work to
M/s Crescent Services, Islamabad regarding “hiring charges of Crane for loading
during the month of February, 2015 along with hire charges of other machinery”.
An agreement was also executed between the two parties on September 15, 2014
for the period of three month. The management called the quotations instead of
calling tenders and violated the PPRs and while preparing the comparative
statement changed the rates quoted by the bidders.

The work was awarded to the highest bidder M/s Crescent Services and
made payment for the period of four months instead of agreed three months.
Furthermore, an amount of Rs.50,000was also paid on account of mobilization
charges of back up crane whereas the other bidders do not claimed such amount.
An amount of Rs.6.54 million was paid as overtime charges whereas the
agreement was executed on monthly basis. An amount of Rs. 3.62 million was
799
also paid for the month of February 2015 i.e. beyond the approved period. Weak
internal and financial control resulted in overpayment of Rs. 59.13 million to the
contractor.

The matter was reported to the management in July 2018 and to PAO on
November 27, 2018. In its reply, the management stated that the contract was not
awarded to highest bidder. Due to high competition and fast track project the
work was executed by obtaining quotations. Furthermore, rates quoted by
M/s Crescent Services were reduced as a result of negotiation, however they
could not manage the negotiation with the lowest bidder (M/s Capital Developer).
Reply was not convincing because management was required obtain competitive
rates through tendering which was not done.

During DAC meeting held on January 24, 2019, management apprised the
committee that due process before award of contact was adopted. The DAC
directed the management to get verified the complete record of bidding
documents from audit within a week. The record was not provided for
verification by the management till the finalization of this report.

Audit recommends compliance of the DAC directive.

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16.2 Pakistan Institute of Development Economics

16.2.1 Introduction

The Institute was established on May 01, 1964 as “Pakistan Institute of

Development Economics” and was granted degree-awarding status on November
08, 2006. The administrative control of the Institute was transferred to Planning
and Development Division for proper functioning and improving its academic
performance. The affairs of the Institute are governed by the 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 service
and tuition fee etc.

Main objectives of the Institute are:-

i. To function as an agency for conducting and promoting research, surveys,

seminars, conferences, experiments and demonstrations in the field of
Development Economics, Islamic Economics, Economic demography and
related social disciplines. ii) To provide facilities for training in
economics and economic demographic analysis and research techniques.
ii. Arrange to publish papers studies and such other works as are completed
at the Institute or are prepared in collaboration with it or which are
otherwise of substantial value to the work of the Institute.
iii. To disseminate information and extend advice to the government and
other agencies based on original research in economics and related
disciplines.

16.2.2 Comments on Audited Accounts:

16.2.2.1 The working results of the Institute for the year 2017-18 as compared to
previous years are given below:
(Rs in million)
Description 2017-18 % Inc 2016-17 %Inc 2015-16
/(Dec) /(Dec)
Funds received from HEC 2.039 (33.37) 3.06 237.38 0.907
Government grant for PIDE 317.565 2.20 310.725 6.42 291.967

801
Government grant for PhD 8.174 (9.71) 9.053 0.59 9.00
Total grant 327.778 1.53 322.838 6.94 301.874
Tuition fee 55.63 3.162 53.925 13.06 47.696
Income from research studies 1.829 (65.35) 5.279 65.69 3.186
Profit on bank account/ investment 2.884 (15.28) 3.404 41.07 2.413
Other income 2.52 (13.79) 2.923 -8.54 3.196
Total income 628.63 853.47 65.931 16.71 56.491
Expenditure
Salaries & benefits 177.357 (3.78) 184.334 6.48 173.113
Ph. D expenses 6.59 (70.36) 22.233 41.36 15.728
POL expenses 6.246 (0.19) 6.258 16.3 5.381
Lecture & supervision fee 14.367 0.077 14.356 38.89 10.336
Utilities electricity 3.875 58.034 2.452 -20.44 3.082
Utilities Gas & water charges 0.491 (28.22) 0.684 124.26 0.305
Rent of hostel 9.774 55.88 6.27 44.54 4.338
Provision for Pension 89.118 (22.95) 115.666 7.53 107.568
Depreciation 2.953 (4.96) 3.107 24.48 2.496
Other Expenditure 85.836 118.46 39.291 -1.2 39.768
Total Expenditure 396.607 0.49 394.651 8.98 362.115
Excess of income over 0.59 (49.83) 1.176 21.11 0.971
expenditure
(Source: Annual Audited Accounts)

As per qualification of the chartered accountants the management has provided

Rs 89.12 million in respect of pension for the year (2016-17 Rs 115.67 million)
and recognized a defined obligation of Rs 213.50 million (2016-17 Rs 218.43
million) as on 30 June, 2018. As per actuaries the liability of pension obligation
was computed as Rs 2.38 billion. If the defined obligation be computed as per the
valuation method prescribed by the IFRS for SMEs, the liability of pension
obligation at 30 June 2018 would have been Rs 3.38 billion and a provision of
Rs 459.49 million in respect of pension expense for the year ended on 30 June
2018. Had the institute recovered its defied obligation in accordance with the
IFRS for SMEs closing defined obligation would have been increased by Rs 3.17
billion and provision for the year would have been increased by Rs 370.37

802
million. Consequently, an adjustment of Rs 3.17 billion was required to be
recognized in the income and expenditure for the year.

16.2.2.2 Defined obligations valuing of Rs 1.39 million (Rs 13.04 million –

2016-17) relating to “transferred from other government institutions”. Detail
breakup along with reasons of transferring liabilities may be explained.

16.2.2.3 Accrued and other liabilities were increased to Rs 18.90 million as on

June 30, 2018 from Rs 15.81 million as on June 2017 registering an increase of
19.52%. The increase was mainly due to increase in students security fee
Rs 2.17 million (Rs 1.25 million- 2016-17), Scholarships payable Rs 5.80 million
(Rs 6.09 million – 2016-17) and lecture fee payable Rs 6.518 million (Rs 5.86
million- 2016-17). The increases need to be justified. Furthermore, reasons for
nonpayment of scholarships and lecture fee may be elaborated besides early
clearing the liabilities.

16.2.2.4 Advance, deposits, pre-payments and other receivables increased to

Rs 10.58 million on June 30, 2018 against Rs 4.52 million at the end of June
2017 registering an increase of 136.61% over previous year. The increase was
mainly due to other receivables of Rs 2.57 million and advances of Rs 7.90
million, the figures were silent by means of notes. Position needs clarification.

16.2.2.5 As already pointed out that in previous years audit comments, Cash and
bank balances amounting to Rs 88.19 million were retained in saving bank
accounts during the year ending June 30, 2018 (Rs 114.80 million- 2016-17). The
management of the company failed to determine the working balance limit and
deposit the surplus funds in beneficial schemes to earn more profit. The reasons
of retention of heavy amount in saving bank accounts may be justified. The
working balance limit needs to be determined and surplus funds needs to be
invested in beneficial schemes to earn more profit in the company’s interest.

16.2.2.6 An amount of Rs 2.26 million was shown under the head “Disposal of
assets” for the year 2017-18. The company sustained loss of Rs. 0.11 million on

803
sales of fixed assets. Reasons for sustaining loss on disposal of fixed assets and
break-up of assets may be provided.

16.2.2.7 An amount of Rs 8.17 million received under the head “Grant for PhD”
during the year 2017-18 whereas an amount of Rs 14.76 million has been
incurred on PhD Expenses (Salaries of regular staff Rs 8.17 million) and PhD
Expenses (General Rs 6.59 million). Expenditure over to above the grant received
amount needs to be elaborated.

16.2.2.8 Other income and recoveries was decreased to Rs. 12.14 million for the
year 2017-18 as against Rs. 16.83 million during the year 2016-17. Reasons of
decrease in said head may be intimated to audit.

16.2.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras % of

Paras Compliance Compliance No compliance
2013-14 14.2.4.1, 14.2.4.3, 57
07 04 03 14.2.2.2
Total 07 04 03 57

The compliance of PAC directives was not satisfactory which needs to be

improved.

Note: Audit paras’ portion for the entity has not been compiled as audit of the entity was
not undertaken during subject period.

804
 Chapter-17
Ministry Science and Technology

17.1 Pakistan Science Foundation

17.1.1 Introduction

Pakistan Science Foundation was established on February 02, 1973 under

PSF Act. It is working under the Ministry of Science and Technology. The
organization has no share capital and it receives development and non-
development grants from the Government of Pakistan. It’s office is situated at
G-5/1, opposite Supreme Court Building, Constitution Avenue, Islamabad.

The Foundation is functioning as a financing agency for:

i. The establishment of comprehensive scientific and technological

information and dissemination Centre;
ii. The promotion of basic and fundamental research in the universities and
other institutions on scientific problems relevant to the economic
development of the country;
iii. The utilization of the results of scientific and technological research
including pilot plant studies to prove the technical and economic feasibility
of processes found to be promising on a laboratory scale;
iv. The grant of awards, prizes and fellowships to individuals engaged in
developing processes, products and inventions of consequence to the
economy of the country.

17.1.2 Comments on Audited Accounts

17.1.2.1 The annual audited accounts are required to be provided to audit for
review each year. Contrary to this the management failed to provide audited
accounts of the organization for the year 2017-18 till December 31, 2018.

805
17.1.2.2 Audit recommends that the annual audited accounts of the past year be
provided immediately and timely submission be ensured in future besides fixing
responsibility for non-submission of annual audited accounts. (refer Annex-2)

17.1.3 Compliance of PAC Directives:

Audit Year Total Full Partial Pending Paras No % of

Paras Compliance Compliance compliance
2006-07 04 04 0 - 100
2013-14 09 02 07 15.1.2.2,15.1.2.3,15 22
.1.4.1,15.1.4.2,15.1.
4.3,15.1.4.4,15.1.4.
5,
Total 13 06 07 46

Overall compliance of PAC directives was not satisfactory which needs

immediate attention of PAO.

17.1.4 Audit Paras

17.1.4.1 Irregular release of payment without obtaining sales tax invoices
- Rs 13.19 million

According to Revenue Division Circular No.1(42) STM/2009/99638-R

dated July 24, 2013 it was reiterated to all the Ministries/Division with request to
advise all the Departments, Autonomous/Semi-Autonomous bodies and
Corporations under their administrative control to ensure that:

i. Purchase of taxable goods may only be made from sales tax registered
persons against sales tax invoice and payment through banking channels.

ii. In case of public works, it may be ensured that the contractors engaged make
purchases only from sales tax registered persons. Since contractors carrying
out government works against public tender are required to have a BOQ (Bill
of Quantity), the contracting department/organization must require such
contractors to present sales tax invoices of all the material mentioned in the

806
 BOQ as evidence of its legal purchase, before payment is released to them.
At the time of audit, it may be ensured that the above mentioned legal
requirements have been fulfilled.

During the audit of Pakistan Science Foundation (PSF) for the years
2015-17, it was observed that the management awarded contract for construction
of Boundary Wall, Main Gates (2 Nos), Sub Gate including Guard/Security
Room, purchase of Fire Fighting equipment’s/System valuing Rs 12.888 million
to M/s Hard bone International Enterprises vide letter dated January 15, 2015.
The completion period of the project was up to June 30, 2015, which was
extended and completed in June 2017 at a cost of Rs 13.19 million. The
contractor was neither bound by inserting clause in general/special condition of
contract nor was asked to purchase material from the sales tax registered
suppliers. The management released the payment without fulfilling of above legal
requirement.

Audit was of the view that the payment of Rs 13.19 million was released
to the contractor without obtaining sales tax invoices against the material
purchased by him for this project / civil works in violation of above criteria was
held irregular.

During meeting held on January 09, 2019, DAC directed the management
to take up the case through concerned wing of Ministry with FBR for necessary
clarification and advice.

Audit recommends compliance of DAC directive.

17.1.4.2 Loss due to sub-standard work – Rs. 32.09 million

According to Undertaking of the Work Contractor, that in case of Sub-

Standard Work, the Contractor shall responsible for dismantling and re-
construction at his own without demand of any additional cost.

807
 During the audit of Pakistan Science Foundation (PSF) for the years
2015-17, it was observed that CDWP in its meeting held on June 09, 2015
approved the development project titled “Science Talent Farming Scheme (STFS)
for young students Phase- I valuing Rs 1,514.50 million which was revised to Rs
1,285.36 million by CDWP on December 06, 2016. The project management
carried out the work of Transformation of Science Caravan Trucks to Mobile
Science Laboratory through M/s Shahan Bus Body Works Lahore valuing
Rs 32. million against work order dated May 23, 2016 & January 31, 2017. The
Mobile Laboratory/Buses were sent to the field in different locations for
operation but users/Incharge Mobile Laboratory pointed out certain deficiencies
about their working. The management did not take up the matter with contractor
for removing the said deficiencies, which showed the slackness on the part of the
management.

Audit was of the view that the Caravans Trucks were not technically and
physically fits for transformation of Mobile Laboratory as they were facing
certain difficulties /problems at the time of visiting the school for demonstration
like less accommodation of students in Mobile Bus, trapping the Computer
System due to voltage up & down etc. Thus, due to sub-standard work and
imprudent decision expenditure of Rs 32.09 million was held irregular.

During DAC meeting held on January 09, 2019, management appraised

that a fact-finding committee was already constituted. DAC directed that Inquiry
Committee may also examine the scope of work with reference to defective
work/ liabilities.

Audit recommends to investigate the matter in the light of DAC directive.

17.1.4.3 Wasteful expenditure due to appointment of advisor without any

work - Rs 2.38 million

According to Rule 4(3) of Public Sector Companies (Corporate

Governance) Rules, 2013, the chief executive is responsible for the management
of the Public Sector Company and for its procedures in financial and other
808
matters, subject to the oversight and directions of the Board, in accordance with
the Ordinance. His responsibilities include implementation of strategies and
policies approved by the Board, making appropriate arrangements to ensure that
funds and resources are properly safeguarded and are used economically,
efficiently and effectively and in accordance with all statutory obligations.

During the audit of Pakistan Science Foundation (PSF) for the years
2015-17, it was observed that the management appointed Mr. Khalid Qureshi as
Advisor (Civil Works) equivalent to PBS-20 on fixed salary of Rs 210,000 per
month on contract basis for a period of one year against the PSDP/Government
approved Development Project “Science Talent Farming Scheme (STFS) vide
letter dated August 16, 2016. The officer joined the PSF w.e.f November 25,
2016. In CDWP meeting held on December 06, 2016, some amendments i.e.
change of venue for establishment of National Science School under the above
project from federal capital to Chak No.23/UCC in the surrounding of
Sheikhupura District alongside Lahore-Multan Motorway was approved with the
advice that state land for the NSS will be provided by the Provincial Government
free of cost and sponsors will submit modified PC-I accordingly. The revised
PC-I was submitted by the PSF in August 2016. No land was provided by the
Provincial Government to date, resultantly the civil work could not be started.
Whereas on the other side Advisor remained in service without doing any
function /work. Later on his appointment was converted into MP-III w.e.f
February 08, 2017 with revision of pay of Rs 186,610 per month vide PSF office
order dated May 09, 2017 and his service was terminated w.e.f November 24,
2017. Thus, the payment of Rs 2.38 million made to the advisor was tantamount
wastage of Public funds.

Audit was of the view that the Advisor was appointed despite the fact that
the construction of school was postponed/deferred, which shows that undue favor
was extended at the cost of Public Exchequer.

809
 The DAC in its meeting held on January 09, 2019 directed that the matter
may be probed through Fact Finding Inquiry at ministry level and share with
audit.

Audit recommends compliance of the DAC directive.

17.1.4.4 Non-utilization of PSDP Funds -Rs 340.14 million

According to para-3.17 of Guidelines, for Project Management issued by

the Project Wing Planning Commission Government of Pakistan an independent
(Full time) Project Director should be appointed for the Project costing Rs 100
million and above.

During the audit of Pakistan Science Foundation (PSF) for the years
2015-17, it was observed that the CDWP in its meeting held on June 9, 2015
approved the project titled “Science Talent Farming Scheme” (STFS) for 1800
young students, Phase-I at a cost of Rs 1,514.499 million. As per PC-I, life of the
project was five (5) years with starting date of December15, 2015. The cost was
reduced to Rs 1,285.361 million by the CDWP in its meeting held on December
06, 2016. The Ministry of Science & Technology released funds amounting to
Rs 315 million vide its letter dated April 19, 2016. Mr. Jamil Ahmed Qureshi was
appointed as Project Director equal to MP-II scale in accordance to the PC-I of
the project on monthly salary of Rs 269,930 for a period of one year
onJanuary31, 2017 after lapse of two years of the commencement of the project.
The officer joined the duties on February15, 2017 and resigned w.e.f August15,
2017. After his resignation, no Project Director was appointed hence funds
amounting to Rs 340.14 million could not be utilized and surrendered.

Audit was of the view that the management was failed to execute the
project as per project management guidelines and the goals as per PC-I could not
be achieved.

During DAC held on January 09, 2019, the issue was discussed in detail
and DAC observed that despite availability of sufficient funds the same could not
810
be utilized by PSF. DAC directed to probe the matter through Fact Finding
Inquiry at ministry level and share with the audit.

Audit recommends compliance of the DAC directive.

17.1.4.5 Doubtful expenditure due to non-providing audited account of

expenditure –Rs 1.46 million

According to terms of agreement for the Assistance to Scientific

Conference/ Workshop granted by the PSF clause-iii & iv “The Party shall be
bound to submit to the Foundation the Audited Accounts of expenditure incurred
from the grant and shall produce the books of Accounts to a person (s) as and
when appointed by the Foundation for the purpose”. The Party would submit to
the Foundation a certificate indicating the name (s) of Resident
Auditor/Chartered Accountants, who would audit the accounts of the conference.

During the audit of Pakistan Science Foundation (PSF) for the years
2015-17, it was observed that the management released financial assistance of
Rs 1.46 million was released to various societies for arranging scientific
conference/workshops in their universities, colleges and research institutes. The
institutors concerned does not submitted the audited accounts to PSF which
created doubts that the funds were not utilize for the purpose they were granted.
Thus in the absence of audited accounts, the utilization of Funds amounting to
Rs 1.46 million was doubtful and held irregular.

Audit was of the view that the management was required to obtain audited
accounts from the respective institutes but it failed to obtain the same.

During DAC held on January 09, 2019, management informed that

Rs 0.30 million has been recovered and procedure/ SOP for grant of financial
assistance was also revised. DAC directed the management to provide the
complete record regarding adjustment and revised procedure/ SOP regarding
support of financial assistance to audit for verification.

Audit recommends compliance of DAC directive.

811
17.2 STEDEC Technology Commercialization Corporation of
Pakistan (Private) Limited

17.2.1 Introduction
STEDEC Technology Commercialization Corporation of Pakistan
(Private) Limited was established in 1987 under the Companies Ordinance 1984.
The primary objective is to facilitate commercialization of indigenously
researched products, processes and technologies and to assist all Public Sector
R&D Institutions in their commercialization efforts. STEDEC generates revenues
through its commercial activities and no development or non-development
budgetary allocation is made to STEDEC in the Federal Government budget.
STEDEC is a government owned company working under the administrative
control of Ministry of Science and Technology and mandated to assist public
sector R&D organizations in commercialization of their indigenously researched
products, processes and technologies. STEDEC House, Adjacent Aiwan-e-
Science Building, Ferozepur Road, Lahore.

17.2.2 Comments on Audited Accounts:

17.2.2.1 The working results of the corporation for the year 2017-18 as compared
to previous years are given below:
(Rs. in million)
Description 2017-18 Inc/ 2016-17 Inc/ 2015-16
(Dec) (Dec)
Sales-net 198.16 (3) 205.30 24 165.75
Cost of sales (156.61) (4) (162.67) 30 (125.29)
Gross Profit 41.54 (3) 42.63 5 40.46
Distribution Cost (13.40) (3) (13.83) 36 (10.17)
Administrative cost (24.29) (1) (24.49) 6 (23.12)
other expenses (0.23) (46) (0.43) (55) (0.94)
other income 1.50 (68) 4.73 83 2.59
Profit from operations 5.13 (40) 8.61 (2) 8.82
Finance cost (0.61) 20 (0.51) (36) (0.79)
Profit before taxation 4.52 (44) 8.10 1 8.03
Earnings per share 2.30 (71) 8.07 9 7.43
(Source: Annual Audited Accounts)

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The above table shows that the net sales of STEDEC was decreased by 3% in
current year and the costs including cost of sales, distribution and administrative
also decreased with the same pace (by 3 to 4%) but the profit from operations has
been declined by 40% which depicts abnormal behavior and needs justification
with full facts and figures.

17.2.2.2 The collection from debtors was very slow and huge amount of
Rs 29.13 million was stuck up in trade debts upto June 2018 which created
shortage of funds. To fill this gap STEDEC get borrowing from banks, which
needs solid justification.

17.2.2.3 The mandate of STEDEC was to facilitate all Public Sector R&D
Institutions in their commercialization efforts and generate their revenue by
selling their products. Many leading R&D organizations including Pakistan
Council for Scientific & Industrial Research (PCSIR), Pakistan Council for
Research in Water Resources (PCRWR), Pakistan Council for Renewable Energy
Technologies (PCRET), Pakistan Science Foundation (PSF), National Institute of
Electronics (NIE) National University of Science & Technology (NUST) and
COMSATS Institute of Information Technology (CIIT) were in the
commercialization venture of STEDEC. The purpose of STEDEC was to assist
them in commercializing the products and generate income but the accounts
showed that they were focusing on trading and manufacturing their own products
instead of commercialization of R&D products. In 2017-18 the accounts shows
only 0.4% sales of PCSIR’s products of the total sales of STEDEC, which needs
justification with full facts and figures?

17.2.2.4 The cash at bank increased from Rs 0.46 million during 2016-17 to
Rs 1.21 million during 2017-18 which needs justification.

17.2.2.5 As per note 18.1 to the accounts, facilities available for opening of letter
of credit / guarantee from commercial banks aggregate to Rs 36.00 million out of
which Rs 28.40 million remained unutilized which needs justification.

813
814
ANNEXURE

815
816
 Annex-1
MFDAC Paras
The Directorates General, Commercial Audit and Evaluation, Karachi &
Lahore on behalf of the Auditor-General of Pakistan, conducted the audit of
Federal Government organizations which maintain their accounts on commercial
pattern.

As a result of audit conducted during 2018-19, various types of financial

irregularities and losses of public money etc. were detected and reported to the
Ministries/Divisions and organizations concerned. The important irregularities/
losses and malpractices pertaining to various organizations have been printed in
this report, while irregularities/losses not considered worth reporting to the PAC
as listed below were left for Departmental Accounts Committees. The same will
be discussed with the respective Secretaries to the Ministries/Divisions by the
Directorates General, Commercial Audit and Evaluation, Karachi & Lahore.

Sr. Rs. in
Title of Para
No. million
AVIATION DIVISION
Pakistan International Airlines
1. Loss of revenue due to poor planning 4,951.86
2. Loss due to payment of unjustified commissions to the agents 749.820
3. Non-utilization of funds in due time 668.755
4. Irregular expenditure without budget provision 486.273
5. Irregular award of contract 422.980
6. Unauthorized payment at Faisalabad Station 221.590
7. Irregular deployment of officials over and above the approved HRB 70.20
8. Unjustified excess expenditure on medical facilities 35.811
9. Sale of tickets by travel agents without bank guarantee 20.092
10. Irregular appointment of DGM works 19.500
11. Refund of tickets at higher rates 14.981
12. Irregular award of contract for meal services 8.040
13. Irregular appointment of officers/officials on fake degrees 7.800
14. Irregular procurement by splitting 6.52
15. Mis-procurement of stationery items 5.93
16. Loss due to cargo damage/pilferages 5.070
17. Non-reconciliation of expenditure 3.084
18. Irregular confirmation of Manager Revenue 2.718
817
19. Irregular contract appointment of Principle Staff Officer 2.600
20. Loss due to reissuance of one way tickets 0.712
21. Video incident of showering money by employees at PIAC, Islamabad -
station
CABINET DIVISION
Pakistan Bait-ul-Mal
22. Non-recovery of misappropriated funds from district incharge 16.296
23. Disbursement of Individual Financial Assistance without verifying the 2,699.49
individual data from other organizations.
24. Irregular sanction of Individual Financial Assistance by Managing 369.60
Director
25. Irregular payments to 52 Pakistani workers from Saudi Arabia 2.60
26. Non submission of cases related to Individual Financial Assistance for 2,742.68
vetting by Audit Wing
27. Non-creation of office at Multan due to ignoring the BoD decision 87.18
Skyrooms (Pvt.) Limited
28. Unjustified provision of Management Fees 225.589
29. Accumulation of refundable taxes 173.526
MINISTRY OF COMMERCE & TEXTILE
National Insurance Company Ltd
30. Mis-procurement of HVAC System 215.152
31. Loss due to payment of excess taxes 48.000
32. Loss due to dishonesty of ex-employees 44.13
33. Wasteful expenditure on repair and maintenance of lifts 2.508
34. Excess payment on account of insurance claim 1.770
Pakistan Re-insurance Company Ltd
35. Irregular payment of furnishing allowance 2.700
36. Loss due to irregular payment of Board Meetings fee 1.20
State Life Insurance Corporation
37. Unjustified huge expenditure on medical examiners fees 9.693
38. Irregular appointment of a Chartered Accountant Firm 4.864
39. Non-recovery of Excess Cost from Area Managers 3.103
40. Wasteful expenditure on car rental 2.389
41. Loss due to non-adjustment of excess operating cost 2.170
42. Irregular purchases of equipment 1.194
43. Non-recovery of loans from ex-employees 1.166
Trading Corporation of Pakistan
44. Non-production of record of subsidy receivable from Government 41,126.120
45. Loss due to disparity of charging rent to tenants. 101.622
46. Loss on account of non-recovery of Insurance claims 30.550
47. Loss due to non-collection of rent from residential colonies of 3.246
48. Irregular payment of stevedoring & handling charges 2.745
49. Loss due to payment of daily allowance 2.630

818
50. Irregular raise in hotel accommodation rates and unverifiable payments 1.77
to Hotels
51. Non-appointment of CEO and CIA -
Pakistan Expo Centers (Pvt.) Limited
52. Irregular appointment of Assistant Procurement Officer - Rs 2.510 1.64
million
53. Irregular re-imbursement of event food expenses to Expo employees 40.95
54. Loss due to payment of demurrage charges 15.38
55. Less deduction of Advance Tax u/s 236-D on events held from clients 4.69
Pakistan Tobacco Board
56. Loss due to non- deduction of income tax on payment of honorarium 1.478
57. Loss due to premature withdrawal of TDR 7.93
58. Loss due to delay in investment 6.32
MINISTRY OF COMMUNICATIONS
Karachi Infrastructure Development Company Limited
59. Payment of Mobilization Advances without verification of bank 1,682.978
Guarantees
60. Execution of Green Line Bus BRTS project without feasibility 13,861.420
61. Non-submission/preparation of Monitoring Reports 13,861.420
62. Irregular rejection of bid 1,071.122
63. Irregular nomination of Chairman of Board Accused in NAB Scam 400.000
64. Loss due to award of Contracts at highest quoted rates 174.278
65. Loss due to award of Contracts to 2nd lowest bidders 38.997
66. Irregular payment of fee to CEO & Board Members 12.191
67. Irregular purchase of vehicle in violation of monetization policy 5.500
68. Loss in foreign exchange due to payment at higher conversion rate 3.083
69. Irregular payments to consultant 1.569
70. Unjustified payment of repair and maintenance charges 1.436
71. Irregular payment of remuneration Fees to CEO 1.391
72. Irregular payment of vehicle maintenance charges 0.936
73. Irregular payments to the consultants without schedule 0.482
74. Loss due to award of HVAC works contract to highest quoted bidder 0.333
75. Non-appointment of Chief Internal Auditor -
MINISTRY OF DEFENCE PRODUCTION
Karachi Shipyard & Engineering Works
76. Non-recovery against construction of Barge 33.562
77. Irregular procurement of paint 23.790
78. Loss due to renting out a Bungalow at very nominal rate 22.440
79. Irregular procurement of oil water separator 9.893
80. Loss due to late completion of construction work 7.834
81. Loss due to purchase of engines at higher rate 4.217
82. Loss on account of rental income 10.512
83. Irregular split up of purchases 1.098

819
Pakistan Ordinance Factories
84. Non-production of record / documents / information -
85. Loss of revenue income due to non-supply of store 312.30
86. i-Loss on account of monthly rent @ 5% of basic pay due to delayed 4.23
allotment of D-type flats
ii- Loss of revenue income due to retention of residential
accommodations vacant for more than the specified period
87. Wasteful expenditure on pay/allowances of consultant 9.46
88. Purchase of store against contract specification 3.49
89. Irregular appointment of contract employees 1.00
90. Irregular appointment of contract employees 4.91
91. Un-authorized expenditure from the revenue deposit receipt (RDR) 356.47
accounts
92. Un-authorized expenditure from the revenue deposit receipt (RDR) 233.69
accounts
93. Irregular payment to contractors 4.74
94. Non deposit of GST on the procurement of potassium nitrate Gd-I 1.50
95. Revenue loss due to non-repairing of power house’s turbine and 2,327.00
generators
96. Loss on purchase of electricity from WAPDA due to less generation 119.78
from own power house
97. Irregular procurement of Laparoscopic System 12.74
98. Irregular purchase of vehicles 5.17
99. Irregular usage of funds 22.72
100. Loss due to rent out of building below the government approved rates 2.08
101. Non-imposition of LD on delay in supply of store 4.55
102. Loss due to less supply of store by foreign firm 27.44
103. Blockage of advance payment due to defective agreement 33.94
ii- Expected loss of LD charges
104. Non- over hauling of machinery 16.09
Non-utilization of spare parts
105. Expected loss due to delay in initiating risk purchase action against the 2.90
firm
106. Loss due to expiry of medicines 12.80
107. Loss due to procurement of hospital beds at higher rates 2.47
108. Un-authorized utilization of budget allocated for security requirements 4.42
109. Non-recovery of training cost 0.52
110. Un-justified dual benefits to POF Doctors 9.98
111. Blockade of funds due to unnecessary purchase of store 38.21
112. Irregular payment on account of arrears of danger money allowance 100.68
113. Loss of revenue income due to non-delivery of defense store 1.91
114. Non-deposit of 75% monthly rent of POF Guest House into 4.15
Government Treasury
115. Loss due to rejection of lots of mortar bomb 60 mm 14.81
820
116. Irregular appointment of Manager Legal 2.39
117. Un-justified time overrun resulting in extra expenditure 144.30
118. Un verified cost of production due to non maintenance of cost cards 353.32
MINISTRY OF ENERGY (POWER DIVISION)
National Engineering Services of Pakistan
119. Irregular appointment of officer as Junior Ecologist (Grade-08a) having 1.08
irrelevant qualification
120. Loss due to encashment of bank guarantee by client on account of non- 84.01
completion of contract within scheduled time
121. Irregular appointment of Senior Agronomist (Gr-10) 14.95
122. Excess payment of salary due to irregular enhancement of basic pay and 2.76
award of special allowance. Irregular appointment of Taxation-Cum-
Financial Officer (Gr-8b)
MINISTRY OF FINANCE
House Building Finance Corporation
123. Non-recovery of loans disbursed under various 55.672
Pakistan Security Printing Corporation
124. Irregular procurement of machine parts 3.165
125. Mis-procurement of transport service 1.872
State Bank of Pakistan
126. Non-realization of foreign exchange from authorized dealers US$152.016
127. Irregular /unjustified payment of agency commission to Bank of Punjab 38.931
128. Mis-procurement of service from M/s. Maxim Advertising 14.620
129. Mis-procurement of service from M/s. Argus Advertising 9.467
130. Irregular procurements without planning 3.048
131. Irregular award of contract on account of Maintenance of HVAC 1.512
System
132. Undue favor extended to an ex-employee resulting in non-recovery 1.045
Zarai Taraqiati Bank Limited
133. Unjustified payment to the contractors due to wrong estimates 14.23
134. Non collection of outstanding loan amount at the time of 103.33
rescheduling
135. Irregular appointment of Grade-I & II Officers 3.22
136. Irregular hiring of services of consultant. 2.63
137. Loss due to non-recovery of snatched cash 1.00
138. Irregular payment of salary during EOL 1.11
MINISTRY OF INDUSTRIES & PRODUCTION
Export Processing Zones Authority
139. Irregular payment of Eid-assistance 34.030

140. Loss due to less deduction of LD 1.197

141. Unjustified payment of Entertainment expense beyond allowed limit 1.327
Pakistan Industrial Development Corporation
142. Irregular payment of Leave 0.363
821
143. Irregular award of Insurance Contract 44.264
144. Irregular procurement of double Cabin vehicle for Minister 12.152
145. Non-account for of the amount in revenue collection accounts 0.500
Pakistan Chemical & Energy Sector Skill Development Company
146. Unjustified expenditure for purchase of Mobile phones 0.127
147. Irregular appointment after the age of superannuation 1.12
148. Non-holding of Board of Directors’ meetings -
149. Violating of Memorandum of Association due to non-conducting of -
regular meetings of Board of Directors
Pakistan Gems & Jewellery Development Company
150. Blockade of funds by extending undue favour to Bank 18.572

151. Irregular procurement due to negotiation with contractor 3.575

Pakistan Institute of Management
152. Mis-procurement of printing & stationery items 4.180
153. Irregular payment to the contractors on supply of water 2.244
Pakistan Steel Mills
154. Loss due to non-recovery of utility charge from outsiders 1.972
155. Non-production of the record of Pakistan Steel Cadet College -
Pakistan Steel Fabricating Company (Pvt.) Limited
156. Loss due to non-utilization of machinery 705.188
157. Non-transferring of ownership of freehold land in the name of PSFCL 650.05
158. Loss due to non-release of Bank Guarantees 1.728
159. Loss due to Liquidated Damage imposed on PSFCL 1.621
160. Loss due to non-completion of work within time 1.440
Pakistan Machine Tool Factory
161. Loss on production of finished goods 1.853
162. Non-implementation of PAC directives for timely up-loading -
/publication of the minutes of the BoDs on official website
Technology Up-gradation and Skill Development Company
163. Irregular disbursement of institutes selected without advertisement 44.38
164. Excess payment to institutes not recommended 1.26
165. Irregular procurement of machines below specification 42.09
166. Irregular appointment of employees having irrelevant qualification 4.08
167. Lapses of funds under development programme and Poor performance 71.56
resulted to unutilized/surrendered of development funds
Heavy Electrical Complex
168. Irregular procurement of overhead crane without proper 2.30
installation/commissioning
169. Non compliance of corporate Governance Rule regarding composition -
of Board of Directors and non- conducting of quarterly boards meeting
170. Non-formation of committees by BoD -
Leather Craft Development Company
171. Excess payment on purchase of land in violation of the approved 18.13
822
 cost as per PC-I.
Irregular purchase of land in violation of advertisement 48.13
172. Non-receipt of performance guarantee due to defective contract/ -
agreement
173. Wasteful expenditure due to non-utilization of building for LCDC Unit 153.49
1, 2 & 3
174. Purchase of raw material in violation of the PP Rules 17.05
175. Non insurance of company assets 5.06
176. Non-establishment of field units in Southern Punjab as per PC-I -
177. Non-compliance of government instructions regarding verification of -
degrees / certificates
178. Loss of interest income due to placement of funds in current account 39.75
179. Loss of interest income due to placement of funds in current account 39.75
Small and Medium Enterprises Development Authority
180. Blockage of funds due to purchase of furniture and office equipment 16.32
181. Non-production of record 7.82
182. Non submission of PC-IV to Planning and Development Division -
183. Lapse of funds due to preparation of unrealistic budget 9.00
184. Irregular appointment of employees 3.20
185. Irregular appointment of CEO after superannuation -
Spun Yard Research & Development Company
186. Non-compliance of Government instructions regarding verification of -
degrees / certificates
187. Noncompliance of IAS-8 due to non-rectification of financial -
statements for 2015-16
188. Irregular purchase of vehicles 3.65
Utility Stores Corporation
189. Irregular payment of allowance in lieu of vehicle and POL 3.30
190. Irregular issuance of NOC resulted in to non-recovery 3.25
191. Irregular provision of armed guards to Ministry 1.24
192. Excess procurement of Qarshi Jam-e-Shirin due to stock pushing 96.12
193. Loss due to extra payment to sugar mills on account of handling charges 65.56
MINISTRY OF INFORMATION, BROADCASTING AND NATIONAL HISTORY &
LITERARY, HERITAGE
Pakistan Television Corporation
194. Loss of advertising income due to late renewal of contract 700.00
195. Hiring of the services of foreign cricketer banned due to corruption by 7.31
ICC
196. Non-approval of MD before the initiation of procurement process of 1,124.11
Sports Right
197. Grant of discount to defaulter agencies 64.03
198. Irregular appointment of anchors without advertisement 13.20
199. Unjustified expenditure on arranging “Game on Hai Show” 4.89
200. Irregular hiring of ex-cricketers 48.45
823
Pakistan Broadcasting Corporation
201. Non recovery of inadmissible payment 1.67
202. Misuse of transport at PBC BH Lahore 1.30
203. Wasteful expenditure incurred on PBC Foundation 34.74
204. Non carrying out annual physical verification of stores and assets 2,348.37
205. Inordinate delay in execution of development project “100 KW MW 139.84
transmitter” Gwadar
206. Non transparent procurement of equipment and non recovery of 7.60
liquidated charges
207. Irregular procurement of spares from M/s NEC without open 4.98
advertisement
208. Irregular payment due to acceptance of defective stores 1.12
209. Mal-Administration in development project 155.14
210. Irregular promotion of Producer 5.34
National Book Foundation
211. Non-recovery of stamp duty from lessee 0.62
212. Non-deduction of sales tax from suppliers and its deposit in Govt. 13.16
Treasury
213. Un-authorized investment of funds 27.00
214. Un-authorized retention of development funds and 24.00
irregular conversion into non-development funds
215. Extra expenditure due to inordinate delay in completion of construction 32.55
of building
216. Loss of interest due to late investment of funds 1.82
MINISTRY OF INFORMATION TECHNOLOGY AND TELECOMMUNICATION
Pakistan Software Export Board (Guarantee) Limited
217. Loss to state due to non participation in GITEX Technology Week 6.23
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Pakistan Agricultural Storage and Services Corporation
218. Loss due to unnecessary purchase and subsequent misuse of vehicle 1.75
219. Irregular construction of plinths in non-transparent manner 68.48
220. Irregular award for construction of plinths against repeat order 0.99
221. Irregular provision of vehicle monetization allowance 1.86
222. Loss due to non-deduction of liquidated damages from 1.05
M/s BAO Rohan Associates
223. Loss due to non-deduction of liquidated damages from M/s Yaqoob 1.02
Construction
MINISTRY OF MARITIME AFFAIRS
Gwadar Port Authority
224. Irregular payment to the Consultant 29.081
225. Excess expenditure on execution of work 8.169
226. Wasteful expenditure incurred on account of dinner and lunch 1.747
Korangi Fisheries Harbour Authority
227. Loss due to non-uniform annual ground rent from tenants -
824
228. Loss due to discrepancies in berthing fee -
229. Irregular appointment of Legal advisor -
230. Non-conducting investigation against corruption -
231. Loss due to non-compliance of Lease Agreements -
232. Unjustified assignment of Court cases to a lawyer -
Pakistan National Shipping Corporation
233. Loss due to procurement from 2nd lowest bidder 2.388
234. Irregular procurement of Spares for M.V Chitral in violation of PPRA 2.233
Rules-2004
235. Mis-procurement in violation of PPRA Rules - 2004 2.041
Port Qasim Authority
236. Irregular award of contract 806.139
237. Non-observance of compliance of Code of Corporate Governance -
Rules, 2013
238. Mis-procurement due to opening of tender against press tender date -
239. Non-advertisement of procurement plan on PPRA website -
240. Non-implementation of directives of Honorable Supreme Court of -
Pakistan
MINISTRY OF OVERSEAS PAKISTANIS AND HUMAN RESOURCES
DEVELOPMENT
Employees’ Old-Age Benefits Institution
241. Irregular/unjustified payment of director fee to the EOBI officers 1.125
242. Un-justified payment of air ticket to BoT members 0.405
243. Irregular payment of personal pay to RO 0.081
244. Non-compliance of Prime Minister’s directives regarding verification of -
Degrees
245. Illegal / Unlawful obtaining of contribution under Self Employed 13.591
Scheme
246. Irregular award of contract 4.784
247. Excess investment in Government Securities against prescribed limit 67.20
248. Non-reconciliation with TMFBL of pension disbursements 6,219.820
249. Excess payments on account of service charges 123.156
250. Irregular payment of Adhoc Relief Allowance 2013 52.167
251. Irregular payment of transportation charges 13.391
252. Irregular expenditure on medical facilities 2.252
MINISTRY OF PLANNING, DEVELOPMENT & REFORMS
National Logistics Cell
253. Loss due to non-recovery of cost of old material of steel at estimated 20.69
rates
254. Procurement of tyres through un-fair competition 216.24
255. Non-recovery from contractor due to use of sub 2.43
standard bricks
256. Loss /undue financial benefit to the contractor due to 1.52
application of higher rates
825
257. Undue financial benefit to the supplier due to application of higher rates 3.44
258. Irregular payment to the Sub-Contractor 7.05
259. Irregular expenditure due to non-conducting lab test of unsuitable 94.28
260. Overpayment due to sanction of incorrect rates analysis for concrete 43.09
261. Irregular award of work 7,895.78
262. Overpayment due to allowing the excessive rates of asphalt mix 5.61
material
263. Overpayment due to wrong calculations in rate analysis of Pre Stressing 10.93
Strand Wire
264. Loss to government due to non-accountal of receipt and consumption of 89.14
cement
265. Overpayment due to non-reusing dismantled road pavement 41.49
266. Double payment of boring of pile 1200 Mm Dia 81.75
267. Loss due to application of higher rates 8.11
268. Overpayment due to award of work on higher rates 6.18
269. Overpayment due to award of work on higher rates 9.07
270. Non-recovery of penalty / forfeiture of security and risk and cost - 31.27
271. Overpayment/inadmissible payment due to addition of night shift 17.03
272. Non-recovery on account of use of steel other than Pakistan Steel 42.51
billet
273. Non-insurance of work 126.20
274. Irregular/overpayment due to application of incorrect rates 3.43
275. Loss due to withholding of amount of work done by client 8.26
MINISTRY OF SCIENCE AND TECHNOLOGY
Pakistan Science Foundation
276. Irregular recurring expenditure on pay & allowances due to up- 0.58
gradation of post
277. Irregular expenditure due to procurement of services 6.61
278. Wasteful expenditure incurred on research projects 329.92
279. Mis-procurement of scientific equipments 4.06
280. Irregular appointment of Research Associates 1.79

826
 Annex-2
Non-submission of Audited Accounts

Annual audited accounts of Public Sector Enterprises for the year

2017-18, were required to be submitted to the Directorates General of
Commercial Audit and Evaluation, Karachi & Lahore by November 30, 2018.
Despite requests, the Organizations (listed below) failed to submit their annual
audited accounts for the year(s) indicated against each by the prescribed date.
While non-submission of audited accounts needs to be explained, efforts should
be made for immediate finalization and submission thereof:

Sr.
Name of Ministry/Division/Organization Year of Accounts
No.

AVIATION DIVISION (CABINET SECRETARIAT)

1. Pakistan International Airlines Corporation 2017
2. Skyrooms (Pvt.) Limited 2014 to 2017
CABINET DIVISION
3. Printing Corporation of Pakistan (Pvt.) Limited 2016-17 & 2017-18
4. Pakistan Tourism Development Corporation 2016-17 & 2017-18
5. Pakistan Bait ul Mal 2017-18
6. Pakistan Institute of Parliamentary Services 2017-18
MINISTRY OF COMMERCE AND TEXTILE
7. National Insurance Company Limited 2015 to 2017
8. Trading Corporation of Pakistan 2017-18
9. Pakistan Expo Centers (Pvt.) Limited 2015-16 to 2017-18
10. National Textile University 2016-17 & 2017-18
11. Pakistan Tobacco Board 2017-18
12. Pakistan Horticulture Development and Export Company 2017-18
MINISTRY OF DEFENCE PRODUCTION
13. Karachi Shipyard & Engineering Works 2016-17 & 2017-18
14. POF Welfare Trust Fund 2016-17 & 2017-18
15. Institute of Space Technology 2016-17 & 2017-18
MINISTRY OF ENERGY (POWER DIVISION)
16. National Engineering Services (Pvt.) Limited 2016-17 & 2017-18
FINANCE DIVISION
17. Zarai Taraqiati Bank Limited (ZTBL) 2017 & 2018
18. Kisan Support Services Limited (KSSL) 2018
19. Small and Medium Enterprises Bank 2018
MINISTRY OF INDUSTRIES & PRODUCTION
20. Export Processing Zones Authority 2007-08 to 2017-18

827
21. Pakistan Industrial Development Corporation 2017-18
22. Pakistan Industrial Development Corporation Medical Centre 2017-18
23. Karachi Dies & Model Company Limited 2017-18
National Industrial Parks Development and Management 2017-18
24.
Company
Pakistan Chemical & Energy Sector Skill Development 2016-17 & 2017-18
25.
Company
26. Pakistan Institute of Management 2012-13 to 2017-18
27. Pakistan Steel Mills 2015-16 & 2017-18
28. Pakistan Steel Fabricating Company (Pvt.) Limited 2015-16 to 2017-18
29. Pakistan Machine Tool Factory 2017-18
30. ENAR Petrotech Services (Pvt.) Limited 2017-18
Small and Medium Enterprises Development Authority 2017-18
31.
(SMEDA)
32. State Engineering Corporation (SEC) 2017-18
33. Utility Stores Corporation of Pakistan (USC) 2017-18
34. Aik Hunar Aik Nagar (AHAN) 2017-18
35. Industrial Facilitator Center 2017-18
36. National Fertilizer Marketing Limited 2017-18
37. Pakistan Engineering Company 2017-18
38. Pakistan Stone Development Company 2017-18
MINISTRY OF INFORMATION BROADCASTING AND NATIONAL HISTORY AND
LITERACY HERITAGE
39. Associated Press of Pakistan Corporation 2013-14 to 2017-18
40. Pakistan Broadcasting Corporation 2013-14 to 2017-18
41. Pakistan Television Corporation Limited 2017-18
42. Shalimar Recording and Broadcasting Company Ltd 2016-17 & 2017-18
43. National Book Foundation 2017-18
MINISTRY OF INFORMATION TECHNOLOGY AND TELECOMMUNICATION
44. Pakistan Software Export Board (Guarantee) Limited 2017-18
MINISTRY OF INTERIOR
45. National Database and Registration Authority 2014-15 to 2017-18
MINISTRY OF NATIONAL FOOD SECURITY & RESEARCH
46. Agri Business Support Fund 2017-18
MINISTRY OF MARITIME AFFAIRS
47. Gwadar Port Authority 1986-87 to 2017-18
48. Korangi Fisheries Harbour Authority 2015-16 & 2017-18
49. Port Qasim Authority 2006-07 to 2017-18
MINISTRY OF OVERSEAS PAKISTANI & HUMAN RESOURCE DEVELOPMENT
50. Employees’ Old-Age Benefits Institution 2011-12 to 2017-18
51. Overseas Employment Corporation (Pvt.) Ltd 2017-18
52. Overseas Pakistanis Foundation 2017-18

828
 STRATEGIC PLANS DIVISION
53. Heavy Mechanical Complex 2015-16 to 2017-18
MINISTRY SCIENCE AND TECHNOLOGY
54. Pakistan Science Foundation 2017-18
55. Pakistan Scientific & Technological Information Center 2017-18
56. Pakistan Museum of Natural History 2017-18

829
 Annex-3
Organizations 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.
Sr.
Name of Ministry/Division/Organization Status/Remarks
No

AVIATION DIVISION (CABINET DIVISION)

Pakistan International Airlines Corporation
1. Midway House (Pvt.) Limited Business closed since
2000; however,
liquidation is still in
process.
CABINET DIVISION
Pakistan Tourism development Corporation
2. PTDC Motels South (Pvt.) Limited Operational activities
closed since 1990
3. Malam Jabba Resorts Limited Operational activities
closed since May 2008
4. Associated Hotel of Pakistan Limited Operation closed since
long
5. Pakistan Tours Limited Operation closed since
long
MINISTRY OF INDUSTRIES AND PRODUCTION
Pakistan Automobile Corporation Limited
6. Pakistan Motorcar Company (Pvt.) Limited Operation closed since
1992; however,
liquidation is still in
process.
7. Republic Motors (Pvt.) Limited Operation closed since
1986; however,
liquidation is still in
process.
State Cement Corporation of Pakistan (Pvt.) Limited
8. Associated Cement Limited, Rohri Operation closed since
830
 1998. The Company
was placed under
liquidation on June 28,
2005, which is still in
process.
FINANCE DIVISION
9. Agricultural Marketing and Storage (Pvt.) Limited
Under liquidation since
1993
10. Federal Bank for Co-operatives Under liquidation since
2002
MINISTRY OF OVERSEAS PAKISTANIS HUMAN RESOURCES
DEVELOPMENT
11. Kaghan Brick Works Limited Operation closed since
1996

831
 Annex-4
Recoveries made at the instance of Audit

During the year 2018-19, audit inspection of Public Sector Enterprises of

Federal Government was conducted and results thereof pinpointing various types
of financial irregularities and losses of public money, etc. were communicated to
administrative Ministries / Divisions and Organizations concerned in the shape of
Audit Inspection Reports and Audit Paras.

In certain cases, the concerned formations while accepting the losses /

irregularities pointed out by Audit, made recoveries to the tune of Rs. 39,971.645
million at the instance / pursuance of audit as detailed below:

(Rs. in million)
Sr. Name of Brief particulars of recoveries Amount
No Ministry/Division/org recovered
anization
MINISTRY OF COMMERCE
1 PRCL Non-recovery of Dues from companies 3,430.000
Rs.4054.040 million
2 PRCL Pursuance of under litigation case of Zakat 113.722
refund Rs.113.722 million
3 SLIC Fraudulent payment against fake polices 4.660
Rs.106.757 million
4 TCP Non-recovery of rent from tenants of godown Rs 66.207
79.030 million
MINISTRY OF ENERGY (POWER DIVISION)
5 NESPAK Non-recovery of consultancy charges from 12.82
client Rs 15.053 million
Loss due to non-claiming of final payment Rs
6.93 million
MINISTRY OF ENERGY (PETROLEUM DIVISION)
6 LCDC Irregular payment of leave encashment Rs. 0.371
4.912 million
7 PPL Non-recovery of insurance claim 2,043.710 231.000
million
8 PSO Expected loss of more than Rs. 2.4 Million due 2.400
to unjustified payment of advance rent Rs. 2.4
million
9 PSO Loss due to non-recovery M/s. Saba Power Rs. 1,008.253
1,008.253 million

832
10 PSO Non-recovery of investment from 4.786
retailers/dealers Rs.118.000 million
11 PSO Non-recovery of late load penalty 235.360
Rs. 650.16 million
12 PSO/LNG Recovery of outstanding dues SSGC & PSO 11,749.998
13 SSGCL Non-recovery of outstanding Balance against 18,664.148
RLNG
14 SSGCL Gas theft by commercial customers Rs.664.364 92.457
million
15 SSGCL Non-recovery from Govt. Department Rs. 115.961
207.556 million
MINISTRY OF DEFENCE PRODUCTION
16 KS&EW Non-recovery of refundable sales taxes 88.204
Rs.203.336 million
17 KS&EW Non-recovery of service charges Rs.94.343 30.241
million
FINANCE DIVISION
18 HBFC Non-recovery of default amount against post 74.070
dated cheque Rs. 86.759 million
19 HBFC Non-recovery of loans from defaulting 1,099.898
customers Rs.1,020.47 million
20 HBFC Non-recovery of loans from defaulting 2.727
customers guarantor due to removal of
documents from safe custody Rs.4.743 million
21 HBFC Non-recovery of decreed amount from 6.984
defaulters Rs. 4.367 million
22 PSPC Comments on Audit Accounts Rs.1,492.71 1,492.710
million
23 ZTBL Irregular payment of salary during EOL Rs. 1.58
1.109 million
24 ZTBL Loss due to non-recovery of snatched cash Rs. 0.07
1.00 million
MINISTRY OF INDUSTRIES AND PRODUCTION
25 EPZA Non-recovery of balance on account of 3.123
electricity and water bill charges
Rs. 4.906 million
26 EPZA Loss due to non-recovery from investor 1.690
Rs.3.560 million
27 EPZA Non-recovery from various companies Rs. 32.496
29.401 million
28 NIP&MC Non-recovery from various companies 233.000
Rs.362.354 million
29 PMTF Loss due to Non-recovery of Rs.139.292 million 96.162
30 ENAR Petro Non-recovery of outstanding dues against 26.550
833
 different debtors Rs.42.894
31 USC Non-deduction of incidental charges 14.87
Rs. 13.20 million
32 USC i-Loss due to procurement of substandard utility 4.32
brand ghee Rs. 25.50 million
ii-Non –deduction of penalty for supply of
substandard ghee/ oil by vendors
Rs. 3.03 million
33 USC Procurement and sales of Barkat Ghee at prices 29.62
higher than the market prices Rs. 36.47 million

MINISTRY OF INFORMATION, BROADCASTING AND NATIONAL HISTORY &

LITERARY, HERITAGE
34 NBF Non recovery of rent and stamp duty from lessee 10.93
Rs. 5.377 million
MINISTRY OF MARITIME AFFAIRS
35 PNSC Non-recovery of freight charges from oil 410.535
refineries Rs. 476.628 million
36 PNSC Non-recovery damages charges 308.098
Rs. 6,375.000 million
MINISTRY OF OVERSEAS PAKISTANIS AND HUMAN RESOURCES DEVELOPMENT
37 EOBI Non-adjustment of advances Rs.6086.164 144.000
million
38 EOBI irregular opening of Bank Account in TMFBL 126.514
Rs.400 million
MINISTRY OF SCIENCE & TECHNOLOGY
39 PASTIC Expected loss due to non-recovery of 1.11
outstanding amount from debtors - Rs. 1.115
million
Total 39,971.645

834
 Annex-5
(See Para No.1.1.4.7)

Statement showing the detail of loss due to low seat factor

70% seat factor with 143,808 passengers (34,925 /.17=205,441 x 70%

=143,808), PIAC could have been in a position to generate revenue of Rs.
2,876.17 million (143,808 x Rs. 20,000 per pax). The detail is given as under:

Average seat factor

Period No. of flights No. of passengers
(%)
2017 476 16,563 17.0
2016 666 18,362 16.6
Total 1142 34,925 16.8

The seat factor in business class of PIAC flights remained very low from
Islamabad to International and domestic sectors during 2017 due to which PIAC
was deprived of the revenue of Rs. 945.078 million (approx)
(69168x70%=48417-16915=31502 x Rs.30,000 per passenger approx) on the
different routes. The detail is as under:

capacity
Economy
Sr. Business No. of in Seat
Aircraft plus and Occupancy Vacant
No. capacity flight business factor
economy
class
1. B-77LR 35 274 145 1807 5075 36 3268
2. B-773 35 358 671 6706 23485 29 16779
3. B-777 35 292 799 800 27965 03 27165
4. A-330 28 269 18 280 504 56 224
5. B-77D 25 280 274 1930 6850 28 4920
6. B-77W 18 422 62 480 1116 43 636
7. A-320 8 162 2636 4912 21088 23 16176
Total 16915 - - 69168

(2,876.170 + 945.078 = 3,821.248)

835
 Annex-6
(See para No.1.1.4.16)

Statement showing the detail of non-collection of cancellation charges

Date of Amount of
Ticket Number Code Name agent
refund refund
1-Jan-01 2144011858479 -1058941 1058941 2739146 ISBIT-PIAC
1-Jan-01 2144011858480 -162477 162477 2739146 ISBIT-PIAC
3-Oct-16 2149178505127 -105380 81050 2730301 5AJ80-BABA INT
1-Jan-01 2144011874090 -91000 91000 2739146 ISBIT-PIAC
2-Aug-16 2142102147309 -86392 84892 2739146 ISBIT-PIAC
11-Aug-16 2142102208515 -86392 84892 2739146 ISBIT-PIAC
22-Aug-16 2142102274752 -86392 84892 2739146 ISBIT-PIAC
25-Aug-16 2142102292078 -86392 84892 2739146 ISBIT-PIAC
25-Aug-16 2142102292088 -86392 84892 2739146 ISBIT-PIAC
25-Aug-16 2142102292091 -86392 84892 2739146 ISBIT-PIAC
26-Aug-16 2142102295925 -86392 84892 2739146 ISBIT-PIAC
30-Aug-16 2142102312171 -86392 84892 2739146 ISBIT-PIAC
30-Aug-16 2142102312802 -86392 84892 2739146 ISBIT-PIAC

836
 Annex-7
(See para No.1.1.4.17)

Statement showing the detail of Non-Production of requisitioned auditable

record
Sr.
Req No. Date Details of information / record
No
1 01 28-07-2016  Approved sanctioned strength along with
actual placement against each post (with
soft copy).
 Detail list of employee with present
position
 List of employee deputed/attached
outside engineering department
 Detail of disciplinary cases decided /pending
against employee.
 Detail list of employee
terminated/removed/suspended and
reinstated.
 Detail list of outsourced employees with date
of appointment, designation and salary
detail.
 Detail of contract employee with detail.
2 02 25-04-2016  Schedule of Accounts relating to engineering
department (with soft copy).
 Payment vouchers (D-15) foreign and local.
 Detail of receivable write off.
3 03 28-07-2016  CPC minutes for 2014 and 2015.
 Register with soft copy.
 Stock register with soft copy.
 Dead stock register covering items never
utilized ever ( with soft copy)
 Dead stock register covering items utilized
for some period( with soft copy)

837
  Detail of slow moving items(with soft copy)
 List of demanded spare parts remained
undelivered by P&L.
 Detail of beyond economical repair items
 Physical verification report.
 Detail of written off items (with soft copy).
4 4 04-08-2016  Enquiry report
 Complete detail of PIAC fleet with
operational and non-operational status.
 Payment vouchers.
5 5 05-08-2016  List of agreement regarding aircraft along
with copies
 Dry lease agreements.
6 7 08-08-2016  Quarterly report of engine overhaul.
7 8 10-08-2016  PW 4152 engine management program
agreement
 Engine induction ESN900-493 from Air
France
 Copy of contract with Airfrance for repair
8 9 11-08-2016  Idle parts detail since 3 years or more
9 10 12-08-2016  Reason of warranty denial cases with
complete details.
10 15 22-09-2016  Complete detail of payment made regarding
B-777 since 2003 to 2014 to M/S Goodrich
with copies of all agreements.
11 16 22-9-16  Detail of employees visited abroad for
training along with copy of approval.
 Detail of engineering and non-engineering
employees visited abroad for engineering
function along with copy of approval.
 Name of officials who obtained EASA
related training with date of training.
12 17 22-09-2016  Case file of selecting consultancy firm for
the recovery of EASA part 145 certification.

838
  Total payment made to consultancy firm
 Detail of other expenditure incurred by
PIAC for the above assignment regarding
recovery of EASA part 145 certification.
 Copy of documents showing subsequent
implementation against finding of
consultancy firm.
13 18 29-08-2016  Complete detail of parts send abroad for
repair.
14 19 07-09-2016 - CAPITAL BUDGET
 Detail of approved capital budget with actual
expenses for 2014 and 2015
 Copy of Capitalization policy
 Detail of cost capitalized during 2014 and
2015
 Detail of cost pending for capitalization
during 2014 and 2015 along with reason.

B-DUTY AND TAXES

 Duty and taxes policy regarding repair
abroad.
 Detail of Duty and taxes paid during 2014
and 2015 regarding repair abroad.
 Detail of pending Duty and taxes cases
during 2014 and 2015 regarding repair
abroad.

C-PENALTIES
 Detail of penalty imposed /paid regarding
repair abroad.
 Details of penalty imposed against vendor
along with status of recovery.
 Correspondence file regarding disputed
839
 matter with Federal Board of Revenue or
other Government Body.
C- PERSONAL DEPARTMENT
 Approved and sanctioned strength of
engineering and finance department
 List of posted employee along with duty
assigned with date of posting
 Personnel file of group VI and above along
with job description.
15 20 27-09-2016  Complete case files regarding following
approved EMC minutes relating to Pakistan
International Airline Corporation, for the
year 2014-15 may please be provided for the
purpose of audit and scrutiny:
 EMC minutes Number 163/01
 EMC minutes Number 163/02
 EMC minutes Number 164/03
 EMC minutes Number 164/05
 EMC minutes Number 165/0OA/03
 EMC minutes Number 166/02
 EMC minutes Number 159/01
 EMC minutes Number 167/01
16 21 29-09-2016  Complete overtime details department wise
 Complete detail of shops with their working
capability ,budgeted allocation with regard
to resources, inventory purchase and in hand
detail ,fixed asset detail, accident cases etc.
17 22 29-9-16  Detail of all service bulletin issued along
with actual work carried out against service
bulletin
 Rotable inventory levels of LRU and hot
parts
24 3-10-16  Detail of Contract, board minutes copy and
actual payment to Movenpick hotel under
different heads.
840
 25 6-10-16  Details of aircraft Routable such as Engines,
APU, other aircraft components etc.
26 14-10-16  Detail of Penalties imposed by foreign
carriers/airline
 MRO objectives and achievements
 Detail of all repair work carried out by MRO
 Detail of repair work carried out for others
with cost benefit analysis.
 Detail of revenue earned through MRO.
27 14-10-16  Detail of trainee engineers with detail of
appointment, training given, trainee
suspended with dues outstanding etc
31 11-11-2016  Detail of scarp engine sold / exchange.
 Complete movement of engines declared
surplus with current status.
 Detail of amount realized as a result of scrap.
1 9-8-2017

1. Internal Audit Reports for the last three years.

2. Budget verses Actual with working file.

2 3 9-8-2017 1. Procurement Register of Uniform Section.
3 4 15-8-2017 1. Annual Procurement Plan (APP) for the year
under review.
4 5 18-8-2017 i. Complete file regarding budget allocation
for consultancy fee for designing, planning,
supervision & quality control of PIA
infrastructure at NIIAP, Islamabad (Item-3
of CPC meeting held on 29-07-2016).
ii. Complete file regarding proposed
amendment in Internal Audit Co-sourcing
engagement (Item-5 of CPC meeting held
on 29-07-2016).
841
 iii. Complete file regarding supply of meal to
PIA employees through Canteen/Cafeteria
(Item-02 O/A CPC meeting held on 29-07-
2016).
5 6 18-8-2017 i. Complete file regarding supplying and
applying of 5 MM heavy duty screed with
Epoxy Floor Coating at B ay II Ispahani
Hanger Engineering KAP. (Item-1 of
584/16 CPC meeting held on 30-11-2016).
ii. Complete file regarding payment to Ipad
vendors. (Item-10 of 584/16 CPC meeting
held on 30-11-2016).
iii. Complete file regarding M/s. Captain
Poultry outstanding payment. (Item-05 of
586/16 CPC meeting held on 06-01-2017).
6 7 18-8-2017 Detail of all cases referred to NAB / FIA
pertaining to P & L business as well as the
officials/officers involved may be furnished.
7 8 21-8-2017 i. Complete file regarding London Security
Agreement (Item-1 of 574/16 CPC meeting
held on 25-01-2016).
ii. Complete file regarding procurement of A-
320 tools & equipment for check C1, C-12
(Item-12 of 574/16 CPC meeting held on
25-01-2016).
iii. Complete file regarding purchase of spare
APU for A-320 Aircraft. (Item-16 of 574/16
CPC meeting held on 25-01-2016).
8 9 21-8-2017 i. Complete file regarding CFM 56-5B Engine
purchase to support A-320 Fleet (Item-1 of
575/16 CPC meeting held on 30-03-2016).
ii. Complete file regarding overhaul project for
A-320 Fleet (Item-2 of 575/16 CPC meeting
842
 held on 30-03-2016).
iii. Complete file regarding procurement of A-
320 tools &equipments (Check A1 to A-8)
(Item-14 of 575/16 CPC meeting held on
30-03-2016).
iv. Complete file regarding revision of GHA –
SKT. (Item-15 of 575/16 CPC meeting held
on 30-03-2016).
v. Complete file regarding disposal of MT
1000 (Test Machine) (Item-16, of 575/16
CPC meeting held on 30-03-2016).
vi. Complete file regarding extension of M/s
filly agreement payment (Item-18, of
575/16 CPC meeting held on 30-03-2016).
vii. Complete file regarding hiring of Transport
Services for Speed-ex at domestic Network
(Item-19, of 575/16 CPC meeting held on
30-03-2016).
viii. Complete file regarding determination of
BPTO 2380 (Turbo Oil) as proprietary item
(Item-1 O/A , of 575/16 CPC meeting held
on 30-03-2016).
09 10 21-8-2017 i. Complete file regarding Z / VSE U-
Gradation & Migration of software (Item-1
of 576/16 CPC meeting held on 28-04-
2016).
ii. Complete file regarding pharmacopeia year
2016 (Item-9 of 576/16 CPC meeting held
on 28-04-2016).
iii. Complete file regarding procurement of
Aircraft Weighing Machine (Item-11 of
576/16 CPC meeting held on 28-04-2016).
iv. Complete file regarding payment to M/s
843
 Filly Transport Service (Item-12 of 576/16
CPC meeting held on 28-04-2016).
v. Complete file regarding towing tractors for
ATR 42/72 (Item-5 O/A of 576/16 CPC
meeting held on 28-04-2016).
10 11 21-8-2017 i. Complete file regarding extension of
transport contract (Item-1 of 578/16 CPC
meeting held on 14-06-2016).
ii. Complete file regarding hiring of transport
services throughout domestic station along
with copy of enquiry report (Item-15 of
578/16 CPC meeting held on 14-06-2016).
11 12 22-8-2017 i. Complete file regarding A-320 APU GTCP
131-9 A contract with Truimph Aviation
Services. (O/A-Item-01 of 581/16 CPC
meeting held on 22-09-2016).
ii. Complete case file for hiring of hotel
services at Sialkot for cabin crew. (O/A
Item-01 of 582/16 CPC meeting held on 05-
10-2016).
iii. Complete file regarding procurement of
CFM56-5B4 Engine fan blades set. (Item-7
of 586/16 CPC meeting held on 06-01-
2017).
iv. Complete file regarding B-777 purchase of
APU Tooling Purchase (Item-8 of 586/16
CPC meeting held on 06-01-2017).
v. Complete file regarding approval of B-777
landing gear shipset (AP-BHX) Advance
exchange and overhaul. (O/A-Item-02 of
586/16 CPC meeting held on 06-01-2017).
vi. Complete case file for approval of A-320
Fleet engines (CFM56-5B4/P) repair and
844
 overhaul. (O/A-Item-03 of 586/16 CPC
meeting held on 06-01-2017).
vii. Complete case file for approval of B-777
(AP-BMG & AP BMH) APU’s repair.
(O/A-Item-04 of 586/16 CPC meeting held
on 06-01-2017).
12 14 23-8-2017 i. Complete case files for levy of Sindh
Services Sales Tax on Caterers (Item- 4 of
218/16 of SPC meeting held on 09-06-
2016).
13 15 23-8-2017 i. Complete case file of SAPS SGHA
agreement 2017-18 (Item-01 of 231 /16 SPC
meeting held on 28-12-2016).
ii. Complete case file regarding post facto
approval for water supply through private
tanker in PIA KAP (Item-17 of 231 /16 SPC
meeting held on 28-12-2016).
iii. Complete case file regarding post facto
approval for water supply tanker NLC
(Item-18 of 231 /16 SPC meeting held on
28-12-2016).
14 16 25-8-2017 i. Complete case file of amendment- Call
Centre facility management contract (O/A-
Item-01 of 579 /16 CPC meeting held on 29-
07-2016).
ii. Details of advances to foreign suppliers for
the procurement of items
iii. Complete case file for hiring of rental
generator set from M/s. Allied Rental
Modarba for PTC building during period
from 2014-17
15 17 28-08-2017 21 files of commercial purchase

845
16 18 29-08-2017 One file awaited out of 14 files
17 20 05-09-2017 Out of 98 files, 37 files awaited
18 21 06-09-2017 i. List of P&L Stock Rooms at PIA
network
ii. List of record maintained in all stores of
PIA network
iii. List of stores inventory at TGS,
Engineering, Flight Kitchen, Uniform
stores
iv. Physical verification reports of all stores
for the years 2015 and 2016
v. Details of shortage and excesses of stores
items
vi. List of slow moving items with cost
vii. Discarded and scrapped stores items with
value
viii. Flight kitchen outdated /expired list with
cost
ix. Job description of each officer and staff
posted at all stores
19 22 06-09-2017 38 files mentioned in the requisition may be
provided for audit on priority basis.
20 23 06-09-2017 i. Procurement files/record along with
payment files in respect of uniform cloth
and other related items procured for
Cockpit and Cabin Crew staff for
“Premium Flights”.
ii. Files/record of procurement under “Risk
Purchase Clause” during the period
2016.
21 24 08-09-2017 i. Manual/ SOP P&L Department
ii. Objectives of P&L Department

846
22 25 13-09-2017 i. Complete file for sale A-310 AP-BEQ
Aircraft to a German Company.
ii. Intimate the name of the company to whom
and when A-310 Aircraft was sold by PIA
and at what price?
iii. Complete case file for hiring of above A-310
Aircraft in exhibition at Germany.
iv. Intimate the date on which A-310 was sent
to Leipzig, Germany for an exhibition.
v. Whose approval A-310 was sent to Leipzig,
Germany for an exhibition when the aircraft
was under disposal through tendering
process which was tampered?
vi. Intimate under whose approval a film
company hired the plane in Malta for 10
days for a price of € 210,000 and whether
the said amount has been received by PIA.
vii. Intimate whether the approval of relevant
official authorities of Govt of Pakistan was
obtained before allowing the use of national
flag carrier’s aircraft for a pro-Israeli movie.
viii. Intimate the procedure for booking of Charter
Flight along with operating manual.
ix. Who is authorized to book the charter flight?
x. Intimate whether Director P&L was
authorized to involve in the negotiation,
finalization and signing of the Charter
Agreement.
xi. Intimate whether the plane was airworthy.
xii. Intimate the book value of the plane?
xiii. Intimate as to why the perfectly functioning
A-310 aircraft’s fuselage (body), the six
engines and the four auxiliary power units
were sold, even less than their scrap price.
xiv. Movement record of the above A-310 during
2016-17.
847
xv. Income / expenditure statement of the above
A-310 Aircraft for 2016-17.

xvi Intimate whether M/s Firefly Aircraft

Salvaging offered a price of $157, 500 only

for the purchase of six engines and four APUs

which is significantly lower than its current

written down value of around $4, 726, 792

and even lower than the scrape value of

around $603, 416.

xvii. Whether the sale proceed of the above

Aircraft has been received by PIA, if so,
documentary evidence may also be furnished.
xviii. What departmental actions were taken against
officials found involved in sale of the aircraft.
xix. Complete file of hiring of Mr. Helmut
Bachhofner as a technical consultant may be
furnished.
xx. Intimate whether advertisement was published
for hiring the services of Technical Consultant
in line with PPRA and PIA Rules.
xxi. Intimate whether the appointment of
consultant was made with the approval of the
Board.
xxii. What was the responsibility/job description of
the consultant (Mr. Helmut Bachhofner)
xxiii. What was tenure of his job and total amount
paid to him relating to pay, perquisites and
other benefits.
xxiv. Intimate whether Mr. Helmut Bachhofner was

848
 shareholder and partner in the company who
participated in the bid, and ended up being a
beneficiary of this shady deal.
23 27 14-09-2017 1. List of persons deployed for Janitorial services
by M/s. H. Z. Saqlain Traders at Faisalabad
Station along with Registration Numbers of
employees registered with EOBI and Social
Security Institution
2. Details submitted by M/s. H. Z. Saqlain Traders
on PR-2 form as required under Article-4B of
the Agreement dated.29-06-2016 with M/s. H.
Z. Saqlain Traders
3. Provide list of paid challans of EOBI monthly
contribution of the persons deployed by M/s. H.
Z. Saqlain Traders during 2016-17
4. Provide list of paid challans of Social Security
monthly contribution of the persons deployed
by M/s. H. Z. Saqlain Traders during 2016-17
5. All supporting documents of vendors which
were considered in the technical Evaluation for
proposals of Janitorial Services by Works and
Projects Division vide Minute dated.17-12-2015
(Copy attached).
6. It has been mentioned in the Evaluation Report
of provisioning of Janitorial Services at
Faisalabad (copy attached) that M/s. Super Care
Services were disqualified due to non-
submission of number of personnel list and
original/attested copies of Registration with
EOBI and Social Security. Submission of
number of personnel list and original/attested
copies of Registration with EOBI and Social
Security provided by other bidders may be
provided.
7. Case file for the grievance of bidder, M/s. Super

849
 Care Services for their rejection at Faisalabad
Station along with all supporting documents
(letter dated.28-03-2016 attached).
24 30 14-09-2017 1. List of persons deployed for Janitorial services
by all contractors at Karachi, Islamabad,
Lahore, Faisalabad, Multan, Quetta and
Peshawar along with Registration Numbers of
employees registered with EOBI and Social
Security Institution
2. Details submitted by all the contractors of above
locations on PR-2 form as required under
Article-4B of the Janitorial Agreements of
2016-17.
3. Provide list of paid challans of EOBI/Social
Security monthly contribution of the persons
deployed by all the contractors at above
locations during 2016-17.
25 31 18-09-2017 Details of the vendors (foreign/local) who failed
to honor their commitments after taking advance
payments for the last five years may please be
furnished to audit on the following format:-
S. No. Name of vendor Name of item P.O. No. Amount of Dat
& advance adv
date

26 32 19-09-2017 1. Complete contract file for up gradation of 777

Aircraft (Business class) to M/s. Stelia
2. Complete contract file for up gradation of 777
Aircraft (In-Flight Entertainment system) to
M/s. Panasonic Avionics Corporation
3. Progress/completion reports of the above jobs
4. Details of payment/ advance payment to M/s.
Stelia and M/s. Panasonic Avionics Corporation
5. Copies of bank guarantees obtained from the
above contractors
6. Latest position of the cases

850
27 33 20-09-2017 1. Details of TA/DA expenditure of the
Director/GM/DGM P&L during 2016
2. Copies of TA/DA bills/vouchers of the
Director/GM/DGM P&L during 2016 (local and
foreign)
3. Approval of the competent authority for
foreign tours of Director/GM/DGM P&L
4. Detailed Summary/purpose of foreign tours
along with files
28 34 21-09-2017 Complete files along with the copies of the
agreements of Hotel accommodation for
Cockpits and Cabin crew of PIAC at all foreign
stations executed during the year 2015 & 2016
may please be furnished to audit on priority
basis.
29 35 22-09-2017 1. List of contractors/ companies providing
Human Resources to PIAC
2. Complete contract file for Dishwashing/ Pot
washing for the years 2016 and 2017
3. Complete contract file for outsourcing of
employees
4. Complete contract file for outsourcing of
technical persons
5. Tender/contract file of M/s. United HR for the
year 2016
6. Tender/ contract files of M/s. Fulcrum HR
provider company
30 36 26-09-2017 1. Minutes of Hotec Committee for the years
2015 & 2016
2. Objectives and SOP/Manual of Hotec
Committee
3. Minutes of EMC Committee for the years 2015
& 2016
4. Objectives and SOP/Manual of EMC
Committee
851
31 37 26-09-2017 1. The earning through adds was required to be
divided in the ratio of 70/30 of between the
parties under contract. The details of amount of
revenue received on this account may be
provided.
2. The details of amount due on this account may
be provided.
3. Correspondence file on account of receipt of
revenue and allied correspondence may be
provided
4. Cost-benefit analysis for outsourcing of
Hamsafar Magazine may be provided
5. Details of expenditure incurred on outsourcing,
production, printing etc. may be provided.
6. Details of losses sustained in the past on
printing and distribution of Hamsafar
Magazine in PIA Printing Press may be
intimated.
32 38 02-10-2017 1. File of grievance of M/s. Atlas Equipment
against rejection of bids of tender for
procurement of Mayonnaise
2. File of grievance of M/s. Elmeer Corporation
against rejection of bid of tender for
procurement of Natural Yogurt (80 gram cup)
33 39 09-10-2017 Following information/record may be please
furnished for audit on priority basis.

1. Working papers of item 11 of CPC 584-16

minutes dated.30-11-2016 regarding extension
of contract period for existing private security
service provider

2. Extension agreement of 55 days of M/s. Askari

Guard Pvt. Ltd. as approved vide item 11 of
CPC 584-16 minutes dated.30-11-2016 with

852
 payment details

3. New tender and contract agreement file of

security companies as mentioned in the above
minute with financial impact and payment
details.

853
 Annex-8
(See para No.1.1.4.20)

List of irregular appointment of officers/official

Sr.
Case Title Court Type Lawyer Name Judge/Court Number
No.
1 ShaziaMaqsood Vs PIAC Civil Court ISB Fake Degree SardarAtifNazir Habib Bilal Ranjha
2 Capt. Azhar Khan Vs PIAC Civil Court ISB Fake Degree Babar Ali Nasir Ahmed Ganjana
3 ShahidKhattakvs PIAC Civil Court ISB Fake Degree UmerVerdag Habib Bilal Ranjha
4 M. Rehan Butt vs PIAC Civil Court ISB Fake Degree ZahidMehboob MubashirHasan
5 Mehboob Ahmed Vs PIAC CIVIL COURT Fake Degree Siddique Akbar Abbasi YasirMehmood
RWP
CIVIL COURT
M. Jamilvs PIAC Fake Degree ZahidMehboob ShaukatMian
6 RWP
7 M. IlyasVs PIAC HIGH COURT ISB Fake Degree UmerVerdag
8 M. Asifvs PIAC HIGH COURT ISB Fake Degree MazharAkram MohsinAkhtar
9 TanveerRiazAbbasiVs PIAC HIGH COURT ISB Fake Degree MazharAkram MohsinAkhtar
10 Khalid ImtiazVs PIAC HIGH COURT ISB Fake Degree Momin Ali Miangul Hassan
11 Zulfiqar Ali Bijrani HIGH COURT ISB Fake Degree Ms. RizwanFaiz M Munir
12 ArshadMashi V/S PIAC NIRC Fake Degree Raja Ghazanfer FalakSherFarooqa
13 KhawajaRaufSehgalVs PIAC NIRC Fake Degree Muhammad Waqas FalakSherFarooqa
PIAC VsShelaNasir, Ashfaq
NIRC Fake Degree MushtaqHussainBhatti Hamid Hussain
14 Ahmed, Atiq Ur Rehman
15 Raja Saeed Ahmed Vs PIAC NIRC Fake Degree ZahidMehboob FalakSherFarooqa
16 TahirNaveed NIRC Fake Degree Siddique Akbar Abbasi FalakSherFarooqa
17 CH. Rizwan NIRC Fake Degree SardarAtifNazir FalakSherFarooqa
18 ZaheerHussain Shah vs PIAC NIRC Fake Degree AttiqueTahir FalakSherFarooqa
19 M.YounasVs PIAC NIRC Fake Degree Muhammad Waqas Baqir Ali Rana
20 Abdul RehmanVs PIAC NIRC Fake Degree MazharAkram Hamid Hussain
21 ArshadKhokharVs PIAC NIRC Fake Degree SardarAtifNazir Baqir Ali Rana
22 IjazYounasVs PIAC NIRC Fake Degree HusnainMuzaffar FalakSherFarooqa
23 Shafique Ahmed Vs PIAC NIRC Fake Degree SardarAtifNazir Full Bench
24 Tahira Sultan Vs PIAC NIRC Fake Degree RizwanSatti FalakSherFarooqa
25 Muhammad JamilVs PIAC NIRC Fake Degree Momin Ali FalakSherFarooqa
26 AsadMunib Sheikh Vs PIAC NIRC Fake Degree SardarAtifNazir FalakSherFarooqa
27 ShaistaIshaqvs PIAC NIRC Fake Degree ZahidMehboob FalakSherFarooqa
28 Raja Kamran NIRC Fake Degree Siddique Akbar Abbasi Hamid Hussain
29 MazharHussainvs PIAC NIRC Fake Degree ZahidMehboob FalakSherFarooqa
30 SohailBakshvs PIAC NIRC Fake Degree ZahidMehboob FalakSherFarooqa
31 M. Kamran Khan vs PIAC NIRC Fake Degree ZahidMehboob FalakSherFarooqa
Mirza Abdul Rauf Sultan
NIRC Fake Degree HusnainMuzaffar FalakSherFarooqa
32 Baigvs PIAC
33 IrumGulvs PIAC NIRC Fake Degree Siddique Akbar Abbasi FalakSherFarooqa
34 NaeemAkhtarvs PIAC NIRC Fake Degree Ms. RizwanFaiz FalakSherFarooqa
35 M. NasirMasoodvs PIAC NIRC Fake Degree Siddique Akbar Abbasi Hamid Hussain
36 M. Jalil Khan vs PIAC NIRC Fake Degree Siddique Akbar Abbasi Hamid Hussain
Abdul Hameed Shan & others
NIRC Fake Degree Ms. RizwanFaiz Hamid Hussain
37 vs PIAC
38 Jahangir vs PIAC NIRC Fake Degree Ms. RizwanFaiz Hamid Hussain
39 Khalid Hussainvs PIAC NIRC Fake Degree RizwanSatti FalakSherFarooqa

854
40 M. Riazvs PIAC NIRC Fake Degree SardarAtifNazir Hamid Hussain
Naila Dost Muhammad vs
NIRC Fake Degree Siddique Akbar Abbasi Full Bench
41 PIAC
42 M. Zaheer Babar vs PIAC NIRC Fake Degree Siddique Akbar Abbasi Full Bench
Akhlaq Ahmed Chohanvs
NIRC Fake Degree Momin Ali Hamid Hussain
43 PIAC
44 Ch. Mumtaz Ali vs PIAC NIRC Fake Degree Momin Ali Hamid Hussain
45 M. Nawaz vs PIAC NIRC Fake Degree SardarAtifNazir Hamid Hussain
KhurramShehzad P No. 60593
NIRC Fake Degree Momin Ali Hamid Hussain
46 Security Guard vs PIAC
KhurramShehzad P No. 60219
NIRC Fake Degree Siddique Akbar Abbasi Full Bench
47 PSS vs PIAC
48 QismatShaheenvs PIAC NIRC Fake Degree Siddique Akbar Abbasi Full Bench
49 Irfan Shah Noshahivs PIAC NIRC Fake Degree Siddique Akbar Abbasi Full Bench
50 ZafarIqbalvs PIAC NIRC Fake Degree SardarAtifNazir Hamid Hussain
51 AdeemAbbasi NIRC Fake Degree SardarAtifNazir Hamid Hussain
52 SabirurRehman Civil Court ISB Fake Degree SardarAtifNazir Raja Farrukh Ali Khan
53 AzharHussain Shah NIRC Fake Degree SardarAtifNazir NIRC Full Bench
54 TanvirRiazAbbasi NIRC Fake Degree SardarAtifNazir NIRC Full Bench
55 ZafarIqbal NIRC Fake Degree SardarAtifNazir NIRC Full Bench

855
 Annex-9
(See para No.1.1.4.36)

Statement showing negligence Engineering Department of PIAC

Purchase Amount
Inv. No. Date Dated Part No. Qty UOM Remarks
Order No. (US$)
129370300 17-12-10 PB1009340 17-12-10 21118890-2- 1 EA 4,930.75 777-CSP Late Fee,
Labor Core Return 11 days Late

1407823600 23-09-11 PB1104137 23-09-11 4305990100- 1 EA 3,389.1 777-CSP Customer

labor Damage PO PB1104137

1409479800 28-09-11 PB1104141 28-09-11 4305890071 1 EA 6,099.5 777-CSP Customer

Labor Damage PO PB1104141

1403054200 13-09-11 PB1104149 13-9-11 30-2300-6 1 EA 8,300.65 777-CSP Customer

LABOR Damage PO PB1104149

1407823700 23-09-11 PB1107316 23-09-11 4100941D 1 EA 1,530.4 777-CSP Customer

LABOR Damage PO PB1107316

1373704200 30-6-11 PB1103112 30-6-11 3930007-105 1 EA 35,076.6 CSP LATE FEE ,

LABOR LATE 28 DAYS
1373704000 30-6-11 PB1103120 30-6-11 2118890-2 1 EA 10,758.00 CSP LATE FEE ,
LABOR LATE 24 DAYS
1373703600 30-6-11 PB1104128 30-6-11 8KE144AAB1 1 EA 2,926.5 CSP LATE FEE ,
LABOR LATE 25 DAYS

Total 73,011.5

856
 Annex-10
(See para No.1.1.4.37)

Statement showing the detail of excess payment to M/s Master Management

Sr. Payment Month and Amount

Bill No & Date
No. Date Year (Rs.)
1 24-08-17 1432,1433 dt 31-03-17 3-17 531,829
2 29-08-17 1498,1499 dt 30-4-17,1562,1563 dt 31-5-17 4-17 & 5-17 958,254
3 18-07-17 1336,1337 dt28-2-17 2-17 483,381
4 21-06-17 1286,1287 dt 31-1-17 1-17 845,823
5 11-04-17 1234, 1235 dt 31-12-16 12-16 1,088,069
6 22-02-17 1151,1152 dt 30-11-16 11-16 731,173
7 11-01-17 1022,1023 dt 30-9-16 9-16 746,707
8 27-01-17 1089,1090 dt 31-10-16 10-16 660,534
9 27-12-16 974,975 dt 31-8-16 8-16 702,326
10 30-11-16 906,907 dt 31-7-16 7-16 530,351
11 31-10-16 794,795 dt 30-6-16 6-16 440,691
Total Paid to M/s Master Management from 1-6-16 to 31-5-17 7,719,138
Total awarded contract to M/s Master Management from 1-6-16 to 31-5-17 4,020,000
Irregular Excess Payment 3,699,138

857
 Annex-11
(See para No.1.1.4.39)

Statement showing the detail of short deposit of amount

Amount
Sr.
P.O. No. deposited by
No.
Agent (Rs.)
1 02059237 380,000
2 05671042 460,086
3 02059252 400,000
4 0006072 200,000
5 11412138 412,000
6 A-64491756 875,000
7 19388230 415,525
Total amount deposited by Agent in PIA 3,142,611
Total amount deposited by PIA in Bank slip# 401376 (Rs.
1,852,086
380,000 , 460,086 , 400,000 , 200,000 , 412,000= 1,852,086)
Short deposit by PIA in bank (1,290,525)

858
 Annex-12
(See para No.4.1.4.2)

Statement showing the detail of misplaced/unreturned inventory

of Chairman house
Sr. Amount
Date Description C. V. No.
No. (Rs.)
1 20-03-2009 Laptop (Sony) 196/03 142,000
2 26-03-2009 Panasonic PABX 236/3 24,500
3 30-03-2009 Carpet(12) JV-26/3 837,600
4 31-03-2009 Sony Bravio LCD2 Nos. JV-19/3 227,360
5 02-04-2009 Laptop (Sony) 33/04 142,000
6 07-04-2009 Toyo Chairs 63/04 4,212
7 07-04-2009 Carpet 1 No. 63/04 11,200
8 07-04-2009 Vacuum Cleaner 63/04 21,576
9 07-04-2009 Geyser 63/04 21,576
10 07-04-2009 Split AC 63/04 27,500
11 07-04-2009 Stereo Set (Sony) 63/04 43,152
12 07-04-2009 DVD Home Theater 63/04 82,128
13 08-04-2009 Carpet 78/04 60,000
14 13-04-2009 Furniture & curtains for lounge upstairs 122/04 251,812
15 13-04-2009 Furniture & curtains for study room 122/04 272,743
16 13-04-2009 Furniture & curtains for bedroom 122/04 906,938
17 13-04-2009 Furniture & fixture (Tanveer) 71/08 103,8417
18 23-04-2009 Generator 22 KVA (International Power Service) JV-11/04 1,022,400
19 24-04-2009 General Split 2 ton 2 Nos. 229/04 135,000
20 06-07-2009 Laptop 38/07 98,000
21 11-08-2009 ST-3100 LC 10 KVA UPS (7) (Systek Pvt. Ltd.) 80/8 1,392,510
22 01-10-2009 Air condition 4 tons Mitsubishi 10/10 185,000
23 18-11-2009 Computer UPS (Al- Maida) 10/10 185,000
24 14-01-2010 Printer 092 75,370
25 10-02-2010 Electric Items 408x435 7,250
26 03-05-2010 Laptop 1181 271,440
27 10-05-2010 Security system 1239 164,056
28 04-06-2010 Sony Laptop 1488 99,500
29 22-06-2010 Panasonic 2 ton AC1644 1644 78,000
30 02-07-2010 Scanner Machine 1769 10,950
31 07-09-2010 Sony Bravia LCD TV 2319 93,523
32 13-04-2010 Wooden Almirah 985/10 242,00
Total 7,790,813
859
 Annex-13
(See para No.4.1.4.6)

Statement showing the detail of payment

(Amount in Rs.)
Pay Prior to absorption Pay after absorption
Jan –June, 2008 53,499 x 6
= 320, 994 44, 850 x 6 = 269, 100
July-Aug, 2008 62,398 x 2
= 124, 796 40, 350 x 2 = 80, 700
Sep.-Oct, 2008 66,567 x 2
= 66, 567 40, 350 x 2 = 80, 700
Nov, 2008 68,651 x 1
= 68,651 40, 350 40, 350
Dec, 2008 70,627 x 1
= 70,627 40, 350 40, 350
Total 718, 202 511, 200
718, 202
1, 229, 402 x 4
= 4,917,608
Pay as Chief Manager on May 31, 2016 (Rs.194, 148 x 4) 776,592
5,694,200

860
 Annex-14
(See para No.4.2.4.2)

Detail of bonus paid to Class-I to Class-IV Officer

(Rs. in million)
Sr. No. Particular Amount
1 Bonus Class –I (Officers) 28.980
2 Bonus Class –II (Officers) 20.302
3 Bonus Class –III (Employees) 5.443
4 Bonus Class –IV (Employees) 5.821
Total 60.546

Detail of operational losses

(Rs. in million)
Accidents
Revenue Marine Marine 2017
Fire and Aviation Engineering Treaty
Account cargo hull Aggregate
others
Net premium
1063.24 43.20 28.45 152.89 120.39 434.37 3,255.78 5,098.322
revenue
Less: Net claims (701.39) (25.05) (58.88) (5.58) (127.58) (501.33) (2,320.17) (3,739.974)
Less: Expenses (175.87) (12.32) (8.55) (33.60) (23.22) (76.18) (414.43) (744.168)
Less: Net
(194.05) (7.27) (1.25) (22.58) (16.09) (41.75) (891.13) (1,141.936)
commission
Operational
(8.06) (1.44) (40.23) 91.13 (14.31) (184.89) (369.95) (527.757)
Profit / (Loss)

861
 Annex-15
(See para No.4.2.4.5)

PRCL PDP-Suspended Companies 2017

Sr.
Name of Company No. of Shares
No.
1 Pakistan Guarantee Insurance Company Limited 22,029
2 Sterling Insurance Company Limited 23,250
3 Union Insurance Company of Pakistan Ltd. 56,227
4 Khurshid Spinning Mills Limited 7,600
5 Sahrish Textile Mills Limited 13,510
6 Taj Textile Mills Limited 5,600
7 Hashmi Can Company Limited 5,250
8 Hussain Industries Limited 15,820
9 Universal Oil Mills Limited 30,000
10 Dada Bhoy Cement Industries Limited 17,300
11 Zeal Pak Cement Factory Limited 39,130
12 Southern Electric Power Company Limited 13,963
13 Dewan Automotive Engineering Limited 52,333
14 Muhammad Farooq Textile Mills Limited 4,100
15 Crescent Jute Product 157,314
16 Pangrio Sugar Mills 100,000
Total 563,426

862
 Annex-16
(See para No.4.3.4.4)

Statement showing the detail of irregular appointment of officers

Desig Required Qualification

Sr.
Name of officer natio Cs. No. qualificatio at the time of Remarks
No.
n n appointment
1 Mr. Afrasiab Khan Asstt 8-2124-9 Masters Graduation He was appointed on
Mgr. 6-11-2012. He was not
holding requisite qualification
ie. Masters. He acquired MA
political science after his
appointment
2 Mr.Ejaz Hanif But Asstt 4-0212-0 Masters Graduation He was appointed on
Mgr 6-11-2012. He was not
holding requisite qualification
ie. Masters. He acquired MA
political science 10-12-12
after his appointment
3 Mr.Saifullah Lohar Asstt 0-2329-0 Masters Graduation He was appointed on
Mgr 10-05-2010. He was not
holding requisite qualification
ie. Masters. He was deficient
in qualification
4 Mr.Tanzeel Ejaz Asstt 0-2422-6 Masters Graduation He was appointed on
Pirzada Mgr 6-11-2012. He was not
holding requisite qualification
ie. Masters at the time of
appointment
5 Mr.Babu Khan Asstt 6-0802-6 Masters Graduation He was appointed on 12-04-
Mgr 2010. He was not holding
requisite qualification ie.
Masters. after his appointment
6 Mr.Syd Hur Abbas Offic Graduation Inter He was not holding requisite
e qualification ie Graduation at
Asstt. the time of appointment
7 Mr. Ali Ghulam Asstt Graduation Inter He was not holding requisite
Mgr qualification ie Graduation at
the time of appointment
8 Mr.Samina Shahid Asstt Graduation Inter He was not holding requisite
Mgr qualification ie Graduation at
the time of appointment

863
9 Mr. Fatehullah Asstt Graduation Inter He was not holding requisite
Khan Mgr qualification ie Graduation at
the time of appointment

(Amount in Rupees)
No. of
Designation Salary PM Period Total amount
employees
Asstt Managers 70,000 69 months 05 24,150,000
Office Asstt 50,000 69 months 04 13,800,000
Total 37,950,000

864
 Annex-17
(See para No.4.3.4.8)

List of Debit balances in Assets & Receivables accounts Stands Irrecoverable

S. DATE OF A/C. A/C. CODE

AGING BRIEF DESCRIPTION
No. TRANSACTION CODE TOTAL ( Rs.)
1 N/A 24 62,418.00 Very Old Imprest for Franking Machine Deposit
2 Prior to 2000 050-AF 34,225.23 More than 15 Cash & Cheque collection deposited in the
years old bank but not credited by bank
3 Prior to 2000 051-AE 5,322.00 More than 15 Cash & Cheque collection deposited in the
years old bank but not credited by bank
4 Prior to 2000 070-CA 7,179.00 More than 15 Cash & Cheque collection deposited in the
years old bank but not credited by bank
5 Prior to 2000 100-ZA 17,409.10 More than 15 Cash & Cheque collection deposited in the
years old bank but not credited by bank
6 Prior to 2000 130-ZA 59,822.70 More than 15 Cash & Cheque collection deposited in the
years old bank but not credited by bank
7 Prior to 1989 130-CD 29,697.30 Very Old Cash & Cheque collection deposited in the
bank but not credited by bank
8 Prior to 1972 171 26,930.00 Very Old Loan to Staff/Officers
9 Prior to 1976 174 29,729.00 Very Old Advance against Two Month's Salary
Advance
10 Prior to 2000 178 17,727 More than 15 House Rent Adv-Mr. M. Sarwar PR 40056-6
years old
11 N/A 188-ZA 2,662.00 Very Old Rain Relief Advance-Mr. Mubashir
Mehmood
12 N/A 189 48,473.00 Very Old Advance against Expenses
13 Prior to 1973 190-ZA 1,295.00 Very Old Advance to Field Executives-Rural Insurance
14 29-06-73 191 30,995 Very Old Advance to Contractors-Mr. Manzoor Elahi
15 06-01-93 194 32,483.00 Very Old Security Deposit against Death Claims
16 13.05.75 196 54,949.50 Very Old Sedule of Claims others
17 01-10-82 198 12,939.00 Very Old Amount Receivable (Defalcation by staff)
18 199-ZA 287,817.00 Very Old Defalcation by Field Workers
19 18/07/2002 199-ZA 51,050 More than 14 Defalcation by Field Workers
years old
20 N/A 205-ZA 157,656 Very Old Cash With Ex-Management
21 Prior to2002 206 984,222 More than 14 Account Receivable (Others)
years old
22 21-04-91 293 24,545.00 Very Old Vehicle Loan to S.R.-Ch. M. Akram 5356586
23 20.10.1997 295 31,886.00 Very Old Vehicle Loan to SR up to 18/08/2000
24 17.06.1997 297 179,506.00 Very Old Vehicle Loan to SO up to 18/08/2000
25 09/07/1988 300 24,022.00 Very Old Emergency Loan to SR up to 18/08/2000
26 25/05/1993 305 11,154.00 Very Old Eid Advance to SR up to 18/08/2000
27 14-11-94 383 SB 37,500.00 Very Old Loan Advance under Surgical Benefits
28 10-01-64 385 ZA 125,660.76 Very Old Loan on Personal Security
29 30-01-91 389 51,508.00 Very Old House Building Loan Staff
30 08-Aug-85 390 55,668.00 Very Old Conveyance Loan to Staff
TOTAL 2,445,400.49

865
 Annex-18
(See para No.4.4.4.1)

Receivables from Govt. Institutions and other companies

2017-18
2016-17 2015-16 2014-15 2013-14
(Un-Audited)
Rs. in million
Utility Stores Corporation of Pakistan 32,426.56 35,098.46 36,876.94 36,682.02
National Fertilizer Marketing Ltd 12,623.65 15,858.37 11,390.54 16,361.91
Sindh Food Department 2,920.29 2,920.29 2,920.29 2,920.29
Punjab Food Department 1,617.36 1,617.36 1,617.36 1,617.36
Baluchistan Food Department 1,814.72 1,814.72 1,814.72 1,814.72
KPK Food Department 2,438.90 2,438.90 2,438.90 2,438.90
AJK Food Department 130.35 130.35 130.35 130.35
Government of GilgitBaltistan 1,252.03 1,252.03 1,252.03 1,252.03
Directorate General Procurement Army 185.40 185.40 185.40 185.40
Pakistan Navy 79.08 79.08 79.08 79.08
TCP Employees 0.06 0.06 0.06 0.37
Others 3.42 3.42 3.42 3.42
Total 48,267.572 55,491.81 61,398.43 58,709.07 63,485.46

Age Analysis of above receivables from Govt. Institutions and other

companies

2016-17 2015-16 2014-15 2013-14

Rs. in million
Less than 1 year - 8,315.48 17,588.00 40,473.61
1-3 Years 44,798.83 42,390.50 30,428.68 12,490.22
More than 3 years 10,692.98 10,692.45 10,692.40 10,521.64

866
 Annex-19
(See para No.5.1.4.1)

Statement showing the detail of mis-appropriation of funds

Total Per
Sr. Original Charged Original payment month
Name Designation
No. from KIDCL. P/M to Personnel A/C. Difference
(Rs.)
1 Mr. Tanveer Mustafa Chief Resident Engineer.
400,000 243,542 156,458
Mirza
2 Mr. Nadeem Jamal Resident Engineer 275,000 165,433 109,567
3 Mr. Rais Ahmed Resident Engineer 275,000 141,091 133,909
4 Mr. M. Babar Khan Asstt. Resident.
225,000 127,183 97,817
Engineer
5 Mr. Abdul Rab Lanjar Asstt.Resident. Engineer 225,000 73,042 151,958
6 Mr. Muhammad Amin Asstt.Resident. Engineer 225,000 100,701 124,299
7 Mr. Akhtar Hussain Asstt.Resident. Engineer 225,000 96,717 128,283
8 Mr. Naseem Ahmed Asstt.Resident. Engineer 225,000 96,331 128,669
9 Syed Iajaz Hussain Material Engineer 150,000 86,624 63,376
10 Mr. Muhammad Faisal Asstt. Material Engg. 90,000 46,723 43,277
11 Mr. Javed Iqbal Asstt. Material Engg 90,000 45,953 44,047
12 Mr. Qasim Abbas Quantity Surveyor 90,000 44,817 45,183
13 Mr. Muhammad Talha Asstt. Q. Surveyor-CQS 50,000 30,000 20,000
14 Mr. Mehmood Kareem Site Inspector 125,000 25,000 100,000
15 Mr. Tahir Rasheed khan Site Inspector 125,000 49,583 75,417
16 Mr. Muhammad TAftab Site Inspector
125,000 54,350 70,650
Khan
17 Mr. Riaz Ahmed Site Inspector
125,000 44,817 80,183
Shahbaz
18 Mr. Ebad Ameen Khan Site Inspector 125,000 36,982 88,018
19 Mr.Muhammad Asghar Site Inspector
125,000 25,000 100,000
Jawaid
20 Mr. Anjum Rasheed Surveyor 100,000 47,677 52,323
21 Mr. Muhammad Ilyas Surveyor
100,000 44,817 55,183
Qureshi
22 Mr. Muhammad Surveyor
100,000 52,359 47,641
Dilshad Baig
23 Mr. Adil Anwar Surveyor 100,000 40,000 60,000
24 Mr. Liaquat Ali Anjum Material Inspector 75,000 39,920 35,080
25 Mr. Zeshan Ahmed Material Inspector 75,000 39,920 35,080
26 Mr. Salaman Yaqoob Material Inspector 75,000 40,000 35,000
27 Mr. Muneer Ahmed Material Inspector 75,000 38,000 37,000
28 Mr. Muhammad Document Controller
75,000 36,976 38,024
Rizwan
29 Mr. Waqas Surveyor Helper 40,000 16,000 24,000
30 Syed Faraz Ali Surveyor Helper 40,000 16,000 24,000
31 Mr. Sajjad Imam Surveyor Helper 40,000 16,000 24,000
867
32 Mr. Asif Shahzad Surveyor Helper 40,000 16,000 24,000
TOTAL 4,230,000 1,977,558 2,252,442
Total of Differnce Rs.2,252,442*36 months = 81,087,912
Grand Total Rs.81,087,912

868
 Annex-20
(See para No.5.1.4.2)

Statement showing the detail of irregular award of contracts

Sr. Amount
Particulars
No. (Rs. in million)
1 Non-execution of liquidity damages(LD) condition Rs.442.884 m. 442.884
2 Non-recovery of LD Charges from the contractor of BRTS/UT-01, 21.933
amounting to Rs. 21.933 million
3 Non-imposition of LD Charges for delaying work of GL-01 247.859
Rs.247.922 m.
4 Non-impose of LD Charges for delaying work of GL-02 Rs.140.975 140.975
million.
5 Non-impose of LD Charges on non-completion of work GL-03 100.374
Rs.100.374 m
6 Non-imposition of LD Charges on non-completion of work GL-05 206.168
Rs.206.168 million.
7 Non-Imposition of penalties on failure of consultant to comply with 1,106.700
time to completion Rs. 1106.7 million
8 Non-Imposition of penalties on failure of consultant to comply with 2,192.000
time to completion in design work Rs. 2192.0 million.
9 Non-imposition of LD Charges for delay in work of GL-02 - Rs. 140.979
140.979 million
Total 4,599.872

869
 Annex-21
(See para No.5.1.4.3)

Statement showing the detail of irregular revision of the cost of contracts

Original contract
Name of Award of Cost Increased Total Revised Cost % age
Name of Project amount
Contractor contract (Rs. in million) ( Rs. in million) increased
(Rs. in million)
Construction of Muhammad Dec, 2015 145.796 73.542 219.338 50.44
water tank Hussain Builders
Malik &
Company
Construction of CRFG-Metricon January, 1,813.614 665.930 2,479.544 36.72
RCC elevated Joint Venture 2016
Section
Construction Ch. Abdul Latif Mar, 2016 1,084.717 325.040 1,409.757 29.97
Section from & Sons Pvt. Ltd
Nagan Chowrangi
to Nazimabad
Construction of Agha Mar, 2016 785.867 217.882 1,003.749 27.73
Board office Construction
Interchange Company
EA. Consulting EA. Consulting - 69.145 226.436 295.581 327.48
Company (JV)
Total 3,899.139 1,508.830 5,407.969 -

Contract Contract Variation % of

Status
Detail Amount amount Revision
UT-01 145,796,582 73,542,005 50.44% Complete
GL-01 1,813,614,183 665,608,310 36.70% Incomplete
Gl-02 1,084,717,648 325,076,021 29.96% Incomplete
GL-03 785,867,391 144,159,628 18.34% Incomplete
EA. Consulting 69,145,000 226,436,456 150.33% Incomplete
Total 3,899,140,804 1,434,822,420 36.79%

1,508.830 + 1,434.822 = 2,843.652

870
 Annex-22
(See para No.5.1.4.4)

Statement showing the detail of irregular award of contracts

Sr. AIR Rs. in
Observation Nature of irregularity
No. Para No. million
1 53 Illegal award of tender to 295.470 The hired lead consultancy
unregistered joint venture firm neither in joint
consultancy firm Rs.295.470 venture M/s BLIC Gmbh a
million. non-resident firm was
neither registered
separately nor in joint
venture at the Pakistan
Engineering Council.
2 54 Irregular award of consultancy to 689.657 In evaluation criteria for
M/S EA consultant Pvt Ltd by firm’s General experience
awarding unjustified marks, both the firms were
amounting to Rs.689.657million. awarded 36 marks each
and in specific experience
M/s EA Consulting (Pvt)
Ltd awarded 60 marks
without having specific
major BRT project
experience. Only NESPAK
has such experience in
Pakistan. The past
performance score of the
consultant in last three
assignments M/S NESPAK
(Pvt) Ltd was calculatingly
awarded less to enable M/s
EA Consulting (Pvt) Ltd to
win the tender.
3 56 Illegal Hiring of unregistered 174.604 Tender was awarded to
Consultancy firm Rs.174.604 M/S EA Consultants (Pvt)
million. a lead firm of Joint venture
of M/s Geotechnical
Services+ M/S
Environmental
Management Consultants+
National Management
Consultants+ M/S Data
Communication and
Control (Pvt) Ltd. Among

871
 the Joint venture National
Management Consultants
firm does not possess
registration with Pakistan
Engineering Council.
4 58 Illegal hiring of personnel and sub 67.741 M/S EA Consultants (Pvt)
consultants without approval and a lead firm of Joint venture
codel formalities Rs. 67.741 of M/s Geotechnical
million Services+ M/S
Environmental
Management Consultants+
National Management
Consultants+ M/S Data
Communication and
Control (Pvt) Ltd hired
personal and sub-
consultants without
intimation of KIDCL
management as mentioned
in agreement with
Consultant.
5 60 Non-assessment of Performance 187.221 Company sustained loss
of personnel and sub consultants due to non-assessment of
despite failure of consultancy performance of the
services Rs.187.221 million consultants
6 61 Non-payment /deduction of EOBI 4.0645 M/S EA Consultants did
Contribution for personnel and not paid EOBI/SESSI
sub-consultants by M/S EA contribution which make
consultant Rs. 4.0645 million. doubtful all the payments
of salaries to personnel of
the firm
7 62 Company sustained loss due to 1434.822 There is a bottomless
incompetent /inefficient failure in supervision of
consultancy of M/S EA consultant in development
Consulting Rs.1434.822M of infrastructure and cost,
almost all contract
packages were revised
more than 15% without
any approval and proper
justification.
TOTAL 2,853.579

872
 Annex-23
(See para No.5.1.4.6)

Detail of irregular appointments

Sr. Name of Officer & Date of Rs. in

No. Remarks
No. Designation appointment million
1 04 Mr. Nisar Ahmed Sario. 16th 5.400 Overage & without age
(Chief Engineer) December relaxation.
Establishment OM 2016
June 24, 2010
2 05 Mr. Nisar Ahmed Sario. 16th 1.800 Paid pension and salary
(Chief Engineer) December at the same time as he is
EstablishmentOM 2016 retired employee of
June 24, 2010 Sindh Local Government
Department of
3 06 Lt. Col. (R) Zahid 16th 3.200 Appointed without
Shamshad (Manager December required qualification and
Quality Assurance) 2016 experience. He is not
Advertisement dt. 4-1- registered with Pakistan
2016 Engineering Council.
4 42 Mr. Umer Hafeez Shaikh 9th December 3.360 He has not required
(Project Engineer Civil) 2016 experience. Moreover,
23-06-2015 his certificates are
doubtful without
reference number and
proper seal of the
institution.
5 43 Mr. Ahsan Ali 9th December 1.800 He has not required
(Assistant Engineer) 2016 experience. Moreover,
4-1-2016 his certificates are
doubtful without
reference number and
proper seal of the
institution
6 44 Mr. Ashraf Lodhi & Mr. 9th December 6.720 Appointed without PEC
Zaheer Abbass Zaidi 2016 registration and verified
(Field officers) experience certificates
23-08-2015 with original seal and
salary certificates of their
previous employer.
873
7 45 Mr. Muhammad Shahid 3rd July 2015 3.00 Without PEC registration
(Quality Surveyor) and verified experience
01-01-2015 certificates with original
seal and salary
certificates of their
previous employer.
8 46 Mr. Aamir Raza Shaikh 3rd July 2015 2.600 Without PEC registration
(Assistant Engineer and required experience
Planning) with original seal and
23-08-2015 salary certificates of their
previous employer
9 47 Mr. Fahad Hameed Samo 23rd 3.120 Without PEC registration
(Project Engineer) December and required experience
23-08-2015 2015 of the post with original
seal and salary
certificates of their
previous employer.
10 48 Mr. Sheraz Ali Khwaja 23rd 3.120 Without required
(Project Engineer) November experience of the post
2015 with original seal and
salary certificates of their
previous employer.
11 49 Mr. Shaikh Mashkoor 24th February 1.440 Appointed without post
Ahmed 2016 advertisement and other
(Field official) 23-08- formalities.
2015
12 50 Syed Mujawar Hussa8in 23rd 1.820 Without mandatory
Shah November experience and
(Assistant Engineer 2015 qualification required for
Document) 23-08-2015 the post.
13 51 Syed Farhan Hasnain 23rd 1.820 Without mandatory
Assistant Engineer November experience and
23-8-2015 2015 qualification required for
the post.
Total 39.200

874
 Annex-24
(See para No.8.1.4.2)

Statement showing the detail of non-recovery of decreed amount

Sr. Decree Amount

Account No Name of customers
No. Date Involved
1 8040010384 Pervez Ali 11/3/2015 1,011,000
2 8040010376 M/S Niaz Muhammad 11/3/2015 1,032,042
3 8040020631 Azizuddin Shaikh 9/2/2017 396,578
4 9040000581 Farah Mir 9/2/2017 800,844
5 8040006945 Irshad Baig & Others 11/11/2015 1,541,193
7 1040002014 Syed Kamil Shah 21/11/2016 608,080
8 8040006044 Rehana Perveen - 1,072,187
10 8040021563 Mangal Mal -- 4,106,948
11 8040020607 Mukhtiar Ahmad 19/2/2016 1,477,759
12 9040002405 Fahimuddin 22/6/2016 460,120
13 9040001241 Shah Nawaz Bhatti, Shahzaib Bhatti -- 483,744
15 8040007562 Mohammad Ayoub Khan 2/2/2016 668,698
16 1040002816 Israr Ali Bloach & Aijaz Ali 27/1/2016 553,634
17 1040002501 Shahnaz Perveen 27/1/2016 756,320
18 7040305058 Syed Ali Muhammad Shah 29/11/2016 1,059,731
19 7040566097 Shoukat Ali Talpur 23/9/2016 1,380,507
20 8040022504 Syed Gazanfar Hussain 16/2/2016 2,441,052
21 8040020789 M. Sami Khan 16/2/20165 2,950,923
22 1040003434 Waseem Khan 2/2/2016 724,607
23 8040021241 Syed Altaf Hussain Shah 19/1/2016 2,186,899
25 7040462958 Haji Irshad Ahmed 30/3/2016 143,646
26 7250251380 Gagandas 9/2/2016 1,083,875
27 7250254509 Mohan Lal 9/2/2016 1,076,976
28 7250254434 Thanwardas 11/2/2016 1,076,789
29 8040005582 Abdul Basit & Others -- 1,559,012
30 7040633087 Bilqees Bano -- 1,292,608
31 7040542247 Mohammad Iqbal 11/2/2016 1,050,446
33 7040635975 Khamiso Khan 16/8/2016 1,075,100
34 7040544896 Bilqees Fatima 9/2/2016 10,465,222
35 8040017769 Syed Mureed Hussain Shah 20/7/2017 1,350,113
37 8040022900 Muhammad Yaqoob -- 1,985,422
38 1040002451 Khalid Hussain Bhurghari -- 615,695
39 1040003129 Muhammad Chuttan 28/3/2016 790,008
875
40 1040003350 Abdul Latif 17/2/2016 794,402
41 1040003442 Jaffar Ali -- 790,008
42 9040001894 Munawar Hussain 25/3/2016 1,055,235
43 9040001316 Nazir Hussain Khuwaja 25/3/2016 525,394
44 9040000144 Ali Roshan 25/3/2016 309,709
45 8040005624 Gulzar Bano -- 962,433
46 8040011309 Shabana Khalid 19/5/2016 842,838
47 8040014980 Azhar Ahmed Shaikh 14/5/2016 580,841
48 7040245163 Muhammad Rafique -- 850,254
49 7040257861 Muhammad Rafique Abro 11/5/2016 405,783
50 7040291357 Imtiaz Begum 11/5/2016 447,682
51 7040305702 GUL MUHAMMAD (Alias) Gullan 10/8/2016 329,108
52 7040346979 Rehana 13/5/2016 474,366
53 7040418331 Shireen Agha 13/5/2016 478,516
54 7040470878 Arbab Khatoon 13/5/2016 586,426
55 7040502555 Qamar-Un-Nisa Begum 11/5/2016 694,226
56 7040610887 Shah Bux 19/5/2016 617,122
57 7040611042 Zulfiqar Ali 13/5/2016 422,678
58 7040639936 Shahzadi Begum 24/5/2016 664,547
Muhammad Shahid & Muhammad
59 8040018759 31/8/2015 1,421,277
Ashr
60 8040021753 Saira Qaimkhani 9/2/2017 469,544
61 8040017637 Noman Ali 1/16/2016 534,522
62 8040018858 Muhammad Zahid 16/1/2016 608,556
63 1040001594 Ameer Jan 16/1/2016 509,861
64 1040001701 Rasheedan 19/3/2016 359,669
65 8040022918 Muhammad Ashraf 19/1/2016 2,146,183
66 8040007349 Tayyab Ali 8/6/2016 559,923
67 8040021100 Imran Qureshi 2/3/2016 623,327
68 8040007778 Shahbuddin & Zubair Ali 27/1/2016 808,579
69 9040003908 Sher Shamsuddin Sehto 16/02/2016 590,174
70 8040016399 Ishtiaque Ahmad 8/3/2017 1,954,599
71 8040021357 Fida Hussain 9/2/2016 2,242,231
72 8040018593 Farah Deeba Khero 9/2/2016 1,340,821
73 9040001852 Safia, Jam Mubeen Ahmed 25/3/2016 629,268
74 9040000326 Tasleem Akhtar, Noor Un Nisa 25/3/2016 530,328
75 8040018379 Kamran Khan 24/5/2016 317,396
Total 76,755,604

876
 Annex-25
(See para No.8.1.4.4)

Statement showing the detail of irregular disbursement of loans

beyond Area limit

Sr. Sanctioned
Account No. Name of Customer Amount
No. Date
1 9040006042 PHERO MAL 4/15/2016 10,000,000
2 9040006596 LAL CHAND LOHANA 2/20/2017 10,000,000
3 9040006620 KISHAN CHAND 11/10/2016 10,000,000
4 9040006950 MAHESH KUMAR 11/6/2017 10,000,000
5 9040005283 JAI PARKASH 6/26/2015 10,000,000
6 9040006356 CHANDAR LAL LOHANA 7/29/2016 10,000,000
7 9040006455 PARS RAM 11/25/2016 10,000,000
8 9040006562 PEHLAJ MAL 11/10/2016 10,000,000
9 9040006109 HARESH KUMAR 4/29/2016 10,000,000
10 9040004815 MUHAMMAD IBRAHIM 2/6/2015 7,500,000
11 9040006117 YAR MUHAMMAD 4/29/2016 7,500,000
12 9040005655 SUKHRAM DAS 11/30/2015 7,500,000
13 9040005408 DILEEP KUMAR 8/31/2015 7,500,000
14 ASHOK KUMAR, SHANKAR
9040006836 8/24/2017 7,000,000
DAS, LAL CHAND
15 9040004724 NARAIN MAL 12/31/2014 5,780,000
16 9230001662 BHAGWAN DASS 9/5/2014 5,569,000
Total 138,349,000

877
 Annex-26
(See para No.8.1.4.8)

Statement showing the detail of penalties

Observations & Violations of

Sr. Annexure/ Amount Total
Housing Finance Prudential
No. Appendix (Rs.) Accounts
Regulation HF/ Circular Letters
1 Did not send notices to the borrowers A-01 421,000 421
classified in OAEM ,Violating HF-10.
2 Monthly installment exceeded debt A-02 30,000 3
burden of 50% violating HF-3
3 CIB of borrower was not obtained A-03 12,000 4
violating HD1 (10)
4 Loans were not reported in eCIB data A-06 1,080,000 594
violating CPD Circular 01 of 2011
5 Did not display documents on Notice A-07 390,000 21
boards as required by SBP
6 Did not resolve complaints within 15 HO-04 42,000 16
working days violating Circular 1 of
2016
7 Detail of mis-classified advances and Ap D-ii 1,440,000 160
provisions
8 Detail of additionally classified Ap D-iii 5,090,000 3297
advances and provisions required
9 Detail where Forced Sale Value (FSV) Ap D-iv 1,300,000 195
benefit against provisioning
10 Actual status of classification of loan A-05 30,000 288
was mis-reported in eCIB violating
Circular 01 of 2011.

878
 Annex-27
(See para No.8.1.4.17)

Statement showing the detail of non-collection of sale deeds from the

Registrar Office against investment

Investment Amount
Sr. No. Account No Assignment Date
(Rs.)
1 9040006638 2- Nov-16 2,500,000
2 9040006620 6-Dec-16 10,000,000
3 9040006661 13-|Dec-16 2,500,000
4 9040006356 1-Nov-16 10,000,000
5 9040006299 2-Nov-16 5,000,000
6 9040006448 3-Nov-16 2,000,000
7 9040006273 10-Nov-16 2,446,000
8 9040006331 23-Nov-16 1,100,000
9 9040006562 25-Nov-16 10,000,000
10 9040006505 15-Dec-16 5,000,000
11 9040006455 26-Jan-17 10,000,000
12 9040006729 5-Apr-17 800,000
13 9040006596 19-Apr-17 10,000,000
14 9040006778 4-May-17 1,000,000
15 9040006703 5-May-17 1,440,000
16 9040006711 12-May-17 2,300,000
17 9040006745 25-May-17 1,500,000
18 9040006760 30-May-17 1,500,000
19 9040006794 31-May-17 900,000
Total 79,986,000

879
 Annex-28
(See para No.8.2.4.13)

Irregular appointment of Mechanical Engineer

Total
Sr. Salary per No. of
From To amount paid
No. month months
in Rs.
1 18.12.2006 16.06.2007 40,000 06 240,000
2 17.06.2006 31.12.2007 48,000 18 864,000
3 01.01.2008 31.12.2008 50,160 12 601,920
4 01.01.2009 28.02.2009 53,170 02 106,340
5 01.03.2009 30.06.2010 69,121 15 1,036,815
6 01.07.2010 30.06.2011 90,266 12 1,083,192
(promoted)
7 01.07.2011 30.06.2012 108,771 12 1,305,252
8 01.07.2012 30.06.2013 127,806 12 1,533,672
9 01.07.2013 30.06.2014 146,338 12 1,756,056
10 01.07.2014 30.06.2015 169,752 12 2,037,024
11 01.07.2015 30.06.2017 186,727 24 4,481,448
12 01.07.2017 30.06.2018 216,604 12 2,599,248
Total 17,644,967

880
 Annex-29
(See para No.8.2.4.17)

Detail of payment made by PSPC on account of income tax on behalf

of MD and ED on payment of Special Management Allowance

Total amount
Sr. Tax amount paid
Name of the officer Tax year paid to the
No. by PSPC (Rs.)
officer
1. Mr. Muhammad 2014-15 1,906,667 723,215
Misbah Tunio,
Managing Director
2. 2015-16 (up to 1,300,,000 493,103
April 30, 2016)
-Do-

3. Mr. Shamsuddin 2014-15 (April 300,000 26,250

Soomro, Executive to June 2015
Director
4. -Do- 2015-16 (up to 1,000,000 250,000
April 30, 2016)
Total 3,206,667 1,492,568

881
 Annex-30
(See para No.8.3.4.3)

Statement showing non-production of record

Sr. Description As per management Rs. in million

No. reply dated 18.09.2018 (Approx.)
1 Details of Receivable Hyderabad office. Pending with DAU. 872,344,303
Details of Recreation Allowance. Pending with salary and 12,557,523
advances unit.
2 Details of Collection of revenue and payments on Pending with PAU. -
behalf of Government Departments.
Reporting of transactions to Federal Board of Pending with PAU. -
Revenue (FBR) through online network, on daily
basis, under Collection Automation Program
(CAP).
Details of settlement of Govt. Deptts.Payments and Pending with PAU. -
receipts through NBP as an agent of SBP.
Details of Reporting of Zakat Balances Pending with PAU. 1,166,147
3 Progress report / work report of security Pending with IBSU. -
department.
Office order files. Pending with SMU. -
Gate passes. Pending with IBSU. -
4 Detail of incidents reports, settled & pending Pending with SPU. -
during the year.
5 Detail of incidents reports, settled & pending Pending with SPU. -
during the year.
Complete files of procurement of medicines. Pending with MSU. -
6 Detail of repair maintenance of vehicles. Pending. -
Total 886,067,973

882
 Annex-31
(See para No.8.3.4.6)

Statement showing the detail of procurement of vehicles

Sr.
Vehicle Description Total Cost
No.
1 Honda Civic 1.8 navigation and multimedia 2,363,000
2 Honda Civic 1.8 ivetc oriel navigation and leather 2,513,000
3 Honda Civic 1.8 ivetc oriel navigation and leather 2,363,000
4 Honda City Aspire 1.3 Prosmatic 1,642,000
5 Honda Civic 1.8 CC with sunroof and navigation 1,787,500
6 Honda Civic 1.5 ivetc oriel navigation and leather 2,513,000
7 Honda Civic 1.8 ivetc oriel navigation 2,513,000
8 Toyota Corolla Altis Grande 1.8 CVIT A/T 2,363,000
9 Toyota Corolla XLI 1,642,000
10 Honda Civic 1.5 Turbo 2,513,000
11 Toyota Altis 1.6 AT 1,789,000
12 Honda Civic 1.8 Oriel with Navigation 2,353,000
13 Honda Civic 1.8Oriel 1,789,000
14 Honda Civic 1.8 Oriel 2,513,000
15 Audi A4 Stronic 5,850,000
16 Toyota Fortuner 5,407,000
17 Honda Civic Oriel 1.8 2,513,000
18 Toyota GLI MT 1,864,000
19 Toyota Corolla GLI MT 1,787,500
20 Suzuki Bolan 725,000
21 Toyota Corolla GLI MT 1,789,000
22 Toyota Corolla GLI MT 1,789,000
23 Fortuner 5,257,000
24 Toyota Coaster 8,556,500
25 Toyota Crolla CU 1300CC 1,752,000
26 Toyota Crolla XLI 1,662,000
Total Cost Rs. 69,095,500

883
 Annex-32
(See para No.8.3.4.9)
Statement showing the detail of payment of fee

Lawyers’ / Advocate Fee Paid

S. No. Description of the Case
Names (Rs.)
1 WP. No. 33872/2016 Hasan&Hasan 4,040,000
2 Suit 322,364,373,374/2001 Sayed&Sayed Advocate 1,500,000
3 CP3990/2011 Aijaz Ahmed 1,000,000
4 CP-D-3007/2015 Liaquat Merchant 2,500,000
5 CP-D-3076/2005 Liaquat Merchant 2,500,000
6 CP-D-4927/2015 Liaquat Merchant 2,500,000
7 CP-1163/2016 Mandiwala&Zafar 3,000,000
8 WP 32365/2004 Hasan&Hasan 5,000,000
9 ICA 655,656,657/2013 Hasan&Hasan 7,500,000
10 WP No. 12897/2013 AshtarAsraf& Co. 2,000,000
11 CP. No. D-440/2012 M/s. A.K Brohi& Co. 1,200,000
D-2740 Naseem Ahmed Shah
12 M/s. A.K Brohi& Co 1,000,000
VsSBP& Other
Suto Moto action No.10/2012 Qadir H. Sayeed of
13 1,500,000
out of CA 1045/2007 Sayeed&Sayeed (Advocate)
14 WP.No.1744/2010 Mr. Khalid Anwar, Advocate 3,000,000
Total 38,240,000

884
 (Annex-33)
(See Para No. 9.1.4.2)

Statement showing Local currency investments

Sr. Amount of deposits

Name of bank
No. (Rupees in million)
1. Zarai Taraqiati Bank Ltd. 100.00
2. Silk Bank Limited 125.00
3. Summit bank Ltd. 100.00
4. Bank Al-Habib 110.00
5. Silk Bank Limited 100.00
6. JS Bank Limited 100.00
7. Dubai Islamic Bank Ltd. 75.00
8. Summit bank Ltd. 110.00
9. MCB Bank 75.00
10. Habib Metropolitan Bank Ltd 76.00
11. Silk Bank Limited 50.00
12. Sindh Bank 125.00
Total 1,146.00

Foreign currency investments

Sr. Amount of deposits

Name of bank
No. (US$ in millions)
1. UBL 1.050
2. Allied Bank 2.100
3. UBL 2.589
4. Allied Bank 1.530
5. National Bank of Pakistan 1.000
Total 8.269

885
 (Annex-34)
(See Para No.9.1.4.3)

Statement showing detail of revised pay scales 2017 for EPZA employees

Revised pay scales 2017 for EPZA employees

GOVERNMENT EPZA
GRAD MIN INC MAX ST GRAD MIN INC MAX ST
E R G E R G
BP-19 59,21 3,050 120,21 20 E-V 65,32 4,510 128,46 14
0 0 2 2
BP-19 59,21 3,050 120,21 20 E-IV 59,21 3,050 120,21 20
0 0 0 0
BP-18 38,35 2,870 95,750 20 E-III 42,95 2,870 100,35 20
0 0 2
BP-17 30,37 2,300 76,370 20 E-II 31,69 2,300 77,699 20
0 9
BP-16 18,91 1,520 64,510 30 E-I 24,01 1,520 69,616 30
0 6

886
 (Annex-35)
(See Para No. 9.1.4.7)

Statement showing in detail of investment made on 28-08-2016

Investment made on 28-08-2016 (in US$)

Diff.
Status Rate of Loss @
S. Investment from Loss in
Bank of interest Rs.105/- X
No (US$) highest USD
bidder in col.(7)
bidder
(1) (2) (3) (4) (5) (6) (7) (8)
1 ABL Highest 2,346,000 2.20% - - -
bidder
2 Bank Second 2,244,000 2.12% $.0.08% 1795.2 188,496
Al- highest
Habib
Total 4,590,000
Investment made on 20-09-2017 (in US$)
1 UBL Highest 2,589,000 2.75% - -
bidder -
2 ABL Second 2,100,000 2.50% $.0.25 % 5250 551,250
highest
total 4,689,000
Investment made on 04-12-2017 (in Rupees)
1. Silk Highest Rs.100 (m) 7.18% - - -
bank bidder
2. JS Bank Second Rs.100 (m) 6.70% 0.48% - 480,000
highest
3. Dubai Third Rs.75 (m) 6.10% 1.08% - 810,000
Bank Highest
Total Rs.275 (m)
Investment made on 02-02-2018
1. Silk Bank Ltd. Rs.50 (m) 6.68% - -
2. MCB Rs.75 (m) 6.15% 0.53% - 397,500
3. Habib metropolitan Rs.76 (m) 6.15% 0.53% - 402,800
Total Rs.201 (m)
Rs.
Grand total
2,830,046

887
 (Annex-36)
(See Para No. 9.7.4.2)

Statement showing the details of material reported short / stolen

(Amount
in Rs.)
Book Value
Sr. Purchasing as on
Location Item name Qty
No. Price June 30,
2017
1 Karachi-GJTMC External Hard Drive 320 GB 01 6,300 584
2 -do- Western Digital 500 GB HD 01 5,400 553
3 -do- Hard Drive 500 GB Seagate 01 6,350 1,660
4 -do- Seta Hard Drive 500 GB 01 5450 757
5 -do- Office tables 10 200,100 79,701
6 -do- Steel reek 01 5,250 2,292
7 -do- Steel machine box with tank 01 6,500 2,888
8 -do- Design tables 15 205,043 99,007
9 -do- Machine tables 20 738,912 356,789
10 -do- Circular workstations 13 31,938 15,419
11 -do- Cafeteria table 4 94,490 45,625
12 -do- 24u rack 1 22,678 10,952
13 -do- Air conditioner 1.5ton 2 154,200 38,652
14 -do- Multimedia projection screen 1 6,900 1,729
15 -do- Alfa UPS 1000VA 1 9,798 2,517
16 -do- Acer digital DLP projector p1166 1 61,800 18,943
17 -do- APC UPS 500VA 1 5,699 1,957
18 -do- HD10-handeld dichroscope 1 8,103 3,718
19 Karachi–HO Acer Aspire notebook 03 230,000 12,511
20 -do- Printer LaserJet ml-2010 01 6,920 406
21 -do- Hp Probook 4430s Laptop 01 80,000 13,943
22 -do- Laptop pavilion dv4-1227tx 01 90,480 7,569
23 -do- HP color laser jet printer 01 32,480 2,716
24 -do- Sofa seat 05 87,665 31,316
25 -do- Wooden Screen 01 12,000 5,744
26 -do- Conference/ Meeting chairs 07 24,500 11,727
27 -do- Multimedia projector 01 184,000 39,162
28 -do- Digital camera Sony s-750 01 15,900 4,298

888
29 -do- Nokia mobile 5530 01 20,200 6,271
30 -do- Multimedia for HO 01 184,000 39,162
31 -do- Smoke detector 01 34,400 24,187
32 -do- Sako 650VA UPS PCM 650 01 5,800 5,514
33 -do- Dual grinder with two diamond 01 87,700 35,521
grinding wheel
34 -do- Dual grinder with two diamond 01 87,701 35,521
grinding wheel
35 Lahore Office tables 01 200,100 79,701
36 -do- Class room chairs 02 153,698 71,174
37 -do- Office chairs 01 144,900 71,145
38 -do- Student chairs 24 289,800 142,290
39 -do- 42u rack 01 26,912 12,778
40 -do- Class room chairs 01 16,290 8,133
41 -do- Class room chairs 01 16,290 8,133
42 Lahore Class room chairs 01 16,290 8,133
43 -do- Class room chairs 01 16,290 8,133
44 -do- Class room chairs 01 16,290 8,133
45 -do- Class room chairs 01 16,290 8,133
46 -do- Class room chairs 01 16,290 8,133
47 -do- Class room chairs 01 16,290 8,133
48 -do- Class room chairs 01 16,290 8,133
49 -do- Class room chairs 01 16,290 8,133
50 -do- Class room chairs 01 16,290 8,133
51 -do- Class room chairs 01 16,290 8,133
52 -do- Dining table 01 18,100 9,036
53 -do- Dining table 01 18,100 9,036
54 -do- Coffee table 01 3,620 1,806
55 -do- Cabinet 01 4,500 2,505
56 -do- Cabinet 01 4,000 3,558
57 -do- Air conditioner 1.5 ton 02 97,500 24,438
58 -do- Air conditioner 1.5 ton 02 447,975 149,962
59 -do- APC UPS 500VA 01 5,699 1,957
60 -do- Scanner 01 31,941 4,906
61 -do- Laptop 01 56,771 19,603
62 -do- UPS Mac green 2KVA 01 15,707 11,466
63 -do- Cabinetry 01 13,200 8,058
64 Peshawar Metal scissor gate 9*11” 01 46,530 14,085
65 -do- Executive Chair 01 25,000 13,238
66 -do- Air compressor 01 18,112 7,797
889
67 Sargodha Forgoing hammer 01 8,000 4,318
68 -do- Forgoing hammer 01 8,000 4,318
69 -do- Complete double spindle machine 01 120,000 64,789
70 -do- Stone setting burr set 01 19,000 10,257
71 -do- Wire and sheet gauge 01 5,800 3,129
72 -do- Wire and sheet gauge 01 5,800 3,129
73 -do- Multi form draw plates 01 8,000 4,318
74 -do- Multi form draw plates 01 8,000 4,318
75 -do- Multi form draw plates 01 8,000 4,318
76 -do- Multi form draw plates 01 8,000 4,318
77 -do- Multi form draw plates 01 8,000 4,318
78 -do- Multi form draw plates 01 8,000 4,318
79 -do- Hollow bracelet mandrel 01 11,000 5,940
80 -do- Adjustable tab die set 01 8,000 4,318
TOTAL 1,840,649

890
 (Annex-37)
(See Para No. 9.7.4.3)

Statement the detail of Pay and Allowances drawing by the CEO

(Amount in Rs.)
Salary
Increment Difference
Salary as per Total
Period 10% as per Increment per Difference
Drawn appoint Months
PC-I month
ment
Nov,11to Dec,12 - 300,000 - - 02 - -
Jan,12 to Oct,12 400,000 300,000 - 33% 10 100,000 1,000,000
Nov,12 to Jun,13 400,000 - 330,000 - 08 70,000 560,000

July,13 to Oct,13 440,000 - 330,000 - 04 110,000 440,000

Nov,13 to Oct,14 440,000 - 363,000 - 12 77,000 924,000
Nov,14 to June,15 440,000 - 400,000 - 08 40,000 320,000
July, 15 to Oct, 15 484,000 - 440,000 04 44,000 176,000
Total (A) 3,420,000
Nov, 15 to June 16 484, 000 (484,000@ 08 months) 3,872,000
July, 16 to Jun, 17 532,400 (532,400 @ 12 months) 6,388,800
July, 17 to Nov, 17 585,640 (585,640 @ 4.5 months) 2,635,380
Total (B) 12,896,180
Grand Total (A + B) 16,316,180

891
 (Annex-38)
(See Para No. 9.8.4.1)

Statement the detail of irregular payment of pay & Allowances due to non-
verification of Degrees
(Amount in Rs.)
Salary with Total Salary
Sr.
Name Designation drawn on for 24 months
No.
30-06-2018 2016 to 2018
1 Mr. M. Abid Hussain Director 175,128 4,203,072
2 Mr. M. Syed ulHaque General Manager 171,692 4,120,608
3 Mr Aslam Soni General Manager 157,199 3,772,776
4 Mr. Khalid Hussain Dy.General 163,642 3,927,408
Manager
5 MrLaiqurRehman Dy.General 157,972 3,791,328
Manager
6 Mr. RizwanJunaid Dy.General 145,737 3,497,688
Manager
7 MsRuqaiya Siddiqui C.M.C 146,177 3,508,248
8 MsAsmatBatool C.M.C 95,845 2,300,280
9 MrMJawaid Siddique S.M.C 147,939 3,550,536
10 Mr Imran Ghani Research Officer 94,052 2,257,248
11 Mr. Bilal AftabKhichi B.D.M. 87,513 262,539
12 Mr. M. Asif Librarian 105,749 2,537,976
13 Mr M Waseem Asst Manager 35,955 862,920
14 MrAzhar Ali Rizvi Dy Manager 84,747 2,033,928
15 Mr Arshad Ali Asst. Manager 59,745 1,433,880
16 MrQamarFarooqi Jr Officer 38,379 921,096
17 Mr. M. Ovais D.G.M. 83,193 1,996,632
18 Mr. WasiurRehman Asst Manager 60,473 1,451,352
Total 46,429,515

892
 (Annex-39)
(See Para No. 9.8.4.3)

Statement the detail of irregular appointment of employees on contact basis

(Amount in Rs.)
Contract Total
Sr. Date of Date of Salary salary
Name of Employees Status
No Joining Regularize per as on
month 30-06-2018
1 Mr. Hamza Hassan 14-03-2016 01-07-2016 Permanent 55,300 1,437,800
2 Mr. M. Waseem 25-04-2016 25-01-2017 Permanent 53,300 1,332,500
3 Mr. Anwar ulHaque 09-03-2017 01-06-2017 Permanent 16,900 236,600
4 Mr.Ahsan Ul Hasnanin 09-01-2017 - Contract 90,000 1,620,000
5 Mr Imran Arshad 24-04-2018 - Contract 65,000 130,000
6 Mr Irfan Arshad 14-04-2017 - Contract 35,000 875,000
7 Mr Moen Irfan 16-04-2018 - Contract 99,000 198,000
8 Mr. Sarfaraz Rabnawaz 11-07-2017 - Contract 32,000 768,000
9 Mr Usman Bhatia 01-06-2017 - Contract 112,000 1,344,000
10 MsSumbul Ahmed 10-09-2018 - Contract 30,000 30,000
Total 7,971,900

893
 (Annex-40)
(See Para No. 9.9.4.8)

Detail of House Rent Allowance 2017-18

(Amount in Rs.)
HRA HRA
Sr. Cadre /
Code Name of officer received deducted Difference
No. group
with pay from pay
1 13 Ghulam Siddique PSE-III 11,300 10,989 311
2 13 Manzur Hasnain PSE-III 11,300 7,809 3,491
3 25 Mehboob Ali PSE-II 11,100 4,012 7,088
4 17 Mujahid Hussain PSE-II 11,200 6,222 4,978
5 17 Khalid Hussain PSE-II 11,200 1,255 9,945
6 17 Sirajul Haq PSE-II 11,200 981 10,219
7 13 Jawaid Iqbal PSE-III 11,300 4,618 6,682
8 17 Ijaz H. Shah PSE-II 11,200 5,695 5,505
9 13 Habib-Ur-Rehman PSE-IV 11,300 4,704 6,596
10 9 S. Abdul Hafeezz PSE-III 14,000 12,593 1,407

894
 (Annex-41)
(See Para No. 13.3.4.4)

Detail of party wise receivable

Sr.
A/c Code Name of Party / Company Category Recoverable Amount
No.
1. 1106 S.N.G.P.L Freight 2,475,442
2. ” S.S.G.C.L ” 660,236
3. ” WAPDA ” 1,138,708
4. ” P.M.T.F ” 73,500
5. ” National Engg. & Sci. ” 2,308,900
Comm.
6. 1108 PARCO ” 140,470,260
7. ” N.R.L ” 66,493,368
8. ” ”
P.R.L 36,451,473
9. 1109 Pakistan State Oil ” 247,085,550
10. 1111 Embarkation Commandant ” 156,054,274
11. ” Naval Stores ” 12,300,677
12. ” O/C PAF Embk. Unit ” 45,862,432
13. ” Pakistan Ordnance Factory ” 647,266
14. ” Store Liasion Officer (PAF) ” 1,123,462
15. ” D.G.M.P (Navy) Rawalpindi ” 2,308,900
Total 715,454,448

Ageing wise breakup of the aforementioned Trade Debts is as under:

S. No. Ageing Amount (Rs.)

1. Upto 01 month 520,968,352
2. Upto 03 months 92,679,202
3. Upto 06 month 56,493,053
4. Upto 01 year 41,592,157
5. Upto 02 years 16,828
6. Upto 03 years 3,704,856
Total: 715,454,448

895
 (Annex-42)
(See Para No.13.3.4.11)

Details of loss due to imprudent investment in Companies’ Shares

PIB
Company Shares Interest
Year interest Remarks
Name value Amount
rate
Interest Amount calculated for 9
Siemens 2008 9,742,000 14.47% 12,687,007
years 2008 to 2016
Interest Amount calculated for 2
PSO 2015 44,504,000 8.06% 7,174,045
years 2015 & 2016
Total Interest Revenue = (12,687,007
Total Interest Revenue 19,861,051
+ 7,174,045).
Cash Dividend Gain by PNSC for 9
PNSC gain Siemens 3,453,000
years from 2008 to 2016.
Cash Dividend Gain Rs. 2,993,000 by
PNSC for 2 years, Rs. 1,955,000
PNSC gain PSO 2,993,000
during 2015 &Rs. 1,038,000 during
2016.
Total Gain = (3,453,000 +
PNSC Total gain 6,446,000
2,993,000).
Total Loss = (Total Interest Revenue
Total loss 13,415,051 Rs. 19,861,051 - PNSC Total Gain
Rs. 6,446,000).

896
 (Annex-43)
(See Para No.14.4.4.6)

Statement showing the detail non-recovery from debtors

Total
Sr. Debtors Name More than More than More than
amount
No. 3 years 2 years 1 years
receivable
Cargo operation
1 PSO- handling charges 5,139,790 7,372,689 12,512,479
2 Khan Brothers 9,711,374 8,693,015 18,480,982
A. Total 30,993,461
Land rent
1 International cargo 179,930 179,930
handling
2 Pakistan Navy 242,098 242,098
3 Indus Marine 305,752 305,752
4 Pakistan Steel Mills 22,449,276 22,449,276
B. Total 23,177,056
Utilities Charges
5 FOTCO 3,317,026 5,575,435 8,890,451
6 F.F.C Jordan 2,830,125 2,830,125
7 ICI Pakistan 1,691,609 1,691,609
C. Total 13,412,185
Grand total (A+B+C) 67,582,702

897
 (Annex-44)
(See Para No. 14.4.4.28)

Detail of loss due to irregular reservation of vehicles as Pool vehicles

Depreciation
Lite Exp on fuel Value of of vehicles Avrg Repair &
S.N No of
Vehicle Type Rs. / for 05 years vehicles for Maintenance
o. vehicle
month (Rs. ) 05 years (50000/year)
Rs.
1 Toyota 3 462 8,316,000 1,200,000
Corolla 3,600,000 750,000
2 Suzuki Cultus 6 370 13,320,000 700,000 4,200,000 1,500,000
3 Suzuki 1 277 1,662,000 500,000
Mehran 500,000 250,000
4 Suzuki Bolan 5 252 7,560,000 600,000 3,000,000 1,250,000
5 Suzuki Swift 2 0 1,100,000 2,200,000 500,000
6 Suzuki Jimny 3 370 6,660,000 1,000,000 3,000,000 750,000
20 37,518,000 16,500,000 5,000,000

37,518,000
16,500,000
5,000,000
Total 59,018,000

898
 (Annex-45)
(See Para No. 15.1.4.4)

Statement showing the detail of double payments

Total
Doubtful Details of more
number Total
Sr. Name of payment in Details of repeated than one
of Number of
No. Employer Rs. IPs Registration no
active Pensioners
2016-18 issued
IPs
A B C=(B×5,250× D E
2 Years)
1. Pakistan 398 119 14,994,000 1. Abdul Fateh. 16000J813442
National 1600B813385
Produce
Co. Ltd 1600B813439
1600C813465

1600B014208
2. Abdul Karim 1600C014215

3. Abdul Razaq
2. Asaf 465 245 30,870,000 1. Abdul Aziz 1600F806813
Industries 1600AB806622
Ltd.
1600E806733
2. Abdul Ghafoor 1600C806654

3. Abdul Ghani 1600B806582

1600A806834
3. Yaqoob 302 80 10,080,000 1. Abdul Hakim 1600J802108
Biscuit 1600C802317
Factory
1600E802349
2. Abdul Latif 1600E009349

3. AbulSattar 1600H802095
1600I802183

899
 (Annex-46)
(See Para No. 15.1.4.7)

Statement showing the detail of month wise contribution

Month Wise Contribution Summary

October 2016 to June 2017
BAFL DATA* EOBI DATA**
Month Year Short
Transaction Amount Transaction Amount Receipt
October 2016 222 591,424 14,895 816,337,985 815,746,561
November 2016 23,441 972,746,387 21,994 1,127,416,388 154,670,001
December 2016 20,081 690,942,765 25,858 1,315,359,930 624,417,165
January 2017 19,880 56,749,735 30,344 1,529,297,749 1,472,548,014
February 2017 23,998 985,762,038 31,592 1,544,399,756 558,637,718
March 2017 25,776 1,083,809,147 33,126 1,655,614,268 571,805,121
April 2017 33,201 1,291,016,230 32,122 1,584,867,561 293,851,331
May 2017 20,443 874,703,338 32,597 1,634,023,993 759,320,655
June 2017 34,860 1,523,039,033 32,097 1,702,982,339 179,943,306
Total (a) 201,902 7,479,360,097 254,625 12,910,299,969 5,430,939,872

July 2017 to June 2018

BAFL DATA EOBI DATA
Month Year
Transaction Amount Transaction Amount Short Receipt
July 2017 33,696 1,324,952,698 30,977 1,444,597,407 119,644,709
August 2017 34,977 1,350,523,686 30,435 1,418,456,489 67,932,803
September 2017 37,736 1,419,884,028 30,753 1,465,315,073 45,431,045
October 2017 40,199 1,534,408,743 31,965 1,494,346,320 -40,062,423
November 2017 37,190 1,388,071,209 32,013 1,492,677,785 104,606,576
December 2017 37,752 1,440,185,665 31,918 1,523,031,886 82,846,221
January 2018 33,844 1,274,485,766 33,515 1,615,933,729 341,447,963
February 2018 32,199 1,249,939,883 32,226 1,584,284,986 334,345,103
March 2018 33,993 1,235,655,603 33,380 1,622,636,754 386,981,151
April 2018 33,201 1,241,654,140 33,062 1,618,520,301 376,866,161
May 2018 33,423 1,271,851,308 33,426 1,689,071,699 417,220,391
June 2018 - - 33,488 2,038,290,897 2,038,290,897
Total(b) 321,586 12,218,107,281 387,158 19,007,163,326 6,789,056,045
Grand Total (a+b) 523,488 19,697,467,378 641,783 31,917,463,295 12,219,995,917

900
 (Annex-47)
(See Para No. 15.1.4.8)

Detail of non collection of contribution from employers

Detail Outstanding Arrears Before The Financial Year 2017-18

Contribution
Sr. No. Region Arrears
(Rs. in million)
1 Nazimabad 171.781
2 Karimabad 189.298
3 City 842.679
4 West Wharf 222.198
5 Karachi Central 576.821
6 Korangi 454.935
7 Bin Qasim 418.761
8 Kotri 67.082
9 Hyderabad 108.968
10 Sukkur 55.148
11 Larkana 81.715
12 Rahim Yar Khan 45.004
13 Muzaffargarh 69.532
14 Multan 185.482
15 Sahiwal 353.038
16 Bahawalpur 106.856
17 Faisalabad Central 74.948
18 Faisalabad South 184.159
19 Faisalabad North 138.531
20 Sargodha 176.206
21 Lahore South 78.223
22 Mangamandi 257.017
23 Lahore Central 133.575
24 Shahdara 198.035
25 Lahore North 42.996
26 Sheikhupura 115.268
27 Gujranwala 171.560
28 Gujrat 95.385
29 Sialkot 110.428
30 Chakwal 122.326
31 Rawalpindi 121.469
32 Islamabad 72.243
33 Hasanabdal 104.302
901
 34 Peshawar 2,311.230
35 Mardan 163.377
36 Abbottabad 128.977
37 Gilgit 98.109
38 Quetta 71.743
39 Hub 16.278
TOTAL -- A 8,935.703

Detail outstanding Arrears During 2017-18

Total
S. Employers' Employees Statutory
B & Cs Rs.
No. Arrears Arrears Increase
in million
1 B&C–I 127,923,222 25,549,069 51,253,940 204.726
2 B & C – II 183,910,360 36,784,185 82,554,058 303.248
B&C–
3 263,966,571 52,674,274 115,615,396 432.256
III
Total---B 575,800,153 115,007,528 249,423,394 940.231
TOTA ARREARS – A+B 9,875.934

902
 (Annex-48)
(See Para No. 15.1.4.9)

Detail of loss due to short fall in contribution targets

(Rs. in
million)
Contribution Contribution
%
Sr. No. Region Yearly Target Total Target
Achieved
(2017-18). achieved (2017-18)
1 Nazimabad 1,190.00 950.66 79.9
2 Karimabad 690.00 584.71 84.7
3 City 1,127.00 1,013.51 89.9
4 West Wharf 734.00 524.44 71.4
5 Karachi Central 840.00 769.93 91.7
6 Korangi 1,486.00 1,293.19 87.0
7 Bin Qasim 1,263.00 814.53 64.5
8 Kotri 449.00 281.23 62.6
9 Hyderabad 393.00 315.86 80.4
10 Sukkur 250.00 226.16 90.5
11 Larkana 80.00 63.19 79.0
12 Rahim Yar Khan 260.00 216.28 83.2
13 Muzaffargarh 288.00 192.92 67.0
14 Multan 714.00 544.60 76.3
15 Sahiwal 234.00 203.17 86.8
16 Bahawalpur 168.00 158.61 94.4
17 Faisalabad Central 438.86 344.80 78.6
18 Faisalabad South 699.96 497.18 71.0
19 Faisalabad North 879.68 600.99 68.3
20 Sargodha 280.19 223.10 79.6
21 Lahore South 1,431.00 1,446.27 101.1
22 Mangamandi 1,248.00 736.47 59.0
23 Lahore Central 866.00 750.40 86.7
24 Shahdara 402.00 350.56 87.2
25 Lahore North 1,190.00 1,063.22 89.3
26 Sheikhupura 810.00 383.16 47.3
27 Gujranwala 469.00 350.92 74.8
28 Gujrat 207.00 152.07 73.5
29 Sialkot 463.00 427.59 92.4
30 Chakwal 262.65 195.89 74.6
903
31 Rawalpindi 662.93 522.64 78.8
32 Islamabad 1,734.44 1,380.00 79.6
33 Hasanabdal 166.90 168.95 101.2
34 Peshawar 585.00 482.24 82.4
35 Mardan 341.92 256.42 75.0
36 Abbottabad 292.13 210.95 72.2
37 Gilgit 55.34 57.67 104.2
38 Quetta 168.00 162.17 96.5
39 Hub 230.00 146.01 63.5
TOTAL 24,050.00 19,062.66 79.3

(Rs. 24,050.00 –Rs.19,062.66 = Rs. 4,986.47 million)

904
 (Annex-49)
(See Para No. 15.1.4.10)

Detail of retention of investments in the category of held for trading

Summary of Investment in Trading Portfolio (HFT)

As on 30 June 2018 Unaudited
Holding Market Capitalization
Cost @
Amount Rate App/(Dep) Value App/(Dep)
Scrip Quantity Per Share
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
(Rs.)
PTC 55,893,800 47.69 2,665,671,006 11.44
(36.25) 639,425,072 (2,026,245,934)
NBP 26,580,956 80.44 47.37
2,138,060,180 (33.07) 1,259,139,886 (878,920,294)
AMTEX 22,555,000 14.97 1.30
337,659,914 (13.67) 29,321,500 (308,338,414)
MCB 3,108,472 257.21 197.77
799,516,306 (59.44) 614,762,507 (184,753,799)
ACPL 305.64 134.48
795,452 243,118,915 (171.16) 106,972,385 (136,146,530)
FFBL 42.77 38.60
10,000,000 427,665,489 (4.17) 386,000,000 (41,665,489)
Sub total 118,933,680 6,611,691,811 3,035,621,350 (3,576,070,460)
NIT-EMOF 14,631,007 260.6 3,812,840,424 220.96 (39.64) 3,232,867,307 (579,973,117)
(Mutual Fund)
Total 170,864,877 10,424,532,235 6,268,488,657 (4,156,043,578)
As on 30 June 2017 Unaudited
PPL 25,429,721 162.26 4,177,085,971 155.05 9.21 3,942,878,241 234,207,730
POL 2,739,160 403.82 1,106,127,591 347.48 56.34 951,803.317 154,324,274
NIB Bank 5,596,800 2.02 11,305,536 1.91 0.11 10,689,888 615,648
Prosperity 352,000 32.85 11,563,200 30.50 2.35 10,736,000 827,200
Weaving
APL 184,112 567.22 104,432,009 437.54 129.68 80,556,364 23,875,644
Nestle 10,560 9,751 102,970,560 7300 2451 77,088,000 25,882,560
Sub Total 34,312353 5,513,484,867 4,122,900,296 439,733,056
Grand Total 205,177,230 15,938,017,102 10,391,388,953 (4,595,776,634)

905
 (Annex-50)
(See Para No. 15.1.4.12)

Detail of loss due to donations by EOBI

(Rs. in million)
Value of
2nd Total
1st 3year investment Opportunity
Date of Date of Amount period increase
Description period after three loss
Donation refund Rs. 3year’s price
SSC rate year Rs.
SSC rate Rs.
Rs.
Pakistan
18-07-12 09-03-18 100 41.795% 141.795 22.80% 170.286 70.286
Bait-ul-Mall

(Rs. in million)
st 2nd 3rd
1 3- Value of After
period Total period Total Opportunity Loss Date of
year Investment the 2nd
Description Amount 3-year Reserve 3-year Reserve during the Tenure of Mark-up
SSC after 3 3-year
SSC Price SSC Price Investment Calculation
rate years period
rate rate
Payment to
Malakand 100 42.6% 142.6 41.24% 201.4 25.68% 250.9 2.88 150.9 26-Mar-18
Relief Fund
Payment to
Malakand 50 47.128% 73,5. 39.75% 102.8 19.50% 106.3 0.53 56.3 26-Mar-18
Relief Fund
Payment to
Malakand 1,000 40.44% 1,404.4 29.82% 1,823. 18.81% 2,002.5 1.57 1,002.5 26-Mar-18
Relief Fund
TOTAL 1,150 1,620.5 2,359.9 1,209.9

906
 (Annex-51)
(See Para No. 15.1.4.13)

Detail of extra ordinary delay in settlement of pension claims

Sr. No. Name of Region Number of Claims

1 Nazimabad 256
2 Karimabad 136
3 City 264
4 West Wharf 134
5 Karachi Central 161
6 Korangi 49
7 Bin Qasim 68
8 Kotri 112
9 Hyderabad 564
10 Sukkur 2
11 Larkana 24
12 Rahim Yar Khan 108
13 Muzaffargarh 75
14 Multan 229
15 Sahiwal 166
16 Bahawalpur 16
17 Faisalabad Central 293
18 Faisalabad South 30
19 Faisalabad North 310
20 Sargodha 219
21 Lahore South 640
22 Mangamandi 59
23 Lahore Central 235
24 Shahdara 33
25 Lahore North 466
26 Sheikhupura 442
27 Gujranwala 98
28 Gujrat 80
29 Sialkot 230
30 Chakwal 66
31 Rawalpindi 147
32 Islamabad 744
33 Hasanabdal 184

907
34 Peshawar 371
35 Mardan 251
36 Abbottabad 115
37 Gilgit 7
38 Quetta 120
39 Hub 55
Total 7,559

908
 (Annex-52)
(See Para No. 15.1.4.14)

Detail of loss due to reduction in monthly rent

Rate of rent per Monthly Rental Annual Rental
Sr. Area
Leas period Sq.Ft. Amount Amount
No. Sq. Ft.
Rs. Rs. Rs.
1. 24-09-2012 to 23-09-2013 212 30,100 6,381,200 76,574,400
2. 24-09-2013 to 23-09-2014 180 30,100 5,418,000 65,016,000
3. 24-09-2014 to 23-09-2015 198 30,100 5,959,800 71,517,600
4. 24-09-2015 to 23-09-2016 218 30,100 6,561,800 78,741,600
5 24-09-2016 to 23-09-2017 240 30,100 7,224,000 86,688,000
6. 24-09-2017 to 23-09-2018 275 30,100 8,277,500 99,330,000
Total 39,822,300 477,867,600

Rate of rent Monthly Annual Rental Annual

Sr. Area
Leas period per Sq.Ft. Rent Amount Rental Loss
No. Sq.Ft.
Rs. Rs. Rs. Rs.
1. 24-09-2012 to 23-09-2013 212 30,100 6,381,200 76,574,400 -
2. 24-09-2013 to 23-09-2014 233 30,100 7,013,300 84,159,600 19,143,600
3. 24-09-2014 to 23-09-2015 257 30,100 7,735,700 92,828,400 21,310,800
4. 24-09-2015 to 23-09-2016 282 30,100 8,488,200 101,858,400 23,116,800
5 24-09-2016 to 23-09-2017 310 30,100 9,331,000 111,972,000 25,284,000
6. 24-09-2017 to 23-09-2018 341 30,100 10,264,100 123,169,200 23,839,200
Total 49,213,500 590,562,000 112,694,400

909
 (Annex-53)
(See Para No. 15.1.4.16)

Statement showing the detail of IPS

Total Total
No. of Number of Rat amount
Period Actual Less
register Actual Differe IPS e of of
Sr. of amount of Assessed
Particulars ed no. of nce no. assessed cont contribut
No. contrib Contributi amount of
Insure IPs of IPS and ribu ion
ution on in Rs. Rs.
Persons Demanded tion received
(IPs) in Rs.
G=(C×E×
A B C D E F F=(G-F)
Months)
1. Khairpur Sugar 2016-17 240 757 517 20 780 222,112 4,839,120 4,617,008
Mill
2. M/s. Gulf 2016-17 23 1,114 1,091 30 780 306,633 10,211,760 9,905,127
Sugar Mill,
Ghotki
3. M/s. 2016-17 0 600 600 30 780 312,156 5,616,000 5,303,844
SardarGhulam
Muhammad
Mahar Sugar
Mill, Ghotki
4. M/s. Deharki 2015-17 0 1,697 1697 18 780 344,534 31,767,840 31,423,306
Sugar Mill,
Ubaro
5. M/s. Kiran 2006-08 0 483 483 80 780 1,618,132 9,041,760 7,423,628
Sugar Mill,
Rohri
Total 58,672,913

910
 (Annex-54)
(See Para No. 15.1.4.17)

Detail of non-recovery of outstanding rent and electricity charges from

tenants

Rent Electricity
Total Amount
Receivable Charges
Sr. Recoverable
Name of Tenant Outlet No. as on as on
No. as on 30.6.2017
30.6.2017 30.6.2017
(Rs.)
(Rs.) (Rs.)
1 Danish Ali B-08 23,385 1,219 24,604
2 Hussain Advisory (Pvt) Ltd B-11 - 8,533 8,533
3 NaazishLufi (Global S Network) B-16 46,776 27,096 73,872
4 D.S House II (High Point) B-17 74,134 - 74,134
Iqbal & Khalil Consultancy
5 G-26/6A 23,426 - 23,426
Services
6 Haider Enterprises (Pvt) Ltd G-09/I 141,260 21,054 162,314
7 Asmara Juliet (Medifield Nurses) G-10 205,332 49,896 255,228
8 Shani’s (closed) G-14 86,806 8,825 95,631
9 NJ Collection G-14 139,364 15,808 155,172
10 Elite Star Fashion (D.M Khan) G-15 558,370 - 558,370
11 Pakistan Textile Exhibition Center G-17 881,560 14,717 896,277
12 (Cover Shop-I (Ex Channel Shop) G-18 19,255 - 19,255
13 Adnan Moin (Photocopier) G 21 94,316 - 94,316
14 ESCO Process Technologist G 24 603,352 5,262 608,614
15 Hamid Ali G-26/7-8 39,933 - 39,933
16 Adnan Manpower Services GK-04 124,771 - 124,771
17 Zaib Garments GK-11 215,768 - 215,768
18 Maverick (Pvt) Ltd B-15 17,152 2,049 19,201
19 Chand International F-04/I 246,285 6,376 252,661
20 Cyber Café F-04/3 79,968 14,827 94,795
21 ZA Collection FK-01 74,300 926 75,226
22 Bilal Engineering FK-04 6,210 110 6,320
Eleven to Eleven (Muhammad
23 FK-12 46,715 - 46,715
Ali)
24 Mobilink BTS System Roof 49,420 10,442 59,862
25 Potatoes & Potatoes Stall 20,936 17,963 38,899
26 Ali Farms & Ali Construction F-03 17,540 - 17,540
27 Shirkat-ul-Hijaz F-10 196,791 5,129 201,920
28 Cellular City (Ismail & Co) GK-15 11,019 - 11,019

911
29 ATM Machine Webks (Pvt) Ltd Lobby/ATM - 2,829 2,829
30 A & Zee Enterprises B-17 - 7,820 7,820
31 Ax-Ford G-17/A 23,967 - 23,967
32 Hamid Ali G-26/1&2 9,775 4,497 14,272
33 Development Services (Pvt) Ltd G-26/5 33,000 239 33,239
34 Peer Agha Hotel G-28 80,000 16,123 96,123
35 Professional Management Service FK-14 11,000 874 11,874
36 Hamid Ali (Hot & Cold Bar) G-20 56,592 - 56,592
37 PRIMACO Office B-12 29,146 39,696 68,842
38 Passport Office B-22&23 43,314 - 43,314
39 Sate Life Insurance G-07 133,850 14,575 148,425
40 NADRA (Swift Centre) G-22 547,964 65,090 613,054
Pakistan Railways Office(Others
41 G-26/7-A 15,374 - 15,374
SP)
42 Nadra (Axford-II) G-27 139,348 - 139,348
43 NADRA M-03 - 63,296 63,296
44 Workers Welfare Fund (WWF) F-05&F-10 153,967 5,200 159,167
45 Ombudsman (Mohtasib) F-09 39,376 - 39,376
46 PTCL Switch Room T-05 - 35,760 35,760
47 EOBI City Region F-06-07 - 200,514 200,514
48 EOBI City Region F-11 - 99,866 99,866
EOBI Loan & Adjudicating
49 S-01 - 251,156 251,156
Authority
50 EOBI Investment Office T-01 - 464,738 464,738
51 EOBI B & C Department T-02 & 03 - 370,966 370,966
52 Danish Consultant M-01 1,936,029 1,737,847 3,673,876
53 Danish Traders II M-02 3,339,195 1,496,175 4,835,370
54 AAS Construction + Marketing M-09 2,147,944 1,208,280 3,356,224
55 Danish Group of Companies F-8 6,762,068 1,248,916 8,010,984
Total 19,546,053 7,544,689 27,090,742

912
 (Annex-55)
(See Para No. 15.1.4.18)

Detail of non -recovery of Contribution from M/s. Kiran Sugar Mills

Insured Paid Short-

Sr. Period of Total Due
Months Rate Persons amount Payment
No. Contribution Amount
(IPs) in Rs. in Rs.
1. January-93 to 24 150 338 1,216,800 - 1,216,800
December-94
2. January-95 to 12 150 338 608,400 150,000 458,400
December-95
3. January-96 to 12 150 338 608,400 304,769 303,631
December-97
4. January-98 to 42 150 338 2,129,400 -
June-2001
5. July-2001 to 48 170 338 2,758,080 -
June-2005
6. Jul-05 to Jun- 12 210 338 851,760 -
06
7. Jul-06 to Jun- 12 280 338 1,135,680 -
07
8. Jul-07 to Jun- 12 322 338 1,306,032 1,618,132 6,560,820
08
9. Jul-08 to Jun- 24 322 338 2,612,064 - 2,612,064
10
10. Jul-10 to Jun- 24 420 338 3,407,040 - 3,407,040
12
11. Jul-12 to Jun- 12 480 338 1,946,880 - 1,946,880
13
12. Jul-13 to Jun- 12 600 483 3,477,600 - 3,477,600
14
13. Jul-14 to Jun- 12 720 461 3,983,040 - 3,983,040
15
14. Jul-15 to 38 780 483 14,316,120 - 14,316,120
August-18
Total 38,382,385

913
 (Annex-56)
(See Para No. 15.1.4.25)

Detail of irregular payment of legal fees at exorbitant rates

No. of cases
Sr. Legal fee for which
Name of Advocate Station/City
No (Rs.) legal fee was
paid
1. M/s AitazazAhsan& Associate Islamabad 7,800,000 04
2. Mr. MohsinAkhtarKayani, Advocate Islamabad 700,000 02
3. MrsAsmaJehangir, Advocate Islamabad 3,680,000 06
4. Mr. AtharMinallah, Advocate Islamabad 1,700,000 03
5. Mr. ShaikhZameerHussain, Advocate Islamabad 500,000 01
6. Mr. Babar Sattar, Advocate Islamabad 15,573,000 43
7. Mr. Muhammad Aamir Khalil Advocate Islamabad 200,000 01
8. Mr. Ahmed ShehzadFarooqRana, Advocate Lahore 1,700,000 07
9. Mr. Fakhar-ul-ZamanAkhtarTarar, Advocate Lahore 4,490,000 20
10. Mr. MansoorUsmanAwan, Advocate Lahore 450,000 03
11. Mr. Muhammad AqilAwan, Advocate Karachi 1,600,000 01
12. Mr. RazaRabbani, Advocate Karachi 525,000 01
13. Mrs. MasoodaSiraj, Advocate Karachi 965,000 03
14. Syed Ahmed Ali Shah, Advocate Karachi 1,260,000 06
15. Mr. Sarfaraz Ali Metlo, Advocate Karachi 2,375,000 08
16. Mr. ManzoorHameed Arian, Advocate Karachi 420,000 02
17. Mr. AmeerBux, Advocate Karachi 370,000 02
18. Mr. Faraz Ahmed Chandio, Advocate Hyderabad 275,000 01
Total 44,583,000

914
 (Annex-57)
(See Para No. 15.1.4.29)

Statement of unjustified revision rates

Original Revised Revised Progress BOT

Original Item
Cost item Cost of Revised status
Aluminum curtain 12.521 Replaced with 43.990 43.83% Not
wall at exterior Grey Granite approved
elevation
Spanish proclaim tiles 2.622 Lavender blue 18.152 59.24% Not
tiles approved
Total 15.142 62.142
Revised-Existing cost. Rs. 62.142- Rs.15.143= Rs.46.99 million Loss

(1) i) Aluminum curtain wall at exterior elevation replaced with Grey

Granite.
ii) Lavender blue instead of Spanish proclaim tiles.
(2) i) Projection Slab with ziarat white instead RCC.
ii) Grey Granite sills under curtain wall/window

915