Audit Report on the Accounts of Assistant Director Local Government, Election & Rural Development Department and Selected Union Councils

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AUDIT REPORT ON THE ACCOUNTS OF ASSISTANT DIRECTOR LOCAL GOVERNMENT, ELECTION & RURAL DEVELOPMENT DEPARTMENT AND SELECTED UNION COUNCILS

DISTRICT KOHAT KHYBER PAKHTUNKHWA

AUDIT YEAR 2015-16

AUDITOR GENERAL OF PAKISTAN

TABLE OF CONTENTS

1 ABBREVIATION AND ACRONYMS i

2 PREFACE ii

3 EXECUTIVE SUMMARY iii

4 SUMMARY TABLES AND CHARTS vii

Table 1: Audit Works Statistics vii

Table 2: Audit Observations Classified by Categories vii

Table 3: Outcome Statistics viii

Table 4: Irregularities Pointed Out viii

Table 5: Cost Benefit ix

5 CHAPTER 1 1

1.1 AD LGE & RDD and selected Union Councils 1

1.1.1 Introduction 1

1.1.2 Comments on Budget and Accounts (Variance Analysis) 1

1.1.3 Brief Comments on the Status of Compliance 2

1.2 Audit Paras 3

6 Annexures 7

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ABBREVIATIONS AND ACRONYMS

AD LG&RDD Assistant Director Local Government & Rural Development Department AP Advance Para APRs Actual Payee Receipts DAC Departmental Accounts Committee DDAC District Development Advisory Committee DDO Drawing and Disbursing Officer GFR General Financial Rules MFDAC Memorandum for Departmental Accounts Committee PAC Public Accounts Committee PAO Principal Accounting Officer RDA Regional Directorate of Audit SIDB Small Industrial Development Board UAs Union Administrations UCs Union Councils

Preface Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan, 1973 read with Sections-8 and 12 of the Auditor-General (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001 and Section 168 of Local Government Act 2012, require the Auditor-General of Pakistan to conduct audit of the receipts and expenditure of Local Fund of AD LG&RDD. The report is based on audit of the accounts of AD LG&RDD, District Kohat for the Financial Year 2014-15. The Directorate General of Audit, District Governments, Khyber Pakhtunkhwa, Peshawar conducted audit on test check basis during 2015-16 with a view to reporting significant findings to the relevant stakeholders. The main body of the Audit Report includes only significant systemic issues and audit findings. Relatively less significant issues are listed in the annexure-1 of the Audit Report. The Audit Observations listed in annexure-1 shall be pursued with the Principal Accounting Officer at the DAC level and in all cases where the PAO does not initiate appropriate action, the Audit observation will be brought to the notice of Public Accounts Committee through the next year’s Audit Report. Audit findings indicate the need for adherence to the regularity framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. The observations included in this Report have been finalized in the light of written replies of the Departments. DAC meetings could not be convened despite repeated requests. The Audit Report is submitted to the Governor of Khyber Pakhtunkhwa in pursuance of Article 171 of the Constitution of the Islamic Republic of Pakistan, 1973 read with Section 115 of Khyber Pakhtunkhwa Local Government Ordinance, 2001 (as amended) to be laid before appropriate legislative forum.

Dated: (Rana Assad Amin) Islamabad Auditor General of Pakistan

EXECUTIVE SUMMARY

The Directorate General of Audit, District Governments, Khyber Pakhtunkhwa, Peshawar, a Field Audit Office of the Auditor General of Pakistan is responsible to conduct the audit of all District Governments in Khyber Pakhtunkhwa, Assistant Director Local Government & Rural Development. Its Regional Directorate of Audit Kohat has audit jurisdiction of District Governments, AD Local Government and Rural Development and UAs of three Districts i.e. Kohat, Karak and Hangu.

The Regional Directorate has a human resource of 07 officers and staff, constituting 1953 man days and a budget of about Rs 7.764 million was allocated during 2014-15. It has the mandate to conduct financial attest audit, audit of sanctions, audit of compliance with authority and audit of receipts as well as the performance audit of entities, projects and programs. Accordingly Regional Director Audit Kohat carried out audit of the accounts of AD LG&RDD Kohat for the Financial Year 2014-15 and the findings included in the Audit Report.

Assistant Director Local Government & Rural Development Department District Kohat perform their functions under Khyber Pakhtunkhwa Local Government Act 2012. Administrative Secretary i.e. Secretary Local Government and Rural Development Department, Khyber Pakhtunkhwa is the Principal Accounting Officer for these local bodies. According to financial provisions of the Act, the Secretary Local Government and Rural Development Department, Khyber Pakhtunkhwa authorizes the Annual Budget for these local bodies in the form of budgetary grants.

Assistant Director LG&RDD and Union Administrations Kohat comprises of Assistant Director as administrator and Union Secretaries. a. Scope of audit

There are 32 Union Councils in two (2) Tehsils of District Kohat out of which the accounts of 10 Union Councils were examined in detail. These Union vi

Councils were selected for detail audit by excluding the last year audited entities, on the basis of random sample of seven UCs from Tehsil Kohat and three from Tehsil Lachi, keeping in view the available man days.

S. # Tehsil Total No. of UCs No. of UCs No. of UCs Audited Audited 1 Kohat 21 7 6 Last year This year 2 Lachi 11 3 4

Out of the total expenditure of the Assistant Director Local Government & Rural Development Department and 10 UCs, District Kohat, for the Financial Year 2014-15, the auditable expenditure under the jurisdiction of RDA was Rs 21.003 million. Out of this, RDA Kohat audited an expenditure of Rs 16.802 million on test check basis which, in terms of percentage, is 80% of auditable expenditure.

The receipts of 10 UCs, District Kohat for the Financial Year 2014-15, were Rs 0.123 million. Out of this, RDA Kohat audited receipts of Rs 0.123 million which, in terms of percentage, was 100% of auditable receipts. The total expenditure and receipts of Assistant Director Local Government & Rural Development Department and UCs, District Hangu, for the Financial Year 2014-15 were Rs 21.126 million. Out of this, RDA Kohat audited the expenditure and receipts of Rs 16.925 million.

b. Recoveries at the instance of audit

Recovery of Rs 0.011 million was pointed out during the audit. However, no recoveries were affected till the finalization of this report. c. Audit Methodology

Audit was conducted after understanding the business processes of Assistant Director Local Government Office and Union Councils with respect to their functions, control structure and key controls. This helped auditors in understanding the systems, procedures, environment, and the audited entity vii

before starting the audit. Audit used desk audit techniques for analysis of compiled data and review of actual vouchers with other supporting documents and records called for scrutiny and substantive testing in the Regional Directorate of Audit Kohat. d. Audit Impact

Audit pointed out various irregularities of serious nature to the management. However, no impact was visible as the irregularities could not come to the light in the proper forum i. e DAC. e. Comments on Internal Control and Internal Audit department

The purpose of internal control system is to ensure effective operation of an organization. It consists of measures employed by the management to achieve objectives, safeguard assets, ensure accuracy, timeliness and reliability of financial and accounting information for decision making.

One of the basic component of Internal Control System, as envisaged under Para 13 of GFR Volume-I, is Internal Audit which was not prevalent in AD LG&RDD. Neither rules for internal audit have been framed nor internal audit report as required was provided to audit. f. Key Audit Findings

i. Irregularities/Non-Compliance of Rs 0.898 million were noted in one case.1 ii. Weak Internal Control of Rs 5.669 million was noted in two cases.2

Audit paras for the audit year 2015-16 involving procedural violations including internal control weaknesses and irregularities which were not considered worth reporting to the PAC were included in Annex-1 (MFDAC).

1 Para: 1.2.1.1 2 Para: 1.2..2.1 & 1.2.2.2 viii

g. Recommendations

i. Disciplinary actions need to be taken to stop the practice of violation of the rules and regulations in spending the public money.

ii. All sectors of AD LG&RDD need to strengthen internal control i.e. financial, managerial, operational, administrative and accounting controls etc to ensure that reported lapses are preempted and fair value for money is obtained from public spending.

SUMMARY TABLES AND CHARTS

Table 1: Audit Work Statistics (Rs in million) S. No Description No. Budget

1 Total Entities (PAO) in Audit Jurisdiction 01 21.003 2 Total formations in audit jurisdiction 32 21.003

3 Total Entities (PAO) Audited 01 21.003

4 Total formations Audited 11 16.802 5 Audit and Inspection Reports 02 16.802 6 Special Audit Reports -- -- 7 Performance Audit Reports -- -- 8 Other Reports (relating to AD LG&RDD) -- --

Table 2: Audit observations Classified by Categories

(Rs in million) S. No Amount placed under Description Audit Observation 1 Unsound asset management -- 2 Weak financial management 0.898 3 Weak Internal controls relating to financial management 5.669 4 Others -- Total 6.567

Table 3: Outcome Statistics (Rs in million) Expenditure on Acquiring Total for Physical Total for S. No Description Civil the year Receipts Others the year Assets Works 2013-14 Procurement 2014-15

1 Outlays Audited - - 0.123 16.679 16.802 12.06 Amount Placed under 2 Audit Observation - - - 6.567 6.567 8.007 /Irregularities of Audit Recoveries Pointed Out 3 - - - 0.011 0.011 0.072 at the instance of Audit Recoveries Accepted 4 /Established at the ------instance of Audit Recoveries Realized at 5 ------the instance of Audit

Note: The outcome figures reported for the year 2013-14 pertain to the Ten (10) Union Councils audited last year. Since the PAO is the same therefore, these amounts have been included here to show cumulative effect against the PAO.

Table 4: Table of Irregularities pointed out (Rs in million) Amount Placed S. No Description under Audit Observation Violation of Rules and regulations, principle of propriety and probity 1 0.898 in public operation. Reported cases of fraud, embezzlement, thefts and misuse of public 2 resources. -

Accounting Errors (accounting policy departure from NAM, misclassification, over or understatement of account balances) that are 3 - significant but are not material enough to result in the qualification of audit opinions on the financial statements.

4 Quantification of weaknesses of internal control systems. 5.669 Recoveries and overpayment, representing cases of established 5 - overpayment or misappropriations of public monies. 6 Non production of record. - 7 Others, including cases of accidents, negligence etc. - Total 6.567

Table 5: Cost Benefit (Rs in million) S. No Description Amount 1 Outlays Audited (Item 1 of Table 3) 21.003 2 Expenditure on audit 0.0910 3 Recoveries realized at the instance of Audit 0.00 4 Cost Benefit Ratio 1:0

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CHAPTER-1

1.1 Assistant Director Local Government & Rural Development Department Kohat

1.1.1 Introduction District Kohat has two Tehsils i.e. Kohat and Lachi. There is an Assistant Director Local Government & Rural Development Department and 32 Union Councils. Each Union Council has a Secretary. Assistant Director Local Government & Rural Development Department is Drawing and Disbursing Officer (DDO) for his office and union councils of the District Kohat. According to 1998 population census, the population of District Kohat is 227,000.

1.1.2 Comments on Budget and Accounts (variance analysis) An amount of Rs 68.308 million was allocated as budget by the Provincial Government to Assistant Director Local Government & Rural Development Department and 10 Union Councils of District Kohat. An amount of Rs 0.123 million was realized during the financial year 2014-15. Thus making a total of Rs 68.431 million at the disposal of local councils, against which an expenditure of Rs 21.126 million was incurred by Assistant Director Local Government & Rural Development Department and 10 Union Councils of District Kohat, with a savings of Rs 47.305 million during Financial Year 2014-15. Detail is given below: (Rs in million)

Excess (+) / % Excess 2014-15 Budget Expenditure Saving (-) (Saving) Salary (45.113) AD LG&RDD 63.716 18.603 71 (0.060) DDAC 0.120 0.060 Non-salary (0.025) AD LG&RDD 0.452 0.427 48 (2.107) DDAC 4.020 1.913 Developmental 0 0 0 0 Total 68.308 21.003 (47.305) 69 Receipts 0.123 0.123 0 Grand Total 68.431 21.126 (47.305) 1

The savings of Rs 47.305 million in all heads of accounts indicate weakness in the capacity of these local institutions to utilize the amounts allocated.

Expenditure 2014-15 Developmental Rs0

Salary Non-Salary Non-Salary Rs 2.340million Development 46% Salary Rs 18.663million 54%

1.1.3 Brief comments on the status of compliance with PAC Directives

The audit reports on the accounts of Assistant Director Local Government & Rural Development Department and Union Councils Kohat prepared under the LGA 2012, and have not yet been discussed in PAC.

1.2 AUDIT PARAS 1.2.1. Irregularities and non compliance 1.2.1.1 Irregular and uneconomical expenditure-Rs 0.898 million According to Chief Minister Secretariat letter No.SO- II/CMS/NWFP/5/2009/18674 dated 30-6-2009 all kinds of furniture should be purchased from the Wood Working Centers of the small industries development board in Khyber Pakhtunkhwa and in genuine cases the NOC should be obtained from GM SIDB Khyber Pakhtunkhwa. According to Staff Car Rules POL & repair record should be entered in the relevant columns of the vehicle log book. NOC from Agriculture Engineering workshop to repair the vehicle shall be obtained in case of repair work exceeding Rs 15,000/-. According to Para 144 of GFR VoI- I open tender system should be adopted in order to obtain economical rates.

AD LG&RDD, Kohat incurred an expenditure of Rs 154,400 on purchase of furniture for DDAC office from open market instead of authorized firm of the Small Industries Development Board. Audit holds that:

1. NOC was not obtained from SIDB. 2. Entries on stock register were undated. 3. APRs were not available on record. 4. Payments were drawn in the name of AD LG&RDD instead of direct payment to the suppliers/firms.

Furthermore an expenditure of Rs 369,850 and Rs 38400 was incurred on repair of vehicles of DDAC Chairman and AD LG&RDD respectively during 2014-15. But Log books of the vehicles were neither maintained nor produced to verify the expenditure. NOC from Agriculture Engineering Workshop and Motor Vehicle Examiner for repairs was also not obtained. Cheques were drawn in the name of AD LG&RDD instead of workshop/supplier.

An expenditure of Rs 336,130 was incurred on account of purchase of laptops and other accessories i.e. printer, scanner etc. as per detail given at annexure-4 for DDAC chairman during 2014-15. Audit observed that:

1. Representative of I.T department was not consulted as required under S.No 5(vii) b of delegation of Powers & Re appropriations Rules 2001. 2. Open tender system was not adopted to make the purchase economical. 3. Proper purchase committee was not constituted for the purchase. 4. One laptop was shown issued to Chairman DDAC while the other was not issued to any one as per stock register and its whereabouts was also not known. 5. Cheques were issued in the name of AD LGRDD instead of suppliers directly and APRs were also not available on record.

When pointed out in March, 2016 management stated that detailed reply would be furnished after consulting record.

Irregular expenditure occurred due to weak internal control which resulted in violation of Government rules and uneconomical purchase.

Audit suggests appropriate action and regularization of the expenditure.

AP No 79, 80 & 84/ 2014-15

1.2.2 Internal Control Weaknesses 1.2.2.1 Non maintenance of cash book-Rs 1.973 million

According to Rule 77 of Central Treasury Rules Vol-I a cashbook in the form TR 04 should be maintained for money received on behalf of the government. All monetary transactions should be entered in the cashbook duly attested by the head of the office.

AD LG&RDD, Kohat incurred an expenditure of Rs 1,973,839 on account of Chairman DDAC during 2014-15 but cash book was not produced reportedly for the reason that it was not maintained. As a result an important link between the expenditure and cash flows was not available to authenticate/verify the expenditure.

Non maintenance of cash book occurred due to non-observance of Government rules.

When pointed out in March, 2016 management stated that detailed reply would be furnished after consulting record.

Audit suggests proper maintenance of cash book and action against the person(s) at fault.

AP No 83/ 2014-15

1.2.2.2 Non utilization of fund-Rs 3.696 million

According to Para 12 of GFR Vol-I, a controlling officer must see that funds allotted to spending units are expended in the public interest and upon objects for which the money was provided.

The bank statements of the following Union Councils of District Kohat showed opening balance of Rs 3,696,243 in their bank accounts on the start of financial year 2014-15. These heavy unspent balances had been accumulated due to non-performance of the functions assigned to union councils, resulting into poor service delivery and defeating the very purpose of establishing the union councils. 5

S.No. Name of Union Council Unspent Balance Rs 1 Lachi Rural 23,561 2 Mandoori Lachi 136,745 3 Urban 6 Kohat 445,997 4 Urban 3 209,388 5 Urban 4 251,650 6 Togh Bala 767,364 7 Surgul 1,119,727 8 Jerma 486,498 9 Urban 5 255,313 3,696,243

Non utilization of funds occurred due to ill planning which deprived the public at large of the benefit of the funds allocated for the purpose.

When pointed out in March, 2016 management stated that detailed reply will be furnished after consulting record.

Audit suggests that unspent balances may be deposited in Government Treasury.

AP No 87/ 2014-15

ANNEXURE

Annexure-1

MFDAC Paras

(Rs in million) S. No AP No Caption Amount 1 78 Irregular Expenditure on account of Hot & Cold Charges 0.060

2 81 Irregular Expenditure on account of Advertisement 0.182 charges 3 82 Irregular expenditure on account of printing charges 0.164

4 85 Irregular expenditure on account of Travelling Allowance 0.059

5 86 Lapse of fund on account of Entertainment 0.600

6 88 Improper maintenance of cash book 0

Annexure-2

AUDIT IMPACT SUMMARY

S.No Rules/System/Procedure Audit Impact

1 According to GFR, physical verification of Increase probability for safeguarding store/assets should be carried out once in a year. the Government assets and stock

2 According to Financial and Treasury rules all dues Increase in revenue collection on of the government should be correctly and promptly account of Government dues assessed, collected and paid into Government Treasury.

3 According to GFR, receipts and expenditure should To ensure that the departmental be reconciled. accounts are sufficiently accurate to render possible and efficient Departmental control of expenditure and receipts.

Annexure-3 Budget and expenditure Summary (Rs in million)

Annexure-4

(Para No. 1.2.1.1)

(Detail of irregular purchase of Laptops and computer accessories)

S. No Particulars Amount (Rs)

1 One Sony Vivo Core i5 Laptop 86,900

2 One Dell Core i7 Laptop 97,500

3 HP printers 03 numbers 67,500

4 One Dell computer PC core i7 45500

5 One HP computer PC 2.4 core 2duo 38,730

Total 336,130