AUDIT REPORT ON THE ACCOUNTS OF PAKISTAN RAILWAYS AUDIT YEAR 2018-19 AUDITOR GENERAL OF PAKISTAN TABLE OF CONTENTS Page No. ABBREVIATIONS & ACRONYMS i PREFACE iii EXECUTIVE SUMMARY iv SUMMARY TABLES I Audit Work Statistics x II Audit Observations Regarding Financial x Management III Outcome Statistics xi IV Irregularities Pointed Out xii V Cost Benefit Analysis xii CHAPTER 1 Ministry of Railways 1 1.1 Introduction of Ministry 1 1.2 Comments on Budget & Accounts 2 1.3 Brief comments on the status of compliance 13 with PAC directives CHAPTER 2 Public Financial Management Issues 14 2.4 AUDIT PARAS 2.4.1 Fraud / Misappropriations 23 2.4.11 Non-Production of Record 34 2.4.12 Irregularity & Non-Compliance 36 2.4.39 Performance 62 2.4.52 Internal Control Weaknesses 75 2.4.67 Others 88 Annexure 99 ABBREVIATIONS & ACRONYMS ADP Annual Development Program AEN Assistant Executive Engineer AGM Additional General Manager BPS Basic Pay Scale CA Certification Audit CCM Chief Commercial Manager CC&M Chief Chemist and Metallurgists CCP Chief Controller of Purchase CDL Central Diesel Locomotive CEN Chief Engineer CFT Cubic Feet CSF Concrete Sleeper Factory CSR Composite Schedule of Rates C&W Carriage and Wagon DAC Departmental Accounts Committee DAEE Divisional Assistant Electrical Engineer DAO Divisional Accounts Officer DCP(I) District Controller of Purchase (Inspection) DE Locomotive Diesel Electric Locomotive DEE Divisional Electrical Engineer DEN Divisional Engineer DME Divisional Mechanical Engineer DP Draft Para DPO Divisional Personnel Officer DRF Depreciation Reserve Fund DS Divisional Superintendent DTO Divisional Transportation Officer ECNEC Executive Committee of the National Economic Council FA&CAO Financial Advisor and Chief Accounts Officer FIR First Information Report FY Financial Year GM General Manager HCHW High Capacity Hopper Wagons IBU Infrastructure Business Unit KDA Kundian KRC Kashmir Railway Private Limited KUTC Karachi Urban Transport Corporation i LD Liquidated Damages LESCO Lahore Electric Supply Company LOCO Locomotive MD Managing Director MFDAC Memorandum for Departmental Accounts Committee MGPR Mughalpura MoR Ministry of Railways M&S Manufacturing and Services NAB National Accountability Bureau NBP National Bank of Pakistan OTCL Overseas Trade Corporation Limited PAC Public Accounts Committee PAO Principal Accounting Officer PC-I Planning Commission Proforma-I PD Project Director P&L Property and Land PLF Pakistan Locomotive Factory PO Principal Officer PPRA Public Procurement Regulatory Authority PQA Port Qasim Authority PRFTC Pakistan Railways Freight Transportation Company PR Pakistan Railways PRACS Pakistan Railway Advisory and Consultancy Services Limited PSDP Public Sector Development Programme RAILCOP Railway Constructions Pakistan Limited REDAMCO Railway Estate Development and Marketing Company (Pvt) Limited RFD Rehabilitation of Flood Damaged Assets RR Rail Renewal SBP State Bank of Pakistan S&C Survey and Construction SFT Square feet SM Station Master/Manager SOP Standard Operating Procedure TDRs Term Deposit Receipt TLA Temporary Labour Application ii 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’s (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001 require the Auditor General of Pakistan to conduct audit of receipts and expenditure of Pakistan Railways and its subsidiaries. This report is based on audit of the accounts of Pakistan Railways for the financial year 2017-18. Further, this report also includes observations pertaining to previous years which were observed during audit. The Directorate General Audit (Railways), Lahore conducted audit on test check basis during the year 2018-19 with a view to reporting significant findings to the stakeholders. The main body of the Audit Report includes only the systemic issues and audit findings carrying value of Rs 1 million or more. Relatively less significant issues are listed in Annexure - 2 as Memorandum for Departmental Accounts Committee. These shall be pursued with the Principal Accounting Officer at the DAC level and in cases where the PAO does not initiate appropriate action, the audit observations shall be brought to the notice of Public Accounts Committee through next year’s Audit Report. Audit findings indicate need for adherence to the regulatory framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. Observations included in this report have been finalised in the light of departmental replies as well as discussions in the DAC meetings where convened by the PAO. 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 Majlis-e-Shoora [Parliament]. -sd- (Javaid Jehangir) Dated: 12.02.2019 Auditor General of Pakistan iii EXECUTIVE SUMMARY The Director General Audit (Railways) has the mandate to conduct audit of receipts and expenditure of Pakistan Railways and its subsidiaries, viz. Pakistan Railway Advisory & Consultancy Services Limited (PRACS), Railway Constructions Pakistan Limited (RAILCOP), Railway Estate Development & Marketing Company (Pvt) Limited (REDAMCO), Kashmir Railway Private Limited (KRC) and Karachi Urban Transport Corporation (KUTC). This office conducts regularity audit (financial and compliance with authority audit) and performance audit of the projects run by the Ministry of Railways. Audit of receipts and expenditure was carried out on test check basis in accordance with audit methodology envisaged in Financial Audit Manual. Audit was carried out with human resource of 166 officers and staff, utilising 41,331 mandays, with annual budget amounting to Rs 179.50 million. Meetings of DAC were held to discuss audit observations for the finalisation of this report. PR is a state managed commercial organisation with a mission “to provide a competitive, safe, reliable, market oriented, efficient and environment friendly mode of transport”. It comprises three functional units: i) Operations ii) Manufacturing & Services iii) Welfare and Special Initiatives Each unit is headed by a General Manager. Major portion of earnings of PR comes from passenger and freight traffic. Other sources of earnings include leasing of surplus Railway land for commercial and agricultural purposes. a. Scope of Audit Out of total expenditure and revenue of Federal Government for the financial year 2017-18, auditable expenditure and revenue under the jurisdiction (Ministry of Railways including its subsidiaries) of DGAR was Rs 123,350.16 million and Rs 50,000 million respectively covering 01 iv PAO comprising 227 formations. Of this, DGAR audited expenditure and revenue of Rs 59,793.48 million and Rs 10,769.27 million respectively which, in terms of percentage is 48.47 % of auditable expenditure and 21.54 % of revenue. In addition, DGAR conducted performance/special audit of 06 projects/formations. b. Recoveries at the instance of Audit Recovery of Rs 44,627.98 million was pointed out, out of which recovery of Rs 2,344.01 million was effected during the year 2018 at the time of compilation of Report. Out of the total recoveries, Rs 10.28 million was not in the notice of the executive before audit. c. Audit Methodology The audit methodology included examination of relevant files/documents, review of financial data, site visits and discussions with management. d. Audit Impact On the pointation of Audit, the Railway management implemented procedure for securing performance guarantee on civil works in line with PPRA Rules. Moreover, Railway management implemented revalidation of administrative approval in respect of all left over civil works during a financial year in terms of para 1108 of Pakistan Railways Engineering Code. Further, owing to audit qualification imposed on previous years’ financial statements of PR regarding “Overstatement of current assets without any commitment from Finance Division valuing Rs 13,901.004 million” management has taken corrective measures by reversing and writing off the said amount. e. Comments on Internal Controls and Internal Audit Department The Principal Accounting Officer in conjunction with the Internal Audit organisation is responsible for ensuring that a proper system of internal controls exists within the entity. Audit observed certain lapses in v internal controls regarding security arrangements, inventory management, budgetary controls, receivables management, assets management and human resource management etc. A number of observations on weak internal controls are included in this Audit Report. There is an Internal Audit organisation headed by a BPS-20 officer working directly under the Secretary, Ministry of Railways. Internal Audit has started preparing bi-annual report embodying audit observations issued to the offices audited by it. Statutory Audit found that the offices which were audited showed poor response towards internal audit. The follow-up of internal audit reports was done through reminders but pace of compliance of the recommendations by the organisation was found inadequate. Resultantly, the issues pointed out by the Internal Audit in its reports from the year 1999-2000 onwards remained unaddressed. f. The key audit findings of the report; Audit findings categorized in four major areas are depicted in the following pie chart along with the total amount of each sector. Para