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

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

DISTRICT BATTAGRAM 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 vi

Table 1: Audit Works Statistics vi

Table 2: Audit Observations Classified by Categories vi

Table 3: Outcome Statistics vii

Table 4: Irregularities Pointed Out viii

Table 5: Cost Benefit viii

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 8

iii

ABBREVIATIONS AND ACRONYMS

AP Advance Para AD Assistant Director DAC Departmental Accounts Committee DDO Drawing and Disbursing Officer DDAC District Development Advisory Committee GFR General Financial Rules LGA Local Government Act LGO Local Government Ordinance LG&RDD Local Government & Rural Development Department MFDAC Memorandum for Departmental Accounts Committee NAM New Accounting Model PAC Public Accounts Committee PAO Principal Accounting Officer POL Petrol Oil Lucricants RDA Regional Directorate of Audit UC Union Council ZAC Zilla Accounts Committee

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 Union Councils and Assistant Director Local Government. The report is based on audit of the accounts of Assistant Director Local Government & Rural Development Department Battagram and 15 Union Councils District Battagram 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 the systemic issues and significant audit findings. Relatively less significant issues are listed in the Annexure-1 of the Audit Report. The Audit Observations listed in the 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 would 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 meeting 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 168 of Khyber Pakhtunkhwa Local Government Act 2012 to be laid before appropriate legislative forum.

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

EXECUTIVE SUMMARY The Directorate General Audit, District Governments, Khyber Pakhtunkhwa, Peshawar, is responsible to conduct the audit of all Assistant Directors Local Government & Rural Development Department and Union Councils. Its Regional Directorate of Audit Abbottabad has audit jurisdiction of Assistant Director Local Government & Rural Development Department and UCs of six Districts i.e. Abbottabad, Haripur, Mansehra, Battagram, Kohistan and Tor Ghar. The Regional Directorate has a human resource of 12 officers and staff, constituting 2761 man days and a budget of about Rs 15.840 million was allocated to the Directorate during Audit Year 2015-16. 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 Abbottabad carried out audit of the accounts of Assistant Director Local Government & Rural Development Department and 15 UCs for the Financial Year 2014-15 and audit findings included in the Audit Report. Assistant Director Local Government & Rural Development Department and UCs District Battagram perform their operations 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 Statement for these local bodies in the form of budgetary grants. a. Scope of audit There are 20 Union Councils in two Tehsils of District Battagram out of which the accounts of 15 Councils were examined in detail. These Union Councils were selected for detail audit by excluding the last year audited entities, on the basis of random sample, keeping in view the available man days. Out of the total expenditure of the Assistant Director Local Government & Rural Development Department and 15 UCs, District Battagram for the vi

Financial Year 2014-15, the auditable expenditure under the jurisdiction of RDA was Rs 18.224 million. Out of this RDA, Abbottabad audited an expenditure of Rs 18.224 million which, in terms of percentage, was 100% of auditable expenditure. The receipts of 15 UCs, District Battagram for the Financial Year 2014- 15, were Rs 1.949 million. Out of this, RDA Abbottabad audited receipts of Rs 1.643 million which, in terms of percentage, was 84% of auditable receipts. The total expenditure and receipt of Assistant Director Local Government & Rural Development, District Battagram, for the Financial Year 2014-15 were Rs 20.173 million. Out of this RDA Abbottabad audited the expenditure and receipts of Rs 19.867 million. b. Recoveries at the instance of audit

Recovery of Rs 1.748 million was pointed out during the audit. However, no recovery was affected till finalization of this report. c. Audit Methodology Audit was conducted after understanding the business processes of Assistant Director Local Government & Rural Development, District Battagram 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 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 Abbottabad.

d. Audit Impact

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

vii e. Comments on the 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.

Another basic component of Internal Control System, as envisaged under Para 13 of GFR Volume-I, is Internal Audit which was not found in place in the domain of Assistant Director Local Government & Rural Development Department. f. Key audit findings of the report: i. Non production of record was noted in one case.1 ii. Misappropriation was noted in one case.2 iii. Irregularity & Non-compliance was noticed in four cases involving Rs 2.777 million.3 iv. Loss due to Internal Controls Weaknesses was noticed in one case involving Rs 1.840 million.4 g. Recommendations i. Disciplinary action needs to be taken for non production of record as well as violation of the rules and regulations in spending the public money. ii. Concerted efforts need to be made to recover long outstanding dues. iii. Department needs to strengthen internal controls i.e. financial, managerial, operational, administrative and accounting controls etc to ensure that lapses of the kind reported in this audit report are preempted and fair value for money is obtained from public spending. iv. Inquiries need to be held to fix responsibility for late completion of schemes and irregular payments. ______

1Para 1.2.1.1 2Para 1.2.2.1, 1.2.2.2, 1.2.2.3 3Paaa 1.2.3.1

viii

SUMMARY TABLES & CHARTS

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

1. Total Entities (PAO) in Audit Jurisdiction 1 20.173 2. Total formations in audit jurisdiction 21 20.173 3. Total Entities(PAO) Audited 1 19.867 4. Total formations Audited 16 19.867 5. Audit & Inspection Reports 1 19.867 6. Special Audit Reports - 7. Performance Audit Reports - 8. Other Reports -

Table 2: Audit observations classified by Categories (Rs in million) Amount Placed under S. No Description Audit Observation 1. Unsound asset management 0 2. Weak financial management 2.777 3. Weak Internal controls relating to financial management 1.840 4. Others 0 Total 4.617

Table 3: Outcome Statistics (Rs in million) Expenditure Total Total last on Acquiring S. Civil Current year Description Physical Receipts Others No Works year (2013-14) Assets (2014-15) (Procurement) 1. Outlays Audited - 0 1.949 18.224 20.173 15.240 Amount Placed under Audit 2. Observations - 0 1.546 1.231 2.777 3.437 /Irregularities of Audit Recoveries Pointed Out at 3. - - 1.546 0.201 1.748 0.34 the instance of Audit Recoveries Accepted 4. /Established at - - 1.546 0 1.546 - the instance of Audit Recoveries 5. Realized at the ------instance of Audit

Note: The outcome figures reported for the year 2013-14 pertains 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 1. 1.03 probity in public operation Reported cases of fraud, embezzlement, thefts and misuse of 2. 0 public resources. Accounting Errors (accounting policy departure from NAM, misclassification, over or understatement of account balances) 3. - that are 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. 0.201 Recoveries and overpayment, representing cases of established 5. 1.546 overpayment or misappropriations of public monies 6. Non production of record - 7. Others, including cases of accidents, negligence etc. - Total 2.777

Table 5: Cost-Benefit (Rs in million) S. No Description Amount 1. Outlays Audited 20.173 2. Expenditure on Audit 0.035 3. Recoveries realized at the instance of Audit 0 Cost-Benefit Ratio 1 : 0

CHAPTER – 1

1.1 Assistant Director Local Government & Rural Development, District Battagram

1.1.1 Introduction

District Battagram has two Tehsils i.e. Battagram & Allai. There is an Assistant Director Local Government & Rural Development Department and 20 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 Battagram. According to 1998 population census, the population of District Battagram is 276,254.

1.1.2 Comments on Budget and Accounts (variance analysis)

An amount of Rs 24.955 million was allocated as budget by the Provincial Government to Assistant Director Local Government & Rural Development Department and 15 Union Councils of District Battagram. Receipts of Rs 1.949 million were realized during the Financial Year 2014-15. Thus making a total of Rs 26.904 at the disposal of local councils, against which an expenditure of Rs 18.224 million was incurred by by Assistant Director Local Government & Rural Development Department and 15 Union Councils of District Battagram with a saving of Rs 8.68 million during Financial Year 2014-15. Detail is given below:

(Rs in millions)

2014-15 Budget Expenditure Excess/ (Saving) %age Salary 18.802 13.467 (5.335) 28.37 Non Salary 6.153 4.757 (1.396) 22.688 Developmental 0 0 0 0 Total 24.955 18.224 (6.731) Receipts 0.403

The savings of Rs 6.731 million in all heads of accounts indicates weakness in the capacity of these local institutions to utilize the amount allocated. 1

Expenditure 2014-15 (Rs in million)

Non Salary Rs 4.757 5%26 Salary Salary Non Salary Rs13.467 Development 74%

1.1.3 Brief comments on the status of Compliance with PAC/ZAC Directives

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

1.2 AUDIT PARAS OF AD LG&RDD BATTAGRAM

1.2.1 Non Production of Record

1.2.1.1 Non production of auditable record

According to Section 14 (3) of the Auditor-General’s (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001, any person or authority hindering the auditorial functions of the Auditor-General of Pakistan regarding inspection of accounts shall be subject to disciplinary action under relevant Efficiency and Discipline Rules, applicable to such person.

Assistant Director LG&RD Department Battagram did not produce the following auditable record pertaining to 2012-13 and 2013-14: 1. Budget Statement 2. Detail of releases of funds 3. Reconciled expenditure statement 4. AC bills and supporting vouchers 5. Vehicles logbooks 6. Detail of appointments and service record of employees 7. Secretay Union Council Batta Mori and Jambera did not deposit receipts on account of birth, death and nikah registration, Moreover no record was maintained to ascertain the amount received on this accout

Non production of record resulted in unauthentic/ unverified accounts.

When pointed out in March 2016, management stated that record was misplaced during shifting of office and would be produced soon. The reply is not tenable as record was not produced till finalization of this report.

Request for convening of DAC meeting was made in April 2016, which was not convened till finalization of this report.

Audit recommends investigation fixing responsibility and disciplinary action against person(s) at fault. AP 40 & 41 (2014-15) 3

1.2.2 Irregularity & Non-compliance 1.2.2.1 Non transfer of balances to village councils accounts – Rs 1.030 million

According to Government of Khyber Pakhtunkhwa Local Government Act 2013, village/ neighbourhood councils were established instead of Union Councils.

Assistant Director LG&RD Department Battagram did not distribute and transferred the closing balances of the defunct Union Councils amounting to Rs 1,029,989 to their respective village councils as on 30-06-2015. Detail at Annex- 2.

Balances were not transferred to the respective village council’s accounts in violation of Government instructions, which resulted in unauthorized retention of balances.

When pointed out in March 2016, management stated that the amount would be transferred to village council’s accounts. However, the amount was not deposited till date.

Request for convening of DAC meeting was made in April 2016, which was not convened till finalization of this report.

Audit recommends investigation and corrective measures.

AP 42 (2014-15)

1.2.2.2 Unauthorized excess expenditure on account of POL – Rs 0.201 million

According to S. No (b) of the Government of Khyber Pakhtunkhwa LGE&RD Department No SO(LG)/4-116/DDAC/2011/KC dated 30-04-2011, the ceiling of POL for Chairman DDAC was raised to 300 liters per month.

Assistant Director LG&RD Department Battagram incurred expenditure of Rs 600,000 on account of POL of Chairman DDAC during 2014-15, resulting in excess drawal of Rs 201,300 as detailed below:

POL Ceiling Rate No of months Amount Due Amount Drawn Excess 300 liter 110.75 12 398,700 600,000 201,300

Excess drawal on account of POL occurred due to non compliance of Government instructions, which resulted in loss to Government.

When pointed out in March 2016, management stated that sanction of expenditure was obtained from Director General Local Government. The reply was not cogent as no justification was provided for POL drawn in excess of ceiling.

Request for convening of DAC meeting was made in April 2016, which was not convened till finalization of this report.

Audit suggests investigation, fixing responsibility and recovery.

AP 43 (2014-15)

1.2.2.3 Non recovery of Union Councils share – Rs 1.546 million

According to Government of Khyber Pakhtunkhwa Finance Department instructions dated 24-04-2014, 90% of the receipts in lieu of Zilla Tax being share of Union Councils should be transferred to AD LGE&RD.

Finance Department KPK released Rs 1,718,000 to District Battagram on account of receipts in lieu of Octroi & Zilla Tax during 2014-15. The amount was required to be distributed as per following approved formula: District Council Share 10% = Rs 171,800 Union Councils Share 90% = Rs 1,546,200

The local office did not take any action to receive UCs share. 5

Union councils share was not recovered in violation of Government instructions, which resulted in loss to the concerned councils.

When pointed out in March 2016, management stated that the expenditure was the matter would be taken with Chief Coordination Officer Battagram. The reply is not tenable as no progress was shown till finalization of this report.

Request for convening of DAC meeting was made in April 2016, which was not convened till finalization of this report.

Audit suggests investigation, disciplinary action and recovery.

AP 44 (2014-15)

1.2.3 Internal Control Weaknesses

1.2.3.1 Irregular expenditure on account of POL and repair of vehicle – Rs 1.840 million

According to Para 22 of Government of Khyber Pakhunkhwa S&GAD Department notification No SO (T)NP/S&GDAD/97 dated 13-03-1977, logbook, history sheet and petrol account should be maintained in respect of Government vehicles.

Assistant Director LG&RD Department Battagram incurred expenditure of Rs 1,839,595 on account of POL and repair of vehicle during 2014-15, however logbooks were not maintained. The expenditure without maintenance of logbooks is held irregular. Moreover, the officer had dual charge of the AD LG&RD Tor Ghar and duplication of expenditure can also not be ruled out.

Head of Account Expenditure POL 999,535 Repair of vehicle 840,060 Total 1,839,595

Logbooks were not maintained due to weak internal controls, which resulted in irregular expenditure and violation of Government instructions.

When pointed out in March 2016, management stated that logbooks would be produced to audit. However, logbooks were not produced till finalization of this report.

Request for convening of DAC meeting was made in April 2016, which was not convened till finalization of this report.

Audit suggests investigation, action and corrective measures.

AP 46 (2014-15)

ANNEXURE Annexure-1 Statement showing detail of MFDAC Paras

Amount S. No AP No Department Title of the Para

AD LG&RD Irregular expenditure on account of repair of 1 45 840,000 Battagram vehicle - Rs 0.840 million 2 47 Unauthorized opening of Bank Account 0 Non taken over of assets of defunct Local 3 48 Government Office 0 4 49 Unauthorized retention of UC revenue 17,880 Total: 857,880

Annexure-2

Detail of balances as on 30-06-2015

S. No Name of UC Balance as on 30-06-2015 1 Peshora 259,591 2 Sakargah 97,302 3 Banna 16,790 4 Battagram 166,220 5 Shamlai 74,287 6 Gijbori 47,906 7 Paimal Sharif 122,007 8 Trand 27,552 9 Rajdhari 81,119 10 Banian 54772 11 Kuza Banda 57,887 12 Ajmera 8483 13 Rashang 6,273 14 Bateela 9,800 Total 1,029,989