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

DISTRICT

AUDIT YEAR 2015-16

AUDITOR GENERAL OF

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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

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6 Annexures 9

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ABBREVIATIONS AND ACRONYMS

AP Advance Para CSR Composite Schedule of Rate CTR Central Treasury Rules CMD Chief Minister Directives DAC Departmental Accounts Committee DDO Drawing and Disbursing Officer DG Director General GFR General Financial Rules LCB Local Council Board LGA Local Government Act MFDAC Memorandum for Departmental Accounts Committee PAC Public Accounts Committee PAO Principal Accounting Officer PFC Provicial Finance Commission RDA Regional Directorate of Audit KP Khyber Pakhtunkhwa UA Union Administration UC Union Council

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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 Mansehra and 15 Union Coucils of District Mansehra 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 v

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 of Audit Abbottabad has a human resource of 12 officers and staff, constituting 3,012 man days. A budget of Rs 15.840 million was allocated to the Directorate during the 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 Mansehra and 15 UCs for the Financial Year 2014-15 and the findings included in the Audit Report. Assistant Director Local Government & Rural Development Department and UCs District Mansehra 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 Statement for these local bodies in the form of budgetary grants. a. Scope of Audit There are 59 Union Councils in three (3) Tehsils of District Mansehra, out of which the accounts of 15 Union 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 Assistant Director Local Government & Rural Development Department and 15 UCs District Mansehra for the Financial Year 2014-15, the auditable vi expenditure under the jurisdiction of this RDA was Rs 50.365 million. Out of this RDA, Abbottabad audited an expenditure of Rs 50.365 million which, in terms of percentage, was 100% of auditable expenditure. The receipts of 15 UCs, District Mansehra for the Financial Year 2014- 15, were Rs 3.353 million. Out of this, RDA Abbottabad audited receipts of Rs 1.503 million which, in terms of percentage, was 45% of auditable receipts. The total expenditure and receipt of Assistant Director Local Government & Rural Development, District Mansehra, for the Financial Year 2014-15 were Rs 53.718 million. Out of this RDA Abbottabad audited the expenditure and receipts of Rs 51.868 million. b. Recoveries at the instance of audit Recovery of Rs 0.633 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 Office Mansehra 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. 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 vii financial and accounting information for decision making. Another basic components 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. Misappropriation of Rs 0.633 million was noted in two cases.1 ii. Irregularity& Non-compliance was noticed in four cases involving Rs 2 6.425 million. g. Recommendations i. Concerted efforts need to be made to recover Government dues. ii. Department needs to strengthen internal controls i.e. financial, managerial, operational, administrative and accounting controls etc iii. Funds should be transferred to their respective councils. iv. Inquiries recommended in the report should be conducted and responsibility should be fixed for lapses. ______

1Para 1.2.1.1, 1.2.1.2 2Para 1.2.2.1, 1.2.2.2, 1.2.2.3, 1.2.2.4

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SUMMARY TABLES & CHARTS

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

1. Total Entities (PAO) in Audit Jurisdiction 1 53.718 2. Total formations in audit jurisdiction 60 53.718 3. Total Entities(PAO) Audited 1 51.868 4. Total formations Audited 16 51.868 5. Audit & Inspection Reports 1 51.868 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 5.783 3. Weak Internal controls relating to financial management 1.275 4. Others 0 Total 7.058

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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 - 14.719 1.503 35.646 51.868 43.654 Amount Placed under Audit 2. Observations - - 4.052 3.006 7.058 66.309 /Irregularities of Audit Recoveries Pointed Out at 3. - - 0.120 0.513 0.633 the instance of Audit Recoveries Accepted 4. /Established at - - 0.120 - 0.120 the instance of Audit Recoveries 5. Realized at 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.

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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 in 1. 5.985 public operation Reported cases of fraud, embezzlement, thefts and misuse of public 2. 0.513 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. 0.440 Recoveries and overpayment, representing cases of established 5. 0.120 overpayment or misappropriations of public monies 6. Non production of record - 7. Others, including cases of accidents, negligence etc. - Total 7.058

Table 5: Cost-Benefit (Rs in million) S. No Description Amount 1. Outlays Audited 51.868 2. Expenditure on Audit 0.035 3. Recoveries realized at the instance of Audit 0 Cost-Benefit Ratio 1 : 0

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CHAPTER – 1

1.1 Assistant Director Local Government & Rural Development Department and Union Councils, District Mansehra

1.1.1 Introduction

District Mansehra has three tehsils i.e. Mansehra, and Oghi. There is an Assistant Director Local Government & Rural Development and 59 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 Mansehra. According to 1998, population census, the population of District Mansehra is

1,152,839.

1.1.2. Comments on Budget and Accounts (Variance Analysis) An amount of Rs 57.997 million was allocated as budget by the Provincial Government to Assitant Director Local Government and 59 Union Councils of District Mansehra. Receipts of Rs 1.698 million were realized during Financial Year 2014-15. Thus making a total of Rs 59.695 million at the disposal of local councils, against which an expenditure of Rs 50.365 million was incurred by Assistant Director Local Government Department and 15 Union Councils of District Mansehra, with a saving of Rs 7.632 million during Financial Year 2014- 15. Detail is given below: (Rs in millions) %age 2014-15 Budget Expenditure Excess/ (Saving) Salary 38.142 33.423 (4.719) 12.37 Non Salary 4.855 2.223 (2.632) 54.21 Developmental 15.000 14.719 (0.281) 1.87 Total 57.997 50.365 (7.632) 13.11 Receipts 2.360

The savings of Rs 7.632 million in all heads of accounts indicates weakness in the capacity of these local institutions to utilize the amount allocated.

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Expenditure 2014-15 (Rs in million)

Development Rs 14.719 29%

Non Salary Salary Rs 2.223 Salary Non Salary 5% Rs33.719 Development 66%

Detail is given at Annexure-3

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 Mansehra under the LGA 2012, have not yet been discussed in PAC.

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1.2 AUDIT PARAS OF AD LG&RDD & UCs MANSEHRA 1.2.1 Fraud & Misappropriation 1.2.1.1 Misappropriation on account of Hot & Cold Charges – Rs 0.520 million According to Para 2 of Government of Khyber Pakhtunkhwa Administrative Department notification No SOA (A.D) 9 (1)/2009/2727-2816 dated 29-10-2010, burning of firewood and charcoal should be permitted only when alternate facilities are not available in the office. Assistant Director LGE & RD Department Mansehra drew Hot & Cold charges of Rs 400,000 during 2014-15 but the suigas facility was already available in the office. Hence the amount was drawn on fake bills and was suspected to be misappropriated.

Moreover, a sum of Rs 120,000 on account of enlistment fee was received from contractors during 2014-15 but was not deposited in Government treasury. Hence, it is suspected that the amount was misappropriated. Misappropriation occurred due to weak internal control, which resulted in loss to Government. When pointed out in March 2016, management stated that 1) Sui Gas connection was not provided to the office of AD and no expenditure was incurred on account of Gas charges. The reply was not cogent as Sui Gas facility was available in the office (Photos at Annex – 4) and Gas charges were paid by District Government for the whole complex. 2) The amount would be deposited and reconciled receipt statement would be provided to audit. The reply is not cogent as no documentary evidence was 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 recovery from person(s) at fault. 3 AP 57 & 64 (2014-15)

1.2.1.2 Misappropriation on account of entertainment charges – Rs 0.113 million

According to Government of Khyber Pakhtunkhwa Finance Department No BO.XI/FD/2-1/2014-15/LG&RD dated 29-06-2015, expenditure under head Entertainment and Gifts was not allowed.

Assistant Director LG&RD Department Mansehra withdrew Rs 112,733 on account of Entertainment Charges during 2014-15. The amount was drawn on simple receipts without any detail of supply and number of persons served. Cheque was drawn in the name of AD LG Mansehra instead of supplier. Moreover, Finance Department KPK has not authorized allocation of funds under Entertainment. Audit concludes that amount drawn on fake bills and in violation of Government instructions was misappropriated by the dealing hand.

Misappropriation of Government money occurred due to weak internal controls, which resulted in loss to Government.

When pointed out in March 2016, management stated that copy of cheque and acknowledgement was provided by the supplier. The reply is irrelevant as detail of expenditure was not provided 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, recovery and disciplinary action under intimation to audit. AP 54 (2014-15)

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1.2.2 Irregularity & Non-compliance

1.2.2.1 Unauthorized retention of balance in bank account – Rs 1.218 million

According to Government of Khyber Pakhtunkhwa Finance Department letter No 2/3-(F/L)/FD/2007-08/Vol-IX dated 10-02-2014, no funds should be kept in commercial bank without prior approval of Finance Department as contained in Para 6 and 7 of General Financial Rules.

Assistant Director LG&RD Department Mansehra opened a bank account without approval of the Finance Department. The account had a balance of Rs 1,218,068 on 30-06-2015, source of funds was not available in the office as cashbook was closed with nil balance on 30-06-2015. Unauthorized retention of Government money into bank resulted in blockage of Government money, misappropriation of which can also not be ruled out.

Unauthorized retention of balances outside Government treasury occurred due to non compliance of Government instructions, which resulted in blockade of Government money.

When pointed out in March 2016, management stated that case for regularization of bank account would be taken with Finance Department. The reply was not cogent as account was opened without prior approval of Finance Department and detail of balance was also not provided.

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 besides deposit of balances into Government treasury.

AP 58 (2014-15)

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1.2.2.2 Non transfer of balances to village councils accounts – Rs 3.492 million

According to Serial No. C (v) of Government of KP LGE & RD Department letter No PDA/LG/5-11/2015 dated 15-06-2015, the balance fund in the accounts of defunct Union Councils may be distributed among the succeeding Village/ Neighbourhood Councils on population basis.

Assistant Director LGE & RD Department Mansehra did not distribute and transferred the closing balances of the defunct Union Councils amounting to Rs 3,492,319 to their respective village councils as on 30-06-2015. Detail at Annex - 5

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 finalization of this reprot.

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 61 (2014-15)

1.2.2.3 Unauthorized expenditure without sanction – Rs 1.275 million

According to sub rule (1) of Rule 4 (2) of the Delegation of Powers & Re- appropriation Rules 2001, the powers delegated shall be exercised by the authorities as per parameters in relation to conferment of financial powers delegated to the authority, subject to availability of funds.

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Note below Rule 5 (xiii) of the Delegation of Powers & Re-appropration Rules 2001 requires obtaining NOC from Government Printing Press before printing at private press.

Assistant Director LG&RD Mansehra incurred expenditure of Rs 1,274,520 under various heads of accounts during 2014-15 without obtaining sanction from the Director General Local Government KP. The expenditure is therefore held unauthorized.

S. No Head of Accounts Powers delegated to Expenditure Category III Officer 1 Stationery 3000 at a time 187,993 2 Others 3000 in each case 300,611 3 Entertainment & Gifts Nil 112,733 4 POL Charges Nil 562,683 5 Printing Charges 2,500 110,500 Total 1,274,520

Moreover, NOC from Government Printing Press for printing from private press was not obtained.

Expenditure without sanction occurred due to weak internal controls, which resulted in violation of Government instructions.

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 sanction was accorded by AD himself and no documentary evidence was produced in support of reply.

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 disciplinary action besides corrective measures.

AP 56 (2014-15) 7

1.2.2.4 Unauthorized retention of union councils share – Rs 0.440 million

In Compliance of Government of Khyber Pakhtunkhwa LGE&RD Department letter No Director (LG)3-3/UC Budget/2013 dated 20-08-2013, Deputy Commissioner Mansehra paid to Assistant Director LG Mansehra on account of Zilla Tax Grant for 59 Union Councils of District Mansehra,

Assistant Director LG&RD Department Mansehra received Rs 992,700 on account of union councils share on account of Zilla Tax Grant out of PFC award during 2014-15. The amount was required to be distributed among union councils. However, the local office transferred Rs 552,500 to 34 union councils and remaining amount Rs 440,200 was retained into bank.

Funds were not transferred to union councils due to weak internal controls, which resulted in unauthorized retention of money.

When pointed out in March 2016, management stated that the amount would be transferred to village council’s accounts. The reply was not cogent as the amount could not be transferred despite lapse of three financial years.

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 disciplinary action besides corrective measures under intimation to audit.

AP 63 (2014-15)

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ANNEXURE Annexure-1 Statement showing detail of MFDAC Paras

(Rs in million) Amount S. No AP No Department Title of the Para

AD LG&RD 1. 53 Mansehra Overpayment on account of POL 0.086 Irregular expenditure on account of POL and 2 55 -do- repair of vehicle – Rs 602,683 0.603 Non deposit of income tax and stamp duty – 3 62 -do- 305,773 0.306 Total: 0.995

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Annexure-2 Audit Impact Summary

S. No Rules/System/Procedure Audit Impact 1 According to GFR, physical verification of Increase of probability for store/assets should be carried out once in a year safeguarding the Government assets and stock 2 According to Financial and Treasury ruels all dues of Increase in revenue collection the Government should be correctly and promptly on account of Government assessed, collected and paid into Government dues treasury 3 According to GFR, receipts and expenditure should To ensure that the be reconciled. departmental accounts are sufficiently accurate to render possible and efficient Depaartmental control of expenditure and receipts

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Annexure-3 Budget and Expenditure Summary

Detail of budget & expenditure during Financial Year 2014-15

(Rs in millions)

2014-15 Budget Expenditure Excess/ (Saving) %age Salary 38.142 33.423 (4.719) 12.37 Non Salary 4.855 2.223 (2.632) 54.21 Developmental 15.000 14.719 (0.281) 1.87 Total 57.997 50.365 (7.632) 68.45

Detail of receipts during Financial Year 2014-15

(Rs in million) Grant in lieu of Realization from own 2014-15 Total Zilla Tax sources Receipts 0.993 2.360 3.353

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Annexure - 4 DP # 1.2.1.1 Proof of Installation of Gas Heaters in AD office

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Annexure – 5 DP # 1.2.2.2 Detail of balances as on 30-06-2015

S. No Name of UC Balance as on 30-06-2015 1 386,139 2 Karori 70,728 3 Bhorgar Mang 338,706 4 Darband 26,871 5 561,824 6 Paarhinna 253,287 7 Sachan Kalan 110,435 8 629,168 9 Talhatta 191,036 10 383,409 11 Mohandri 350,039 12 Jalloo 87,739 13 102,938 Total 3,492,319

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