Constitution of the Democratic Socialist  According to the accounts presented to Republic of Sri Lanka. audit by the Authority for the year under review, debtor balances totalling Road Development Authority Rs.3,014.91 million not recovered from various parties by the Authority during a period from 1 to 10 years as at 31 The cadre of the Road Development December 2014 and creditor balances Authority consisted of 5,964 officers totalling Rs.1,492.38 million not paid by including 79 officers in the top level the Authority during a period from 1 to management, 651 officers in the 10 years had not been settled even Engineering Service and 886 officers in the during the year under review. Technical Service. According to the financial statements as at 31 December 2014, the  Approval of the Cabinet of Ministers had deficit of the Authority amounted to been granted to obtain loans amounting Rs.4,962.67 million and a provision of to Rs.151.77 billion from local banks for Rs.21,432.6 million had been made by the the rehabilitation of 64 roads with a General Treasury for improvement and length of 1,434 kilo meters which comes maintenance of roads. The income under the Road Development Authority. collected from the expressways during the Accordingly, contracts valued at year 2014 amounted to Rs.3,156.4 million. Rs.137.52 billion had been awarded for

the rehabilitation of 64 roads, and Construction, rehabilitation and the total loans obtained in cash from 07 maintenance of expressways, highways and local banks during the years 2012,2013 bridges are being carried out by the Maga and 2014 for the rehabilitation of those Neguma Emulsion Production Company, roads amounted to Rs.108.25 billion. Maga Neguma Road Construction and Even though contractors should be Equipment Company and Maga Neguma selected in accordance with the National Consultancy and Project Management Procurement Guidelines, these contracts Company which established as associate had been directly awarded on the companies under the Road Development quotations submitted by the contractors. Authority and the Companies Act and the Nevertheless, it was observed that the projects implemented on domestic and quotations submitted were higher than foreign funds which executed by the the standard road rates. Out of the Ministry and the Road Development contracts awarded, the contract value of Authority. The significant audit observations Rs.146.55 billion relating to 54 roads made during the year under review are recommended by the Technical summarized below. Evaluation Committee of the Ministry

had been increased by Rs.9.24 billion by

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 125

the Procurement Committee appointed Rehabilitation of the Authority by the Cabinet of Ministers. commenced during the period 2006- According to the above credit limit 2014 by the Engineering offices of the approved, the credit limit approved by Road Development Authority of which the National Savings Bank had been the estimated contract value amounted Rs.55.37 billion. Further, a sum of Rs.28 to Rs.5,891.05 million. Nevertheless, it billion had been obtained by the Road was observed that the activities of those Development Authority for the projects had been stopped halfway due rehabilitation of 28 roads under the 64 to the delay of contractors, poor road contracts awarded as mentioned performance, shortages of funds and above, and those money had been spent being non-RDA roads. by the Authority and the Ministry on activities extraneous to the rehabilitation  Even though a provision of Rs.493.83 of roads. Nevertheless, approval of the million had been made by the Annual Cabinet of Ministers and the Treasury Budget for the maintenance work of had not been obtained in this 186 roads included in the Maintenance connection. Programme of the year 2014, such maintenance work had not been carried  Action had not been taken to utilize a out. Nevertheless, a sum of Rs.1,248.14 provision of Rs.16,238 million made in million had been spent on the respect of widening and improvement maintenance work of 281 non-RDA of 141 roads during the year 2014. roads despite the non-availability of Nevertheless, a sum of Rs.2,757 million budgeted provision. had been spent on 33 roads not included in the Annual Action Plan, despite the  Action had not been taken even during non-availability of provision. Further, a the year under review to recover a sum sum of Rs.38,519 million had been spent of Rs.63.27 million recoverable in respect on widening and improvement of 900 of assets, materials and spare parts given non-RDA roads. Nevertheless, it was to the Maga Neguma Road Construction observed that the progress of widening and Equipment Company by the Road and improvement of 61 RDA roads and Development Authority during the 234 non-RDA roads costing Rs.5,319 period 2004-2007 and motor vehicle rent million and Rs.16,503 million amounting to Rs.488.86 million respectively had been below 50 per recoverable in respect of motor vehicles cent as at 31 December 2014. given to Maga Neguma Companies during the period 2008-2013. Further, 20  A sum of Rs.705.39 million had been motor vehicles given to Maga Neguma spent on 50 Projects for Road Companies but in unserviceable

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 126

condition had not been returned to the of Outer Circular Roads during the year Authority. under review had not been utilized within the due period. Thus, a  Even though payments should be made Commitment Charge amounting to after submitting the bills and Rs.803.94 million had been recovered by measurements of work done, the that Lending Agency. Authority had granted advances amounting to Rs.6,126.37 million to the  Three projects established for the Maga Neguma Company during the year construction of roads on foreign and under review without checking the domestic loans had spent a sum of Rs. measurements of work done and bills in 161.33 million on activities extraneous to 55 instances. the objectives of those projects during the year under review. Further, another Ministry of Highways and such 10 projects had incurred an Investment Promotion – Projects (on expenditure of Rs.1,542 million out of the funds of those projects on Foreign Loans and Domestic Funds) uneconomic purposes.

 A sum of Rs.10,068.30 million had been  The contract had been awarded on the paid as compensation for 1,165.4 condition of ensuring the quality of the hectares of land acquired with regard to constructions of the Colombo Outer 06 projects during the year under Circular Project I by the contractor review, while the payment of himself. Nevertheless, it had not been compensation has delayed. Thus, an properly fulfilled by the contractor, thus interest amounting to Rs.1384.97 million an expenditure amounting to Rs.7.22 had been paid. million had been incurred by the Project

to maintain the quality of the  In addition to the initial contract cost of constructions during the year under 10 projects for the construction of review. expressways and other main roads which

established by utilizing foreign and  Bills payable to the contractors of 05 domestic funds, a sum of Rs.4953.83 projects had not been duly paid, thus million had been allocated during the liquidated damages amounting to year under review by 166 Variance Rs.204.09 million had to be paid Orders deviating from the relevant therefor. Approval Procedure.

 Recruitment of the staff to all the  The money allocated by the Lending projects established on foreign and Agency for the utilization of 02 Projects

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 127

domestic loans under the Ministry had awarded to the above contractor on 23 been made contrary to the Circular No. November 2011. According to the 33 of 05 April 2007 of the Department of information made available, the Management Services. Further, the Engineer’s Estimates or the quotations payment of salaries had also been made submitted for the price reduced bid had based on a circular issued by the Road not been approved by the Supervision Development Authority contrary to the Consultant and the Technical Evaluation above Circular. As such, allowances and Committee. Nevertheless, that bid salaries had been overpaid to the project submitted after being revised had been officers. approved by the Cabinet of Ministers on 15 February 2011.  Constructions valued at Rs.46,925.40 million pertaining to 02 projects had  The pipes and fittings purchased at a been awarded deviating from the Tender cost of Rs.84 million by the Project Procedure during the year under review. before two years for the reinstallation of Further,11 consultants for Primary pipe systems belonging to the Water Education activities had been recruited Supply and Drainage Board in the roads by spending a sum of Rs.119.26 million widened and improved by the Road from one project deviating from the Sector Assistant Project had remained Tender Procedure. idle in the stores of the Project without being used even as at the end of the year  The bid valued at Rs.62.041 billion 2014. Further, the National Highway submitted by the contractor in respect of Sector Project had spent a sum of the constructions of the road from Rs.74.8 million on the reinstallation of Kaduwela to Kadawatha (8km) ( Stage II) pipe systems belonging to the Water had exceeded the Engineer’s Estimate Supply and Drainage Board and Local amounting to Rs.31.334 billion. Thus, the Government Institutions. This capitalized Cabinet of Ministers had decided on 06 expenditure does not come under the October 2010 to cancel the award of this Scope of Project and action had not been contract. Nevertheless, that bid had taken to capitalize it by the relevant been reduced to Rs.44.88 billion and institutions.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 128

Technical and Vocational Education ______The Technical and Vocational Education Training, whereas 85 courses had been held Institutes are established with a view to during the year 2014. Out of held courses of facing the challenge of changing global Technical Colleges and Colleges of socio- economic and technological needs, Technology 679 courses should be guiding, supervising and coordinating and accredited and only 341 had been identifying the needs and preparing of full accredited during the year 2014. time and part time programmes suitable for that requirements for the vocational Vocational Training Authority education and training programmes for generating manpower for the sake of more The Vocational Training Authority acts as to satisfy the global labour demand by beneficial living condition through quality and technical education and vocational developing skills of the persons through the training, producing and implementing the modern methods and technology in the consultancy resources required for field of vocational training and education. implementation of that programmes, However, the lands valued at Rs.1,703.75 million owned to the Authority had not developing the staff including teachers, administrators and managers for been vested to the Authority. A sum of implementation of tertiary and vocational Rs.3.78 million in the year under review and a sum of Rs.3.22 million in preceding year education fruitfully and efficiently . had been paid for supply of the facility of mobile phone connection for 477 Department of Technical Education employees who had not entitled that and Training facility .A cab belonging to the Authority had met with an accident in the year 2003 The provisions allocated under the and action had not been taken to settle the Department of Technical Education and loss amounted to Rs.556,000 thereon. Training for the year 2014 was amounting to Rs.1,543 million and the actual Even though a Vocational Training expenditure was amounting to Rs.1,500 Development Fund could be established million. Therefore, saving of 42.5 million according to the Section 20 (I) of the Sri was observed. Lanka Vocational Training Authority Act, No.12 of 1995, a sum of Rs.12.34 million Nine Colleges of Technology and 30 had been collected during the year under Technical Colleges are existed under the review by charging Rs.500 per each Department of Technical Education and apprentice for an insurance fund contrary

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 129 to the provisions of the Act, had not been a financial fraud and interdicted had been credited to the same Fund. Further, a recruited for the post of the Director private company had been established (Finance) which carries a higher improperly on 18 December 2013 with the responsibility on financial control of the approval of the Board of Directors of the Authority. Further, approvals for foreign Authority contrary to the Vocational visits had been granted to this officer in 02 Training Authority Act, and without occations during her probationary period approval of the Cabinet of Ministers. and a sum of Rs. 921,102 had been paid therefore. Training equipment of Rs.97.75 million for A sum of Rs.4.92 million in the year under the purpose of accreditation of the courses review and a sum of Rs.2.78 million in the had been supplied to the Vocational preceding years had been paid for 410 Training Authority by the Skill Development employees who were not entitled for the Project. The deficiencies such as supply of mobile phone connection facility. A sum of equipment for the centers which not Rs.2.7 million had been provided as planned to supply such equipment, supply donations and rewards without approvals. of equipment with larger capacity than Training equipment of Rs.1.46 million needed, Lack of action to identify that purchased for the “Nipunatha Abhisheka equipment separately, supply of new Programme” had not been used and the equipment by removing the equipment in a training equipment of Rs.8.89 million had repairable condition, re-supply of new been misplaced. Furthermore, action had equipment having being a good conditioned been taken to obtain goods and services equipment, non- receiving of equipment to valued at a cost of Rs.44.81 million in 07 certain centers issued by main stores, instances without calling tenders contrary records not available in bin cards on issuing to the provisions of the Government of equipment and not entering in inventory Procurement Guidelines. books, underutilization of many of training equipment were observed during the audit Tertiary and Vocational Education examinations done in this connection. Commission

National Apprentice and Industrial As the apex body in the Tertiary and Training Authority. Vocational Education Commission is committed to establish and maintain an The National Apprentice and Industrial efficient, effective and quality assured technical education and vocational training Training Authority is performed with a view to developing youths suitable for the system which is relevant to socio- economic goals and challenges of world market needs requirements of the vocational field. However, a lady officer who was alleged for had granted a financial assistance of Rs.4.34

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 130 million in the year under review for 03 Diploma Holders who followed non-NVQ institutes in public sector, 06 private Courses which produce the middle level institutions and an other institute which technical personnel. The total number of conducted courses for the aggrieved students enrolled for the academic year of youths. However, such institutions had not 2010/2013 of the University of Vocational been made arrangements to accredit the Technology was 222. The Convocation for courses in relation to issuing of National those students was held on 22 December Vocational Qualifications (NVQ) in terms of 2014. The number of students graduated the Agreement. Even though a sum of here as a percentage is 43 per cent. Rs.3.30 million had been paid for the 2 surveys relations to the Technical and According to Paragraph 01.02 (III) of the Vocational Education Training Sector, those Trade and Investment Policy Circular No. had not been completed during the year 01/2013 of 02 August 2013 of the Ministry under review. of Finance and Planning, it had been stated that the officers who had been appointed University of Vocational Technology on the basis of salary scale of Senior Level, applicable on personal basis or with respect University of Vocational Technology to the post eligible or on salary scales established by the Parliamentary Act,No.31 applicable for supernumerary posts, are not of 2008 to provide opportunities for middle entitled to concessionary motor vehicle level technical personnel to obtain permits. Nevertheless, the Secretary to the qualifications acceptable for admission to Minister had taken action in improper way the higher education. The University has to issue permits to 8 Senior Lecturers to introduced the level seven of the National whom appointments had been made on Vocational Qualifications (NVQ) system, personal basis. Necessary action had not that is Degree in Technology at present. been taken to recover tax-exempt Entry qualifications of the University allowance amounting to Rs.32.93 million to admission as an under graduate is NVQ the Government granted for concessionary Level 5 or NVQ Level 6 qualifications in the motor vehicle permits by the Government Technical Colleges spread in the Island or contrary to the provisions of that Circular. the other institutes which the vocational courses are conducted as well as the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 131

Disaster Management ______The Ministry of Disaster Management is disaster-prone areas was remained involved in the disaster management questionable. activities in Sri Lanka with a view to facilitating the prosperity and dignity of  The Disaster Management Centre had human life through effective prevention been established under the Section 18 of and mitigation of natural and man-made Disaster Management Act, No.13 of 2005 disasters in Sri Lanka. In order to carry out and the Ministry had taken action to the duties assigned to the Ministry, the revise this Act with a view to regulate institutions such as National Disaster Relief the powers vested to the Centre for Services Centre, Department of implementing the disaster management Meteorology, National Building Research activities more efficiently . Even though Organization and Disaster Management such amendments had been submitted Centre were functioning under the Ministry. to the Department of Legal Draftsman on A sum of Rs.836 million for recurrent 16 June 2014 for approval, the amended expenditure and Rs.1,894 million for capital Bill had not been received even as at 31 expenditure had been allocated by the August 2015. Budget Estimate to the Ministry of Disaster Management for the year 2014. A summary  Even though an Information of the audit issues highlighted in the audit Communication Centre with equipment reports for the year 2014 are given below. valued at Rs.72.47 million had been established in Padukka area in 2009 by  The National Building Research the Disaster Management Centre , it was Organization functioning under the observed that the said Centre had not Ministry, had been established under a functioned from the since 2011 up to 31 decision of the meeting of Ministers of August 2015. Cabinet held on 29 September 1993 and adequate actions had not been taken to  Even though the meteorology establish it under a Parliament any Act, Department remained under continuous as an institute empowered to implement criticism presently relating to the the regulatory activities relation to the accuracy of the weather forecast, the buildings and other constructions made Dopler Radar System established at in natural disaster-prone areas in the Deniyaya area at a cost of Rs.360 million Island. Accordingly, the validity of the with the advisory assistance of the orders issued by the Organization on World Meteorological Centre in 2008 various constructions carried out in had not been functioned by the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 132

Department for obtaining weather construction of 139 houses that information even as at 31 August 2015 . withstand to the natural disasters, only the construction of 06 houses in Jaffna  Even though provisions of Rs.60.15 District had been completed by the end million had been provided to the of the year. Ministry of Disaster Management for

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 133

Economic Development ______Net provisions amounting to Rs.85,879 of District Secretariats and other million had been made for the year 2014 for Ministries, 11 Divisional Secretariats the key functions of the Ministry of had written 9,548 cheques valued at Economic Development such as formulation Rs.247 million by 31 December 2014 but and implementation of policies, not issued to the payees. However, programmes and projects in respect of those values had been entered in the poverty alleviation, tourism and rural and Appropriation Account of the Ministry regional economic development and as payments for the year. implementation of the livelihood  Expenditure amounting to Rs.14 million development programmes and and Rs.24 million incurred for the year decentralized budget and a sum of Rs.85, 2014 by the Public Debt Management 705 million had been utilized by 31 Division of the Department of Treasury December 2014. Significant audit Operations respectively for the Rural observations thereon are given below. Bridges Project and the Conflict Affected Region Emergency Project in  Savings of the capital provisions of the areas implemented by the Ministry, had Programme No. 01 of the Ministry not been brought to account in the year amounting to Rs.29 million had been 2014 by stating “due to lack of savings transferred to the capital expenditure of of provisions in the Heads of the Programme No. 02 contrary to Expenditure of the Ministry of the year provisions of the Financial Regulations. 2014.” However, sums of Rs.119 million Out of the provisions made for details and Rs.380 million of the provisions of on foreign aids and direct foreign aids, a the Rural Bridges Project and the sum of Rs.2, 620 million had been Conflict Affected Region Emergency transferred to the Gama Neguma Project respectively had been Programme implemented under the transferred to other Heads of Consolidated Fund. Further, the Expenditure under the Virement recurrent provisions amounting to Rs.9 Procedure (FR 66) during the year under million had been spent by the Divi review. Neguma Development Department for the acquisition of assets of capital  In the inspection carried out only in nature. three foreign funded projects which are under the purview of the Ministry, it  Out of the provisions made by the was observed that officers who perform Ministry for the development projects duties of the projects based on the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 134

covering up duties, had obtained the completed and initial agreements as special allowance of 5 per cent and 15 well had not been entered into for per cent each which is entitled to be 1,000 bridges. obtained at a time by an officer, in two instances such as with the salary of the  Contrary to the circulars of the Elections permanent post and with the project Commissioner, distribution of different allowances. However, the allowance so types of goods valued at Rs.3 billion, obtained in excess in three projects granting subsidies and loans and such from the year 2011 to the year 2014 programmes had been implemented by amounted to Rs.3 million. the Divi Neguma Development Department in 8 instances for purposes  Two officers who were attached to the that may contribute to the publicity of a Planning Division of the District presidential candidate. Secretariat, Nuwara Eliya by the Ministry of Economic Development, Establishment of the Divi Neguma served a people’s representative without serving in that Division and Development Department obtained Rs.1 million as salaries from  The Divi Neguma Development the District Secretariat during the Department had been established by period from the year 2010 to the year amalgamating three institutions, the 2014. Samurdhi Authority, the Southern Development Authority and the  A sum of Rs.3 million had been spent for Upcountry Development Authority so as publication of advertisements on a full to come into force with effect from 03 page of 9 local newspapers in respect of January 2014 by the Gazette the opening ceremony of the 210 Notification No. 1843/4 of 03 January bridges constructed and 2014 in terms of the Divi Neguma Act, commencement of constructions of No.01 of 2013. However, those three new 1,000 bridges under the Rural Authorities had presented financial Bridges Project which is a foreign statements for the year 2013 and funded Project. However, contrary to subsequently, no financial statement the instructions of the Elections whatsoever had been presented for Commissioner, those advertisements audit. According to the computer had been published with a photograph printouts of the Treasury, Expenditure of a then presidential candidate and of each Institute for the year 2014 according to the progress reports, amounted to Rs.9,501 million, Rs.134 constructions of many bridges out of million and Rs.45 million respectively. those 210 bridges, had not been

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 135

 The value of the assets existed in the not been included in the scope of the Institutions amalgamated in the Divi Neguma Development Department.  A sum of Rs.56 million of the amount establishment of the Divi Neguma spent, had been obtained from the Development Department as at 31 Capital Provisions granted for “Lands December 2013 aggregating Rs.24,580 and Land Development” of the Ministry million including Rs.24,232 million, of Economic Development without an Rs.283 million and Rs.65 million approval of the Ministry or Treasury. respectively and the position of transferring of those assets to the new  The procurement proposal for these Department as at 03 January 2014 had purchases with an estimated value of not been reported for audit and the Rs.90 million had not been submitted to Registers of Fixed Assets as well had not the Procurement Committee of the been maintained. Cabinet of Ministers and action had been taken to obtain the relevant  Even though a sum of Rs.1,328 million approvals from the same Procurement had been paid by utilizing Funds of the Committee of the Department itself. Divi Neguma Community Based Bank Societies of those districts as  According to the information made compensation and gratuity by 31 available to audit, a sum of Rs.105 December 2014 to 1237 officers who million had been paid for 224,694 water were employed in those three containers and confirmation that the amalgamated institutions at the 25,894 water containers out of that, commencement of the Divi Neguma valued at approximately Rs.13 million Development Department and resigned had been received to the relevant from the service of their own consent, district, had not been presented to that amount had not been reimbursed audit. Two institutions had been even by May 2015. Further, Fixed selected for transportation of Deposits owned by the Divi Neguma distributed water containers to relevant Community Based Bank Societies had districts without calling quotations and been utilized for those payments and as a sum of Rs.1 million had been paid for such, interests had been deprived of to those institutions. those banks.  The Divi Neguma Development  Providing water containers for the Department had distributed 1 million of people who were affected by drought Forms to all the districts of the island spending a sum of Rs.106 million had spending Rs.2 million in December 2014 to collect necessary information for the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 136

introduction of Life Insurance and Forms had been carried out within one Pensions Scheme for all the Three day. Wheeler Drivers in the island. Provisions had not been made for implementation  Action had not been taken to distribute of this programme from the Budget 312,993 Forms costing Rs.907,680 and Estimates of the year 2014 and any remained idle. Further, instances where methodology and a plan whatsoever the Forms issued to the District Offices had not been prepared in respect of the had not been made use of and returned manner of implementation of that to the stores of the Department were programme. Details had not been observed. summoned from District Offices up to 31 August 2015 and follow up action  The following observations in thereon as well had not been carried respect of advertising activities out and all the expenditure incurred carried out in November and had become fruitless. December 2014 by the Divi Neguma Development Department,  The Divi Neguma Development were made. Department had spent Rs.8 million in December 2014 for printing of 2 million  A sum of Rs.5 million had been paid in Forms relating to the survey of increase terms of instructions of the Secretary to of subsidies of Samurdhi Beneficiaries the Ministry to relevant Media and identification of families to which Institutions for two Television subsidies should be further given. Advertising programmes prepared Nevertheless, the Department had not namely “Programme for Development collected comprehensive details on new of 1210 Bridges” under the Rural beneficiaries identified by that Survey Bridges Project of the Ministry of even by May 2015 and this programme Economic Development. had been completely abandoned by that time.  A sum of Rs.707, 625 had been paid to a Production Institution for three short  This programme had not been approved Television advertisements of 30 seconds by an Action Plan for the year 2014 and without a proper approval of the the specific financial provisions had not Procurement Committee of the been made by the budget for Department by misstating that they had implementation of the programme. prepared those advertisements on the However, all activities relating to the instructions of the Secretary to the procurement including issue of Ministry of Economic Development and procurement documents for printing of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 137

these programmes had not been  The Social Safety Fund has been advertised even by May 2015. established through the abatement of  The Department had made subsidies granted by the Government to commitments for settlement of a sum beneficiaries with an aim of safety of of Rs.36 million for advertisements the Samurdhi beneficiaries and published in 7 newspapers with a maintained as a Trust under control of photograph of the then President on the Board of Trust in terms of the the requirement of the Ministry of Circular No. 96/3 of 06 December 1996 Economic Development. of the Samurdhi Commissioner General. Further, a balance amounting to Rs.7,  A sum of Rs.2,992 million had been paid 586 million existed in the Fund by 31 in December 2014 at the rate of December 2013 and the value of Rs.2,500 per family for a number of investments made on that date 1,197,111 beneficiary families by amounted to Rs.6, 795 million. utilizing Funds of the Divi Neguma Community Based Societies under the  The Auditor General had notified the programme of “Isurumath Nivahanak” Secretary to the Ministry and the implemented as a programme of Director General by the Letters of 14 development of houses of Divi Neguma May 2004 and 15 October 2014 to make beneficiaries, not approved by the necessary provisions to give approved Action plan of the parliamentary directives in a manner Department for the year 2014. A sum of that the Auditor General would be Rs.997, 476 had been spent for entitled to the Statutory Right to audit advertisements for making the entire the Fund as there is appropriateness to public aware of this programme which cover this Fund with public audit. In is related only to a specific number of addition, according to the directives of beneficiaries. In addition, contrary to the Committee on Public Accounts as the circular of the Commissioner of well held on 07 August 2007, it had Elections, advertisements including the been ordered to take prompt measures photograph of one Presidential to pass an Act due to unavailability of Candidate had been published in the an Act for the Fund and the Auditor Print Media. The progress of the General’s inability to audit. However, programme had not been reported the Divi Neguma Development even by March 2015 and a sum of Department had not taken action to approximately Rs.3 billion had been convert this Fund into a Statutory Fund spent for this programme and it had by now. been completely ended.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 138

 One thousand seventy four Divi the Divi Neguma Development Neguma Community Based Banks had Department, without a request from been established throughout the island the Local Government Authorities. Out and action had been taken to distribute of that, 28,310 pipes had not been subsidies granted to Divi Neguma entered in the Stock Registers. Five Beneficiaries by the Government thousand three hundred and ninety through the Savings Accounts existing in eight pipes provided to 17 institutions favour of beneficiaries. In addition, one had been distributed to another 30 of the key functions of these banks is Local Government Authorities without a the fulfilment of micro financial permission of the Department and requirements of the low income earners 9,195 pipes provided to 33 institutions and the value of the entire deposits had been released to the Chairman, owned by these banks amounted to Vice – Chairman or members of those Rs.48, 042 million and the total quantity institutions. Two thousand seven of assets including investments of hundred and thirty four pipes provided Rs.48,405 million amounted to to 11 institutions had been given to Rs.83,200 million as at 31 December external parties without a permission of 2014. Entire operations of the the Department. Community Based Banks are carried out by the Community Based Banks Division  The Divi Neguma Development which is under the purview of the Divi Department had paid Rs.29 million in Neguma Development Department. December 2014 for printing of However, those Community Based 5,000,000 Divi Neguma Calendars to Banks had not reported the positions of distribute among the Divi Neguma the Community Based Banks and Beneficiary Families for the year 2015. Community Based Banks Divisions  The quantity of calendars had been existed at the end of the year 2014 to printed in apportionments in 04 the General Treasury through the instances within a short period of 12 records or accounts of the Ministry of days without a prior plan and as a Economic Development. result, the Government had been deprived of the price benefit which  The Divi Neguma Development could be obtained by ordering the Department had purchased and entire stock at once. distributed 32,976 galvanized pipes costing Rs.36 million in December 2014  The total number of beneficiary families to use as flag posts for 58 Local who receive Divi Neguma subsidies by Government Authorities which was a 31 December 2014 had been 1,479,811. function not belonging to the scope of Nevertheless, 5,000,000 calendars had

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 139

been printed and it is an increase of 338  Contrary to the circular of the per cent than the beneficiary families. Commissioner of Elections, those calendars had been printed and  That procurement valued at Rs.29 distributed with a photograph of a million had been made by the aforesaid candidate who contests at the Procurement Committee contrary to Presidential Election. the Procurement Guidelines.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 140

Sports ______

The audit examination of the utilization of  A sum of Rs. 13.81 million valued sports the provisions made for the Ministry of goods had been purchased deviating Sports for the year 2014 and the financial from the tender procedures statements and transactions of major Sports Bodies revealed the following irregularities. Sugathadasa National Sports Complex Ministry of Sports Fraudulent purchase of carom and Dham  Artificial Track of Sugathadasa Stadium boards valued at Rs. 39 million said to be constructed at a cost of Rs. 126.8 million for distribution to Sports Societies. There had been peeled off due to substandard was no evidence of distribution. Though the work done and construction during Storekeeper had acknowledged the receipt rainy weather. of goods, those had not been received by the Ministry.  A Security Guard deployed to cover the

duties of the Cashier since the year Sports Fund 2009 had committed a cash fraud of A sum of Rs. 1,617,000 had been paid for Rs.0. 8 million. the transport of members of Sports Societies to Temple Trees for the  The room occupancy of the Sports Hotel distribution of 2,500 sets of sports goods. of 42 rooms with an annual capacity of But only 10 sets had been distributed. 15,330 room days had been 27 per cent. Three room remained closed down over Department of Sports a period about one year while the  Department of Sports had procured Restaurant on the ground floor accommodation facilities for the staff of remained closed over a period of about the XL National Sports festival and 3,500 8 years. each of T Shirts, travelling bags, for distribution among sports persons and Sri Lanka Football Federation sports officers and sports goods costing  The former President of the Rs. 21 million without following the Management Committee of the Sri Procurement Procedure. Lanka Football Federation had fraudulently obtained US $ 100,000, EURO 40,400 and Rs. 5,000,000 out of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 141

the donations received by the years and incurred net operating loss of Federation. Rs. 392.7 million in the year 2014 and being without liquid assets to settle  Out of US $ 30,000 withdrawn from the existing liabilities amounting to Rs. Bank Account of the Federation on 06 4,303.5 million, it had spent a sum of Rs. June 2008 by the former Chief Executive 26.7 million as salary increments for the Officer a sum of US $ 12,533 had not year 2013. In addition Rs. 57.6 million been returned to the Federation even had been spent as an urgent by 19 January 2015. requirement for the purchase of 11 motor vehicles for which provision was  The former Chief Executive Officer of not made in the budget. the Football Federation had transferred US $ 60,000 through a fictitious Bank  Sri Lanka Cricket had issued 46,742 Order to the private account of the complimentary tickets valued at Rs. 45 former President of the Management million, for 13 One Day Matches and 04 Committee for the settlement of a loan Test Matches in the year 2014 without of Rs. 6,000,000 obtained from the the approval of the Executive former President on 06 June 2008 Committee and 85 per cent of the without the approval of the Executive recipients had not acknowledged the Committee despite the availability of receipt of tickets. adequate funds in the Bank Account of the Federation.  A sum of Rs. 11.4 million receivable from a private company for the Sri Lanka Premier League 2012 had been Sri Lanka Cricket written off as bad debts without the  Even though Sri Lanka Cricket had approval of the Executive Committee. incurred heavy losses in the preceding

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 142

Tourism ______Priority has given for Tourism in the Five Earning of high foreign exchange was Year Plan 2011-2016 being implemented in expected from the Tourism Industry and Sri Lanka and it had been mentioned that therefore an income of US$ 2,431 million an income exceeding US$ 2.75 billion and had been earned from this industry in 2014. generating over 500,000 direct and indirect That was a significant improvement of 41.7 employment as the expected target of the per cent compared with previous year. Tourism Industry for the year 2016. Increase of the arrival of foreigners as well as the average daily expenditure of a The Tourism Industry shown a smooth foreigner and average number of days functioning in the year 2014 continuing the which a foreigner spent in Sri Lanka had growth tendency in the aftermath of the been mainly affected for the growth of the internal conflict in the country and income from tourism. Average daily exceeded the annual target of 1.5 million of expenditure of a foreigner in the year 2014 tourist arrivals . As a result of promotional was US$ 160.8 and that amount had programmes conducted by the public sector become US$ 156.5 in the year 2013. and private sector with an attraction for the Further more, average number of days Tourism Industry had helped to increase of spent a foreigner in Sri Lanka was 9.9 days tourism arrivals. in the year 2014 and it was 8.6 days in previous year. However, the money spent Arrival of tourists was increased in all major by a foreigner in Maldives, our nearest zones in the year 2014 so as in the previous competitive country in relation to the year. Accordingly, a remarkable increase Tourism Industry was US$ 2208 compared was shown as 53.2 per cent in East Asia, with US$ 1592 Spending in Sri Lanka. In 22.6 per cent in East Europe, 13.8 per cent comparing those figures, it was observed in West Europe, 13.4 per cent in South Asia. that the effectiveness of the expenditure So also, as in previous year, maximum incurred by foreigners in our country is number of tourists had arrived from India. remained at very low. That was 242,734. Next highest arrival of tourists was reported as 144,168 from The Chinese Magazine “Travel and Leisure” United States. The most attractive arrival in had introduced Sri Lanka as one of the best the current year had been reported from destinations in the World and the “Forbes” People’s Republic of China and reported as Magazine nominated Sri Lanka in 2015 as 128,166 representing an increase of 136.1 one of the 10 most comfortable countries in per cent compared with the previous year. the world to travel . A sum of Rs.1950 million had been spent by the Sri Lanka

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 143

Tourism Promotion Bureau in 2014 to Sri Lanka Tourism Development promote the tourism. However, it was Authority revealed in examining of the progress of the implementation of the Action Plan thereon,  A sum of Rs. 10.19 million had been paid Strategic Plans had not been implemented to the supplier for the materials such as by the Bureau to obtain maximum 2016 cubes of granite and 40 cubes of advantages from favorable opportunities gravel for the construction of the Jetty arisen in the Tourism Industry through the at Thoraiadi ,Kalpitiya without being external environmental factors as taken over physically. mentioned above. A sum of Rs.2,837.4 million in the year 2014 had been financed  The labour contract for maintaining the by 14 per cent,70 per cent,12 per cent and sewerage system at the Bentota Holiday 4 per cent each for the 4 institutions of Sri Resort premises had been entrusted to Lanka Tourism Development Authority, Sri the same contractor for several years Lanka Tourism Promotion Bureau , Sri Lanka without following procurement Institute of Tourism and Hotel Management procedure. Therefore, a loss of Rs.6.89 and Sri Lanka Convention Bureau . million had been sustained by the However, out of the duties and functions Authority as at the end of the year 2014. conveyed those 4 institutions by the

Tourism Act,No.38 of 2005, activities such as enactment of rules for convict a person  An overpayment of Rs.11.08 million had or persons for a fault who are engaged in been made for the contractor for the visits or tourism services without being repairs carried out in the Kataragama registered in Sri Lanka Tourism Authority , Tourist Holiday Resort. establishment of Tourists Advisory Committees ,establishment of Classical  A Hotel located at the site of Bentota Affairs Trust Fund and affairs such as Holiday Resort had obtained water for development of supporting industry and 97 months fraudulently through a services according to the Act, promotion defective water meter for long time had and establishment of institutions and firms been revealed and pointed out by the for supporting thereto had not been done. audit and paid a sum of Rs. 8.4 million to

the Authority subsequently. Certain audit observations in relation to the institutions established under the Tourism Act, are given below.  An overpayment of Rs.3,793,420 was revealed at the physical audit carried out on measurement records related to the construction of storm water

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 144

drainage system in the Holoday Resort at Tourism Promotion Programme held in Pasikudha. Russia from 23 September to 07 October 2014. However, Such T-shirts had not been used for the Tourism Promotion  A sum of Rs.3,226,950 had been paid to Programme held in Russia. a contractor who submitted fraudulent

documents on usage of bulldozers for construction work at Kalpitiya  A sum of Rs.5,824,000 had been spent to Mohottuvarama Jetty . procure 8000 T-shirts on which printed as “Dinana Uwa”and “Eksath Janatha Sri Lanka Tourism Promotion Bureau Nidahas Sandhanaya” for the programme to commemorate the World  Advances amounting to Rs.14,500,000 Tourists Day on 27 September 2014. had been made to a contractor for a contract of creation of a bogus  A sum of Rs.25,298,140 had been over promotional programme and after that paid to the contractor engage for 2 the said amount had been recovered promotional programmes carried out after 8 months based on the audit on print and electronic media. A observations. payment of Rs.2,540,275 had also been made for the activities performed which  A sum of Rs.7,800,000 had been spent to were not required quality. procure 12,000 T-shirts locally for the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 145

Urban Development ______The functions relating to the urban financial statements had been presented development had been discharged under for audit only on 02 July 2015. Moreover, the Ministry of Defence and Urban the financial statements for the year Development during the year 2014 and the ended 31 December 2014 had been activities relating to the formulation and presented to audit on 04 August 2015. implementation of policies on the As such, the Annual Reports of the programmes of urban development in Sri Authority for the years 2013 and 2014 Lanka and protection and development of had been tabled in the parliament with wetlands had been carried out by the main delays. institutions of the Urban Development Authority and the Sri Lanka Land  Consolidated financial statements of the Reclamation and Development Corporation. Authority had been prepared based on The labour contribution made by the three the audited financial statements of three armed forces for the city beautification and subsidiary companies and the construction and maintenance of drainages unaudited financial statements of carried out by the aforesaid institutions had another subsidiary company. The been a distinguished feature during the administration of the Water’s Edge Hotel year under review. As such, the operating Company, which is a subsidiary company costs of such institutions should be of the Authority had been vested with decreased. However operating cost of such the Authority by a Court Order and as institutions for the year under review had such, the value of the investment had not been adequately decreased according been shown as Rs.10 in the financial to the financial statements presented. statements of the Authority. The revalued cost of the assets of the The following audit observations are made. subsidiary company and the payables to previous owners had been separately Urban Development Authority shown as Rs.1,791 million and Rs.403.83 million respectively in the financial  Continuous delay was existed in statements. presentation of financial statements of the Urban Development Authority for  Debentures value at Rs.10 billion to be audit. Even though the financial redeemable in 10 years had been issued statements of the year ended 31 by the Urban Development Authority in December 2013 should be presented for October 2010 with a view to raising audit before 28 February 2014, those funds for the Programme for

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 146

construction of 65,000 permanent been utilized as at 31 December 2014. As houses for the shanty dwellers in such, the capital Debt ratio of 18.5 per Colombo City and the Treasury had cent of the Corporation remained at the agreed to pay the interest on debentures end of the year 2013 had been increased for the period of first 3 years. Even up to 62.89 per cent by the end of the though these debentures should be year 2014. Nevertheless, out of the Loan redeemed in October 2015, neither a obtained for the Project, a sum of Rs.453 specific fund had been established nor a million had been invested in Treasury proper arrangement had been made to Bills as at 31 December 2014 without raise funds for redemption. being utilized for intended purposes.

 Plans had been made to construct  It was observed in audit that the 20,500 houses with facilities by the end activities of the Projects for the of the year 2013 under the first Phase of construction of Weeraketiya Memorial the Program of constructing 65,000 Museum, reconstruction of permanent houses for the shanty Kumbichchankulama Tank in dwellers in Colombo City, thereby Anuradhapura, construction of the freeing of 150 acres of urban lands Bolawalana Cultural Center etc. and to earn a sum of Rs.25 billion by implemented at a cost of Rs.178.1 leasing out of those lands. Nevertheless, million by the Corporation during the according to the information furnished year under review were not connected by the Authority, it was only possible to to the objectives of the Corporation for hand over 500 houses to the people and the prevention of flood damage and to free 9 acres by the end of the year protection and development of under review. wetlands. In addition, it was observed in audit that a sum of Rs.18.9 million had Sri Lanka Land Reclamation and been spent uneconomically by the Development Corporation Corporation on awarding souvenirs to the members of the armed forces  A loan amounting to Rs.14,227 million holding ceremonies. had been obtained from the National  Savings Bank in 2013 to make funds for According to the financial statements of the implementation of the Weras Ganga the Corporation for the year ended 31 Storm Water Drainage and Environment December 2014, a foreign company had Improvement Project implemented by mined 3,756,595 cubic meters of sea the Sri Lanka Land Reclamation and sand and out of that, 2,269,563 cubic Development Corporation and out of meters of sea sand valued at Rs.1,879 that, a sum of Rs.1,600 million had

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 147

million had remained in the stock as at should be obtained to explore , mine, 31 December 2014. transport, process, or trade minerals. Nevertheless, it was observed that the  In terms of the Mines and Minerals Act Corporation had not obtained a proper No.33 of 1992, a valid license from the license to mine sea sand. Geological Survey and Mines Bureau

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 148

Trade and Commerce ______Cement Corporation of Sri Lanka Sri Lanka Handicrafts Board

Even though the key objectives of the The total sales income of the Board for the Cement Corporation of Sri Lanka which was year 2014 was Rs.881.03 million and out of incorporated by the State Industrial that, the amount representing 33 per cent Corporations Act, No.49 of 1957, are to of the income had been paid to the manufacture and sale of cement in Sri manufacturer. The administrative and Lanka, the manufacturing of cement had financial expenditure of the Board was 64.7 completely ceased for over a period of 20 per cent of the sales income. The net profit years in the Corporation and a trivial was only 1.7 per cent of the income. Even amount of the country’s requirement is though a loan of Rs.698 million had been imported at present. obtained by mortgaging the Head Office building of the Board, showrooms had been The Corporation as well as the Ceylon constructed in the lands obtained on long Cement Company which is a subsidiary of term and short term lease deviating from the Corporation is engaged in the import the procurement procedure without and sale of cement at present and both repairing and using of the Head Office these Institutes are continuously running at building. A sum of Rs. 80 million had been a loss. The accumulated losses of the paid as interest during the year for payment Corporation and the Company by 31 of loan interest for the above loan of Rs.698 December 2014 amounted to Rs.80.97 million. million and Rs.2,341.85 million respectively. The deficit of the Corporation for the year Department of Registrar of 2014 amounted to Rs.14.49 million as Companies compared with the corresponding deficit of Rs.424.67 million for the preceding year. Books valued at Rs.0.68 million procured for The loss of the Company for the year under distribution among school libraries in line review and the preceding year amounted to with Deyata Kirula Programme in the year Rs.1.84 million and Rs.192.92 million 2015 had been remained in the stores respectively. As such, it was observed that without being distributed. No action there was a risk of going concern of the whatsoever had been taken to distribute Institute. The Corporation owns a large those books even by 27 March 2015. amount of land and property and those had not been entered in the Register of Assets. The number of Limited Liabilities Companies registered as at the end of the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 149 year under review was 71,110 and the Sri Lanka Institute of Textile and number of Limited Liabilities Companies Apparel that should submit the Annual Reports on that day was 59,113. Nevertheless, the  A total of Rs. 2.92 million had been paid number of limited companies that as allowances for Engineers, Course submitted Annual Reports on that day was Coordinators, Secretaries and 14,886. As such, the number of limited Accountants during the year under companies which failed to submit Annual review without the approval of the Reports was 44,227. Therefore, the Cabinet of Ministers or the Ministry of outstanding income from registration of Public Administration or the General Annual Reports unrecovered for the year Treasury in accordance with the Public under review was Rs.221.13 million and the Enterprises Circular No.95 of 14 June total outstanding income from registration 1994 and Section 2.1.5 of the National of Annual Reports at the end of the year Budget Circular No. 1/2014 of 01 January under review including the preceding year 2014. was Rs.287.29 million.

 Even though the selection of Consultants The contract for the Project for for Government Institutions should be Computerizing the Registration of Limited carried out according to the Government Companies had been awarded to a private Procurement Guidelines and Guidance of entity at a cost of Rs.88.81 million on 21 appointing Public Consultants. Contrary January 2014 and the works should be to that provision a member of the Board completed before 20 October 2014 in terms of Directors of the Institute had been of the contract agreement. However, the appointed as a Consultant of the contractor had abandoned the work half Research and Training Unit. A sum of way. It was observed that the Department Rs.1.32 million had been paid as had failed to monitor and supervise the allowances for this purpose during the works of the contract in a proper manner year under review and the preceding and the contract had been awarded without year. obtaining a performance bond from the contractor in terms of Section 5.4.8 (a) of  A sum of Rs.1.12 million had been spent the Procurement Guidelines. It was for the establishment of a branch of the observed in audit that the sum of Rs.13.62 Institute in Mannar by 31 December million incurred for this purpose up to now, 2014 and this branch had remained idle was a fruitless expenditure. by the end of the year under review. It

was observed that expenses exceeding Rs.160,000 is incurred monthly for the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 150

maintenance of this branch and that Accountants had been obtained for the money as well was remained fruitless. preparation of accounts for the years 2012, 2013 and 2014 the Establishment was able Ministry of Industries and Commerce to present the financial statements for the years 2012 and 2013 to audit only at the  Even though only Rs.4.28 million, end of the year 2015. representing 7.12 per cent had been spent out of Rs.25 million allocated for As such, continuous losses amounting to 17 programmes for the progress of Rs.649 million and Rs.177 million had been Divisions such as rubber products, boats, incurred in 2012 and 2013 respectively. machinery, timber, moulds and press Even though sums of Rs.217 million and moulds under Development Division II, Rs.159 million had been received from no significant progress had been trade affairs, rent income amounting to reported in those divisions as well. Rs.186.5 million and Rs.185.2 million and income of Rs.37 million and Rs.177 million  Even though the Cabinet approval had from the Paddy Hulling Project in the years been granted in 2006 to establish a 2012 and 2013 respectively, the aforesaid separate zone for uplifting the leather unprofitable situation had continuously industry under Development Division III existed due to excessive administrative and and a sum of Rs.120 million had been financial expenses incurred on poor allocated in 2014 for the development decisions taken by the Management. activities of that industrial zone, that project as well had been unsuccessful A deterioration of the Equity at the due to failure in taking action by the Establishment amounting to Rs.7,587 relevant authorities to release that land. million had indicated in the year under review due to the continuous accumulated Co-operative Wholesale losses of the Establishment and as compared with the preceding year, the Establishment corresponding deterioration had been

Rs.7,407 million. A situation existed for the past 5 years up to the year 2010, for which the Auditor As indicated in the Audit Report for the year General was unable to express an audit 2011, issued most recently several major opinion on the annual financial statements deficiencies which were not rectified of the Cooperative Wholesale continuously by the Establishment are given Establishment and the Auditor General had as follows. expressed an adverse audit opinion on the financial statements of the year 2011. As a Preparation of financial statements not result, the assistance of a firm of Chartered done as required by the Sri Lanka

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 151

Accounting Standards, income totaling immobilizing the activities of the Paddy Rs.72 million not induced in the financial Marketing Board in 2006 by the Cabinet statements, understatement of debtors of Decision No. අමප/06/0238/218/10 of 08 the Cooperative Wholesale Establishment February 2006 and the activities of the by Rs.546 million, construction of paddy Paddy Marketing Board had been assigned mills at a cost of Rs.79 million in a to that Authority. Subsequently, the Sri contentious nature at a store not owned by Lanka Agro Products Marketing Authority the Establishment, Lack of evidence for had been liquidated in 2007 by the Cabinet audit relating to transactions valued at Decision No. අමප/ 07/1199/315/031 of 25 Rs.4,725 million, failure of action to settle July 2007 and the Paddy Marketing Board bond liabilities of Rs.4,597 million payable had been remobilized. As such, the Paddy to 3 commercial banks for a long period, Marketing Board had established 07 zones fruitless investments valued at Rs.544 namely Anuradhapura, Polonnaruwa, million in 2 entities made by the Ampara, South, North West, East and North Establishment, 140 rice processing and recommenced operations of purchase machines valued at Rs. 15 million remained of paddy from the “Yala” season in the year idle, Use of project funds amounting to 2008. Following observations are made on Rs.45 million contrary to the objectives and the affairs of the Board. the inefficiency in handling of transactions and assets exceeding the value of Rs.57  According to the stock verification million by the management and as such, it carried out on the existing stocks as at 31 was observed that the Establishment had October 2013 in respect of 235 stores been deprived of those values as well. belonging to 05 zones except the 02 zones of North and East of the Board, a Food Commissioner’s Department loss of Rs.578.39 million had been caused in the purchase, storage and Out of 66 stores rented out to external issue of paddy during the period of institutions by the Food Department, rents 2012/2013. totaling Rs.51.82 million had been outstanding as at 31 December 2014. Even  A case had been filed against the store though 24 stores out of that had been keeper in respect of the shortage of vested at present, the total outstanding 777,453 kilo grams of a stock of paddy rents of Rs.31.88 million recoverable from valued at Rs.23.2 million occurred in 06 them had not been recovered up to now. stores of the zone in Polonnaruwa in

2012 and the total loss sustained by the Paddy Marketing Board Board was Rs.24.07 million including the The Sri Lanka Agro Products Marketing cost of stock verification amounting to Authority had been established by Rs.873,236.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 152

had not been so done in any  The price of paddy had been determined of the stores. by a three member committee appointed in the year 2013 for calling (c) Even though stacking should quotations without considering the be carried out separately selling price of stocks of paddy had according to the type of determined the paddy prices boned on paddy for the convenience of false information areas. As such, the loss issuance of stocks of paddy caused to the Board by sale of stocks of taken over, it had not been paddy in the zones of Polonnaruwa, so done in some stores. Anuradhapura and Southern had been Rs.54.86 million. (d) Even though the standard weight of every bundle of  Instances of non-compliance with paddy purchased according instructions issued by the Circular to the instructions of the No.PMB/2013/Y/AGR/CR of the Board Circular had been indicated on 24 July 2013 are as follows. as 50 to 250 kilogrammes, the weight of bundles of (a) Even though it is mentioned paddy purchased had in the Circular that the paddy remained in the range of should be in approved weightage from 40 to 69 standard and the quantity of kilogrammes. empty paddy seeds is 9 per cent (according to the (e) Even though the maximum volume) at the maximum in quantity of paddy that could the purchase of paddy, no be purchased from a farmer mechanism had been used to in the “Maha” season is of measure it. 2012/2013 was limited to 2000 kilogrammes according (b) Even though it had been to the instructions of the informed by the Circular that Circular, there were the No. of the leaflet instances in which 5000 relevant to each farmer kilogrammes of paddy had should be marked on every been purchased without packed bundle with proper written instructions. permanent ink before stacking stocks of paddy, it (f) Even though paddy should be purchased subject to the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 153

maximum moisture of 14 per 15,000 metric tons of rice to the United cent according to the Arab Emirates in 2014 on the authority instructions of the Circular, granted to the Chairman of the Paddy the moisture of “Sudu Nadu” Marketing Board by the Secretary to the paddy of the Yodha Kandiya relevant Line Ministry. A sum of store in the Southern Zone Rs.469.34 million had been incurred by had remained ranging from the Board for purchase of this stock of 15.5 per cent to 17.9 per paddy and other expenses and only a cent and the moisture of sum of Rs.169.48 million had been “Rathu Nadu” and “Sudu received by the Board for providing with Nadu” of the Weeraketiya paddy for export purposes. As such, it store had remained ranging was observed in audit that a financial from 14.6 per cent to 16.8 loss of Rs.299.98 million had been per cent and 14 per cent to incurred by the Board due to supply of 15 per cent respectively. these stocks.

 Eight paddy stores of the stores  A sum of Rs.65.48 million had been spent complexes of Anamaduwa, Galewela, by the Paddy Marketing Board for 09 Warawewa and Nikaweratiya belonging contracts carried out in 2013 and all to the Board had been allowed for the these contracts had been awarded to the use of private institutions and out of Cooperative Wholesale Establishment these 05 stores had been provided deviating from the provisions made in without charging annual rent. the Government Procurement Guidelines. The works had been carried  Rice at the weight of 1,281,937 out through private contractors and kilogrammes valued at Rs.54.38 million payments had been made to the CWE for the stock of paddy issued to the mill construction company ltd. owners for obtaining rice required for the grant at State of Somalia had not  Even though provisions had not been been received by the Board even by 31 made in the estimate for urgent July 2015. requirements for changes in quantities and payments for extra work, a sum of  Even though His Excellency the President Rs.3.42 million had been paid for extra had temporarily stopped to export rice in works of 02 contracts. The Paddy 2013, a quantity of 12,019,045 Marketing Board had not obtained the kilogrammes of “Nadu” rice had been recommendations from the Consultant issued to rice mills by the stores of the appointed for the supervision of these Paddy Marketing Board to export of contracts before carrying out the said

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 154

extra work or the approval of the Tender transport charges had been Board in that connection. treated as an income.

 Even though the financial statements for (d) Overstating the cost of sales a financial year should be presented to by Rs.601.55 million due to audit within 60 days of completion of the computing the errors in cost financial year in terms of Section 6.5.1 of of sales of rice in the Income the Public Enterprises Circular No. PED Statement. 12 of 02 June 2003, the financial statements for the years 2013 and 2014 Export Development Board of Sri had not been presented even up to 25 September 2015. Lanka The Integrated Agri Models, Agri Zones and  According to the Audit Report of 2011, Agricultural Programmes had been several accounting deficiencies in the identified as Export Promotion Programmes financial statements for the year 2011 for the year 2014. Out of the annual are as follows. allocation of the Government amounting to (a) No action taken to comply Rs.518 million, 58 per cent representing with the requirement of Sri Rs.300.28 million had been spent as export Lanka Accounting Standard development expenditure thereon. Further, Nos.05, 16 and 18. criteria and procedures had not been stipulated and implemented for follow up (b) Retention of a total of assets action for evaluation and review on and a total of liabilities achievement of targeted objectives of such amounting to Rs.277.91 programmes. Evaluation and review of the million and Rs.166.99 million export development activities and respectively that existed efficiency and productivity thereof had not before the year 2008 in a been taken into consideration. Details on Suspense Account without such several programmes are given below. identification.  A programme namely Skills Development (c) A sum of Rs.57.60 million Project had been implemented in the saved after making the three districts of Mannar, Vavuniya and relevant charges, out of the Mulathivu and a sum of Rs. 16.3 million amount received from the had been approved thereon. The Treasury for the payment of advance of Rs.845,000 released on 22 loan interest and rent for April 2014 to the District Secretary, hulling of paddy and Mannar had been given to a private

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 155

drivers’ training institution by the District for the period from 2001-2014. Action Secretary. As such, the trainings had not been taken to recover the expected to be received from the investment value of Rs.17.31million National Youth Centre and the training in made in ordinary shares of 3 liquidated respect of the field of export given by companies in the year under review. The the private driving training institution, Board had not taken proper action to had not been explained to audit. realize the value investments at Rs.34.59 million made in preferential shares of 16  The Board of Directors had approved a companies and investments valued at sum of Rs. 15 million for implementation Rs.5.13 million made in ordinary shares of a Chilly Cultivation Project in the of 17 companies, out of the companies districts of Vavuniya and Mannar with a of which the name had been cut off from view to provide chillies for the export the Register of Companies based on the market. Farmers had gathered the nonregistration of companies once again harvest in two occasions from the Chilly under the New Companies Act. Cultivation Project commenced in the year 2014 in an area of 50 acres in extent  Even though the Board had invested a spending Rs. 22.72 million exceeding sum of Rs.8 million in the year 2012 in that amount. Nevertheless, it was the share capital of the CWG observed that no export whatsoever had Hambanthota 2018 (Pvt.) Company been made to the export market up to established to achieve the objectives now. It was observed that the Board had such as presentation of bids, promotion been involved in agricultural purposes of sports in Sri Lanka, organization of through the export promotion sports events at the National and programmes contrary to the objectives International Levels and investments in of the Board. sports training facilities for the city of Hambanthota for the Commonwealth  No dividends had been received for Games- 2018 to be held in the year 2018, investments of Rs.105.06 million made in no benefits whatsoever had been preferential shares of 30 companies for obtained thereon. The concurrence of the period from 1997-2014 and the Minister of Finance for this investments aggregating Rs.43.49 million investment had not been presented to made in normal shares of 31 companies audit.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 156

Construction Industry ______Institute for Construction Training Central Engineering Consultancy and Development Bureau (CECB)

 The financial results of the ICTAD for the  Out of the operating revenue of the year 2014 was a deficit of Rs.20 million. Bureau for the year 2013, only 14 per However, for the purpose of paying cent had been earned from providing annual bonus to its employees, the consultancy services and the rest of the Institute had prepared a separate revenue had been earned from income statement by showing a net construction work. Even though, there profit of Rs 32 million for that year. are number of state owned institutions Accordingly, annual bonus of Rs.3 to undertake construction works such million had been paid in contrary to the as State Development and Construction Department of Management Service Corporation, State Engineering Circular No 05/2014 of 21 November Corporation, Building Department etc. 2014. the consultancy works are undertaken only by the CECB and SEC. Nevertheless,  The Institute had incurred a sum of CECB had not strategically focused on Rs.1.5 million for advertising of the engineering consultancy which has been National Development Deyatakirula the mandated task assigned at the Programme and World Habitat Day inception of the Bureau. Programme on request made by the line Ministry.  The Ministry of Economic Development had granted a sum of Rs.3,601 million of  Five cheques value at Rs.4.7 million machineries and equipment to the issued for advertising expenses of Bureau in 2012 to expedite the road “Mahabhimani” Programme in 2014 construction projects undertaken by the had been subsequently cancelled in Bureau but subsequently, the Ministry January 2015 and reason for had recovered a sum of Rs.250 million cancellation were not made available from the contract payments due to the for audit. Bureau. However, without carrying out any professional valuation of those assets and ignoring the grant portion of Rs.3,351 million, the Bureau had accounted them at Rs.250 million.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 157

State Development and Construction  Board of Directors of the Bureau had Corporation approved number of incentive schemes  The Corporation had handled 67 and incentive payments to employees construction contracts to the value of of the Bureau without getting prior Rs.12,474 million in the year 2013. approval of the General Treasury. Total However, most of the construction amount of such incentive paid in 2013 works had delayed in the range of 6 to was Rs.100 million. 82 months due to various reasons such

as liquidity problems of the  Out of 90 per cent of the construction Corporation, non-receipt of the contracts undertaken by the CECB had payments from clients in time, bad been sub-contracted to the Central weather condition, design changed by Engineering (Pvt) Ltd without allowing the clients and management them to get contracts through inefficiency etc and a total loss of competitive bidding, which is the main Rs.70.3 million had occurred from the purpose in establishment of that delayed Projects up to 2013. Company.

It was further observed that the  Incentive amounting to Rs.12.7 million above works had been carried out had been paid to selected technical staff by the Company using human, of the Construction Division of the physical and other resources Corporation in 2013 without assessing belonging to the CECB. For the individual performance. instances, preparation of BOQs,

estimates and invoices for both  The Corporation had paid a sum of organizations are done by the same Rs.12 million as vehicle hiring charges to personnel of the CECB. four officers who were appointed by the

Ministry of Construction, Engineering  Loss of Rs.60 million had been incurred services, Housing & Common Amenties, by the Bureau during the year under to inspect the works of the road review in respect of construction Projects carried out by the Corporation contract works undertaken due to poor in Kegalle under Janasewana contract administration. Programme implemented by the

Ministry during June 2012 to November 2014. However, the above payments had been made based on their uncompleted running charts without being obtained any inspection report.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 158

 Seven debtor balances aggregating compared with the corresponding pre- Rs.3.2 million had been written off tax net profit of Rs.226 million for the during the year under review without preceding year, thus indicating a being obtained the approval of the deterioration of Rs. 77 million in the net Board. profit as compared with the preceding year.  Debtor balances of the Construction and Concrete Yard Divisions of the  The deterioration of the operating Corporation amounting to Rs.28 million profits of the Special Operations and Rs.36 million respectively had Division and the Consultancy Division remained outstanding for more than had indicated a deterioration of Rs. 216 three years as at 31 December 2013. Of million and Rs. 30 million respectively as them, Rs.24 million and Rs.25 million compared with the year 2013 with the respectively were remained outstanding preceding year, and the operating loss for a period more than 05 years without of Rs. 45 million of the Machinery being taken any recovery action. Division had mainly affected the Further, age analysis for sundry debtor deterioration of the net profit. balance of Rs.38 million as at 31 December 2013 was not furnished to  The after tax net profit of the audit. Corporation for all the years had decreased continuously except in the  Purchase advances for construction year 2011. The decrease of after tax net contract amounting to Rs. 5 million and profit was 40 per cent in the year 2013 Rs. 19 million had been remained as compared with the preceding year. outstanding for a period of more than 4 years and 02 years as at 31 December  The net operating profits of the 2013 respectively without taking any Consultancy, Special Operations and recovery action. In addition to that the Machinery Divisions of the Corporation, age analysis for purchase advance of Rs. for the year 2013 as compared with the 22 million relating to the Peliyagoda preceding year had deteriorated by 24 Office of the Corporation was not made per cent, 54 per cent and 1,205 per cent available for audit. respectively.

 The operating profit for the year 2012 State Engineering Corporation amounting to Rs. 41 million of the Ekala,  The operations of the Corporation Welikanda and Ratmalana work sites during the year 2013 had resulted in a belonging to the Construction pre-tax net profit of Rs. 149 million as Components Division had deteriorated

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 159

to Rs.7 million by 83 per cent in the year Bank Overdrafts in the year 2013 2013. The increase of other expenses amounted to Rs.78 million. except the sales cost of the work sites had affected this position.  Machinery imported by the Ministry of Economic Development from China for  The Brick and Carpentry Products Yard Rs.1,339 million and received by the at Dankotuwa belonging to the Corporation in the year 2012 had been Construction Components Division had valued by a licensed Valuation Officers incurred a loss of Rs.3 million in the year for Rs.736 million in the year 2013. It 2013 and 15 years out of the past 16 was not possible to be satisfied in audit years had reported losses. The with regard to the reasonableness of accumulated loss as at 31 December the initial valuation in view of the 2013 was Rs. 29 million. The increase of decrease in value by 45 per cent within the sales cost over the percentage of a short period of one year from the increase in the income of the work site purchase. had affected this position.  The Corporation had taken an interest  Regional Offices and 15 work sites from the year 2008 itself in earning including the Head Office of the income by carrying out construction Machinery Division and the Main Stores works in foreign countries and had at Kolonnawa had sustained an spent a sum of Rs.13 million in that accumulated loss of Rs. 98 million in the connection. Nevertheless, the year 2013. Corporation had failed to commence construction works in a foreign country,  Even though the Bank Overdraft Facility obtain contracts or earn any income which can be obtained by the whatsoever even by the end of the year Corporation on Bank Bonds within the 2013. year under review had been limited to Rs. 474 million, there had been  The Corporation had to pay a sum of Rs. instances in which the facility of Bank 20 million as liquidated damages as a Overdrafts had been obtained up to Rs. result of non- completion of contracts 556 million. Out of it, a sum of Rs. 150 of constructions within the specified million had been obtained as a period in the year 2013. Temporary Bank Overdraft at an interest rate of 30 per cent per annum.  A loss of Rs.187 million had been As such, the total Bank Overdraft sustained on 34 projects as at the end interest paid by the Corporation for of the year 2013 due to incurring of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 160

costs exceeding the contract value of the projects. Department of Government Factory

 A payment of Rs.159 million had been  The extent of 01 Rude, 16 Perches out made as allowances for employees of the total land extent of 15 Acres, holding posts in the service categories where the Department located, had such as Engineer, Architect and been encroached by unauthorized Quantity Surveyor for the year 2013 residents over a period more than 50 without the approval of the Department years but the Department had not taken of Management Services and the adequate actions to get clear the land. recommendation of the Salaries and Cadre Commission.  The debtor balance of Rs.53 million, out of the total debtor balance as at 31  Out of the balance of trade debtors as December 2013 amounting to Rs. 362 at the end of the year 2013 amounting million, arisen during 1995 to 2007 from to Rs.4,656 million, over 95 per cent the supply of goods to the Government remained receivable from Government institution was still remained in the Institutions. Out of that, a sum of accounts without taking any recovery Rs.1,960 million represented balances action. older than 03 years.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 161

Housing ______Janasevana Housing and Housing the total estimated cost of the Development Programme has been carried targeted housing units had out with the objective of providing house been utilized. for each family in the country since the year 2011 under the Ministry of Construction, ii. Considerable progress was not Engineering Service and Common Amenities observed in other housing loan and other institution coming under the programmes except Janasevana purview of the Ministry namely, the Housing Loan Programme by National Housing Development Authority, the end of the year under Urban Settlement Development Authority, review. and Condominium Management Authority. iii. Even though the construction of 877 housing units in 5 Housing National Housing Development Schemes, under Public-Private Authority Contributory Housing Project, had been planned, none of  The following observations are made in them had been constructed at connection with the Janasevana the end of the year under Millennium Housing Programme planned review and the number of to carry out in the year 2014 and the schemes the works commenced achievements during the year under was two. The physical progress review. of those works was only two i. Even though the National per cent. Housing Development Authority

had planned to achieve the iv. Even though 60 housing units target of completing 42,222 had been planned to housing units in the year 2014 construct, under Millennium by harnessing the services Lanka Housing Programme, performed by its staff attached in the year under review by to its island-wide network of incurring Rs.75 million, no District Offices, regional and work on any housing unit village level, the actual number whatsoever had been of housing units completed was commenced. 15,590, that is, 37 per cent of

the target. But, 43 per cent of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 162

v. The leader in the state sector interest payable thereon amounted to for carrying out construction Rs.40 million. of one million housing units under the Janasevana  According to the Land Survey Report of Housing Programme the year 2010, lands with an extent of introduced by the 645.66 hectares belonging to the government in the year Authority had been identified and out of 2011 is the National Housing that 208.75 hectares of land had been Development Authority identified as encroached by which carried out island-wide unauthorized residents at the end of the housing construction with a year under review. Further, a survey network of 26 District Offices relating to lands of the Authority in five and 3 City Offices. However, districts of the Northern Province had the Authority had planned also been not carried out even by the only 25 per cent of that end of the year under review. target during the period 2014 – 2018. On that ground,  There had been difficulties in obtaining achieving of that target the Certificates of Conformity relating to under that Programme will 1,986 housing units of 26 housing not become a reality. schemes as at the end of the year under However, the attention of review as houses had been constructed the management towards without obtaining the approval for the the identification of barriers housing plans from the respective Local for achieving of the target to Authorities before the commencement take precautionary actions of construction of Housing Schemes. As a was not paid, adequately. result, the relevant houses of the Housing Schemes could not be transferred to the respective owners to  Even though the Authority had taken establish Management Corporations. As over the tenure of the compensation such, the Authority had to carrying out payable lands acquired under Section repairs and maintenance of those 38(b) of the Land Acquisition Act, a Housing Schemes out of its owned funds, longer period had been taken in the continuously. Thus, the spend a sum of course of taking over the land tenure of Rs.12 million and Rs.771 million for certain lands due to the various maintenance and repairs of such Housing problems that had arisen. As such, the Schemes respectively in the year under compensation payable as at the end of review. the year under review amounted to

Rs.16 million and the outstanding

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 163

 Out of the total debtor of Rs.3,880 unauthorized occupant in the year under million balance at the end of the year review based on the valuation of the under review, Rs.2,202 million or 56 per year 1998. Due to that, the Authority cent had been brought forward over a had to incur a loss of Rs. 10 million. period exceeding five years without take Similarly, the Authority had legalized adequate recovery action. three unauthorized occupants at Weveldeniya Housing Scheme in  Two houses in the Homagama Jalthara Gampaha District in contrary to the and Diyawanna Gardens Housing methods approved by the Cabinet of Schemes had been released to two Ministers for legalizing the individuals for occupation by the end of unauthorized occupants and as a the year under review outside the result, the Authority had incurred a normal housing disposal methodology of loss of Rs. 4 million. the Authority and without entering into agreements or even obtaining advances. Condominium Management Authority  In accordance with the decision of the Cabinet of Ministers No.14/0619/517/021-1 dated 08 August The condominium Management Authority 2014, the number of housing units was established on 10 November 2003 in approved to be constructed under terms of provision in the Common partnership with local investors had Amenities Board Act, No. 10 of 1973 as been decreased from 42 to 39 at the amended by the Common Amenities time of entering into contract with the (Amendment) Act, No.24 of 2003 for the private partner at Pallekele Estate control, management, causing repairs and owned by Authority without any administration of condominium properties, justification. Further, the Authority had semi- condominium properties and agreed to 10 per cent pre- determined temporary properties. profit instead of the actual profit earned.  According to the Section 5 (e) of the said  According to the Cabinet Decision Act, the Authority should manage and No.140/98 dated 17 December 1998, the control the Condominium Property Authority should obtain current Management Corporations, after their valuation in releasing properties to incorporations. Further, according to the unauthorized occupants. However, in information furnished to audit by the contrary to that, the house bearing No. Authority, the number of Management D/V/2/2/L at Maning Town Housing Corporations and Committees planned Scheme had been released to an to incorporate since 2005 to end of the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 164

year under review was 1,080, but the improve of the net asset position of the actual number incorporated as at 31 year under review. This position had December 2014 was 829 and 60 per cent adversely been affected to the going of them had been inactive at the end of concern of the institution. May 2015.

 According to the Section 5 (g) of the Act, Urban Settlement Development the maintenance of common amenities Authority of condominium properties should be  Despite incurring a deficiency of Rs. 10 handed over to the Local Authorities. million by the Authority during the year However, the maintenance of the under review, annual bonuses of Rs. 1 common amenities of the Maligawatta million had been paid to 89 employees and Jaltara Housing Schemes had not of the Authority with the approval of the been handed over to the respective Board of Directors on the basis of Local Authorities even up to end of the Management Services Department year under review. Circular No. 05/2014 dated 21

November 2014 on the payment of  As compared with the preceding year, bonus to employees of government the income of the Authority for the year corporations and fully owned under review had been increased by government companies which had Rs.48 million or 77 percent, but after recommended a bonus of Rs. 15,000 for settlement of the expenditure, the employees of institutions which had financial result was a profit of made profits. Rs.449,155. Increase of the expenditure

as compared with the increase of the  Rs. 23 million had been spent on a drama income had resulted to show a marginal titled “Colombo Children” and a financial result of the year. programme for the promotion of street  Even though the net assets of the food items to mark the World Habitat Authority had shown a favorable balance Day. of Rs.12 million in the year under review,

it had shown negative values amounting  As per Cabinet decision No.CP/ to 25 million 16 million and 32 million for 07/0140/226/013 dated 22nd February the preceding three years respectively. 2007, though Real Estate Exchange Receiving of a sum of Rs.10 million from Private Company Limited should have the General Treasury in the year under been liquidated and its assets and review for payment of employees’ liabilities as well as the staff should have salaries and Rs. 29 million of prior year been absorbed into the Urban adjustment had mainly impacted to Settlement Development Authority

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 165

sooner than its establishment only the charges from property developers should staff had been absorbed even by have been credited to the Authority for November 2014. financing low income housing programmes as per subsection 16(e) of  Out of Rs 40 million provided by the the Urban Settlement Development Ministry for the ‘Janasevana Swashakthi Authority Act, No.36 of 2008, no such Participatory Environmental Programme, money had been credited after March Rs. 14 million had been spent in breach 2010. The money that should have been of the objectives with Rs. 2 million being received in this manner was Rs. 207 spent on the Anuradhapura Housing million. Further, in line with Cabinet Project, Rs. 7 million on transport decision No. 10/2951/504/012 dated 14 expenses and Rs. 5 million on the December 2010, the collection of the opening ceremony of the project. said service charge had been suspended thus depriving the Authority of its main  Though all money collected by the Urban source of income. Development Authority as service

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 166

Commuter Transportation ______About 58 per cent of Sri Lanka’s passenger construction of a railway line from transport requirement is fulfilled by public Matara to Beliatta and only a sum of Rs. transport services. The Ministry of 11,123 had been spent out of the Transport supervise and monitor those estimated an amount of Rs. 36,166 through the institutions such as the million. Further, provisions of Rs. 376 Department of Sri Lanka Railways, Sri Lanka million had been made during the year Transport Board, Department of Motor under review for the proposal of Traffic, National Transport Commission, constructing 06 new railways. However, National Transport Medical Institute, out of that, only a sum of Rs. 19.8 Lakdiva Engineering Co. Ltd. and National million had been spent for planning Council for Road Safety. purposes. A Project Plan for physical and financial progress to be achieved Allocation of Rs. 7,557 million for recurrent annually had not been prepared for expenditure and Rs. 17,453 million for these projects. capital expenditure had been made available in the Budget Estimate of the  The test check revealed that the Ministry of Transport for the year 2014 and fruitless transactions aggregating Rs. according to accounts, a sum of Rs. 7,548 6.55 million had been made by the million as recurrent expenditure and a sum Railway Department recently and of Rs. 13,023 million as capital expenditure allocations amounting to Rs. 25 million had been incurred in the year. A foreign made for 04 items of expenditure had loan amounting to Rs. 11,002 million for not been utilized. the construction of railways lines received during the year under review had been Department of Sri Lanka Railways included in the allocation for capital expenditure. The entire staff for that year The railway network of Sri Lanka consists of was 138. The material observations 1,640 kilometers at present. The observed in audit on the transactions and Department owns an extent of 13,980 activities of the Ministry of Transport and hectares of land island wide. Out of that, institutions under its purview at the the extent of land utilized for the railways ministry during the year ended 31 and office building and stores etc are 8,616 December 2014 are as follows. acres. The staff of the Department in the year 2014 was 16,893. According to the  A Foreign funded Project had been accounts presented for the year under initiated by the Ministry for review, the income earned is Rs. 5,909

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 167 million and out of the allocation of the  Even though 08 hours for normal duties Government, the recurrent expenditure should be deducted per day in terms of amounting to Rs. 16,943 and the capital Section 5.6 of Chapter VIII of the expenditure amounting to Rs. 34,601 Establishments Code, overtime million respectively had been spent. allowances of Rs. 960,341 had been Significant matters observed in audits paid to 68 Railway Guards without carried out on the activities of the deducting normal hours that should be Department of Railways during the year performed per week. under review are as follows.  It was observed that 6,849 sleepers  As per Revenue Account of the valued at Rs. 80 million used for the Department a sum of Rs. 1,571 million railway line for the reconstruction of for railway warrants and a sum of Rs. the railway line from Omanthai to Palai 1.1 million as penalty for not accepting had been cracked and the project had railway season tickets and as per trusted only on the certification made Reconciliation statement Rs.84.84 by the supplier. The Department had million of outstanding sundry charges not been equipped with a methodology had remained unrecovered for over for testing on the quality of these long period and the Department had sleepers. Moreover, rails and sleepers not taken any action to recover them. at the value of Rs. 374.19 million had remained unused due to overestimation  No action whatsoever had been taken made by the project. The General by the Department to recover Manager commented that an outstanding loan balances of Rs. 52.23 alternative usage had been identified to million from 1047 deceased and retired use them in the repairs of the existing employees, Rs. 21.417 million from railway lines. However, those rails and 4071 officers who vacated of posts and sleepers had not been used for the Rs. 10.194 million from 462 interdicted alternatives identified even by 31 May employees over several years. 2015. Even though there was no requirement of maintaining a project  The goods and services imported from office once the project is completed, foreign countries since 1998 up to the the project office had been maintained year under review, Letters of Credit for a period of 09 months and a sum of amounted to Rs. 1,030.60 million had Rs. 1.8 million paid at the rate of Rs. 3 remained unsettled. Action had not million per month as salaries for that been taken to settle the amount related period. to the preceding years even in the year under review.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 168

 The Government had been deprived of the gross loss as at 31 December 2012 was an income of Rs. 1.93 million receivable Rs. 3,966.54 million. The loss had decreased from 145 houses relevant to 03 Sub- up to Rs. 2,458.34 million due to grant Departments due to failure in revising amounting to Rs. 1,508.2 million received the house rent in terms of Public from the Treasury. According to the Administration Circular No.887 of 05 financial statements at the end of the year January 1987 the water supply had 2012, the value of net assets had taken a been made directly from the main negative value of Rs. 25,538.5 million due water supply line of the Department to continuous loss of the Board. The without fixing a separate water meter accounting Standards had not been for 680 official railway quarters located followed in the preparation of financial at Ratmalana. It was observed that the statements for the year 2012. Even though Department had spent a sum of Rs. 7,204 buses are generally required per day 58.49 million for consumption of water to fulfil the needs of the schedules allocated during the year under review alone. for the Board, the normal buses run per day in the year 2014 was 4,596 only. As such,  Demurrage amounting to Rs. 1.29 approximately 37 per cent of the total million had been made only during first scheduled requirement could not be quarter of the year under review achieved in the year 2014. Nevertheless, as uneconomically, due to delays in compared with the preceding year, the total release of imported goods from harbour income per a kilometre run had increased by the stores Sub-Department. from Rs. 87.84 to Rs .90.68 and the Board has informed that the removal of old buses Sri Lanka Transport Board of the Board and the addition of new buses had mainly contributed to this increase. As According to the financial statements the average running expenditure of a bus presented, after the re-establishment of the was Rs .95.70 in the year, a loss of Rs. 5.02 Sri Lanka Transport Board in 2005, the is further suffered per kilometre. The entire board is continuously running at a loss. staff as at 31 December 2014 is 34,303 and According to the information maintained by significant observations in the audit of the Planning Division the total income was financial statements had presented for the Rs. 33,665 million and the total expenditure year ended 31 December 2012 and an audit was Rs. 35,528.02 million (including of transactions of the years 2013, 2014 and depreciations) in 2014 and a sum of Rs. 500 2015 are as follows. million had been received from the Government. The last financial statements  Even though an Organization Chart, an had been presented for the audit for the approved cadre and a promotion scheme year 2012 and according to those accounts, should be prepared and the approval of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 169

the Department of Management charging a less amount than the amount Services should be obtained in terms of charged in renting of buses and renting Chapter 9 of Public Enterprises Circular these buses improperly as well by the No. PED/12 of 02 June 2003, it had not Board. been so done.  At the inspection held on the written  The approval had been granted by the notification made by the Commissioner Public Enterprises Department of the of Elections that buses owned by the Treasury in 2002 to carry out a complete Transport Board had been provided for a Investigation and write off non- moving publicity rally of the Western Provincial assets and liabilities of 66 debit balances Election held in the year 2014, 47 buses of Rs. 3,232.23 million and 23 credit had been provided for a function held in balances of Rs. 2,010.90 million Matugama by 5 depots belonging to the respectively. However those balances Kalutara Regional Office. Nevertheless, had been written off from books in 2012 the decision taken by the Management without the approval of the Board of to provide them had not been presented Directors and a complete Investigation. to audit. According to the information presented to audit, it was observed in  The contributions of employees and the inspection of the details relevant to employers that should be remitted by 20 buses presented by two depots that the Board for the Employees’ Provident those buses had run without charges. Fund and the Employees’ Trust Fund as at 31 March 2015 amounted to Rs. National Transport Commission 9,502.6 million and Rs. 45.18 million respectively. Due to failure of remitting The total staff of the National Transport of contributions on time a surcharge Commission in the year 2014 was 162 and from 5 to 50 per cent had to be paid. the recurrent expenditure and capital expenditure in that year amounted to Rs.  Sixteen thousand two hundred and 735.53 million and Rs. 130.93 million eighty bus turns had been provided for respectively. According to the final accounts transport of passengers for public rallies presented to audit for the year 2014, the of the Presidential Elections held in the net surplus of the year amounts to Rs. 109.2 year 2015 without a request or approval million and the significant matters observed made by an accepted political party and in audit on the transactions and activities of that political party had evaded the the Commission in that year are as follows. payment of the sum of Rs. 142.52 million further recoverable. An income of  Thirty one Gami Sariya bus services and Rs.94.52 million had been lost due to 136 Nisi Sariya bus services had been

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 170

maintained by the end of the preceding and the Chairman to supervise its year and it had been planned to activities from their offices, it was not in maintain the same number in the year operation in the year under review. under review as well. Nevertheless, it had been decreased to 21 bus services  GPS equipment had been installed in and 114 bus services respectively by the 2,095 buses so as to enable the direct end of the year. supervision of inter provincial bus running activities using Satellite  A sum of Rs. 40 million had been Technology and a sum of Rs.79.06 allocated for the year under review in million had been incurred thereon. respect of establishment of a Control Moreover, a sum of Rs.8.31 million had Room for expanding the inter provincial been payable to the institution which monitoring of buses based on GPS maintains those equipment and all the Technology and it had been planned to GPS equipment had been inoperative by complete the work by the end of the May 2015 and the Management had not year 2014. However, only the building taken action to restore them back to had been completed and a sum of Rs. normal condition. 18,189,547 had been incurred thereon as at 10 April 2015. Department of Motor Traffic

 Even though 07 electronic display boards According to the accounts presented to had been erected in various cities by the audit, the earnings of the Department in Commission spending a sum of Rs.62.41 the year was Rs.9,290.58 million and a sum million with the objective of displaying of Rs.1,463.51 million for recurrent the schedules of inter provincial buses expenditure and a sum of Rs.922.54 million and buses run in the province, all those for capital grants had been spent from boards are inactive by now. Even though budget provisions. The significant matters those boards had not been functioned, a observed in the year under review are as sum of Rs.1.49 million had been paid for follows. electricity and internet facilities for 11 days obtained up to the end of May 2015  Auditing had been largely obstructed and a further sum of Rs.0.43 million was due to failure in providing with necessary payable. information, files and registers and the delay in providing them by the  Even though a CCTV Camera System had Department of Motor Traffic and been installed spending a sum of Rs.0.47 auditing could not be properly carried million so as to enable the Manager of out. A number of over 500 files the Bus Terminal at Bastian Mawatha demanded for auditing from the year

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 171

2013 to the year 2015 had not been fulfill the functions that could be carried presented to audit even by 31 July 2015. out easily such as cancelling the registration of such vehicles, taking  The Department had not taken action to action to avoid issuing of annual vehicle cancel the registration of vehicles licences and notifying the Sri Lanka condemned timely from running by the Police and Criminal Investigation Department and vehicles condemned Department, the details of these from running after being met with vehicles. accidents. As such, there was a possibility of engaging in irregularities  Even though a sum of Rs. 4.32 million using the numbers of condemned should be charged as luxury tax from 18 vehicles to evade paying custom duty vehicles registered as single cab vehicles and including the data of illegally at the Department and afterwards imported vehicles and fabricated converted into jeeps, action had not vehicles or using the identification been taken to recover it. numbers of these vehicles and as a result the fraudulent registration of vehicles  A sound method of internal control had had increased and the vehicle tax income not been established to prevent various had decreased considerably. Brand new fraudulent acts in the registration of new jeeps had been registered under old motor vehicles at the Department. Even serial numbers including starting though the relevant particulars of import numbers 24, 25 ,31, 32 ,40, 50, 51, 64 had been transmitted to the computer and 65 used in the registration of system of the Department of Motor vehicles and it was observed in 5 audit Traffic by the computer system of test checks carried out that vehicles so Customs in the registration of new registered and run on the roads had vehicles, 22 dual purpose vehicles and 56 existed. lorries registered without examining the relevant particulars were observed in  Even though fabricating, manufacturing, audit. assembling, innovating, adapting, modifying or changing the condition  An adequate and proper process had not should not be carried out without the been followed by the Department to prior approval of the Commissioner of avoid deviating from the said specific Motor Traffic, 26 such converted objective in the registration of vehicles vehicles were observed at the inspection used for specific objectives such as of vehicles running on the road. ambulances and hearses. As such, According to the Motor Traffic Act, the several irregularities had occurred and 4 Department had not paid attention to

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 172

such instances were observed at the action in respect of insurance institutions audit test check. which had not properly fulfilled the task of recovering tax and implementing the  The Department had not paid attention provisions of the relevant Act relating to in respect of significant functions such as vehicle owners who had evaded paying failure in maintenance of proper reports income tax and maintaining relevant on tax recovery relating to Luxury Tax control accounts etc. and outstanding tax receivable, taking

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 173

Youth Affairs ______The National youth Services Council makes the year at a cost of Rs.857.84 million. The a significant contribution to the Youth summarized information several Development and the Council had received programmes in given below. funds amounting to Rs.1,483.86 million for the year 2014 from the Annual Budget World Youth Conference 2014 Estimates and other external donors for the performance and discharge of its duties and The Council had spent a sum of Rs.547.78 million including the provision from the functions to achieve the objectives. The overall expenditure for the year amounted Ministry. The main objective of the to Rs.1,626 million. conference was to link the youth to the Post Development Agenda Beyond 2015. Even

Out of the allocation of Rs.432.669 million though a policy statement called Colombo made for 10 Divisions for the Declaration had been issued for the implementation of programmes which achievement of the objectives, the provide a direct contribution to the Development Plan / Action Plan for the year 2015 had not been prepared in a manner to achievement of the objectives of the Council Rs.236.280 million had been saved provide a positive contribution for its without being utilized for the intended achievement. purposes. Out of the total extent of 294 acres of the 14 farms of the Council about Sri Lanka Youth Housing Project 90 acres had not been utilized for farming. Even though provision of Rs.46.123 million had been made in the year 2014 for the Most of the programmes planned by the construction of houses for 246 youths with National Youth Service Council at the level housing problems, selected at each per of the youth clubs are implemented by the Divisional Secretary’s area, not even a single voluntary organization called Sri Lanka house had been constructed. Youth Clubs Federation, and the Council had paid a sum of Rs.3,949,682 to the Home Garden Project Federation for carrying out 3 such Even though the Foreign Aid Programme programmes during the year under review. amounting to Rs.1.143 million received in As the organization is a voluntary entity it is connection with the implementation of the not being audited by the Auditor General. Home Garden Project for the build up of the

economic strength of the youth by diverting Eighteen Special programmes for youth the members of the youth clubs to development had been implemented during

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 174 agriculture and create model home gardens Youth Parliament had been entrusted to the Youth Clubs The Youth Parliament had been established Ferderation for implementation, it had not been implemented. with the objective of arming the Youth with the political concepts. Six Parliamentary

Sessions had been held in the year under Sri Lanka Youth Dream Project review and out of the expected This Project had been commenced with the participation of 2,884, only 1,924 had objective of evaluation at national and participated. The expenditure incurred international level and improvement of the amounted to Rs.46.203 millions and cost of capacity of the youth with different capacity dismantling and assembling the Model in the fields of aesthetics, sports, Parliament amounted to Rs.15.403 million. educational, economic, social and political skills and a sum of Rs.7.841 million had Political Academy been spent in the year 2014 for the implementation of the Project. Activities to Ministry provision of Rs.3 million had been be done according to the Project Proposals, made for the Political Academy Programme such as the conduct of district youth camps, commenced with the objective of producing compact discs of songs of the identifying the skills and leadership qualities winners of the Project and the award of for the creation of a political culture of good cash prices to the 12 competitors of the governance. The Programme planned for final round had not been done in the year implementation at the national level had under review. not been implemented as expected.

Youth University Project Construction of Murukkandi Temple Railway Station The Youth University Programme organised in 15 districts in the year 2010 to provide The sum of Rs.2.824 million collected for higher educational opportunities to the the construction of the Murukkandi Temple youth without being a financial burden to Railway Station had been lying idle for over the Government, had been organized only 10 years. Even though the money had been in the Western Province during the year released to the Sri Lanka Youth Clubs 2014. The expenditure ratio of 66 per cent Conference for conducting additional to income in the year 2010 had increased to classes for the students. Who could not sit 230 per cent by the year 2014. the General Certificate of Education Ordinary Level and Advanced Level Examinations due to the war, programme had not been implemented as planned and

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 175 the balance sum of Rs.2.627 million had not Orders made under the Public Security Act been refunded. had been transferred to the Fund.

Youth Revolt Programme Since the Public Security Act had been repealed in August 1994, the Orders made A programme called the Youth Revolt had thereunder as well remained repealed. been commenced in the year under review Even though the liquidations of the Youth with a provision of Rs.15.930 million, with Welfare Fund should have been the primary objective of improving the commenced in that year. The liquidation trends of youth to the youth societies. The accounts of the Fund had not been provision made had been increased to furnished to audit even by 31 December Rs.48.040 million by transfers from other 2014. objects and a sum of Rs.39.798 had been spent during the year. According to the Even though the Attorney General had records of expenditure maintained, only 2 stated, in his letter dated 09 August 1999, per cent of the expenditure had been that there is no objections to the transfer of incurred on matters directly related to the the immovable property of the Fund to the objectives of the Programme. Council, it had not been so done. The information on the action taken on 877 Youth Welfare Fund units of gold jewelry of which the price had The Youth Welfare Fund had been not been computed, 8,135 items of gold established under the Orders of the Youth jewelry valued at Rs.27,502,301 , a sum of Welfare Fund No. 1 of 1993 made by the Rs.8.997 million deposited with the President in the year 1993 in terms of Treasury and all other assets including 02 provisions in Section 5 of the Public Security motor vehicles and 06 motor cycles had not Act. The assets confiscated in terms of the been furnished to audit up to date.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 176

Social Services ______The material deficiencies observed in the already expired on 16 November 2014. audit of the activities carried out by the The legal provision for taking legal Ministry of Social Services to achieve its action against those who do not comply objectives are given below. with in required had not been formulated. The Ministry should pay greater attention to the enactment of the following  Despite the availability of a recognized legislation. methodology for the distribution of spectacles and wheelchairs to the low  The new Act, on the Protection of the income persons with disabilities, it had Rights of Persons with Disabilities. been done through the intervention of  Draft Act on Sign Languages. external parties. A sum of Rs.  Draft Act on providing Legal Protection 29,962,902 had been spent in that for Persons Using White Cane. connection in the year 2014. The  The National Action Plan on Disabilities matters revealed at an inspection of in Sri Lanka. such activities are given below.  Proper implementation of activities laid down in the Protection of the Rights of - A sum of Rs. 979,950 had been Person with Disabilities Act, No.28 of defrauded by producing fraudulent 1966 and the Protection of the Rights of documents in support of distribution Elders Act, No. 9 of 2006. of 6,493 spectacles.  Preparation of an accurate and updated - Even though records had been made database on the communities with in the registers that 1,950 spectacles disabilities and elders. valued at Rs. 1,267,500 had been  Paying attention to the providing of aid handed over to the coordinating whatever to the low income group Secretary to the former Minister of persons only to those who apply Social Services, there was no through the normal channels. evidence in support of the distribution of the spectacles.  The last date for providing access - A survey of the requirements of the facilities to all public buildings, public beneficiaries had not been carried places and places where public services out prior to the purchase the are provided in accordance with the spectacles. orders made in the year 2009 has

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 177

 Disregarding the request made through the selection of beneficiaries should the normal channels by the persons have been done at 5 persons per who were eligible for obtaining Divisional Secretariat Division. But it had wheelchairs made through the normal not been so done. A sum of Rs. channels, 181 wheel chairs valued at Rs. 32,928,000 had been released in the 2.7 million had been issued to politically year 2013 for 2,213 beneficiaries in 13 very important persons. Nevertheless areas of Divisional Secretariats in the the information on the distribution of Gampaha District. An extra expenditure those wheel chairs was not available in amounting to Rs. 9,352,347 had been the Office. incurred for distributing aid in the Gampaha District.  In the payment of Rs. 3,000 per low income group person in the year 2014,

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 178

Technology ______The major audit findings revealed at the produced cannot be used for running audit of institutions under the purview of motor vehicles. the Ministry of Technology and Research are given below.  The project had been paying monthly allowances of Rs. 75,000 and Rs. Vidatha Programme 125,000 to the person who is said to be the inventor of the technology and the  Sixty eight Vidatha Resources Centers Chief Executive Officer respectively. had been constructional at a cost of Rs.306 million since the year 2005 on Sri Lanka Planetarium lands belonging to the Government without securing the title to the lands. Even though the planetarium had purchased a projector valued at Rs. 151.2  Proposed construction of 10 Vidatha million for the public to view digital images Centres had been postponed due to of Exploration of the Universe, it could not various reasons and the construction of be used for the purpose due to technical another Centre scheduled for defects. According to a report of the completion in September 2012 had not University of Colombo certain accessories been completed even by 31 December of the computer system are used items and 2014. according to Engineering Report of the Sri Lanka Rupavahini Corporation, the Conversion of Plastic Waste to projector itself is a used projector. Petroleum National Nanotechnology  Even though Treasury funds amounting Programme to Rs. 155.57 million had been spent during a period exceeding six years up  The Nanotechnology Park had been to the year 2015 on the above project, it created at a cost of Rs. 823.6 million on had not been possible to commence a land, the title to which had not been production on commercial basis. secured despite the payment of a sum of Rs. 304 million for the land.  Though recycling of plastic in economically feasible, production of  Even though the Nanotechnology Park fuel is a costly process and the fuel had been constructed and the Sri Lanka

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 179

Nanotechnology Institution had been  Delay of about 90 days in the issue of established at a cost of Rs. 2,207 million, “stocks of cement may be allowed” the objectives of those institutions had certificate for a stock of 336,500 not been achieved up to date. kilogrammes of cement, of which the manufacturer had marked valid for 90 Sri Lanka Standards Institution from the date of packaging, contrary to paragraph 5.1 (h) of Sri Lanka Standard Even though the Sri Lanka Standards No.107:208 on cement. Institutions had been established for the Standardization and Quality Certification of  Release to the marked 13,944,000 all sectors, promotion thereof and providing kilogrammes of cement imported in the facilities among other things, the following years 2013 and 2014 before the receipt action taken contrary to its objectives were of the test reports. revealed in audit.  Release of a stock of 234,640  Release of 12,060,000 kilogrammes of kilogrammes of fluorescent lamps cement not conforming to the imported at a cost of US $ 2,951,574 specifications laid down in Sri Lanka which did not confirm to Harmonic Standard No. 107:2008 Current Limits and SDCM Value under Sri Lanka Standard No. 1231:2002

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 180

Higher Education ______The University Grants Commission, – 16071. As compared with the rankings for established under the Ministry of Higher the year 2013, it was observed that 12 Education , and the Universities Act, No. 16 universities had received lower ranks. of 1978 facilitates the provision of resources required for a system of Opportunities for Higher Education. universities responsible to the general For the academic year 2013/2014, 25,200 public, and paves the way for the capacity out of 143, 740 students qualified in the old to create the lecturing and research and new syllabi had entered the university activities optimally in order to ensure the representing 17.5 percent of the qualified diversity and quality of courses in students. Comparatively, 144,816 students collaboration with the parties with a had qualified in the previous year, of whom penchant for higher education. In order for 24,198 had entered the universities those objectives to be fruitful, 15 representing 16.7 percent. Accordingly, an universities had been established under the improvement of 0.8 percent in the Universities Act, No. 16 of 1978 by the end enrolments had been indicated. of the year 2014. Seventeen affiliated institutions, together with 03 campuses In order to earn degrees from foreign affiliated to those 15 universities, function universities, local students had been under the orchestration supervision and conferred with foreign scholarships. Two monitoring of the University Grants hundred and forty two foreign scholarship Commission. Audit observations of holders for bachelors and post graduate particular importance relating to this field, degrees , and 38 foreign students had been are as follows. conferred with local scholarships in the year

2014. Provisions totaling Rs. 31,786 million Ranking of Universities inclusive of Rs. 20,841 million and Rs. Of the 15 universities in Sri Lanka, 10,945 million for recurrent and capital University of Colombo, Moratuwa, and expenditure respectively, had been granted Peradeniya had been ranked between 2251 to universities for the year 2014. In – 2810 according to the world university comparison with recurrent and capital rankings for the year 2014. Universities of grants for the year 2013, it was an increase Ruhuna, Kelaniya , and Sri by Rs. 2,525 million and Rs. 2,421 million Jayawardhanapura had been ranked respectively. between 3000 – 5000, whereas the other Universities had been ranked between 6097

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 181

Student Welfare and construction of 06 hostels had not yet been commenced. However, it was also Bursaries and Scholarships informed that the project should be completed by 31 December 2015 in According to the information made accordance with the Cabinet decision. available, Mahapola Scholarships had been granted to 28,214 students from 12 Hostel facilities had been provided for universities in the year 2014, whereas 35,585 female students from 12 universities 27,488 students had been granted in the year 2014 representing 43 percent of Mahapola Scholarships in the year 2013, the total student population, and an thus indicating an increase of 726 students expenditure of Rs. 258 million had been in the year 2014 as compared with the year incurred in that connection. In the year 2013, and the expenditure of the year 2013, hostel facilities had been provided for under review amounted to Rs. 604 million. 21,416 students from 12 universities Bursaries had been granted to 22,730 and equivalent to 27 percent of the total 20,009 students in the years 2014 and 2013 student population at an expenditure of Rs. respectively. An increase of 2721 students 305 million, and 14,169 more students had had been observed in the year 2014 as been facilitated in the year 2014 as compared with the year 2013, and an compared with the year 2013. expenditure of Rs. 254 million had been incurred in that connection during the year under review. Arrivals and Exits The University Grants Commission and Hostels higher educational institutions should maintain registers for arrivals , departures With the primary objective of increasing the and leaves of both academic and non- number of residential students in the State academic staff in terms of Section 3.1 of universities up to 12,000, the Ministry of Chapter XX , and Section 1.6.1 of Chapter X Higher Education had launched a project in of the Establishments code. Nevertheless, the year 2013 to construct 60 hostels at the registers containing arrivals, departures, universities by estimating an average and leaves relating to the academic staff of expenditure of Rs. 220 million per hostel , the Universities and higher educational and provisions amounting to Rs. 13,200 institutions affiliated to the universities, had million had been allocated. As per the not been maintained. As per the information furnished by 31 December information obtained in the year 2013, a 2014, it was observed that construction of sum of Rs. 6,500 million had been obtained 30 hostels at an expenditure of Rs. 5,856 by 4,070 lecturers from 09 universities as million had been completed, construction salaries and allowances without registering of 24 hostels had not yet been completed,

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 182 their arrivals and departures, whereas year 2014 with an increase of expenditure 4,149 lecturers from the said 09 universities by a sum of Rs. 129 million as well. had obtained a sum totaling Rs. 7,135 million as salaries and allowances in the Opportunities for Higher Education year 2014 without registering arrivals and departures. It was observed that those After completion of various degree courses, amounts represented 36 percent and 40 32,905 and 22087 graduates had left in the years 2014 and 2013 respectively indicating percent respectively of the expenditure incurred by the said 09 universities as an improvement of 49 percent as compared salaries and allowances. Accordingly, it was with the year 2013. However, it was observed that further improvement of the not possible to satisfactorily vouch the methodologies for introducing courses to salaries and allowances paid to the be in line with the job market was even academic staff in audit. productive.

Cost per Student Income Earned The average expenditure incurred per student with regard to 11 universities Conducting courses for degrees, post graduate degrees and doctorates so as to except for the Open University in the year 2014 amounted to Rs. 285,594. The promote higher education is the main maximum expenditure incurred per student objective for establishing universities in terms of the Universities Act. In order to amounting to Rs. 365,475 was reported from the University of Peradeniya, whereas earn income on their own, all universities the minimum amounting to Rs. 112,803 was had adapted to the methodology of reported from the Rajarata University. conducting courses for certificate diplomas, and post-graduate degrees through the affiliated institutions. According to the Performance information presented, an income of Rs. Leadership training programs had been 1,604 million had been earned by commenced with a view to developing the conducting 342 courses at the universities, skills of the students enrolled for the and only 10 percent of the income had universities. In the year 2014 , training had been credited to the general fund of the been carried out for 18,740 students at an universities, whereas the balance had been expenditure of Rs. 265 million, whereas, an credited with resource persons and expenditure of Rs. 136 million had been miscellaneous funds. Instances , in which incurred on the program in the year 2013 the universities and higher education for 17,568 students. As compared with the institutions conducting external courses year 2013, leadership training had been without the consent and follow-up actions provided for 1,172 more students in the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 183 of the University Grants Commission, had Open University of Sri Lanka been observed. During the year 2014, the number of

student enrolments for 67 courses Internal and External Researches conducted by the Open University being Notwithstanding a sum of Rs. 397 million operated with the main objective of paid to 2,230 lecturers from 09 universities providing university education for the as research allowances in the year 2014, the students who could not enter the research proposals had not been presented universities , was 41,344, and an income of to a committee approved by the Senate. A Rs. 953 million had been earned during the methodology should be prepared for the year, whereas a sum of Rs. 611 million had productive involvement of lecturers in been earned during the year 2013 by research activities through reviews on enrolling 38,294 students for 67 courses. progress. Accordingly, student enrolments for the year 2014 had increased by 8 percent with Breach of Agreements the income increased by 56 percent as compared with the year 2013. Furthermore, During the period 1980-2014, the number 6,450 students , having completed various of lecturers from 11 universities who courses, had earned certificates during the breached bonds was 129 , and a sum of Rs. year under review. 453 million remained to be recoverable from those lecturers. The sum included an Sabbatical Leave unrecoverable balance due to the failure of the university to include conditions in the As the persons who obtained approval for agreements in compliance with Acts, and sabbatical leaves in terms of Section 36.1 of action had not been taken to recover the Chapter 36 of the Universities said sum from the University Provident Establishment Code, officiated temporarily Fund as per Universities Act. Action had not at posts important for the administration of properly been taken on the officers the universities, such as Bursar, Registrar, responsible for the loss incurred on the and Librarian, difficulties in the functioning Universities Fund due to failure in entering of financial management and agreements in compliance with the administration were observed. As many of conditions stated in Acts. those officers on sabbatical leaves served in Public Institutions, it was also observed that they had drawn salaries and allowances from the Consolidated Fund twice.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 184

Defence ______The mission of this Ministry is the by the Urban Development Authority and formulation and implementation of the also indipendley, through military strategies required for the maintenance of mechanism. The details of the expenditure the autonomy and territorial integrity of Sri incurred by the Ministry of Defence and the Lanka, defence and law and order in the institutions functioning under the Ministry country. In order to achieve this objectives during the year ended 31 December 2014 mainly three forces, the Department of and two preceding years are given below. Coast Guard and the Department of Civil Security are functioned under the Ministry 2014 2013 2012 of Defence. Rs. million Rs. million Rs. million Recurrent 231,250.45 199,371.13 184,221.91

Expenditure The Sri Lanka Army, Sri Lanka Navy and Sri Capital 38,041.20 29,809.87 16.049.34 Lanka Air Force hold the responsibility for Expenditure territorial integrity and national defence of Total 269,291.65 229,181.00 200,271.25 the country.

With the end of the war prevailed in the The analysis of the above data reflects that North, the idled labour of the members of the annual expenditure of the Ministry and three forces had been devoted for small each institution functioning under the scale to large scale projects implemented Ministry had gone up. without being credited to the Government Instances of procuring goods and services in in come. all institutions functioning under the Ministry contrary to the existing laws, rules Audit Observations and regulations were constantly observed and the issues relating to the liquidity  According to the reconciliation problem of those institutions had mostly statement of the Advances to Public attributed to the said situation. Accordingly, Officers Account “B” of the Ministry of the necessity for the strengthen of internal Defence furnished to audit, the total of control of such process had been the outstanding balances as at that date emphasized. Moreover, it had been amounted to Rs.6, 058,093. observed that income earned by these Nevertheless, the Ministry had failed to institutions through the various projects recover those outstanding balances, had been utilized for welfare activities of although a period of 01 years to 27 years the officers by maintaining separate funds, had elapsed.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 185

 Since 55 toners valued at Rs.577,170  The machines including of the Photocopy procured during the years 2011,2012 Machine purchased at a cost of and 2013 had become obsolete and such Rs.2,070,000 on 04 November 2008 had item on had been sold at Rs.1,200 in an remained idle for approximately a period auction held on 17 March 2013. This of 03 years without being utilized for any obsolescence had occurred as a result of purpose. purchase and use of new toners despite the availability of the stock of toners at  The land of Sri Lanka Army Headquarters the stores. Accordingly, the loss incurred had been sold to a foreign company at a to the Consolidated Fund had been sum of Rs.19,817,306,000 and proceeds identified as Rs.575,970. of sales had been transferred to the Secretary to the Ministry for the of  In order to computerize human Defence by the General Treasury resources information of the Ministry, a contrary to the Article 149 of the Server had been purchased at a cost of Construction of the new Army Rs.893,985. Although 07 months had Headquarters of Akuregoda. The been elapsed from the relevant proceeds of sales had been invested in purchase, the task had been abandoned treasury bills and fixed deposits and a due to the issues cropped up in sum of Rs.925,925,814 of interest had computerizing information. been earned. Further, a sum of Rs.5,211,158,619 had been spent for the  The income earned by three Armed construction purposes. Forces and the Department of Civil Security out of the services supplied to  The Metro Colombo Development and the external parties required to be Flood Control Project valued at credited to the Consolidated Fund in Rs.42,032 million had been functioned terms of the Article 149 of the under the Ministry and a project plan so Constitution and the Cabinet decision as to cover the duration of the Project dated 03 February 2009. However, no had not been prepared. At the time of action had been taken by the Ministry to the Project duration exceeds 50 per cent, rectifying the issue of non-remitting of the fund utilization had remained at 17.3 such income to consolidated fund. per cent and no expenditure whatsoever had been incurred in respect of 04 sub Sri Lanka Army component out of 10 sub-components which could have been implemented at The Sri Lanka Army had contributed towards 33 projects in the year 2014 for the the commencement of the Project. economic development of the country and

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 186 various programmes had been conducted in Rs.49,078,991 recoverable from the various parts of the island including retired officers. Northern and Eastern provinces for the wellbeing of the general public. A sum of  It was observed at the audit that a sum Rs.2, 379 million had been spent for urban of Rs.362,706,785 had been spent by Sri development activities and machinery and Lanka Army for the construction of its troops had been deployed for road armory in the year 2014 without being development and other projects. It was obtained the free hold title of the land of removed 2,909 anti-personal bombs, 32 10 acres in extent belongs to Sri Lanka anti-tank bombs, and 34,930 stocks of Railway Department in Ragama. ammunitions. Further, in case of natural and unnatural disasters, labour contribution  In terms of Financial Regulation 94 (1) had been made in the process of providing the commitments should not be made relief to the general public during the year over the aggregated amount of under review. provisions of Annual Estimate, supplementary allocation and transfers Audit Observation under Financial Regulation 66/69, However the Sri Lanka Army had  According to the reconciliation incurred in to the commitments valued statement of the Advances to Public at Rs.91,586,470 for 06 items of Officers Account “B” furnished to audit, expenditure over the savings made as the total of the outstanding balances as above provisions. at that date amounted to Rs.422,

372,763. The follow up action taken thereon was remained poor, although a Sri Lanka Navy period from 01 month to 05 years had The Sri Lanka Navy had successfully elapsed to recover those balances. protected Sri Lanka waters from Somalian pirates in the year 2014 and illegal  Action in terms of Section 4.4 of Chapter immigrants and emigrants had been taken XXIV of the Establishments Code had not into custody. Further, 397.55 Kilograms of been taken for the recovery of loan drugs and a stock of cigarettes that had balances of Rs.5,685,203 due from the been tried to be brought to the country had deceased officers and it was observed been taken into custody with 121 persons. that the balances amounting to Labour contribution valued at Rs.798.33 Rs.1,026,584 therein had remained over million had been made towards the 05 years. Further, action in terms of constructions and repairs of the various Section 4.2.5 of Chapter XXIV of the Government Institutions and action had Establishments Code had not been taken been taken to rescue 719 victims from flood to recover loan balances of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 187 disasters during the year 2014. Through the 2013, Letter of the Director General of deployment of navy soldiers for the peace Public Finance dated 28 June 2008 and mission of the Haiti state, foreign exchange Article 149 of the Constitution, the amounting to Rs.67.02 million had been income amounting to Rs.1,048.09 million earned during the year 2014. earned by Sri Lanka Navy in respect of supplying services to external parties Audit Observations during the year under review is required to be credited to the Consolidated Fund.  According to the reconciliation Nevertheless, action had not been taken statement of the Advances to Public accordingly. Officers Account “B” of the Sri Lanka

Navy, the total of the outstanding  Recommended quotation called first balances as at that date amounted to instance to procure 7000 pair of shoes Rs.12.25 million. Nevertheless, the for the Sri Lanka Navy had been rejected follow up action in connection with the and recalled quotation, However a loss recovery of the said balances was of Rs.5.98 million had been incurred due remained weak, although a period of 01 to higher prices quoted in quotations year to 05 years had elapsed for the called in second time. respective outstanding balances.

 Since payments for the electricity bills  In terms of the matter 07 contained in had not been made on the due date, a the minutes of the Committee of Public delay charges amounting to Rs.4.83 Accounts held on 11 June 2011, it had million had been paid to the Ceylon been stated that since the prior payment Electricity Board. remittance paper method of writing and

issuance of cheques before the receipt of  Contrary to the requirements of the the goods expected to be purchased to Financial Regulations and without the Sri Lanka Navy was completely obtaining securities, a sum of Rs.15.91 wrongful, it should be rectified million relevant to 05 Purchase orders forthwith. Nevertheless, Sri Lanka Navy had been paid by the Sri Lanka Navy in had purchased goods spending a sum of 2011. Value of the goods supplied end of Rs.2,091.96 millon in 6,720 instances the three years was Rs.10.76million. The from July 2011 to April 2014 utilizing the balance amounting to Rs.5.15 million said method. had to be recovered in 12 installments

without interests since June 2014  In terms of the decision of the Minister through court proceedings. In a of Cabinet dated 03 February 2009, circumstance where a large interest is Letter of the Director General of being paid by the Government in respect Establishments dated 09 December

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 188

of the loans obtained to bridge the should be responsible for such budget gap, money obtained on interest collection. Nevertheless, a company in that manner had been granted to a established by several Air Force Officers private institution as an interest free had carried out the relevant task. Out of loan. the aircraft rental income collected, sum of Rs.23.04 had been credited to an Sri Lanka Air Force internal fund of the Air force called Executive Welfare Fund which was not a During the year under review, 13,209.55 air Government Account, instead of being hours had been flown and out of induced credited to the relevant revenue vote. 2,138.55 hours for air operations, 64.33 hours for the pilot-free aircraft observations  Fixed assets of the Air Force had not and air transportation facilities for 25,970 been properly recorded in a Register of personnel in all three forces. Further, in Fixed Assets and material differences order to construct Mulathive runner way were observed on values of fixed asset and air travelling units at Digana and procured during 2014 shown in the Batticaloa, a sum of Rs.25.12 million movement of non – current asses report Rs.21.69 million and Rs.21.55 million had of Appropriation Account with the DGSA been spent respectively. Moreover, foreign 4 From. exchange of USD 576,890 had been earned through the deployment of officers for the  A Register of Liabilities had not been Peace Mission in Haiti state during the year maintained so as to obtain confirmation 2014 and an income of Rs.248.69 million on the liabilities amounting to had been earned through the provision of Rs.4,278,066,949 existed as at 01 air transportation facilities. January 2014 , the liabilities accumulated

during that year and the liabilities In addition, an immense contribution had amounting to Rs.3,949,117,296 existed been made for “Api Wenuven Api Housing as at 31 December 2014. Further, an age Project” implemented to construed homes analysis on the liabilities as at the end of for the officers by deploying 103,660 man the year had not been furnished. days. Futher, the contribution had been made for construction and repairing of the  Certain allowances granted to the Government Buildings. officers had not been considered in the

calculation of PAYE Tax. It was observed Audit Observations in test check carried a sum of Rs.16,069  In the collection of aircraft income, the taxes had been under paid related 50 Chief Air Marshal who is the Accounting officers. Officer or an officer authorized by him

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 189

 At the final stage of the Ranaviru Real expenditure of Rs.1,245.61 million and Star programme organized by the recurrent expenditure of Rs.8,131.97 Ministry of Defence and Urban million estimated for procurement Development, a sum of Rs.20.90 million activities had not been included in the out of the provisions made for Air Force Plan. Further, reports and control had been spent for sending short mechanism had not been maintained so messages for the relevant number of as to confirm whether the procurement competitors represented the Air Force activities were carried out according to for the purpose of promoting them. the mechanism planned on the capital expenditure included in that  Having recruited civil employees to the procurement plan. Air Force under the Financial Regulation  Agreements had been entered into for a 95, they had been employed for period of one years at the time of activities extraneous to the Air Force and renting 15 vehicles at a monthly rental of those employees had been paid salaries Rs.50,000 to provide transport facilities and allowances of Rs.15.88 million to the Officers. A sum of Rs.9 million had during the year 2013 and Rs.15.65 been paid as advances for 15 suppliers at million from January to August 2014 out the rate of Rs.0.6 million per whole year of the provisions made of the Air Force. before obtaining the service even though it was agreed not to pay advances.  According to the letter of the Deputy Secretary to the Treasury Department of Civil Security No.BD/NF/103/03/09/30 dated 19 During the year 2014, the Department of November 2014, the income earned Civil Security had earned an income of from the supply of services to external Rs.371.54 million by deploying 17,676 parties should be credited to the soldiers for the projects maintained by Consolidated Fund. The income earned platoons and 23 training camps for the through 96 funds maintained using of economy development of the country. This physical and human resources of the Air Department had engaged in the provision Force had not been thus credited to the of security services to the public institutions Consolidated Fund and such income had for the interest of the general public and been credited to the Air Force Funds contribution for the social hospitality Accounts. programmes and religious events, too, had

been made by the Department.  In the preparation of Procurement Plan

pertaining to the year 2014 in terms of

the National Budget Circular No.128

dated 24 March 2006, capital

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 190

Audit Observations totaling Rs.2.85 million granted in 18 instances. Further, it was observed that a  Although a ceremony had been period of 12 months had been spent for conducted and a sum of Rs.13.18 million the settlement of these advances. spent to awarding Letters of

Appointments, actions had not been  A sum of Rs.39.57 million granted by taken to award the Letters of other Ministries and Departments for Appointment and placed them in various purposes had been retained in permanent service. the Deposit Account without being

carried out the relevant activities.  Although a sum of Rs.2.73 million had

been spent for the renovation of the  The Presidential Secretariat had given 16 ceiling of the Garden Hall of the vehicles to the Department of Civil Department Headquarters maintained in Security in 2006 without proper approval a rented building, action had not been and those vehicles had not been taken taken to deduct this expenditure from over as yet. the building rental.

 Two air conditioners valued at Rs. 0.77  Although a sub-imprest given under any million purchased for the use of Ranaviru circumstance, in accordance with the Real Star Programme conducted in Sri Financial Regulation 371 (5) should be Lanka Air Force Studio Complex and had settled before 31 December of the remained idle for a period of 18 months financial year action had not been taken after using for that event. accordingly in respect of advances

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 191

Plantation Industry ______Seven statutory bodies namely, Rubber 2014 had not been recovered even as at Development Department and Rubber 31 December of the year under review. Research Institute, Tea Research Institute, The clauses on recovering delay charges Sri Lanka Tea Board, Tea Small Holdings had not been included in the lease Development Authority, Tea Shakthi Fund, agreements. Thurusaviya Fund, and National Institute of Plantation Management, and  The Rubber Department had failed even Kalubovitiyana Tea Factory Limited are up to 31 December 2014 to conclude the functioned under the purview of the process of liquidation of Rubber Control Ministry of Plantation Industries. The Fund, and Rubber Replanting Subsidy functions of the Ministry includes Fund which were not in operation since enhancing the productivity, profitability and 1994 and remained under the Rubber sustainability of the plantation industry Development Department. through economically, socially and environmentally established plantation Rubber Research Institute of Sri sector, promotion and development of the Lanka tea, rubber and palm tree cultivation, and research activities. Furthermore, the total This institution is functioned with the net provision allocated to the Ministry and objectives of conducting researches relating the Rubber Development Department for to the biological aspects on rubber the year under review amounted to Rs.4, cultivation, chemistry of natural latex and 276.81 million, out of which a sum of Rs. the technology in making products. The 3,914.67 million had been utilized. cadre of the Institute of 04 posts of Research Divisional Heads with professional The important observations on affairs of the competence, 03 posts of Chief Research Ministry for 2014 are as follows. Officer, 12 posts of Senior Research Officer, and 14 posts of Research Officer were  It was observed in audit that adequate remained vacant. actions had not been taken to recover losses of Rs.7.74million caused due to  Due to a fire that broke out in January accidents fo 11 vehicles belonging to the 2014, the loss incurred on partly Ministry. damaged Dartonfield Rubber Factory of which was estimated as Rs.4.28 million  Outstanding Lease rent of Rs.439.76 and the value of the stock of rubber that million for 06 years period from 2009 to

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 192

had been destroyed, amounted to Rs.1.6 over payment of salaries amounting to Rs. million Nevertheless, only a sum of 517,530 had been paid. Rs.0.70 million had been received as indemnity as the fact that the insurance Sri Lanka Tea Board cover had not been obtained at correct values of the assets. It is the vision of the Board to promote Sri Lankan tea to be the most attractive drink in the global market. The main functions of  Out of the trade and sundry debtors the Board include the development of tea balances aggregating Rs.34.96 million industry in Sri Lanka and promoting Sri remained as at the end of 2014, the Lankan tea globally. In order to achieve balances aggregating Rs.18.33 million those objectives, registration fees, renewal receivable from 497 debtors of registration fees and license fees are representing 52.4 per cent were charged from tea manufacturers, tea remained outstanding for over 5 years. It packaging suppliers, and tea exporters. includes balance of Rs. 8.05 million Those fees had been increased by the Board remained for over 10-20 years and other on 29 July 2010 without Cabinet approval balances of Rs.2.55 million remained for and without making notices in the Gazette over 20 years. Notification contrary to Tea Board Act.

Furthermore, the provisions of the Act had Thurusaviya Fund not been amended for the establishment With the objective of uplifting the socio- and execution of Cess Fund. economic status of the owners of small rubber estates who vastly contribute to the  A tax amounting to Rs. 5,818.67 million production in the field of rubber, 696 had been collected for the promotion of Thurusaviya societies had been established tea and market strategies from tea with the participation of small rubber estate exporters during the period from 01 owners at the village level in 12 districts. November 2010 to 31 December 2014 at However, out of 696 societies,315 societies Rs.3.50 per kilogram of tea exported. Of were not in functioning and difficulties on that, only a sum of Rs.876.48 million had recovering membership fees had been been spent on promotional activities by faced due to poor management of the fund. the end of the year 2014, whereas the balance had been invested on short term At the time of placing permanent state of 5 basis. employees who recruited on contract basis, the provisions of the Management Services  The Board had spent a sum of Rs. 58.369 Circular No. 30 (1) had been violated and million in 2014 to establish a Tea House in the building at the Colombo

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 193

Racecourse. However, the Board had 09 officers who obtained full pay study incurred a net loss of Rs. 13.5 million leave and left the service without serving thereon during a period of 10 months during the obligatory period. from March – December 2014. However, it was observed in audit that a feasibility Tea Shakthi Fund study had not been conducted on this project that had been launched for  The financial statements for the years promoting tea. 2013 and 2014 had not been presented for audit even up to 23 September 2015,  Janatha Estate Development Board and and 05 out of 13 factories owned by the Sri Lanka Tea Board had reached a Fund had incurred losses continuously conclusion at the COPE meeting held on during a period of 05 years from 2008- 19 June 2012 to take over the ownership 2012. All factories excluding the factory of Ceylon Tea Museum in Hantana at Passara, had incurred losses in 2012. valued at Rs. 16 million in substitution of Accordingly, the losses of the factories in a sum of Rs. 25 million that remained 2012 amounted to Rs. 57.65 million, and receivable for more than 05 years from the production with respect to all Janatha Estate Development Board, and factories, except for one, had to write off the balance of Rs. 8 million. plummeted as well. However, this process had not been concluded even up to 31 August 2015.  Having agreed to obtain a plot of land in extent of 40 perches valued at Rs.28 Tea Research Institute million on lease for a period of 50 years from the Urban Development Authority  Reimbursement of a monthly labor for construction of the head office allowance for the maintenance of official building of the Fund, the Authority had quarters of Director, Deputy Director, been paid a sum of Rs. 8.08million as an and officers in charge of the divisional advance on 31 March 2010. Even though offices had been approved by the Board it was later decided to construct the of Directors on 24 May 2007 without the building other location as per the concurrence of the Line Ministry and the decision of the Board of Directors in Treasury. The Institute had reimbursed 2012, action had not been taken to sums of Rs. 2.72 million and Rs.2.73 recover the advances paid even as at 31 million to 13 officers in 2013 and 2014 August 2010. respectively.

 A sum of Rs.22.03 million had not been recovered even up to 30 June 2015 from

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 194

Tea Small Holdings Development Sri Lanka State Plantations Authority Corporation and Janatha Estate Development Board  The Authority had spent a sum of Rs.345.10 million as development expenditure during the year 2014 and  The extent of land, vested with Sri Lanka out of that a sum of Rs.331.21 million State Plantations Corporation, Janatha had been granted to tea cultivators as Estate Development Board, and subsidies. The rest of expenditure Elkaduwa Plantations Ltd, had been include a sum of Rs.5.65 million incurred vested lands of 27.242.76 hectares, and on a tea cultivator meeting held at the out of that 15,825.35 of land Temple Trees on 12 November 2014 a representing 58 per cent had been sum of Rs.2.84 million as cheque book utilized for cultivation. Despite 22 per fees for granting subsidies amounting to cent of total land with an extent of Rs.406.34 million to 190,123 tea 6,064.18 hectares could have been cultivators under the special program to utilized for cultivation, the said area had promote the productivity in the not been used either for cultivation or conservation of soil and water, and a any other economically productive sum of Rs.1.58 million incurred on activity. applications and posters. It was observed  From the total area of land with an in audit that above mention expenditure extent of 8,008.95 hectares, 5135.44 were un-economical. hectares had been used for seed tea,

whereas 2,873.51 hectares had been  In order to optimum production, and used for twig tea. The cultivation of seed maintain the tea lands, 2,300 hectares of tea represented 64 per cent of total area land should be re-cultivated annually as of tea and said cultivation was about 100 a national requirements. Nevertheless, years old, the effective life time had only 720 hectares of land, representing expired. The production form that was 0.62 per cent of entire tea lands in remained very low as compared with the extent of 116,492 hectares had been re- production of twig tea cultivation. cultivated under subsidy scheme during

the year under review. It was also  Out of the estimated requirement of observed that out of that matured tea fertilizer, the Janatha Estate cultivation, 21,613 hectares of Development Board had used 17-25 per cultivation had exceeded 25 years. cent, whereas the Elkaduwa Plantations Ltd. had used 29-92 per cent during the period 2011-2014. As the fertilizer had not been used with the proper standard,

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 195

the quality and quantity of the tea Colombo 10, owned the Board on rent harvest had remained at a low level. basis.

 Replanting activities had not been  A fire had destroyed the tea factory in carried out by Sri Lanka State Plantations Alkolla Estate owned by the Sri Lanka Corporation, Elkaduwa Plantations Ltd , State Plantations Corporation. Rs.4.55 and Janatha Estate Development Board million stock of tea valued at Rs.327,285 during the period from 2011 to August fresh tea leaves, valued at 327,285 2014. firewood valued at Rs.98,314, and paper sacks valued at Rs.140,599. The report  The Ministers of Cabinet had decided on prepared in that connection by the 17 October 2013 to remove 62,440 trees Institute had not stated the in the estates owned by Janatha Estate recommendations relating to the Development Board and Sri Lanka State recovery of losses in terms of Financial Plantations Corporation and sell to State Regulation 104, and whether it was Timber Corporation to finance unpaid proposed to take disciplinary actions. contributions to Employee Provident Fund, Employee Trust Fund, and gratuity Ministry of Coconut Development aggregating Rs.1,549 million. However, and Janatha Estate this project had not been properly implemented. The Janatha Estate Three statutory institutions namely, Development Board had received an Coconut Cultivation Board, Coconut income of Rs. 28 million from the sales of Development Authority, and Coconut timber. Of that, only a sum of Rs. 16 Research Institute, together with 02 Public million had been utilized for the companies namely, Kurunegala Plantations settlement of statutory liabilities , Ltd, and Chilaw Plantations Ltd. are under whereas the balance had been utilized to preview of the Ministry. The main duties of meet general expenses of the Board. The the Ministry includes, preparation, project had not been implemented by implementation and supervision of policies, the Sri Lanka State Plantations programmes, and projects, providing Corporation. services to the public in an efficient people- friendly manner, reformation of all the  At the request of the lessee , the Janatha methodologies through the utilization of Estate Development Board had agreed to modern technological breakthroughs by write off a sum of Rs.34.85 million from eradicating corruption and wastage, the outstanding balance of rent maximum utilization of lands through multi- recoverable from a private institution crop cultivation and integrated farming by that obtained a building of the paving the way for the maximization of warehouse complex in Darley Road, production and employment, and activities

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 196 relating to the researches , development Lanka Broadcasting Corporation that and promotion of coconut industry. The sums of Rs.8.80 million and Rs.136,970 total net provision allocated to the Ministry respectively had been remained for the year under review amounted to unutilized, according to the financial Rs.1,941 million of which, a sum of Rs.1,717 statements of the Rupavahini had been utilized. Corporation, there was no amount to be paid back to the Authority, and a sum of  Out of a provision of Rs. 200 million Rs. 1.27 million remained as receivable allocated by the annual Budget Estimate to the Authority from the Sri Lanka of 2014 for the programme implemented Broadcasting Corporation. Moreover, to control the Weligama coconut leaf the Authority had not furnished the wilt disease, a sum of Rs. 5 million had audit with adequate information to been granted to the Coconut Cultivation verify that the Sri Lanka Rupavahini Board without approval in terms of Corporation and Sri Lanka Broadcasting Financial Regulations. It was observed in Corporation had involved in promotional audit that the Board had spent Rs. 4.9 activities. million of that sum for the development  It was observed in audit that total sum of of Dakshina Lanka Coconut Development Rs. 16.71 million had been paid an Training Centre, Medamulana , allowances equivalent to monthly salary Hambanthota. of two labours to the Senior Executive  The Coconut Development Authority , officers of the coconut cultivation Board with a view to maximizing the coconut attached to the Head office, an export income by minimizing the allowance equivalent to the monthly wastage that occur domestically, had salary of labour for Assistant Estate selected Sri Lanka Rupavahini Managers and Assistant General Corporation and Sri Lanka Broadcasting Managers of the Head office of coconut Corporation to promote the usage of cultivation Board and allowance coconut milk, coconut milk powder, and equivalent to a monthly salary of a coconut cream instead of nuts. The labourer for Estate Managers and Authority had paid a sum of Rs.9.34 Assistant Estate Manager of model million to the Sri Lanka Rupavahini coconut farms etc. without obtaining the Corporation from 14 August 2014 to 13 approval of the General Treasury as per April 2015, whereas a sum of Rs.3.94 Section 9.8.2 of Public Enterprises million had been paid to the Sri Lanka Circular No. PED 12 of 02 of 2013. It was Broadcasting Corporation from 01 observed that 02 check roll labour had September 2014 to 31 December 2014. been deployed for the works at official Despite the Authority being informed by quarters in model coconut farms. Sri Lanka Rupavahini Corporation and Sri

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 197

Power and Energy ______Ceylon Electricity Board

The operations of the Board during the year in hydro power generation in 2014 by 2,372 under review had resulted in a loss of Rs. GWh or 34 per cent as compared with 6,906 13,154 million before taxation as against GWh generated in 2013 due to low water the corresponding profit of Rs.22,264 level in hydro reservoirs which resulted to million before taxation for the preceding increase in the thermal and Coal power year thus showing an deterioration in generation by 2,778 GWh or 59 per cent to operating result of the year under review by meet the increased demand of 459 GWh as Rs. 35,418 million. One of the main reasons given in the following table. for the above deterioration was reduction Source 2014 2013 Change GWh GWh GWh % Hydro 4,534 6,906 -2,372 -34 Thermal 4,305 3,260 1,045 32 Coal 3,202 1,469 1,733 118 Non-Conventional Renewable Energy 315 263 52 20 Total 12,356 11,898 458 4

Accordingly, the Board had incurred higher previous year was Rs.37,997 million and Rs. expenditure on thermal power purchase 6,354 million respectively. from Independent Power Producers (IPP) and coal purchase from Lanka Coal The table below shows a summary of direct Company (LCC) in 2014 as against the cost incurred for supplying of electricity previous year. The cost increase from those during the year under review as compared two factors in 2014 as compared with the with the previous year. 2014 2013 Rs. million % Rs. million % Fuel 46,582 22 29,425 18 Power Purchase 101,149 48 80,308 48 Coal 17,031 8 10,677 6 Operation and Maintenance 24,913 12 26,196 16 Depreciation 21,174 10 20,319 12 Total 210,849 100 166,925 100

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 198

According to the above analysis, 78 per cent  No reliable input calibration of coal to and 72 per cent of the total operational cost the plant of the year 2014 and 2013 respectively was  Unloading from the ship is neither directly related to power generation which monitored by LCC nor CEB represented 37 per cent increase as  Store keeper is just doing the recording compared with the previous year. activity rather than stock controlling as dominated by the engineers. The total assets of the year under review had increased by 2 per cent. Meanwhile, the net current assets had become a For instance, 181,016 MT of coal used negative figure of Rs. 5.8 billion in 2014 as during the first nine months of the year compared with the positive figure of Rs. 737 under review had not been taken into the million in the previous year which stock records. represented 887 per cent decrease. The  The existing storage capacity of coal yard main reason for the decrease of current of Lakvijaya Power Station is 738,720 assets was not because of the improvement MT. As the average monthly coal of the debt recovery process but because of consumption is 195,000 MT, the stock the recovery of mobilization advances. yard is adequate to store only 3.788 Thirty two per cent or Rs. 220 billion of the months requirement. However, in the total capital employed of the Board as at 31 Monsoon period during April to December 2014 had been financed through September ( 6 month) every year, coal borrowed funds whereas the previous year cannot be unloaded due to the adverse borrowed portion was fifty four per cent. weather and sea condition and

therefore, sufficient storage capacity to Operations of Lak Vijaya Power store total coal requirement is not Station available.

 The Lak Vijaya Power Station ( LVPS) had  The coal stock as at 31 December 2014 not maintained records in relating to the had been physically verified by an coal stock levels, i.e. re-order level, independent survey company and based maximum stock level, minimum stock on the report issued by that company, level, re-order quantity etc. Further, the the verification team had identified an accuracy and reliability of the documents excess of 32,323 Metric Tons and the records maintained for coal amounting to Rs. 375 million. However, handling could not be ensured due to said excess had not been recommended following lapses. to bring the stock records and accounts  No reliable intake measuring of coal due to the doubt on the accuracy and the lapses stated in above (i).

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 199

Accordingly, it was observed that the independent test report was lower than LVPS is responsible to establish and the Standard Values of the plant and maintain appropriate controls over the therefore, the report issued by the coal stock handling. quality inspector of the supplier at the loading port was inaccurate and it was  The value of the over consumption of further observed that the said inspector coal as against the generated electricity is a company blacklisted by the Indian during the year 2014 was Rs. 2,144 Court. Due to these lapses, the CEB had million. to incur a loss approximately Rs. 345 million from firing the low GCV coal stock  Even though Rs. 103 million had been of 143,932 MT acknowledged from the paid to Local Authorities and Divisional above mentioned three shipments. Secretariats in relation to mitigate the  Due to consumption of low GVC values dispute of the fishermen at Norichchole of coal as stated in (i) above, the CEB had for laying transmission line through to incur an additional cost approximately Puttlam Lagoon as advances had been Rs. 508 million for supplement of the recognized in the accounts as work-in- yield energy shortage of 25 MW power progress with the purpose of capitalizing. from alternate energy sources. But, no evidence or source documents were provided to the audit to ensure the  Even though LCC and Ceylon Shipping reasonability, transparency and the Corporation (CSC) had agreed to supply accountability of these expenses. In short delivery of 29,896 MT of coal, from audit test check revealed that a sum of the payment made for shipment Nos. 16 Rs. 18 million given to such organizations and 17 within 6 months from the date of out of the above sum have been short delivery of 04 April 2012, they had remained idling over a period of more failed to do so. The value of the short than 06 months as at 25 June 2015 and delivery was Rs. 654 million. The CEB had therefore, the real requirement of such not taken any action to recover that over payments was not ensure to audit. payment even by 31 December 2014 and the opportunity cost of the capital tied- Impact of the Operations of the up, estimated based on the overdraft Lanka Coal Company (Pvt) Ltd.(LCC) interest rate was Rs 229 million.

 Gross Calorific Value (GCV) of coal  In case the calorific value of coal is less received on three shipments had than the plant recommended value, the discrepancies in quality reports issued by General Manager had informed the three individual quality inspectors. Additional General Manager Accordingly, GCV of coal as per (Generation) to obtain the permission of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 200

the consultant or the manufacturer of coal stock had not been followed or the plant on using them, as the plant is introduced by the CEB to physically within the defect liability period. verify the coal stocks either at the coal However, obtaining of such opinion from yard or at the ship. respective personnel was not observed in audit. Further, CEB had not taken any  As the CEB does not have a method to action to recover the losses sustained by weight the acknowledge quantity of coal the Board from the parties involved to accurately, the CEB accepts the weight arrive wrong decisions as instructed by measured by Ceylon Shipping the Attorney General by his letter dated Corporation and independent survey 21 December 2012, even at the end of agent. But, it was identified in certain July 2015. occasions at which same independent party measured in both loading and  In making decisions by the Procurement unloading ports. Therefore, the accuracy Appeal Board and Standard Cabinet and the transparency of the Appointed Procurement Committee, a measurements could not be ensured in wrong supplier had been selected due to audit. Further, the weigh measuring improper evaluation of the bid prices equipment (Weight Bridge) was offered by two bidders which caused the inaccurate and the Board had not taken CEB to an additional cost of Rs.264 actions to repair them or take alternative million (USD 2,310,263). method to measure the weight of coal acknowledged. Therefore, there were  According to the agreement entered into considerable differences between the between the CEB and LCC, the cost of invoiced and unloaded quantities. weight determination shall be for the Further, CEB had taken the invoiced LCC’s account. It is questionable about quantities to stock records and the independency of the Marine therefore, the accuracy of the stock Surveyor as the selection had been done records regarding both quantity and by the LCC. However, all expenses of the value is in doubt. LCC relating to the coal handling get reimbursed from the CEB, but the  Two tugs boats, three barges, and one certificate of the weight is not sent to line boat belongs to Lak Vijaya Power the CEB as direct confirmation. This can Station, had been parked in Trincomalee be treated as severe control weakness in and Colombo Ports since the procuring procuring of coal. year of 2009 as they are not suit for the operation of coal unloading operations.  Strategy or technique used in the However, CEB purchased those lightering international context to measure the equipment from the foreign loan

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 201

obtained for the Coal Power Project with Office of the CEB had been stopped with the recommendation of the Project immediate effect on the decision taken by Director, CEB representative, and under the Board of Directors on 07 October 2014. the supervision of the line Ministry. Due However, the reasons for stoppage of the to wrong decisions of those officials, the construction neither included in that Board CEB had to incur a cost of Rs. 1,250 decision not made available to audit. The million as at 31 December 2014 which construction cost up to the date of has become uneconomical. stoppage was Rs. 380 million and the total cost incurred for that was not made  Normally, the CEB pays the LCC for available to audit. opening of letters of credit for procuring of coal based on commercial invoices , The value of insulators procured under and in most instances the values therein Iranian Loan for Rural Electrification Project are higher than the actual invoice which had been rejected by the quality amounts. Further, the LCC takes inspectors due to imperior quality was Rs. 2 considerably longer period for settling of million. Only the action that had been taken the overpaid amounts. For instance, the by the Board for that miss-procurement number of days taken for settling the was to transfer them to warehouse at overpaid sum of Rs. 97 million for Kotugoda as unusable items. shipment Nos. 43 and 44 was 196 and 171 respectively. The opportunity cost of The Board had paid the PAYE tax on behalf the capital tied-up computed for those of its employees which should be borne by unsettled over payments as at 31 the employees by overruling the Cabinet December 2014 based on the overdraft Decision taken on 13 December 2007 to interest rate of 14 per cent per annum shift the PAYE tax liability to employees was Rs. 7 million. since the next salary revision which should have been effected since 2009. The PAYE  Details, such as a list of bids received, bid tax paid by the Board overruling said opening minutes, technical evaluation Cabinet Decision as at 31 December 2014 reports, procurement committee reports was Rs.1,407 million. etc. in relation to the bid Nos. 03, 04 and 05 for the procurement of Rs. 15,697 Thirty nine different staff allowances had million worth of coal were not made been paid from time to time to the staff of available for audit to ensure the proper the Board on the approval of the Board of functioning of procurement process. Directors without obtaining the approval of the Cabinet of Ministers as specified in the Public Enterprises Circular No 95 of 04 June The construction activities of the proposed 1994. It was observed that such allowances building called “Vidulakpaya” for the Head

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 202 amounting to Rs. 849 million had been paid 4,578 million as compared with the in the year 2014 compared to Rs. 642 previous year, improvement of efficiency in million paid in 2013. the procurement process of petroleum products of the Corporation, etc. had Scheme of Recruitment (SOR) of the Board mainly attributed for the improvement in had not been updated for a longer period. the financial results of the Corporation for the year under review. Further, gaining of a Three thousand six hundred and fifty five higher profit margin from the declined employees had been outsourced as at 31 global fuel prices during the second half of December 2014 by superseding the latest the year without a full adjustment of carder approved by the Board in 2012. The domestic fuel prices, improvement in debt outsourced personnel was 20 per cent of recovery which had helped Corporation to the total staff strength of the Board. reduce outstanding trade receivables to Rs. 37 billion at the end of the year 2014 from Ceylon Petroleum Corporation Rs. 53 billion at the end of the year 2013 were the other contributory factors for the The total cost of importation of petroleum improvement in the financial position of the products for the year 2014 was Rs. 600 Corporation. billion (US$ 4,597 million) and representing approximately 6 per cent of the Gross The operations of the Corporation had Domestic Product (GDP) of Rs. 9,785 billion resulted in a markup of 4.88 per cent for in 2014 valued at current market price. It the year under review thus indicating an represented approximately 24 per improvement of 0.02 per cent in financial cent of the total imports of Rs. 2,535 billion results as compared with the markup of (US$ 19,417 million) in the year 2014. 4.86 per cent in the preceding year.

Similarly, the gross profit for the year under Financial Result review had increased to Rs. 24,447 million According to the financial statements by Rs. 1,703 million or 7.5 per cent as presented, the operation of the Corporation compared with the corresponding gross for the year under review had resulted in a profit of Rs. 22,744 million in the preceding pre-tax net profit of Rs. 1,854 million as year. against with the pre-tax net loss of Rs. 7,889 However, the Corporation had a negative million for the preceding year, thus net assets position of Rs. 231,532 million at indicating an improvement of Rs. 9,743 the end of the year under review, although million in the financial results. Accounting the operations of the Corporation had of kerosene subsidy amounting to Rs. 2,715 resulted in a net profit of Rs. 1,741 million million as an income of the year under for the year under review. Further, the review, the decrease of finance cost by Rs. negative impact of heavy losses incurred by

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 203 the Corporation due to Hedging financial assistance from the Government is transactions taken place in 2012 had caused doubtful. to increase the net losses for previous Sector-wise Performance years. Even though the financial performance of the Corporation had However, the Corporation had continuously improved during the year under review, sustained gross losses from the following occurring heavy losses since 2008 had petroleum products which had a negative resulted to sustain a negative net assets impact on the profitability of the position of the Corporation continuously. Corporation. Thus, the ability of the Corporation to continue as a going concern without the Sector Gross Losses for the Year 2014 2013 2012 2011 Rs. Million Rs. Million Rs. Million Rs. Million Power Generation Naphtha 413 1,081 1,048 798

Domestic LP Gas (K.G) 312 436 377 224 Kerosene 1,775 2,449 3,525 6,886

Export Naphtha 1,700 976 43 675 Furnace 1500 1,530 2,690 70 329

Bunkering Diesel 168 67 - - Fuel Oil 1500 1,123 729 - - Fuel oil 3500 19 -

The main contributory factors for the above country, export of Naphtha and Furnace Oil continuous financial losses and capital 1500 at the price below the refined cost, erosion of the Corporation were inefficiency the provision of fuel to SriLankan Airlines of refinery operations with low margin, Ltd and Mihin Lanka (Pvt.) Ltd at poor yields and frequent stoppages, and as concessionary rates which were lower than a result importation of refined petroleum the contract customer price, provision of products to meet the demand of the fuel (Furnace Oil and Naphtha) at subsidized

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 204 rate to the Ceylon Electricity Board (CEB), weak global economic activity and ample poor maintenance of storage facilities, supply especially from Non-OPEC payment of demurrages, depreciation of (Organization of Petroleum Exporting the Rupee value continuously against the Countries) countries and it had led to a US Dollar, etc. decline in import price index of fuel by 6.3 per cent in 2014. Despite the significant Even though an effective pricing strategy decline in fuel prices in the international reflecting the international oil price market during the latter part of the year movements and aligning with Government 2014, higher import volumes had resulted objectives had not been designed and in the increase in expenditure on imports of implemented by the Corporation, domestic refined products by 8.6 per cent in 2014 retail prices of petroleum products had over the previous year to a value of Rs. been revised upward continuously up to 269,449 million. September 2014 in order to address these financial difficulties of the Corporation. Import of refined petroleum products had However, in response to the decline in oil increased during the year under review to prices in the international market, the meet the demand as the local production domestic retail prices of petroleum was insufficient. Therefore, the Refinery products had been reduced twice during needs to be modified at the earliest to 2014, i.e. in September and in December avoid some failures of old equipment and to 2014, and again in January 2015 as avoid frequent regenerations while international oil prices had continued to be enhancing the profitability and operational on a declining trend and the above price flexibility. revisions had not reflected the actual reductions in international market prices in Inefficiency of Refinery Operations full. To pass on the benefit of the global oil The existing 45 years old Refinery, which price reduction to electricity consumers, was commissioned in 1969, is not able to price of furnace oil used for power cater the increasing demand of petroleum generation (High Sulphur and Low Sulphur) products in the country and this Refinery is had been reduced by Rs. 10 per litre during operating with low margin when compared the first quarter of 2015. with the modern world refineries operating

with advanced technologies including As per the Annual Report of Central Bank of facilities to produce petroleum products at Sri Lanka (CBSL) for the year 2014, although lower cost whereby maximizing the refinery the import price index of fuel had increased operating efficiency. This, along with other during the first half of 2014, it had factors, highlights the need to expedite the continued to decline during the second half Sapugaskanda Oil Refinery Expansion and of the year amidst lower demand due to Modernization (SOREM) Project enabling

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 205 the supply of petroleum products in a cost the necessity of importing two types of effective manner. However, the crude oil to blend, [CPC is processing Corporation was not yet able to implement different crude mixes (Murban + Oman the proposed Sapugaskanda SOREM Project Blend) in different periods] to suit the in order to ensure the petroleum products specifications of the refinery that is are supplied to the market in a cost designed to refine Iranian Light crude. effective manner. Moreover, the However, the import price of crude oil expenditure incurred by the Corporation during the latter part of the year was far amounting to Rs. 837.6 million for this below the average price level for the year. project up to 31 December 2014 was Nevertheless, without Refinery observed as an uneconomic transaction. modifications, cost of locally refined fuel cannot be reduced. Even though the volume of crude oil refined (intake) by the Corporation had increased Accounts Receivable to 1,760,170 metric tons in 2014 as Total trade receivables as at 31 December compared with 1,643,218 metric tons in 2014 was Rs. 37,060 million including Rs. 2013, the processing levels had not reached 6,078 million and Rs. 30,982 million due the production capacity of 6,900 tons per from government institutions and private stream day or 2,415,000 metric tons in the institutions respectively. year 2014.

Hedging Transactions The average international crude oil price (Brent) had fallen to US Dollars 99.68 per According to the Hedging transactions, the barrel in 2014 from US Dollars 109.15 per Corporation was cited as a party in the barrel in 2013. Oil prices had remained high arbitration proceeding pertaining to during the first half of 2014 and it had fallen hedging contracts entered into with several down by around 50 per cent during the Commercial Banks and a sum of US Dollars remainder of the year. Mostly following the 60 million (Rs. 7,612 million) had been paid international price trends, the average price to the Standard Chartered Bank (SCB) on 3 of crude oil imported (DES) by Ceylon June 2013 under the Deed of Settlement Petroleum Corporation (CPC) also had entered into between the parties. declined by 4.7 per cent to US Dollars According to the information made 104.83 per barrel in 2014 from US Dollars available, the total losses incurred by the 109.96 per barrel in 2013. In general, Corporation as at 31 December 2014 average crude oil import price is higher than including the travelling expenses of Rs. the international Brent crude price due to 5,261,827 was Rs. 9,780 million. term contracts signed by the CPC to ensure The Central Bank of Sri Lanka (CBSL) had regular supplies of petroleum products and incurred legal expenses of Rs. 571 million

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 206 with regard to the Hedging transactions of individual responsibilities in respect of the the Corporation and out of that a sum of Rs. involvement of the Enterprise Resource 568 million had already been reimbursed to Planning (ERP) System introduced by the the CBSL during the period from the year CPSTL, and as such, this system is not 2011 to 2014. In addition to that, the CBSL adequately utilized, especially, for fuel stock had paid a sum of Rs. 379 million up to 31 reviewing purposes. December 2014 for the services obtained from the foreign lawyers who had appeared Provision of Fuel to Sri Lankan Airlines Ltd in the arbitration proceedings initiated by (SLA) and Mihin Lanka (Pvt) Ltd at the Deutsche Bank against the Government Concessionary Rates of Sri Lanka. Even though Sri Lankan Airlines Ltd. (SLA) and Mihin Lanka (Pvt) Ltd. were contract Management Inefficiencies customers, the Corporation had incurred Enterprise Resource Planning (ERP) System losses of Rs. 670 million, Rs. 457 million, Rs. 2,010 million and Rs. 1,903 million during It was observed that there was no any the years of 2011, 2012, 2013 and 2014 agreement or a Memorandum of respectively, on sale of Aviation Turbine Understanding (MoU) among the Fuel to the above companies at Corporation, Ceylon Petroleum Storage extraordinary concessionary prices as detail Terminal Ltd (CPSTL) and Lanka Indian Oil given below. Company (LIOC) with regard to their

Name of the Company Loss incurred by the Corporation during the Year

2014 2013 2012 2011 Rs. Million Rs. Million Rs. Million Rs. Million

Sri Lankan Airlines Ltd 1,762 1,866 424 627

Mihin Lanka (Pvt.) Ltd 141 143 33 43 Total 1,903 2,009 457 670 Despite providing fuel at concessionary recorded an operational loss of Rs. 29 prices to those two companies, the billion meanwhile Mihin Lanka (Pvt.) Ltd settlement of outstanding fuel bills were had recorded a marginal operating profit of also very poor due to their weak financial Rs. 652 million. performance i.e. as per the Annual Report The trend of the outstanding balances since of the Central Bank of Sri Lanka for the year 2010 is given below. 2014, the Sri Lankan Airlines Ltd had

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 207

Name of the Outstanding Balance as at 31 December Company 2014 2013 2012 2011 2010 Rs. Million Rs. Million Rs. Million Rs. Million Rs. million

Sri Lankan Airlines Ltd 20,900* 29,520* 25,890* 12,351 541 Mihin Lanka (Pvt.) Ltd 1,339 4,314 3,416 1,227 361

*A sum of US Dollars 121.17 million at 31 December 2014 were represented the receivable from Sri Lankan Airlines Ltd. had trade receivable balance outstanding from been converted to a loan on 05 July 2012 at the above mentioned two aviation the interest rate of 4 per cent plus LIBOR in companies. USD terms, payable quarterly within 4 Increase of Borrowings from the Banking years, in order to settle the outstanding Sector balance of trade receivables, and out of The Corporation had sustained its which, the outstanding loan balances as at borrowings from the Banking sector to 31 December 2012, 2013 and 2014 finance its oil bills and it had also resulted amounting to Rs. 14,728 million, Rs. 10,020 to decrease profits and sustain negative net million and Rs. 6,391 million respectively assets position of the Corporation. Further, had been included in these balances. it was observed that the Corporation had continuously incurred huge finance cost More than 60 per cent of the total trade during last consecutive five years as receivable balance of Rs. 37,060 million as depicted below.

Year Bank Borrowings Finance Cost Pipeline Network for Oil Transportation for the year ended 31 December The pipelines installed several decades back Rs. Million Rs. Million to transport of finished petroleum products 2010 168,020 6,859 such as petrol, diesel, kerosene and furnace 2011 310,060 9,001 oil from the Colombo Port to the 2012 399,520 18,360 Kolonnawa Petroleum Installation are in a 2013 406,850 18,540 state of repair and it was revealed that 2014 376,607 13,962 some of them have already been abandoned due to the deteriorated condition beyond repairs. Renovation and modernization of those pipelines have been

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 208 a very urgent need, as a large quantity of alternative supply source in case of rough the national requirement of the petroleum sea conditions or when the SPBM facility is products is being carried into Kolonnawa under maintenance. At the same time, fuel Storage Terminal through those there was no linkage between the deteriorated pipelines. The possibility of Muthurajawela Terminal and Kolonnawa paralyzing the whole country with a severe Installation for inter-terminal product fuel crisis due to transporting the imported transfers, which had also hampered the finished petroleum products through those optimum utilization of those Terminals due deteriorated pipelines cannot be ruled out to those constraints. in audit. Even though, the approval of the Cabinet of The Muthurajawela installation is fed Ministers for the implementation of “Cross through a Single Point Buoy Mooring Country Pipeline Project” had been granted (SPBM) facility located in the mid sea about on 13 September 2012, it has not yet been 6 km from the shore and 7.2 km from implemented. Muthurajawela Terminal and there was no

Fisheries Coupon System  A sum of Rs. 24 million claimed by Fisheries coupon system had been the dealers had been hold by the introduced in the year 2012 by the Corporation due to various reasons Government and it had been implemented such as fraudulent coupons attached by the Department of Fisheries and Aquatic with the claims, duel claiming, etc. Resources collaboration with the Ceylon

Petroleum Corporation and the General  The Corporation had reimbursed a Treasury, in view of facilitating the sum of Rs. 3 million to dealers based fishermen to purchase fuel at subsidized on duplicated and fraudulent price. However, the expected outcome of coupons. that programme could not be achieved due to poor control over implementation of that  A sum of Rs. 1 million had been paid coupon system. Some of such failures are to a dealer in excess of the amount given below. claimed during the period from 20  The Government had stopped that July 2012 to 30 April 2013. system in September 2013 due to misuse and malpractices done by the  An amount of Rs. 176 million had fishermen, fuel dealers and certain been excessively reimbursed to the other persons involved in Corporation from the Department of implementation of that coupon Fisheries and Aquatic Resources on system. 31 December 2013. However, this

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 209

was not settled even up to the year The following observations are made in this under review, and it had been regard. included in trade and other payables in the financial statements of the  There was no proper plan to handle Corporation for the year under this product more economically to review. avoid the losses to the Corporation. The loss incurred in 2014 by selling of Bunkering Business 54,796 Metric Tons and 44,138 metric tons to local and foreign The loss incurred from issuing of fuel oil customers were Rs. 1,277 million 1500, generated through the crude oil (loss per Metric Ton was Rs. 23,296) processing system of the Refinery, to and Rs. 3,219 million (loss per Metric licensed bunker brokers during the year Ton was Rs. 72,936) respectively. under review was Rs. 1,277 million and the amount receivable from those brokers as at  Any marketing promotions for 31 December 2014 was Rs. 1,665 million. improving the bunkering fuel business had not been carried out.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 210

Water Supply and Sanitation ______

The main objective of the National Water Year Rs.Million Supply and Drainage Board is to produce and sell purified drinking water obtained by 2010 26,442 safeguarding water sources while 2011 27,222 maintaining the environmental equilibrium. 2012 31,279 The amount invested as at 31 December 2013 26,076 2014 on behalf of the supply of pipe borne 2014 27,249 water to 44 per cent of the entire population of the country was Rs.283 Accordingly, important observations billion. Accordingly, 56 per cent of the total made in audit with regard to projects population still continues to fulfill their implemented under local funds and needs for water through unsafe ways such foreign aid appears below. as wells, streams, rivers and ponds etc. It is proposed to supply pipe borne water to 60 (i) The expected date of completion per cent of the population of the country by of projects had been determined the year 2020. according to the original plan and studies made. However, Certain main observations revealed in audit more than 90 per cent of the during the year 2014 with regard to the projects subjected to sample Water Supply and Drainage Sector appear checks had not been completed below. during the expected period. Although there were various  Very often, the pipe borne water reasons for this, finally the needed for distribution is obtained government had to incur heavy from rivers and the Board incurs heavy cost on behalf of extra work cost on purifying the impure water. The carried out and price escalations. government incurs extensive capital to provide facilities for safe drinking water (ii) Accounts should have been and adequate sanitary facilities which prepared for each project and is financed by local and foreign loans furnished for audit as per and grants. The expenditure incurred in agreement entered into with this regard by the state during the past funding agencies regarding 5 years appears below. foreign projects and according to the circulars and directives of the Treasury. But this

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 211

requirement had not been  The observations made on unsuccessful complied with in the case of 12 projects implemented under foreign aid projects. The accounts furnished appear below. too, had not been furnished (i) Spanish Aid (SETA) amounting within the period specified. to Rs.12.90 Euro Million had been obtained to construct the (iii) Seventeen projects implemented Drinking Water Purification without sub loan agreements Centre at Ambathale and the entered into between the Sea Water Purification Centre Government of Sri Lanka and the in Negombo. The General Water Supply and Drainage Treasury had not specifically Board on behalf of foreign instructed the Board whether funded projects were observed this should accounted for, as during the audit test checks. loan or grant. The projects had become inactive since 2010 as (iv) The difficulties experienced in the circulation of the tube well financing made by foreign supplying water to the Sea projects as well as the high cost Water Purification Centre of expected to be incurred when the project was low and the constructions are carried out by iron and chemical contents of foreign contractors were referred the water were less than the to the attention of the Board and recommended level. The accordingly the approval of the amount spent on behalf of the Cabinet of Ministers was water purification centre was obtained to implement 52 water Rs.363 million. and sanitation schemes at an Although 5 years had elapsed estimated cost of Rs.62.7 billion, since the work completion of with Treasury Bonds, through the water purification centre, local Banks as per technical and the Board had failed to provide financial proposals of local 3,000 drinking water contractors. However, it was connections to consumers, as observed that the expected expected. economic, effective and efficient fund utilization had not occurred, (ii) Iranamadu Reservoir is the as the interest on loans payable main source of water supply to was high along with the abnormal the Jaffna Killinochchi Water increase in the estimated cost. Supply Project. But, this had become a failure up to now

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 212

due to the protests made by been initiated as instructed by the public and due to the the General Treasury. improper basic feasibility studies made. In order to solve  Out of the 2,255 rural water scheme this, it was planned to supply implemented for supplying water to the purified sea water. However, rural masses, 308 schemes had either the fishing folk of the area had been abandoned or were not functioning made protests and this too as at 31 December 2014. It was observed could not materialize resulting that weaknesses such as water sources in extending the period of getting dried up, the quality of water completion of the Project and being not upto standard, lack of proper escalation of total cost. maintenance activities by Community Based Organizations, damages to pipe (iii) The main contractor of lines, lack of technical assistance to the Moratuwa, Ratmalana, Ja-ela Community Based Organizations by the and Ekala Waste Water Project Board etc. had attributed to this. became bankrupt and the contract had been suspended.  Extensive time is spent on acquiring land According to paragraphs 5.4.6 for various water projects and a sum of and 5.4.7 of the Government Rs.13 million had been deposited as Procurement Guideline, a local advances in various Divisional Bank should confirm the Secretariats since 2010 in order to retention and the performance acquire 6 lands. However, these had not bond of a foreign Bank. been acquired even by 31 December However, financial loss had 2014. occurred to the Board as a result of acting in  1.123 hectares of land had been contravention of this acquired in 2011 by paying Rs.17 million requirement. The Board had for the Greater Galle Water Supply failed to encash the Project. However, the land concerned performance and the retention had not been utilized for any purpose money bond on construction even by 31 December 2014. contract amounting to US Dollars 9,065,048 and US  Although 0.3895 hectares of land had Dollars 7,959,086 respectively been acquired in 1994 for the so as to meet the financial loss. Kakkapalliya Water Scheme, this land too Further, taking legal action had not been utilized for any purpose for against in this regard had not a long time.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 213

 Assets valued at Rs.24 million had not water supplied free of charge and been accounted for, at the Gampaha and administrative problems etc. Kurunegala Regional Support Centre. Assets received from foreign projects,  In order to ease this, an expenditure of valued at Rs.11 million remained as stock Rs.1,440 million had been incurred under at the Kurunegala Regional Stores 3 foreign funded projects. But, it was without being capitalized. observed from the following information that there was no significant decrease  Income had not been derived during the in the rate of non-revenue water. year in respect of 29 per cent of the total Accordingly, the additional unit cost to a water produced, that is 575 million units consumer in the year 2014 was Rs.7.86 and 47 per cent of 57 million units of as compared with the previous year water distributed within the city of additional cost per unit of Rs.8.05, the Colombo due to reasons such as, leakage amount of cost decrease was two per of water, illegal water connections, cent.

Year 2008 2009 2010 2011 2012 2013 2014

Overall Percentage of Non- 32 31 32 30 30 30 29 Revenue Water (NRW)

Further, during the year under review, it safeguarding the drinking water. By now, was expected to decrease the non-revenue 7 drainage projects had been water rate by 7 per cent, that is, from 48 to commenced with a foreign aid of 22 41 per cent, the actual rate reduced within billion. However, due to the delay in the city of Colombo was 47 per cent. work and delay in awarding contracts, much progress had not been observed in  Further, the pipes laid within the city of the drainage service provided by the Colombo dates back to about 80 years Board. and timely need is necessitated either to reform or restructure the system. But,  The operating profit of Rs.1, 426 million the action taken in this regard was slow. of the year 2014 had increased by 5 per cent as compared with that of the  It is the responsibility of the Board to previous year. However, the Supply drainage facilities too to the improvement in net profit was 42 per public similar to the drinking water along cent. This was mainly due to the increase with the modernization while in income of the year and other safeguarding the health of the public and operating income by 10 and 21 per cent

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 214

respectively. 48 per cent of the operating increase in employees’ cost could be expenditure had been incurred on attributed to 5 per cent increase in new salaries to employees. Meanwhile, there recruitments during the year under was an increase of 9 per cent in review and the increase in salaries and employees’ expenditure who had been wages to employees. directly involved in the water supply. The

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 215

Retirement Benefit for Public Service ______Provision of constant active support The audit observations in respect of internal necessary for uplifting and maintenance of control weaknesses existed and existing in living standards of life in retirement of the process of payment of pensions and those who have shouldered the public over payment of pensions and irregularities service by assuring their service terminal are as follows. benefits is the mission of the Department of Pensions.  Incorrect information had been entered into the Pensions Data Base. As such, The number of pensioners receiving double payments and other irregularities pension benefits from the Department of had occurred, thus indicating that a Pensions by 31 December 2014 is 546,379 misappropriation of money amounting and the public pensions expenditure during to Rs.30.6 million had been committed in the year amounted to Rs.145,293 million. It the year 2014 as revealed by the Internal represents 11 per cent when considered as Audit Unit. The circumstances that a percentage of the total state recurrent prevailed had enabled to commit these expenditure and the Government incurs errors and frauds due to unavailability of approximately 12 per cent of the total state a centralized Pension Data Base and the revenue annually for payment of pensions. ability of the Divisional Secretariats that pay the pensions to change the A computerized data base for payment of information entered and process them. pensions is established and implemented in the Department to achieve this mission and  The following improper situations as well to bring the objectives and functions of the arisen due to establishment of the Department to a level of more quality and Pension Payment Process through the efficiency. Even though the pensioners had Banking System based on incorrect received more efficient service through this information entered into the Pensions computerized system, it had been Data Base and weak control of the confirmed during the course of audit that information of the system had attributed errors and shortcomings in the payment of to the irregularities of Pensions. pensions and benefits is at a high level due to weaknesses in the internal control systems of the relevant computer (i) Issue of the same pension programme. number to many pensioners due to existence in issuing pension numbers by two

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 216

means as centralized and decentralized during a (vi) The presence of officers certain period and non- performing same duties at availability of a definite the same division over a long method in issuing pension period of time due to failure numbers. in making use of the transfer policy as an instrument of (ii) A certain information control which affects the entered into the pensions pensions officers, and database, had not been used officers involved in that as a unique key. regard.

(iii) Failure in the proper assigning of duties (relating (vii) Failure in assigning duties to to the payment of pensions) the pension’s officers to the staff grade officers attached to the Divisional those who work of the Secretariats, in a manner Divisional Secretariats and that an internal control is District Secretariats in terms ensured by a supervising of provisions of the Financial officer examining the Regulation 145 (2) (3). relevant assignment and vesting of excessive powers (iv) Issuing awards for the to them. Widows and Orphans Pension Scheme in a manner (viii) Failure in taking proper beyond the control of the disciplinary actions as per Department of Pensions. Financial Regulations against the officers responsible for (v) The increase in paying the the identified overpayments arrears of Widows and and frauds on pensions. Orphans Pensions due to failure in taking actions to (ix) Payment of pensions without complete the Widows and establishing a Consolidated Orphans Pension files at the Control Account time of retirement, and a interconnecting the delay in the payment of institutions paying pensions, Widows and Orphans namely Divisional Pensions accordingly. Secretariats, District

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 217

Secretariats, and December 2009 and October – Department of Pensions. December 2010 had been totally deleted from the computerized information (x) Failure to establish a system. methodology together with the banking system in order  Even though all of the essential data with to ensure that the pension is regard to a pensioner had not been credited to the relevant entered to the information system of pensioner accurately when pensions, the application and payment pensions are paid through processes of pensions had not been the banks. hindered. According to the information system of pensions relating to July 2014,  Payment of pensions to the pensioners a large number of pensioners to whom who had not furnished life certificates, pensions had been paid, could be failure to cease the pensions of the identified regardless of incomplete data pensioners whose certificates of death fields, such as 100,915 pensioners had been furnished, and Grama without a bank account number, 148,248 Niladhari’s failure to take actions to pensioners without a national identity furnish the relevant certificates on time. card number, 134,974 pensioners The sum credited to the bank accounts without a bank code (for the purpose of of the deceased pensioners even after identifying the bank, to which the their death certificates had been pension is credited ) furnished amounted to Rs.2.49 million in years 2012 and 2013 without  Reports relating to the expenses had not withholding pensions. That money had properly been obtained in releasing been withdrawn by the dependents of money to the armed forces and police the pensioners. under the Object of the Department for paying pensions to the war heroes who  Differences between the number of died in the battlefront and paying those actual pensioners and the number of who were disabled, up to the completion files, non-availability of essential of 55 years of age. As the payment of documents that should be included in this money had not been coordinated or the pension files, and discrepancies in supervised by the Department, the cost the files in calculating pensions with of living allowance had been erroneously regard to similar payments. overpaid together with the salary and the pension or widows’ pension.  Data relating to the payment of pensions pertaining to the periods from July -

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 218

 The audit test check carried out that overpayment and determine the concerning the aforesaid matter on the responsible persons. data pertaining to Navy and Air Force revealed that a sum of Rs. 21.51 million  The Piolet Project of the e-Pensions had been erroneously overpaid since the Project had been successfully completed year 2008 including a sum of Rs. 17.12 on 20 September 2011 and after million to 301 disabled and deceased incurring an expenditure of Rs.182 airmen, and a sum of Rs. 4.39 million to million, except for the expenditure 36 seamen. incurred on training and other purposes by the Department of Pensions, this As the information system for pensions Project had been completely had been in existence since the year discontinued from 01 November 2013 2008, the position prior to that could not indicating technical faults arisen in the be examined. The number of naval and data base. air force war heroes, that did not tally with the information system of pensions,  In the discontinuation of payment of was 1,679 due to lack of information. outstanding pensions by the Divisional Data pertaining to war heroes whose Secretariats from June 2014, a study had salaries had been discontinued with the not been carried out on the above completion of 55 years of age, should be matter and the Departmental Structure, further examined. prepared accordingly. It was observed that an overpayment of Rs. 14.78 million In considering all these matters in had been made for 58 pensioners during respect of the Police and the Army as the course of audit carried out on well, the Department of Pensions had payment of outstanding pensions. not carried out coordination in respect of the above matters for the Armed forces  The payment particulars of civil and army and Police Officers. As a result, the officers who are retired from service are Government is suffering a great loss entered into a centralized data base by annually due to erroneous over payment the Department of Pensions and the first of pensions. monthly pension of the pensioners who had retired after 01 October 2014  Even though a sum of Rs.188.96 million commenced payment from November existed in the Appropriation Account as 2014 in terms of Pensions Circular No. overpayment of pensions as at 31 14/2014 of 18 November 2014, and it December 2014, the Department had had been observed during the course of not taken action to hold an inquiry into audit that an overpayment of Rs. 339,631 had been made to 7 pensioners

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 219

as double payments in the payment of Weaknesses in the Payment of Gratuity pensions. As the Department had taken actions to (n) Personal Identification Numbers had credit the total sum of gratuity directly to not been used so as to identify the the bank accounts of the pensioners person who entered pensions without recovering the deductions that payment data into the Pensions remained recoverable to the Government Data base. In certain instances from certain retired Public Officers, a large incorrect information had been sum receivable to the Government from the entered into the computer database relevant pensioner could not be recovered. due to engaging two computer For instance, an audit test check revealed assistants who are being trained to that a total sum of Rs. 8.22 million including enter data into the database and no a sum of Rs. 7.68 million receivable to the validation of data being carried out Government from 141 pensioners of 09 by a competent officer. Zonal Educational Offices in Southern Provincial Council, and a sum of Rs.0.54 million receivable from 24 pensioners of 03 District Director of Health Service offices, had been overpaid to the pensioners.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 220

Summary of Audit Observations on Provincial Councils

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 221

Western Provincial Council ______A revenue totaling Rs. 45,803 million had contractors during the years 2013 and been estimated to obtain as a sum of Rs. 2014 respectively. 14,526 million through Government Grants and a sum of Rs. 31,277 million through  Although three years had elapsed after internal sources. It was expected to spend a the purchase of two concrete laying sum of Rs. 39,024 million for recurrent machines having spent a sum of Rs. expenditure and a sum of Rs. 6,799 million 158.03 million during the year 2012 by for capital expenditure out of that. the Provincial Road Development Accordingly, a sum of Rs. 13,306 million had Authority, those machines had not been been received through Government Grants used for any road construction work during t year under review, while a sum of except using those in one instance on Rs. 31,092 million had been collected trial basis. It was observed that those through internal sources. A sum of Rs. machines had become idle due to lack of 38,582 million for recurrent expenditure carrying out a feasibility study based on and a sum of Rs. 5,863 million for capital correct specifications with regard to the expenditure had been spent. possibility of using those for road construction works in Sri Lanka. Important audit observations relating to the activities of the Western Provincial Council  The monthly Professional Allowance of relevant to the year under review are Rs. 15,000 approved to be paid to the shown below. officers of the Sri Lanka Engineering Service through the Public  Action had not been taken to get Administration Circular No. 28/2011 confirmations through the Department dated 12 December 2011 according to of Inland Revenue with regard to the the 2012 budget proposals had been registration numbers and names of the made applicable to the Western contractors who had been named as Provincial Council. A sum of Rs. 11.34 dormant VAT tax payers by the million had been paid as professional Department of Inland Revenue in making allowance during the period from payments of Value Added Tax (VAT) January 2012 to December 2014 to 23 mentioned in the invoices by the engineers of the Provincial Roads Provincial Roads Development Authority Development Authority who do not and due to that, a sum of Rs. 3.89 million belong to the Sri Lanka Engineering and a sum of Rs. 6.65 million had been Service. paid as value added tax for 25

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 222

 One hundred and thirty eight Road introduce an awareness programme Development Projects valued at Rs. 05 among the general public about the billion had been awarded under the gathering of deceptive individuals package system to 03 private contract around the office area had not been firms through four Executive Engineers’ implemented and legal action had not Divisions in the Gampaha District of the been taken so far with regard to such Provincial Roads Development Authority. licenses that have been already In examining each of the Projects identified. awarded in this manner, it was observed that any project had not been completed  Certain provisions enabling the within the agreement period and action entitlement of revenue to Private Health had not been taken to recover liquidated Services Regulatory Council had been damages amounting to Rs. 365.95 million published in the Extra Ordinary Gazette which should be recovered in terms of Notification dated 22 March 2007. of the agreements. While a sum of Rs. the Democratic Socialist Republic of Sri 768.71 million had been paid as work Lanka contravening the authority to advances, for these Projects, out of collect revenue vested in the Director of these, advance bonds had not been Health Services in each Province in terms obtained for advances amounting to Rs. of Clause 3(5) of the Registration of 342.39 million. Private Medical Institutions Act No. 21 of 2006 which is receivable to the to the  The Cuber Machine purchased for a sum Provincial Council. of Rs. 6.20 million during the year 2012 by the Provincial Roads Development  While work relating to the construction Authority had been kept in the of a building for the accidents unit in the Divulapitiya Concrete Yard without being Kiribathgoda Base Hospital had been assembled to an useable condition. commenced during the year 2006, a sum of Rs. 37.26 million had been spent  It was observed in audit that a bogus under 08 stages of the Project on business was in operation in the Western construction works and other activities. Province by brokers to obtain money These works had not been completed from the general public who come to get even as at end of July 2015 and due to the motor vehicle revenue licenses by that benefits to the general public had providing fake information, according to been delayed further out of the money the number of fake revenue licenses that spent. had been issued. Although fake licenses like these had been provided over a  Although posts of consultants had not number of years, a methodology to been included in the approved private

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 223

cadre for the Provincial Ministers, on a 2006 in operation of the Western decision of the Provincial Board of Province, Homes for the Aged and Ministers and approval of the Governor, Disables and all institutions providing consultants had been appointed from services for them should be should be time to time during January 2008 to registered in the Department of Social January 2014 for all the Ministers Services. While 73 Homes for the Aged including the Chief Minister. A monthly and 39 Homes for the Disables had been allowance of Rs. 30,000, vehicles, fuel, registered as at December 2014, there telephone allowance and other are large number of unregistered privileges had been provided to the Homes for the Aged and Homes for the consultant appointed in this manner. Disables in operation in the Western Province. However, a suitable scheme to  in terms of the provisions of the Garbage register those institutions had not been Management Statute No. 01 of 2007 of implemented by the Department of the Western Provincial Council, it had Social Services. been aimed to made necessary provisions to avoid garbage  While a considerable number of officers accumulation to a maximum level in the retired having served in senior urban and rural area and to keep a clean management posts of the Ministries and environment for the benefit of the Departments of the Provincial Council general public as well as that of the had been reemployed on contract basis animals and plants. While approximately on approval of the Governor and the 500 tons garbage collected daily by the Provincial Board of Ministers,, Local Authorities and other Institutions, appointment of acting officers in the those garbage had been improperly vacant posts of higher grades had been dropped to the land at Karadiyana. The taken place continuously. income earned thorough that had been 90% of the total income of the Authority.  Although there was no post of In spite of the objections made by the accountant in the approved cadre of general public and other institutions certain departments / Regional Offices of with regard to the damage to the the Provincial Council, the accountants in environment due to improper disposal of other officers had been appointed on the garage to the Karadiyana Land , a proper basis of acting /attending to covering up course of action had not been taken by of duties with the approval of the the authority in that connection. Governor and allowances had been paid to them.  In terms of the provisions of the Western Province Social Services Statute No. 03 of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 224

 Subjects of Finance, and Planning, assigned to the Chief Secretary. Law and Order, Local Administration Since the Chief Secretary is and Economic Development which representing the Provincial Accounts had been assigned to the Chief Committee as Secretary to the Minister from the inception of the Provincial Treasury, it was not Provincial Council gad been assigned proper for him to conduct the to the Chief Secretary on the meetings of the Board of Ministers approval of the Governor. and signing the Board of Ministers Accordingly, conducting meetings of Papers. Although this position had the Board of Ministers, and issue of been accepted by the Secretary to Board of Ministers Papers included the Governor, action had not been in the scope of work of the Secretary taken to rectify the position up to to the Chief Minister had been December 2014.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 225

Central Provincial Council ______

A revenue totaling Rs. 24,752 million had  While a sum of Rs. 12,108.41 million been estimated to obtain as a sum of Rs. had been spent during the year 2014 19,527 million through Government Grants in order and a sum of Rs. 5,225 millions through fulfill the basic objectives of the internal sources. It was expected to spend a Central Province Education sum of Rs. 20,825 million for recurrent Department under the expenditure and a sum of Rs. 3,927 million Departmental Expenditure Head, for capital expenditure out of that. out of that a sum of Rs. 116.58 Accordingly, a sum of Rs. 21,824 million had million had been spent for been received through Government Grants preliminary and secondary quality during the year under review, while a sum inputs. However, subjects oriented of Rs. 5,285 had been collected through review had not been carried out in internal sources. A sum of Rs. 21,661 million order to promote the examination for recurrent expenditure and a sum of Rs. results, or there was no evidence to 4,565 million for capital expenditure had support that procedures necessary been spent. to promote results were identified. Summarized information relating to Important audit observations relating to the the examination results during the activities of the Central Provincial Council year 2014 are shown below. relevant to the year under review are Information relating to 54 National shown below. schools too are included in these results.

Examination Number Number Passed Total Number Number Failed in Sat Failed all Subjects

Scholarship 43,595 4,891 38,704 - 5th Year G.C.E. (O. L.) 34,085 22,481 11,604 1,255 G.C.E. (A.L.) 25,975 15,547 10,428 1,862

According to the overall provincial been received to the Central results 6th place for the G.C.E. (O.L.) Province. and 7th place for the G.C.E. (A.L.) had

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 226

 A sum of Rs. 31.3 million had been paid under the Chief Ministry, a sum of Rs. to the Ceylon Electricity Board on 28 4.43 million had been spent for January development of playground situated in 2013 for supply and fixing two Janasavigama, Pallekele and construction Electricity Generators of 300 KVA and 400 of walking foot paths. Although the total KVA for the estimate for the Project had been Rs. Central Provincial Council 4.07 million, a sum of Rs. 4.44 million Administrative Complex. An Electricity had been spent to complete 60 percent Generator of 400 of the work as at 31 December 2014. It KVA valued at Rs. 16.49 million only was an excess of the total estimate in a had been supplied and fixed after about sum of Rs. 355,516. two years delay in February 2015.  Although the recovery of Turnover Tax had been stopped since the year 2013,  According to the Board of Ministers revenue in arrears amounting to Rs. Memorandum No. CPC/CM/CB/2014/32 175.14 million including Turnover Tax dated 23 amounting to Rs. 64.65 million had not been recovered by the Central Province April 2014, 03 houses had been allocated Department of Revenue. for the members holding posts in the

Central Provincial Council and lodgings  In terms of the Circular no. CSA/P1/40 facilities had been completed having dated 04 January 2014 under the supplied furniture valued at Rs. 2.19 Heading, Public Expenditure million. However, those houses had been Management of the Secretary to the kept under utilized. President, the number of vehicles to be

kept for a Chief Minister and his Private  Out of the provision of Rs. 10 million Staff was 07. However, 12 vehicles and made available under Item of 02 pool vehicles had been attached to Expenditure called the Central Province Chief Minister’s “Maintenance of assets vested from the Office. Mahavali “bearing No. 550-60-4-0-2602

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 227

North Central Provincial Council ______A revenue totaling Rs. 15,666 million had been examined, it was confirmed that they were estimated to obtain as a sum of Rs. 12,628 not engaged in service in the offices. million through Government Grants and a sum of Rs. 3,038 million through internal sources. It  Four posts as Leader of the House, Leader of was expected to spend a sum of Rs. 11,286 the Opposition, Chief Organizer of the million for recurrent expenditure and a sum of Governing Party and Chief Organizer of the Rs. 4,071 million for capital expenditure out of Opposition had been created non- that. Accordingly, a sum of Rs. 12,077 million complying with the provisions of the had been received through Government Grants Provincial Councils Act No. 42 of 1987 and during t year under review, while a sum of Rs. privileges exceeding the privileges entitle to 2,752 had been collected through internal Provincial Council Member had been sources. A sum of Rs. 11,672 million for provided to holders of those posts. A sum of recurrent expenditure and a sum of Rs. 3,219 Rs. 6.46 million during the year 2014 and a million for capital expenditure had been spent. sum of Rs. 11.05 million during the preceding year had been in connection with Important audit observations relating to the those privileges to the holders of the activities of the North Central Provincial relevant posts. Council relevant to the year under review are  Although the Imprest balance as at 31 shown below. December should be refunded before 10 January of the ensuing year or before the The audit for the year under review was not date specified by the Provincial Treasury, finalized even as at 24 April 2015 due to the according to notes given together with the delay or default in providing required Financial Statements for the year under information for the audit including 106 review, the total of the unsettled balances vouchers totalling Rs. 8 million by the staff of of Imprest of 18 Imprest Accounts as at 31 the Chief Ministry, December amounted to Rs. 374.62 million.

 Although a sum of Rs. 5.83 million had been  Out of the 1892 new development projects paid by the Provincial Council Secretariat as amounting to Rs. 1,615.59 million approved salaries during the year under review for the under Provincial Councils Development Personal Staff of the Holders of the Post of Grants, Provincial Criteria Based Leader of the house, the Speaker, Leader Development Grants, World bank Aids and of the Opposition, adequate evidence was Group Grants, 1881 projects had been not furnished to audit to confirm their implemented a sum of Rs. 1,055.22 million attendance and when those offices were had been utilized for those. However, only

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 228

1291 projects had been completed during Minister of the North Central Province had the year. Similarly, out of the 719 used 15 vehicles exceeding that limit and development projects continued to the year 44,850 liters of fuel valued at Rs. 5.99 under review amounting to Rs. 1,011.22 million had been used for running those million only 568 projects had been vehicles. Similarly, 13250 liters of fuel had implemented and 501 projects out those been obtained in excess of the limit entitle had been finalized. for the two official diesel vehicles and the security vehicle and a sum of Rs. 1.8 million  Value of Land in extent of 540 acres, 33 had been paid for that. vehicles, 124 buildings a large quantity of house hold furniture, office equipment and  Although the authority for issue of fuel machinery equipment shown in the Fixed orders for vehicles should be granted in the Assets Register of the Provincial Council had fuel requisitions obtained from the officers not been assessed. in charge of vehicles by the Head of the Establishment or by an officer with  Allowances of the Chief Minister of the delegated authority, the Chief Minister or Provincial Council and allowances of their an officer of his personal staff had issued personal staff had been paid in full out of fuel orders having placed the official frank the provisions made available under of the Secretary to the Ministry and fuel Expenditure Heads of each Ministry. had been obtained for the vehicles allocated However, Drivers Allowances and to them. Allowances of the Personal Staff amounting to Rs. 4.88 million had been paid in addition  In spite of the fact that 20 officers had been to those payments under the Expenditure engaged in service in excess of the approved Head of the Provincial Council and Council cadre for the personal staff of the Chief Secretariat during the year 2014 and the Minister, a sum of Rs. 9.80 million had been value of those allowances paid during the paid as holiday pay and over time to the preceding two years amounted to Rs. 8.05 personal staff during the year under review. million. Accordingly, the monthly cost of overtime and holiday pay per one post had been Rs.  Although the maximum number of vehicles 54, 467. that could be allocated to the Hon. Chief Minister’s use and his security works are  While life insurance premiums amounting to three in terms of paragraph 2.1 of the Rs. 1.39 million had been paid annually on Circular Letter No. CSA/P1/40 dated 04 behalf of the Hon. Ministers and the January 2006 as amended by Circular Letter Governor, receipts or other documents of even number dated 19 November 2007 of received from the Sri Lanka Insurance His Excellency the President, the Hon. Chief

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 229

Corporation in support of those payments Hospitals, as at 31 December of the year were not submitted to audit. under review had been 27,270; and number of vacancies had been 5,985.  While the approved cadre of the Provincial Ministries, Departments Schools, and

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 230

Southern Provincial Council ______A revenue totalling Rs. 21,523 million had been terms of Management Services estimated for the year 2014 to obtain as a sum Circular No.30 dated 22 September 2006t to of Rs. 15,895 million through Government the employees of the Southern Grants and a sum of Rs. 5,628 million through Province Roads Development Authority. internal sources. It was expected to spend a sum of Rs. 18,812 million for recurrent (ii) A salary increase of 4 increments had expenditure and a sum of Rs. 2,711 million for been given to all Non-staff Grade capital expenditure out of that. Accordingly, a officers from 01 July 2008 on a sum of Rs. 17,332 million had been received decision of the Board of Directors without a through Government Grants during t year under proper approval. review, while a sum of Rs. 5,410 million had been collected through internal sources. A sum (iii) Sixty employees had been recruited of Rs. 20,147 million for recurrent expenditure during the period from 01 January 2006 to and a sum of Rs. 2,368 million for capital January 2012 contrary to the expenditure had been spent. provisions in the Management Services Circulars No. 28 dated 10 April 2006, Important audit observations relating to the No. 28(1) dated 26 May 2006, No. activities of the Southern Provincial Council 28(11) dated 1 August 2006, No. 36 relevant to the year under review are shown dated 01 August 2007, No.36 (1) dated below. 15 October 2007 and provisions in the Public Administration Circulars No.  Following matters were revealed in the 15/90 dated 09 March 1990 and No. audit examination carried out with regard to 15/90(1) dated 15 June 1990. salary conversions made on promotions in relation to the employees of the Southern  Twenty one casual labourers had been Province Roads Development Authority. recruited through the Southern Province  Roads Development during the period (i) Salary conversions had been made from January 2013 to November 2014 and contrary to the recommendations given they had been released to the to the through the Letter No. southern Province Minister of Education, DMS//B/03/01/03/01/SA dated 26 December Land and Land Development, Highways 26 by the and Information . While any duty relevant Department of Management Service to the Authority had not been performed relevant to payment of salary increase in by them, a sum of Rs. 5.45 million had been paid as salaries up to May 2015.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 231

While 12 employees recruited for Rs.1,212.4 million. It was observed that, Southern Province Education Service too this position has caused an injustice to the had been attached to this Minister in staff engaged in the Southern Province addition to that, a sum of Rs. 2.86 million Educational Service and it could cause an for the year 2014 had been paid as salaries unfavorable effect to the quality of on behalf of them. Provincial Education Service.

 A Member of the Kotagala Pradeshiya  Without following a proper procurement Sabah who got an appointment as a procedure, 380,000 greeting cards for the School Peon in a college belongs to the year 2015 had been printed under the Matara Education Department with effect theme “A Happy South - Safeguard the from 14 October 2013 had attended the Victory Achieved “and had been school only for two days during the period distributed among the all school students from that date to 28 February 2015 and a in the Southern Province two days before sum of Rs. 406,798 had been obtained as the Presidential Election held on 08 salaries from November 2013 to March January 2015. All Principals of the Schools 2015. In addition to this, he had obtained had been informed that they should members allowance of Rs. 135,000 as a personally satisfied to ensure that all the member of the Kotapola Pradeshiya Sabah relevant greetings cards are handed over for the same period. While a Driver to the parents of the students vide letter attached to the Southern Education dated 31 December 2014 issued by the Department had been functioning as a Secretary to the Southern Provincial Pradeshiya Sabah Member, since 2006 he Ministry of Education, Land and Land had obtained a sum of Rs. 1.99 million as Development, Highways, and Information. salaries up to 31 August 2015, without signing attendance at the own percent  A sum of Rs. 20.20 million being the total service station or performing any duty. of the balance of the advance amounting to Rs. 8.58 million not re-settled out of the  Salary conversions of the academic and advance given to one Nursery- keeper non-academic staff serving in Galle, through the Project for New Variety of Tea Matara and Hambantota Districts belong Plants implemented by the Southern to the Southern Province Education Province Development Authority, the Department had not been properly done relevant interest for that amounting to Rs. on the revisions of salaries made from 5.68 million and including departmental time to time and provisions for payments charges amounting to Rs. 5.93 million was had not been sufficient. Due to these receivable at the commencement of the reasons, arrears of salaries outstanding to year 2014. Any action had not been taken be paid as at 31 July 2015 had been by the Authority to recover that amount

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 232

and without any proper approval a land in paying sum of Rs. 600,000 to that buyer the extent of 1 Acre and 25 perches on 24th October 2014, action had been belongs to him had been taken over for taken to transfer it to the Nursery-keeper. a valuation of Rs.7.02 million. While this It was reveled in audit that the land had land had been exchanged for a sum of Rs. been transferred to the Authority after 18 17,500 on 02 December 1998 and a days to that transaction, for a sum of Rs. further exchange for a sum of Rs. 50,000 7.07 million based on a valuation of the on 25 February 2001, it had been Southern Province Commissioner of purchased for a sum of Rs. 300,000 by the Revenue without obtaining a valuation nursery-keeper on 24 March 2009 and had from the Government Valuer and that a been sold for a sum of Rs. 350,000 on 03 sum of Rs. 7.67 million had been paid by March 2013. Instead of getting the authority for the land accordingly. transferred that land to the Authority after

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 233

Eastern Provincial Council ______The Eastern Provincial Council had estimated an income amounting to Rs. 23,781 million for  A total sum of Rs. 783.64 million collected the year 2014 which consist of Rs. 21,271 by the Provincial Council relating to fines million from the Government Grant and Rs. imposed by the courts in terms of statutory 2,510 million from other internal sources of provisions and the stamp duties imposed income and it was expected to spend a total relating to transfer of properties had been sum of Rs.21,141 consisting of Rs. 16,115 retained in the savings account of the million for recurrent expenditure and Rs. 5,026 Provincial Department of Revenue up to 31 million for capital expenditure out of the December 2014 without being remitted to income estimated for the year 2014. However, the relevant Local Authorities. total expenditure aggregating Rs. 20,415 million consisting of Rs. 15,754 million for  Arrears of income of 03 Municipal Councils, recurrent expenditure and Rs. 4,661,million for 05 Urban Councils and 36 Pradeshiya capital expenditure had been incurred during Sabhas of the Eastern Province totaling Rs. the year 2014 out of the income aggregating 522.11 million from the major sources of Rs. 20,649 recovered for the year 2014 income such as rates, tax, rents, and lease consisting of Rs.18,148 million from the had remained unrecovered up to 31 Government Grant and Rs. 2,501 million from December 2014. other internal source of income.  Lease income for government lands Important audit observations for the year 2014 relating to 05 Divisional Secretariats relating to the activities of the Eastern totaling Rs.73.17 million had remained Provincial Council are given below. unrecovered from year 2009 up to 30 June 2015.  Capital provisions amounting to Rs. 26.55 million made under 36 Object Codes of 03  Sixty two medical institutions functioning in Provincial Ministries and 15 Provincial the Province had obtained excess drugs to Departments had not been fully utilized the value of Rs. 21.64 million without during the year 2014. considering the actual requirements. However, the above mentioned drugs  The estimated revenue from liquor licence cannot be used as those had expired. fees for the year 2014, amounted to Rs. 25 million. However, only a sum of Rs.16.30  One hundred and sixty categories of quality million had been collected during the year failed drugs to the value of Rs. 8.36 million under review as liquor licence fees. had remained at the stores of a Base

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 234

Hospital and the Regional Medical Supplies 108.20 million under the Transforming Division, Trincomalee as at 31 December School Education as the Foundation of 2014 without taking any action in this Knowledge Hub Project (TSEP) and handed regard. over to the relevant schools during the year 2014 had not been utilized even up to 14  Five categories of drugs purchased by the August 2015. Livestock Farm of a Provincial Department at the total value of Rs. 576,660 had been  Three hundred and twenty five computers, expired due to non-utilization of those furniture and equipment supplied to the drugs before the date of expiry. Mahindodaya Laboratories at a total cost of Rs.82.64 million during the year 2014 had  Sportswear to the value of Rs.1.12 million remained idle for over one year. purchased during the period from 2011 to 2013 by the Provincial Department of  Sales Centre constructed at Alayadivembu, Sports had been kept at the stores even up Akkaraipattu by a Provincial Department in to 26 January 2015 without distributing to 2012 at a cost of Rs 5.25 million in order to the relevant sports clubs. provide marketing facilities for dairy products in the area had not been utilized  Funds amounting to Rs.36.68 million even up to 07 July 2015 for that purpose. received during the year 2014 from the Second Health Sector Development Project  A building to the value of Rs. 18 million to carryout activities on Health Sector constructed and handed over to the Development Programme had been kept in Department of Social Services in the year the Deposits Account without being utilized 2012 to establish a Safe House in for the intended purposes. Trincomalee to provide safe residential facilities for the victim of domestic violence  There were several instances where funds had not been utilized for the relevant allocated for each Provincial Ministry and purpose up to the month of April 2015. Department under the Provincial Specific Development Grant (PSDG) to carry out  An ICT Education Centre constructed at development activities had been released Allainagar in Muthur at a cost of Rs. 1.99 to other Ministries and Departments for million in the year 2013 had remained idle other purposes without carrying out the even up to 04 August 2015. activities for which they were allocated.  The Department of Agriculture had  Thirteen Mahindodaya Laboratories constructed an office Building at Ampara in constructed in selected schools in the 2010 at a total cost of Rs.12.02 million Eastern Province at a total cost of Rs. without obtaining required approval and

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 235

clearance certificates prior to the retired and balances aggregating Rs. 1.02 construction of this building. As a result, million due from 20 Ex-members of the the Department had paid a service charge Provincial Council. of Rs.1.01 million for not obtaining prior approval from the UDA and also a sum of  Various types of 620 vehicles belonging to Rs. 16,000 had to be paid as lawyer’s fees the Provincial Council had not been valued with regard to a court case instituted by and brought to accounts. the UDA against the Department.  Seven schools in the Trincomalee District  Staff loan balances of 21 Ministries and had not allowed 88 students to sit for G.C.E Departments aggregating Rs.51.44 million O/L examination in the year 2014 in order had remained unrecovered for periods to maintain the higher rate of percentage ranging from 2 to 10 years. These balances of passes in the examination compare to consisted of balances aggregating Rs.46.25 other schools in the district. This practice million due from officers who had gone on had badly affected the higher education of transfers, balances aggregating Rs. 4.17 the relevant students. million due from officers deceased and

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 236

Northern Provincial Council ______Northern Provincial Council had estimated an pointed out in the Auditor General’s reports income amounting to Rs. 16,596 million for the since 2007. year 2014 which consist of Rs. 14,647 million from the Government Grant and Rs. 1,949  The Governor’s Trust Fund of the Northern million from other internal sources of income Province had been established without and it was expected to spend a total sum of Rs. either a memorandum passed by the 16,596 million consisting of Rs. 14,591 million Governor, Northern Province or statue for recurrent expenditure and Rs. 2,005 million passed by the Provincial Council for the for capital expenditure out of the income creation of fund. This fund had been estimated for the year 2014. However, total operated with effect from 01 January 2007. expenditure aggregating Rs. 15,892 million However, the Governor of the then North consisting of Rs. 13,925 million for recurrent East Province had on his own initiative expenditure and Rs. 1,967 million for capital created the Governor’s Trust Fund. In terms expenditure had been incurred during the year of Paragraph 03 of the Governor’s 2014 out of the income aggregating Rs. 16,248 Memorandum No. 01/2007 dated 01 million recovered for the year 2014 consisting January 2007, the Governor’s Trust Fund of Rs.14,382 million from the Government should be consisted of donations or Grant and Rs. 1,866 million from other internal contributions received from the members of source of income. the public, Organizations, Societies and income generated from projects Important audit observations for the year 2014 undertaken. However, no such contribution relating to the activities of the Northern had been received from the above sources Provincial Council are given below. during the year under review and financial statements of the Governor’s Trust Fund for  Even though the elected Northern Provincial the year under review had been rendered to Council was established on 25 October audit on 22 April 2015. Although a sum of 2013, the Auditor General’s reports on the Rs. 138.86 million had been kept in the financial statements of the Northern Governors Fund for the year 2014 the Provincial Council for the years 2007 - 2013 authority given for Audit to the Auditor (7 years) had not been tabled in the General had been canceled unilaterally by Assembly of the Council up to 31 August the Governor’s Memorandum No. 1/2014 2015 in terms of Section 23 (2) of the dated 10 January 2014. Provincial Councils Act No. 42 of 1987. As a result there was no mechanism adopted by  Several funds kept in the Provincial the Provincial Council to rectify the matters Ministries and Departments deposit account

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 237

for specific purposes had been transferred fixed by the Governor without complying without obtaining relevant authority to with any circular instructions. create Governors Discretionary Fund. The transfer of funds from the deposit account  Following matters were observed on was considered as unauthorized as there is Implementation of Establishment Matters no provision in the Provincial Councils Act or contrary to the Policies of the Central any other Act to create a discretionary fund Government. by the Governor without statute being passed in the Provincial Council. Further, it i. According to the Circular No. was observed that the approval for the PD/BP/9 dated 01 June 1999 transfer of funds to create Governors issued by the Ministry of Discretionary Fund had been given by the Provincial Councils and Local Governor himself and the money Government, the transferred to the Governors Discretionary implementation of establishment Fund had been idle for over two years. matters of the officers of the Provincial Public Service should  Although the Governor is entitled for a as far as possible be in monthly fuel allowance of Rs. 100,200 only, accordance with the procedures monthly fuel allowances ranging from Rs. relating to the officers in the 247,400 to Rs. 497,600 had been paid to the corresponding posts of the Public Governor contrary to the Circular No. Service. PCMD/1/4/23/4/4 dated 19 December 2011 of the Presidential Secretariat. As a result a ii. Over 14 nos. of buildings had sum of Rs. 3.68 million had been overpaid been taken on rent basis by the during the year 2014. Further it was Provincial Council for official observed that payment had been made for purpose since January 2011 purchase of super petrol and normal petrol without following proper though there was no provision in the procurement procedure and a Circular to supply super petrol to the sum of Rs. 25 million Government vehicles. PAYE tax on fuel approximately had been paid as allowance paid in excess of the limit to the rent during the years 2011 to Governor also had not been recovered. 2014. In this regard, valuation had not been obtained from the  A sum of Rs. 430,000 had been paid as news Chief Valuer of the Valuation editing charges during the year under Department for the payment of review by the Secretary to the Governor to rent and only a monthly rent of the Media Coordinator based on amount Rs. 500 had been recovered from the Secretaries who had

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 238

occupied these houses contrary Administration Circular No. to the provisions of the 9/2007 dated 11 May 2011. Establishments Code. These Further performance/ duties houses were fully furnished with performed by the Regional household items to the value of Commissioners were not made over Rs 150,000 (approximately) available for audit. per Secretary and electricity and water bills of those houses also  Sixteen vehicles belonging to the Northern had been paid from the Provincial Council had been sold for Rs.5.41 Provincial Council Funds. Action million through public auction based on had not been taken in terms of valuation at Rs.5.09 million and these Section 5:3 of Chapter XIX of the vehicles had not been indicated in the board Establishments Code to recover of survey report as unserviceable. However rent from the Secretaries for the ownership of 10 vehicles had not been occupation of rented house and transferred to the buyers of the vehicles the electricity and water bills even after a lapse of 39 months due to which have to be settled by administrative lapses. Subsequently two them. buyers had filed a case against the Chief Secretary in the Human Rights Commission iii. Although cadres for Regional of Sri Lanka for non-rendition of books and Commissioners were approved in documents relating to the transfer of owner the year 2013, at that time ship. elected Provincial Council had  Garbage collected from 34 Local Authorities not been established. The in the Northern Province had been Service of the Regional destroyed through either burning or burying Commissioners had been carried without implementing a compost project. In out by re-employed non Sri this connection a sum of Rs. 3.2 million had Lanka Administrative Service been spent by the Urban Council Officers appointed as Regional Chavakachcheri to construct buildings and a Commissioners on contract basis sum of Rs. 4.73 million had been spent by to Kilinochchi, Jaffna, Vavuniya the Valikamam South Pradeshiya Sabha to and Mullaitivu. In this connection construct a boundary wall for solid waste a sum of Rs. 9.09 million had management and these assets had not been been paid as salaries and utilized for the intended purpose. allowances to them in addition to the vehicle maintenance, fuel  The Chunnakam water intake site is located and other office maintenance very close to the Chunnakam fossil fuel expenditure contrary to Public power station and in year 2012 the National

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 239

Water Supply and Drainage Board (NWSDB)  Five hundred and seventy water pumps had had noticed fuel smell in Chunnakam water been issued by the Food and Agriculture intake site. In November 2013 NWSDB had Organization to the Deputy Director of analysed around 100 wells in the areas of Agriculture at a 50 per cent concession on Uduvil and Kopay DS divisions surrounding cost of purchase. Out of 570 water pumps, the Chunnakam power station, and had 264 Nos. of water pumps only had been found that about 80% of the wells had been distributed to the farmers and the sum of polluted with waste oil with the range from Rs. 2.88 million collected from the farmers 0.33 to 19.40 mg/l (SLS limit 0.2mg/l – 1.0 during the period from 15 August to 12 mg/l). Further area office of the Ceylon September 2011 had been deposited in a Electricity Board (Chunnakam) also had private bank account without being tested 16 wells and that reports also remitted to the Government account. As a indicated the oil grease contamination in result, the entire amount of Rs.2.88 million the area. In this connection no meaning full deposited in the private bank account had action had been taken by the Provincial been misappropriated by the Deputy Council over three years to overcome the Director of Agriculture. badly affected drinking water problem in the Northern Province.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 240

Sabaragamuwa Provincial Council ______A revenue totaling Rs.22,726 million had been Provincial Council Maintenance Fund from estimated to obtain as a sum of Rs.19,766 the year 2009 to the year 2012 and it was million through Government Grants and a sum further revealed in audit that the entire of Rs.2,960 million through internal sources. It provision had been invested in fixed was expected to spend a sum of Rs.16,970 deposits having debited that Item of million for recurrent expenditure and a sum of Expenditure. Rs. 5,756 million for capital expenditure and a sum of Rs.5,756 million for capital expenditure It had been informed vide letter out of that. Accordingly, a sum of Rs.16,865 No.CSAC/AP/04/01 dated 22 February 2007 million had been received through Government of the Deputy Chief Secretary (Financial Grants during the year under review, while a Management) of the Sabaragamuwa sum of Rs.3,071 million had been collected Province to retain a sum of Rs.100,000 in through internal sources. A sum of Rs.15,729 the bank accounts for Cash belongs to the million for recurrent expenditure and a sum of Provincial Council in the Divisional Rs.2,792 million for capital expenditure had Secretariats and to remit balance cash been spent. monthly to the Provincial Council. However, Important audit observations revealed in Audit the Divisional Secretariats in the Ratnapura carried out during the year 2014 relating to the Districts had acted contrary to that and it activities of the Sabaragamuwa Provincial was observed that there was a bank balance Council are shown below. totaling a sum of Rs.213.48 million in the  While the total value of Fixed Assets bank of accounts of the respective Divisional representing the total value of Short Term Secretariats at the end of the year 2013 and Investments shown in Statement of at the end of September, October or Financial position as at 31 December 2014 November months of 2014. Due to that, it had been Rs.3,607.93 million according to was also observed that a sum of money that the letter of confirmation submitted by the could have been utilized the development Bank to the audit, it was revealed that three work in the province, had remained idle in were 11 fixed deposits and one savings the bank current account without any account representing a sum of Rs.3,634.52 interest being earned. million. Accordingly, value of short term Investments had been understated in a sum  A consultant had been appointed with effect of Rs.26.58 million in the Statement of from 02 April 2014 vide letter No. Financial Position presented. Provisions had ආ/ේල.ස/.ාක.2/1 dated 20 March 2014 of been allocated at the rate of Rs.3 million per the Secretary to the Governor to the post of annum for an Expenditure Item named as

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 241

“Consultant to the Chief Minister” which is a examination of the Committee meeting post not included in the approved private reports and the progress relating to the Cadre by the Department of Management collection of revenue of the Provincial Service for the Chief Minister of the Department of Revenue during past years Sabaragamuwa Province as at 31 December that none of the objectives of that had been 2008. He had been paid a total sum of achieved. However, a total sum of Rs.1.39 Rs.938,417 as allowances from that date to million had been paid as participation February 2015. allowances monthly allowances and incentive allowances to the members of the While three officers of the private staff of Committee relating to the period from the Chief Minister and two individuals who February 2013 to 31 March 2015. When do not belong to the private staff had appointing the Secretary of this Committee, utilized 04 pool vehicles with the approval action had been taken contrary to the of the Secretary to the Ministry and without provision in the Public Administration such approval in certain instances. Claming Circular No. 2007/09 dated 11 May 2007 as for duties of the Chief Minister, a sum of and Circular No.2007/09(1) dated 24 August Rs.692,516 had been spent for fuel for those 2007, issued with regard to the re- vehicles. employment of retired officers.

 Long term lease money and fines totaling  In a situation of non-availability of any Rs.18.42 million outstanding as at 31 Ayurvedic Treatment Centre in 10 Divisional December 2014 in respect of land given on Secretariats in Ratnapura District and in 02 lease to various institutions of 09 Divisional Divisional Secretariats in Kegalle District Secretariate in Sabaragamuwa Province, during the year 2014, provision amounting annual taxes and fines totaling Rs.4.44 to Rs.1.5 million had been made under million and yield taxes totalling Rs.175,984 Provincial Criteria based Development relevant to the Divisional Secretariats were Grants for construction of Central in arrears. Action in terms of clause 07 of Dispensaries using schools and Textile the Circular No.96/05 dated 01 August 1996 Centers closed down in 05 Divisional of the Land Commissioner had not been Secretariats in the Sabaragamuwa Province. taken in that connection. Further, Water However, that Project had not been Taxes and fines totaling Rs.7.14 million implemented during the year 2014. relevant to two Divisional Secretariats too were outstanding to be recovered. Although Out of the provision of Rs.6.88 million two years have elapsed after establishing made available to the office of the Special Standing Committees for the Director of Health Services, Ratnapura, promotion of revenue generation in the for implementation of 07 awareness Sabaragamuwa Province, it was observed in and training progrmmes in the field of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 242

health sector, a sum of Rs.2.3 million the guidelines 3.4, 5.6, 7.8 and 7.9 of the had remained un-spent and remitted to Code of Procurement Guidelines. It was the Ministry. While the savings in those revealed in audit that the taking over of programmes were in a range between goods from the suppliers and making 06 to 80 percent, Office of the Regional payments had been made improperly, Director of Health Service, Ratnapura while these goods had been distributed at had failed to plan and implement the the discretion of the former Governor as his relevant Health Programmes to the personal gifts to various parties. Any written optimum level utilizing the funds. evidences containing information relating to the parties to whom these goods were distributed were not submitted to the audit.  In terms of Clause 3.1 of the Circular No.01/2001 dated 28 March 2001 of the  A sum of Rs. 2.15 million had been caused Ministry of Local Governments and to be overpaid due to performance of Provincial Councils maximum level of loans activities such as preparation of technical obtainable by a Provincial Council Member specifications, technical evaluations and had been shown as Rs. 250,000. It was taking over of goods after examining the revealed in audit that loans had been given specifications in a fraudulent manner in at the rate of Rs.500,000 per Member by purchasing 236 computers having spent a the Council Secretariat on a decision taken total sum of Rs.23.48 million for the by the Board of Ministers of the of the Electronic Internal Morbility and Mortality Sabaragamuwa Provincial Council, contrary Register (EIMMR) project implemented to the provisions. It was further observed in under the World Bank Aids by the Chief audit that, out of the loans granted in excess Ministry and for requirements of other of the approved limit as mentioned above, departments under the Chief Ministry. loan balances totaling Rs.1.42 million relevant to 12 members who had lost the Purchase of 589 computers had been made membership on 17 June 2012 remained having spent a total sum of Rs.60.37 million dormant continuously and a proper course in connection with supplying and installing of action had not been taken to recover information technology related equipment those loans through the guarantors or and science laboratory furniture items for bonds. 09 Mahindodaya Technical Laboratories provided under the project for converting While goods had been purchased by the the education system as a center of former Governor during the year 2014, to knowledge. In that, activities such as award prizes spending a sum of Rs.18.55 preparation of technical specifications million through the office of the Governor, carrying out technical evaluations and those purchases had been made contrary to taking over of goods after examining

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 243

specifications had been fulfilled improperly Provincial Council Fund by the Chief and contrary to the provisions in the Code Minister and the Private Secretary. of Procurement Guidelines. Due to that , a sum of Rs.7.96 million had to be over paid  Although a full insurance cover equal to the to the supplier out of the Provincial Council agreement value should be obtained by the Fund. Contractor in terms of the agreement, such action had not been taken in connection  Although a total expenditure amounting to with 03 contracts implemented by Rs.8.97 million had been incurred in 10 Ministries of the Provincial Council during instances in respect of foreign tours during the year under review and previous years. the years 2011, 2012 and 2013 on behalf of Due to lack of such insurance cover, in one various projects and programmes with the instances a sum of Rs.2.62 million had been objective of development of Sabaragamuwa spent by the Ministry of Land, Provincial Province in collaboration with foreign Irrigation, Agriculture, Animal Products and countries, none of those progrmmes were in Animal Health and Fisheries industry for an operational position. Although it had restoration of a construction work damaged been seen that there was no proper due natural disasters. authority for implementation and lack of a Only two official vehicles and one security complete feasibility study relating to vehicle should have been allocated to the respective development programmes and Chief Minister in terms of State Expenditure projects, it was revealed that foreign tours Management Circular No.CSA/PI/40 dated had been made continuously under those 18 March 2006 and His Excellency the programmes. Approval of this Excellency the President’s letter No.CSA/PI/40 dated 23 President too had not been obtained for October 2006. However, 12 vehicles had leaving the Island by the Chief Minister been used by the Chief Minister during the relating to 04 programmes. year 2013 and 2014 contrary to those In 04 instances during the year 2012 and provisions while a sum of Rs. 3.03 million 2013m foreign trips had been made for had been spent by the Chief Ministry for various religious and cultural programmes maintenance and repair works during the on the invitation of foreign countries year 2014. spending a sum of Rs.2.62 million out of

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 244

North Western Provincial Council ______A revenue totalling Rs.26,727 million had been year 2014 of the Chief Ministry, it had been estimated to obtain as a sum of Rs.20,672 decided to distribute those goods to Rural million through Government Grants and a sum Community Level Voluntary Organizations. of Rs.6,055 million through internal sources. It Following matters were revealed in the was expected to spend a sum of Rs.22,119 audit sample checks carried out with regard million for recurrent expenditure and a sum of to the distribution of these goods. Rs.4,608 million for capital expenditure out of (i.) There were no evidence to support that. Accordingly, a sum of Rs.19,393 million that goods valued at Rs. 658,163 had been received through Government Grants were received by the relevant during the year under review, while a sum of parties. Rs.5,719 million had been collected through internal sources. A sum of Rs. 21,198 million (ii.) There were discrepancies in the for recurrent expenditure and a sum of Rs. signatures and official franks with 2,980 million for capital expenditure had been regards to acknowledgement of the spent. varieties of goods valued at Rs. 701,634 reported as distributed in  Although 500 red clay filters valued at Rs. 21 instances. 1.25 million had been purchased by the (iii.) While it had been reported that, Chief Ministry with the objectives of 289 roofing sheets valued at providing clean water for Kidney patients, Rs.436,900 were distributed among 144 filters valued at Rs. 358,848 out of 10 individuals, it was not confirmed those had been kept idle in the stores. It that the relevant parties were was observed that those clay filters had residents of that area or voters been distributed among the employees of a entitle to vote according to the Local Authority without diagnosing the electoral list. illness as well. It was further observed that there were number of deficiencies in those (iv.) It had been reported the 600 plastic clay filters due to non-consideration of the chairs and 16 steel cabinets valued standard of the filters. at Rs.739,000 had been provided to only one selected society.  While 15,000 plastic chairs, 20 sets of saucepans, 50 amplifier sets, 200 steel (v.) Goods purchased for distribution cabinets and 1324 asbestos sheets valued at among voluntary organizations in Rs. 21.47 million had been purchased the North Western Province had not utilizing the criteria based provisions for the been given to any voluntary

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 245

organization in the Puttalam District Although 107 Quarters were in unusable and distributions had been made condition, proper course of action had not among only selected voluntary been taken to convert those to usable organizations in the Kurunegala condition. District.  It was observed that low grade principals  Repair works of broken desks and chairs in were performing the duties in 337 schools certain schools of the North Western belong to the Provincial Education Province Education Department had been Department in place of principals of carried out through the North Western appropriate grade, and that higher grade Provincial Machinery and Equipment principals were performing the duties in 206 Authority; however, a proper rate and schools in place of principals of appropriate specification in terms of the Provincial grade. In 10 schools belong to the Financial Rules had not been submitted by department, in place of deputy principals of the North Western Provincial Machinery appropriate grade, Deputy Principals in a and Equipment Authority. It was observed grade lower than the appropriate grade had that, parts to be repaired in respect of each been performing the duties. Although there equipment to be repaired had not been pre- should be deputy principals of appropriate identified through the relevant schools or grade in 150 schools, deputy principals of through the North Western Provincial appropriate grade had not been attached to Machinery and Equipment Authority. those schools. Similarly, it was observed Accordingly a sum of Rs.4.21million had that acting principals were performing the been paid to the North Western Provincial duties in 147 schools belong to the Machinery and Equipment Authority department, while these were no principals considering as the full repairs were carried in 112 schools. out without making payment according to the parts repaired in relation to nature of  While action had not been taken to obtain repairs to each item. proper approval relating to excess cadre of 80 posts in preliminary level recruited for  While action had been taken to close down the Provincial Education Department and 126 schools in the North Western Province Institutions under the Department, action by the year 2014 out of those 72 schools had not been taken to fill 4927 vacant posts had been handed over to the divisional in the school staff as at its end of the year secretaries, the balance 54 schools had not under review. been handed over. While there were 295 official quarters belong to the Provincial  Drugs, surgical equipment, 3,880,075 units Educational Department officers were in of consumable stocks consisting of 253 occupation of 60 quarters out of those. varieties of stocks valued at Rs.11.97 million

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 246

and another stock of drugs, surgical Incinerator again. It was observed in audit equipment 1,210,385 units of consumable that Government Funds had been wasted stock consisting 199 varieties of stocks value through installing Waste Incinerator of which could not be computed in 04 disregarding the objections of all sections of hospitals, an office of Medical Officer of the Hospital, causing idle existence of assets Health, stores of the District Health Services and re-allocation of funds. Directors Office Puttalam. And Regional Medical Supplies Unit belong to the  Although 50 per cent of the charges, that is Provincial Health Services Department had Rs.5.6 million recovered by the Provincial been removed from use. It was due to Director of Health Services should be reasons such as expiry of validity period, remitted to the Provincial Council in terms failure to meet the sample tests, change of of clause 3.5 of the private Medical colour and smell etc. Institutions (Registration) Act No.21 of 2006, a sum of Rs.3.61million had been credited  An Incinerator had been installed in the top to Special account of the Provincial Director floor of five floor building of the Kuliyapitiya of Health Services without action being Hospital for burning clinical waste having taken in terms of the provisions. spent a sum of Rs.1.25 million on 23 December 2011. While this construction had  Action had not been taken to fill 1,577 not been recommended by the Kuliyapitiya vacant posts relevant to the Department of Regional Engineer as it was harmful to the Health Services as at the end of the year existence of the building, all Divisional under review. Heads Including Medical Specialists of the Hospital had informed that it cannot be  While works relating to vesting the lands approved. However, construction had been where 09 Ayurvedic Hospitals and 18 made disregarding those objections and Central Dispensaries are located had not environmental effects and work therein had been completed even as at the end of the been stopped on the basis of the objections year 2014, it had become an obstacle to of the medical officers of the Hospital after repairs and development work in those Officer burning waste material for 14 days buildings of the Hospitals and dispensaries. only, during the period from 11 June to 14 August. Accordingly relevant equipment had  When 14 varieties of drugs produced by the been underutilized up to 05 June 2015, date Provincial Ayurvedic Department is taken of audit. In spite of this situation, a sum of into consideration, a quantity ranging from Rs.2.5 million had been allocated on 27 June 4 per cent to 450 per cent of quantity 2014under the Second Health Development produced had been purchased from outside. Programme and it had been informed to Similarly, when 11 varieties of drugs carryout construction work to prepare the purchased during the year 2014 are taken

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 247

into consideration, the amount that could Hotel Management Institute, it was have been saved during the year 2014 to observed that any benefit out of the the department, if those drugs were income earned by that Institute had not produced in the department, would been recovered to the Council. approximately amounts to Rs.1.62 million. It had not been possible to produce the  While 10 boats had been purchased having required quantity of drugs within the incurred expenditure amounting to Rs.1.17 Department due to lack of adequate human million on 31 December 2009 for and physical resources. establishing a Tourists Centre in Talgaswewa, Ibbagamuwa by the North  While two officers who were appointed to Western Development Authority, a sum of the North Western Development Authority Rs. 238,925 had been spent as architectural with effect from 01 January 2014 had been expenditure. Although an expenditure attached to the private staff of the Chief totalling Rs.1.41 million had been incurred Minister, a sum at the rate of Rs. 20,000 per accordingly, it had not been in operation month totalling to Rs. 480,000 had been during the year under review. Due to that, it paid for that from the Authority during the was observed that it had become a fruitless year under review. It was observed that expenditure. payment of these allowances as an idle payment of salaries.  While two Incubators had been purchased having paid a sum of Rs.1.48 million during  Although a sum of Rs.95.53 million had been the year 2012 by the North Western spent throughout a period of 08 years out of Industrial Services Bureau, those had not Provincial Criteria Based Development been received to the Bureau even up to 06 Provisions under North Western Provincial June 2015. Council for construction of buildings and purchases of equipment in order to conduct  Although the Withholding Tax should be a Hotel School, the relevant properties had recovered based on the fixed charge and been transferred to another outside non- should be remitted to the Commissioner government institution through a General of Inland Revenue on or before 15th memorandum of understanding without of its ensuing month from the month of receiving any benefit to the North Western deduction in terms of Inland Revenue Tax Provincial Council. While matters relating to Act No.10 of 2006, tax valued at Rs.13.28 conducting courses, recruitment of million had not been paid during the students, conducting examinations, award specified time over a number of years by of certificates, referring for the practical the North Western Machinery and training and further education are Equipment Authority. performed by the Sri Lanka Tourism and

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 248

 Although the abatements of Provident Similarly 11 Vehicles valued at Rs.25.38 Funds and Employees’ Trust Funds should million had remained idle due to failure in be remitted during the ensuing month, in carrying out minor service works or failures terms of Provident Fund Act No.15 of 1958 in obtaining required components. and Employees Trust Fund Act No.46 of 1980, abatement balances totalling Rs.16.16  While the Construction works of the North million had not been remitted as specified Western Janakala Foundation Assembly Hall by the North Western Machinery and had been commenced during the year 2010, Equipment Authority. Further a sum of Rs. it had not been able to convert it to a full 3.96 million was payable as surcharges and usable condition even at the end of the year fines as at the end of the year under review under review, although a sum of Rs.10.75 due to non-payment of EPF and ETF million had been spent under 02 stages. contribution on the specified dates. A sum of Rs. 544,634 too had been paid as  Although the requirement to take action in surcharge and fines during the year under conformity With the National Policy in review. deciding the salaries and cadre of the provincial public Service had been insisted in  A sum of Rs.571,141 had been paid as the letters No CA/09/NSPC/GEN dated 07 overdraft interest due to unsatisfactory October 2010 and No.PCMS/1/4/23/1/14 financial management of the North Western dated 20 august 2012 of the Secretary to Machinery and Equipment Authority. the President salary scales relevant to the staff of the North Western Provincial  Fifteen items of machinery and Equipment Council Secretariat had been placed on valued at Rs.19.66 million removed from higher salary steps on a decision taken business operation activities due to based on recommendation of the Cadre unserviceable condition over a number of Consultancy Committee of the Council. years had been shown as assets of the Machinery and Equipment Authority during  A total sum of Rs.140.33 million as Stamp the year under review. Action had not been Fees amounting to Rs.113.63 million and as taken to remove those or to follow any Court Fines amounting to Rs.26.7 million other procedure. relevant to the year 2014 and years prior to that payable to the Pradeshiya Sabhas by  It was observed in audit checks that, 08 the North Western Child Secretariat had not vehicles costing Rs.16.84 million belong to been paid to the relevant institutions. the North Western Machinery and Equipment Authority had remained idle due  Out of the Turn Over Tax recoverable by the to lack of planning to obtain an adequate Provincial Department of Revenue for the demand for service over a number of years. period from the year 2011 to the year 2014,

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 249

the amount collected had taken a very low between 24 percent to 84 percent when percentage ranging 11.43 percent to 0.6 compared with the advances provided. percent respectively.  Out of the advances given contrary to  While advances totalling Rs.8.06 million had financial rules of the Provincial Education been provided to officers for various works Office amount retained in hand and settled during the year 2014 by the Provincial later had been Rs.2.05 million while there Education office, value of bills submitted in had been a time delay in a range between settlement of those advances amounted to 20 and 62 days in settlement of the bills for Rs. 6.01million. Accordingly, advances balance sum of Rs.6.01 million. Advances provided to officers in excess of the amounting to Rs.4.76 million to 16 officers required amount had been Rs.2.05 million of the provincial Education Office and and it was 25 per cent of the total advances. advance amounting to Rs.344,250 to 08 Out of the advances amounting to Rs.1.65 officers of the Nikerweratiya Zonal office million provided to 32 officers, balance left had been given before settlement of the in hand had taken a percentage in a range advances obtained by them previously.

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 250

Uva Provincial Council ______A revenue totaling Rs.17,253 million had been review according to the financial estimated to obtain as a sum of Rs.14,873 statements was Rs.13,869.33 million and million through Government grants and overall capital expenditure was Rs.4,447.95 Rs.2,380 million through internal sources. It million, according to the Appropriation was expected to spend a sum of rs.13,380 Accounts submitted to the Audit by the million for recurrent expenditure and a sum of offices of the Provincial Ministries and Rs.3.873 million for capital expenditures out of Departments, the overall recurrent that. According a sum of Rs.16.433 million had expenditure was Rs.13,705.07 million and been received through Government grants the overall capital expenditure was while a sum of Rs. 2,596 million had been Rs.4,453.69 million. Therefore differences collected through internal sources. A sum of of Rs.164.26 million and Rs.5.74 million Rs. 13.869 million for recurrent expenditure were observed respectively between the and a sum of Rs. 4,448 million for capital recurrent expenditure and the capital expenditure had been spent. expenditure.

Important Audit observations relating to the  Imprest balances totaling Rs.170.18 million activities of the Uva provincial council relevant as at 31 December 2014 relevant to 32 to the year under review are shown below. offices of the Ministries and Departments of the provincial council including 09 Divisional  While the balance of the Seeds Potatoes Secretariat had not been settled. Account of the Uva provincial Agricultural Department as at 31 December of the year  While annual lease charges amounting to under review had been Rs. 41.01 million Rs.5.96 million and interest money balances had been represented as assets in amounting to Rs.556,259 had not been the provincial financial statements over a recovered from 48 lessees in lands leased period of more than 10 years. Although this out on long term basis in the Divisional balance should be recovered from the Secretariats of Badulla, Uva Paranagama , relevant officers monthly recoveries during Haputale, Mahiyangana and Bandarawela, the year under review and last 5 years had annual license fees and lease money had been 05 percent and therefore it was been under recovered from 14 lessees in a observed that work had not seen performed sum of Rs. 9.94 million by the Divisional systematically. Secretariats of Haputale and Haliela.

 While the overall recurrent expenditure of  Out of the quotations called for sale of the Provincial Council for the year under Toddy Tavern No.02 at Lunugaola for the

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 251

year 2014, the highest the quotations of Rs.121,560 aimed at G.C.E.Odinary level of Rs.7.03 million of the tenderer who the year 2014 were included in that. submitted highest amount out of the two quotations received had been less than the  Quality input amounting to Rs.15.85 million assessed value of Rs.9.5 million of the received for 78 school belong to the Bibile Commissioner of Excise. According to the Zonal Education Office had not been made gazette notification, it is required to enquire use of even as at 31 March 2015. from the tenderer weather he is agreeable to obtain the right to have the Toddy Tavern  Although a sum of Rs.2.28 million had been for the assessed amount and if he refuses, paid to the Badulla, Divisional Secretary by action should be taken to re-sale. Instead of the Provincial Public Service Commission for taking action according to those provisions, acquisition of the land named Kuda tender had been awarded for a sum of Muththettuwa in extent of 3 roods and 18.5 Rs.8.55 million or an amount less than 10 perches, action had not been taken to percent of the assessed value. Due to that, acquire this land even as at 30 march 2015. excise revenue of Rs.950,000 obtainable The opportunity to utilize that money for had been lost. other fruitful work had been missed due to idle deposit made in the Badulla Divisional  Action had not been taken to recover Secretariat during a period of 05 years. revenue in arrears amounting is Rs.9.97 million brought forward from the year 2011 in the Advance Account for the Regional Mechanical work-shop, even as at 31 December 2014.

 Quality input money amounting to Rs.1.75 million of 12 schools belong Monaragala zonal Education Office had been retained in the accounts without being spent even as at 31 August 2014.

 While 40 programmers valued at Rs.2.21million to be conducted out of capital provisions during the year 2014 in the Welimada Zonal Education office had not been implemented even as at 12 December 2014, 03 programmes valued at

AUDITOR GENERAL’S DEPARTMENT ANNUAL REPORT OF THE AUDITOR GENERAL – 2014 252