Audit Report on the Accounts of Defence Services Audit Year 2016-17
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AUDIT REPORT ON THE ACCOUNTS OF DEFENCE SERVICES AUDIT YEAR 2016-17 AUDITOR-GENERAL OF PAKISTAN TABLE OF CONTENTS Page ABBREVIATIONS AND ACRONYMS iii PREFACE vi EXECUTIVE SUMMARY vii AUDIT STATISTICS I. Audit Work Statistics xi II. Audit Observations Classified by Categories xi III. Outcome Statistics xii IV. Irregularities Pointed Out xiii V. Cost-Benefit Analysis xiii CHAPTER-1 Ministry of Defence 1.1 Introduction 01 1.2 Status of Compliance of PAC Directives 01 AUDIT PARAS Pakistan Army 1.3 Recoverables / Overpayments 03 1.4 Irregular / Un-authorized Expenditure 18 1.5 Mis-procurement of stores 31 1.6 Non-production of Record 38 Military Lands and Cantonments 1.7 Recoverables / Overpayments 41 1.8 Loss to State 72 1.9 Mis-procurement of stores 75 i Pakistan Air Force 1.10 Recoverables / Overpayments 76 1.11 Loss to State 83 1.12 Irregular / Unauthorized Expenditure 83 1.13 Mis-procurement of stores 86 Pakistan Navy 1.14 Recoverables / Overpayments 91 1.15 Loss to State 94 1.16 Irregular / Unauthorized Expenditure 95 1.17 Mis-procurement of stores 98 Military Accountant General 1.18 Recoverables / Overpayments 108 1.19 Irregular / Unauthorized Expenditure 109 1.20 Mis-procurement of stores 110 CHAPTER-2 Ministry of Defence Production 2.1 Introduction 112 2.2 Status of Compliance of PAC Directives 112 AUDIT PARAS 2.3 Recoverables / Overpayments 114 2.4 Loss to State 116 2.5 Irregular / Unauthorized Expenditure 118 2.6 Mis-procurement of stores 121 Annexure-I MFDAC Paras (DGADS North) 122 Annexure-II MFDAC Paras (DGADS South) 134 ii ABBREVIATIONS AND ACRONYMS ACAS Assistant Chief Air Staff AGP Auditor-General of Pakistan AHQ Air Headquarters AMF Aircraft Manufacturing Factory ASRF Advance System Rebuild Factory BA (Fee) Building Application Fee BMP Dte Budget Marketing and Procurement Directorate BTS Base Trans receiver Station AWACS Air Borne Warning and Control System AOC Air Officer Commanding CBR Cantonment Board Resolution CLAR Cantonment Lands Administration Rules CMA Controller of Military Accounts CEO Cantonment Executive Officer CIMLA Cantonment Institute of Municipal and Land Administration CMH Combined Military Hospital CNE Civilian Non-Entitled CNA Controller of Naval Accounts COMSAT College of Management Science and Technology CRV Certified Receipt Voucher DAC Departmental Accounts Committee DBA Director Budget Accounts DG DP Directorate General Defence Purchase DGP (Army) Directorate General Procurement (Army) DG RV&F Director General Remount Veterinary and Farms DHA Defence Housing Authority DMA Daily Messing Allowance DP (Air / Navy) Directorate Procurement (Air / Navy) DP Draft Para DSR Defence Services Regulations EME Electrical and Mechanical Engineering E-in-C Engineer in Chief iii ESD Engineering Stores Depot FA Financial Advisor FAM Financial Audit Manual FBR Federal Board of Revenue FOB Free on Board FOR Free on Rail FR Financial Regulations GE Garrison Engineer GHQ General Headquarters GST General Sales Tax HIT Heavy Industries Taxila HRA House Rent Allowance HRF Heavy Rebuilt Factory HSR Hospital Stoppage Receipts INTOSAI International Organization of Supreme Audit Institutions JCOs Junior Commissioned Officers JSHQ Joint Staff Headquarters JSI Joint Services Instruction KARF Kamra Avionics and Radar Factory LC Letter of Credit / Local Currency LD Liquidated Damages LUMS Lahore University of Management and Sciences MEO Military Estate Office MES Military Engineering Services MFDAC Memorandum for Departmental Accounts Committee MH Military Hospital MIS Management Information System ML&C Military Lands and Cantonments MoD Ministry of Defence MoDP Ministry of Defence Production MOQs Married Officer Quarters MRF Mirage Rebuild Factory NDU National Defence University NHQ Naval Headquarters NOC No Objection Certificate NIV Not in Vocabulary iv NLC National Logistics Cell NUST National University of Science and Technology OC Officer Commanding PAC Pakistan Aeronautical Complex PAF Pakistan Air Force PAO Principal Accounting Officer PESCO Peshawar Electric Supply Company PNS Pakistan Navy Ship PPRA Public Procurement Regulatory Authority QMG Quarter Master General RHQ Regional Headquarter R&E Risk and Expense RV&F Remount Veterinary and Farms SMA Special Messing Allowance SNGPL Sui Northern Gas Pipeline Limited SOP Standing Operating Procedure SRO Statutory Regularity Order STA Special Transfer Account TESCO Tribal Electric Supply Company TIP Transfer of Immovable Property TO&E Table of Organization and Equipment UA Unit Accountant UNRA United Nations Reimbursement Account WAPDA Water and Power Development Authority WTI Walton Training Institute v Preface Articles 169 and 170 of the Constitution of Islamic Republic of Pakistan, 1973 read with Sections 8 and 12 of the Auditor- General (Functions, Powers and Terms and conditions of Service) Ordinance, 2001 require the Auditor-General of Pakistan to conduct audit of accounts of the Federation and the accounts of any authority or body established by the Federation. The Report is based on Audit of receipts and expenditure of the Defence Services (Ministry of Defence and Ministry of Defence Production) for the Financial Year 2015-16. The Directorates General Audit Defence Services conducted Audit of the accounts of Defence Services during 2016-17 on test check basis with a view to reporting significant findings to the relevant stake holders. The main body of the Audit Report includes only the systemic issues and audit findings carrying value of Rs. 1 million or more. Relatively less significant issues are listed in the Annexure-I & II of the Audit Report. The audit observations listed in Annexure-I & II shall be pursued with the Principal Accounting Officer at the DAC level and in all cases where the PAO does not initiate appropriate action, the Audit observation will be brought to the notice of the Public Accounts Committee through the next year’s Audit Report. The Audit findings indicate the need for adherence to the regularity framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. Most of the observations included in this Report have been finalized in the light of discussions in the DAC meetings. The Audit Report is submitted to the President in pursuance of Article 171 of the Constitution of Islamic Republic of Pakistan, 1973 for causing it to be laid before the Parliament. (Rana Assad Amin) Auditor General of Pakistan Islamabad Dated:26-02-2017 vi Executive Summary The Directorates General of Audit Defence Services (North and South) are Field Audit Offices (FAOs) of the Department of Auditor- General of Pakistan responsible for conducting the audit of budgetary grants of Defence Services (except Pakistan Ordnance Factories Wah) and Federal Government Educational Institutions in Cantonments & Garrisons, managed by Ministry of Defence (MoD) and Ministry of Defence Production (MoDP). Audit of other allocations made to Defence Services like Special Transfer Account, United Nations Reimbursement Account and Defence Pension is also conducted by these FAOs. Moreover, audit of the entities which are under these Ministries but do not get allocation from the Government e.g. Cantonment Boards, Frontier Works Organization are also under the audit purview of these offices. The jurisdiction of Directorates General Audit Defence Services (North & South) has been made on geographical basis. The two Directorates conducted audit of 492 formations of MoD and 40 formations of MoDP during the audit year 2015-16. This report highlights systemic issues like huge outstanding dues in various Cantonment Boards, rampant violations of Public Procurement Rules across the formations, disregard to delegated financial powers and contractual obligations. a. Scope and objectives of Audit Out of total expenditure of the Federal Government for the financial year 2015-16, auditable expenditure under the jurisdiction of Directorates General Audit Defence Services (North and South) was Rs. 791.569 billion covering 02 PAO’s and 3620 formations. Of this, Directorates General Audit Defence Services (North and South) audited an expenditure of Rs. 306.794 billion which, in term of percentage, is 39% of the auditable expenditure. In addition, Directorates General Audit Defence Services (North and South) conducted performance audit of 02 projects and 09 special audit studies. Reports of these audits are being published separately. vii Overall audit objective was to assess compliance with financial rules, assessment and accountal of receipts, examine the issues of propriety, economy of expenditure and adequacy of internal controls. b. Recoveries at the instance of audit Recovery of Rs. 54.010 billion was pointed out during audit, out of which recovery of Rs. 1.153 billion and US $ 0.110 million was effected during year 2016-17 at the time of compilation of report. c. Audit Methodology The activities, policies, procedures and internal controls of audited organizations were reviewed for identifying risk areas, where occurrence of irregularities and misappropriation could be possible, and for devising strategy for audit scrutiny. Audit was conducted on the test-check basis with special emphasis on high monetary value and risk areas which could be prone to irregularities. Budgeted allocations made by Services Headquarters were compared and verified with the actual expenditure. d. Audit Impact (i) The issue of unauthorized use of A-I Land by Defence Services for commercial purposes has regularly been raised by Audit since 1986. However,