Auditor General of Pakistan
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AUDIT REPORT ON THE ACCOUNTS OF PAKISTAN RAILWAYS AUDIT YEAR 2013–14 AUDITOR - GENERAL OF PAKISTAN TABLE OF CONTENTS Page No. ABBREVIATIONS & ACRONYMS I PREFACE Iv EXECUTIVE SUMMARY V SUMMARY TABLES I Audit Work Statistics xiii II Audit Observations Regarding Financial xiii Management III Outcome Statistics xiv IV Irregularities Pointed out xv V Cost Benefit Analysis xv CHAPTER 1 Public Financial Management Issues 1 Financial Advisor & Chief Accounts Officer, Pakistan Railways CHAPTER 2 Ministry of Railways 2.1 Introduction of Ministry 9 2.2 Comments on Budget & Accounts 10 2.3 Brief Comments on the status of Compliance 16 with PAC directives 2.4 AUDIT PARAS Misappropriations 17 Non-Production of Record 22 Irregularity & Non-Compliance 24 Performance 48 Internal Control Weaknesses 80 Others 86 CHAPTER 3 Mega Issue “Deterioration in PR” 97 Annexure-1 MFDAC Paras 128 Annexure-2 Non-replacement of material 137 Annexure-3 Comparison of Earnings and Operating 138 Expenses Annexure-4 Average Availability of DE Locomotives 139 Annexure-5 Loss of Potential Earnings due to delay in repair 140 of locomotives Annexure-6 Number of Traction Motors in Locomotives 145 Annexure-7 Shortage of Coaches 146 Annexure-8 Concession to the Journalist and their Families 147 Annexure-9 Non-Achievement of Targets 148 Annexure-10 Increase in Per Kilometer Cost of HSD Oil 149 Annexure-11 Increase in Pay and Allowances 150 Annexure-12 Stock Above Maximum Limit 151 Annexure-13 Summary of Surplus/Unutilized Stock 152 Annexure-14 Expenditure on Pakistan Railways Police 153 Annexure-15 ET System in Different Railways 154 ABBREVIATIONS & ACRONYMS AEFO Assistant Electric Foreman AEN Assistant Executive Engineer APPM Accounting Policies and Procedures Manual ATMs Automatic Teller Machines AVLB Armoured Vehicle Launched Bridge C&W Carriage & Wagon CCI Council of Common Interest CCM Chief Commercial Manager CCP Chief Controller of Purchase CCS Chief Controller of Stores CDL Workshop Central Diesel Locomotive Workshop CFI Carriage Factory Islamabad Cft Cubic Feet COBOL Common Business Oriented Language CSF Concrete Sleeper Factory CSR Composite Schedule of Rates DAC Departmental Accounts Committee DAO Divisional Accounts Officer DCOS District Controller of Stores DE Locomotive Diesel Electric Locomotive DME Divisional Mechanical Engineer DGAR Director General Audit Railways DOT Doubling of Track DS Divisional Superintendent DSKP Depot Store Keeper EFT Excess Fare Ticket ET Electric Traction FA&CAO Financial Advisor & Chief Accounts Officer FIRs First Information Report FIS Financial Information System FST Federal Services Tribunal GM (M&S) General Manager (Manufacturing & Services) GPF General Provident Fund GST General Sales Tax i HQ Headquarter HSD High Speed Diesel IG Inspector General INTOSAI International Organization of Supreme Audit Institution IR Indian Railway KUTC Karachi Urban Transport Corporation LD Liquidated Damages Loco Locomotive LPR Last Purchase Rate LPS Late Payment Surcharge MD Managing Director MFCs Multi Functional Complexes MFDAC Memorandum for Departmental Accounts Committee MIS Management Information System MoR Ministry of Railways NAB National Accountability Bureau OGRA Oil & Gas Regulatory Authority P&L Property & Land PAC Public Accounts Committee PC-I Planning Commission Proforma-I PD Project Director PLF Pakistan Locomotive Factory PO Principal Officer PPP Public Private Partnership PPRA Public Procurement Regularity Authority PPRs Public Procurement Rules PR Pakistan Railway PRACS Pakistan Railway Advisory and Consultancy Services Limited PRCM Pakistan Railway Commercial Manual PRP Pakistan Railway Police Qty Quantity RAILCOP Railway Constructions Pakistan Limited RAR Railway Audit Report REDAMCO Railway Estate Development and Marketing ii Company RLDA Rail Land Development Authority SAP ERP SAP Enterprise Resource Planning SBP State Bank of Pakistan sft Square feet SNGPL Sui Northern Gas Pipelines Limited SOP Standard Operating Procedure TLA Temporary Labour Application TL Vans Train Lighting Vans WAPDA Water & Power Development Authority WM Works Manager iii Preface Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan 1973, read with Sections 8 and 12 of the Auditor- General’s (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001 require the Auditor-General of Pakistan to conduct audit of receipts and expenditure of Pakistan Railways and its subsidiaries. This report is based on audit of the accounts of Pakistan Railways for the financial year 2012-13. Further, this report also includes observations pertaining to previous years which came to notice during audit. The Directorate General Audit (Railways), Lahore conducted audit on a test check basis during the year 2013-14 with a view to reporting significant findings to the stakeholders. The main body of the Audit Report includes only the systemic issues and audit findings carrying value of Rs 1 million or more. Relatively less significant issues are listed in Annexure-1 of the Audit Report. The audit observations listed in the Annexure-1 shall be pursued with the Principle Accounting Officer at the DAC level and in all cases where the PAO does not initiate appropriate action, the audit observations will be brought to the notice of Public Accounts Committee through the next year’s Audit Report. Audit findings indicate need for adherence to the regulatory framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. 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 of Pakistan in pursuance of Article 171 of the Constitution of the Islamic Republic of Pakistan 1973, for causing it to be laid before both houses of Majlis-e-Shoora [Parliament]. -sd- (Muhammad Akhtar Buland Rana) Dated: 06 MAR 2014 Auditor-General of Pakistan iv EXECUTIVE SUMMARY The Director General Audit (Railways) has the mandate to conduct audit of receipts and expenditure of Pakistan Railways (PR) and its subsidiaries, viz. Pakistan Railway Advisory & Consultancy Services (PRACS), Railway Constructions Pakistan Limited (RAILCOP), Real Estate Development & Management Company (REDAMCO) and Karachi Urban Transport Corporation (KUTC). The audit of receipts and expenditure was carried out on test check basis in accordance with audit methodology envisaged in Financial Audit Manual. The audit was carried out with human resource of 176 officers and staff utilizing 43,824 mandays, with annual budget amounting to Rs 107.06 million. This office is mandated to conduct regularity audit (financial & compliance with authority audit) and performance audit of the projects run by the Ministry of Railways. DAC meetings were held to discuss the audit observations for the finalization of this Report. Moreover, Director General Audit (Railways) conducted an audit of Mega Issue “Deterioration in PR” from July 2013 to October 2013. The main objective was to ascertain the causes of rapid increase in operational losses, deterioration in train operations, defective inventory management, defective land management and other allied issues. Audit observations were issued on 2nd October, 2013 to the Secretary/Chairman, Ministry of Railways but no DAC meeting could be convened despite efforts and reminders. PR is a state managed commercial organization with a mission “to provide a competitive, safe, reliable, market oriented, efficient and environment-friendly mode of transport”. It comprises three functional units: i). Operations, ii). Manufacturing & Services, and iii). Development. v Each unit is headed by a General Manager. Major portion of earnings of PR comes from passenger and freight traffic. Other sources of earnings include leasing of surplus Railways land for commercial and agricultural purposes. a. Scope of Audit Out of total expenditure and revenue of Pakistan Railways including its subsidiaries for the financial year 2012-13 auditable expenditure and revenue under the jurisdiction of DGAR was Rs 74,390.94 million and Rs. 23,300.00 million respectively covering 01 PAO comprising 313 formations. Of this, DGAR planned audit of expenditure and revenue of Rs 28,942.76 million and Rs 1,818.99 million respectively in the first phase which, in terms of percentage, is 39% of auditable expenditure and 8% of revenue. b. Recoveries at the instance of Audit Recovery of Rs 1,611.83 million was pointed out, out of which recovery of Rs 360.65 million was effected during the year 2013-14 at the time of compilation of report. This was not in the notice of the executive before audit. c. Audit Methodology During the audit year 2013-14 audit strategy was based on the assessment of control environment. Audit procedures and processes were designed after thorough understanding of organization’s objectives, control environment, risk assessment and performance targets. d. Audit Impact vi On the pointation of Audit the Railways management has agreed to segregate public accounts from consolidated fund. They have decided to open a dedicated account for GPF and the issue has been taken up by the Ministry of Railways with Ministry of Finance. Further, PR is working for the acquisition of SAP ERP for calculation of pension. e. Comments on Internal Control and Internal Audit Department Internal control system refers to the policies and procedures adopted by the entity to assist in achieving, as far as practicable, the financial management