AUDIT REPORT ON THE ACCOUNTS OF COUNCILAND MUNICIPAL COMMITTEES DISTRICT AUDIT YEAR 2015-16

AUDITOR GENERAL OF

TABLE OF CONTENTS

ABBREVIATIONS AND ACRONYMS………………………………………….. i Preface…………………………………………………………………………. ii EXECUTIVE SUMMARY……………………………………………………….. iii SUMMARY TABLE AND CHARTS……………………………………………. vii I: Audit Work Statistics………………………………………………………… vii II: Audit observations classified by categories………………………………….. vii III: Outcome statistics……………………………………………………………. viii IV: Table of Irregularities pointed out……………………………………………. ix V: Cost-Benefit…………………………………………...... ix CHAPTER-1……………………………………………………………………… 1 1.1 District Council Charsadda & Municipal Committees in District Charsadda…… 1 1.1.1 Introduction………………………….………………………………… 1 1.1.2 Comments on Budget and Accounts (Variance Analysis) ……………. 1 1.1.3 Brief comments on the status of compliance with PAC directives…… 2 1.2 (District Council Charsadda)……………………… 3 1.2.1 Fraud/Misappropriations ……………………………………………… 4 1.2.2 Irregularity & Non-compliance ………………………………………. 5 1.2.4 Internal Control Weaknesses………………………………………….. 8 1.3 (Municipal Committee Charsadda)……………… 14 1.3.1 Fraud/Misappropriation …………………………………………….. 15 1.3.2 Irregularity & Non-compliance……………………………………… 16 1.3.3 Internal Control Weaknesses………………………………………… 21 1.4 (Municipal Committee ) …………………. 22 1.4.1 Irregularity & Non-compliance……………………………………… 28 1.4.2 Internal Control Weaknesses………………………………………… 30 Annex-1 Detail of MFDAC Paras……………………………...………...... 28 Annex 2: Loss due to departmental collection ………...………………...... 30 Annex 3: Detail of overpayment ………...………………...... 39 Annex 4: Detail of less deposit of receipts ………...………………...... 41 Annex 5: Detail of overpayment ………...………………...... 42 Annex 6: Detail of overpayment ………...………………...... 44

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ABBREVIATIONS AND ACRONYMS

ADP Annual Development Programme AP Advance Para BDC Budget & Development Committee CBR Central Board of Revenue CCO Chief Coordination Officer CMD Chief Minister Directives CMO Chief Municipal Officer CPWA Code Central Public Works Account Code CPWD Code Central Public Works Department Code CTR Central Treasury Rule DAC Departmental Accounts Committee DCO District Coordination Officer DDC District Development Committee DG Director General E&A Establishment and Administration E&D Rules Efficiency & Disciplinary Rules LCB Local Council Board LG & RDD Local Government and Rural Development Department LGO Local Government Ordinance MB Measurement Book MRS Market Rate System PAC Public Accounts Committee PAO Principal Accounting Officer PCC Plain Cement Concrete PC-I Planning Commission Proforma-I PEC Pakistan Engineering Council PFC Provincial Finance Commission RDA Regional Director Audit SIR Serious Irregularity Register TMA Tehsil Municipal Administration TMO Tehsil Municipal Officer TOF Tehsil Officer Finance TS Technical Sanction UAs Union Administrations UC Union Council

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PREFACE Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan, 1973 read with Sections-8 and 12 of the Auditor-General (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001 and Section 168 of Local Government Act 2012, require the Auditor-General of Pakistan to conduct audit of the receipts and expenditure of Local Fund of District Council and Municipal Committees. The report is based on audit of the accounts of District Council Charsadda and Municipal Committees in District Charsadda for the Financial Year 2014-15. The Directorate General of Audit, District Governments, , conducted audit on test check basis during 2015-16 with a view to reporting significant findings to the relevant stakeholders. The main body of the Audit Report includes only the systemic issues and audit finding carrying value of Rs 1 million or more. Relatively less significant issues are listed in the Annexure-1 of the Audit Report. The Audit Observations listed in the Annexure-1 shall be pursued with the Principal Accounting Officer at the DAC level and in all cases where the PAO does not initiate appropriate action, the Audit observations will be brought to the notice of Public Accounts Committee through the next year’s Audit Report. Audit findings indicate the need for adherence to the regularity framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. The observations included in this Report have been finalized in the light of written replies of the Departments. DAC meetings could not be convened despite repeated requests. The Audit Report is submitted to the Governor of Khyber Pakhtunkhwa in pursuance of Article 171 of the Constitution of the Islamic Republic of Pakistan, 1973 read with Section 168 of Khyber Pakhtunkhwa Local Government Act 2012 to be laid before appropriate legislative forum.

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

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EXECUTIVE SUMMARY

The Directorate General Audit, District Governments, Khyber Pakhtunkhwa, Peshawar, is responsible to conduct the audit of all District Councils, Municipal Committees (MCs) and Union Councils (UCs). Its Regional Directorate of Audit Peshawar has audit jurisdiction of District Councils, Municipal Committees and UCs of three i.e. Peshawar, Charsadda and Nowshera. The Regional Directorate of Audit Peshawar has a human resource of 10 officers and staff, constituting 2510 man days. A budget of about Rs 14.799 million was allocated during Financial Year 2015-16. It has the mandate to conduct financial attest audit, audit of sanctions, audit of compliance with authority and audit of receipts as well as the performance audit of entities, projects and programs. Accordingly Regional Director Audit Peshawar carried out audit of the accounts of District Council Charsadda and Municipal Committees in District Charsadda for the Financial Year 2014-15 and the findings included in the Audit Report. District Council Charsadda and Municipal Committees in District Charsadda perform their functions under Khyber Pakhtunkhwa Local Government Act 2012. Administrative Secretary i.e Secretary Local Government and Rural Development Department, Khyber Pakhtunkhwa is the Principal Accounting Officer for these local bodies. According to financial provisions of the Act, the Secretary Local Government and Rural Development Department, Khyber Pakhtunkhwa authorizes the Annual Budget for these local bodies in the form of budgetary grants. a. Scope of audit

The total expenditure of the District Council Charsadda and Municipal Committees in District Charsadda, for the Financial Year 2014-15 was Rs 623.884 million. Out of this, RDA Peshawar audited an expenditure of Rs 378.380 million which, in terms of percentage, was 61% of auditable expenditure. The receipts of District Council Charssda and Municipal Committees in District Charsadda for the Financial Year 2014-15, were Rs 202.473 million. Out of this, RDA Peshawar audited receipts of Rs 125.533 million which, in terms of percentage, was 62% of auditable receipts. The total expenditure and receipts of District Council and Municipal Committees, District Charsadda, for the Financial Year 2014-15 were Rs 826.357 million. Out of this, RDA Peshawar audited the expenditure and receipts of Rs 503.913 million.

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b. Recoveries at the instance of audit Recovery of Rs 37.754 million was pointed out during the audit. However, no recovery was affected till the finalization of this report. Out of the total recoveries, Rs 14.102 million were not in the notice of the executives prior to audit. c. Audit Methodology Audit was conducted after understanding the business processes of District Council Charsadda and Municipal Committees in District Charsadda, with respect to its functions, control structure, prioritization of risk areas by determining their significance and identification of key controls. This helped auditors in understanding the systems, procedures, environment, and the audited entity before starting field activity. Audit used desk audit techniques for analysis of compiled data and review of permanent files/record. Desk Audit greatly facilitated identification of high-risk areas for substantive testing in the field. d. Audit Impact Audit pointed out various irregularities of serious nature to the management. However, no impact was visible as the management failed to reply and the irregularities could not come to the light in the proper forum i.e. DAC. e. Comments on Internal Control and Internal Audit department The purpose of internal control system is to ensure effective operation of an organization. It consists of measures employed by the management to achieve objectives, safeguard assets, ensure accuracy, timeliness and reliability of financial and accounting information for decision making. One of the basic components of Internal Control System, as envisaged under Para 13 of GFR Volume-I, is internal audit which was not found prevalent in District Council and Municipal Committees, District Charsadda. Neither rules for internal audit have been framed nor internal audit report as required was provided to audit. f. Key audit findings of the report; i. Misappropriation of Rs 5.409 million was noted in two cases1. ii. Irregularity & Non-compliance of Rs 112.161 million was noted in twelve cases2 iii. Loss due to Internal Control Weaknesses of Rs 105.035 million was noted in eighteen cases3.

1 Para 1.2.1.1 2 Para 1.2.2.1, to 1.2.2.3, 1.3.2.1 to 1.3.2.7, 1.4.4.1 to 1.4.4.2

3 Paras 1.2.3.1 to 1.2.3.7, 1.3.3.1 to 1.3.3.8, 1.4.2.1 to 1.4.2.8 iv g. Recommendations i. Inquiries need to be held to fix responsibility for losses, misappropriation and irregular payments. ii. Disciplinary action needs to be taken for violation of the rules and regulations in spending the public money. iii. Concrete efforts need to be made to recover long outstanding dues. iv. Recovery of taxes on supplies and contracts need to be ensured. v. All sectors of District Council/MCs need to strengthen internal controls i.e. financial, managerial, operational, administrative and accounting controls etc to ensure that reported lapses are preempted and fair value for money is obtained from public spending.

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SUMMARY TABLES & CHARTS Table 1: Audit Work Statistics (Rs in million) S.No Description No. Budget 1 Total Entities in (PAO) Audit Jurisdiction 01 826.357 2 Total formations in audit jurisdiction 04 826.357 3 Total Entities in (PAO) Audited 01 503.913 4 Total formations Audited 04 503.913 5 Audit and Inspection Reports 04 503.913 6 Special Audit Reports - - 7 Performance Audit Reports - - 8 Other Reports - -

Table 2: Audit observations classified by categories (Rs in million) Amount Placed under Audit S.No. Description Observation 1. Unsound asset management - 2. Weak financial management 107.000 3. Weak Internal controls relating to financial 115.870 management 4. Others 5.408 Total 228.278

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Table 3: Outcome Statistics (Rs in million)

Expenditure Total Total on Acquiring Civil for the for the S. No Description Physical Receipts Others Works year year Assets Procurement 2014-15 2013-14 Outlays 1. - 120.464 125.533 257.923 503.913 335.848 Audited Amount Placed under Audit 2. - 115.937 90.191 22.157 228.278 152.791 Observation /Irregularities of Audit Recoveries

Pointed Out 3. at the 18.761 12.127 6.866 37.754 58.661 instance of

Audit Recoveries Accepted /Established 4. ------at the instance of Audit Recoveries Realized at 5. ------the instance of Audit

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Table 4: Table of Irregularities pointed out (Rs in million) S.No. Description Amount Placed under Audit Observation

Violation of Rules and regulations, principle of propriety and 1. 80.080 probity in public operation

Reported cases of fraud, embezzlement, thefts and misuse of 2. public resources. 5.408 Accounting Errors (accounting policy departure from NAM, misclassification, over or understatement of account balances) 3. that are significant but are not material enough to result in the - qualification of audit opinions on the financial statements.

4. Quantification of weaknesses of internal control systems. 105.035

Recoveries and overpayment, representing cases of established 5. 37.754 overpayment or misappropriations of public monies 6. Non-production of record -

7. Others, including cases of accidents, negligence etc. -

Total 228.278

Table 5: Cost-Benefit (Rs in million)

S.No. Description Amount

1. Outlays Audited 503.913 2. Expenditure on Audit 0.826 3. Recoveries realized at the instance of Audit - 4 Cost-Benefit Ratio 1:0

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CHAPTER-1 1.1 District Council and Municipal Committees Charsadda 1.1.1 Introduction District Charsadda has three Tehsil i.e. Charsadda, Tangi and Shabqadar. There is a District Council and three Municipal Committees. District Council has a Chief Coordination Officer, District Officer (Finance), District Officer (Infrastructure) and District Officer (Regulation). Municipal Committees have Chief Municipal Officers, Municipal Officers (Finance), Municipal Officers (Infrastructure) and Municipal Officers (Regulation). District Council Charsadda has one Drawing and Disbursing Officer (DDO) i.e. Chief Coordination Officer & Chief Municipal Officers are the DDOs of Municipal Committees. According to 1998 population census, the population of District Charsadda is 1,022,364. 1.1.2 Comments on Budget and Accounts (Variance Analysis) An amount of Rs 378.219 million was allocated as grant in aid by the Provincial Government to District Council and Municipal Committees of District Nowshera. An amount of Rs 202.473 million was realized during the financial year 2014-15. Thus making a total of Rs 580.692 million at the disposal of local councils, against which an expenditure of Rs 421.411 million was incurred by the District Council and Municipal Committees Nowshera with a saving of Rs 159.281 million during financial Year 2014- 15. Detail is given below: (Rs in million) %age 2014-15 Budget Expenditure Excess/ (Saving) Salary 197.970 185.831 (12.139) 6.13 Non-salary 72.681 44.806 (27.875) 38.35 310.041 190.774 (119.267) 38.46 Developmental Total 580.692 421.411 (159.281) 27.42

Detail of receipts realized during Financial Year 2014-15 (Rs in million)

2014-15 Provencal Grant in aid Realization from own sources Total Receipts 378.2019 202.473 580.692

The huge savings of Rs 159.281 million in all heads of accounts indicate weaknesses in the capacity of these local institutions to utilize the amounts allocated.

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Expenditure 2014-15 (Rs in million)

1.1.3 Comments on the status of compliance with PAC Directives

The audit reports pertaining to following years have been submitted to the Governor of Khyber Pakhtunkhwa. Details of PAC meetings are given below: PAC meeting convened S. No. Audit Year /Not convened 1 2014-15 Not Convened

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DISTRICT COUNCIL CHARSADDA

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1.2 District Council Charsadda

1.2.1 Fraud/Misappropriation

1.2.1.1 Suspected Misappropriation - Rs. 535,910

According to Clause 2 of the Model Term & Condition of Contract, circulated vide Secretary Local Council Board Letter No AO-II /LCB/6-11/2013 dated 20-12-2013" The Local Government Department shall fix different dates in one advertisement for auctioning the contract of local taxes. If no reasonable bid is offered then another advertisement shall be published by the concerned local councils in the renowned and widely circulated newspapers through Information Department at least seven clear working days before the date fixed for auction of the contract. the same practice shall continue till 15% increase or more reasonable bid is achieved over the last year approved bid.

The Chief Coordination Officer, District Council, Charsadda during 2014-15 departmentally run Cattle Fair for 31 Fairs and realized an amount of Rs 94,820 against the required amount of Rs 630,730 as per clause 2 of the model terms & conditions of contracts. A nominal amount of Rs 3,058 was realized per Fair against Rs 20,346 and the balance amount of Rs. 535,910 was being misappropriated by the dealing hands. In addition DCR (Demand & Collection Register) showed that amount realized in 17 Nos Fairs were not deposited by the office.

The Misappropriation occurred due to weak internal controls, which resulted into loss to the entity.

When pointed out in August, 2015, management replied that the comparison with previous year is unjustified and the contract was awarded to contractor for 21 Fairs after completion of all codal formalities. The reply was not correct as nominal amount was deposited and the balance amount was misappropriated by the dealing hands.

Request for convening of DAC meeting was made on 07.10.2015, which was not convened till finalization of this report,

Audit recommends to probe into the matter besides recovery and action against the person(s) at fault.

AP No 05/2014-15

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1.2.2 Irregularity & Non-compliance 1.2.2.1 Irregular payment of to contractor Rs. 4.00 Million and overpayment of Rs 80,000. According to Para 48 of CPWD Code, expenditure should be restricted to the funds released and paid during the same financial year and under no circumstances be allowed to stand over and paid from the grant of another year. Further Para 32 of CPWA Code Volume I requires that no work shall be executed without Administrative Approval / Technical Sanction and Budget allotment. Chief Coordination Officer, District Council Charsadda during 2014-15 paid Rs 4,000,000 to a Contractor for black topping of road at Umary Union Council Khan Mai, out of funds provided under District Developmental Fund 2013-14.

the following irregularities were noticed:

1. Funds were allocated under DDF 2013-14 and were irregularly utilized in the year 2014-15. The expenditure was made without the consent of Finance Department/DDC. 2. Expenditure was incurred without obtaining Technical Sanction from competent authority as District Officer Infrastructure & Sanitation was not competent to accord sanction to project of estimated cost of more than Rs 1,500,000. 3. An amount of Rs. 80,000 was paid for 04 Nos Bitumen Barrel to site in addition to P/L Prime Coat of 2675.60 M2@ Rs 135.54. Hence needs to be recovered from the contractor. 4. The schemes were approved from Budget Development Committee instead of District Development Committee (DDC).

The irregularity occurred due to lack of internal control which resulted into irregular expenditure and overpayment of Rs 80,000.

When pointed out in August, 2015, management replied that the scheme was approved by the administrator in Budget & Development Committee (BDC) meeting and technical sanction would be issued by the District Officer of the executing agency. An amount of Rs 80,000 was adjusted in last running bill. The reply was evasive and needed regularization