Audit Report on the Accounts of Defence Services Audit Year 2015-16

AUDIT REPORT ON THE ACCOUNTS OF DEFENCE SERVICES AUDIT YEAR 2015-16

AUDITOR-GENERAL OF PAKISTAN

TABLE OF CONTENTS

Page ABBREVIATIONS AND ACRONYMS iii PREFACE v EXECUTIVE SUMMARY vi AUDIT STATISTICS I. Audit Work Statistics xii II. Audit Observations Classified by Categories xii III. Outcome Statistics xiii IV. Irregularities Pointed Out xiv V. Cost-Benefit Analysis xiv

CHAPTER-1 Ministry of Defence 1.1 Introduction 1 1.2 Status of Compliance of PAC Directives 1

AUDIT PARAS

Pakistan Army 1.3 Recoverables / Overpayments 3 1.4 Loss to State 20 1.5 Unauthorized / Irregular Expenditure 25 1.6 Mis-procurement of stores 46 1.7 Non-production of Auditable Record 52 Military Lands and Cantonments 1.8 Recoverables / Overpayments 57 1.9 Loss to State 88 1.10 Unauthorized / Irregular Expenditure 113 1.11 Mis-procurement of stores 129 Pakistan Air Force 1.12 Recoverables / Overpayments 131

1.13 Loss to State 142 1.14 Unauthorized / Irregular Expenditure 146 1.15 Mis-procurement of stores 153 Pakistan Navy 1.16 Recoverables / Overpayments 159 1.17 Loss to State 167 1.18 Unauthorized / Irregular Expenditure 169 1.19 Mis-procurement of stores 171 Military Accountant General 1.20 Loss to State 175 1.21 Unauthorized / Irregular Expenditure 176 Inter Services Organizations (ISOs) 1.22 Loss to State 179 1.23 Unauthorized / Irregular Expenditure 180 1.24 Non-production of Auditable Record 181

CHAPTER-2 Ministry of Defence Production

2.1 Introduction 184 2.2 Status of Compliance of PAC Directives 184

AUDIT PARAS 2.3 Recoverables / Overpayments 186 2.4 Loss to State 191 2.5 Unauthorized / Irregular Expenditure 195 2.6 Mis-procurement of stores 198 2.7 Non-production of Auditable Record 201 Annexure-I MFDAC Paras (DGADS North) 204 Annexure-II MFDAC Paras (DGADS South) 210

ABBREVIATIONS AND ACRONYMS

AGP Auditor-General of Pakistan AHQ Air Headquarters AMF Aircraft Manufacturing Factory BTS Base Trans receiver Station CBR Cantonment Board Resolution CLAR Cantonment Lands Administration Rules CMA Controller of Military Accounts CEO Cantonment Executive Officer CMH Combined Military Hospital CNE Civilian Non-Entitled CNA Controller of Naval Accounts CRV Certified Receipt Voucher DAC Departmental Accounts Committee DG DP Directorate General Defence Procurement DGP (Army) Directorate General Procurement (Army) DP (Air / Navy) Directorate Procurement (Air / Navy) DP Draft Para DHA Defence Housing Authority DSR Defence Services Regulations E-in-C Engineer in Chief 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

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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 MEO Military Estate Office MES Military Engineering Services MFDAC Memorandum for Departmental Accounts Committee MH Military Hospital ML&C Military Lands and Cantonments MoD Ministry of Defence MoDP Ministry of Defence Production NDU National Defence University NHQ Naval Headquarters NOC No Objection Certificate NLC National Logistics Cell PAC Pakistan Aeronautical Complex PAF Pakistan Air Force PAO Principal Accounting Officer PMB President Measurement Board PNS Pakistan Naval Ship PPRA Public Procurement Regulatory Authority QMG Quarter Master General R&E Risk and Expense RV&F Remount Veterinary and Farms SOP Standing Operating Procedure SRO Statutory Regularity Order STA Special Transfer Account TIP Transfer of Immovable Property TO&E Table of Organization and Equipment UA Unit Accountant UNRA United Nations Reimbursement Account

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 2014-15. The Directorates General Audit Defence Services conducted Audit of the accounts of Defence Services during 2015-16. This Audit Report includes systemic issues and audit findings and relatively less significant issues are listed in the Annexure-I & II of the Audit Report, which shall be pursued in the Departmental Accounts Committees. In the cases where Principal Accounting Officers do not initiate appropriate action, the audit observations will be included in the Audit Report(s) of the following year for consideration of the Parliament. 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 Dated: 02nd June, 2016

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 Defence Services (North & South) has been made on geographical basis. The two Directorates conducted audit of 537 formations of MoD and 17 formations of MoDP during the audit year 2015-16. i. Scope and Objectives of Audit The audit was conducted in accordance with auditing standards of International Organization of Supreme Audit Institutions (INTOSAI) adopted by the Auditor General of Pakistan. Overall audit objective was to assess compliance with financial rules and adequacy of internal controls and examine the issues of propriety and economy of expenditure. An amount of Rs 719.612 billion and Rs 688.650 billion was allocated to the Ministry of Defence and Defence Production respectively for the financial year 2014-15 under Grant No. 26 and 27. Another amount of Rs 163.375 billion was allocated for Defence Pensions under Grant No. 33. A sum of Rs 4.136 billion was allocated under Grant No. 26 to Federal Government Educational Institutions in Cantonments and Garrisons. The Cantonment Boards budget was Rs 20.291 billion in 2014-15.

An amount of Rs 25.791 billion was allocated under United Nations Reimbursement Account (UNRA) and Rs 75.289 billion in Special Transfer Account (STA) during the financial year 2014-15. The total auditable amount for the financial year 2014-15 was Rs 982.703 billion out of which an expenditure of Rs 166.226 billion was audited during the period from July to June, 2015 which comes out to be 17% of auditable amount. ii. Recoveries at the Instance of Audit A recoverable amount of Rs 34.394 billion was pointed out during audit. The executives have accepted Rs 1.990 billion as recoverable amount and recovered an amount of Rs 1.291 billion and US $ 0.509 million. iii. 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. Desk audit was conducted in case of big projects only for which computerized data was available online. 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. iv. Audit Impact The issue of unauthorized use of A-I Land by Defence Services for commercial purposes has regularly been raised by Audit since 1986. However, a policy was finalized in April, 2008 but instances were noticed where Policy was being violated. Audit pointed out the issue during DACs and PACs and as a result of the persistent audit objections, a revised policy is being processed in the Ministry of Defence. The said policy is being framed in the light of issues raised by the audit from time to time.

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In view of the proactive approach of the Public Accounts Committee (PAC) and professional role of Audit, the MoD constituted various audit committees at Services Headquarters and also at lower level to comply with the observations. However, it was noticed that the scope of these committees was limited in nature and so far their contribution towards resolution of systemic issues raised by the Audit remained insignificant. Comments on Financial and Accounting Management i. The final grant No. 26 pertaining to Ministry of Defence for financial year 2014-15 was Rs 719,611.952 million against which expenditure of Rs 709,414.394 million was incurred. Thus, showing an overall saving of Rs 10,198 million which was, however, not surrendered in time. ii. The scrutiny of MAG office compilation revealed that it did not reconcile with sectional compilation prepared by CAAF Peshawar for the financial year 2014-15. In the absence of reconciliation of Rs. 7.900 million, reliability of accounts could not be vouched. The replies furnished by the executive were not supported by documentary evidence. iii. The accounts of CMA (HIT) revealed that Rs. 121.028 million was paid in excess of the actual budget allocation for the financial year 2014-15. The case was required to be regularized from Ministry of Defence which was not done till finalization of this report.

v. Comments on Internal Controls i. An elaborate structure comprising rules, regulations and procedures specifying internal checks regarding procurements, personnel payments and receipts are available in MoD, MoDP and MAG. An Internal Audit Department (Controller Local Audit, Defence Services) also exists to check irregularities and violation of rules and regulations in Defence Services. Despite existing arrangement, recurrence of irregularities was observed.

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ii. Payment function of Ministry of Defence needs to be strengthened further because instances come to the notice of audit where pre-audit and post audit checks were not being applied vigorously. iii. Scope of existing internal audit department does not include information system audit of Management Information Systems (MIS) being operated by Defence Services Organizations. iv. There is no internal audit structure available in Military Lands and Cantonments. vi. Key Audit Findings This Audit Report contains 159 (290 DPs) audit paras categorized as under: i. Recoverables / Overpayments of Rs. 9257.442 million, US $ 1.098 million, and € 67,871 in 137 cases1 ii. Loss to State valuing Rs. 12,074.689 million and US $ 26.513 million in 39 cases2 iii. Irregular / Unauthorized Expenditure valuing Rs. 92,841.442 million, and ¥ 5,974.742 million in 61 cases3 iv. Mis-procurement of Stores valuing Rs. 1,837.572 million and US $ 62,195 million in 45 cases4 v. Non-production of Auditable Record of Rs. 197.667 million, US $ 2.360 million, € 1.211 million £ 0.024 million in 08 cases5

1 1.3, 1.8, 1.12, 1.16, 2.3 2 1.4, 1.9, 1.13, 1.17, 1.21, 1.23, 2.4 3 1.5, 1.10, 1.14, 1.18, 1.22, 1.24, 2.5 4 1.6, 1.11, 1.15, 1.19, 2.6 5 1.7, 1.20, 1.25, 2.7

Recommendations i) The audit observed that most of the irregularities occurred due to lack of knowledge and understanding of rules. The executive departments should undertake massive training of the staff in the basic rules and regulations. ii) Audit noticed that armed forces officers and Junior Commissioned officers are receiving house rent allowance, although, they were availing government accommodation facility, on the plea that a house rent policy was in process for the armed forces personnel. Audit recommends that such policy should be initiated and implemented after vetting from Ministry of Housing and Works and Finance Division. iii) Many Controller offices do not have software for disposal of daily correspondence and for pre-audit activities. Audit recommends that the SAP system and Audit Command Language (ACL) software may be implemented on priority basis in all offices concerned with Defence payments. iv) It has been observed that reconciliation of budget between Budget Directorate GHQ and Office of Military Accountant General is not carried out regularly. The Military Accountant General department should not release payments without reconciliation of the expenditure every quarter. v) The management should take steps to recover Government dues pointed out in this report and also fix responsibility. vi) An internal audit wing comprising qualified officers and staff should be institutionalized in Military Lands and Cantonments Department to mitigate the risk of errors / irregularities. vii) Proper utilization of Annual Training Grant should be ensured to avoid its misuse of funds. viii) Funds to MES formations should be allocated timely allowing sufficient time for spending allocations.

x ix) The unauthorized/unlawful use of A-I land should be checked limiting the use to the specified purposes only. x) The income earned from the use of A-I land should be made transparent, disclosed in the public accounts and provided to Audit for scrutiny. xi) Proper coordination between Central Procurements and Central Stock Depots should be established for good management and utilization of procurement and supply of materials. xii) The Purchase Procedure and Instructions as well as DP-35 should be reviewed, especially with reference to payment clauses regarding LCs by CMA as it is outdated and needs amendment.

AUDIT STATISTICS

Table-1: Audit Work Statistics (Rs in Million) Budget/Actual Sr # Description No Expenditure 1 Total Entities (Ministries/PAOs) in Audit 2 Jurisdiction 719,611.952 2 Total formations in audit jurisdiction 3675

3 Total Entities (Ministries/PAOs) audited 2

4 Total Formations audited 554 332,451.436

5 Audit and Inspection Reports (LTAR) 554

6 Special Audit Reports 0 -

7 Performance Audit Reports 0 -

8 Other Reports 0 -

Table-2: Audit Observations by Categories (Rs in Million) S # Description Amount placed under Audit Observation 1 Unsound asset management 18,843.347 2 Weak financial management 67,576.065 3 Weak internal controls 16,785.307 4 Others 6,522.623

Total 109,727.342

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Table-3: Outcome Statistics (Rs in Million) Sr Description Expenditure Civil Others Receipts Total Total last # on Works current year year acquiring Physical Assets Outlays 1 38,327.905 48,486.394 42,700.203 36,711.195 166,225.697 373,827.297 Audited Amount 2 under Audit 18,794.322 39,646.252 40,097.629 11,189.139 109,727.342 173,062.489 observation Recoverables 3 pointed out 2,518.531 9,157.939 7,686.101 15,031.399 34,393.970 55,884.430 by Audit Recoverables 4 209.869 384.635 502.582 892.715 1,989.801 16,734.068 accepted Recoverables 1,290.716 5 24.669 53.278 1,105.049 107.720 2,763.913 realized + US $ 0.509

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Table-4: Irregularities Pointed Out (Rs in Million) Amount S # Description under Audit Observation Violation of rules and regulations as well as principle of 80,436.892 1 propriety and probity Cases of fraud, embezzlement, thefts and misuse of public 2 - resources

3 Misclassification of expenditure and receipts. 393.729

4 Weaknesses of internal control system 16,785.307 Established recoverable and overpayments, or misappropriation 5 1,989.803 of public money

6 Non-production of record 471.894

7 Others, including cases of accidental loss, negligence etc. 9,649.717

Total 109,727.342

Table-5: Cost-Benefit Analysis (Rs in Million) S # Description Amount

1 Outlays audited (Item 1 of Table 3) 166,225.718

2 Expenditure on audit 246.700

3 Recoverable realized at the instance of audit 1,290.716 + US $ 0.509 4 Cost - Benefit Ratio 1:5

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CHAPTER-1 Ministry of Defence 1.1 Introduction Ministry of Defence (MoD) deals with all policy and administrative matters pertaining to the three armed forces, defence treaties, defence agreements with other Governments and military assistance to foreign countries. MoD also administers Inter Services Organizations, Pakistan Military Accounts Department, Military Lands and Cantonments and Federal Government Educational Institutions in Cantonments and Garrisons. 1.2 Brief comments on the status of compliance with PAC's directives.

The status of compliance of Public Accounts Committee(PAC) directives for the Audit Reports from 1987-88 to 2014-15 discussed during its various meetings held from July, 1992 to December, 2015 is given below:-

Year Total No. of Compliance Compliance Percentage Paras Paras Made awaited / Non of Discussed Complied Compliance 1 2 3 4 5 6 1985-86 76 05 02 03 40% 1986-87 36 06 03 03 60% 1987-88 49 08 01 07 12.5% 1988-89 48 15 03 12 20% 1989-90 69 03 0 03 0% 1990-91 63 04 01 03 25% 1991-92 65 05 0 05 0% 1992-93 91 12 06 06 50% 1993-94 198 83 28 55 33% 1994-95 91 0 0 0 0%

1995-96 102 09 01 08 11% 1996-97 106 104 58 46 55% 1997-98 651 05 0 05 0% 1998-99 762 762 705 57 92.52% 1999-00 443 222 78 144 35% 2000-01 699 85 34 51 40% 2001-02 570 12 0 12 0% PAC directives yet not received from 163 2002-03 163 AGP/NAS

2003-04 112 112 90 22 80.36% 2004-05 55 55 34 21 61% 2005-06 138 121 73 48 60% 2006-07 95 35 13 22 37% 2007-08 56 56 36 28 64.29% 2008-09 39 18 0 18 0% Report yet not discussed 2009-10 Report yet not discussed 2010-11 Report yet not discussed 2011-12 Report yet not discussed 2012-13 Report yet not discussed 2013-14 Report yet not discussed 2014-15 Total 4779 1903 246 159 3.0265

Ministry of Defence fully complied with only 298 PAC directives out of 860 which indicates that compliance of PAC directives was very slow and the Principal Accounting Officer should take serious steps to expedite compliance of PAC directives.

Pakistan Army

1.3 Recoverables / Overpayments – Rs. 139.02Million and US $ 593,565 1.3.1 Non-recovery of rent and allied charges – Rs. 31.172 Million According to Rule-68(b) of Quarters and Rents 1985, a remission of rent in respect of buildings occupied by private individuals, other than those specified in Rule-56, particularly if the individuals concerned use the accommodation for purpose of trade and make a profit out of it or otherwise derive some personal advantage there from. In such cases the full assessed rental or the market rent, as case may be, shall be fixed. According to Para-442 MES Regulations “the GE is responsible for making demands for payment of all revenue, whether credited to Main Head VIII/X-H/Xi-C or D, or compiled as deduction from expenditure, and for taking steps for its prompt realization”. It was observed from the accounts of certain G.E offices that rent and allied charges were not being recovered by them as required under the rules. The detailsare given below:- (Rs. in Million) S # DP No. Unit / Formation Amount 1 DP-N-381/2014-15 GE (Army) Services Rwp 24.496 2 DP-N-582/2014-15 GE (Svcs) Multan 2.045 3 DP-N-619/2014-15 GE (Services) Lahore 1.290 4 DP-N-630/2014-15 GE (services) Gujranwala 1.746 5 DP-N-636/2014-15 GE (Services) Sialkot 1.595 Total (Rs.) 31.172

When pointed out by audit during the year 2014-15, it was replied that partial recoveries were effected and balance would be recovered shortly. The reply was not correct and convincing as these were

neither substantiated with concrete evidence nor anysoundefforts were taken by the executive for effecting the recovery. The DAC in its meeting held in respect of executive mentioned at serial No. 1, on December 11, 2015 directed that recovered amount for Rs. 5.254 million be got verified from audit and balance amount be recovered within 6 months. The DAC in its meeting held in respect of serial No. 2 above, on December 10, 2015 was apprised that out of objected amount Rs. 627,295 (30.66%) was recovered. The DAC directed that recovered amount be got verified from audit and balance amount be recovered within one year. Further, the DAC in its meeting held in respect of executive at serial No. 3 above on December 10, 2015 directed to constitute a committee headed by officer from HQ 4 Corps and one member each from Station HQ Lahore, MEO Lahore, MES Lahore and Director Audit Lahore. Further, following TORs were decided by the DAC for the committee:- i. Ascertaining the particulars of the occupant including period and number of accommodations occupied. ii. Assessing the rate of recovery of rent of occupied accommodations and recovery from each occupant.

The DAC in its meeting held on December 10, 2015, decided to complete recovery action within 03 monthsin respect of executive mentioned at serial No. 4. Lastly, the DAC in its meeting held in respect of executive mentioned at serial No. 5, on December 10, 2015 was apprised that out of Rs. 1.595 million a sum of Rs. 0.656 million had been recovered from officers/JCOs. The DAC directed that recovery process be completed within 03 months and got verified from audit. Audit recommends that compliance of DAC directives be ensured and recovery action be completed within stipulated time. DP-N-381, 582, 619, 630 and 636/2014-15

1.3.2 Non-recovery of Training charges from Foreign Trainees – US $ 593,565 According to Joint Services Instruction No. 4/2006, Training charges will be recovered from the Foreign Trainees when they are provided such facilities in various institutions of the Pakistan Armed Forces Training Institutions. While examining the accounts of Army Aviation Engineering School, Dhamial Rawalpindi, it was observed that 60 Nos. of foreign Trainees students attended courses during FY July, 2007 to June, 2010. The overall training charges were worked out to US $ 593,565 but the recovery of the same was still not materialized. When pointed out by audit in December 2014, it was replied that a sum of US $ 51,000 i.e. Rs. 4,364,108 were recovered on account of training charges. The reply was not sufficient as no relevant record was produced in support of reply. The DAC meeting was held on January 15, 2016 but no reply was furnished by the executive. Audit recommends that documentary evidence of realization of said training charges may be provided. DP-N-77/2015-16 1.3.3 Non-recovery of Pay and Allowances from the officers serving in DHA–Rs. 16.520 Million According to Rule-5 of Financial Regulation Volume-I 1986, “defence expenditure may be sanctioned by the Ministry of Defence with the condition that it shall pertain to defence”. Further, according to Rule-60(e)(I), “an officer must draw his total pay and allowances from the department in which he is serving”. While examining the record held with HQ 4 Corps Lahore Cantonment, it was observed that 14 Nos.army officers were rendering 5

their services in DHA but even then they were drawing their pay and allowances from Government exchequer. It resulted into an unauthorized payment of Rs. 16,524,048. When pointed out by audit in September, 2014, no reply was furnished. The DAC in its meeting held on December 10, 2015 directed that relevant record / documents be got verified from audit. Audit stresses for compliance of DAC directive and completion of recovery action at the earliest. DP-N-651/2014-15 1.3.4 Non-recovery of outstanding Government dues – Rs. 3.553 Million Under Paras-442 and 445 of Defence Services Regulations for the Military Engineering Services 1998, Garrison Engineer (GE) is responsible for making monthly demands and prompt realization of rent and allied charges from the users of military buildings and allied services. While examining the accounts of GE (A) GHQ Rawalpindi it was observed that as per UA‟s letter No. UA/GE-GHQ/26 dated July 23, 2014 addressed to “E” section CMA (RC) Rawalpindi, an amount of Rs. 3,553,412 was recoverable from various contractors as already pointed out by DI&E, Test Audit and other authorities. Effective steps were not taken for early realization of long outstanding Government dues. When pointed out by audit in September 2014, no reply was furnished by the executive. The DAC in its meeting held on December 15, 2015 was apprised that Rs. 1.695 million out of Rs. 3.353 million were recovered. The DAC directed that the recovered amount of Rs. 1.695 million be got verified and action for recovery of balance amount be taken within three (03) months.

Audit stressesfor compliance of DAC directives and finalization of recovery action at the earliest. DP-N-692/2014-15 1.3.5 Non-recovery of risk and expense money from the contractor – Rs. 2.765 Million According to clause-8(d) of PAFZ-2021 of general conditions of contract agreement made between DRV&F HQ 30 Corps Gujranwala and M/s Kashif international Traders Lahore, if the supplier fails to deliver the stores or any consignment thereof, the purchaser shall be entitled at his option to purchase from elsewhere stores not delivered at the risk and expense of the supplier and without notice to him. While examining the accounts of Military Farm Kharian, it was observed that a contract was awarded to M/s Kashif International Traders Lahore for supply of 695 Ton loose white Bhoosa @ Rs. 645/100Kg worth Rs. 4,482,750 during the period May 25,2013 to August31, 2013 under GHQ Rwp letter No. 807/1975/Farms-9R2Q7 dated May 20, 2013. The contractor, however, did not supply fodder as evident from the progress report of loose white bhoosa for the fortnight ending on August 31, 2013. A new Contract at the risk and expense of the defaulting contractor was concluded with M/s Salman Syed for supply of 564 ton BW bhossa @ Rs. 669 per 100 Kg which resulted into an extra expenditure of Rs. 2,764,750. Contrary to clause-8(d) of PAFZ-2021 of general conditions of contract agreement made between DRV&F HQ 30 Corps Gujranwala and M/s KashifInternational Traders Lahore, the farm authorities did not recover the said amount from the contractor. When pointed out by Audit in March, 2015 the farm authorities stated that case was being initiated with GHQ for recovery of extra expenditure of Rs. 2,764,750 from the security of contractor already lying with GHQ Rawalpindi. The reply was not found satisfactory as no effective action was taken regarding recovery of risk and expense amount.

The DAC in its meeting held on January 15, 2016 directed that amount on account of risk and expense money be recovered from the defaulting contractor within three months and got verified from audit. Audit stressesfor recovery action be completed at the earliest. DP-N-14/2015-16 1.3.6 Non-recovery of tower fee – Rs. 1.008 Million As per Policy for installation of Tower Base Transmission in Cantonment area circulated through ML&C Department Rawalpindi videletter No.51/1411/Lands/ML&C/2005 dated June 24,2005 “on provision of NOC “an agreement will be executed with cellular companies to install Base Transmission Station Towers/ antennas in Cantonment area.” The cellular companies will require to pay an antenna/tower fee @ Rs. 40,000 (at A-I Land) and Rs. 20,000 (at C-I Land) per month with an annual increase of 10%. While examining the accounts of CMH Multan,it was observed that a tower of cellular company (Zong)was installed in CMH Multan. The tower fee and ground rent for the year 2012-13 and 2013-14 amounting to Rs. 1,008,000 was not deposited into the Government treasury. When pointed out by audit in August, 2014, it was replied that tower was installed by HQ 2 Corps in the area of MES detachment located at CMH, so the objection pertained to HQ 2 Corps. The reply was not acceptable as recovery of ground rent was to be made by the hospital authorities. The DAC in its meeting held on December 10, 2015 directed that HQ 2 Corps in coordination with CMH must ensure that recovery is effected within three months.

Audit stresses that compliance of DAC directive be made within stipulated time. DP-N-450/2014-15 1.3.7 Non-recovery of rent and allied charges – Rs.34.336 Million According to Para-442 of DSR 1998, the GE is responsible for making demands for payment of all revenue, whether credited to Main Head VIII/X-H/XI-C or D, or compiled as deduction from expenditure, and for taking steps for its prompt realization. It was observed from the record held with formations/units that a sum of Rs.34.336million on account of rent and allied charges was outstanding for the years2012-13, 2014-15 and 2015-16. Details are as under:-

Amount S.No. Unit/Formation DP No. (Rs. in million) 1 GE (Army) Karachi S-173 7.993 2 AGE (Army) Rahim Yar Khan S-81 4.915 3 GE (Army) Services Pano Aqil S-06 3.726 4 GE (Army) Hyderabad S-155 3.448 5 GE (Army) Services Pano Aqil S-41 2.709 6 GE (Army) Services Pano Aqil (2014-15) S-237 2.363 7 GE (Army) Services Quetta S-165 1.259 8 GE (Army)-I Quetta S-181 1.166 9 GE (Army) Karachi S-174 1.097 10 GE (Army) Services Quetta S-163 0.566 11 GE (Army) Services Quetta S-162 0.496 12 GE (Army) Command & Staff College Quetta S-69 4.598 T o t a l 34.336

When pointed out by Audit from November 2013 to September 2015, it was replied that efforts were being made to recover the outstanding amount.

The DAC in its meeting held on January 21, 2016 was apprised that recovery in some cases had been made and in other cases recovery was under process.The DAC directed that full recovery be effected and got verified from Audit. No record / documents were produced for verification of recovery till the finalization of this report. Audit suggests implementation of DAC directive.

DP-S-173, 81, 06, 155, 41, 165, 181, 174, 163, 162/2015-16 and S-237, 69/2014-15 1.3.8 Non-recovery of gas charges on account ofexcess consumption – Rs. 22.071 Million According to Rule-81 of Quarters and Rents 1985 as amended vide letter No.F.5620/109/Qtg-4/F-2/D-3(AIII)/2002 dated October 14, 2009 scale for free consumption of Sui Gas in cook house is prescribed by the government @ 400 cft per month. Consumption in excess of this scale is to be paid by the consumer concerned. Further, according to Para-442 of DSR 1998, the GE is responsible for making demands for payment of all revenue, and taking steps for its prompt realization. A) In threeArmy units, gas was consumed in excess of authorization amounting to Rs. 15.550millionduring the year 2014-15. However, the amount was not recovered from the concerned units/formations. Details are as under:-

Amount S. No. Unit/Formation DP No. (Rs. in Million) 1 GE (Army) Services Quetta S-164 11.556 2 GE (Army) Karachi S-172 3.002 3 HQ Southern Command, 12 Corps, Quetta S-249 0.992 Total 15.550

When pointed out by Audit in September 2014 and September 2015, it was replied that case had been taken up with the concerned authorities for the recovery. The DAC in its meeting held on January 21, 2016 was apprised that notices had been issued for recovery. In case of HQ Southern Command, 12 Corps, Quetta,it was stated that a case had been forwarded to HQ SC-Q (Admn) Branch for the process of regularization.The DAC directed that full recovery of the amount be made and got verified from Audit. No record / documents showing recovery of the amount was provided to Audit for verification. Audit suggests implementation of DAC directive. DP-S-164, 172 and 249/2015-16 B) Regularization of excess consumption of gas instead of recovery – Rs. 6.521 million According to Rule-81 of Quarters and Rents 1985, free supply of sui gas shall be made at places where firewood or K-II oil is so authorized for cooking/heating purposes as per scale. Excess consumption shall be paid by the consumers at the supplying agency rates. In 602 EME workshop, a Board of Officers assembled on November 18, 2013, for assessment of free consumption of gas, but the Board also recommended regularization of all excess consumption i.e. 221,817 cubic meter amounting to Rs. 6.521 million pertaining to previous period.The recommendation regarding excess consumption was unauthorized as the Board was not competent to recommend the same. The Board was only empowered to determine the quantity of gas for future free consumption in the light of the scale fixed by the Government. When pointed out by Audit in September, 2014,it was replied that the gas was used for government purposes, like repair/ maintenance of vehicles/ equipment by different sections. The Board had 11

recommended adjustment of the objected amount. The reply was not acceptable as the Board was not competent to regularize excess consumption of gas consumed in previous years. The DAC in its meeting held on January 21, 2016 was apprised thatgas consumption was within the authorized limit.The DAC directed the executive to produce to Audit the authority / rule according to which gas consumption was authorized. No authority / documentswere produced to Audit for verification till finalization of this report. Audit suggeststhat amount of excess consumption of gas amounting to Rs. 6.521 million should be recovered in the light of rules in vogue. DP-S-259/2015-16 1.3.9 Non-recovery of income tax from contractor – Rs. 7.582 Million As per Section-153 of Income Tax Ordinance 2001 as amended from time to time, every prescribed person making a payment for rendering or providing of services is liable to deduct tax from the gross amount @ 6.5% in the case of a contract. In GE (Army) Kashmore, a sum of Rs.7.582million on account of income tax @ 6.5% and 6% was not deducted from the final bill of M/s NLC Engineering, during the year 2013-14. When pointed out by Audit in March 2015, it was replied that NLC Engineers were a national institution and exempted from income tax.The reply was not tenable as exemption was allowed to only NLC which did not apply to M/s NLC Engineering. Therefore, amount pointed out needed to be recovered from the concerned. The DAC in its meeting held on January 21, 2016 was apprised that M/s NLC were exempted from income tax and certificate to

this effect from concerned authority would be obtained.DAC pended the para till completion of the action. Audit suggests expeditious recovery of the amount of income tax. DP-S-157/2015-16 1.3.10 Non-recovery of stamp duty from contractors –Rs. 6.840 Million As per Government of Sindh Finance Act 2009, “Stamp duty of Thirty paisa for every hundred rupees or part thereof of the amount of the contract will be charged”. Contrary to above rule, the record held with the units/formations revealed that a sum of Rs. 6.840 millionon account of stamp duty was not recovered against certain contracts during the FY 2012-13, 2013-14 and 2014-15. Details are as under:-

Amount S.No. Unit/Formation DP No. (Rs. in Million) 1 GE (Army) Kashmore (Contractor NLC) S-272 2.524 2 ACE 5 Corps Karachi S-90 1.704 3 AGE (Army) Chorr S-119 1.342 4 GE (Army) Hyderabad S-139 0.788 5 GE (Army) Karachi S-171 0.482 T o t a l 6.840

When pointed out by Audit in March 2015, it was replied that Finance Act of Government of Sindhwas not applicable on departments working under Federal Government. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their earlier stance.The DAC directedthat case may be referred to Ministry of Defence for clarification.

Audit suggests expeditious recovery of the pointed outamount. DP-S-272, 90, 119, 139 and 171/2015-16 1.3.11 Non-deposit of BTS towers fee in government treasury – Rs. 5.851 Million According to Para-7(b) of Policy for installation of BTS towers in Cantonments, circulated via Ministry of Defence (ML&C Deptt) letter No. 51/411/Lands/ML&C/2005, dated June 24, 2005. “The cellular companies will be required to pay an antenna / tower fee @ Rs. 20,000 per month with an annual enhancement @ 10% w.e.f June, 2005”. In HQ 16 Div Pano Aqil, 03 BTS towers of cellular companies were installed on A-1 land but no fee had been deposited in government treasury for the period of 2008-09 to 2012-13. This resulted in loss of Rs. 5.850 million. When pointed out by Audit in April 2014, it was replied that there was no policy with regard to BTS tower and rent was charged as per letter received vide HQ 5 Corps letter ID 7VJGCP of June6, 2014. The reply was not acceptable to Audit as the directives of HQ 5 Corps could not over rule the existing policy issued by Ministry of Defence. The DAC in its meeting held on January 21, 2016 was apprised that 6% rent of said BTS towers had been deposited into Government treasury as per commercial DC rates.The DAC directed for verification of relevant record from Audit. No documentary evidence was produced to Audit for verification to show recovery as per Ministry of Defence Policy till finalization of this report. Audit suggests expeditious recovery. DP-S-04/2015-16

1.3.12 Non-recovery of ground rent from PSO Petrol pump – Rs. 3.416 Million According to Rule-13, of Cantonment Land Administration Rules, 1937, “the Military Estate Officer shall maintain plans and schedule of land in class “A” (1) and (2) for each Cantonment, in which land is entrusted to his management. No alteration in plans and schedules shall be made without the sanction of the Federal Government. As soon as may be after 1st April of each year and not later than 1st July, the Military Estate Officer shall submit a certificate, countersigned by the officer commanding the station, to the Federal Government as to correctness of plans and schedules of class “A” land, together with report of any unauthorized structures of encroachment thereon”. According to Government of Pakistan, Ministry of Defence Rawalpindi letter No 3/6/D- 12/(ML&C)/97-2007, dated December 31,2007, ground rent @ Rs. 4 per sqyds per annum on commercial properties will be charged. In Station Head Quarter, Hyderabad, an acre of land pertaining to survey No. 79 was allotted for PSO petrol pump. Record indicated that no ground rent had been recovered from petrol pump since FY 2009-10 to 2013-14, which resulted in loss to state amounting to Rs. 3.416million. When pointed out by Audit in January, 2015, it was replied that as per new log system 2005, Garrison HQs had been established and SHQ placed under command of respective Garrisons. A-1 land was not dealt by SHQ, it was further added.The reply was not acceptable to Audit,as CLA Rule-13 and TO &E of SHQ defined that it was responsibility of SHQ. Also copy of revised rules/system was not produced for verification. The para was not discussed in the DAC meeting held on January21, 2016, as reply was not received from the executive. The DAC pended the para.

Audit suggests matter may be sorted out with Div HQ and Government share be deposited into treasury expeditiously. DP-S-137/2015-16 1.3.13 Overpayment to contractors– Rs. 1.452 Million According to Rule-282 of DSR 1998, the engineer officer who prepares it, is responsible that the Project Estimate (PE) is as accurate as possible in the circumstances. He will decide on the amount of detail to be submitted in support of the costs quoted in the estimate. Further, according to Rule-9 of Financial Regulations Volume II 1986 (Army and Air Force), the responsibility for an over charge shall rest primarily with the claimant, and it is only in the event of culpable negligence on the part of the controlling officer, countersigning officer or the payer of the bill that the question of recovery from them shall be considered. In GE (Army) II Quetta Cantt, the relevant schedule rate for payment of windows, CSW and grills was measured in sft for length and width. The executive, however, took three measurements namely length, width and height resulting in overpayment in the FY 2013-14. As per audit, total quantity of 114 sqm was admissible but payment was made for 447 sqm quantity to the contractor, which resulted in excess payment for 333 sqm amounting to Rs.1.452 million. The irregularity occurred at serial No. 19 and 20 of “taking off sheet” of PE and the same were included in the Bill of Quantities (BQ) of the contract agreement, which stood as overpayment to the contractor. When pointed out by Audit in May, 2015, it was replied that multiplication of three dimensions in Project Estimate was typing mistake but amount of excess quantity was not included in Schedule „A‟of contract agreement.Hence no overpayment was made to the contractor. The reply was not acceptable as it was against the documentary evidence.The admitted fact was that multiplication of three dimensions was typographical mistake in PE but the same incorrect total was

accounted for in (BQ) of the agreement and Schedule „A‟.Thus overpayment to the contractor was established in audit. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their earlier stance. The DAC directed that justifications may be provided to Audit and if Audit was not satisfied, recovery be made. Response of the executive as per DAC directive was awaited till the finalization of this report. Audit suggests recovery of the amount overpaid to the contractor. DP-S-34/2015-16 1.3.14 Unauthorized transfer of funds from public account to Station Command fund/ SS fund – Rs. 1.241 Million Para-7 of Financial Regulations Volume-I, 1986 states that the financial powers, conferred on authorities subordinate to the Federal Government, shall be exercised subject to the condition that funds can be made available from the sanctioned budget provision, either from the provision made for the purpose, or from the provision made for unforeseen expenditure or by re-appropriation. Further, Para-36(j) stipulates that with the exception of local payments for less than Rs. 10.00 and out station payments less thanRs. 100 in value in each case, which should be made in cash, all payments must be made by cheque. In Station Headquarter Karachi, two allotments under pay and allowances one each for 11 and 13 x conservancy staff amounting to Rs. 1,241,268 were received during the FY 2013-14.The payment was taken out in cash and transferred to Station Command fund/ SS fund instead of paying it directly to conservancy staff which was held irregular in audit.

When pointed out by Audit in June 2015, it was replied that the maintenance of respective area was given to the Station Headquarter. The allotments were received late, in October and November of the preceding year. Conservancy staff was being paid from regimental fund as a loan which was recovered on receipt of the amount from CMA. The reply was not satisfactory as no documentary evidence was provided to show that salaries were paid from non-public account. The DAC in its meeting held on January 21, 2016 directed to conduct departmental inquiry and copy of the same be provided to Audit for verification. DAC also directed that the practice be stopped forthwith. Audit suggests implementation of DAC directive. DP-S-95/2015-16 1.3.15 Less recovery of income tax – Rs. 1.213 Million Sub Section(1) of Section-153(1) of Income Tax Ordinance 2001 stipulates that every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person:- (a) for the sale of goods; (b) for the rendering of or providing of services; (c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services,shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule.The rate of tax to be deducted from a payment referred to in Clause (A) of Sub-Section (1) of Section 153 shall be in the case of sale of goods, (i) 3.5% of the gross amount payable in the case of companies; and (ii) 4% of the gross amount payable in the case of other taxpayers. The rate of tax to be 18

deductedfrom a payment referred to in Clause (b) of Sub- Section (1) of Section 153 shall be (i) in the case of transport services, 2% of the gross amount payable; or (ii) in the case of rendering of or providing of services, (A) 6% of the gross amount payable in the case of companies; and (b) 7% of the gross amount payable in the case of other taxpayers The rate of tax to be deducted from a payment referred to in Clause (c) of Sub-Section (1) of Section 153 shall be (i) 6% of the gross amount payable in the case of companies; and (ii) 6.5% of the gross amount payable in the case of other taxpayers A) In GE (Army)-II Quetta Cantonment income tax amounting to Rs. 4.457million, against four cases, was deducted on account of execution of contracts instead of Rs. 5.258million, resulting in less recovery of Rs. 801,013 during the FY 2013-14. When pointed out by Audit in May, 2015, no reply was furnished by the executive. The DAC in its meeting held on January 21, 2016 was apprised that income tax had been correctly deducted and in one case short recovery had been deducted from contractor‟s security. The DAC directed for verification of relevant documents/record from Audit. No record / documents were produced to Audit for verification till the finalization of this report. Audit suggests expeditious recovery of pointed out amount. B) In Garrison Engineer (Army), Pano Aqil income tax amounting to Rs. 412,413 was less deducted with effect from July, 2013 to May, 2014. When pointed out by Audit in September, 2014, the executive stated that the latest tax deduction orders and percentages as indicated by Audit had not been received in their office. The latest

deductions percentages would be in applied in the forthcoming bills as and when received.The reply was not acceptable to Audit, as the unit accountant was responsible to deduct income tax at prescribed rates. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their earlier stance.The DAC directed recovery of full amount and verification of the same by Audit. Record / documentary evidence regarding recovery of the amount was not provided to Audit for verification till finalization of this report. Audit suggests expeditious recovery of pointed out amount. DP-S-30 and 76/2015-16 1.4 Loss to State – Rs. 9.490 Million 1.4.1 Loss due to less recovery of cost of skins – Rs. 1.913 Million According to the decision of the competent authority communicated vide letter No. 440/2/ST6A of HQ Log 12 Div (S&T Br) dated June 26, 2014 and schedule for meat contracts 3 x skins are taken into account against the issue of 100 kg meat on hoof. While examining the accounts of Field Supply Depot (FSD) Muzafarabad, it was observed that meat on hoof was supplied by the contractors but Rs. 1.913 million on account of skins was less recovered as per above criteria. When pointed out by Audit in July 2015, it was replied that GHQ (S&T Directorate) and HQ Log 12 Div were the sole authorities to conclude the contracts and issue to the necessary instructions from time to time. As per existing policy/instructions received from GHQ (S&T Directorate) vide its letter dated August 27, 2002 no hard and fast rule could be applied on mathematical lines in case of animals for obvious reasons.Therefore, it was decided that cost of skins may be deposited by 20

the contractors based on available record /actual No. of goats/sheep viz-a- viz weight duly authenticated by CO/OC of respective supply dep. The reply of the executive was not satisfactory because standard of 3 x skins for every 100 kgs meat was set by CCMA GHQ after consultation of FA (Army). Hence, Rs. 1.913 million on account of cost of skins needed to be recovered from the contractors. The DAC meeting was held on January 15, 2016 but no reply was furnished by the executive. Audit stresses early recovery of above mentioned amount. DP-N-80/2015-16 1.4.2 Loss due to distribution of cost of X-Ray films from CNE patients – Rs. 1.653 Million As per Ministry of Defenceletter No. 13(28)/D-21 A- II/2001, X-Ray test facility is provided to CNE patients and charges recovered will be distributed amongst all. Further, as per Para-10 (d & e) of Med GHQ Rawalpindi letter No. 3532/32/DMS-3 PAC dated March 23, 1981, contrast media/materials, expensive drugs, transfusion fluid, dressing etc, required for civilian non-entitled (CNE) patients will be purchased under their own arrangements. However, in emergency these items may be supplied by hospital but will be replaced at the earliest opportunity. While examining the accounts of CMH Mardan, it was observed that facility of X-Ray tests was provided to civilian non-entitled patients (CNE) during FY 2011-13 on payment but the recovered charges were not deposited into Government treasury rather the same were distributed amongst various wings of the hospital. It resulted into a loss of Rs. 1,653,300. When pointed out by audit in March 2014, it was replied that amount of X-Ray film charges was being deposited into Government treasury on TR as 20% of total income of X-Ray films which were used 21

for CNE patients in accordance with the Government instructions. The reply was not tenable as 100% cost of storesprocured through public funds was not deposited into Federal Consolidated Fund. The DAC in its meeting held on December 11, 2015, directed toget the record verified from Audit while substantiating the view point of the executive. Audit recommends compliance of DAC directive. DP-N-564/2014-15 1.4.3 Loss due to provision of accommodation free of cost – Rs. 1.320 Million According to Para-442 MES Regulations “the GE is responsible for making demands for payment of all revenue, whether credited to Main Head VIII/X-H/Xi-C or D or complied as deduction from expenditure, and for taking steps for its prompt realization”. While examining the accounts of GE (Services) Lahore Cantonment, it was observed that certain officers/Officials were living in Government accommodation but HRA and 5% allied charges were not being recovered from them. Due to that omission Government suffered a loss of Rs. 1,326,161. When pointed out by audit in February 2015, the GE replied that concerned authorities were being intimated for early deposit of objected amount. The reply of the executive was not found prudent as no solid step was taken to recover the outstanding amount. The DAC in its meeting held on December 10, 2015 directed that amount be recovered within 06 months and begot verified from audit. Audit stresses that recovery action be completed and the executive must ensure not to repeat such practice in future. DP-N-617/2014-15 22

1.4.4 Irregular expenditure on replacement of equipment without condemnation – Rs. 3.504 million According to Para-174 of Defence Services Regulations 1998, no article will be removed from the numerical accounts on the grounds that the accounts of the work to which their cost was charged have been closed. They will be actually transferred, sold, or surveyed off on account of having become unserviceable. According to Para-348, on completion of work, completion reports will be rendered in accordance with laid down procedure. In GE (Services) Pano Aqil Cantonment, 09 sewerage submersible pumps with AC electric motors of 15 HP amounting to Rs. 2.035million were replaced without survey board during the FY2013-14. No replacement could be made till the old equipment was surveyed off. Therefore, replacement of equipment stood as irregular. When pointed out by Audit in October, 2014, it was replied that the replaced material was already entered in Demolition Register. The reply was not acceptable to Audit because as perDemolition Statement and Demolition Register, only sewerage submersible pumps were replaced whereas as per Bill of Quantities,sewerage submersible pumps with electric motors 15 HP were required to be replaced. Furthermore, according to Plant Record Register the old complete set comprising pumps and motors were condemned. In view of the evidences Audit was of the view that electric motors were not replaced but payment thereof was made to the contractors. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their earlier stance. The DAC directed for verification of relevant documents/record from Audit. Theexecutive did not provide record / documents in support of their stance to Audit till finalization of this report.

Audit suggests expeditious recovery of the amount pointed out. DP-S-03/2015-16 1.4.5 Loss to government due to non-utilization of drugs – Rs. 1.100 Million According to Rule-6 (A) Financial Regulations, Volume-I, 1986 “every officer should exercise the same vigilance in respect of expenditure incurred from Government revenue as a person of ordinary prudence would exercise in respect of the expenditure of his own money”. In CMH Malir,medicines valuing Rs. 1.010 million procured from supplier during the FY 2012-13, expired due to non- utilization. This indicated that drugs were purchased just to utilize the funds before close of FY without actual need. Details are as under: -

S. Item Qty Date of Current Market Amount No. (Nos.) Expiry rates about (Rs.) (Approx) Rs. Tab Ciprofloxacin 1 23010 Nov 2011 25 per tablet 575,250 500mg Tab Diclofenac 2 104880 Dec 2011 5 per tablet 524,400 sodium 50mg T o t a l 1,099,650

When pointed out by Audit in July 2014, the executive stated that AFMSL, Lahore declared the medicines unfit.Lettershad been written to companies for replacement but the same were not replaced. The matter had been communicated to higher authorities for decision. The DAC in its meeting held on January 21, 2016 was apprised that executive repeated their earlier reply. The DAC directedthe executive to conduct an inquiry and submit report to MoD/Audit for verification. Moreover, security money of the contractor be forfeited and such practice may not be repeated in future.

Compliance of DAC directive was awaited till the finalization of this report. Audit suggests implementation of DAC directive. DP-S-62/2015-16 1.5 Irregular / Unauthorized expenditure – Rs.1,631.738Million 1.5.1 Un-authorized awarding of contracts under Para- 17 of Defence Services Regulations 1998 – Rs.525.783 Million As per Para-17 of Defence Services Regulations, for the MES, 1998 “Notwithstanding anything laid down in these Regulations unexpected circumstances may arise which make it imperative to short circuit normal procedure. Such circumstances may arise from operational military necessity or on urgent medical grounds when reference to the appropriate CFA would entail dangerous delay. If such circumstances arise, any of the authorities detailed in „Table-A” may order the commencement of a work by furnishing an order in writing to the engineer officer concerned, and forwarding immediately a copy of his orders to superior engineer authority with his reasons for giving the orders and the engineer officer‟s estimates of the liability incurred and (c) In all cases which may arise above the earliest possible steps must be taken to regularize matters by normal action contemplated by these Regulations”. While examining the accounts of GE (Hospital), Rawalpindi, it was observed that 20 x CAs were concluded and paid to different contractors for construction of OPD Complex at MH (Basement to 2nd Floor) and Construction of Trauma Centre and Surgical Ward (Basement to 3rd Floor Part-I and II) at CMH Rawalpindi . It was observed that above mentioned construction work did not fall under the criteria as mentioned in para-17 of DSR for MES, 1998. In this case sanction of Government of Pakistan is required and normal action as contemplated in 25

MES regulation is required to be taken which was not done. Further, sanction was accorded for execution of work in piecemeal, which was not in order. When pointed out by audit in August, 2013, it was replied that due to security situation and war against terror competent authority decided to commence projects at MH, CMH, Rawalpindi to curtail life losses. The reply was not found convincing as no documentary evidence i.e. sanction from competent authority was produced to audit. Further, it was observed that work was suspended due to non-finalization of drawings/ design w.e.f August 4, 2011 to May 29, 2013 (22 months) which shows that awarding of contracts under Para-17 of DSR MES, 1998 was unjustified. The DAC in its meeting held on December 10, 2015 directed that sanction of the Ministry of Defence may be provided to audit. DAC also directed thatrelevant documents be got verified from audit. Audit stresses that relevant documents be provided to audit besides fixing responsibility on concerned officers/officials through a fact finding inquiry. DP-N-391/2014-15 1.5.2 Splitting of contracts – Rs. 48.977 Million According to Para-27 of DSR 1998, “no project will be split up merely to bring it within the powers of an approving authority”. Further, according to Ministry of Defence letter issued during June, 2006, the power of QMG for granting Admin sanction to a particular project/work was Rs. 30.00 million. Further, according to Rule-19 of Financial Regulations Volume-I, 1986, “the limit which has been set in each case extends to each separate sanction. The criterion in any case is the total cost of measures and no measure, which requires the sanction of superior authority, shall be sanctioned by a sub ordinate authority in installments”.

While examining the accounts of various GE formations of Pakistan Army, it was observed that expenditures were split to avoid sanction of the competent authority as detailed below:-

(Rs. in Million) S No. DP No. Name of Unit / Formation Amount 1 DP-N-11/2015-16 Military Farm, Sialkot 11.255 2 DP-N-27/2015-16 Military Farm, Gujranwala 17.049 3 DP-N-155/2015-16 Military Farm, Sargodha 8.955 4 DP-N-156/2015-16 Military Farm, Sargodha 11.718 Total 48.977

When pointed out by Audit, it was replied that the works were executed after issuance of separate admin approvals from QMG executed at different locations.The replies were not found convincing as admin approvals were issued separately in order to avoid sanction of the competent authority.Further, the works were of similar nature and sanctions were issued on same dates. As the rules were mis-construed by the executive it resulted in desecrating the regulations, thus bringing loss to the State. The DAC meetings held during the month of December, 2015 directed that regularization action be completed within one month under intimation to Audit. No further progress was reported till finalization of this report. Audit stresses implementation of DAC directive besides fixing responsibility for the unauthorized expenditure. DP-N-11, 27, 155 and 156/2015-16 1.5.3 Un-authorized expenditure due to execution of special works – Rs. 58.719 Million According to Para-21(c)(1) and (2), Para-13 and 64(c) of Defence Services Regulation (DSR) for MES, 1998 (as amended) work is required to be carried out as per accepted standard scales and to the

cheapest possible specification compatible with minimum essential requirements. Special work should not be approved if the effect would be to introduce a new practice or change of scale. Further weather shield paint is authorized as external finish of hospitals. While examining the accounts of GE (A) Hospital Rawalpindi, it was observed that two contracts were concluded at a cost of Rs. 59.859 million which was not justified being special / expensive specification whereas the cost of weather shield paint comes to Rs. 1,139,636. Further, the expenditure also involved introduction of a new practice/change of scale for which Government sanction was required. When pointed out by audit in August, 2013, it was replied that aluminum cladding was provided to external walls as shown in drawings. Although the cladding was an expensive item as compared to weather shield but it was one time/ permanent provision. The reply was not tenable as it was a new practice and required sanction of government. The DAC in its meeting held on December 10, 2015 directed that complete record including concurrence of Military Finance be produced to audit for verification. Audit recommends that an expenditure of Rs. 58.719 million (Rs. 59.859 – Rs. 1.140) may be got regularized from competent authority. DP-N-393/2014-15 1.5.4 Unauthorized conclusion of contract in piecemeal for supply of 105000 kg Polythene Granule LLDP– Rs. 26.271 Million According to Rule-19, of Financial Regulations Volume-1, 1986, “No measure which requires the sanction of the higher authority shall be sanctioned by the sub-ordinate authority in installments”.

While examining the record held with Military Dairy factory, Okara it was observed that contracts were made with M/S Al Sadiq (JT) industries Karachi for supply of 105000 Kg Polythene granule LLDP worth Rs. 26,271,000 in piecemeal to avoid the sanction of higher authority in violation of above financial rule. When pointed out in October, 2014 it was replied that contract was concluded under the power of competent financial authority as per Annexure “H” to Rule-89 Financial Regulations Volume-I, 1986 after adopting all legal formalities. The reply was not accepted as no documentary evidence in support was produced to Audit. The DAC in its meeting held on December 15, 2015 observed that violation of Rule-19 of Financial Regulations Volume-I, 1986 was a serious irregularity.The DAC further directed that fact finding inquiry be conducted and irregularity pointed by audit be regularized within 03 months and submit the report in next DAC meeting. Audit stresses compliance to DAC directive within stipulated time. DP-N-654/2014-15 1.5.5 Unauthorized payment of House Rent Allowance – Rs. 14.658 Million

According to Rule-26 and 44 of Quarters and Rents 1985 “House Rent Allowance is not admissible to government servant provided with married accommodation”. Therefore, the officers of armed forces allotted accommodation may not be paid 45% House Rent Allowance and 5% rent of their running basic pay should also be charged to bring them at par with civilian setup”. While examining the accounts of certain units/formations it was observed that many army officers were living in government accommodations but house rent was not being recovered from their pay

and allowances. The details of the units with recoverable amount are given below:- (Rs. in Million) S # DP No. Unit / Formation Amount 1 DP-N-439/2014-15 70 Medical Bn Lahore 1.240 2 DP-N-448/2014-15 CMH Multan 1.930 3 DP-N-584/2014-15 HQr SFN Div Sargodha 1.860 4 DP-N-591/2014-15 HQ 4 Corps Lahore 2.640 5 DP-N-618/2014-15 GE (Services) Lahore 1.120 6 DP-N-78/2015-16 35 Army Avn, Multan 4.950 7 DP-N-127/2015-16 66 Medical Battalion, Lhr 0.918 Total 14.658

When pointed out by audit, the executive authorities either submitted no reply or requested to pend the para till finalization of the policy. The DAC in its meeting in respect of executives mentioned at serial No. 1 to 7 held on December 10, 2015 decided to wait for the finalization of House Rent Policy. Audit stresses that the House Rent Policy should be finalized only after vetting by Ministry of Housing and Works and Finance Division. DP-N-439, 448, 584, 591 and 618/2014-15, 78 and 127/2015-16

1.5.6 Un-authorized payment of allowance equal to one month basic pay – Rs. 13.268 Million According to Ministry of Finance (Reg. Wing) OM No.F.1(7)1mp/2009-11, dated July 21, 2009, following allowances were allowed to the armed forces personnel:- a) An allowance equal to one month‟s basic pay to the Armed Forces personnel deployed on the western front with effect from July 1, 2009.

b) An Adhoc Relief Allowance-2009 (would be payable) to the remaining Armed Forces personnel (i.e. other than those mentioned at „a‟ above) with effect fromJuly 1,2009 @ 20% of the basic pay for BPS 1-16 and @ 15% for BPS 17-22”. c) An Allowance equal to one month‟s pay to the personnel of all Armed Forces (i.e. other than those mentioned at „a‟ above) with effect from January1, 2010. The Adhoc Relief Allowance-2009 to those mentioned at „b‟ above will be discontinued w.e.f. January 1, 2010. While examining the accounts of under mentioned hospitals, it was observed that an amount of Rs. 13.268 million was paid to Officers/AFNS Officers, JCOs and Soldiers on account of allowance equal to one month’s basic pay during July to December, 2009. They were rather entitled to Adhoc relief allowance 2009 falling under Para-1(b) of above mentioned letter. The Officers/JCOs/ORs in receipt of said allowance were not actually deployed on the western front as required under the aforementioned Finance Division’s letter. As CMH Mardan and Cherat were static units and not deployed at western front, therefore, the expenditure of Rs. 13.268 million was irregular and required to be recovered. (Rs. in Million) Sr. No. DP No. Unit/Formation Amount 1 DP-N-20/2015-16 CMH Mardan 10.919 2 DP-N-451/2014-15 CMH Cherat 2.349 Total 13.268/-

When pointed out by Audit in March and April, 2014 it was replied that objected amount would be recovered and deposited into Govt treasury.

The DAC in its meeting held on December 11, 2015 directed that matter be reconciled with audit and any recovery involved be effected produced to audit for verification. Audit recommendsthat recovery action be completed within shortest possible time and got verified from audit. DP-N-20/2015-16, DP-N-451/2014-15 1.5.7 Irregular payment from Defence estimate for non- Government expenditure – Rs. 5.962 Million Under Rule-5 of Financial Regulations Volume-1 1986, “Sanction for payment from Defence estimate can only be made if expenditure pertains to Defence”. While examining the accounts of 173 Engineer Bn Lahore Cantonment it was observed that certain officers were temporarily posted in DHA Lahore, a private organization, and their pay and allowances were claimed from Defence budget which was irregular. When pointed out by audit in September, 2014 it was replied that reply would follow. The reply was not acceptable as a sum of Rs. 5,962,898 was not recovered from DHA Lahore. The DAC in its meeting held on December 10, 2015 was apprised that 100% amount had been deposited. DAC directed that verification of documents be got verified from the audit. Audit recommends that compliance to DAC directives be ensured and regularization action be completed immediately. DP-N-553/2014-15 1.5.8 Un-authorized issue of POL to payment units – Rs.2.640 Million According to GHQ LS Br (S&T Directorate) letter No. 6327/585/Gen/ST-2-OFTFZ dated April 29, 2014, “POL will only be

issued to those payment organizations mentioned in the list attached with the above letter”. While examining the accounts of POL Depot Sargodha it was observed that considerable quantity of diesel oil was issued to various units on payments and later these units were also issued POL for admn/training,free of cost, during the same period which was irregular. It resulted into an irregular issue of 24,148 liters of diesel worth Rs. 2,640,342 (24,148 liters(x) 109.34). When pointed out in December 2014, it was replied that units were issued POL on payment and in the light of GHQ letter dated April 29, 2014. The reply of the executive was not prudent as the reply was not substantiated with concrete evidence regarding authorization of POL issued to units against Admn/Trg. The DAC in its meeting held on December 11, 2015 directed that relevant documents be got verified from audit. Audit stresses that amount involved may be recovered from the units concerned. DP-N-665/2014-15 1.5.9 Un-authorized issue of K-II oil – Rs. 1.531 Million Under Para-9 general note (L) to Annex-A of SRS (R) 1998, Fuel Oil will not be issued to Cook Houses where the feeding strength is less than 76 men. In such cases firewood, as authorized, will invariably be issued. Units will, however, group smaller units together as and when practicable. While examining the accounts of 11 FF Regt Gujranwala Cantonment, it was observed from the Ration Returns and other related documents for the period Jan-2014 to Dec-2014, that only 39 Nos. of officials were on exercise at “Tilla” but K-II oil quantity of 15307 liters was issued instead of fire wood in contravention to the above Rule of SRS

(R) 1998. The omission resulted in irregular issue/consumption of K-II oil having monetary value of Rs. 1.531 million (15307 x 100). When pointed out by Audit in April 2015, the executive authority stated that troops were deployed at TillaFFR where no other unit was held to which the troops could be attached. The troops deployed at TillaFFR were residing in tentage and due to risk of fire to tentage during storm, K-II oil was used after getting permission of Formation Headquarters. The reply was not found cogent as it was not substantiated with evidence and provisions contained in the SRS 1998, were desecrated. The DAC in its meeting held on December 10, 2015 directed that verification of relevant record / documents be got done from audit immediately. Audit recommends that compliance of DAC directives be ensured and regularization action be completed immediately. DP-N-694/2014-15 1.5.10 Un-authorized retention of rent recovered from Cellular Company – Rs. 1.210 Million According to Policy regarding installation of BTS tower circulated to all Cantonments by ML&C Department vide letter No. 1/1411/Lands/ML&C/2005 dated July 28, 2005, the BTS Company is required to pay Rs. 20,000 per month as antenna / tower fee with an annual enhancement @ 10% and Rs. 100,000 as security for each site. A lease agreement was signed on April 16, 2010 between Military College of Signals (MCS), Rawalpindi and Pakistan Telecom Mobile Limited (PTML) regarding installation of Cell on Wheel (COW) and provision of mobile communication setup for an initial term of two years at a rent of Rs. 20,000 per month with 10% annual increase. It was observed that the said facility was established in MCS in March, 2007 by Ufone on verbal approval. As permission from competent authority for providing this facility was not solicited by the MCS authorities, therefore, 34

it needed regularization from competent forum, besides realization of recovery. When pointed out by Audit in November, 2013, it was replied that MCS verbally approached Ufone for provision of Cell On Wheelsin March, 2007. The reply was not tenable because as per Government Policy the BTS Company was required to pay monthly rent with annual increase along with Rs. 100,000 as security. Therefore, an amount of Rs. 1,213,840 was required to be recovered and deposited into government Treasury. The DAC in its meeting held on December 11, 2015 decided to wait for realization of full recovery and report be submitted. Audit stressesthat an amount of Rs. 1,213,840 may be deposited into Government Treasury besides initiating regularization action. DP-N-578/2014-15 1.5.11 Irregular conclusion of contracts without authority in violation of rules – Rs. 726.286 Million No financial power has been accorded to ACEs in DSR1998, to conclude the Contracts in the light of letter No. 2/12/D- 15/2001 dated 12,2006. In ACE 5 Corps Karachi, it was observed that 85 contracts costing Rs. 726,285,840 were concluded by ACE 5 Corps without authority/power to conclude the contract in contravention of above quoted Rule. When pointed out by Audit in September 2014, it was replied that ACE 5 Corps was empowered to conclude contracts upto the limit of Rs. 15 million, through delegation of powers by DGW&CE. It was confirmed that the amount of each contract observed in the observation did not exceed the limit of Rs. 15.000 million. The reply was not acceptable as ACE was not authorized to conclude any contracts as per 35

DSR. Irregular conclusion of contracts needed to be regularized from the Government of Pakistan. The DAC in its meeting held on January 21, 2016 was apprised that the post of ACE 5 Corp was sanctioned vide Ministry of Defence letter dated October 22, 1988 as ACE South Zone and shifted to Karachi vide DW&CE letter dated November 8, 1997. It was re- designated ACE 5 Corp vide office order No. 107 dated March 10, 2001. Audit did not agree with reply of the executive as DSR published in 1998 superseded all the earlier orders issued by the Government of Pakistan on the subject. The post of Additional Chief Engineer was not included in DSR, 1998. The DAC pended the para. Audit suggests that regularization action may be initiated. DP-S-277/2014-15 1.5.12 Irregular final payments without completion of works – Rs. 65.601 Million According to Rule-408 to 417 of Defence Services Regulations for MES 1998, “there is no provision of advance payment to contractor except secured advance”. A) In GE (Army)-I Malir, an amount of Rs. 61.707 million was paid to various contractors against eight contracts. The completion percentage of works was from 8% to 75% upto June, 2015 but final payments were made in advance. When pointed out by Audit in October 2015, it was replied that final bills were paid on well achieved progress to avoid undue lapse of funds. All mentioned works had now been fully completed. The reply was not acceptable as advance payment without legal coverage was irregular. The DAC in its meeting held on January 21, 2016 was apprised that all payments to contractors were made after well achieved progress/completion of 100% work. The DAC directed to conduct

departmental inquiry to fix responsibility and take disciplinary action against those found responsible and submit report to DAC/Audit. No progress was reported to Audit till the finalization of this report.Audit suggests implementation of DAC directive. DP-S-256/2015-16 B) In GE (Army)-I Malir, a contract was awarded to M/s New Shah Builders against the work “Repair / Renovation of House No.6-D Mirpur lines and 23-D Peshawar Lines” amounting to Rs. 3.894 million. The final bill against the contract was paid on June 15, 2015. Completion certificate of the work was issued on June 8,2015.However, the progress report of the work had shown that work did not even commence in June 2015 due to non-availability of site. When pointed out by Audit in October 2015, it was replied that in order to utilize the allotted funds and to avoid lapse of funds final bill was prepared/paid. However, 70% of work had been done and the remaining work would be completed shortly. The DAC in its meeting held on January 21, 2016 was apprised that due to typing mistake in the progress report „0%‟ was typed instead of 100%. Later on progress report was amended. The DAC took serious notice of the irregularity and directed that a court of inquiry be conducted to fix responsibility on the persons found at fault. The inquiry report may be submitted to Audit/Ministry of Defence for verification. No record / documents were produced to Audit for verification till the finalization of this report. Audit suggests implementation of DAC directive. DP-S-255/2015-16 1.5.13 Irregular / un-justified expenditure out of defence fund on works actually not executed – Rs. 52.490 Million

In 316 MEB, Pano Aqil Cantt, the following allotments were made to this unit out of Defence work fund for construction of six works during FY 2010-11:-

Allocation S.# Defence Works Qty Year in million 1 Construction of 4 Km Def road from 04 23.000 main road to surhian camp (km) 2 Security fence (sft) 30000 5.000 3 Const of Msl storage dump (No.) 01 4.450 2010-11 4 Tps living Shelter Fiber glass temp (No.) 03 13.800 5 Const of Ops (No.) 14 1.440 6 Const of Airstrip with Helipad (No.) 01 18.600 Total 66.290

As per Border Defence Work implementation Committee‟s report on „Defence Works executed out of funds allotted for 2010-11‟, Audit observed that the inspection report was silent about the execution of works listed at Serial No. 1 to 6 (except 4) for which funds were allotted in the year 2010-11. When pointed out by Audit in June 2014, it was replied that funds were allotted to this unit for execution of six objected works during FY 2010-11 and 2012-13 and completed during 2010-11. The reply was not acceptable as no record was produced in support of their stance. The DAC in its meeting held on January 21, 2016 was apprised that executive repeated their earlier stance. The DAC directed that relevant record produced to Audit for verification. The executive did not provide record / documents in support of their stance to Audit till finalization of this report. Audit suggests recovery action be finalized expeditiously. DP-S-246/2014-15

1.5.14 Irregular payment to contractor without budget allotment – Rs. 29.585 Million According to Para-52 of Defence Services Regulation for MES 1998, “funds must be definitely allotted to each service before execution is commenced”. According to Rule-111 and 444 of DSR 1998, the functions of the PMAD Unit Accountant attached to engineer offices are threefold; as accountant, as primary auditor, i.e., charged with the responsibility of applying certain preliminary checks to the initial accounts, vouchers, etc. and as financial assistant. Payments to contractors will be made by the MES by means of crossed cheques after due check/audit of the contractor‟s pre- receipted bills. A) In GE (Army)-I Malir, a contract amounting to Rs. 17.863 million was awarded to M/s Al Kashmir Builders during the FY 2014-15, against the construction of 8 x Soldiers Flats for Ordnance Depot Khairpur line Malir Cantt. An amount of Rs. 17,769,448 was paid to contractor through CBI No.310 dated June 25, 2015 as 1st RAR by showing completion of 99.5% work within 2 months. The time allowed was 12 months for the completion of work. The payment was made without budget allotment and without pre-audit by unit accountant. When pointed out by Audit in October 2015, it was replied that necessary demand against sanctioned amount had already been forwarded in the light of re-appropriation. Physical progress of work at site was 60% therefore this office had to clear all the liabilities as the contractor carried out work at site. Moreover BB No 310 dated June 25, 2015 had been endorsed on 1st RAR by the UA and had also signed Schedule III. Hence no over payment was made. The reply was not tenable as per progress report for the month of June 2015, the work was completed only to the extent of 5% but was shown as 99.5% which was misleading. No documentary evidence was produced showing budget allotment. The marking of bill number and intimation of detail of cheques to the Controller of Military Accounts did not mean pre-audit.

The DAC in its meeting held on January 21, 2016 was apprised that payment was made to contractors according to the physical progress of work from the savings of other projects in the same head of account. Case for regularization was in hand with QMG. The DAC directed to conduct departmental inquiry to fix responsibility and to take action against responsible and to submit report to DAC/Audit. No progress was reported to Audit till finalization of this report Audit suggests implementation of DAC directive.

DP-S-257/2015-16 B) In GE (Army)-I Malir, two contracts were awarded to M/s. Izhar Construction (Pvt) Ltd, for the construction of 11 x Shads at Malir Cantt. The allotment of budget for the said works was Rs.35.000million but the contractor was paid Rs.46.816 million, which resulted in excess payment of Rs.11.816 million than allotted budget. Further, final bill was paid without pre-audit and signature of unit accountant. When pointed out by Audit in October 2015, it was replied that payment was made to the contractor against 100% work done out of funds available from savings of other sanctioned projects. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their earlier stance. The DAC directed the executive to conduct departmental inquiry to fix responsibility and take disciplinary action against those found responsible and submit report to DAC/Audit. No progress was reported to Audit till finalization of this report. Audit suggests implementation of DAC directive. DP-S-252 and 253/2015-16

1.5.15 Irregular use of lapsable funds – Rs. 26.631 Million According to para-52 and 53 of Defence Services Regulations for MES 1998, “if the allotment for a Capital/Major Work cannot be spent in full during the current year, the balance will not be transferred to finance other services but will be surrendered to Service HQ concerned. Such surrenders should normally be made not later than 15th of April. Funds which are not required for the purpose for which granted, or which have otherwise become available and which are not required to be transferred for other purposes for which they may be used under rule, will be surrendered as soon as they become available”. In GE (Army)-I, Malir, an amount of Rs. 26.631 million could not be utilized upto June 30,2015, against eight works. Contrary to above rule, unspent amount, which was required to be surrendered to the Government, was not done by the GE office. When pointed out by Audit in October 2015, the executive stated that it was impossible to pay the allotted amount in full against the objected works due to less progress at site. Therefore, the savings were utilized/adjusted against three other projects to avoid lapse of funds. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their previous stance. The DAC directed to conduct departmental inquiry to fix responsibility and take disciplinary action against those found responsible and submit report to DAC/Audit. No progress was reported to Audit till finalization of this report. Audit suggests implementation of DAC directive. DP-S-254/2015-16

1.5.16 Unauthorized expenditure on purchase of Electro Medical Equipment – Rs. 19.061 Million According to Rule-463 and 464 of Regulations for Medical Services of Armed Forces Volume II (Instructions) (Parts 1 to IV) 1978, “MME Scales are the scales on which field as well as peace units are raised. These are issued on the authority of Government of Pakistan and constitute the basis of initial supply to a unit. The items which are not in the MME Scale cannot be demanded”. Two Hospitals, locally purchased electro medical equipment valuing Rs.19.061 million during FY 2012-13 and 2013-14 without inclusion in MME scales duly approved by the Government before going into purchase process.The details are as under:

Amount S.No. Unit/Formation DP No (Rs. in million) 1 CMH Malir Cantt S-58 11.566 2 CMH Hyderabad S-168 7.495 Total 19.061

When pointed out by Audit in July 2014 and March 2015, it was replied that revision of TO & E for all hospitals was in process.The same was purchased after approval of competent authority. The DAC in its meeting held on January 21, 2016 was apprised that executive reiterated their earlier stance. The DAC directed to get the expenditure regularizedand record verified from Audit. Compliance of DAC directives was awaited till finalization of this report. Audit suggestsimplementation of DAC directive. DP-S-58 and 168/2015-16

1.5.17 Doubtful Expenditure – Rs. 13.065 million Under Rule-47 (e) of Financial Regulations (FR) Volume-I 1986, the most careful supervision over expenditure shall be exercised and on no account shall money be spent simply because it is available. A) In Garrison Engineer (Army) II, Quetta, as per monthly expenditure report for June 2014, Rs. 142.652 million were shown as expended in the month of June 2014, against CA No.NC-A-42/2013 paid vide CBI No.303 dated June 24, 2014. However, as per construction account, the expenditure made in June 2014 was Rs. 149.123 million, that is, an excess expenditure of Rs. 6.471 million. Similarly, according to expenditure statement, expenditure for the whole year 2013-14 was Rs. 170.00 million, but as per construction account the expenditure was Rs. 176.436 million, showing a difference of Rs. 6.436 million. The differences in the figures given in the monthly and annual expenditure statement when compared with corresponding construction accounts made the expenditure doubtful. When pointed out by Audit in May, 2015, no reply was furnished by the executive. The DAC in its meeting held on January 21, 2016 was apprised that excess amount was paid to the contractor on account of income tax and water which was over deducted from the contractors‟ RARs by the UA against the work done. Secured Advances had now been amended in the construction account and monthly expenditure return. The DAC directed for verification of relevant documents/record by Audit. It was further directed that in case of non-completion of action, a court of inquiry be conducted and report submitted to Ministry of Defence/Audit for verification. No progress was reported to Audit till the finalization of this report.

Audit suggests implementation of DAC‟s directive. DP-S-25/2015-16 B) In Garrison Engineer (Army) II, Quetta, as per monthly expenditure report for June 2014, a sum of Rs. 10.040 million was shown as expended in the month of June, 2014 against CA No.ENC-A-45/2013 paid vide CBI No.200 dated June 20, 2014. As per cash book, only one CBI No. 152 dated June 13, 2014 amounting to Rs. 4.963 million for 5th RAR could be traced. The same entry was also available in Construction Account and contractor‟s ledger for the year 2012-13. The remaining amount of Rs. 5.076 million could not be traced despite all efforts. Therefore, the expenditure was considered doubtful as it could not be verified in audit. When pointed out by Audit in May, 2015, it was replied that the accounts were not finalized due to amendment involved in the contracts. As and when sanction was accorded the final bill would be prepared and final state of account would be updated.The reply was evasive and irrelevant as the amount shown as expended in expenditure statement was based on cash book but the latter had no such entry. The DAC in its meeting held on January 21, 2016 was apprised that the work was still in progress so the final accounts of the work were not closed in last FY and no payment had been made to the contractor. However, the office incurred expenditure according to allotment mentioned in monthly expenditure report of June 2014. The DAC directed for verification of relevant documents/record by Audit. In case of non-completion of action, a court of inquiry be conducted and report submitted to MoD/Audit for verification. No progress was reported to Audit till the finalization of this report. Audit suggests implementation of DAC directive. DP-S-24/2015-16

C) In Garrison Engineer (Army) II, Quetta, as per monthly expenditure report for June 2014, a sum of Rs. 15.00 million was shown as expended in the month of June 2014 against CA No.ENC-A-46/2013 and final bill paid vide CBI No. 246 date June 20, 2014. As per cash book, only two CBIs bearing No.189 dated June 20, 2014 for Rs. 9.007 million for 2nd RAR and CBI No. 246 dated June 20, 2014 for Rs. 4.475 million (total Rs. 13.483 million) could be traced. The same entries were also available in construction account but contractor‟s ledger for the year 2012-13 was not updated despite lapse of a year. The remaining amount of Rs. 1.516 million could not be traced despite all efforts. Therefore, the expenditure was considered doubtful as the same could not be verified in audit. When pointed out by Audit in May, 2015, no reply was furnished by the executiveduring discussion. The DAC in its meeting held on January 21, 2016 was apprised that the work was sanctioned by the competent authority accepting the necessity, under Para-17 0f DSR (MES Regulations) 1998. The funds had been spent on completion of work against the project. The DAC directed for verification of relevant record / documents by Audit otherwise inquiry may be conducted and report submitted to Ministry of Defence / Audit. No record / documents were produced to Audit for verification till the finalization of this report. Audit suggests implementation of DAC directive. DP-S-35/2015-16 1.5.18 Non-deposit of share into Government treasury of Balochistan Askari Mall and Quetta Askari Mall According to policy on use of A-1 Land circulated vide MoD letter No.F.2/5/D-12/ML&C/99 dated April 2, 2008, in order to launch essential commercial activity required to serve the residents of the 45

respective garrison, survey will be conducted by a board of officers to determine the actual area under usage. The rent shall be charged @ 6% per annum of existing Revenue Rate of the said land. 25% of the rent will be deposited into Government Treasury. In HQ Southern Command 12 Corps Quetta, two shopping centers namely Balochistan Askari Mall and Quetta Askari Mall were being constructed on “A-1” land during the FY 2014-15.Neither copy of Board of Officers nor evidence of deposit of Government share into Government Treasury was produced to Audit, which resulted in loss to state. When pointed out by Audit in September 2015, it was replied that so far no such activities were taking place and the case was in GHQ for approval. The reply was not correct as construction had already started on the sites and marketing material had been floated for publicity. The DAC in its meeting held on January 21, 2016 was apprised that case had been referred to higher authorities for approval.The DAC directed to convene a Board of Officers to determine the status of A- 1 land and Government‟s share as per A-1 Land Policy. The Government share so determined may be deposited into Government treasuryand got verified from Audit.Compliance of DAC directives was awaited till the finalization of this report. Audit suggests implementation of DAC‟s directive. DP-S-250/2015-16 1.6 Mis-procurement of stores – Rs. 1,445.032 Million 1.6.1 Award of contracts in violation of Public Procurement Rules – Rs.693.948 Million A) According to Rule-12(1,2) of PPRA-2004, all procurements over one hundred thousand rupees and upto the limit of Rs. 2.00 million shall be advertised on the authority‟s website. Further, procurement over 46

Rs. 2.00 million should be advertised on the authority‟s website as well as in two national dailies, one in English and the other in Urdu. Further, PPRA Rule-51, stipulates that “the provisions of these rules shall have effect not withstanding anything to the contrary contained in any other rules concerning Public Procurements; provided that the prevailing rules and procedures will remain applicable only for the procurement of goods, services and works for which notice for invitation of bids had been issued prior to the commencement of these rules unless the procuring agency deems it appropriate to re-issue the notice for the said procurement after commencement of these rules.” B) Further, according to Rule-38 of Public Procurement Rules, 2004, “the bidder with the lowest evaluated bid, if not in conflict with any other law, rules, regulations or policy of the Federal Government, shall be awarded the procurement contract, within the original or extended period of bid validity”. While examining the record of following units/formations it was observed that different contracts were concluded without observing laid down procedure of Public Procurement Rules 2004 as detailed below: (Rs. in Million) S Name of Unit / Formation DP Nature of Amount No. No. procurement 1 Military farm, Bolan Okara 611 Animal Fodder 12.953 568 Purchase of 2 QMG Fund, Rwp 437.767 furniture 3 Military Farm, Kharian 21 Animal Fodder 21.532 4 Remount Depot Mona, 154 27 cases 221.696 Total 693.948

The violation of Public Procurement Rules was pointed out in respect of above mentioned formations against which executive formations submitted different replies which were not found convincing as neither the replies were substantiated with concrete evidence nor PPRA Rules were followed during procurement process.

The DAC in its meetings held during the month of December, 2015 directed to hold fact finding inquiries besides completing regularization action from the competent authority. However, in some cases DAC could not be held despite repeated requests. Audit recommends prompt action for regularization of mis- procured amounts besides fixing responsibility on concerned officers/officials. DP-N-611, 568/2014-15 and 21, 154/2015-16 1.6.2 Award of contracts in violation of Public Procurement Rules – Rs. 722.702 Million According to Rule-12 (1 and 2) of PPRA-2004, all procurement over one hundred Thousand Rupees and up to the limit of Rs. 2.000million shall be advertised on the authority‟s website. Further procurement over Rs. 2.000million should be advertised on the authority‟s website as well as in two national dailies, one in English and the other in Urdu. According to Rule-13(1) of PP Rules 2004, under no circumstances the response time shall be less than 15 days for national competitive bidding. During audit of different units/formations, it was observed that contracts were concluded in violation of Public Procurement Rules 2004. Details are listed below:-

DP No. Amount S # Name of Unit / Formation (Rs. in million) 1 GE (Army) I, Quetta (2014-15) S-284 161.310 2 AGE SI&T, Quetta S-121 16.485 3 316 Mech Engr, Bn, Pano Aqil (2014-15) S-241 110.790 4 316 Mech Engr, Bn, Pano Aqil (2014-15) S-243 1.305 5 CMES (Army) Hyderabad S-307 2.574 6 AGE (Army) Chorr S-110 14.400 7 AGE (Army Rahim Yar Khan S-120 2.950 8 CMES (Army) Quetta S-49 234.603 9 GE (Army) Kashmore S-148 55.073 10 8 Engineer Bn, Hyderabad. S-152 4.009 48

11 8 Engineer Bn, Hyderabad. S-66 53.09 12 ACE 5 Corps, Karachi S-91 42.433 13 GE (Army) Pano Aqil S-77 9.423 14 AGE (Army Rahim Yar Khan S-82 4.339 15 CMH Hyderabad S-122 7.495 16 CMH Malir Cantt S-61 2.423 Total 722.702

When pointed out by Audit from April 2014 to April 2015, the executive stated that all codal formalities were fulfilled. However, the replies of the units/formations were not convincing as no substantive evidence was provided. Paras were discussed in DAC meetings held in January 21, 2016. The DAC directed that fact finding inquiry may be conducted and responsibility fixed on the person(s) found at fault. The DAC also directed to the violation of rules regularized. No progress was reported to Audit till finalization of this report. Audit suggests implementation of DAC directive. DP-S-284, 241, 243/2014-15 DP-S-121,307,110,120,49,148,152,66,91,77,82, 122 and61/2015-16 1.6.3 Irregular expenditure of Rs. 27.382 Million and misappropriation of funds – Rs. 1.000 Million As per Para-14 of MoD letter No.F.5/32/ME/D-5/04 of 27 Dec 2004, on receipt of all relevant documents, CMA will scrutinize the documents for their accuracy and carry out pre-audit and issue crossed cheque for the required amount in favour of the bankers of the contractor. Further according to Rule-12 (2) of Public Procurement Rules, 2004, all procurement opportunities over two million rupees should be advertised on the Authority‟s website as well as in other print media or newspapers having wide circulation. The advertisement in the newspaper shall

principally appear in at least two national dailies, one in English and the other in Urdu. In 317 Mechanized Engineer Battalion Bahawalpur, Rs. 27,381,550 was received from HQ 26 Mech Div Bahawalpur for remodeling of Khanpur-Tamewali Field Firing Range (KPT FFR) out of Al-Mizan funds during the FY 2012-13 and 2013-14. Following irregularities were observed:- i) Misappropriation of funds: bills of supplier(s) were paid through cheques by the unit and those bills were retained/placed in cash account folder. In those bills certain quantities of certain stores were shown as paid to contractor and same quantities were taken on charge by mentioning ledger pages on CRVs. Later on while sending the same bills to CMA Multan for post audit the quantities were either increased or decreased. The net amount involved in these adjustments was Rs. 1,000,432. By manipulation of quantities of said store, the amount was concealed fraudulently in the form of GST or otherwise. ii) As per Para-14 of MoD letter No.F.5/32/ME/D-5/04 of December27, 2004, payment to the contractors should have been made by CMA Multan, instead of the Unit, by issuing crossed cheques for the required amount to the contractors. iii) Against 03 transactions, no advertisements were published in daily newspapers in violation of PPRA rules. Limited tendering was done, which was irregular. When pointed out by Audit in May 2014, it was replied that training facility was being developed for improving firing standard of armored fitted vehicles. After approval of COAS, phase wise amount was allocated to HQ 26 Mech Div by GHQ MT Directorate. So far as sanction of project is concerned, sanctions were issued in piecemeal by IGT&E on behalf of COAS. The allocation was further allotted to 317 MEB by HQ

26 Mech Div Bahawalpur. Purchases were made in piecemeal due to limited financial powers of GOC. Advertisements were given in newspapers and PPRA web site. Due to paucity of time and urgency for completion of Project minimum possible time was given to contractors for submission of quotations. Amount allotted to 317 MEB in the shape of crossed chequesby HQ 26 Mech Div showed that the amount had already been pre-audited by CMA. The reply was not acceptable to audit as the unit itself admitted that transactionswere executed inpiecemeal. Certain quantities of stores were shown as paid to contractor and same quantities were taken on charge by mentioning ledger pages on CRVs which were either increased or decreased when submitted to the CMA. However, by adjustment of said plus/minus figures the net effect of embezzlement comes to Rs. 1,000,432. Direct payment to contractor(s) by the unit instead of CMA Multan was violation of Ministry of Defence instructions. PPRA rules were violated which required regularization from competent authority. The DAC in its meeting held on January 21, 2016 was apprised that project was assigned to 317 Mech Engrs Bn by the competent authority, therefore, no administrative approval was required. It was further informed that PPRA rules were also not violated; GST was also deposited by the contractor through invoice. Pre-audit of funds was also carried out at the end of HQ 31 Corps and funds were further allotted to 317 Engrs Bn through HQ 26 Mech Div. The DAC directed that matter may be investigated through a court of inquiry and report submitted to Ministry of Defence /Audit within 15 days. No progress was reported to Audit till finalization of this report.Audit suggests implementation of DAC directive. DP-S-226/2015-16

1.7 Non-production of record – Rs. 188.067Million

1.7.1 Non-production of auditable documents regarding recovery of rent from area of fortress stadium/marriage halls constructed on A-I land – Rs. 74.360 Million As per Para-81 of Quartersand Rents 1985, free supply of Sui Gas shall be made at places where fire wood or K-II oil is so authorized for cooking/heating purposes as per scales given by the geysers. While examining the accounts of GE (Air) MM Alam Mianwali,it was observed that certain Geysers were installed at different places without authorization.The sui gas was being utilized at Government expense and Sui gas was made authorized to those geysers by the Board of officers which was not covered under rule. It resulted into a loss or Rs. 3.988,292 (997,073 x 4). The loss sustained may be got regularized by the competent authority. When pointed out by audit in January 2015, it was replied that no board had been ordered/conducted regarding free authorization of Sui Gas. The reply was not sufficient as the same was neither substantiated with evidence nor regularization action was initiated. The DAC in its meeting held on December 10, 2015 directed to verify the relevant record / documents from audit. Audit recommends that compliance to DAC directives be ensured and relevant documents be provided to audit. DP-N-686/2014-15 1.7.2 Non-production of Auditable Documents – Rs. 3.354 Million Under section-14(1)(b) of the Auditor General‟s (functions, powers and terms and conditions of service) Ordinance No. XXIII of 2001, the Auditor General of Pakistan shall, in connection with the

performance of his duties have authority to require that any accounts, book, papers and other documents which deal with or form the basis of or otherwise relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may direct for his inspection. Further, under section-14(3), any person or authority hindering the auditorial functions of the Auditor General regarding inspection of accounts shall be subject to disciplinary action under relevant Efficiency and Discipline Rules, applicable to such person. While examining the accounts of Headquarters 10 Division Lahore, it was observed that HQ 4 Corps Lahore allocated an amount of Rs. 2,604,977 to HQ 10 Div during the period 2013-14 under various grants and the same was utilized during the same period. The audit team had requested many times for provision of documents, but the same were not made available to audit till the close of audit. Further, it was observed that IGT&E Br (MT Directorate) GHQ Rawalpindi allocated an amount of Rs. 750,000 to HQ 10 Div during the period 2013-14 under the head AL- Mizan (CSF Fresh) and the same was utilized during the same period. When requested by the audit for provision of documents, the same were again not made available to audit till the close of audit. When pointed out by the audit in May 2015, it was replied that due to high commitments of handing/taking of officers, operation AL- Mizan, operation Zar-e-Azb and national action programme the required documents could not be produced to audit. The reply was not sufficient as the executive had not handed over of record to audit. The DAC in its meeting held on January 15, 2016 directed that verification of relevant record / documents be got completed from audit. The DAC further directed that instruction be issued to concerned executive to avoid recurrence of such instances in future.

Audit recommends that compliance to DAC directives be ensured and relevant documents be provided to audit.

DP-N-108/2015-16 1.7.3 Irregular expenditure due to non–production of record – Rs. 110.353 Million According to Rule-31 of Financial Regulations, 1986 Volume-II, an AuditOfficer may call for any explanation, account, document or voucher in support of cash andstores transactionsmust be furnishedwithout challenge. In HQ Southern Command 12 Corps, Quetta, Rs. 110.353 million were expended over construction of Schools, Basic Health Units and Dispensaries, which were destroyed in the earthquake of 2008. No detail of expenditure, vouchers, project estimates, contract agreements, completion certificates and tender documents were provided to Audit for verification of expenditure. When pointed out by Audit in September, 2015 no reply was furnished by the executive. The DAC in its meeting held on January 21, 2016 was apprised that Rs. 110.352 million was raised by donation of one day basic pay by troops for earthquake that hit Baluchistan in the year 2008. Amount was further allocated to HQ Engrs SC for re-construction of education and health facilities in earthquake affected areas. The DAC directed for verification of relevant documents/record by Audit. No record/document was produced to Audit for verification till the finalization of this report.

Audit suggests implementation of DAC‟s directive. DP-S-248/2015

1.7.4 Non-production of Record by Frontier Works Organization

Article-170 (2) of the Constitution of the Islamic Republic of Pakistan,1973 provides that the audit of accounts of the Federal and of the Provincial Governments and the accounts of any authority or body established by or under the control of the Federal or Provincial Government shall be conducted by the Auditor General who shall determine the nature and extent of such audit”. The contents of this constitutional provision were further confirmed by the order of the Supreme Court of Pakistan dated July 8, 2013 given in CMAs No. 3330,3471, 3594/2013 which gave mandate to Auditor General of Pakistan to conduct audit of all organizations established by or under the control of the Federal of Provincial Governments. Section-14 of the Auditor General‟s Ordinance, 2001 provides that Auditor General has authority to inquire that any accounts, books, papers and any other documents which deal with, or form, the basis of or were otherwise relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may direct for his inspection. Any person or authority hindering the audit functions of Auditor General regarding inspection of accounts shall be subjected to disciplinary action.Order of the Supreme Court of Pakistan in Suo Moto Case No.12/2015. Audit of HQ 494 Engineer Group, Frontier Works Organization (FWO) was planned in 2015-16. FWO authority was intimated for conducting the audit with effect from November 5, 2015 vide D.G.A.D.S. letter No.986/A-6/Audit Prog/2015-16 dated October 29, 2015. But the Group refused to entertain the audit party till final decision was received from their higher authorities.

The FWO executes projects for Federal and Provincial Governments and the funds for these projects come from the Federal and Provincial Consolidated Funds.

Audit recommends that auditable record may be produced for audit. DP-S-312/2015-16

Military Lands and Cantonments

1.8 Recoverables / Overpayments – Rs. 8,420.397Million 1.8.1 Non-recovery of property tax – Rs. 1,110.918 Million According to Para-92 (1) of the Cantonment Act 1924,“if a person liable of the payment of any tax does not pay within 30 days from the receipt of notice of demand, or show sufficient cause of non-payment of the same to the satisfaction of the Cantonment Executive Officer such sum with all cost of recovery may be recovered under warrant”. Further, according to Para-64 (a) of Cantonment Act-1924, “in the case of Railway stations, Hotels, Colleges, Factories and any other buildings which a Board decides to assess under this clause, assessment would be one twentieth of the sum obtained by adding the estimated present cost of erecting the building to the estimated value of the land pertaining thereto”. Moreover, according to Rule-67 (1) of Cantonment Account Code-1955, “it shall be the duty of the Executive Officer to ensure that all income claimable is claimed, realized and credited to the Cantonment Fund”. According to section-259 of Cantonment Act 1924, “Cantonment Board is liable to recover any Tax and any other money together with the cost of recovery either by suit or an application to a magistrate”. While examining the accounts of certain Cantonment Boards, it was observed that property tax was not being deducted on buildings constructed in Cantt premises and on A-1 land. The details of those Cantonment boardsare given below:-

(Rs. in Million) S No. DP No. Unit / Formation Amount Recovery effected so far 1 DP-367/2014-15 Cantt Board, Chaklala 52.553 32.810 2 DP-472/2014-15 Cantt Board, Bahawalpur 2.360 0.469 57

3 DP-481/2014-15 Cantt Board, Sargodha 2.468 0.750 4 DP-497/2014-15 Cantt Board, Lahore 34.616 -- 5 DP-498/2014-15 Cantt Board, Lahore 800.775 -- 6 DP-499/2014-15 Cantt Board, Lahore 204.418 -- 7 DP-502/2014-15 Cantt Board, Lahore 9.311 -- 8 DP-158/2015-16 Cantt Board, Shorkot 4.417 -- Total 1,110.918

When pointed out by audit in October 2014, it was replied that the efforts were being made to recover the amount. The DAC held in respect of CBs mentioned at serialNo.1, 2 and 8 directed to effect full recovery within a month and already recovered amount may be verified. The DAC in its meeting held in respect of CBs mentioned at serial No. 3 to 6 on December 4, 7 and 8, 2015 directed to pend the para till December 31, 2016 while for CB mentioned at serial No. 7, it decided to wait for the formulation of policy by Ministry of Defence for recovery of property tax on the building constructed on A-I Land. Audit recommends that compliance to DAC directives be made and recoveries be effected immediately under intimation to audit. DP-N-367, 472, 481, 497, 498, 499, 502/2014-15 and 158/2015-16

1.8.2 Non-recovery of rent from commercial activities – Rs. 5,976.117 Million According to Para-92 (1) of the Cantonment Act-1924 if a person liable of the payment of any tax does not pay within 30 days from the receipt of notice of demand pay the amount due or show sufficient cause of nonpayment of the same to the satisfaction of the Cantonment Executive Officer such sum with all cost of recovery may be recovered under warrant”. Further, according to Accounting Procedure on use of A-I land for welfare and commercial projects of the Armed Forces and Canteen Stores Department (CSD), issued by Government of Pakistan, Ministry of Defence letter No. even dated November 20, 2009, rent will be

calculated @ 6% per annum of existing Revenue Rate (old DC Rate) of the said land notwithstanding the tenancy/rent agreement of the Military authorities with the user (s). The rent so calculated was to be deposited to Government Treasury as Government share and Welfare Fund Account of respective Service Chiefs against relevant Head of Account in the ratio of 25:75 respectively through Controller of accounts concerned. Moreover, according to Para-2 (a)(1) to letter dated November 20, 2009 “A Board of officers will be detailed by the respective Corps Headquarters within their area of responsibility to determine the actual area of A-1 land being or required to be used, excluding rods, free parking space (s) and areas left for utility services etc, Calculation of rent shall be worked out @ 6% per annum of existing Revenue Rate (Old DC Rate). According to Rule-9 (6) of Cantonment land Administration Rules 1937 “the management of Class “C” land vests in the Board under Section 108 of the Act”. While examining the record held with certain Cantonment Boards it was found that commercial activities were being run within Cantt premises on A-1 land, however, rent against those activities was not being recovered. The details of such CBs and MEO offices along with recoverable amounts are given below:- (Rs. in Million) S # DP No. Unit / Formation Amount 1 DP-640/2014-15 Cantt Board, Gujranwala 1.481 2 DP-590/2014-15 MEO Peshawar 6.286 3 DP-581/2014-15 MEO Peshawar 7.104 4 DP-567/2014-15 MEO Peshawar 5,781.416 5 DP-386/2014-15 Cantt Board, Kamra 179.830 Total 5,976.117

When pointed out by Audit in December 2014, CB Gujranwala and MEO Peshawar replied that the amount would be recovered in due course of time and documents were regularly provided to CMA (RC) for audit. Further, the observation of audit was taken up and a reference was being made to GHQ through local army authorities for

either retrieval of this land from NLC or payment of rent/other government dues. Moreover, CB Kamra replied that filing station with allied services were initially established on A-1 Land/Defence land by Meraj Rebuild Factory through a contractor in 1996. The said A-1 Land was re-classified, to class “C‟ in February, 2003. A board of officer was constituted by the Chairman on dated November 3, 2005 to assess the value of existing structure/shops constructed on A-1 Land. The outcome of the proceeding of the board was awaited. The replies submitted by the executive authorities were not found rational as the same were not substantiated with evidence. These replies may not help executives in exculpating themfrom the blame as the replies were not supported with relevant documents. The DAC in its meetings held in respect of departments on December 4, 7 and 8, 2015 directed that recoveries be made in the light of A-I Land policy 2008 and same be got verified from audit .Further, MEO Peshawar was directed that matter pertaining to construction of marriage hall on A-I Land may be regularized. Moreover, the DP mentioned at Sr. Nos. 4 and 5 above was pended as the issue being relating to A-I Land will be discussed in presence of reps from GHQ, NLC and CB Kamra in next DAC meeting. Audit stresses that compliance to DAC directives be made and recoveries be effected immediately under intimation to audit. DP-N-640, 590, 581, 567 and 386/2014-15 1.8.3 Less recovery of conservancy charges – Rs. 176.067 Million According to Clause-4 of Conservancy Agreement for the year 2013-14 made between Station Headquarters and different Cantonment Boards “the local Military Authority was required to make payment to the Cantonment Board per annum as per the agreement. Further, under Section-259 of Cantonment Act 1924, Cantonment Board is liable to recover any tax or other liabilities together with the cost of 60

recovery either by suit or an application to Cantonment Magistrate. Moreover, as per Section-98 of Cantonment Act-1924, the Cantonment Board is liable to provide services for the collection, removal and disposal of rubbish, filth, night soil and sludge from all places within the control of local Military authority and as per Clause-4 of the Conservancy Agreement, the Military Authority is liable to make payment to the Cantonment Board for above services. While examining the accounts of different Cantonment Boards, it was observed that different agreements were signed between station commander and the following cantt boards. However, the respective cantt boards could not recover the agreed amounts from the military authorities as per the agreement:-

(Rs. in Million) Amount Status of recovery S # DP No. Unit / Formation recoverable 1 DP-607/2014-15 Cantt Board, Okara 18.615 No recovery effected Cantt Board, No recovery effected 2 DP-579/2014-15 41.317 Bahawalpur Partial recovery 3 DP-503/2014-15 Cantt Board, Lahore 59.226 effected 4 DP-430/2014-15 Cantt Board, Sialkot 4.910 No recovery effected Cantt Board, Walton, No recovery effected 5 DP-427/2014-15 12.203 Lahore 6 DP-70/2015-16 Cantt Board, Sialkot 13.000 No recovery effected 7 DP-122/2015-16 Cantt Board, Bannu 11.080 No recovery effected 8 DP-138/2015-16 Cantt Board, Mangla 7.411 No recovery effected 9 DP-151/2015-16 Cantt Board, Okara 8.305 No recovery effected Total 176.067

When pointed out by audit in October 2014, the executive authorities replied that efforts were being made to recover the amount from army authorities. This reply of the executives was not sufficient as no sound efforts were taken to recover the Government money.

The DAC meeting held in respect of CBs mentioned at serial No. 1,2,3 and 5 on December 4, 7 and 8, 2015 directed the departments to reconcile the amount recoverable on account of conservancy charges with Army authorities within 01 month and for CBs mentioned at serial No. 4 within 03 months and to effect recovery accordingly. The matter was reported to Ministry in September, 2015 in respect of CBs 6 to 9. Neither any DAC was held nor was any reply furnished till finalization of this report. Audit recommends that compliance to DAC directives be made and recoveries be effected immediately under intimation to audit. DP-N-607, 579, 503, 430, 427/2014-15 and 70, 122, 138/2015-16 1.8.4 Non deposit of Cantonment board dues by the owner of private housing scheme – Rs. 24.492 Million According to Cantonment Board Sargodha letter No SC/Bldg/Schematic Plan/E.C/142 dated February 13, 2014. “The private housing scheme “Eagle City” was considered and the schematic plan was approved subject to the payment of all necessary dues/charges payable to Cantonment Board Sargodha”. While examining the record held with Cantonment Board Sargodha it was observed that Schematic plan of private housing scheme „Eagle City Sargodha‟ was approved subject to the payment of all necessary dues / charges to Cantonment Board Sargodha. Even after lapse of considerable time, the dues were not paid by the owner of private housing society although, the amount was increased with the passage of time. In such cases Cantonment Board had sustained a loss to inflation which resulted into non-depositing of Cantonment Board dues amounting to Rs. 24,492,479. When pointed out by Audit in September 2014, it was replied that out of total amount a sum of Rs. 12,000,000 was deposited by

the owner. The reply of executive authorities was verified and found that only Rs. 10,000,000 out of 34,492,479 was recovered. The DAC in its meeting held on December 4, 7 and 8, 2015 directed to settle the Para subject to verification of recovery. Audit stresses that balance amount of Rs. 24,492,479 may be recovered and a fact finding inquiry be started to fix responsibility. DP-N-479/2014-15 1.8.5 Non-recovery of hoarding charges from Army/Civil Aviation Authority – Rs. 17.169 Million According to Para-92 (1) of the Cantonment Act-1924 “if a person of the payment of any tax does not pay within 30 days from the receipt of notice of demand pay the amount due or show sufficient cause of non-payment of the same to the satisfaction of the Cantonment Executive Officer such sum with all cost of recovery may be recovered under warrant”. While examining the accounts of Cantonment Board Lahore it was observed that a sum of Rs. 8.440 million and Rs.8.729 million was lying outstanding on account of hoarding charges against Army authorities (SWOL) and Civil Aviation authorities respectively for the year 2013-14. When pointed out by audit in August 2014, the executive authority agreed to recover the amount involved. The reply was not acceptable as no positive steps were taken by Cantonment Board to recover the dues. The DAC in its meeting held on December 4, 7 and 8, 2015 directed that requisite policy be finalized within 02 months and recovery be made accordingly.

Audit recommends that compliance to DAC directives be made and recovery action be completed. DP-N-493/2014-15 1.8.6 Loss to Cantonment Fund due to non-recovery of hoarding charges from CSD – Rs. 13.382Million According to notification bearing SRO No. 62 of 1976, 100% share of Hoarding Charges installed on any type of land goes to respective Cantonment Board Fund. While examining the accounts of Cantonment Board Rawalpindi, it was observed that Station HQrs Rawalpindi granted permission to CSD management for installation of one billboard (40‟ x 20‟) at Cantonment Plaza Corner on the Mall Road and one LED display (20‟ x 10‟) in Engineer Officer Mess the mall road. Accordingly, CSD installed both the billboards at approved sites as evident from an office note dated January 25, 2011. Cantonment Board, Rawalpindi intimated Station HQs Rawalpindi that CSD was purely a commercial organization and the Boards were installed for the purpose of its advertisement and proposed annual rent of Rs. 1,980,000 on each site. Therefore, an amount of Rs. 11.880 million @ Rs. 1,980,000 each for two Boards for the period from 2011 to 2013 was recoverable. When pointed out by audit in May 2014, the executive authorities replied that the case regarding recovery of Hoarding Charges from CSD authorities was under process. The reply was not correct as no strenuous efforts to get the dues recovered were made by the executive. The DAC in its meeting held on January 13, 2016 was apprised that bill board installed on Mall plaza has been recovered since July 1, 2014. Total recoverable amount against this bill board comes to Rs. 7,442,000. The second bill board has been installed on A-I land. DAC directed to pend the para till amendment in A-I Land policy 2008.

Audit stresses that recovery action be completed besides taking remedial actions for its avoidance in future. DP-N-145/2015-16 1.8.7 Loss to State due to non-recovery of Income Tax on auction proceeds for the FY 2014-15 – Rs. 3.011 Million Under Section 236-A of Income Tax Ordinance 2001, 10% income tax was required to be recovered. While examining the accounts of Cantonment Board Bahawalpur, it was observed that Income Tax against auction proceed for the year 2014-15 was not got deposited into Government Treasury. The omission resulted in loss to state due to non-recovery of income tax amounting to Rs. 3,011,697 being 10%, of Rs. 3,011,696,againsttotal auction proceeds for the FY 2014-15. When pointed out by audit in August 2015, executive authority agreed to recover and deposit the amount involved into Government Treasury. This reply was not sufficient as no concrete measure was taken for effecting the recovery. The DAC in its meeting held on January 13, 2016 directed that recovery of Income Tax be made by February 15, 2016 and got verified from audit. Audit stresses that remaining amount of Income Tax may be recovered and deposited into Government Treasury. DP-N-141/2015-16 1.8.8 Less recovery of conversion charges – Rs.2.621 Million According to ML&C Deptt letter No. 55/45/Lands/ML&C/99 dated February 17,2011 in para-16(a)(3) residential to commercial area 20% of valuation table would be applied. 65

Whileexamining the record held with Cantonment Board Sargodha, it was observed that 25% conversion charges vide CBR No. 08 dated February6,2014 were required to be imposed on Khewat No. 87 Khatooni No. 101 SQ No. 101 SQ N 12 Chak No 47 N.B Sargodha. The plot was shown as contiguous to two rate zones / roads and average of the two rates was applied. It was observed the plot was not contiguous to two rate Zones/Roads. As The Plot was situated at Queens Road, therefore revenue rates of Queens Road i.e. 750,000 per marla was required to be applied. When pointed out by Audit in September 2014, it was replied that average rate of two properties was taken as it was contiguous to two Zones/Roads “as per Government policy, if a property was contiguous to two rate Zones/Roads, the average of the two rates would be applied to the whole site calculating the conversion charges. The reply was not agreed to as conversion charges would be imposed on major road i.e. Queens Road Sargodha. The DAC in its meeting held on December 4, 7 and 8, 2015 directed that recovery action be completed and got verified from Audit. Audit recommends that matter may be got from the competent authority. DP-N-532/2014-15 1.8.9 Non-recovery of hoarding charges – Rs. 347.805 million According to Rule 2(A)(1) of the Pakistan Cantonments Account Code, 1955, the Executive Officer is the principal Executive Officer of the Board and all other officers and servants of the Board are subordinate to him. He is the officer, who has been entrusted by Government with the responsibility of assessing and collecting cantonment revenues.

It was observed from the record held with four Cantonment Boards that a sum of Rs. 347.805 million on account of hoarding charges were outstanding for the years 2014-15 and 2015-16. Details are given below:

Amount (Rs in S. No. Cantonment Board DP No. million) 1 Faisal S-14 66.020 2 Karachi S-227 40.722 3 Karachi S-228 194.710 4 Clifton S-233 46.353 T o t a l 347.805

When pointed out by Audit from March to August 2015, it was replied that notices had been issued to the concerned and amount when recovered would be intimated to Audit. The DAC in its meeting held on January 19, 2016 was apprised that a sum of Rs 40.218 million had been recovered and concerned authorities had been approached for recovery of balance hoarding charges. The DAC directed that a case regarding recovery of balance amount of hoarding charges may be taken up with concerned authorities. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of balance amount. DP-S-14, 219, 227, 228 and 233 1.8.10 Non-recovery of cantonment taxes – Rs. 309.425 million Section-92 of Cantonments Act, 1924, states that if the person liable for the payment of any tax does not, within thirty days from the service of the notice of demand, pay the amount due, or show

sufficient cause for non-payment of the same tothe satisfaction of the Executive Officer, such sum, with all costs of the recovery, may be recovered under a warrant, issued in the form set forth in Schedule II, by distress and sale of the movable property of the defaulter.Every warrant issued under this Section shall be signed by the Executive Officer. It was observed from the record for the year 2015-16 held with five Cantonment Boards that a sum of Rs. 309.425 million was outstanding on account of cantonment boards‟ taxes. Details are given below:

S.No. Cantonment Board DP No. Amount (Rs in million) 1 Faisal S-15 145.695 2 Hyderabad S-113 42.861 3 Hyderabad S-114 0.836 4 Quetta S-123 79.260 5 Korangi Creek S-220 10.563 6 Karachi S-226 6.132 7 Karachi S-229 24.078 T o t a l 309.425

When pointed out by Audit from January 2015 to November 2015, it was replied that efforts were being made to recover the outstanding amount. The DAC in its meeting held on January 19, 2016 was apprised that partial recoveries amounting to Rs. 122.463 million on account of taxes had been made. Efforts were being made to recover the balance amount. The DAC directed to recover the balance amount in full and get the recoveries verified form Audit. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of the balance outstanding amount of Rs. 186.962 million. DP-S-15, 113, 114, 123, 220, 226 and 229/2015-16 68

1.8.11 Non-collection of octroi share from Provincial Government – Rs. 151.921 million According to The Presidential Order No.1 of 2006 regarding allocation of share of Provincial Government, an amount equal to net proceeds of 1/6th of sales tax shall be distributed among the Provinces at the specific ratio (Sindh-34.85%) and the Provincial Governments shall further transfer the whole of such amounts to the District Governments and the Cantonment Boards, without retaining any part thereof. In two Cantonment Boards octroi share amounting to Rs.151.921 million, detailed below, was not paid by the Sindh Government:

Amount S.No. Cantonment Board DP No. Period (Rs in million) 1 Faisal S-9 1999-00 to 2013-14 108.521 2 Pano Aqil S-149 2000-01 to 2013-14 43.400 T o t a l 151.921

When pointed out by Audit in January/March 2015, executive replied that a case had already been taken up with ML&C Department and Sindh Government for payment of Octroi share. The DAC in its meeting held on January 19, 2016 was apprised that the case had already been raised at Ministry of Defence level with the Provincial Government. The DAC directed that case may be pursued vigorously. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery. DP-S-9 and 149/2015-16

1.8.12 Non-recovery of conservancy charges from Pak Army – Rs. 133.491 Million According to Section 98 of Cantonments Act 1924, a Board may make special provisions for the cleansing of any factory, hotel, club or group of buildings or lands used for anyone purpose and under one management, and may fix a special rate and the dates and other conditions for periodical payment thereof, which shall be determined by a written agreement with the person liable for the payment of the conservancy or scavenging tax in respect of such factory, hotel, club or group of buildings or lands. As per GHQ letter No.8017/1125/Budget-2-P3NOC dated March 18, 2014, MoD had cleared all liabilities upto 2014-15. Cantonment Boards were providing conservancy services regularly to Pakistan Army by concluding agreements with Station Headquarters, but an amount of Rs. 133.491 million, as detailed below, was outstanding upto June 30,2015.

Amount S.No. Cantonment Board DP No. (Rs in million) 1 Hyderabad S-118 17.123 2 Pano Aqil S-147 106.992 3 Malir Cantt. S-198 9.376 Total 133.491

Audit observed that as per MoD letter quoted above, all outstanding dues of conservancy were cleared upto 2014-15 but as per record huge arrears were still outstanding When pointed out by Audit in August/November, 2015, the executive stated that case for allotment of balance amount had already been taken up with Army Authorities and HQ ML&C Deptt.

The DAC in its meeting held on January 19, 2016 was apprised that executive reiterated their earlier stance. The DAC directed that full amount may be recovered and record produced to Audit for verification. Further progress was not reported till finalization of this report. Audit suggests early recovery of the outstanding amount. . DP-S-118, 147 and 198/2015-16 1.8.13 Non-recovery of composition charges – Rs. 34.441 million According to Section-185(1) of Cantonments Act, 1924, a Board may, at any time, by notice in writing, direct the owner, lessee or occupier of any land in the cantonment to stop the erection or re-erection of a building in any case in which the Board considers that such erection or re-erection is an offence under Section-184, and may in any such case or in any other case in which the Board considers that the erection or re- erection of a building is an offence under Section-184, within twelve months of the completion of such erection or re-erection in like manner direct the alteration or demolition, as it thinks necessary, of the building, or any part thereof, so erected or re-erected; Provided that the Board may instead of requiring the alteration or demolition of any such building or part thereof, accept by way of composition such sum as it thinks reasonable; Provided further that the Board shall not, without the previous concurrence of the competent Authority accept any sum by way of composition under the foregoing provision in respect of any building or land which is not under the management of the Board. A) In Cantonment Board Malir an amount of Rs. 18,500,362, had been outstanding since 2008 on account of composition charges, which required expeditious recovery.

When pointed out by Audit in November, 2015 it was replied that cases of properties pointed out by Audit had been forwarded to DML&C Karachi for concurrence or regularization of un-authorized construction. As and when amount was recovered Audit would be intimated accordingly. Reply furnished by the executive is an admission of non-recovery of Rs. 18,500,362. The DAC in its meeting held on January 19, 2016 was apprised that the cases for un-authorized construction were in progress for regularization. The DAC directed that complete amount be recovered within one month and got verified from Audit. Further progress was not reported till finalization of this report. Audit suggests recovery action be expedited. B) In Cantonment Board Hyderabad, composition charges amounting to Rs. 15.941 million were imposed under CBRNo.8(c) dated August 29, 2013 but the same was not realized. When pointed out by Audit in August, 2015, it was replied that the lessee of the said property did not agree with the composition charges as worked out by the Board. The lessee filed an appeal to the appellant authority (DML&C) for final decision. Progress would be communicated to Audit after decision of the authority. The DAC in its meeting held on January 19, 2016 was apprised that executive repeated their earlier reply. The DAC directed that case be finalized and got verified from Audit. Further progress was not reported till finalization of this report. Audit suggests recovery action be expedited. DP-S-195 and 117/2015-16

1.8.14 Non-recovery of income tax on auction – Rs. 28.485 million Section 236A of Income Tax Ordinance 2001 provides that any person making sale by public auction of any property shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in Division VIII of Part IV of the first Schedule, from the person to whom such property or goods are being sold. The rate of collection of tax shall be 10% of the gross sale price of any property sold by auction. A) In Cantonment Board Clifton Karachi, three charged parking sites were handed over to successful bidders, for promised bid money of Rs. 46,055,855 without conclusion of contract agreements. No timely action was taken for retrieving the parking sites. Post-dated cheques were accepted against bid money and some were dishonored when presented for encashment. As a result, the cantonment board could recover bid money only to the extent of Rs. 29,877,500 causing less recovery of Rs. 16,178,355 to the cantonment fund. Further, instead of recovering advance income tax of Rs. 5,284,000 from the defaulting bidders, the same amount was paid to the FBR out of cantonment fund. Thus, cantonment board sustained a loss totaling to Rs. 21,462,365. When pointed out by Audit in September, 2014 it was stated that contractors failed to deposit the remaining amount. Final notices were issued to contractors. SHO Police Station, Darakshan, Karachi was requested to register FIR against the defaulters, but the same had not yet been registered. The deposit amount would be fortified after the approval from the Board. The case had also been forwarded to the Cantonment Judicial Magistrate for recovery of remaining amount. The executive further stated that, the FBR was about to seize and attach the cantonment fund account in default of tax liabilities pertaining to the defaulting contractors. The collection agent in compulsion, therefore, paid the tax to the FBR directly from the cantonment fund. The reply furnished

by the executive was an admission of irregularity. No disciplinary case had since been initiated against the officer(s)/official(s) who handed over the sites to the contractors without making agreements and without recovery of advance income tax. Despite repeated advices of Cantonment Legal Adviser (CLA) for initiation of disciplinary actions against the employees, no action was taken. Audit stresses that matter may be looked into by the higher management. The DAC in its meeting held onJanuary 19, 2016 was apprisedthat audit pointed out recovery of Rs. 21.462 million while correct amount was Rs. 16.980 million Out of Rs. 16.980 million, Rs. 5.438 million was exempted on account of force majeure and Rs. 4.996 million was recovered. The balance amount of Rs. 6.496 million would be intimated to Test Audit when recovered. The DAC directed that recoverable amount be reconciled with Audit and recovered amount be got verified. DAC further directed that balance amount be recovered and the case filed in the court against the contractor pursued vigorously. Further progress was not reported till finalization of this report. Audit stresses compliance of the DAC directive. B) In Cantonment Board Faisal Karachi, advance income tax amounting to Rs. 3,717,000 was not recovered from successful bidders @ 10% of their bidson account of auction sale,resulting in loss to state during the FY 2013-14. The details are as under:

Bid Un-recovered Date of Name of Description of auction Amount advance IT auction contractor (Rs) (Rs) Parking site at Afzal M/s M. 27/6/2014 Apartment near old 2,150,000 215,000 Yamin Sabir Allah Ho park Parking site at M/s M. 27/6/2014 Millennium Shopping 8,520,000 852,000 Yamin Sabir Mall

M/s M. Syed 24/6/2014 Shop boards fee 25,500,000 2,550,000 Haider Raza M/s Jamal Ud- Trade & Professional 24/6/2014 1,000,000 100,000 din tax Total 3,717,000

When pointed out by Audit in March, 2015 the executive stated that DC Inland Revenue‟s letter December 9, 2014 wherein it was directed to collect withholding tax under section 236-A of the Income tax ordinance 2001, was received on December 12, 2014. The contracts of charged parking fee were already awarded, therefore, income tax could not be deducted. The reply was not tenable as the advance income tax was required to be deducted by the withholding agent without any reminder issued by the Income Tax Department. The DAC in its meeting held on January 19, 2016 was apprised that efforts were being made to recover the respective amounts from the bidders. The DAC directed that amount of income tax be recovered. In case of non-recovery of amount case may be filed in the court against contractors within one week. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of DAC directive. C) In Cantonment Board Korangi Creek, five different auctions were executed during 2014-15 for a sum of Rs. 21,575,000 but advance income tax amounting to Rs. 2,157,500 was not recovered at the time of awarding contract. When pointed out by Audit in August 2015, it was stated that notices had been issued to all concerned for depositing the amount within 07 days. In case of failure, the tax would be recovered from security deposits of the contractors or through court of law.

The DAC in its meeting held on January 19, 2016 was apprised that reminder notices had been issued to the concerned contractors for recovery of 10% income tax for Rs. 1.148 million. As and when the same was recovered, Audit would be intimated. The DAC pended the para. Audit suggests expeditious recovery of the amount of tax. D) In Cantt Board Manora, six contract agreements were concluded for entertainment activities at Manora during the year 2013-14 but income tax @ 10% of bid money was not recovered from contractors concerned, resulting in loss to state amounting to Rs. 1,148,000. When pointed out by Audit in Feb, 2015, it was replied that notices had been issued to contractors to deposit the amount on account of income tax. The DAC in its meeting held on January 19, 2016 was apprised that executive repeated their earlier reply. The DAC directed that full recovery be completed and got verified from Audit. Further progress was not reported till finalization of this report. Audit suggests compliance of DAC‟s directives. DP-S-229/2014-15, 13, 177 and 221/2015-16 1.8.15 Non-recovery of electric bills of water pumps at Askari-II and III – Rs. 21.958 Million Under Rule-71(3) of The Cantonment Boards Budget Rules, 1966, it is laid down that no expenditure is incurred without proper justification. Cantonment Board Karachi paid electricity bills of Rs. 16,978,050 for water pumps installed at Army Housing Scheme Askari-III and Rs 4,980,322 for Army Housing Scheme Askari-II to KESC w.e.f 2005-06 to 2013-14. The payment of Rs. 21,958,372 was unjustified as no 76

tax on account of water charges was imposed by the Board on Army Housing Scheme Askari-II and III. The amount needed to be recovered from owners of Askari-II and III under intimation to Audit. When pointed out by Audit in April 2015, it was replied that the same observation had already been raised by Audit during audit for the year 2003-04 and this office had replied that the matter was still pending. As and when the issue was finalized, Audit would be informed accordingly. Reply was irrelevant. The Karachi Water and Sewerage Board was providing water to Askari-II and III. Furthermore, no tax on account of water supply was imposed by the Board upon the residents of Askari-II and III. Thus payment of electric bills of water pumps installed at Askari–II and III was unjustified and needed to be recovered. The DAC in its meeting held on January 19, 2016 was apprisedthat the Board was paying the electric bills for motor pumps as per the decision of the Board as the facility had been taken over by the Board. Hence the payment out of cantonment fund was justified. The DAC directed that full amount be recovered and no payment on account of electric bill be made in future. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directives. DP-S-230/2015-16 1.8.16 Irregular grant of perpetuity lease – Rs. 14.551 Million According to Rule-31(1 and 2) of CLA Rules 1937, a lease for a building site for a period not exceeding 30 years or a lease in perpetuity may be granted by the Military Estates Officer, where for special reasons such a course appears to be advantageous to the Central Government. According to old grant policy dated December 31, 2007, 77

regular lease can be issued on the basis of perpetuity for noble causes only to “hospitals, educational/training institutions (including hostel facilities), museum and libraries”. In Military Estate Office Hyderabad, a bungalow in Hyderabad Cantonment, measuring 22,844.80sq.yd was held by Hyderabad Gymkhana Club on Cantt code lease. Out of this, 639 sq.yd was leased out for commercial purpose in 1973. Lease of the remaining area i.e. 22,081 sq.yd expired in 2004. The Secretary Gymkhana club applied for grant of regular lease on 15th January 2004 and sanction was accorded by HQ ML&C for regular lease for commercial purpose for total sum of Rs. 36.507 million on May 31, 2005. However, the said amount was not paid by the lessee who applied again for regular lease on the basis of perpetuity for noble cause/no profit making usage. Audit was of the view that undue benefit was given to the club in finalizing the lease for noble cause for the following reasons. i) According to old grant policy dated December 31, 2007, regular lease can be issued on the basis of perpetuity for noble causes only to “hospitals, educational/training institutions (including hostel facilities), museum and libraries”. However, Gymkhana club served a special class i.e. officers, businessman and landlords etc. thus the lease issued on the basis of noble cause was not valid. ii) Due to grant of noble cause lease instead of regular lease for commercial purpose thus state suffered a loss of Rs. 14.551 million (Rs. 36.507 million – Rs. 21.956 million). When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that no irregularity occurred in grant of perpetuity lease in Sch XI-A of the CLA Rules, 1937 on the basis of noble cause to the Club, which was in accordance with the old grant policy 2007. Audit did not 78

agree with the stance of the executive as the policy had specifically mentioned the type of institutions by names which were to be considered as serving a noble cause and a club was not included therein. The DAC pended the para, and directed to conduct a fact finding inquiry to determine the status of the Club. Further progress was not reported till finalization of this report. Audit suggests that illegal lease may be cancelled and fresh lease issued and recover / deposit Rs. 14.551 million. DP-S-270/2015-16 1.8.17 Non-recovery of rent of residential accommodation/office – Rs. 12.926 Million According to Rule-2(5 and 6) of The Pakistan Cantonments Account Code 1955, it is the duty of the executive officer and the staff employed by the Cantonment Board to see that dues of the Board are correctly and promptly assessed, collected and paid to the treasury. A) In Cantonment Board Karachi, an amount of Rs. 10.854 million was outstanding on account of monthly rent against residential accommodation/ bungalows and office building as under:

S.No. Description DP No. Amount (Rs in million) 1 MEO / DML&C Office S-225 4.616 2 Bunglow # 155/1 (MEO residence) S-224 3.474 3 Hired accommodation of MEO employees S-223 2.764 T o t a l 10.854

When pointed out by Audit in April 2015, it was replied thatthe matter was being taken up with the concerned quarters for early payment of accumulated rent. Recovery when realized from the concerned quarters would be intimated to Audit.

The DAC in its meeting held on January 19, 2016 was apprised that partial amount had been recovered from concerned MEO. The MEO had been approached to deposit the remaining recoverable amount. The DAC directed that recovered amount be got verified from Audit and balance amount recovered within one week. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of the balance amount. B) In Cantonment Board Karachi, an amount of Rs. 2,072,048 was outstanding against CEO Korangi Creek up to June 2014 on account of monthly rent against bunglow No. 1-B-II at DHA Karachi. When pointed out by Audit in April 2015, it was replied that an amount of Rs 412,500 had been recovered. Recovery of the balance amount when made would be intimated to Audit accordingly. The DAC in its meeting held on January 19, 2016 was apprised that a sum of Rs. 0.413 (M) had been recovered on account of monthly rent of Bungalow being used as Official accommodation of CEO. The concerned CEO had been approached to deposit remaining amount of Rs. 1.246 million The DAC directed that recovered amount be got verified from Audit and balance amount recovered within three months. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of the balance amount. DP-S-222, 223, 224 and 225/2015-16 1.8.18 Non-recovery of road cutting charges – Rs. 12.601 Million According to Rule-2(5 and 6) of The Pakistan Cantonments Account Code 1955, it is the duty of the executive officer and the staff

employed by the Cantonment Board to see that dues of the Board are correctly and promptly assessed, collected and paid to the treasury. In Cantonment Board Karachi, no recovery was made from KESC on account of emergency road cutting reinstatement charges since January 2006 till to date which resulted in accumulation of Rs. 12.601 million. The outstanding amount needed to be recovered forthwith. When pointed out by Audit in April 2015, it was replied that this office had taken up the matter with KESC (now K-Electric) for recovery and the progress of the case would be intimated accordingly. The DAC in its meeting held on January 19, 2016 was apprised that efforts were being made to recover the outstanding amount of Rs. 12.601 million from K-Electric. The DAC directed to pursue the case for early recovery of the amount. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of the outstanding amount. DP-S-231/2015-16 1.8.19 Overpayment to contractor due to incorrect preparation of pro-rata rate –Rs. 9.055 Million According to Rule-2-A(5 and 6) of The Pakistan Cantonments Account Code1955, it is the duty of the executive officer and the staff employed by the Cantonment Board to see that dues of the Board are correctly and promptly assessed, collected and paid to the treasury. The executive officer is responsible for enforcing financial order and observance of financial rules. In Cantonment Board Hyderabad, Poly Ethylene pipe, 450 mm dia, complete was laid for sewerage line and payment was made to the contractor for a sum of Rs. 37,963,428 @ Rs. 15,844 per meter by

preparing pro-rata rate instead of correct rate i.e. Rs. 12,065.08, which resulted in an overpayment of Rs. 9,054,579. It is not out of place to mention here that the method adopted by Audit was also adopted by the Board in three other cases in the same work at item No. 6, 7 and 9 , page No.151 of MB No.157. MES had also adopted same method. When pointed out by Audit in August, 2015 it was replied that pro-rata rate had been prepared according to standard thickness, hence, the pro-rata rate of Rs. 15,849 was correct. Reply furnished by the executive was neither correct nor based on facts. As per common practice in vogue in all Cantonment Boards and all over MES, the pro-rata rate had been deduced from the available schedule items in the schedule of rates irrespective of thickness. The criterion adopted in the instant case was different from Board‟s own criteria, adopted in the work of 300 mm dia pipe line of the same contract and same project. Calculations of two MES formations in this regard also supported Audit‟s point of view. The DAC in its meeting held on January 19, 2016 was apprised that executive reiterated their previous stance. The DAC directed that case regarding preparation of pro-rata rate be taken up with E-in-C for reconciliation and produced to Audit. Otherwise amount may be recovered within one week. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directive. DP-S-85/2015-16 1.8.20 Non-recovery of ground rent – Rs. 8.020 Million According to Rule-8(ii) of CLA Rules 1937,all land in the cantonment which “is vested in the Crown”. (except land in Class B(2) which is permanently occupied or used by a Provincial Government) whether applied, or suitable for application, to building, agricultural or 82

other purposes, may be regarded as theoretically liable to pay an annual rent to Government. According to Rule 16, the lease shall be subject to an annual rent which shall be fixed in the manner prescribed in Rule 19 and which shall be liable to revision at each renewal of the lease. According to Rule 19, when rents come up for revision at the end of 30 years the exact amount of enhancement, up to the limit of 50 per cent, provided in the lease form, shall depend on how land values have fluctuated in the interval and not on the value of the buildings themselves or on improvements made by the lessee. The rent charged for a lease under the Cantonment Land Administration Rules must be assumed to be the full market rent of the land unless the lease was deliberately granted on favourable terms. In Military Estate Office Karachi, annual ground rent against 22 category B-3 Land leases amounting to Rs 8,019,666 were outstanding for the last 5 to 40 years, but no serious efforts were made to recover the same. When pointed out by Audit in June, 2015 the executive stated that notices were being served upon the defaulters/lessees from whom ground rent was recoverable. As and when amount was recovered Audit would be informed accordingly.The reply was not acceptable as the cases of outstanding ground rent were 5 to 40 years old. Matter needed investigation to fix responsibility on the person(s) responsible for the non- recovery of government dues. The DAC in its meeting held on January 19, 2016 was apprised that notices had been served upon the lessees to deposit the outstanding ground rent. The DAC directed that case be reconciled with Audit and recovery process be completed. Further progress was not reported till finalization of this report. Audit suggests immediate compliance of the DAC‟s directives. DP-S-142/2015-16 83

1.8.21 Less deposit of shop board fee and parking charges by the contractors – Rs. 5.085 Million Rule-2 (5 and 6) of The Pakistan Cantonments Account Code-1955 provides that “it is the duty of the executive officer and the staff employed by the Cantonment Board to see that dues of the Board are correctly and promptly assessed, collected and paid to the treasury. The Executive Officer is responsible for enforcing financial order and for observance of all relevant financial rules both by himself and by his subordinates. In Cantonment Board Faisal, Karachi rights of charged parking and collection of shop board fee for the year 2013-14 were awarded to two contractors, who were highest bidders, with total bid amount of Rs. 34,020,000. However, recovery of Rs. 28,935,000 was affected from them, resulting in short recovery of Rs. 5,085,000, as follows:

Amount as Amount Less per contract Contractor Irregularity recovered recovery agreement (Rs) (Rs) (Rs) M/s M. Less deposit of charged 8,520,000 7,810,000 710,000 Yamin Sabir parking fee

M/s Syed Less deposit of shop 25,500,000 21,125,000 4,375,000 Haider Raza board fee

TOTAL 34,020,000 28,935,000 5,085,000

When pointed out by Audit in March, 2015 the executive stated that notices under Section 256 of Cantt. Act, 1924 had been issued to the contractors and two cases lodged in court of a magistrate. As and when court order was issued, action towards recovery would be started and intimated to Audit.

The DAC in its meeting held on January 19, 2016 was apprised that executive reiterated their earlier stance. The DAC directed that a court case be filed against the contractor within one week. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of outstanding amount. DP-S-16/2015-16 1.8.22 Non-recovery of outstanding miscellaneous advances – Rs. 3.041 Million According to Rule 42 of the Pakistan Cantonments Account Code, 1955, all advances, other than permanent advances and advances from the provident fund, shall be entered in a Register in form No. Cantt. 11-B. All such advances outstanding at the end of the previous year shall be first entered and thereafter each advance made during the year shall be entered as soon as it is made. The Executive Office shall be responsible for the recovery or adjustment of all such advances and shall bring to the notice of the Board twice a year all cases in which the recovery or adjustment has not been made in due time. When an advance is recovered in cash, or adjusted by deduction from a bill or by transfer entry, the amount shall be noted against the original advance in the column for the month in which the recovery or adjustment is made. In Cantonment Board Hyderabad, a sum of Rs. 3,101,705, on account of miscellaneous advances was outstanding with effect from July 1, 2014 to June 30, 2015, which needed to be recovered expeditiously. When pointed out by Audit in August, 2015, it was replied that a sum of Rs. 2.347 million out of total objected amount of Rs. 3.102 million was outstanding against MEO Hyderabad up to June 30, 2015, whereas an amount of Rs.0.755 million was outstanding against the 85

Cantonment Board‟s officials. As and when recovery was affected, Audit would be informed accordingly. The DAC in its meeting held on January 19, 2016 was apprised that a sum of Rs. 0.154 million had been recovered. The MEO Hyderabad and concerned officials had been asked to refund the amount taken as advance. The DAC directed that full amount be recovered and relevant record produced to Audit for verification. No record / documents were produced for verification till finalization of this report. Audit suggests implementation of DAC‟s directives. DP-S-116/2015-16 1.8.23 Non-recovery of Cantt dues due to non-approval of building plans of AFOHS – Rs. 2.161 Million According to Section 179 of Cantonments Act 1924, whoever intends to erect or re-erect any building in a cantonment shall apply for sanction by giving notice in writing of his intention to the Board. According to Rule 2(1) of Building By-Laws issued vide SRO No.(1)/99 dated April 30, 1999 and SRO No.(1)/2006 dated April 17, 2006, every person intending to erect, re-erect or alter a building shall apply for sanction under Section 179 of Cantonments Act 1924 in Form 1 along with the necessary documents specified therein. According to CBR 16 dated November 4, 2011, Scrutiny Fee at uniform rate of Rs. 15 PSFT will be charged by all CBs in Karachi and Security Fee @ 1% of the cost of construction will be charged. In Cantonment Board Malir, 26 houses, located in Air Force Officers Housing Society (AFOHS) New Malir were assessed in 2012 but neither scrutiny fee nor security fee was charged on the approval of building plans. Therefore, scrutiny fee amounting to Rs. 1,200,720 and security fee Rs. 960,576 may be recovered from the occupants.

When pointed out by Audit in November, 2015, it was replied that the subject land pertained to AHQ (Housing Dte). Layout of said land was approved by AHQ (Housing Dte.) Islamabad. No Policy for approval of building plans of AFOHS was received in that office. Reply furnished by the executive was not acceptable as the Cantonment Act and Building Bye Laws clearly defined that whoever intends to erect a building within the jurisdiction of Cantt Board, he should apply to the Cantt Board for approval of building plans and will pay prescribed fees/charges to the Cantt Board and there was no exception for defence personnel. The DAC in its meeting held on January 19, 2016 was apprised that no building plans were received from AFOHS for approval. However, the case had been initiated with ML&C Deptt for necessary guidance/ recovery of objected amount. DAC pended the para. Further progress was not reported till finalization of this report. Audit suggests early recovery of the pointed out amount. DP-S-202/2015-16 1.8.24 Non-recovery of Government dues on account of unauthorized occupation of land from DOHS – Rs. 1.654 Million Rule-10(2)(viii) of CLA Rules 1937, stipulates that Military Estate Officer is responsible for watching that government departments and Administration make no encroachment beyond the boundaries of their belonging; and Rule 26 note ix(a) stipulates that an encroachment is an unauthorized occupation of Govt. land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. In MEO Hyderabad, B-4 land measuring 0.1355 acres (656.155 sqyds) was encroached by Defence Officers Housing Society 87

(DOHS) in the year 2004. The encroached land was used as lawns of bungalows without making payment of premium and ground rent. As a result, the state sustained a loss ofRs. 1,653,511, calculated as under:-

Amount Description Calculation of Premium and Ground Rent (Rs) Premium 656.155 sqyd x Rs. 5000 per sqyd (Market rate) x 50% 1,640,388 Ground Rent 656.155 sqyd x Rs. 2/per annum x 10 years 13,123 Total 1,653,511

When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that notices would be served upon the lessees either to vacate the excess land or apply for grant of excess land as an extension to their existing holdings. The DACpended the para and directed that action suggested by Audit be completed and produced to Audit for verification. Further progress was not reported till finalization of this report. Audit suggests recovery action be expedited. DP-S-217/2015-16 1.9 Loss to State – Rs. 11,485.230 Million 1.9.1 Loss to Cantonment Fund due to grant of commercial lease free of cost – Rs. 556.502 Million The Rules-16 and 17 of CLAR 1937 provide that free grant of land is prohibited. Rather, it should be put to open auction and leased out to the person / department which agrees to pay highest amount as premium. These rules do not allow any relaxation whatsoever to any functionary including the Government.

While examining the accounts of Cantonment Board Chaklala, it was observed that Cantonment Board had acquired an area of 712 Kanals for expansion of Ayub Park vide notification dated June 13, 1968. Out of above mentioned acquired land, an area measuring 253.44 kanal was leased out to Al-Shifa Eye Trust by the Ministry of Defence, free of rent for construction of Hospital by violating the provisions of section 12 of LAC 1894 which disallows change of purpose in respect of acquired land. Further, a piece of land measuring 30.53 kanals (175 x 942) falling on main GT road was allowed for establishment of Commercial Complex and Petrol Pump/ CNG Station subject to payment of prescribed amount of premium and other dues. Moreover, it was further noticed that sanction for Commercial lease was accorded by the Ministry of Defence on payment of Token Premium of Rs.10 and free of rent vide letter No.75/45/Lands/86/406/D-12/ML&C/2002 dated March 4, 2002 causing loss of Rs.538.186 million (606.066 Marlas x Rs.888,000 per Marla) to Cantonment Fund. Similarly, development charges, of Rs. 18,316,000 (18316 Sq Yards @ of Rs. 1000 per Sq Yard) were also not recovered compounding the loss to Rs. 540.018 million. When pointed out by audit, the executive stated that in respect of Government Defence land under the management of MEO, and all executive actions, sanctions are taken in the name of the President of Pakistan, since the financial proceeds or implication are taken into and upon the Federal consolidated Fund. Further, the CLA Rules, 1937 as applicable to Class “C” land indicate that the Federal Government in the Ministry of Defence was the sanctioning authority, since the financial proceeds or implications were taken into and upon the local Cantonment Fund. As far as the issue regarding free of cost granting of commercial lease was concerned, it was replied that the issue was already under active consideration of Cantonment Board Chaklala and Section 20 of the Societies Act 1860 also barred the incumbent registered charitable society from engaging in commercial projects. The reply was not satisfactory as free grant of lease for any purpose including commercial purpose was not

covered under any Rule. Therefore, amount of premium as objected may be recovered. The DAC in its meeting held on December 4, 7 and 8, 2015 directed to constitute an Inquiry Committee under the chairmanship of JS- I, Ministry of Defence and comprising upon reps from Finance Division (Military), DGADS (North) and ML&C Deptt as members. The Inquiry committee would look into the matter as to how commercial lease was granted free of cost and report in this regard would be submitted to Ministry of Defence PAC Wings within 03 months. Audit stresses that compliance to DAC directives be made and amount of premium as objected may be recovered. DP-N-488/2014-15 1.9.2 Un-authorized conversion of plot No. 3 into schedule IX-C (commercial) – Rs. 67.450 Million According to Para-8 (a) of “Revised Policy of conversion of properties held on old grant/cantonment Code leases into regular leases under the CLA Rules 1937 and conversion/change of purpose of regular leases into fresh lease” issued vide letter No.3/6/D-12(ML&C)97-2007 dated December 31, 2007, in existing cantonments the respective Cantonment Board shall carry out zoning as per by laws/local conditions and development strategy. While examining the accounts of MEO Gujranwala Cantonment, it was observed that sanction for conversion of an area, measuring 1000 Sqyds from residential to commercial in Schedule IX-C of the CLA Rules 1937, of Plot No.3 Survey No. 41/3, Bungalow No.118, Mehmood Ghaznavi Road Sialkot Cantonment was granted vide ML&C Deptt. Rawalpindi letter No. 50/1/Lands/ML&C/10, dated May 3, 2013, whereas the said plot was situated outside the commercial zone. The respective Cantonment Board had not approved that area as commercial zone as no gazette Notification was available with MEO office. Thus,

irregular conversion from residential to commercial in non-commercial zone resulted in un-authorized benefit of Rs. 67,453,168 to the lessee in the shape of value of commercial plot. When pointed out by audit in July 2013, the executive authorities replied that matter was being examined and detailed reply would follow. The reply submitted by executive was not tenable as Cantonment Board had not approved the area as commercial zone. The DAC in its meeting held on December 4, 7 and 8, 2015 directed that verification process of relevant record and documents be got completed. Audit stresses that compliance to DAC directives be made and recovery action be completed besides fixing responsibility. DP-N-464/2014-15 1.9.3 Unauthorized occupation of A-I land by National Logistic Cell and non-recovery of premium – Rs. 51.821 Million besides rent Under Rule-14 (3) of Cantonment Land Administration (CLA) Rules 1937, (A) class land shall not be used or occupied for any other purpose other than those stated in sub rule (i) of Rule-5 without the prior sanction of the Central Government or such authority as they may appoint in this behalf. While examining the accounts of MEO Abbottabad, it was observed that about 5.398 Acre A-I land situated in Hattar Camping Ground was occupied by National Logistic Cell (NLC) without prior approval of the Government. The occupation of land by a commercial organization without sanction of the Government was a clear violation of above rule. This resulted into illegal occupation of Government Land bringing loss to the State in the shape of premium i.e. Rs. 51.821 million as worked out by ML&C Department rentof which also needed to be worked out besides recovery of premium. 91

When pointed out by audit in July, 2015 it was replied that no land was held by NLC on the charge of this office. The reply furnished by the executive was not satisfactory as land measuring 5.398 Acre situated in Hattar Camping Ground was occupied by the NLC as worked out by the ML&C Department. The DAC in its meeting held on January 13, 2016 directed that the audit will examine the case in detail. Audit stresses that Case may be taken up with Ministry of Defence (ML&C Deptt) Rawalpindi and GHQ through local army authorities for recovery of premium / rent from NLC management. DP-N-109/2015-16 1.9.4 Loss to State due to unauthorized use of A-I land for agriculture purposes – Rs. 25.498 Million As per policy on use of A-I Land for welfare and other projects of the Armed Forces issued vide letter No. F.2/D-12/ML&C/99 dated April 2, 2008, the whole income related to A-I Land used for agricultural purposes, will be deposited into Government Treasury. While examining the accounts of MEO Sargodha Cantonment, it was observed that A-1 land measuring 1468.406 acres was shown in GLR in the occupation of Military Farm Sargodha at Chak No. 39 and 44 whereas only 448.50 acres A-I Land was in occupation of M.F Sargodha as confirmed from the Rotation program. Thus remaining 1019.90 acres A-I Land was being misused. The omission resulted into loss of revenue amounting to Rs. 25,497,500 (1019.90@25,000) per acre (approximately) for the year 2012-13. The same irregularity regarding unauthorized use of A-I Land was already pointed out in the previous audit report of 2011-12 but no concrete step to implement the above Government rules/orders was taken. When pointed out by audit in August 2013, the executive stated that as per provisions contained in Government of Pakistan, 92

Ministry of Defence letter dated November 20, 2009, responsibility for recovery of rent of A-I land used for welfare and commercial projects rested with concerned units/formations. The reply was not tenable as in the light of Paras-07 and 08 of the said Government letter dated November 20, 2009, the MEO concerned was to be member of such board who had to determine the actual area of A-1 land being used for welfare/commercial activities and to calculate rent. The para was not discussed as reply was not provided by the Executive. Audit stresses that detailed reply be furnished and recovery action be completed besides taking punitive action against the responsible personnel. DP-N-487/2014-15 1.9.5 Blockade of public money due to non-refund of surplus funds by Land Acquisition Collector (LAC) to Government – Rs. 23.404 Million Under Rule-47(e)(v) of Financial Regulations Volume-I 1986, the unexpended portion of any existing grant shall lapse on 30th June, each year. Accordingly, unspent amounts held with MEO or LAC for acquisition of land etc were required to be surrendered at the close of FY. While examining the accounts of MEO Abbottabad it was observed that land measuring 150 Kanal was acquired for PMA Kakul on dated November 19, 2012 and a reference was made by MEO Hazara Circle, Abbottabad to DGML&C Rawalpindi vide letter dated July 3, 2013 that balance amount of Rs. 23,403,934 was got adjusted / utilized by Land Acquisition Collector (LAC). The unspent balance amount was to be refunded to Government but was not refunded by the LAC and utilized without the approval of Government of Pakistan, Ministry of Defence. Therefore, chances of their misappropriation cannot be ruled out. Further,

above state of affairs indicated poor planning due to which funds amounting Rs. 23,403,934 remained blocked for 05 to 07 years. When pointed out by audit in July 2015, the executive stated that on April 5, 2012 a meeting was scheduled to be held in the office of the DCO Abbottabad regarding finalization of long outstanding acquisition cases of PMA Kakul which could not be finalized within stipulated time due to sanctioning of remaining differential amounts. It was unanimously decided to protect and save the Government from financial loss and the amount already surplus from different awards of PMA Kakul already announced by the DOR/LAC Abbottabad @ Rs. 23,403,933 was to be adjusted in three long outstanding running acquisition cases. The DOR/LAC Abbottabad provided the adjustment of surplus amount vide letter No. 233/Acq dated April 13, 2012. Further, as per copy of minutes of meeting held on April 5, 2012 case was taken up with the Ministry of Defence for regularization / sanction for adjustment of said amount.The reply of executive was not sufficient as it was not substantiated with concrete evidence. The DAC in its meeting held on January 13, 2016 directed that matter be inquired into immediately and report thereof be submitted to Ministry of Defence and Audit within 15 days. DAC pended the Para till next DAC meeting. Audit stresses that the matter needs investigation regarding non-surrendering of Government funds at the close of respective financial years besides arranging condonation of irregularity from the Government. Further, status of Unspent /balance amount must be taken from LAC and same must be refunded to Government treasury besides initiation of regularization action. DP-N-105/2015-16

1.9.6 Loss to Cantonment fund in the shape of premium for grant of area as extension – Rs. 22.020 Million According to Government of Pakistan, ML&C Deptt Rawalpindi letter No.27/113/Lands/ML&C/90-91, dated August31,2009, a lease of land by private treaty for the purpose of extension to an existing site may be considered if the land applied for is not situated adjacent to the road/road berm, street, green belt, storm water drain or Nullah etc. While examining the accounts of Cantonment Board Lahore, it was observed from CBR NO. 41, dated August11, 2009, that the case regarding reclassification of land measuring 555 Sqyds or 22.02 Marlas from class “C” to „B-4‟ required for the extension of Villas of General Officers situated at General Officers Colony, Sarfraz Rafqui Road was considered by the Board and resolved to seek market value cost against the applied reclassified class „C‟ land as the same was already in the occupation of allottee Officers. Audit was of the view that the Board should not have considered the case, as class „C‟ land in Officers Colonies always comprised of road/road berms, green belts, streets, drain and Nullah etc.Further, in current circumstances the premium should have been recovered under Rule-10 of the Pakistan Cantonment Property Rules- 1957. This resulted in loss to Cantonment fund amounting to Rs. 22.020 Million. When pointed out in audit the executive authority agreed to recover the amount involved. The reply was not acceptable as no concrete action was taken for effecting the recovery. The DAC in its meeting held on December 4, 7 and 8, 2015 directed to get the case regularized at the earliest. Audit stresses that compliance to DAC directives be made and recovery action be completed. DP-N-501/2014-15

1.9.7 Un-authorized change of purpose without deposit of premium – Rs. 19.738 Million As per Para-3 of “General Conditions” contained in Sub- Para-h to Government of Pakistan, Ministry of Defence letter datedDecember 31, 2007 “cases of unauthorized change of purpose” residential property being used for commercial purposes will be charged premium on Revenue rates applicable for the said purpose and after approval, composition fee will also be charged as per the existing rules. Further, Government of Pakistan, Ministry of Defence letter No. 55/305/Lands/ML&C/2007 dated December29, 2008 clarified that in all such cases whether inside or outside Bazar Area, premium will be charged at 100% of commercial rates as fixed by the Revenue Authorities for the property being used for commercial rates. Further as per Para-5 “implementation contained in Sub Para-a & b to Government of Pakistan, Ministry of Defence letter dated December31, 2007 “the said policy is applicable for five years. Those who failed to get the relief their property will be resumed thereafter. While examining the accounts of MEO Abbottabad, it was observed from case file of Bungalow No. B-28/14, Plot No.5, Survey No. 83/5 situated at Hill Road Abbottabad Cantonment that the said property was being used for commercial purpose as “Modernage School” since long. Several notices were served upon the lessees by MEO Abbottabad for stoppage of illegal use of property but the commercial activity was still in process which needed regularization. The premium amount as per DOR (District Officer Revenue) rate comes out to be Rs. 19.738 million. When pointed out by audit in July 2015, it was replied that this office had issued directions to the lessee to stop the un-authorized change of purpose. In case the lessee failed to stop the unauthorized commercial use of residential property, the case for determination of lease would be forwarded to Government of Pakistan, Ministry of Defence

Rawalpindi. The reply submitted by the executive was not sufficient as the same was not substantiated with concrete evidence. The DAC in its meeting held on January 13, 2016 directed that case for determination of lease be initiated and process be got finalized expeditiously. Thereafter, the same be got verified from Audit. Audit stresses that the un-authorized change of purpose should be stopped immediately and un-authorized use of “Residential property” be got regularized on payment of premium amounting to Rs. 19,738,640 and if the lessee fails to vacate the unauthorized commercial activities, case for determination of lease be initiated. DP-N-106/2015-16 1.9.8 Un-authorized encroachment on Government land – Rs. 6.132 Million According to Rule-26(ix) of Cantonment Land Administration Rues-1937 the encroachment on Government land should not be permitted to remain in existence under any circumstance unless it is properly regularized. Further, according to Rule-14(2) of Military Lands Manual, Military Lands & Cantonments Department is responsible to check encroachment of all lands falling under their management and encroachment on defence land shall not be allowed to remain in existence unless it is properly regularized by the Government. While examining the accounts of MEO Abbottabad, it was observed that owner of plot No. 7, Survey No. 82/7, Bungalow No. 17 Circular Road Abbottabad Cantonment outside bazar area encroached upon Government Land on road side. A joint demarcation was carried out by the Cantonment Board / MEO representatives and accordingly 9.58 Marlas land was encroached by the lessee at site. When pointed out by audit in July, 2015 the executive stated that this office vide letter dated June24, 2015 had directed the lessee to vacate the encroached land but the lessee applied for extension of the 97

encroached land. The case was referred to the CEO for issuance of NOC for Land.The case would be dealt with if the NOC was issued by the Cantonment Board. If NOC was not issued the case for determination of lease would be forwarded to Government of Pakistan, Ministry of Defence Rawalpindi. The DAC in its meeting held on January 13, 2016 directed to resolve the issue within 01 month and submit the report to Ministry of Defence and Audit, accordingly. Audit recommends that lessee be directed either to remove the encroachment from site or cost of 9.58 Marlas land amounting to Rs. 6,132,263 be recovered from the owner of the bungalow. DP-N-110/2015-16 1.9.9 Encroachment of 254.61 acres A-1 land by Provincial Government – Rs. 3,079.937 Million According to Rule-26 of CLA Rules 1937, an encroachment is an unauthorized occupation of Government land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. The MEO Hyderabad acquired A-1 land measuring 254.61 acres valuing Rs. 3,079.937 million (details attached) for camping ground purpose in different districts like Hyderabad, Dadu, Moro, Chhor, Larkana, Shikarpur, Pano Aqil and Kandiaro. The land was encroached by the Sindh Government and different private individuals. As per record of MEO Hyderabad, the land in question was under the ownership of the Federal Government as A-1 land but the provincial government did not accept the ownership of the former. This resulted in loss to state due to encroachment of A-1 land. When pointed out by Audit in November 2015, no reply was furnished by the executive.

The DAC in its meeting held on January 19, 2016 was apprised that Station HQ Hyderabad was responsible for detection and removal of encroachment from A-1 land. The value of 254.61 acres estimated at Rs. 3,079.930 million was not correct. The DAC directed that case regarding irregular encroachment of A-1 land be taken up with Sindh Government. DAC further directed that the amount of land be reconciled with Audit. No record / documents were produced to Audit for reconciliation nor were any progress reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directive. DP-S-205/2015-16 1.9.10 Loss to Cantonment Fund due to encroachment of class ‘C’ land – Rs. 2,437.137 Million According to Rule 26(ix)(a) of Cantonment Land Administration Rules 1937, an encroachment is an unauthorized occupation of Government land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. As per record of Cantt Board Hyderabad, 47.7955 acres (193,423.61 Sqm) of Class „C‟ land was encroached upon by various authorities / persons. The market value of the encroached land worked out to Rs. 2,437.565 million @ Rs. 12,600 per Sqm as per CBR (Cantt Board Resolution) 7(A) dated September 11, 2014. Encroachment of land resulted in loss of Rs. 2,437.565 million to Cantonment Fund. When pointed out by Audit in August, 2015 it was replied that 47.7955 acres of class „C‟ land was encroached by various authorities/ persons, despite anti encroachment operation held on weekly basis under the supervision of Army Authorities in Cantonment limits. As and when encroachments were removed Audit would be informed accordingly. 99

The DAC in its meeting held on January 19, 2016 was apprised that executive reiterated their earlier stance. The DAC directed that details of the case be provided to DAC and also got verified from Audit. Further progress was not reported till finalization of this report. Audit stresses for immediate compliance of the DAC‟s directive. DP-S-105 1.9.11 Encroachment of 107.701 acres A-1, A-2, B-3 andB- 4 land – Rs. 2,174.488 Million According to Rule-26 of CLA Rules 1937, an encroachment is an unauthorized occupation of Govt. land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. In the jurisdiction of MEO Hyderabad,107.701 acres A-1, A-2, B-3 and B-4 lands in different survey numbers valuing Rs. 2174.488 million (details attached) were encroached by unauthorized persons by constructing pucca houses/shops etc. The land was encroached when 410 acres land was reclassified as “C” land as bazaar area in 1980 vide Gazette notification No. 847(1)/ 80 dated August 18, 1980, the notification could not be implemented in letter and spirit. Since the area was under unauthorized occupation of katchiabadies, it was not worked out properly. Most of the area of Defense land was classified as A-1 and A-2 which were declared as bazaar area in the said Gazette. When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that areas under objection were declared as KatchiAbadies vide MoD notification dated May 15, 1979 and included in bazaar area and its management was handed over to the Cantonment Board. The DAC 100

pended the para and directed that a committee be constituted under the chairmanship of MEO, having members from CB Hyderabad and Station HQ Hyderabad. DAC further directed that report be submitted in the next DAC meeting. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directive. DP-S-206/2015-16 1.9.12 Re-encroachment of commercial 20.34 acres of class ‘C’ land by Pak Army Housing Directorate– Rs. 1,252.350 Million According to Rule-26(ix)(a) of Cantonment Land Administration Rules 1937, an encroachment is an unauthorized occupation of Government land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. In Cantonment Board Malir, initially 28.374 acres of Class „C‟ land was encroached by Pak Army and it was objected by Audit in 2008-09. In compliance to DAC directives, Ministry of Defence sanctioned 20.34 acres land on March 9, 2010 in Survey No.1/4 in swap to the Board. Later, 25 acres of land valuing Rs. 1,252,350,000 was again encroached by Housing Directorate / GHQ. Construction on the land was without reclassification, which was held irregular and unauthorized in audit. When pointed out by Audit in November, 2015 it was replied that Ministry of Defence gave land measuring 25.0 acres in Survey No.1/4 in two parts (20.34 acres and 4.66 acres) in lieu of swap over land to the Board in March, 2010. The AG‟s Branch, Housing Dte / GHQ through the DAD Works, Housing Dte, Malir Cantt again occupied the said land by constructing wall without first getting the allotment/transfer 101

and initiated the proposal for re-classification and sanction from Govt. of Pakistan, ML&C Department on January 14, 2015. The Board asked the DAD Works, to stop the work. The DAD works replied that they were given permission by the AG‟s Branch, GHQ and Corps Commander, Karachi. The Occurrence report regarding illegal occupation of the land was forwarded to the Director, ML & C, Karachi on January 14, 2015 to take up the matter with the concerned authorities. Now, a Board of Officers had been constituted and President of the Board had called meeting to finalize the matter. The DAC in its meeting held on January 19, 2016 was apprisedthat case regarding illegal occupation of 20.34 Acres Class „C‟ land (commercial) in Survey No. 1/4 Malir Cantt by Housing Dte of AG‟s Branch was under process with AG‟s Branch, GHQ through ML&C department to direct their staff not to start construction on Class „C‟ land. The DAC directed to pursue the matter vigorously and take up the case with Ministry of Defence. Further progress was not reported till finalization of this report. Audit stresses for immediate compliance the DAC‟s directives. DP-S-189/2015-16 1.9.13 Unauthorized operation of Cattle Mandi by Station HQ instead of Cantonment Board – Rs. 766.361 Million According to Section-2(xx) of Cantonments Act 1924 read with Rule-2 of Bye-Laws for the regulation of cattle markets in Malir Cantonment, issued by Ministry of Defence vide S.R.O. No. 269(I)/92 dated April 12, 1992, no person shall, without the authority of the Board, establish or maintain a cattle market within the limits of the Cantonment.

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Rule 7, Chapter II of the Army Regulations Vol-II, 1991 provides general principles in respect of duties and responsibilities of command that are: i. Training and efficiency for war; ii. Leadership; and iii. Administration. The Cantonment Board Malir started establishing Cattle Mandi annually at Super Highway for 30 days approximately, on the occasion of Eid-ul-Azha since 1991. Upto 2001, the Board awarded contracts for the execution of affairs of the Mandi and 50% of the net income was regularly paid to Station HQ/Gar HQ. In the year 2002, the Station HQ took over the management/supervision of Mandi and as per new sharing formula the share of the Board was reduced to 16%. Till 2008 the collection was done by the Board‟s staff and receipts thereof were remitted to Station HQ Malir. The 16% share amounting to Rs. 162.718 million of the Board for seven years w.e.f. 2002 to 2008 was received from Station HQ. In the year 2009-10, the operation of Cattle Mandi such as management, recovery of receipts and maintenance of all accounts was fully taken over by the Station HQ and contracts were awarded directly without involvement of the Board. Still, staff of the Board was deputed in three shifts at the Mandi. A sum of Rs. 200.231 million w.e.f. 2009-10 to 2014- 15was given by Station HQ to the Board for execution of only those works which were ordered by the former. Due to unauthorized action of Station HQ, the Board was deprived of their legitimate earnings of Rs. 766.361 million, w.e.f. 2009-10 to 2014-15, on account of income of Cattle Mandi. The retaining of Cattle Mandi income by the Station HQ was held by Audit as unauthorized on the following grounds: i) The function of operating Cattle Mandi is purely a municipal function, therefore, it falls under the jurisdiction of the Cantonment Board , as evident from Bye Laws, stated above;

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ii) the income earned is exclusively part of Cantonment Board Fund; therefore, keeping Cattle Mandi proceeds outside cantonment fund by Station HQ is irregular and unlawful;and iii) Army Regulations referred above do not allow Station HQ to perform operation of Cattle Mandi or enter into such agreements. Moreover, Station HQ assumed the role of coordinator on its own although security, traffic control and other utility services were provided by Sindh Police, Motor Way Police, Fire Brigade and other services by the Board. Therefore, retaining of Cattle Mandi income by Station HQ was unjustified. When pointed out by Audit in November, 2015 it was replied that the Cattle Mandi was established under the overall supervision/management of Station HQ Malir. The case for recovery of retained share of the Board would be initiated with Station HQ. The DAC in its meeting held on January 19, 2016 was apprised that case had been initiated with the Station HQ. The DAC directed that an inquiry be conducted to investigate the matter from beginning to the end and report submitted innext DAC meeting. Further progress was not reported till finalization of this report. Audit stresses compliance of the DAC directive. DP-S-190/2015-16 1.9.14 Loss to state due to less assessment of reserve price of trees – Rs. 734.885 Million A) As per Divisional Forest Office, Afforestation Division, Hyderabad‟s letter No. D.IV(a)1357 OF 2013 Hyderabad, dated January 8, 2013 the price of following three types of trees ranged between Rs. 15,000 to Rs. 30,000 per stack, averaging toRs. 22,333 per stack, as follows: 104

1) Babul Rs. 30000 per stack 2) Eucalyptus Rs. 22,000 per stack 3) Kandi Rs. 15,000 per stack Average price Rs. 22,333 per stack MEO Hyderabad auctioned 1552 (33,995 Cft) standing green trees amounting to Rs. 13,000,000 during 2014-15 after getting reserve price from Range Forest Officer, Afforestation Range, Pano Aqil vide their letter dated September 29, 2014, which was @ Rs. 80/per stack. On the other hand, Divisional Forest Office, Afforestation Division, Hyderabad had prescribed much higher rates per stack. Even if the trees were auctioned at the average price of Rs. 22,333/per stack, the income would have been Rs 747,885,160. Therefore, due to abysmally low assessment of reserve price of trees, a loss of Rs 734,885,160 was sustained When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that the rates provided by the Divisional Forest Officer for reserve price of trees were general and without measurements and cannot be taken as yard stick to apply in the instant matter. The DAC directed ML&C department to conduct inquiry to investigate the matter and pended the para till next DAC meeting. Further progress was not reported till finalization of this report. Audit stresses for immediate compliance of the recommendations of the DAC. B) MEO Hyderabad auctioned 1664 cut wood measuring 8397.08 cft amounting to Rs. 1,400,000during 2014-15 after getting reserve price from Forest Department, Pano Aqil vide their letter No. G.X(GB)/A-1 of 2014 dated September 29,2014, which was Rs. 100/per 105

stack for different kinds of wood. However, the average rate per stack fixed by Divisional Forest Office, Afforestation Division, Hyderabad was Rs. 22,333. Due to less assessment of reserve price of trees, only Rs. 1,400,000 was realized instead of Rs. 187,531,988.This resulted in loss of Rs. 186,131,988. When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that 1552 x eucalyptus trees planted on the banks of Salehari Minor were damaging the banks of the canal, which was the only source of water used for irrigation in Pano Aqil Cantonment. The reserve price of the trees was calculated by the Range Forest Officer Afforestation Range, Pano Aqil. However, the Divisional Forest Officer neither agitated the price fixed by the Range Forest Officer nor informed the Range Forest officer / CEO Pano Aqil to enhance the reserve price. The DAC directed ML&C department to conduct inquiry to investigate the matter and pended the para till next DAC meeting. Further progress was not reported till finalization of this report. Audit stresses for immediate compliance of the recommendations of the DAC. DP-S-212 and 215/2015-16 1.9.15 Loss to state due to non-recovery of cost of land – Rs. 134.856 Million According to Rule-7 (7) of CLA Rules 1937 the transfer of land shall be free of charge only when the purpose to which the land is to be put is such that the cantonment board derives no income there from otherwise it shall make a reasonable payment for the land to the Govt. In MEO Hyderabad, 7.45 acres of land located near pathan colony was transferred to Hyderabad Cantonment Board as class “C” land 106

for use as “sewage farm” vide Government of Pakistan, Ministry of Defence letter dated April 20, 1951. However, the Board auctioned the said piece of land to general public for construction of houses etc. and income was being derived in the shape of premium / taxes, which was not only violation of rules but also resulted in loss to state due to non- recovery of cost of land amounting to Rs. 13,48,56,920 When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that a housing scheme was approved on the land which fell in bazaar area, declared vide Gazette notification No. 847(1)/80 dated August 18,1980.Audit did not agree with executive as the notification could not be implemented in letter and spirit as evident from the record of MEO Hyderabad. The DAC pended the para and directed that clarification be sought for from Ministry of Defence. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directive. DP-S-209/2015-16 1.9.16 Loss due to encroachment – Rs. 68.461 Million Rule-10(2)(viii) of CLA Rules 1937, stipulates that Military Estate Officer is responsible for watching that Government Departments and Administration make no encroachment beyond the boundaries of their belonging; and Rule 26(ix)(a) stipulates that an encroachment is an unauthorized occupation of Govt. land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. In MEO Hyderabad, an unauthorized marriage hall was constructed on A-2 land measuring 1.50 acres approximately, near 107

QasimChowk. However, neither any action for removal of encroachment was taken nor case for reclassification of land initiated. As a result, the state sustained a loss of Rs. 68,461,800 (1.50 acres x 4840 sqyds x Rs. 9,430 sqyds i.e. built up area commercial rate). When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that A-1 land in question had been occupied by Army authorities for utilization of commercial activity. The DAC pended the para till full recovery of the amount. Further progress was not reported till finalization of this report. Audit suggests immediate implementation of the DAC‟s directive. DP-S-216/2015-16 1.9.17 Loss to state due to encroachment on A-2 and B-3 land – Rs. 59.192 Million According to Rule-10(2) (viii) of CLA Rules 1937, Military Estate Officer is responsible for watching that Government Departments and Administrations make no encroachment beyond the boundaries of their holdings. Further, according to Rule 26(ix) (a) of CLA Rules 1937, an encroachment is an unauthorized occupation of Govt. land and should not be permitted to remain in existence under any circumstances unless it is properly regularized. According to Rule 14 (5) (b) of CLA Rules 1937, MEO is solely responsible for the detection and removal of encroachment on class A-2 land. In MEO Hyderabad, in three cases, private individuals encroached 3.270 acres of A-2 and B-3 lands, valuing Rs. 59.192 million, by constructing houses and installing Ara machines. Notices were issued

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to the encroachers but the land in question was still in unauthorized occupation in two cases. When pointed out by Audit in November 2015, no reply was furnished by the executive. The DAC in its meeting held on January 19, 2016 was apprised that concerned authorities had been approached for taking appropriate actions regarding all three sites pointed out in the objection. The DAC pended the draft para and directed to give a report on all encroachment to DAC / Audit. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directives. DP-S-211/2015-16 1.9.18 Loss to Cantonment fund due to refund of time barredsecurities – Rs. 2.260 Million According to Rule 86(2) of The Pakistan Cantonments Account Code, 1955, claims against the Cantonment, which are barred by time under section 3, read with the First Schedule to the Limitation Act, 1908, or under any other provisions of law relating to limitation, shall only be paid with the sanction of the Government. According to Rule 78(4) and 38(a) unclaimed deposits, on the expiry of three years were to be credited as receipt. In Cantonment Board Malir, security money amounting to Rs. 2,259,943, as detailed below, was refunded to the contractors although the claims were time barred as per Limitation Act 1908. . Due to illegal refund of security money, the Cantonment Fund sustained the loss.

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Date of Date of time Date of Amount Ser Name of contractor Deposit barred payment (Rs) Shaheen Construction 1 26/8/1999 27/8/2002 9/2/2009 41,300 Company w.e.f. w.e.f. w.e.f. 2 Haider Builders. 6/12/2004 7/12/2007 10/2/2011 535,232 to 18/9/2007 to 19/9/2010 to 11/5/2011 3 O.S. Construction Co. 10/10/2007 11/10/2010 28/1/2011 44,240 4 Zaheer Builders 30/6/2007 1/7/2010 4/7/2011 258,348 5 Shakeel& Brothers 18/9/2007 19/9/2010 4/7/2011 25,913 6 Sher Ali Brothers 2/4/2009 3/4/2012 10/6/2014 275,295

Saleh Muhammad & 7 26/5/2008 27/5/2011 17/7/2012 879,615 Brothers Indusman& 8 21/11/2010 22/11/2013 11/12/2014 200,000 Corporation Total 2,259,943

When pointed out by Audit in November, 2015, it was replied that under Rule 92 of Cantonment Accounts Code 1955, CEO was authorized to refund Security Deposit. The reply furnished by the executive was not acceptable as the refundable securities could only be refunded and refundable securities were those which were not time barred. As per Limitation Act, time barred securities could not be refunded and in this regard no suit was sustainable in any court of law. The DAC in its meeting held on January 19, 2016 was apprised that the security Deposit Account No. 100173-2 was separately opened in the light of instruction received from HQ ML& C Deptt. The refundable security amount of Rs. 2.260 million was refunded to concerned contractors/companies/builders in 2009, 2011 and onward which were not time barred. The DAC directed that record be got verified and reconciled with Audit. No relevant record / documents were produced for verification till finalization of this report.

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Audit stresses on compliance of the DAC directives. DP-S-203/2015-16 1.9.19 Payment made to lawyer without getting obligatory services –Rs. 2.504 Million Rule-71(5) of The Pakistan Cantonments Account Code 1955, bounds the executive officer to ensure that loss or leakage of cantonment money and property is avoided. According to Rule 71(3) of the Cantonment Boards Budget Rules, 1966, the Executive Officer shall ensure that no expenditure is incurred without proper justification. In Cantonment Board Faisal Karachi, a sum of Rs. 2,504,000 was paid in advance to M/s Ashir Associates (Mr Ashraf Ali Butt) on account of lawyer‟s fees for defending Cantonment Board Faisal in the court of Judicial Magistrate against 2504 cases @ Rs. 1,000 per case during the FY 2013-14. As per case files, the lawyer did not attend any court case. Therefore, payment made to the lawyer was not a legitimate charge, which needed to be recovered. When pointed out by Audit in March, 2015, it was replied that the Board had directed M/s Ashar Law Associates to refund the amount pointed out by Audit. The DAC in its meeting held on January 19, 2016 was apprised that CBF had asked M/S Aashir Law Associates to deposit back the objected amount, but no response has so for been received from the concerned. A suit would be filed against him within a week. The DAC directed that the amount may be recovered from the lawyer. In case of non-recovery case may be filed against the lawyer within one month. Further progress was not reported till finalization of this report. Audit suggests expeditious recovery of law charges. DP-S-10/2015-16

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1.9.20 Embezzlement of Cantonment Fund receipts by Cantt servant(s) – Rs. 0.231 Million According to Rule-24(1) of The Pakistan Cantonments Account Code, 1955, all monies, received in the office of the Board from persons other than cantonment officials, shall be acknowledged by a receipt in Form No. Cantt.4-B. Rule 12(1) of the Code provides that when the matter has been fully investigated, a complete report shall be submitted as to the nature and extent of the loss, showing the errors or neglect of rules by which such loss was rendered possible and the prospects of affecting a recovery. In Cantonment Board Malir, amounts of 10 paid challans were not reconciled with daily receipts entered in subsidiary cash book and bank statements. Amount of these challans totaling to Rs. 0.231 million was neither entered in the subsidiary cash book of Revenue Branch nor in the bank statement with effect from August 22, 2014 to October 1, 2014. The said challans were issued to the plot owners who applied for No Demand Certificate (NDC) and NDCs were issued with the signature of an unauthorized person instead of Cantt Executive Officer (CEO). The CEO inquired the matter at his own level and a Mali (BPS-2) working as Naib Qasid admitted that he had alone done this fraud. The new system of depositing Cantt Fund receipts directly in bank through challans was introduced, replacing existing system of Cantt 4-B receipt by the DGML&C without seeking approval of the Government of Pakistan. Challans were kept improperly in loose leaf form, instead of in bounded form and under lock and key. Moreover, issue and return of challans were not watched through a register, challan books were not issued in serial order and new books were issued without complete use of previous book. The matter was pointed out in November, 2015. In response the Board replied that misappropriated money would be recovered in the light of inquiry report / directives of ML&C Department.

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Directives of Audit had been noted for compliance. The reply furnished by the executive was an admission of irregularities, thus desired actions needed to be expedited. The DAC in its meeting held on January 19, 2016 was apprised that recovery had been completed and inquiry against the responsible was under process. The DAC directed that inquiry report be provided to Audit for verification and produced to DAC during its next meeting. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directive. It is also emphasized thatsafe keeping of challan forms be regulated/ensured in the manner prescribed for Cantt.4B receipts in Rule- 24 of The Pakistan Cantonments Account Code, 1955. Disciplinary action may be taken against the person(s) at fault. DP-S-188/2015-16 1.10 Irregular / Unauthorized expenditure – Rs. 4,171.578 Million 1.10.1 Unauthorized transfer of funds to NLC – Rs. 510.00 Million Government of Punjab Finance Department vide Letters No. dated October 24, 2012 and dated May 21, 2013 released two separate amounts of Rs.210 million and Rs.300 million to Cantonment Board Chaklala as Grant in Aid for construction of link Road from Gulistan Colony to Chaklala Scheme-III and for dualization of Road from Al-Shifa Hospital to Muree Brewery respectively. While examining the accounts of CB Chaklala, it was observed that entire amount of Rs. 510 million was transferred to NLC vide cheque No.657393 dated December 6, 2012 and cheque

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No.5780818dated June 6, 2013, without obtaining actual status of work done from NLC which was un-authorized. Neither adjustment of these amounts was obtained nor the vouched accounts obtained and made part of record and produced to audit. Project Estimates, bill of quantities, contracts and measurement book were also not available in the record. It was also not clear from the record that status of NLC was of a contractor or a client which also needed to be clarified to audit. When pointed out by audit, the executive stated that the amount was transferred to NLC through Station Headquarter Rawalpindi vide letter No. even dated November 12, 2012 after getting approval of the Regional Headquarters Rawalpindi, MLC Department Rawalpindi and Board vide minutes dated December 5, 2012 with the direction of the QMG. It was categorically brought into the notice of the higher authorities that work had already been completed and this office had to receive the amount of Grant-in-Aid from Provincial Government and to transmit the said amount to NLC, therefore, no regularization was required at this stage. This reply of the executive was not satisfactory as work of construction of roads in Cantonment Area was required to be executed by the Cantonment Board itself instead the whole amount was transferred to NLC without approval of Finance Department of Government of Punjab. The DAC in its meeting held on December 4, 7 and 8, 2015 directed the Department that irregularities be got regularized within 03 months and submit report to Ministry of Defence/Audit. The DAC further directed that in future it may be ensured that all the formalities are fulfilled before execution of works. Audit stresses that un-authorized transfer of funds of Rs. 510 million may be got regularized. The Project estimates, contracts and vouched accounts may also be obtained and made part of record and got audited. DP-N-490/2014-15

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1.10.2 Un-authorized construction of hotel without approval of building plan and non-deposit of premium and development charges – Rs. 83.878 Million According to letter No dated December 31, 2007 cases of un-authorized change of purpose residential property being used for commercial purposes will be charged premium on revenue Rates. Moreover, ML&C departmentvide letter No.55/305/lands/ML&C/2007 dated December 29, 2008 clarified that in all cases of un-authorized change of purpose for commercial lease in Schedule IX-C whether inside or outside bazaar area premium will he charged at 100% of Commercial rates as fixed by the revenue authorities, as the property has been used for Commercial purpose. While examining the accounts of CB Chaklala, it was observed that lessee of residential Property No.144 situated at Muree Road had constructed a Hotel i.e. Pepper Corn un-authorizedly without obtaining approval of building plan.The premium and development charges against the hotel were also recoverable. Legal notices vide Letters dated June 13, 2012 and dated December 31, 2013 were also issued by the Cantonment Board to lessee regarding stoppage of un-authorized use of property but lessee did not regularize un-authorized change of purpose of property. The matter therefore, needed to be investigated through Board of Inquiry as to why the legal action was not taken by the management of Cantonment Board against lessee and why recovery of premium and development charges amounting toRs. 83,877,970 were not effected.

(i) Premium Area 2094.639 sq yard or 18851.751 Rs. 81,783,331 sft or 69.307 Marlas @ Rs. 1180000 per Marla (DC rate) (ii) Development @ Rs. 1000 per sq yard, Rs. 2,094,639 charges Area 2094.639 sq yard x 1000 Total Rs. 83,877,970

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When pointed out by audit, it was replied that the property was under the management of MEO Rawalpindi, so the recovery of premium was responsibility of MEO Rawalpindi. As far as the recovery of development charges was concerned, MEO could recover the same only after conversion of lease hold rights into commercial purpose, before issuance of the sanction of the Government. The reply was not found satisfactory as no concrete action was taken for recovery of development and premiumcharges through MEO. The DAC in its meeting held on December 4, 7 and 8, 2015 constituted an Inquiry Committee under the chairmanship of JS-I, Ministry of Defence and comprising upon following members:- i). Mr. Imran Gulzar Additional CEO, Cant Board Chaklala ii). Mr. Muhammad Shabir, Audit Officer, DGADS (North), Rawalpindi The Inquiry Committee will look into the matter as to how hotel was constructed without approval of building plan and would furnish its report to Ministry of Defence (PAC Wing) within 03 months. Audit stresses that recovery action be completed or unauthorized construction may be demolished besides fixing responsibility. DP-N-384/2014-15 1.10.3 Unauthorized payment of court fee and misc charges in land acquisition cases – Rs. 9.047 Million As per Para-3 of Ministry of Defence (ML&C Deptt)U.O No.3/36/LE&H/ML&C/94/ATD/III, dated August 25, 2004 and as per ruling of the Ministry of Law & Justice, “the expenses will be borne by the department for which the land is acquired and the same will be treated as the cost of land which is paid by the said department. The Law and Justice Division will pay counsel‟s fee only”.

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While examining the accounts of MEO Abbottabad, it was observed that an amount of Rs. 9,046,539 was incurred on account of miscellaneous expenses and for preparation of paper books for council / advocate. In this regard MEO Abbottabad obtained a loan of Rs. 9,046,539 from Cantonment Board Abbottabad and Cantonment Board Wah for filing of Appeals in the Courts which was yet to be refunded. When pointed out by audit in July, 2015 it was replied that the audit observation was being shifted to GHQ/AHQ/PAC and POF authorities. The reply of the executive was not prudent as it was not substantiated with concrete evidence. The DAC in its meeting held on January 13, 2016 directed that the case be finalized and issue be resolved within 01 month. Thereafter, the report be submitted to Ministry of Defence/Audit, accordingly. Audit stresses that an amount incurred on account of filing/defending of reference Petitions/appeals in the land acquisition cases be got reimbursed from the concerned quarters. DP-N-111/2015-16 1.10.4 Wasteful/un-justified expenditure out of Cantonment fund – Rs. 7.880 Million According to Rule-68 of Cantonment Board Budget Rules, 1968, no money shall be spent hastily or in all ill-considered manner simply because it is available. Expenditure should be watched and controlled not with a view of adoption of the appropriation to the expenditure but expenditure to appropriation. While examining the accounts of Cantonment Board Wah, it was observed that provision of water supply line at Model Colony Darbar-e-Karimi was approved in July 2012. Accordingly, contracts were awarded to M/S Manj Traders. The final bill of one contract was paid under voucher No. 7 dated April 1, 2013. As ascertained from section 117

concerned, neither any resident of Darbar-e-Karemi applied for water connection nor water connection was provided in the area upto March, 2014. The construction of houses in that area was made without approval of building plan and payment of development charges which indicated that expenditure was incurred without any necessity/demand. Hence, entire expenditure was considered as wasteful and unauthorized. When pointed out by Audit in March 2014, the executive stated that on the direction of Chairman PAF Board, the plan was prepared to develop the area as Model Colony for which estimates for construction of roads, sewerage lines, water supply network, street lights etc were prepared. Further, it stated that as per rules Cantonment Board was bound to provide such facilities in the area. The reply was not satisfactory as Section-116 of Cantonment Act-1924 described the discretionary function of Board which was subject to availability of Funds. Moreover, all such facilities were to be provided on actual demand and necessity in the area. Although, water supply network was provided but other facilities as stated in the reply were not provided, hence the contract proved to be a non- lucrative one. The DAC in its meeting held on December 4, 7 and 8, 2015 directed the executive to discuss the issue in detail with audit within a week and submit report accordingly. Audit recommends that compliance to DAC directives be made and relevant documents be provided to audit. DP-N-52/2015-16 1.10.5 Un-receipted doubtful payments to land owners – Rs. 3,095.678 Million According to Rule-1(a) of Financial Regulations Volume II 1986 (Army and Air Force), in cases in which the acceptances of the actual payees are not sent for audit, the Government servant shall be held personally responsible for seeing that issues are made to the persons

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entitled to receive them. According to Rule-31 of Financial Regulations Volume-II 1986 (Army and Air Force), any explanation, account, document or voucher in support of cash and stores transactions shall be specified in the regulations required by an Audit Officer must be furnished without challenge. i) In Military Estate Office Quetta, a sum of Rs. 1,594.680 million was sanctioned by Ministry of Defence and the same was placed at the disposal of EDO (Rev) Gwadar by MEO Quetta on February22,2008. The Award dated February 26,2008 was announced to the tune of Rs. 1.588 billion. ii) Land measuring 10,095.50 acres valuing Rs. 506.855 million was taken over at Turbat for Pakistan Navy on May 27,2008. iii) A sum of Rs. 1503.744 million was placed at the disposal of EDO (Rev) Gwadar for acquisition of land measuring 4300 acres for New Gwadar International Airport. The Award bearing No. 997- 1006/EDO (Rev)/GWR was announced on September 15,2007 and payments were released to the “Khatedaran”. The amount disbursed under the Award was Rs. 1,495.518 million. In all above three cases, Acquaintance Rolls showing disbursement of compensation were neither available on record nor provided by the MEO staff despite repeated demands. Therefore, in the absence of relevant documentary evidence, amount stated to have been disbursed was considered doubtful. When pointed out by Audit in April, 2015, the MEO Quetta did not hold discussion despitethree written requests. The DAC in its meeting held on January 19, 2016 was apprised that land measuring 9270 acres, and 4300 acres at Gwadar were acquired as per land acquisition Act 1894. The compensation wasdisbursed by LAC according to Land Acquisition Act 1894, but the record of the same had not been provided. As far as land measuring

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10027.5 and 68.5 acres were concerned, the land in question is allotted/leased out to Pakistan Navy as per Government sanction by provincial Govt. and compensation had been paid to provincial Govt. As for as Zamindar Action committee application is concerned the matter pertains to provincial Government and the same has been intimated to Naval Authorities. The DAC directed that acquaintance Roll and relevant record be provided to Audit for verification. Action be completed within 15 days. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC directive. DP-S-20/2015-16 1.10.6 Irregular acknowledgement of Cantt Fund receipts – Rs. 340.768 million According to Rule-24(1) of The Pakistan Cantonments Account Code, 1955, all monies, received in the office of the Board from persons other than cantonment officials, shall be acknowledged by a receipt in Form No. Cantt 4-B. In Cantonment Board Malir, all receipts in the form of cash, cheque, draft etc. amounting to Rs. 340.768 million received during 2014-15 from tax payers and other persons except cantonment officials, were acknowledged in challan form instead of Form No. Cantt 4-B which was irregular. When pointed out by Audit in November, 2015 it was replied that DG ML&Cintroduced challan system in place of Cantt 4-B vide letter dated September 19, 2009. All recoveries were being deposited through bank challan. The reply was not acceptable as the DGML& C was not competent to introduce new practice without approval of the Government of Pakistan.

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The DAC in its meeting held on January 19, 2016was apprised that case regarding approval of challan system in replacement of Cantt 4-B was under process with ML&C. The DAC directed that case be taken up with Ministry of Defence for approval of the procedure. DAC also directed that a comprehensive procedure be adopted and got verified from Audit. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of DAC directive. DP-S-191/2015-16 1.10.7 Irregular expenditure of Rs 43.990 Million on construction of health center and overpayment of Rs. 5.745 Million to contractor According to Rule-63(1)(a), (7) and (8) of Cantonment Account Code 1955, no work shall be commenced until approval thereto has been obtained. When any excess over a sanctioned estimate is foreseen, a revised estimate must be submitted when the sanctioned estimate is likely to be exceeded by more than 10 per cent for any cause. All original works costing upto Rs 40.000 million may be sanctioned by the Director. According to Rule 64(1) of Cantonment Account Code 1955, payment for all works done shall be made on the basis of measurements recorded in Measurement Book (MB). According to Rule 64(3)(e), entries on MB shall be recorded continuously and no blank page left or page torn out. Any page left blank inadvertently shall be cancelled by diagonal lines, the cancellation being attested and dated under the signature of the Executive Officer. i) In Cantonment Board Clifton Karachi, construction of Health Center commenced on October 27,2011 at an estimated cost of Rs. 28.400 million. The cost was revised to Rs 40.000 million due to increase in scope of work. The project was completed on 30, 2014 with total

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expenditure of Rs 43.990 million, that is, a cost over-run of Rs. 3.990 million. As the final cost exceeded the financial powers of DML&C, hence sanction of DGML&C was required which was not obtained. ii) Three measurement books MB(762, 815 and 816) were used for recording all construction transactions pertaining to the Health Center. Each MB consisted of 200 pages. On the first MB (No. 762) entries were recorded on page No 1to 57 and stamped as paid. The second MB(No. 815) was used from page No. 1 to 167 and remaining 33 pages were left blank. On the third MB,entries of abstract of quantities were recorded on page 1 to 27. Audit observed that the entries of the first MB were repeated in the second MB but with differences in quantities. Moreover, the entries of abstract should have been recorded on the second instead of third MB, as the latter had 33 blank pages. Before final payment, 6 adhoc payments were made to the contractor w.e.f December 20,2011 to March 5,2014without recording on MBs. Audit also calculated that a sum of Rs 5,745,457 was overpaid to the contractor, which needed recovery. When pointed out by Audit in September 2014, it was replied that the MB No. 762 put into question was in fact a draft MB which was not acted upon. MB No. 815 was brought forwarded to MB No 816 for the purpose of making abstract of cost of the same given quantities and had been used for payments accordingly. The supplementary objections from serial No. 1 to 14 were taken from the draft MB No. 762 whereby no payment was made as stated above. The reply furnished by the executive was not acceptable as the first MB (762) was signed by all engineers including CEO and stamped as paid. Therefore the same cannot be treated as draft MB. Moreover, if no payment was made according to this MB, then why it was stamped as paid. The second MB (815) was not signed and 33 pages were left blank without cancellation and its abstract of quantities were endorsed on 27 pages of third MB (816) whereas the complete abstract of quantities

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could have been endorsed on second MB. Huge overpayment was pointed out by audit but the same were not addressed. The DAC in its meeting held on January 19, 2016 was apprised that executive reiterated its earlier stance. The DAC directed that an inquiry be conducted to investigate the matter and responsibility be fixed on the defaulters. Pages of MB may not be left blank in future. Loss of documents be reported to concerned office. Payment made to the contractor be got verified. Further progress was not reported till finalization of this report. Audit suggests that recovery in question may be affected expeditiously.Ex-post facto sanction of the DGML&C should be obtained.Court of Inquiry should be convened to sort out factual position besides re-evaluate and re-measure whole project through Board of Officers including GE as a member.Responsibility may be fixed against the person(s) at fault in terms of irregular maintenance of measurement books. DP-S-231/2014-15 1.10.8 Less amount accounted for in Cantonment accounts – Rs. 25.000 Million According to Rule 2(A) (3) of The Pakistan Cantonments Account Code, 1955, all transactions involving the giving or taking of cash should be brought to account. The record of a transaction of receipt or expenditure should always be made at once. It is not sufficient that an officer‟s accounts should be correct to his own satisfaction. A disbursing officer has to satisfy not only himself, but also the audit, that a claim, which has been accepted, is valid, that a voucher is complete proof of the payment which it supports, and that an account is correct in all respects. In Cantonment Board Malir, a cheque bearing No. 6225780 dated May 17, 2010 amounting to Rs. 25.000 million was sent by 25 Mech 123

Div vide letter bearing same date to Station HQ Malir for making payment of Rs. 20.000 million to M/s Indusmens Corporation against work of duallization of roads and Rs 5.000 million to Danial Pipes and Construction Co against certain sewerage work. These works were awarded and finalized by the Board. As the said amount was not taken on charge by the Board in their accounts and paid directly to the contractors, the same was held irregular in audit. When pointed out by Audit in November, 2015 it was replied that as per letter of HQ 25 Mech Div cheque of Rs. 25.000 million was sent only to Station HQ and copy of the letter was endorsed to the Board. The cheque was not received by the Board. Reply furnished by the executive was not acceptable as both the works were awarded and finalized by the Board. Therefore, the payment made directly to the contractors by the Station HQ was not permissible under rules. The DAC in its meeting held on January 19, 2016 was apprised that during FY 2009-10 the financial position of the Board was not sound enough to make payments of huge amount. However, Garrison Commander HQ Malir Cantt granted financial support for making payment to the contractor through Station HQ Malir. DAC observed that Rs. 25 million received from Station HQ Malir and was not accounted for in account of CB Malir. DAC directed that expenditure be got regularized from competent authority and ensure that such practice was not repeated in future. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC directive. DP-S-193/2015-16

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1.10.9 Un-authorized expenditure on purchase and maintenance of Staff Cars – Rs. 22.882 Million According to section-285 of Cantonments Act, 1924, Rules and bye-laws to be available for inspection and purchase(1) A copy of all rules and bye-laws made under this Act shall be kept at the office of the Board and shall, during office hours, be open free of charge to inspection by any inhabitant of the cantonment. According to Rule 1, 3(1), 5(9) and11of staff Car Rules, 1980, „Entitled Officers‟ mean officers of grade 20, 21 and 22 borne on the sanctioned Establishment of an Organization.Each organization shall normally maintain one staff car for use in connection with official business. The use of staff car shall not be allowed to an officer who is in receipt of conveyance allowance under Supplementary Rule 25.A staff car belonging to a Subordinate Office shall not be used by the Administrative Department. In Cantonment Board Clifton Karachi, an expenditure of Rs. 22,881,960 was incurred to purchase and maintain 18 staff cars. The Cantt Board was, however, authorized to maintain only one staff car for use in connection with official business as no entitled officer existed on sanctioned strength of the Cantt Board. It was further noticed that eight staff cars out of 18 were allotted to the officers who belonged to other offices such as DML&C, President Cantonment Board, Station HQ, MEO Karachi and CEO Karachi Cantt. No evidence was produced regarding deduction of conveyance allowance from salaries of those officers to whom staff cars were allotted. Thus the entire expenditure amounting to Rs. 22,881,960 was held irregular in audit. When pointed out by Audit in September, 2014 the executive stated that the staff car rule 1980 do not apply to the Board being a corporate local body.The reply was not acceptable as all Cantonment Boards are bound to follow Federal Government rules as per Cantonment Act 1924.

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The DAC in its meeting held on January 19, 2016 was apprised that vehicles in question (18 Nos.) were operational vehicles and being used on field assignments. DAC directed that the matter be reconciled with Audit and clarification regarding authorization of staff cars may be sought from HQ ML&C department. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC directive. DP-S-266/2014-15 1.10.10 Illegal retention of undisbursed amount – Rs. 19.466 Million According to Rule 2 of Financial Regulations Volume II 1986 (Army and Air Force), all transactions to which any officer of Government in his official capacity is a party, shall, without any reservation, all moneys received are required to be deposited with Government shall, without undue delay, be paid, in full, into a Government treasury or into the bank to be credited to the appropriate account. A) In Military Estate Office Quetta, a sum of Rs. 1503.744 million was placed at the disposal of EDO (Rev) Gwadar by Civil Aviation Authority for acquisition of land measuring 4300 acres for New Gwadar International Airport in the FY 2007-08. The Award was announced and payments were released to the “Khatedaran”. The amount disbursed under the Award was Rs. 1495.518 million. The remaining amount Rs. 8,185,659 was refunded by the EDO (Rev) Gwadar to MEO Quetta in 2009 but not remitted to the CAA. B) In another case, the MEO Quetta wrote a letter onApril5, 2010 to the EDO (Rev) / Collector Gwadar stating that an amount of Rs 5.800 million was lying with you as an excess amount.” As per record the said amount was not received from EDO (Rev) Gwadar till the time of

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audit. Therefore, it was suggested that the amount may be returned to the Ministry of Defence along with the amount of interest accrued thereon. C) The MEO Quetta acquired10,027.50 acres of land at Turbat for Pak Navy for a sum of Rs 501.375 million from Government of Baluchistan. Rs. 506.855 million waspaid, whichresultedin excess payment ofRs. 5.480 million to Government of Balochistan but no efforts were exerted by the MEO Quetta for refund of overpaid amount. In the first case (A), the amount of Rs 8,185,659 retained by MEO Quetta should be remitted to CAA. In the second(B) and third (C) cases, the total amount Rs. 11.280 million should be obtained from EDO Gwadar and Secretary Board of Revenue, Government of Baluchistan and remitted to the Ministry of Defence along with the amount of interest / profit accrued thereon. When pointed out by Audit in April, 2015, MEO Quetta neither furnished written replies to Audit nor held discussion despite three written requests dated April 30, 2015, May 11 and 18, 2015. The DAC in its meeting held on January 19, 2016 was apprisedthat in the first case, EDO deposited the amount in MEO at the close of financial year, therefore, there was no time for obtaining advice regarding remittance of the same. In the second case, DAC was informed that EDO(R) Gwadar had been requested to remit the amount. In the third case, it was stated thatno excess payment was made. The DAC directed that amount concerning CAA be returned and case regarding remittance of MEO‟s money from EDO be taken up, action be completed within 15 days and got verified from Audit. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC‟s directive. DP-S-33/2015-16

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1.10.11 Non-transfer of un-claimed securities of contractors to Cantonment Fund – Rs. 7.244 Million According to Rule-86(2) of The Pakistan Cantonment Account Code, 1955, claims against the Cantonment, which are barred by time under section 3, read with the First Schedule to the Limitation Act, 1908, or under any other provisions of law relating to limitation, shall only be paid with the sanction of the Government. According to Rule 78(4), unclaimed deposits, which under rule have not already been transferred to the credit of the Cantonment Fund, shall, on the expiry of three years, be so transferred by transfer entry in the manner described in rule 38(a). In Cantonment Board Malir, a sum of Rs. 7,244,240, was deposited as security deposits by various contractors/suppliers/builders/individuals w.e.f 1998 to 2005, which became time barred as per Limitation Act, 1908. Therefore, the amount of said securities was required to be transferred to Cantonment Fund, which was not done and was held irregular in audit. When pointed out by Audit in November, 2015,it was replied that subject case would be forwarded to competent authority for necessary guidance/approval. The DAC in its meeting held on January 19, 2016 was apprisedthat case for guidance/approval has been forwarded to CFA. The DAC directed that an inquiry be conducted to investigate the matter. The report may be submitted in the next DAC meeting. DAC also directed that such practice may not be repeated in future. Further progress was not reported till finalization of this report. Audit stresses immediate compliance of the DAC directive. DP-S-199/2015-16

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1.11 Mis-procurement of stores – Rs. 171.107 Million 1.11.1 Un-authorized auction of shops – Rs. 171.107 Million According to Rule-4 of PPRA rules Procuring agencies, while engaging in procurements, shall ensure that the procurements are conducted in a fair and transparent manner, the object of procurement brings value for money to the agency and the procurement process is efficient and economical”. Further, according to Rule-12(2) of PPRA Rules, 2004, “all procurement opportunities over two million rupees should be advertised on the authority‟s website as well as in other print media or newspapers having wide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu”. While examining the accounts of Cantonment Board Bannu, it was observed that shops located at different areas of Cantonment Board were auctioned for Rs. 171,107,000 but auction notice was not advertised /placed on PPRA website for fair and transparent competition as required under the rules which was un-authorized. When pointed out by Audit in December, 2014, it was replied that the case was under investigation with NAB authorities. The reply was not tenable as complete record pertaining to auction of shops located at various places, copy of advertisement published in daily newspaper and outcome of the NAB investigation was not provided to Audit and regularization from competent authority was not obtained. The DAC in its meeting held on December 4, 7 and 8, 2015 directed the Department to hold Court of Inquiry within 02 months and submit report to Audit/Ministry of Defence. Audit stresses that complete record pertaining to auction of shops located at various places, copy of advertisement published in daily

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newspaper and outcome of the NAB investigation be provided to Audit and regularization action be completed. DP-N-679/2014-15

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Pakistan Air Force

1.12 Recoverables / Overpayments – Rs. 147.134 Million 1.12.1 Non-recovery of tower fee/rent from cellular companies – Rs. 10.947 Million According to Policy / guidelines for installation of tower on Cantonment Board building issued by ML&C department vide letter No. 1411/Lands/ML&C/2005 dated June 24, 2005, further clarified vide ML&C U.O No. 51/1411/Land/ML&C/2005 dated July 31, 2006,the cellular companies are required to pay antenna / tower fee @ Rs. 20,000 per month with annual increase @ 10%. Under Rule-02 of Financial Regulations Volume-II 1986, all transactions to which any officer of the Government in his official capacity is a party, shall without any reservation, be brought to account and all recovery received by or tender to Government are required to be deposited with Government. Further, Under Rule-2 of Financial Regulations (Volume-II) 1986, all transactions to which any officer of Government in his official capacity was party, shall without any reservations, be brought to account and all moneys received by or tendered to Government officer which were due to, or were required to be deposited with Government shall, without undue delay, be paid in full into a Government treasury or in to the bank to be credited to the appropriate account. Further, as per policy for installation of Tower Base Transmission in cantonment area was circulated through ML&C Department Rawalpindi letter No. 51/1411/Lands ML&C/2005 dated June24, 2005 “on provision of NOC an agreement will be executed with cellular companies to install Base Transmission Station Towers/antennas in cantonment area”. The cellular companies will be required to pay an antenna/Tower fee @ Rs. 40,000 (at A-I land) & Rs. 20.000(at C-I land) per month with an annual increase of 10%.

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While examining the accounts of following units and formations it was observed that tower and antenna fee for towers installed in cantt area and on A-1 land was not deducted as per rules. The details of those units and formations are given below:-

(Rs. in Million) S # DP No. Unit / Formation Amount 1 373/2014-15 Air Headquarter (Unit) Islamabad 8.035 2 528/2014-15 GE(Air) Lahore 1.917

3 602/2014-15 PAF Academy Risalpur 0.995 Total 10.947

When pointed out by Audit, the executive at serial No. 1 replied that a Board of Officer was composed and after completion of board of officers the antenna / tower fee would be deposited into Government Treasury. The executive at serial No.2 replied that objection pertains to Base HQ which was forwarded to them vide letter No.5003/03/E-5 dated September6,2003. The executive at serial No. 3 replied that as per the basic circulated policy by Government of Pakistan vide Ministry of Defence F-2/5/D-12/ML&C/99 dated April2, 2008 issued on A-I land, the recovery of ground rent from the BTS Towers was not part of the said policy. Thesereplies werenot tenable as no concrete action was taken for effecting recovery. The DAC in its meeting held on December 3, 2015 in respect of executive at serial No. 1 above directed that reconciliation/verification of recovery be got completed from audit. Further, copy of lease deed to be provided to audit for reconciliation of recoverable amount. The DAC held in respect of executive‟s at serial No. 2 and 3 on same date directed that relevant record/documents be provided to audit for examination/reconciliation within 01 week.

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Audit recommends that compliance to DAC directives be made and regularization/recovery action be completed. DP-N-373, 528 and 602/2014-15 1.12.2 Non-recovery of rent of shops – Rs. 8.160 Million According to Rule-68(b) of Quarters and Rents 1985, “rent in respect of buildings occupied by private individuals, other than those specified in rule 56, particularly if the individuals concerned use the accommodation for purpose of trade and make a profit out of it or otherwise derive some personal advantage there from, full assessed rent or the market rent, as the case may be shall be charged”. While examining the accounts of PAF Base Nur Khan Chaklala, it was observed that 85 Shops/Accommodations constructed on Government Land were allotted to different individuals running their business on commercial basis. As per office record no recovery of rent was made and as per physical verification of shops, Rs. 8,000 to 10,000 per month rent were being charged from the occupants by PAF Base. Audit recommended that Rs. 8,160,000 (approximately)(Rs.8000x85x12) from 85 shops for the period from July, 2012 to June, 2013 be deposited into Government Treasury. When pointed out by Audit in February 2014, it was replied that rent amounting to Rs. 13,394,696 for the period from 2008 to 2014 will be deposited into Government Treasury by AHQ. They further pleaded that most of the shops fall under category „B‟ activities, whereas some of themwere houses of shuhada families which were constructed out of Welfare Funds. The reply was not correct because detail working sheet/calculation of rent amounting to Rs. 13,394,696 was not disclosed to audit. Further shops/accommodations were located in residential area and not in unit area, therefore, activities fall under category “A” vide Para-2 of Ministry of Defence letter dated April 2, 1988. Further evidence to the effect that bungalows in question were constructed out of Public Fund and allotted to shuhada family only was not provided. Moreover, Construction 133

on Government land out of public fund or otherwise needs to be addressed besides transfer of share of income to state treasury. The DAC in its meeting held on December 3, 2015 directed that verification of record be done immediately. Audit stresses that Rs. 8,160,000 from 85 shops for the period from July, 2012 to June, 2013 be deposited into Government Treasury. DP-N-687/2014-15 1.12.3 Non-recovery of electricity charges from private/commercial consumers Rs. 3.330 Million According to Para-442 of Defence Services Regulations for MES, the GE is responsible for making monthly demands and prompt realization of rent and allied charges from occupants. While examining the accounts of GE (Air) AHQ Peshawar, it was observed that no individual meters were installed for 10 commercial shops/schools. The electricity bill charges were also not raised against those 10 commercial shops/schools at PAF Base Badaber Peshawar. The Assessed amount of these bills comes out to be Rs. 3,330,000 for the period from July, 2010 to June, 2013. When pointed out by Audit in November/December 2013, it was replied that electricity billing was regularly made and that these shops were allotted by Admin authorities and the office had no other source i.e. security deposit to recover the outstanding electric charges. The Reply was not acceptable because neither documentary evidence for electric billing was provided nor recovery was got verified. The DAC in its meeting held on December 3, 2015 directed to settle the Para subject to reconciliation / verification of record by audit.

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Audit recommends that compliance to DAC directives be made and recovery action be completed. DP-N-457/2014-15 1.12.4 Non-recovery of expenditure on electricity consumption in excess of authorized units – Rs. 84.918 Million According to Rule-82 of Quarters and Rent 1986, where lights and fans, etc., have been installed in excess of the authorized scale, theexcess fittings shall be removed so as to reduce the illumination or ventilation to the authorized scale. In GE (Air) Korangi Creek, an amount of Rs. 165.232 million was paid to K-electric from public fund on account of consumption of 8,555,937 units for the period July 2014 to June 2015. Out of total bulk units consumed by Base (as recorded by K-electric), only 1,804,811 units were authorized by the Board of Officers (BOO) for entire base, leaving a balance of 6,751,126 units for recovery. Recovery of 2,353,945 units was made from Civilians, Airmen, officers and Commercial units during the year leaving a balance of 4,397,181 units. Therefore, recovery of Rs. 84,909,565 (4,397,181 units @ Rs. 19.31) was required to be affected expeditiously. When pointed out by Audit in October, 2015, it was replied that billing against electric consumption was made according to the units authorized by a Board of Officers (BoO) and recovery was made properly on monthly basis. The reply was evasive, as the issue of recoverable 4,397,181 units was not addressed. The DAC in its meeting held on January 20, 2016 was apprised that the BoO had authorized 919,273 units in summer season and 880,318 units in winter. Average authorized units came to 10,797,546 units per month and actual consumption of 8,555,937 units was within the authorized limit. Audit, however, pointed out that the units were

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authorized by the BoO on seasonal basis and not monthly basis. The DAC directed to get the relevant record / documents verified from Audit. No record / documents were produced to Audit for verification till finalization of this report. Audit suggests implementation of DAC directive. DP-S-292/2015-16 1.12.5 Non-deposit of share in Government treasury due to less declaration of cultivable land – Rs. 22.442 Million According to Para-2(a) of A-1 Land Policy 2009, a board of officers will be detailed by the respective Admin Authority for Bases/units to determine the actual area of A-1 land being or required to be used. In Directorate of Welfare Accounts, AHQ Islamabad, Board of Officers was assembledat PAF Base Mushaf on March 3,2011 and two Boards were assembled at PAF Base Rafiqi on March 12, 2011 and January 17, 2013. The Boards took less area as compared to contract agreements concluded with various contractors of land of certain category „C‟ activities. As a result, the state suffered a loss of Rs. 22.442 million. When pointed out by Audit in June 2013, it was replied that areas mentioned in Board of Officers (BoO) for carrying out of category „C‟ activities were as per actual area available for cultivation. The reply was not acceptable.As per BoO Government share was deposited against 19,100 acres but as per contract agreements the land was 27,560 acres, which resulted less land accounted for in the BoO to the extent of 8,460 acres. The DAC in its meeting held on January 20, 2016 was apprised that as per Government of Pakistan MoD letter dated November 20,2009 audit of category A&C activities on A-1 land be centrally carried

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out. The DAC directedthe executive to reconcile the recoverable amount with Audit and deposit the reconciled amount into Government Treasury as per A-1 Land policy. Compliance of DAC directives was awaited till finalization of this report. Audit suggests implementation of DAC directive. DP-S-283/2014-15 1.12.6 Non-recovery of rent and allied charges – Rs. 7.319 Million According to Rule-442 of DSR 1998, GE is responsible for making demands for payment of all revenues and for taking steps for its prompt realization. It was observed from the record held with 02 formations/units of PAF that a sum of Rs. 7.319millionwas outstanding on account of rent and allied charges up to the year 2014-15 as follows:

Amount S. No. Unit/Formation DP No. (Rs in million) 1 GE (Air) Masroor S-297 6.562 2 GE (Air) Korangi Creek S-294 0.757 T o t a l 7.319

When pointed out by Audit in October & November 2015, it was replied that efforts were being made to recover the outstanding amount. The DAC in its meeting held on January 20, 2016 was apprised that an amount of Rs. 1.346 million had been recovered and the recovery of remaining amount was under process. The DAC directed to complete the recovery and get the recovered amount verified from Audit. No record / documents were produced to Audit for verification till finalization of this report.

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Audit suggests implementation of DAC‟s directives. DP-S-294 and 297/2015-16 1.12.7 Non-recovery of Sales tax – Rs. 5.378 Million According to Rule-2 of Financial Regulations Volume II 1986 (Army and Air Force), all transactions to which any officer of Government in his official capacity is a party, shall, without any reservation, be brought to account and all moneys received by or tendered to Government officer which are due to, or are required to be deposited with Government shall, without undue delay, be paid, in full, into a Government treasury or into the bank to be credited to the appropriate account or they shall be credited. A) In GE (Air) Faisal, five bulk supply gas meters are installed for billing of gas consumed at Faisal Base. Out of these, three meters are exclusively installed for billing of gas consumed by government offices. The other two meters, however, measure consumption of gas by both, government users and private users. The gas charges, as per the two meters, are divided for payment in the ratio of 50:50 between government users and private users. The GE makes total payment of gas charges, inclusive of GST @ of 17%, to the gas company against the five meters and then recovered the amount from private consumers, attributable to them. Audit observed that the GE did not recover Rs 5,059,122, on account of GST from private consumers @ of 50% during the year 2013- 14. The amount needed to be recovered and paid into government treasury forthwith. When pointed out by Audit in April, 2015, it was replied that recovery on account of GST @ 17% was being made from the consumers. Reply was incorrect, because, no evidence was produced to prove payment of GST by the paying consumers of the PAF Base.

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The DAC in its meeting held on January 20, 2016 was apprised thatMES was recovering GST @ 17% from consumers. The DAC directed to get the relevant record / documents verified from Audit. No record / documents were produced to Audit for verification till finalization of this report. Audit suggeststhat recovery action be expedited. B) According to Section-3 of Sales Act 1990, subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen per cent of the value of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him. Further, according to Section 23 of Sales Act 1990, a registered person making a taxable supply shall issue a serially numbered tax invoice at the time of supply of goods containing name, address and registration number of the supplier, date of issue of invoice, description and quantity of goods, value exclusive of tax, amount of sales tax and value inclusive of tax. In GE (Air) Malir, an amount of Rs. 2.961 million was paid to a contractor during the FY 2014-15, on account of replacement of 02 x FDUS units. The rate quoted by the contractor including 17% General Sales Tax, but final payment was made without deducting GST. GST invoice showing payment of the tax by the contractor was also not available on record. Therefore, GST amounting to Rs. 318,963 may be recovered and deposited in government treasury. When pointed out by Audit in November, 2015, it was replied that the contract did not involve GST, therefore, it was not recovered from the final bill. The Reply was not acceptable as contract amount was finalized including GST, as evident from quotation given by the contractor.

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The DAC in its meeting held on January 20, 2016 was apprised that GST @ 17% was paid by the contractor. The DAC directed to provide relevant record / documents to Audit for verification. No record / documents were produced to Audit for verification till the finalization of this report. Audit suggests either required documents (GST invoices along with FBR receipt) may be provided or amount in question be recovered. DP-S-277 and 291/2015-16 1.12.8 Non-recovery of outstanding arrears of foreign training charges from paying countries – Rs. 2.747 Million According to para-7 of AFO 177-189, every month the state of outstanding training charges is forwarded to JSHQrs Chaklala (MC Dte) with copy to Dte of Bgt, Dte of plans and DTO. The correspondence in all cases of outstanding training charges is made through JSHQrs/Air or Mily Attaché posted abroad in relevant embassy of Pakistan. In PAF Base Korangi Creek an amount of Rs. 2.747 million (26,167.32$ x Rs. 105/$) was paid from public funds on account of messing and accommodation charges of trainees from foreign paying countries but the same was not recovered/reimbursed from embassy concerned since 1979 which was in violation of above mentioned AFO. When pointed out by Audit in November, 2015, it was replied that outstanding foreign trainees charges were intimated to AHQ. The clearance would be confirmed by AHQ through concerned embassy. The DAC in its meeting held on January 20, 2016 was apprised that the matter regarding recovery was being regularly pursued with JSHQ through monthly returns. The DAC directed the executive to

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get the amount written off from the Government and produce record to Audit for verification. No record was produced to Audit for verification till finalization of this report. Audit suggests implementation of DAC directive. DP-S-286/2015-16 1.12.9 Non-recovery of Stamp duty from contractor on – Rs. 1.893 Million As per Government of Sindh Finance Act 2009, “Stamp duty of thirty paisa for every hundred rupees or part thereof of the amount of the contract will be charged”. Contrary to above rule, the record held with three units/formations revealed that a sum of 1.893 million on account of stamp duty was not recovered against certain contracts during the FY 2012-13, 2013-14 and 2014-15. Details are as under:

S No. Unit/Formation DP No. Amount (Rs. in Million) 1 GE (Air) Masroor, Khi S-295 0.757 2 AGE (Air) Mirpur khas S-100 0.644 3 CMES (Air) Faisal, Khi S-176 0.492 Total 1.893

When pointed out by Audit on January, 2015 to November, 2015, it was replied thatSindh Finance Act was not applicable on departments working under federal government. The reply was not tenable as payment of stamp duty was required to make contract a valid agreement, enforceable in a court of law. The DAC in its meeting held on January 20, 2016 was apprised that the case had been forwarded to Ministry of Defence for

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clarification. The DAC pended the para as the case was under reference with the Ministry of Defence for clarification. Audit suggests expeditious recovery of the pointed out amount. DP-S-295, 100 and176/2015-16 1.13 Loss to State – Rs. 556.563 Million 1.13.1 Non-receipt of deficient stores – Rs. 510.037 Million According to Rule-6 (a) of Financial Regulations Volume-I 1986, “Every officer should exercise the same vigilance in respect of expenditure incurred from Government revenue as a person of ordinary prudence would exercise in respect of the expenditure of his own money”. While examining the accounts of103 ALC Chaklala Rawalpindi, it was observed that store valuing Rs. 720,121,060 were outstanding against various contractors and their delivery dates were also expired since long. AHQ and DP Air failed to compel the suppliers / contractors for supplying the required quantity without delay. Similarly, LD charges imposed were not mentioned in the ALC record. Further, procurement of store was not done on the risk and expense of the contractors thus resulting in loss to state. When pointed out by Audit in November, 2013, it was replied that on November 21, 2013 the store amounting to Rs. 210.084 million was received and DP Air had warned the suppliers for encashment of BGs in case of outstanding deliveries. Further, CMA is required to deduct LD charges. The reply was not tenable as the action proposed for recovering the remaining amount of Rs. 510.037 million was not taken. The DAC in its meeting held on December 3, 2015 directed that relevant record/documents be provided to audit for examination within 01 week.

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Audit stresses that compliance to DAC directive be made and regularization action be completed. DP-N-374/2014-15 1.13.2 Loss due to non-recovery of HRA from officers – Rs. 24.465 Million According to Rule-26 and 44 of Quartersand Rents1985 “House rent Allowance is not admissible to Government servant provided with married accommodation” and para-4 of Government of Pakistan Ministry of Housing and Works Islamabad office memorandum No. F.11(33)/2012-Policy dated May 17, 2013 this Ministry does not support any proposal made by Ministry of Defence as it will lead to disparity between the civil and Military establishments. Therefore, the allottees belonging to armed forces may not be paid 45% House Rent Allowance and 5% rent of their running basic pay should be charged to bring them at par with civilian setup”. While examining the accounts of different units and formations it was observed that house rent of officers of certain army units and formations was not being recovered although they were living in government accommodation. The details of the army units along with irregular amountsare given below:-

(Rs. in Million) S # DP No. Unit / Formation Period Amount

1 623/2014-15 PAF Base M.M Alam, Mainwali Jan, 2015 4.380

2 96/2015-16 PAF Base Peshawar Aug, 2015 20.085 Total 24.465

When pointed out by audit in January 2015, the Base authorities replied that as per MAG vide their letter No. AT/MES/2254- 26/xii dated December6, 2003 had authorized admissibility of HRA to all married officers living in any accommodation other than proper service accommodation. However 5% of the recovery of the pay had been affected 143

from the officers. The reply was not acceptable as the HRA was not admissible as per Ministry of Defencedecision, so recovery action was required to be taken. Further, the executive at serial No. 2 replied that officers living in BOQs and MOQs were entitled to draw the HRA as per MAG letter dated February15, 2003. The DAC in its meeting held on December 3, 2015 directed that as per directives of Adhoc PAC on similar Para No. 2.6 of AR on accounts of Directorate General S&T, GHQ Rawalpindi – 1999-2000, assessed house rent be recovered from the officers in case of allotment of accommodation below entitlement. Audit stresses that compliance to DAC directives be made and regularization/recovery action be completed. DP-N-623/2014-15 and 96/2015-16 1.13.3 Loss due to excess consumption of sui gas – Rs. 18.410 Million According to Para-81 of Quarters & Rents 1985, “400 cft Sui Gas per man per month is authorized to Cook \house and excess consumption will be charged from unit.” While examining the accounts of GE (Air) Rafiqui, it was observed that a sum of Rs. 27,132,837 was paid to the SNGPL on account of Sui Gas charges. The free authorization of whole set up like barracks, messes, hospitals come to Rs. 8,722,577. The omission resulted into a loss to State due to payment of Sui Gas bills in excess to free authorization amounting to Rs. 18,410,260 which was unauthorized. When pointed out by audit in November 2014, it was replied that reply would be followed. The Reply given by Executive was not tenable as it was not substantiated with concrete evidence. The DAC in its meeting held on December 3, 2015 directed that expenditure be got regularized within 01 month.

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Audit stresses that compliance to DAC directives be made and regularization action be completed. DP-N-603/2014-15 1.13.4 Loss due to un-necessary procurement of steel– Rs. 2.215 Million Under Para-624 of MES Regulations-1998, the quantities of stores held in stock should not exceed than three months average consumption. Maximum/minimum quantity of every stock is required to be fixed accordingly. Further under Rule 652,690 to 693 of MES Regulations-1998, Surplus stores are required to be utilized/disposed of with the approval of the competent authority. While examining the accounts of GE(Air) Lahore it was observed that steel bars of various sizes purchased during the period from 1993 to 2008, were lying in the stock in serviceable condition, without any utilization. It was clear that steel bars were purchased without any requirement and resulted into un-necessary blockage of public money amounting to Rs. 2,214,683. The stores were deteriorated which needed disposal by transfer to other stations where it could be utilized. When pointed out by audit in September 2012, it was replied that steel in question was already declared surplus to requirement and circulated on E-3 Form D. The reply was not sufficient as no stepswere taken to dispose of the surplus store. The DAC in its meeting held on December 3, 2015 directed to settle the Para subject to verification of record by audit. Audit stresses that compliance to DAC directives be made and regularization action be completed. DP-N-454/2014-15

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1.13.5 Non-regularization of losses – Rs. 1.436 Million According to Rule-37 (a) of Financial Regulations 1986, all losses, whether of public money or of stores, shall be subjected to a preliminary investigation by the officer in whose charge they were, to ascertain the cause of the loss and the amount involved. In GE (Air) Korangi Creek, an amount of Rs. 1.436 million was outstanding against different contractors since 1951. All such outstanding amounts were to be treated as loss and required to be regularized through loss statements. When pointed out by Audit in October, 2015, it was replied that loss statement had been forwarded to competent authority for settlement and progress would be intimated to Audit. The DAC in its meeting held on January 20, 2016 was apprised that cases for regularization of loss statements were under process. The DAC directedthe executive to get theloss statement finalized from the governmentand finalized loss statement verified from Audit. Finalized loss statement was not produced for verification till finalization of this report. Audit suggests implementation of DAC‟s directives. DP-S-293/2015-16 1.14 Irregular / Unauthorized expenditure – Rs.75.499 Million 1.14.1 Un-authorized payment of Overtime Allowance to Civilians for Rs. 43.608 Million According to Rule-6 Financial Regulations 1986 Volume-I ”Every officer should exercise the same vigilance in respect of expenditure incurred from Government revenue as a person of ordinary prudence would exercise in respect of the expenditure of his own money”. Further according to financial cannon, 146

a. No authority shall exercise its power of sanctioning expenditure to pass an order which will, directly or indirectly, be to its own advantage. b. The amount of allowances, such as travelling allowance, granted to meet expenditure of a particular type, shall be so regulated that it does not, on the whole, become a source of profit to the recipient. c. Government revenues shall not be utilized for the benefit of a particular person or a section of the community. According to Finance Division Regulation Wing OM No.4 (2) R-5/1423 dated June 24, 1985 and even dated August 11, 1991, over time allowance is admissible to staff car driver and dispatched rider. While examining the accounts of PAF Base, Peshawar, it was observed that a sum of Rs. 43,607,886 was paid to other individuals which was in contravention of the above Government order. When pointed out by Audit in August 2015, the executive authority stated that allowance was being paid to PAF Civilians employees of Grade 1 to 15 as per Government of Pakistan letter No. AHQ/17/118/61/ADCP (B/U)/7/5/81/D-10 dated August 9, 1982.The reply was not tenable, as the allowance is being paid to various individuals in violation of above Government order. No such record was provided to audit for engagement of staff for specific purposes / projects i.e. their attendance / work performance / tasks assigned / completed. Therefore, a huge payment of overtime allowance for Rs. 43.608 million paid during the year 2014-15, needed regularization. The DAC in its meeting held on January 12, 2016 directed to discuss the issue with audit and asked executive to complete reconciliation / verification process of relevant record/documents. DP-N-97/2015-16 1.14.2 Un-authorized payment of SMA/DMA to Airmen and Officers – Rs. 15.640 Million 147

According to Para-39 and 81 of Pay and Allowances regulation (PAF) 1998 &Ministry of DefenceLetter No. 3/331/PP&A dated March 08, 1999, SMA is admissible in training camps, during exercise in operational area. While examining the accounts of PAF Base Sargodha it was observed that SMA/DMA was being paid to Airmen‟s/Officers at X points security duty against the above orders. It is worth mentioning, that actual security duty was being performed by the DSG and said allowances were not authorized to DSG. Moreover, it was pointed out that provost staff was employed for security duties of PAF Base and they were paid SMA without any authority. This irregularity had resulted into an overpayment of Rs. 15,648,985. When pointed out by audit in December, 2014 it was replied that as per Rule 81 of Pay and Allowances Regulations 1988, Warrant Officers and Airmen attending the training camps, taking part in menuvours / exercises or officers serving in the operational areas would be entitled for special Messing Allowance. Keeping in view the prevailing security situation and to counter terrorist attack and insurgency the Base had become the operational area where training camps and exercises were being conducted on regular basis.Therefore, SMA was authorized only to those JCOs/Airmen who were actually deployed on above mentioned duties. The reply was not acceptable as the same station of duty was not declared operational area by army authorities and other armed units were not drawing SMA / DMA at that station. The DAC in its meeting held on December 3, 2015 directed that reconciliation / verification of record be got completed at the earliest.

Audit stresses that compliance to DAC directives be made and recovery action be completed besides providing complete record to audit.

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DP-N-519/2014-15 1.14.3 Irregular payment of IS allowance to officers airmen – Rs. 8.730Million As per AHQ letter No. AHQ/10353/16/5/Accts (pay) dated June 22, 2012, IS allowance was authorized to the personnel of No. 483/MCC deployed at forward locations i.e. Tall, Meeranashah, Shangla, and Malakand area alongside Army personnel in 11 Corps area. According to Para 4 of JSI-4/78, when duties personals are detailed in aid of civil power with own formation HQ/unit/detachment at the outstation DA as IS duty will be regulated at full rates for the first 30 days, at ¾ of full rate, for the next 20 days and at ½ of full rate for the remaining period. Further, Under Para 4 (C) when personnel area deployed for duty of the station of permanent posting and do not move out of HQ unit, the Daily allowance will be admissible at half of the rate as mentioned in para 4 (a). While examining the record held with PAF Base M.M Alam, Mainwaliit was observed that IS duty allowance was paid to officers/ Airmen and civilians at half rates of above mentioned rates at permanent posting at rear headquarter Mianwali without detailing in aid of civil power. It was pointed out that 11 Corps was not related in the vicinity of Mianwali. No orders of DCO office was issued for deployment in aid of civil power. This irregularity had resulted into an overpayment of Rs. 8,734,778 which needed recovery. When pointed out by Audit in February 2015, the base authorities replied that IS allowance to officer / airmen was authorized on the authority of para-4(c) of JSI-4/78. The said allowance was not authorized to the unit personnel who had not moved out of HQ unit vide Air Headquarter Peshawar letter dated January 9, 2013. The reply was not acceptable as the staff was not detailed in aid of civil power at Mianwali. The other staff was being paid SMA but staff of 483 MCC was paid IS Allowance without detailing in aid of civil power.

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The DAC in its meeting held on December 3, 2015 directed that regularization of unauthorized payment of IS allowance be finalized within 03 months otherwise recovery be effected from all the concerned and got verified from audit accordingly. Audit stresses that overpaid amount to officers may be recovered besides taking remedial actions for improvement of internal controls. DP-N-622/2014-15 1.14.4 Un-authorized payment on account of (SMA) Special Messing Allowance (SMA) – Rs. 3.480 Million As per Rule 100 of Pay and Allowances Volume-II 1997, regarding SMA/DMA, Warrant officers and Airmen when attending training Camps, taking part in maneuvers / Exercises and when serving in Operational Areas will be entitled to daily messing allowance. While examining the accounts of PAF Base Peshawar, it was observed that an amount of Rs. 3,486,450 was paid to the Officials/Officers of Provost Squadron/ Crisis Control Squadron and as Special Messing Allowance in violation Rule quoted above. Provost Squadron/ Crises Control Squadron was performing security duty as its regular function and it could not be termed as part of exercise/ maneuver. Further, operational order when issued carries specific time and name of the operation, persons deployed, period and vehicles required etc. As it was a general duty and grant of SMA was unjustified. When pointed out by Audit in August 2015, the executive authority stated that DMA/ SMA was authorized to PAF personal by AHQ Peshawar. The reply was not tenable in the light of above quoted Rule/position since the personnel were not deployed in the Operational Areas and performing the security duty as its regular function which could

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not be termed as part of exercise / maneuver, therefore payment needed recovery. The DAC in its meeting held on January 12, 2016 directed to discuss the issue with audit and verification of relevant record/documents be done immediately. Audit stresses that amount in question be recovered and this practice be stopped forthwith. DP-N-98/2015-16 1.14.5 Irregular execution of work without obtaining prior approval from Government – Rs. 2.996 Million Under Rule 30 of DSR 1998, administrative sanction will be conveyed by a letter specifying the sources from which funds will be provided. It will also state whether the work is authorized or special; if authorized, the authority will be quoted and if special, the reasons for according administrative sanction will be specified. Further, according to Rule 21(c)(2) of DSR 1998, special works may only be approved when exceptional local conditions justify the necessity, or as an important experimental measure. Special works should NOT be approved if the effect would be to introduce a new practice or change of scale. Further, according to Rule 9(a)(2) of Financial Regulations Volume-I 1986, prior reference will be made to Govt. in case of introduction of new practice. In GE (Air) Malir, an amount of Rs. 2.996 million was incurred on account of “Provision of alternate power source at vulnerable areas of perimeter (Phase I) at PAF Base Malir” during 2014-15. The work was sanctioned as authorized work, but it was of special nature as it was new practice and involved change of scale. The work, therefore, required prior approval of Government of Pakistan as mentioned in above quoted rules.

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When pointed out by Audit in November 2015, the executive stated that Admin approval for the work was accorded under the provision of Para 25 and table „A‟ of DSR1998 and MoD letter No. F. No. 1/16-D-13/AF-III) 2014 AHQ/5516/731/wks Bgt dt: 3rd July 2014. Hence obtaining prior approval from Govt. of Pakistan was not required. The reply was not acceptable. Sanction of work was accorded as authorized work under Para 25 of table “A” of DSR 1998, but the work was of special nature, as it was a new practice and involved change of scale. Thus sanction of Government was required as per rules quoted above instead of AHQ. The DAC its meeting held on January 20, 2016 was apprised that the work was covered under para 21(c)(2) of DSR for MES 1998 and scope of work was got approved from the Government of Pakistan. The DAC directed the executive to get the relevant record / documents verified from Audit. No record / documents were produced to Audit for verification till the finalization of this report. Audit suggests that sanction of Government of Pakistan may be obtained to get the work regularized. DP-S-288/2015-16 1.14.6 Irregular local purchase of Ultra Sound Machine – Rs. 1.045 Million As per Rule-19 of Financial Regulations Volume-I, 1986, the limit which has been set in each case extends to each separate sanction. The criterion in any case is the total cost of measure and no measure, which requires the sanction of superior authority, shall be sanctioned by a subordinate authority in installments. Rule-43 of FR Volume-I, 1986, also provided Financial Powers of sanctioning authorities. In PAF Hospital Masroor, Karachi, Ultra Sound Machine with TVS Probe amounting to Rs. 1.045 million was purchased during the 152

FY 2013-14. The procurement was made in piecemeal by splitting the purchase through two different contingent bills, one for Honda Ultra Sound Scanner Rs. 0.745 million and the other for TVS Probe Ultra Sound Honda Rs. 0.300 million, to avoid sanction from Deputy Chief of Air Staff (Support/Logistic). When pointed out by Audit in March, 2015, it was replied that TVS Probe was an accessory of Ultra Sound Scanner, therefore advertisement was published as „Ultra Sound Machine with TVS Probe‟. The reply was not acceptable as the purchase was split up to avoid sanction from higher authority. The DAC in its meeting held on January 20, 2016 was apprised that case for regularization from DCAS (S) was under process.The DAC directed to get the irregular purchases regularized from the competent authority. Audit suggests regularization to be finalized at earliest. DP-S-40/2015-16 1.15 Mis-procurement of stores – Rs. 189.107 Million 1.15.1 Award of contracts in violation of Public Procurement Rules – Rs. 60.229 Million a) According to Rule-12(1,2) of PPRA-2004, all procurements over one hundred thousand rupees and upto the limit of Rs. 2.00 million shall be advertised on the authority‟s website. Further, procurement over Rs. 2.00 million should be advertised on the authority‟s website as well as in two national dailies, one in English and the other in Urdu. Further, PPRA Rule-51, stipulates that “the provisions of these rules shall have effect not withstanding anything to the contrary contained in any other rules concerning Public Procurements; provided that the prevailing rules and procedures will remain applicable only for the procurement of goods, services and works for which notice for invitation of bids had been issued prior to the commencement of these rules unless the procuring agency 153

deems it appropriate to re-issue the notice for the said procurement after commencement of these rules.” b) Further, according to Rule-38 of Public Procurement Rules, 2004, “the bidder with the lowest evaluated bid, if not in conflict with any other law, rules, regulations or policy of the Federal Government, shall be awarded the procurement contract, within the original or extended period of bid validity”. While examining the record of following units/formations it was observed that different contracts were concluded without observing laid down procedure of Public Procurement Rules 2004:- (Rs. in million) S Name of Unit / DP No. Nature of Amount No. Formation Procurement 1 GE (Air) AHQ Peshawar 362/2014-15 75 contracts 6.098 2 GE (Air) AHQ Peshawar 456/2014-15 Faan Gas 5.735 3 PAF Hospital Rafiqui 513/2014-15 Life medicines 20.500 4 PAF Hospital Islamabad 75/2015-16 CT Scan Machine 3.200 5 PAF Hospital Islamabad 87/2015-16 Diff lab items 4.183 6 PAF Base Peshawar 91/2015-16 Cont of tea 4.115 7 PAF Base Peshawar 92/2015-16 Cont of milk powder 16.398 Total 60.229

The DAC in its meeting held on December 3, 2015 directed to hold Board of Inquiry (BOI) and fix responsibility for violation of PPRA Rules 2004 within 15 days and take disciplinary action against the responsible. A copy of Board of Inquiry (BOI) be provided to Ministry of Defence/Audit accordingly.

Audit stresses that prompt action for regularization of mis- procured amount be taken besides fixing responsibility on concerned officers/officials. DP-N-362, 456, 513/2014-15 and 75, 87, 91 and 92/2015-16

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1.15.2 Award of contracts in violation of Public Procurement Rules – Rs. 92.820Million According to Rule-12(1&2) of PPRA2004, all procurements over one hundred thousand rupees and up to the limit of Rs. 2.000 million shall be advertised on the authority‟s website. Further procurement over Rs. 2.000 million should be advertised on the authority‟s website as well as in two national dailies one in English and the other in Urdu. According to Rule-13(1), under no circumstances the response time shall be less than 15 days for national competitive bidding. During audit of different units/formations, it was observed that contracts were concluded in violation of Public Procurement Rules 2004. Details are listed below:

Amount (Rs. in S # Name of Unit / Formation DP No. million) 1 PAF Base Shahbaz, Jacobabad S-70 7.725 2 GE (Air) Shahbaz, Jacobabad S-186 14.063 3 GE (Air) Samungli S-239 4.714 4 GE (Air) Kohat (2014-15) S-293 2.235 5 GE (Air) Kohat (2014-15) S-294 13.517 6 GE (Air ) Samungli S-295 2.954 7 GE (Air) Kohat (2014-15) S-296 3.550 8 GE (Air) Kohat (2014-15) S-297 44.062 Total 92.820

The replies received from above mentioned units/formations were not convincing. The DAC in its meeting held on January 20, 2016 directed the executive to conductinquiry and get the violation of PPRA Rules regularized.

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No progress was reported to Audit till finalization of this report. Audit suggests implementation of DAC‟s directives. DP-S-186, 70/2015-16, S-297, 294, 293, 296, 295 and 239/2014-15 1.15.3 Irregular award of medical stores’ contract – Rs. 27.150 Million Rule-12(2) of PPRA 2004 provides that the advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu. Rule 40 of PPRA Rules, 2004 provided that there shall be no negotiations with the bidder having submitted the lowest evaluated bid or with any other bidder: In PAF Hospital Masroor Karachi, an advertisement was published in daily Pakistan Observer for supply of medicine on daily basison March 25, 2013, and contract was concluded with M/s Shaheen Medical Services. Following violations of PPRA Rules were observed in conclusion of the contract: i. The advertisement was published in only one newspaper against the mandatory requirement of at least two national dailies. ii. In the bidding process, Tariq Medical Store offered highest discount rate of 9.25% while M/s Shaheen Medical Services offered 9%. However negotiations were held with M/s Shaheen Medical Services in violation of Rules who raised their discount rate to 10.10 % and became successful bidder; and iii. Contract was awarded to Shaheen Medical Services on April 8, 2013 with 10.10% discount, while the last date of submission of tender documents was April 9, 2013. When pointed out by Audit in March 2015, it was stated that tender for local purchase of medicine was published in newspaper and contract was awarded to M/s Shaheen Medical Services as they quoted

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higher discount rates. The reply was not tenable as it did not address the objections raised by Audit. The DAC in its meeting held on January 20, 2016 was apprised thatthe case was forwarded to AHQ Islamabad (Media Officers) for advertisement in two leading newspapers. All the quotations were opened on April 9,2013. After negotiation with M/s Shaheen Medical Services, a subsidiary of Pakistan Air Force (PAF), higher rate of 10.10% discount was obtained. The DAC directed to hold inquiry and get the violation of PPRA Rules regularized. No progress was reported to Audit till the finalization of this report. Audit suggests implementation of DAC directive. DP-S-94/2015-16 1.15.4 Irregular procurement of MT stores – Rs 8.908 Million According to Rule-12(1) of PPRA 2004, Procurements over one hundred thousand rupees and up to the limit of two million rupees shall be advertised on the Authority‟s website in the manner and format specified by regulation by the Authority from time to time. These procurement opportunities may also be advertised in print media, if deemed necessary by the procuring agency. In PAF Base Korangi Creek, an amount of Rs 8.908 million was expended on procurement of MT Store during the year 2014-15. While working on 80 transactions (high value items), Audit observed that in 70% transactions, spare parts of vehicles were installed and taken on charge on a date that was earlier to the date placement of local purchase order. This was a serious violation of government standing orders & PPRA Rules. Making purchases before adopting procurement process renders the whole process doubtful and needs proper investigation.

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When pointed out by Audit in November, 2015, it was replied that demands, received from MT Sqn, were first processed on and LPO was given to the contractor for purchase of items. After delivery of item, SIB action was taken and F-530 was printed for approval from CFA, subsequently item was brought on charge and the same were issued to their users. The PAF formations had been instructed to minimize such purchase procedure. The reply was evasive and did not address the issue raised by Audit. The DAC in its meeting held on January 20, 2016 was apprised thatthe local purchase procedure was followed. Advertisement was published and LPOs were issued after obtaining approval from ACAS (Log) in all cases. The DAC directed the executive to get the relevant record / documentsverified by Audit. No record / documents were produced to Audit for verification till finalization of this report. Audit suggests that violation of rules may be got regularized. DP-S-285/2015-16

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Pakistan Navy

1.16 Recoverables / Overpayments – Rs. 526.187 Million 1.16.1 Loss to state due to non-recovery of HRA from officers – Rs. 9.833 Million According to Rule-26 & 44 of Quarter & Rent 1985 “House rent allowance is not admissible to Government Servant provided with married accommodation “and Para-4 of Government of Pakistan Ministry of Housing and Works Islamabad office memorandum No. F-11 (33)/2012-Policy dated May 17,2013 this Ministry does not support any proposal made by Ministry of Defence as it will lead to disparity between the Civil and Military establishments. Therefore, the allotted belonging to armed forces may not be paid 45% House Rent Allowance and 5% rent of their running basic pay should be charged to bring them at par with civilian setup”. While examining the accounts of certain units and formations it was observed that house rent allowance of officers was not being recovered although they were living in government accommodations. The details of those army units and formations are given below:-

S # DP No. Unit / Formation Amount (Rs.) 1 605/2014-15 PNSW Lahore Cantonment 6.095 2 626/2014-15 UA GE (Navy) Lahore Cantonment 3.738 Total 9.833(M)

When pointed out by Audit in October 2014, it was replied that recovery of HRA from officers residing in MOQ was under deliberation at Ministry of Defence and would be recovered upon receipt of instruction from Ministry of Defence/NHQ being the tri-services case.

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Furthermore, as per MES Quarters & Rent Regulations-1985 Rule 44 (C), officers residing below their entitlement accommodation would be charged 5% of the maximum rate of pay admissible to the officer of the senior most rank normally entitled to the class of accommodation.Therefore 5% rent was being recovered from the officers residing in MOQs. The reply was not acceptable because as per above orders officers living in MOQswere not authorized to draw the HRA. The DAC in its meeting held on December 8, 2015 directed that as per directives of Adhoc PAC on similar Para no. 2.6 of AR on accounts of Directorate General S&T, GHQ Rawalpindi – 1999-2000, assessed house rent be recovered from the officers in case of allotment of accommodation below entitlement. Audit stresses that compliance to DAC directives be ensured and no house rent policy be got finalized separately for armed forces without getting vetted from Ministry of Housing and Works. DP-N-605 and 626/2014-15 1.16.2 Non-deposit of Government share into government treasury – Rs. 468.093 Million According to the policy of use of A-1 land issued vide letter No. F.2/5/D-12/ML&C/99 dated April 2, 2008. The rent shall be charged @ 6% per annum of existing revenue rate (earlier known as DC rates) of the said land used in commercial projects and 25% of the calculated rent will be deposited into Government Treasury and 75% in Army head. The whole income relating to A-I land for agricultural purposes etc will be deposited into Government treasury.Survey will be conducted by a board of officers to determine the actual area under usage.All use of A-1 Land for any purpose shall be auditable.According to para 2 of the A-1 land policy Category “A” activities are essential commercial activities required to serve the resident of the respective Garrison. Para 3 further provides that category “B” activities are

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undertaken purely for welfare of troops on no profit no loss basis within formation/unit areas.

A) In 04 Naval units, A-1 land was let out for commercial entities. All the revenue generated from these entities estimated at Rs. 247.256 million was deposited into Ships fund account instead of government treasury, which was in contravention of rules. Details are as under:

No. of Amount S.No. Unit/Formation DP No. activities (Rs in million) 1 PNS Karsaz S-134 6 172.00 2 PNS Dilawar S-42 6 51.300 3 PNS Shifa S-50 2 20.700 4 GE (N) Logistics, Khi S-241 12 2.256 Total 246.256

When pointed out by Audit in September 2014 to August 2015, no reply was furnished to DP S-134 & S-241, whereas, the other units replied that revenue generated from these activities was being utilized for welfare of troops. Reply was not acceptable. The income generated from those commercial entities needed to be deposited into Government treasury, in line with A-1 land policy in vogue. The DAC in its meeting held onJanuary 20, 2016 was apprised that PNS Dilawar had forwarded the caseto NHQ forapproval while in other cases necessary action was in hand. Besides, GE (N) Logistics informed that the PN authorities had rented the concerned area to private consumers at their own, not MES. The DAC directed that Board of Officers be finalized and action be completed within 15 days. No progress was reported to Audit till the finalization of this report. Audit suggests government share as per A-1 land policy, may be deposited into government treasury expeditiously. 161

DP S-134, S-42, S-50 and S-241/2015-16 B) In PNS Karsaz, A-1 land of unit was let out to a private contractor to organize Dolphin Show at Pakistan Maritime Museum. The Dolphin show was being organized since FY 2010-11. In this context copy of contract and revenue record was not furnished to Audit. Therefore, Audit estimated that approximately an amount of Rs. 198.00 million was generated through the show during last 04 years. All the revenue generated from this show was deposited into ships fund account of Pakistan Navy (a non-public fund account) instead of Government treasury, which was in contravention of rules and policy on use of A-1 land. When pointed out by audit in April 2015, it was replied that activity of Dolphin show fell under the category “B” activities in terms of A-1 land policy. The reply was not acceptable as category „B‟ status of Museum could not be extended to a commercial activity held on its premises. The DAC in its meeting held onJanuary 20, 2016 was apprised that revenuegenerated fromDolphinshow may be allowed to be deposited in installment of Rs. 25,000 per month in Government treasury. The DAC directed that relevant record / documents may be got verified from Audit within 15 days. No record / documents were produced to Audit till finalization of this report. Audit suggests government share as per A-1 land policy, may be deposited into government treasury expeditiously. DP-S-132/2015-16 C) In PNS Shifa, Karachi, about 3,000 Sq yards land was provided to institute of Professional Psychology which was operating on commercial basis. Furthermore,11,000 sq yards land also provided to BUM &DC.However, actual land occupied by BUM &DC, was 13,500 Sqyards. The occupation of excess land was unjustified to Audit. The

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recoverable amount was calculated to Rs. 22.837million. The same was transferred into ship fund account (a non-public fund account). When pointed out by audit in June 2014, it was replied that as per MoD letter land utilization by education institution falls under category B activities, which was exempted from charging of rent. The reply was not acceptable as BUM & DCwas not a declared public sector university and the letter of the MOD did not cover universities. The DAC in its meeting held onJanuary 20, 2016 was apprised that decision on a similar draft para was already under process with higher authorities. The DAC directed that action with regard to A-1 land policy may be completed. Further progress was not intimated till finalization of this report. Audit suggests government share as per A-1 land policy, may be deposited into government treasury expeditiously. DP-S-79/2015-16 1.16.3 Non-deposit of revenue generated from mobile towers in government treasury –Rs. 19.125 Million According to Government of Pakistan, Ministry of Defence (ML&C Depot) Rawalpindi letter No. 51/1411/Lands/ML&C/2005 dated June 24, 2005, Para-7(b), the cellular companies will be required to pay an antenna/ tower fees @ 20,000 per month with an annual enhancement @ 10%. In PNS Karsaz, 5 Mobile Phone Towers were installed but the revenue generated from those towers amounting to Rs. 19.124 million was not deposited into treasury. When pointed out by Audit in April 2015, no reply was furnished by the executive. The DAC in its meeting held on January 20, 2016 was apprised that amount of Rs. 2.232 million had been deposited in

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government treasury. The DAC directed that the amount of revenue generated from the mobile towers be reconciled with Audit and reconciled amount be deposited in treasury. The DAC also directed that the amount deposited be got verified from Audit. No record / documents were produced to Audit for verification till finalization of this report. Audit suggests expeditious recovery of the pointed out amount. DP-S-131/2015-16 1.16.4 Non-recovery of rent and allied charges –Rs. 17.770 million Under Para-442 DSR-1998, The GE is responsible for making demands for payment of all revenues and for taking steps for its prompt realization. A) During audit of four MES formations, it was observed that dues of rent and allied charges amounting to Rs. 16.513 million were outstanding for the years 2013-14 and 2014-15 as follows:

Amount S.No. Unit/Formation DP No. (Rs. in million) 1 GE (N) Karsaz, Karachi S-263 9.381 2 GE (N) Fleet, Karachi S-63 4.455 3 GE (N) East, Karachi S-107 1.995 4 GE (N) Fleet, Karachi S-281 0.682 Total 16.513

When pointed out by Audit from October 2014 to September 2015, it was replied that the recovery action was in process. The DAC in its meeting held onJanuary 20, 2016 was apprised that recovery was under process. The DAC directed that recovery of amount regarding the water and gas charges be got reconciled with Audit and agreed amount be recovered and got verified by Audit.

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No record / documents were produced to Audit for reconciliation / verification till finalization of this report. Audit suggests expeditious recovery of pointed out amount. DP-S-63, 107, 263 and 281/2015-16 B) In GE (N) Karsaz, electric and water charges amounting to Rs. 1.257 millionwere outstanding against Naval Model Schools and degree college at Hanif SRE and Majeed SRE. When pointed out by Audit in September, 2015, it was replied that institutes were running for the welfare of troops on no profit, no loss basis. The reply was not tenable as there was no provision under rule-83 and 84 of Quarters& Rents 1985 for free allied services for schools/colleges. The DAC in its meeting held onJanuary 20, 2016 was apprised that educational buildings (school/colleges) were entitled to free supply of water and electricity as per Rule 77(e)(3) a and Rule 84 k of Quarters and Rents 1985. Moreover, those institutions wererunning purely for welfare purpose. The DAC directed that full amount be recovered and got verified by Audit. No record / documents were produced to Audit for verification till finalization of this report. Audit suggests expeditious recovery of the pointed out amount. DP-S-267/2015-16 1.16.5 Less recovery of water charges from private consumers – Rs. 8.996 Million According to Para-442 of DSR 1998,the GE is responsible for making demand for payment of all revenue, and for taking steps for its prompt realization.

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In GE (Navy), Karsaz, 1,957,400 gallons water per month (average) was provided and charged to different commercial consumers at domestic rates. This resulted in less recovery of water charges amounting to Rs 8.996 million. When pointed out by Audit in September 2015, it was replied that water charges were recovered from private consumers @ Rs. 119/gallon. The reply was not acceptable as domestic rate was applied instead of commercial. The DAC in its meeting held onJanuary 20, 2016 was apprised that these shops were providing services for welfare of troop‟s families and were operating on no profit noloss basis.Therefore, water charges were recovered as per domestic rates. The DAC directed that full amount be recovered and got verified from Audit. Audit suggests expeditious recovery of pointed out amount. DP-S-265/2015-16 1.16.6 Non-recovery of Stamp duty from Contractors – Rs. 2.370 Million As per Government of Sindh Finance Act 2009, “Stamp duty of Thirty paisa for every hundred rupees or part thereof of the amount of the contract will be charged”. Contrary to above rule, record held with the 02 MES formations revealed that a sum of 2.37 million on account of Stamp Duty was not recovered against certain contracts during the FY 2014-15. Detailsare as under:-

Amount S.No. Unit/Formation DP No. (Rs in million) 1 GE (N) Logistics, Khi S-236 1.622 2 AGE (N) Mehran, Khi S-301 0.748 T o t a l 2.370

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When pointed out by Audit on August, 2015 and November, 2015, it was replied thatSindh Finance Act 2009 was not applicable on departments working under the federal government. The reply was not tenable as payment of stamp duty is required for a contract to become a valid agreement, enforceable in court of law. The DAC in its meeting held onJanuary 20, 2016 was apprised thatcase had been taken up with MAG by HQ DW&CE (Navy) Islamabad for clarification. The DAC directed that case may be referred to MoD/FBR for clarification. Audit suggests implementation of DAC directive. DP S-236 and 301/2015-16 1.17 Loss to State – Rs.2.155 Million and US $ 126,149 1.17.1 Loss of revenue due to non-depositing of Government US $ 126,149 As per Serial No. 1 to Annex-C of JSI-4/2006 “US $400 per week will be charged as Tuition fee from the allied officers”. As Serial No.1 to Annex-E of JSI-4/2006”US $3 per day will be charged as medical facilities from the allied officers and deposited into Government treasury”. While examining the accounts of Pakistan Naval War College, Lahore it was observed that tuition fee and Medical facility from the officers were required to be recovered as per above JSI, but no evidence regarding recovery of same amount was provided to audit for scrutiny. The Government, therefore, had sustained as loss of US $ 126,149. When pointed out by Audit in October, 2014, it was replied that bills of paying countries were forwarded to NHA after vetting from CNA vide PNWC letters dated December 11, 2013 and October21, 2013 for further disposal in the light of JSI-4/2006. The reply was not

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acceptable as no evidence of record regarding recoverable amount was produced. The DAC in its meeting held on December 8, 2015 directed to effectfull recovery and to complete its verification process. Audit stresses that compliance to DAC directives be ensured and recovery action be completed. DP-N-659/2014-15 1.17.2 Non-recovery of losses decreed by Court – Rs. 2.155 million Under Rule 626(1) of Financial Regulations (Navy) 1993, all transactions to which any officer of the Government, in his official capacity is a party may without any reservation be brought to account and all moneys received be paid in full, without undue delay, into the State Bank or Government treasury to be credited to the appropriate head of account or taken on charge in the public fund (Main Cash) account and deposited with the supply officer. In PNS Dilawar, it was observed that in Civil Suit No.287/2009, a court awarded decree in favor of PNS Dilawar on November 8, 2013 for recovery of Rs. 2.155 million against damages to vehicle No. PN-3299.The decreed amount could not be recovered due to non-execution of the decree. When pointed out by Audit in September 2014, it was replied that recovery was under process. The DAC in its meeting held onJanuary 20, 2016 was apprised that case was under litigation at City Court, Karachi and efforts were being made to get the decree executed. The DAC directed that full amount be recovered and be got verified from Audit. No record / documents were produced to Audit for verification of recovery of the decreed amount till finalization this report.

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Audit suggests all the amount of losses should be recovered and deposited into government treasury expeditiously. DP-S-44/2015-16 1.18 Irregular / Unauthorized expenditure – Rs.1,758.200 Million 1.18.1 Unauthorized incurring of expenditure – Rs. 6.162 Million According to Rule-0104(1-a) of Financial Regulations Navy 1993, “Every officer should exercise the same vigilance in respect of expenditure incurred from Government revenue as a person of ordinary prudence would exercise in respect of the expenditure of his own pocket”. While examining the accounts of PNS Zafar Islamabad, it was observed that necessary documents viz advertisement of necessity, bill of firms and receipt vouchers etc as mentioned in the sanction letters were not found attached with the respective paid vouchers, in the absence of which the entire expenditure stood un-authorized. When pointed out by audit in November 2014, the executives again provided the sanction letters only and could not produce necessary documentary evidence as mentioned above. In the absence of detailed vouchers to be maintained by PNS Zafar the expenditure incurred on this account stood unauthorized and irregular. The DAC in its meeting held on January 12, 2016 directed that relevant record/documents be got verified from audit. Audit recommends that compliance to DAC directives be ensured and regularization action be completed. DP-N-66/2015-16 1.18.2 Irregular Expenditure from CNS Deposit fund account – Rs. 1,752.038 Million

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According to section-12 ordinance 2001 for powers, functions and duties of the Auditor General of Pakistan, the Auditor General shall audit receipts which are payable into the consolidated fund or public Account of the Federal Government and of each Province and in the consolidated fund, Public Account or any district account have been properly and correctly deposited and rules and procedures relating to which receipts are being fully observed and the systems are in place to ensure proper assessment and collection of government receipts. Section-8 (d) of ordinance 2001 also provided the accounts of any authority or body established by the Federation or a Province, and in each case to report on the expenditure, transactions or accounts so audited by him.Para-7 of Government of Pakistan, Ministry of Defence (MoD) Rawalpindi letter No: F.1/270/79/D-21/(Budget) dated May 27, 1980 elaborated that the audit of CNS deposit fund accounts will be carried by Military Accountant General.PPRA Rules 2004, Section-12(2) provides that procurement opportunities over two million rupees should be advertised on the Authority‟s website as well as in other print media or newspapers having wide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu. PPRA Rule-13(1) also provides that under no circumstances the response time shall be less than fifteen days for national competitive bidding.Under section-153 of income tax ordinance 2001 on execution of contracts the rate of withholding income tax is 6% on the value of contracts. Section-3 sub-section-1(A) of Sales Tax Act, 1990 provides that sales tax @ 18% shall be charged from unregistered suppliers. In Controller of Naval Account (CNA), Karachi an amount of Rs. 1,752.038 millionwas released under Code Head 01/016/39 (CNS deposit fund account) from July, 2010 to May, 2013. However, No record, vouchers bills etc related to these payments were available for audit. Audit observed the following; (i) The release of huge amount was finalized without documentary evidence which were in contravention of above quoted rules. 170

(ii) Compliance of PPRA rules could not be verified/checked in audit due to non-availability of documents. (iii) In seven sample cases selected for audit, it could not be verified in audit whether or not income tax of Rs 8.104 million and G.S.T of Rs. 17.486 million was recovered from suppliers/contractors. The DAC in its meeting held on January 19, 2016 was apprised that the case pertained to Pak Navy. The DAC shifted the para to Pak Navy. Audit suggests complete record/documents be provided to Audit for detail scrutiny of transactions. DP-S-126, 127 and 128/2015-16 1.19 Mis-procurement of stores – Rs. 29.292 Million 1.19.1 Un-authorized procurement of stores – Rs. 1.512 Million According to Rule-12(1) of PPR-2004, “all procurement opportunities over one hundred thousand rupees shall be advertised on authority‟s website”.Further, according to rule-10 specification shall allow the widest-possible competition and shall not favour any single contractor or supplier nor put other at a disadvantage. Specification shall be generic and shall not include references to brand names, model numbers, catalogue number or similar classifications. However, if the procuring agency is convinced that the use or a reference to a brand name or a catalogue number is essential to complete an otherwise incomplete specification, such use or reference shall be qualified with the words‟ or equivalent”. While examining the accounts of PNS Zafar Islamabad, it was observed that necessity for procuring air conditions(1.5 Ton), valuing Rs. 1.512 million, as evident from voucher No.266 datedJanuary30,2014,

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was neither advertised on Authority website nor brand name “ Haier” was mentioned in the tender papers. When pointed out by audit in November 2014, it was replied that expenditure was incurred on purchase of Air Conditions 1.5 Ton with brand name Hair vide voucher No. 266/1and 266/2 dated January 30, 2014. The procurement was published on PPRA Website and in leading newspaper. The reply was not prudent as PPRA rules were misconstrued and no evidence was available that could authenticate uploading the necessity on PPRA website. The DAC in its meeting held on January 12, 2016 directed to hold Court of Inquiry, fix responsibility and take disciplinary action against the persons involved in violation of PPRA Rules. Thereafter, the case for regularization of PPRA Rules may be taken up at appropriate forum. Audit recommends that compliance to DAC directives be ensured and regularization action be completed. DP-N-64/2015-16 1.19.2 Conclusion of contract in violation of PPRA– Rs. 27.780Million According to Rule-12(1) of PPRA Rules 2004, procurements over one hundred thousand rupees and upto the limit of two million rupees shall be advertised on the Authority‟s website in the manner and format specified by regulation of the Authority from time to time. These procurement opportunities may also be advertised in print media, if deemed necessary by the procuring agency.According to Rule- 13(1),under no circumstances the response time shall be less than fifteen days for national competitive bidding from the date of publication of advertisement or notice.

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A) In GE (Navy) Comwest, Gwadar, 35 Contracts valuing Rs. 20.826 million were concluded without advertising on PPRA‟s website as well as print media during the FY 2012-13 and2013-14. When pointed out by Audit in April 2015, it was replied that objection was noted for future compliance The DAC in its meeting held onJanuary 20, 2016 was apprised that advertisements were not uploaded on PPRA website due to non-availability of internet facilities,frequent media break and law and order situation in Baluchistan. The DAC directed to hold inquiry to fix responsibility on the persons found at fault and get the violation regularized from competent authority and verified by Audit. No record / documents were produced to Audit for verification till the finalization of this report. Audit suggests implementation of DAC directive. B) PNS Dilawar, in the FY 2014-15, floated advertisements for the work amounting to Rs. 6.954 million in adaily newspaper and the other on PPRA‟s website to award conservancy agreement. In both advertisements, opening dates of tenders were differentinstead of giving the same date. In both advertisements the response time was 7 to 9 days. When pointed out by Audit in August 2015, it was replied that tender advertisement was published in „The Nation‟ on May11, 2014 and tender advertised on PPRA website. The reply wasnotacceptable,as neither the issues of response time nor difference in opening dates of tenders in two advertisements were addressed which tantamount to admission of irregularity.

The para was not discussed in DAC meeting held on January 20, 2016 as no reply was receive by the DAC. Audit suggestsregularization be obtained expeditiously.

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DP-S-112 and 311/2015-16

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Military Accountant General

1.20 Loss to State – Rs. 0.915 Million 1.20.1 Loss to state due to payment of pay and allowances during absence period – Rs. 0.915 Million According to Rule-60(b) of Financial Regulations (Volume-I) 1986, pay and allowances are ordinarily payable in arrear on the first of each month for the services rendered. While examining the accounts of CMA (RC) Rawalpindi in September, 2013, it was observed that Mr. Najeeb-ul-Hassan S.A25199 was absent w.e.f October 31, 2009,however, pay and allowances were regularly paid till July, 2013.A sum of Rs. 915,909 was recoverable against him. Further, annual increments till December, 2012 were also allowed and his service was also shown verified as clearly mentioned in the service book which needs inquiry, because on one side he had not rendered service and on the other side his service was shown verified. Further, when the individual got his pay released through court order in February, 2011, it was the responsibility of the office of the CMA to inform the court about his absence. It was also the responsibility of the individual to attend the office after court order, which was not done. When pointed out by Audit in September, 2013, it was replied that pay and allowances were paid under the court order. The case in the FST was not explained by the departmental representative and exact position of absentee was not elaborated before FST and consequently pay and allowances were released. The employee was still absent since March, 2011 and salary was being regularly paid to him. The reply was not found convincing as pay and allowances were paid to an employee who had not rendered the duty. The DAC in its meeting held on December 8, 2015 directed that recoverable amount be reconciled with audit.

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Audit stresses that compliance to DAC directives be ensured and recovery action be completed besides fixing responsibility against the individuals verifying the service book during his absence. Further, pay history of the individual may also be provided to audit. DP-N-397/2014-15 1.21 Irregular / Unauthorized expenditure – Rs.82,157.570 Million 1.21.1 Un-authorized payment to postal authorities without carrying out post audit of pension payment voucher – Rs. 79,768.504 Million According to the procedure, for adjustment of Defence Pensions, circulated by the Auditor General of Pak Vide Para-7 of letter No. 108-AC-II/6-48/2000 dated July 28, 2000 read with AGP letter No. 191/Report/80-C/Ds/05-06 dated July 19, 2006 addressed to the DGADS Rawalpindi and further circulated to the office of the DADS Lahore vide letter no. 785/Mon Cell-1/AP/Pension case/05-06 dated August 15, 2006, 100% post audit of the pension payment vouchers will be done by the controller of Military pensions. According to standard operating procedure (I.O NO 14 dated June 25, 2013) for IT based post audit issued by the CMP under MAG instructions vide letter dated May 13, 2013, all the PPJs received from various GPOs will be post audited according to the procedure given therein. While examining the accounts of Controller Military Pension Lahore Cantonment that an amount of Rs. 82,616,015,929 was accepted by the accounts section against pension payments made by the postal authorities to JCO/ORs during the period 2013-14. The special/audit sections, however, audited the pension payment vouchers for Rs. 2,847,511,810 during the period 2013-2014. An amount of Rs. 79,768,504,110 was thus accepted without carrying out post audit

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which was un-authorized and had resulted in desecration of Auditor General of Pakistan orders. When pointed out by audit, the accounts authorities replied that as per posted strength of special audit section and number of DCOs deployed/available in computer centre post audit of 100,000 pension payment vouchers was carried out and the efforts were being made to conduct IT base post audit. The reply was not acceptable as CMA(P) was provided with human and material resources (Hardware‟s, software‟s, KPOs etc) from the office of MAG to do 100% system based audit of pension payment vouchers on regular basis, which was not done. The DAC in its meeting held on December 8, 2015 directed to pend the para till next DAC meeting. However, the DAC decided that Facts Finding Inquiry may also be held within two months to look into the matter as to how post audit was not conducted properly to avoid unauthorized payment of the pension. Audit recommends that compliance to DAC directives be ensured besides taking remedial action. DP-N-437/2014-15 1.21.2 Un-justified payment of commission charges to the postal authorities – Rs. 2,389.068 Million As per Rule-6(a) of Financial RegulationsPart-I 1986, every officer should exercise the same vigilance in respect of expenditure incurred from Government revenue as a person of ordinary prudence would exercise in respect of expenditure of his own money. According to Para 245 of Chapter V to the office Manual Pt-IV of the CMP, audit of pension payment vouchers received from pension disbursing offices (GPOs& Banks), is the responsibility of the Controller of Military pension as methodology of audit has been discussed in this chapter. While examining the accounts of Controller Military Pension Lahore it was observed that an amount of Rs. 2,389,068,843 was

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booked under the head commission charges paid @3.33% to the postal authorities on account of payment of pension made to the Army personnel during the year 2013-14. The civilian pension payments made through banks i.e.NBP and commercial banks were without any commission charges. Therefore, huge amount paid to GPOs on account of commission charges was thus not justified. When pointed out by audit in Aug, 2014, the accounts authorities stated that commission charges were paid to postal authorities in the light of contract agreement. The reply was not prudent as due to disparity in the system,commission charges were paid to one authority when both were rendering same services for CMP. The contract was not reviewed after 1994 under which commission charges were paid. The DAC in its meeting held on December 8, 2015 directed that the case be taken up with Ministry of Finance for seeking clarification regarding payment of commission to the postal authorities for the payment of pension to the pensioners. DAC further directed that while taking up the case with Ministry of Finance, PAC directive on similar Para of Audit Report 1996-97 may also be taken into the account. Audit recommends that compliance to DAC directives be ensured and clarification from competent forum be taken at the earliest. DP-N-458/2014-15

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Inter Services Organizations

1.22 Loss to State –Rs.16.700 Million 1.22.1 Loss to state due to irregular transfer of profit to private fund – Rs. 16.700 Million According to Rule 2 of Financial Regulation Volume-II 1986 stipulates that, “All transaction to which any officer of Government in his official capacity is a party, shall, without any reservation, be brought to account”.Further, according to Para 3 of Appendix-39 to Annex “b” of GHQ Medical Directorate Rawalpindi letter No.3532/32/DMS3(c) dated August 31,2009, any clarification not fully understood will be referred to the Ministry of Defense through Surgeon General/DGMS (IS) for interpretation. While examining the accounts of AFIC Rawalpindi, it was observed from “CNE” Bank Account No.004400-7 NBP Cantonment Board Branch, Cash Book and paid vouchers that two amounts of Rs. 7.629 million and Rs. 9.069 millionwere transferred to private fund vide PV No.198 dated July17,2012 and PV No. 4504 dated January 21, 2013 respectively on account of profit earned from credit balance.Instead of depositing the same into Government treasury, the money was transferred to private account, which was irregular and unauthorized. When pointed out by audit in May, 2014 it was replied that on similar issue DP was already issued.The DAC was held at Ministry of Defenceon February18,2014 in which it was decided that case would be referred to Ministry of Defencefor making policy on the issue.The reply was not found satisfactory as the profit earned from public money was required to be deposited in Government treasury, which was not done. The DAC in its meeting held on December 15, 2015 directed that case may be processed with Ministry of Defence for

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formulation of policy regarding transfer of profit to private fund of CNE cases and process be completed within 03 months. Audit recommends that compliance to DAC directives be ensured and recovery/regularization action be completed. DP-N-438/2014-15 1.23 Irregular / Unauthorized expenditure – Rs.1.420 Million 1.23.1 Un-authorized payment on account of Adhoc relief allowance – Rs. 1.420 Million According to Government of Pakistan finance Division regulation wing decision No. 8/99-vii/116 dated February21,2012 that Adhoc increases will not be admissible for the period of re-employment prior to December 1,2011. While examining the accounts of Punjab Armed Services Board, Lahore, it was observed that three Army Officers were re- employed after retirement from Army and were drawing Adhoc relief allowance granted by Government from Both sides i.e. in pension and pay which was irregular and against the above order. This irregularity resulted into an overpayment of Rs. 1,418,088. When pointed out by audit in June 2014, it was replied that concerned Officer would be approached for furnishing reply. The reply was not found convincing as payment of Adhoc allowance both in pension and pay was not justified. The DAC in its meeting held on December 11, 2015 directed that irregular payment on account of Ad-hoc relief be recovered from the pension of the retired officer.

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Audit recommends that compliance to DAC directives be ensured and recovery action be completed. DP-N-443/2014-15 1.24 Non-production of Auditable Record 1.24.1 Non-production of auditable documents According to Para-14 of Auditor General of Pakistan Ordinance 2001, The Auditor General shall, in connection with the performance of his duties under the ordinance, have authority (a) to require that any accounts, books, papers and other documents which deal with, or form, the basis of or otherwise relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may direct for his inspection. (b). Any person or authority hindering the auditorial functions of the Auditor General regarding inspection of accounts shall be subject to disciplinary action under relevant Efficiency and Discipline Rules, applicable such person. While examining the accounts of HQ 4 Corps Data Center, following observations were made:- a) A huge amount was allotted and utilized without adopting proper rules and regulation and the same documents were not produced to Audit team despite repeated requests. The executives did not present the required documents for audit/verification. Due to non- provision of said documents audit of subject work was not carried out. b) Fortress Square (Shopping Mall) situated in Fortress Stadium was constructed without the prior approval of chief of Army staff (C.O.A.S) which is contrary to above rules and needs Ex-Post facto sanction from the Government of Pakistan. c) Five floor plaza was constructed for commercial purpose, the plaza was sold without adopting any proper procedure, and payment received on account of Lease / Premium was required to be

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justified. The income viz Rs. 3,892,500,000 derived from fortress square was also not deposited into Government Treasury. d) Rent form area of fortress stadium A-I land under commercial use was not deposited into Government Treasury which resulted into non-recovery of rent amounting to Rs. 29,943,600. e) Land rent of agriculture land, falling under Category-C of A-I land, was not recovered from July, 2010 to March, 2013 amounting to Rs.14,940,750. f) The rent from companies of transmission tower i.e. U-phone, Jazz, Y-Trap, Zong and Warid was recovered by the HQ4 Corps amounting to Rs. 47,520,000. As rent realized from transmission towers and disposal thereof does not fall in the purview of above said policy, the audit is of the view that full income / rent should be deposited into Government Treasury. g) Certain Army officers were rendering their services in DHA but drawing their pay and allowances from Government exchequer which was a loss of public money and this was not a legitimate charge against defence budget. It resulted in an un-authorized payment of Rs. 35,669,332. h) Rent from area of petrol pump/Askari Bank/Network Booster A-I land was not deposited into Government Treasury which resulted into non-recovery of rent amounting toRs. 8,513,250. i) The rent from area of petrol pump/Askari Bank/Network Booster A-I land was deposited into Government Treasury which resulted into non-recovery of rent amounting to Rs. 3,237,000. j) Brig Shakil-ur-Rehman (PA-101453)was rendering services in Army Medical College Lahore but was drawing his pay and allowances from HQrs 5 Corps public fund which was not in order as Army Medical College is private entity and all the expenditure should be borne by the college on account of pay and allowances instead of Government therefore, a sum of Rs. 1,871,805 thus paid from January 1,2012 to March 31,2013 needs to be deposited into Government Treasury. 182

k) The land of Military Dairy Farm Survey No. 126 was occupied by the Headquarters 4 Corps authorities without the prior approval of Chief of Army Staff (C.O.A.S) and was constructed upon three marriage halls adjacent to Golf Club / Marriage Halls which is contrary to above rules and needs ex-post facto sanction from Government of Pakistan, Moreover, the area of Golf Club/Marriage Halls A-I land under commercial use rent was not deposited into Government Treasury which resulted into non- recovery of rent amounting to Rs. 12,717,587. When pointed out by audit in April, 2013 the executive authorities refused to discuss the point. Therefore, the version of the executive could not be reflected due to its non-discussion. The DAC in its meeting held on December 10, 2015 directed that relevant documents be provided to audit for audit within one week period for examination. Audit stresses that matter may be investigated and responsibility be fixed besides providing complete record to audit. DP-N-440/2014-15

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CHAPTER-2 Ministry of Defence Production 2.1 Introduction Ministry of Defence Production deals with procurement, indigenous production and manufacture of defence equipment and stores. This Ministry negotiates agreements and Memorandums of Understanding (MoUs) for foreign assistance or collaboration, loans for purchase of military stores, technical knowledge and transfer of technology. It also deals with export of defence products, marketing, and promotion of activities relating to export of defence products and procurement and research & development related matters of the defence sector. Under Armed Forces Development Plan this Ministry has undertaken mega projects like JF-17, Al-Khalid Tank, F-22P Frigate and AWACS Air Refueling System as well as F-16 Block 52, Radar System etc. 2.2 Brief comments on the status of compliance with PAC's directives. The status of compliance of Public Accounts Committee (PAC) directives for the Audit Reports from 1987-88 to 2014-15 discussed during its various meetings held from July, 1992 to December, 2015 is given below:-

Year Total No. of Compliance Compliance Percentage Paras Paras Made awaited / Non of Discussed Complied Compliance 1 2 3 4 5 6 1985-86 15 01 0 01 0% 1986-87 12 0 0 0 0% 1987-88 17 13 01 12 7.6% 1988-89 14 05 0 05 0% 1989-90 14 02 0 02 0% 1990-91 10 02 01 01 50%

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1991-92 15 04 0 04 0% 1992-93 15 03 0 03 0% 1993-94 26 04 0 04 0% 1994-95 22 0 0 0 0% 1995-96 28 12 03 09 25% 1996-97 91 63 02 61 31% 1997-98 55 05 0 05 0% 1998-99 0 00 0 0 0% 1999-00 86 33 03 30 9% 2000-01 140 48 34 14 17% 2001-02 44 27 10 17 37% 2002-03 0 0 0 0 0 2003-04 1 1 1 0 100% 2004-05 08 08 04 04 50% 2005-06 27 06 05 01 83% 2006-07 07 06 02 04 33% 2007-08 08 08 08 0 100% 2008-09 16 03 03 03 100% 2009-10 Report not yet discussed 2010-11 Report not yet discussed 2011-12 Report not yet discussed 2012-13 Report not yet discussed 2013-14 Report not yet discussed 2014-15 Report not yet discussed Total 673 257 81 185 12.426

Ministry of Defence Production fully complied with only 22 PAC directives out of 233 which indicates that compliance of PAC directives was very slow and the Principal Accounting Officer should take serious steps to expedite compliance of PAC directives.

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Audit Paras 2.3 Recoverables / Overpayments – Rs. 24.668 Million + US $ 504,869 and EURO 67,871 2.3.1 Loss of revenue due to non-recovery of rent on account of shops and cabins – Rs. 19.870 Million Under Rule-2 of Financial Regulations Volume-II 1986, all transaction to which any officer of government, in his official capacity is a party, shall without any reservation, be brought to account and all moneys received by or tendered to Government officer which are due to, or are required to be deposited with Government shall, without undue delay, be paid in full, into a Government Treasury. Further, under Rule-442 and 456 of MES Regulation 1998, GE is responsible to raise claims and recovery charges on monthly basis from the users. While examining the accounts of GE (DP) ARF, Kamra, It was observed from the Revenue ledgers, maintained in the offices of UA that 65 shops and 37 cabins / shops of MES were rented out to various contractors running business on commercial basis since long. However, concerned authorities did not raise any claim of rent from them. Therefore, the executive is found to have perpetrated a non-prudent act which tantamount to loss to the State. Thus outstanding dues of Rs. 19,873,000 as per following details are required to be deposited into government treasury:-

S.No No of Rent per Total No of Total Shops/Cabins month(Rs.) months Amount(Rs.) occupied 1 65 5000 55 17,875,000 2 37 2000 27 1,998,000 Total outstanding dues Rs. 19,873,000

When pointed out by audit in July 2015, it was replied that concerned authorities have been asked to effect recoveries against 186

outstanding rent and allied charges. The reply of the executive was not correctas inordinate delay from executive in the recovery action had resulted into loss to state. The DAC in its meeting held on January 19, 2016 decided to transfer the draft para to Admin authorities i.e. PAC Board Kamra. Audit stresses that immediate compliance to DAC directives be made and recovery action be completed within shortest possible time. DP-N-85/2015-16 2.3.2 Undue favour to a firm due to non-cancellation of contract on risk and expense – Euro 67,871 According to Para-I of Chapter XI of PP & I 2002, the time for and the date of the stores as stipulated in the contract shall be taken as the essence of the contract. All the deliveries must be completed within the dates specified in the contract. Should the supplier fail to deliver the stores or consignment thereof within the stipulated period or any extension thereof, the purchaser shall be entitled at his option : a) To cancel the contract b) to purchase elsewhere stores not delivered, at the risk and expense of the supplier and without notice to him, or c) to impose/recover liquidated damages when CPO is satisfied that failure to supply the stores within the scheduled delivery period has been for reasons within the control of the suppliers and the government has suffered loss due to late delivery. While examining the accounts of ARF Kamra, it was observed that equipment was required to be delivered by January 15, 2011. However, it was abnormally delayed for more than 04 years and same equipment was not delivered so far. In addition the firm i.e. M/S Aviation Tech did not provide bank guarantee. The purpose of procuring the said equipment was obviously compromised, ignoring the imposition of LD charges and any other punitive action.

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When pointed out by audit in October 2014, the executive replied that as per clause 16 of subject contract, purchaser could allow extension in delivery period without LD charges. Moreover, the reason for delay in delivery of stores was due to change in model, OEM and country of origin which needed amendment by issuing letter for these changes. Further, payment of stores was not made to supplier which would be released only on materialization of the contract. Moreover, at the time of releasing the payment, LD charges would be imposed on supplier as applicable. The reply was not found circumspect because the stores suffered an inordinate delay and extensions granted without imposition of LD charges were not covered under the PP&I. Further, the executives had not taken any punitive action against the firm. The DAC in its meeting held on December 17, 2015 directed to get the facts / records verified from Audit. Audit stresses that compliance to DAC directives be ensured immediately and responsibility be fixed through a fact finding inquiry. DP-N-68/2015-16 2.3.3 Overpayment of US $ 11,121.00 to the contractor – loss of US $ 35,684.00 due to non-encashment of Performance Bank Guarantee and release of US $ 283,476.75 without proper documentations According to Clause-3 of contract No. 414243-B/P-41 datedJune 30, 2006 provided for payment of cost of stores procured, 80% was required to be paid on production of invoice, letter of warranty, manufacturer‟s inspection certificate, performance bank guarantee, AWB and packing list and rest of 20% on issuance of CRV by the consignee. While examining the recordDP (Air) Chaklala, it was observed that against the contracted cost of store of US $ 343,117.43, RDC of US $ 70,774.60 was made leaving payable cost of store i.e. US $

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272,342.83. However, instead of paying US $ 272,342.83 a sum of US $ 283,463.75 was paid to contractor against cost of stores supplied causing an overpayment of US $ 11,121.02. Moreover, the payment of US $ 283, 463.75 was not made in accordance with aforementioned contract clause i.e. without Inspection note, invoice, letter of warranty, manufacturer‟s inspection certificate and proper CRV due to which forfeiture / encashment of Performance Bank Guarantee was proposed by DP (Air) vide letter No. AHQ/414243-B/DP-N-Air/P-41 dated February 4, 2011. When pointed out by Audit in December, 2013, the executive stated that out of total 270 line items, only 27 were outstanding and a penalty of US$ 6151.30 was recovered as L.D. The reply was not acceptable as the contract clauses were desecrated and US$ 11,121 were paid in excess and the bank guarantee amounting to US $ 35,684.00 was expired which could not be encashed causing loss to State. The DAC in its meeting held on January 19, 2016 directed to get fact / record verified from Audit. Audit stresses that the compliance to DAC directives be ensured and failure in encashment of P.B.G. be made good besides taking recovery action. DP-N-420/2014-15 2.3.4 Overpayment to contractor due to non-deduction of Sales Tax – Rs. 4.798 Million According to Para 3 (A) of Sales Tax Special Procedure (with holding) Rules 2007, in case the sales tax amount is not indicated on the invoice, the recipient shall deduct sales tax at the applicable rate of the value of taxable services from the payment due to the Services provider. Moreover, under Clause 11.1.0 of contract agreement No. CEDP-N-2012- 25 all types of Taxes are included in the quoted rates and will be paid by the contractor.

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While examining the accounts of GE (DP) Const/Services Taxila, it was observed that a contact agreement CEDP-N-2012-25 valuing Rs. 34,787,376 was awarded to M/S Shoukat Iqbal Mir & Co for Provision of Gantry Cranes Qty-3. The acceptance letter was issued on dated June 21, 2012 andas per clause 11.1.0 of the contract, Sales tax was included in the bid price. However, while making payment to the supplier, base cost and GST was not segregated and entire amount was paid to him without obtaining GST Invoice from the Firm. Further, the payment of GST could only be released to the GST registered supplier. Thus, payment of GST worth Rs. 4.798 (34,787,376 x 16/116) million stands irregular and unauthorized. When pointed out by Audit the executive stated that General Sales Tax was not applicable being lump sum contract. The reply was not found satisfactory as supplies were taxable and contract was all inclusive of taxes. Therefore payment of GST needed to be recovered. The DAC in its meeting held on December 17, 2015 directed DW&CE (DP) to get the record verified by Audit before January 15, 2016. No record was got verified till finalization of report. Audit recommends that compliance to DAC directives be ensured. DP-N-433/2014-15 2.3.5 Non-replacement of life expired items – US $ 174,587 A contract agreement was concluded by the Director General Munitions Production Rawalpindi with M/s CATIC on dated April 4, 2005 valuing US $ 78,978,517 for procurement of Z9EC Helicopters quantity 6 and spares. Further, the examination of the accounts of F-22 P Frigate, item 3 and Annexure-A of Project Closure PMRrevealed that life of 29 items valuing US $ 174,587 was expired and were required to be replaced by the firm. However, replacement or

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recovery from the firm was not found on record.Moreover as per Annexure-B, 36 items were under warranty repair/ replacement but record regarding repair / replacement or recovery against them was silent. Further as per Annexure-C, life of 37 items was required to be reviewed and as per Annexure-D, 27 items were declared as life component but record regarding renewal of life of these items was silent, which needed justification. When pointed out by Audit no reply was furnished by the executive. Audit is of the view that cost of these items may be recovered from the firm. The DAC in its meeting held on January 19, 2016 directed that process of verification of relevant documents be completed at the earliest. Audit recommends that compliance to DAC directives be ensured. DP-N-05/2015-16 2.4 Loss to State – Rs. 3.636 Million and US $ 26.387 Million 2.4.1 Unauthorized transfer of funds without approval of competent authority US $ 26.387 Million According to clause 4.3.4 of CA No. 1262/55/DMP (Navy)/A dated April 4, 2005, the basic contract price for one set of test equipment and special tools for PN Dockyard up gradation (Part 3) amounts to US$ 5.00 million. The same was reduced from US$ 5.00 million to US$1.996 (after allowing 5% discount and free of cost items/ store by the contractor) vide amendment No.5 to the contract. The payment and delivery schedule of PND upgrade equipment at SI No.42 and 43 of Annexure AE of the contract was amended accordingly.Moreover, under clause 4.3.7 of CA No.1262/55/DMP (Navy)/A dated April 5, 2005, the basic contract price for four ship sets of 191

three years Base Spare Parts (Part 3) for ships 1, 2, 3 & 4 amounts to US$ 38.00 million. The CSTC agreed to provide Base Spare of Chinese Origin equipment as per list included as Annex AG to the contract at a total cost of US$ 14.616 million. The cost of package was reduced from US$ 38.00 million to US$ 14.616 million vide amendment No.3 to the contract. While examining the accounts of F-22 P Frigates Project it was observed that the balance/ saving of US$ 26.387 Million was transferred to Non CSTC cost for future purchasing of test equipment, tools and base spares. In this regard, it is pointed out that saving in shape of discount was required to be refunded to the government account instead of transferring the amount from CSTC to Non CSTC account. When pointed out by audit, the executive stated that Amendment No 5 does not speak of any saving. It was rather decided that a part of future Dockyard upgrade package would be purchased out of Non-CSTC cost against open bidding for which funds amounting to US$ 26.387 Million were shifted to Non-CSTC component of the project. The reply was not found satisfactory as future requirements of PN dockyard Karachi was not a legitimate charge and liability of the present contract. Further, saving in shape of discount was required to be refunded to the government account. The DAC in its meeting held on January 19, 2016 directed that documents relating to concurrence of Finance Division (Military) be verified at the earliest. Audit recommends that compliance to DAC directives be ensured immediately. DP-N-422/2014-15 2.4.2 Loss due to non-deduction of costs of elements – Rs. 0.900 Million Para-3 of Ministry of Health letter dated August 27,1998 provides that: 192

a) The charges for various/works/services performed by various Laboratories (Departments) including Radiology Department should be fixed by mentioning all the three elements separately. i.e i) Devaluation cost of equipment used in the Laboratories. ii) Cost on account of expendable items used in the process. iii) Charges on accounts Services rendered by the Medical Officer/ his staff i.e fee. b) These charges realized from private/non-entitled patients should be paid into the Government Treasury. While examining the accounts of PAC Hospital Kamra, it was observed that out of Rs. 7.21 million collected from CNE patients, the cost on account of three elements was not deducted before its distribution according to SOP. As per the above mentioned criteria, the elements of cost incurred on each test should have been recovered @ 20% before its distribution. At PIMS Islamabad and other Government hospitals the cost of three elements is recovered @ 23% before its distribution. Non- deduction of elements cost caused loss to the state amounting to Rs. 904,901 @ 20% (provisional). When pointed out by Audit in September 2014, it was replied that revenues collected from CNE patients were governed under policy circulated by GHQ vide letter No. 3532/32/SOP/DMS-3 dated November 15,2009. The audit did not agree with the plea of the executives as policy/instructions issued by the Government of Pakistan referred above supersedes the instructions issued by any other institutions not in line with the said orders. During DAC meeting held on December 17, 2015. DGADS apprised that a committee was formed in Ministry of Defenceto resolve the matter regarding non-deduction of cost of element in Military Hospitals. DAC pended the para till final recommendation to be given by the said committee.

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Audit recommends that compliance to DAC directives be ensured immediately. DP-N-696/2014-15 2.4.3 Loss due to purchase of defective X-Ray machine – Rs. 2.736 Million According to Clause-2 Annex-E Form DPL-15 of CA No. 27-1213-1-0 dated June 25, 2011, the contractor was bound to replace or repair free of cost, every article or part there of which before use or in use shall be found defective. While examining the accounts of CMH Mardan, it was observed that a Mobile X-Ray Machine ECO Ray model HF 525 was purchased by the DGP Army on December 12, 2012 for Rs. 2,736,000 from M/s Bio Instrument Technology. After three months, the machine became out of order during warranty period. It was further noticed that neither the faults were removed nor any replacement was shown on record. When pointed out by Audit in March, 2014, the executive stated that this hospital had repeatedly approached DGP Army, GHQ Medical Directorate, COD Rawalpindi and firm concerned for replacement of defective X-Ray machine but no action was taken for its replacement. The DAC in its meeting held on December 11, 2015 decided to shift the para to Ministry of Defence Production. Audit recommends blacklisting of the firm besides recovery. DP-N-16/2015-16

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2.5 Irregular / Un-authorized Expenditure – Rs. 3,045.437 Million and Yen 5,974.742 2.5.1 Un-authorized expenditure without observing Government orders – Rs. 3,015.767 Million + Yen 5,974.742 Million According to Rule-12(2) of PPRA-2004(2) “all procurement opportunities over two million rupees should be advertised on the Authority‟s website as well as in other print media or newspapers having vide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu”. Moreover under Rule-40 of above procurement rules “save as otherwise provided there shall be no negotiation with the bidder/having submitted the lowest evaluated bid or with any other bidder”. While examining the accounts of Director General Munitions Production Rawalpindi, it was observed that Buses, Trucks and Aviation Fuel Bowzers valuing Rs. 3015.767 million + YEN 5974.752 million were procured through different contracts during F.Y 2009-10 and 2010-11 without advertising in News Papers and on PPRA Website which was not covered under ibid rules. The executive had thus perpetrated an offense of mis-procurement. When pointed out by Audit in 2014, the executive stated that projects were undertaken on open tender basis through registered firms but were not published in print media being sensitive in nature. They further stated that exemption certificates regarding stores of sensitive nature were obtained from secretary DP. The reply was not found tenable as declaration of secret nature of store, to buses and trucks, by the Secretary was not in order. Further, buses, Trucks and Aviation Fuel Bowzers were required to be procured through open competition which was not done.

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The DAC in its meeting held on December 17, 2015 directed that process of verification of relevant documentsbe got completed for audit at the earliest. Audit stresses that skimptive measures be taken for regularization of the anomaly. DP-N-669/2014-15 2.5.2 Un-authorized expenditure for procurement of air tickets without observing Government orders – Rs. 28.490 Million According to Rule-12 of Public procurement rules 2004, all procurement opportunities over Rs. 1.000 million shall be advertised on the authority‟s website. Moreover, under Rule-12(2) of above procurement rules all opportunities over 2 million rupees shall be advertised on the authority‟s website as well as in other print media or newspapers having wide circulation. The advertisement in newspaper shall principally appear in at least two national dailies one in English and other in Urdu. While examining the accounts of F-22 Frigate project at PNS ZAFAR, it was observed that an amount of Rs. 28,490,023 on the account of purchase of air tickets was paid to M/s Bahria travels and Trans Air travels during 2009-10 and 2010-11 without advertising on PPRA website and newspaper which was unauthorized. When pointed out by audit, the executive stated that payment of air fare was made to Travel Agents namely M/s Bahria Travels and Trans Air Travels at Karachi through cheques. The requirement was operational and of immediate nature and advertisement was not in public interest. The reply was not tenable as rates of different destinations could have been taken through competitive bidding before procurement. The DAC in its meeting held on January 19, 2016 decided to transfer the draft para to Ministry of Defence as the same pertains to PNS Zafar Karachi. 196

Audit stresses that skimptive measures be taken for regularization of the anomaly. DP-N-368/2014-15 2.5.3 Unauthorized expenditure on account of purchase of furniture – Rs. 1.180 Million Under Finance Division (Exp Wing) letter No. F.7 (1) Exp- IV/2012 dated July 24, 2012, ban was imposed by the government on purchase of physical assets during the FY 2012-13. While examining the accounts of GE (DP) Construction, Chaklala, it was observed that an expenditure of Rs. 1.180 million incurred on purchase of furniture for 1 x A type house, vide CA No. GE- CEDP-CKL-01/2013 dated April 8, 2013 concluded with M/s Sam Traders Gujrat and paid vide CBI No. 20 dated May 21, 2013 and CBI No. 07 dated June 11, 2013. When pointed out by audit in October 2014, the executive stated that the said furniture was purchased to cope up the requirement of 1 x A type house and administratively approved by the Competent Authority duly concurred by concerned Financial Adviser.The reply was not correct as the purchase of furniture being physical asset was banned during FY 2012-13. Therefore, above irregularity needed to be regularized from the Ministry of Finance under intimation to audit. The DAC in its meeting held on December 17, 2015 directed to pend the para till January 15, 2016 for legalization action. Audit stresses that irregularity be regularized from the Ministry of Finance. DP-N-601/2014-15

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2.6 Mis-procurement of Stores / mis-management of contract – Rs. 3.034 Million and US $ 62,195 2.6.1 Mis-procurement of stores – Rs. 0.934 Million Public Procurement Rule-12 provides that procurements over one hundred thousand rupees and up to the limit of two million rupees shall be advertised on the Authority‟s website in the manner and format specified by regulation by the authority from time to time. These procurement opportunities may also be advertised in print media, if deemed necessary by the procuring agency. Rule-50 of provides that any unauthorized breach of these rules shall amount to mis-procurement. While examining the accounts of DW & CE (DP) GHQ Rawalpindi, it was observed that Computers and miscellaneous items amounting to Rs. 933,960were purchased from different suppliers costing more than Rs. 100,000 in each case. The quotations were called for during FY 2011-12, 2012-13 and 2013-14 from different suppliers instead of floating tenders on PPRA website/news Papers. When pointed out by audit in December 2014, it was replied that Para 386 of defence Services Regulations for MES 1998 provides that all works costing Rs. 2,500,000 and over would be advertised. Further, the case for amendment in PPRA Rules was under process, at E in C‟s Branch, Ministry of Defence and PPRA Authorities. The reply was not agreed to as the objected purchases were not advertised as required under Public Procurement Rules. Moreover, non-adoption of Open Tender System had resulted intomis-procurement. The DAC in its meeting held on December 17, 2015 directed that expendituresincurred needed justification besides regularization. Audit stresses that in future compliance to PPRA Rules must be ensured and responsibility be fixed for non-adherence. DP-N-115/15-16 198

2.6.2 Undue favour to contractor by accepting the changes in specifications of contracted stores – US $ 62,195 According to Rule-12(2) of PPRA-2004(2) “All procurement opportunities over two million rupees should be advertised on the Authority‟s website as well as in other print media or newspapers having vide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu”. Further Rule 10 provides that “Specifications shall allow the widest possible competition and shall not favour any single contractor or supplier nor put others at a disadvantage”. Moreover, Clause 6 of the contract bound the contractor also to supply the store as per Maker‟s Name and Brand with Kenner / Bioson and country of Origin as Italy or USA as originally agreed upon in the contract. While examining the accounts of AMF Kamra, it was observed that a contract was awarded to M/s JafferyTransworld Enterprises on dated May 20,2013 valuing US $ 62,195.00, being technically evaluated and commercially accepted bid as lowest for supply of 9 x line items. After conclusion of contract, M/s JafferyTransworld vide letter dated October 19,2013 requested for change of part numbers, makers‟ name as well as country of origin which was violation of aforesaid Rules and contract clauses. However, executive acceded to the request of supplier and an amendment in contract was subsequently issued vide AMF Kamra letter No. even dated January 16, 2014 wherein not only part number, but makers‟ name and country of origin as well as brand were changed. Audit considers that either the supplier was required to supply originally contracted stores or the stores with change of make, brand and country of origin should have been re-advertised in the light of PPR 12(2) to obtain competitive bidding. But the requisite procedure was not adopted and the contractor was unduly favoured to supply the store costing US $ 62,195.

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When pointed out by audit in October 2014, it was replied that changed specification was mutually agreed in terms of clause 22. The slight change in part number and country of origin was entered and accepted in technically vetting report. The reply was not agreed as contractor in its technical evaluated and financial bid assured the provision of requisite specification store and desired country of origin but subsequently failed to comply with contractual obligations. The procurement of stores having changed specification, different part number and change in country of origin as well as change in maker‟s name and brand was thus required to be made after re-tendering in accordance with PPRs referred to above to achieve transparency which was not done. The DAC in its meeting held on December 17, 2015 directed that process of verification of relevant documents be completed at the earliest. Audit stresses that in future compliance to PPRA Rules must be ensured and responsibility be fixed for non-adherence. DP-N-15/2015-16 2.6.3 Mis-procurement of stores – Rs. 2.100 Million Rule-12 of Public Procurement Rules provides that procurements over one hundred thousand rupees and up to the limit of two million rupees shall be advertised on the Authority‟s website in the manner and format specified by regulation by the Authority from time to time. These procurement opportunities may also be advertised in print media, if deemed necessary by the procuring agency. PPRA rule 50 provides that any unauthorized breach of these rules shall amount to mis- procurement. While examining the accounts of DW & CE (DP) GHQ Rawalpindi, it was observed that stationary items amounting to Rs. 2,099,769 were purchased from different suppliers during FY 2011-12, 2012-13 and 2013-14 costing more than Rs. 100,000 in each case but

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tenders were not floated on PPRA Web site / News Papers in violation of above stated rules. When pointed out by audit in December 2014, it was replied that Para 386 of Defence Services Regulation for MES 1998 provides that all works costing Rs. 2,500,000 and over would be advertised. The Case for amendment in PPRA Rules was under process at E in Cs Branch, Ministry of Defence and PPRA authorities. The reply was not found tenable as the Objected amounts were not advertised as required under Public Procurement Rules. Further, deviation from Open Tender System resulted into mis-procurement. The DAC in its meeting held on December 17, 2015 directed to pend the para till January 15, 2016 for legalization action. Audit stresses that in future compliance to PPRA Rules must be ensured and responsibility be fixed for non-adherence. DP-N-114/2015-16 2.7 Non-production of Record – Rs. 9.600 Million, US $ 2.360 Million, EURO 1.211 Million and UK Pound 0.024 Million 2.7.1 Non production of record of outstanding contracts US$ 2.360 Million + EURO 1.211 Million and UK pound 0.024 Million According to section-14 of Auditor General‟s (function, powers and terms and condition of services) Ordinance, 2001 he has authority to enquire that any accounts, books, paper and any other documents which deal with, or form the basis of or were otherwise relevant to the transaction to which his duties in respect of audit extend shall be sent to such place as he may direct for his inspection. Any person or authority hindering the auditorial function of Auditor General regarding inspection of accounts shall be subjected to disciplinary action.

201

While examining the accounts of Air Craft Rebuild Factory Karma that 47 contracts valuing US $ 2,360,699, EURO 1,211,683 and UK pound 24,710 concluded with different firms for procurement of different kinds of stores were lying outstanding since long. The same were demanded for audit vide letter No. LTA-/ARF/13-14 dated April 16,2014, April 21,2014 and April 28,2014 but were not provided despite repeated requests and personal contacts. When pointed out by Audit, the executive stated that required documents pertaining to audit were provided to audit team. Moreover, details of information regarding 47 contracts as mentioned in the issued O.L. were not attached with the observation. Therefore, LOG Directorate was unable to explain and give its point of view. The reply was not found satisfactory as outstanding contracts were demanded through many requisitions letters dated April16,2014, April21,2014, April23,2014 and April28,2014 but record was not provided despite meeting with Managing Director. Therefore responsibility needed to be fixed against officials responsible for the default. The DAC in its meeting held on December 17, 2015 directed to pend the para and reconcile the record with Audit by January 15, 2016. Audit recommends that whole record be provided to audit and compliance to DAC directive be made at the earliest. DP-N-421/2014-15 2.7.2 Non deposit of rent recovered from cellular company Rs. 9.600 Millionand Non-production of record According to Policy regarding installation of BTS tower circulated to all cantonments by Government of Pakistan, Ministry of Defence ML&C Department, Rawalpindi letter No 1/1411/Lands/ML&C/2005 dated July28, 2005, the BTS company is

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required to pay Rs. 20,000 per month as antenna / tower fee with an annual enhancement @ 10% and Rs. 100,000 as security for each site. Further, under Rule-2 of Financial Regulations Volume-II 1986, all transaction to which any officer of government, in his official capacity is a party, shall without any reservation be brought to account and all moneys received by or tendered to Government office which are due or are required to be deposited shall, without undue delay, be paid in full, into Government Treasury. Further, Under Rule-442 and 456 of MES Regulation 1998, GE is responsible to raise claims of recovery charges on monthly basis from the users. While examining the accounts of GE (DP) ARF, Kamra, it was observed that four (4) BTS towers of U-fone, Mobilink, Warid and Zong were installed in the jurisdiction of ARF, Kamra. The record / documents related to the revenue earned on account of said activity was not produced to audit in violation to referred section. When pointed out by audit in August 2015, the executive did not furnish reply till finalization of the report. The DAC in its meeting held on January 19, 2016 decided to transfer the draft para to Admin authorities i.e. PAC Board Kamra. Audit recommends that whole record be provided to audit and compliance to DAC directive be made at the earliest. DP-N-69/2015-16

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Annexure-I

MFDAC Paras (DG North) 2014-15 and 2015-16

Pakistan Army

Amount S # DP No. Year Formation Subject (Rs.) Un-authorized conclusion of 1 DP-357 2014-15 Mily Farm Kohat contract and payment before 4.000 (M) completion of work 2 DP-375 2014-15 Mily Farm Kohat Non- conclusion of contract 1.400 (M) GE (A) Hospital Excess payment due to incorrect 3 DP-377 2014-15 13.530 (M) Rawalpindi calculation GE(A) Services Non-recovery of cost of sui gas 4 DP-378 2014-15 8.539 (M) Peshawar utilized beyond authorization GE(A) Services Unauthorized consumption of sui 5 DP-379 2014-15 0.935 (M) Peshawar gas Mily College of Unauthorized/doubtful payment 6 DP-383 2014-15 2.2600 (M) Signals Rwp for the store Loss to State due to non- disposal 7 DP-389 2014-15 POL Depot Sihala 2.060 (M) of active store Overpayment to contractor due to GE(A) Hospital 8 DP-394 2014-15 taking excess quantity of an item 0.739 (M) Rwp of work Overpayment due to showing GE(A) Hospital 9 DP-395 2014-15 excess quantity of an item of work 0.880 (M) Rwp in BQ GE(A) Hospital Unauthorized/ Overpayment for 10 DP-396 2014-15 3.380(M) Rwp provision of extra quantity GE(A) Hospital Un-authorized demolishing of 11 DP-425 2014-15 N.K Rwp Govt. building Unauthorized conclusion of a 12 DP-428 2014-15 GE(A)-I Sialkot 36.091 (M) contract Military Un-authorized expenditure on feed 13 DP-445 2014-15 veterinary due to un-authorized holding of 14.499 (M) Hospital Rwp horses Non- recovery of Govt dues from 14 DP-449 2014-15 MH Multan 10.870 (M) MES and PAK Rangers Sindh Un-authorized expenditure on 15 DP-462 2014-15 GE(A) Jhelum construction of 1x Store block at 3.572 (M) CMH Jhelum

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Non- provision of auditable 16 DP-518 2014-15 CTTI Islamabad N.K documents Irregular expenditure on abnormal 17 DP-525 2014-15 GE(A) –I Kharian 8.749(M) repairs 18 DP-546 2014-15 GE(Svcs) Multan Overpayment to contractor 1.384(M) Arty Centre Mis-appropriation of funds allotted 19 DP-554 2014-15 8.500(M) Attock out of Cost of War 20 DP-560 2014-15 QMG’s Fund Non-recovery of Income Tax 6.035(M) Loss to State due to movement of 21 DP-572 2014-15 GE (Svcs) Multan 4.990(M) units 22 DP-573 2014-15 GE (Svcs) Multan Non-recovery of allied charges 1.250(M) GE(A) –II 23 DP-614 2014-15 Holding of surplus staff 3.112(M) Bahawalpur 24 DP-615 2014-15 GE(Svcs) Kharian Un-authorized payment of 2.902(M)

25 DP-616 2014-15 GE (Svcs) Lahore Un-authorized payment of 3.870(M) GE (A) Services Loss to State due to non- recovery 26 DP-627 2014-15 1.050(M) Kharian of market rent GE (A) Services Loss to State due to non-recovery 27 DP-631 2014-15 1.270 (M) Okara of market rent POL Depot Loss due to issuance of high speed 28 DP -643 2014-15 1.036 (M) Sargodha diesel GE (A) Services 29 DP -647 2014-15 Unauthorized use of Govt building 1.440 (M) Kahrian Unauthorized conclusion of 30 DP -660 2014-15 GE (Army) Okara 32.657 (M) contracts DW&CE (DCI) 31 DP -661 2014-15 Non-recovery 7.392 (M) Rwp Un-authorized expenditure on 32 DP -702 2014-15 GE(A) II Okara 33.363(M) abnormal repairs Unauthorized expenditure due to 33 DP -704 2014-15 FCNA Gilgit 51.984(M) excess holding of estab AGE (A) EMP Non-production of auditable 34 DP-13 2015-16 4.960 (M) Rwp record Mily College of Un-authorized expenditure on 35 DP-17 2015-16 Engineering 4.000(M) repair/renovation Risalpur Un-authorized payment of 36 DP-20 2015-16 CMH Mardan 10.919(M) allowance Mily Farm Infructuous expenditure on 37 DP-26 2015-16 19.788(M) Gujranwala construction of building

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Army Dog Centre Un-authorized expenditure on 38 DP-29 2015-16 4.000(M) Rwp purchase of dogs Station HQ Un-authorized payment of 39 DP-61 2015-16 2.321 (M) Peshawar allowance Arty Centre Mis-appropriation of Rs. 12.583 40 DP-62 2015-16 12.583 (M) Attock million Un-authorized payment of 107.274 41 DP-81 2015-16 GE(A) Sargodha construction works (M) Less assessment of rent of IBX 42 DP-83 2015-16 GE(A) Sargodha 2.400 (M) bakery 43 DP-84 2015-16 GE(A) Sargodha Un-authorized payment of sui gas 1.799 (M) AAES Dhamial Un-justified expenditure on 44 DP-100 2015-16 9.500 (M) Rwp foreign trainees Remount Depot Non-recovery of Boarded out 45 DP-149 2015-16 1.825 (M) Mona Horses fee Unauthorized payment of Internal 46 DP-161 2015-16 CMH Risalpur 4.216 (M) Security Allowance

Pakistan Air Force

Amount S # DP No. Year Formation Subject (Rs.) Unjustified payment of flying 1 DP-58 2015-16 CAO Peshawar 5.104 (M) allowance PAF Hospital Loss to State due to non-repair of 2 DP-74 2015-16 1.210 (M) Islamabad CT Scan machine PAF Base 3 DP-93 2015-16 Non-deposit of Govt share 7.392 (M) Peshawar PAF Base Loss due to non-recovery of 4 DP-95 2015-16 6.540 (M) Peshawar market rent 5 DP-130 2015-16 PAF Base Lhr Non deposit of electric charges 4.400 (M) Un-authorized expenditure on 6 DP-131 2015-16 GE(Air)LHR 64.057 (M) abnormal repair Un-authorized expenditure on 7 DP-132 2015-16 GE(Air)LHR 2.942 (M) purchase of furniture 8 DP-133 2015-16 GE(Air)LHR Non-recovery of NJ surcharge 1.395 (M) Un-authorized payment to 9 DP-134 2015-16 GE(Air)LHR 10.724 (M) contractor 103 ALC Un-justified blockage of Govt 10 DP 372 2014-15 9.730 (M) Chaklala money

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GE (Air) PAF Non-recovery of cost of 11 DP-376 2014-15 160.086 (M) Base Noor Khan electricity GE(Air) 12 DP-455 2014-15 Less recovery of Income tax 1.022 (M) Mianwali PAF Base Loss due to less recovery of 13 DP-515 2014-15 1.210 (M) Sargodha market rent PAF Base Un-authorized conclusion of 14 DP-538 2014-15 75.107 (M) Sargodha contracts PAF Base Loss to State due to non-recovery 15 DP-540 2014-15 3.661 (M) Sargodha of HRA Un-authorized expenditure 16 DP-542 2014-15 GE(Air) Sargodha 16.028 (M) incurred on ACs Overpayment of TA/DA to 17 DP-621 2014-15 PAF Base Minhas 1.047 (M) officers 18 DP-657 2014-15 GE( Air) Multan Acceptance of contract 2.274 (M)

19 DP-681 2014-15 CAO Peshawar Un-authorized payment of HRA 3.279 (M) PAF hospital Un-authorized conclusion of 20 DP-685 2014-15 33.740 (M) Mianwali contract 110 ALD PAF US $ 0.285 21 DP-703 2014-15 Non-receipt of rejected store Badaber PSC (M) PAF Academy 22 DP-709 2014-15 Non- recovery of HRA 3.640 (M) Risalpur PAF Hospital Un-authorized payment of ad-hoc 23 DP-41 2015-16 0.765 (M) Sargodha relief AGE (Air) Un-due benefit to contractor of a 24 DP-48 2015-16 5.935 (M) Multan CA

Pakistan Navy

S # DP No. Year Formation Subject Amount PNS Punjab Loss due to un-authorized 1 DP-527 2014-15 6.196 (M) Lahore running of diesel generator

ML&C Deptt

S # DP No. Year Formation Subject Amount (Rs.) Cantt Board Non-realization of 1 DP-467 2014-15 30.850 (M) Walton Lahore computerization share

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Loss to Cantt fund due to non- Cantt Board 2 DP-476 2014-15 realization of receivable amount 45.883 (M) Walton Lahore from CB Lahore. Cantt Board Non-recovery of Cantt Board 3 DP-483 2014-15 1.707 (M) Sargodha dues from contractor Cantt Board Less recovery of conversion 4 DP-484 2014-15 1.045 (M) Sargodha charges Non-recovery of composition fee Cantt Board 5 DP-491 2014-15 imposed against illegal 2.780 (M) Chaklala construction Cantt Board Non-recovery of 6 DP-500 2014-15 12.594 (M) Lahore premium/development charges Cantt Board Loss to Cantt fund due to non- 7 DP-505 2014-15 8.777 (M) Lahore surrender of land Cantt Board 8 DP-580 2014-15 Non-realization of Octroi share 6.214 (M) Okara Cantt Board D.I Un-authorized expenditure due 9 DP-675 2014-15 1.038 (M) Khan to lack of supporting documents

MAG

S # DP No. Year Formation Subject Amount (Rs.) Over-payment to HMT CMA (MC) 1 DP-526 2014-15 contractor due to wrong 0.145 (M) Multan application of rates. Un-authorized conclusion of 2 DP-22 2015-16 MAG Rwp 3.782 (M) contract

ISO’s

Amount S # DP No. Year Formation Subject (Rs.) AAES Dhamial Un-justified expenditure on MES 1 DP-101 2015-16 2.100 (M) Rwp related work

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DP-Division

S # DP No. Year Formation Subject Amount (Rs.) F-22 P Frigate US $ 18.501 1 DP-423 2014-15 Unauthorized release of payment Ships (M) Overpayment to contractor to GE(DP) Constn/ 2 DP-434 2014-15 contractor due to non-deduction 4.798 (M) services Taxila of sales tax AMF JF-17 3 DP-01 2015-16 Un-due favour extended to a firm 0.960 (M) Kamra 2329.729 US$ 4 DP-06 2015-16 DP (Navy) Rwp Misprocurement of store 46.32 (M) GE (DP) ARF Non-allotment of store on 5 DP-07 2015-16 2.060 (M) Kamra Material-At-Site register PAC Board US$ 12.705 6 DP-35 2015-16 Un-authorized award of contracts Kamra (M) 7 DP-37 2015-16 ARF Kamra Un-due favour to contractor 0.865 (M) Loss to state due to non-payment 8 DP-128 2015-16 DGMP Rs. 9.106 (M) of GST.

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Annexure-II MFDAC Paras (DG South) 2014-15 and 2015-16

Pakistan Army

Amount S # DP No. Year Formation Subject (Rs.) Irregular / unjustified execution of GE (Army) Const: 764.388 1 DP-160 2015-16 work out of Cost of War “Op Al- Khi (M) Mizan” grant. ACE 5 Corps Irregular construction works from 311.352 2 DP-278 2015-16 Karachi cost of war Op-Al-Mizan Grant (M) AGE (Army) SI & 269.006 3 DP-67 2015-16 Violation of PPRA Rules T, Quetta (M) GE (Army)-II Illegal acceptance of contracts by 117.543 4 DP-29 2015-16 Quetta the ACE Rs 117.543 (M) Non-recovery of sales tax on 113.151 5 DP-154 2015-16 services in contracts for GE (Army) Hyd (M) consultation valuing Irregular Admin approval and conclusion of contracts in 108.464 6 DP-129 2015-16 GE (Army) Hyd piecemeal beyond the financial (M) powers and contractual powers ACE 5 Corps Irregular/un-justified expenditure 7 DP-74 2015-16 92.847 (M) Karachi from Al-Mizan Grant Non-deposit of sign board charges

8 2015-16 into Government Treasury and 81.859 (M) DP-138 Station HQrsHyd auction without calling bid Un-authorized operation of Cattle 9 DP-109 2015-16 Station HQrsHyd Mandi by Station Headquarters 45.284 (M) Hyderabad GE (Army) Irregular / Unjustified expenditure 10 DP-159 2015-16 37.156 (M) Kashmore from Al-Mizan Grant Execution of work without revised 11 DP-156 2015-16 GE (Army) Hyd admin approval from competent 36.385 (M) authority. Irregular use of funds operation 12 DP-144 2015-16 GE (Army) Hyd Al-Mizan without re-classification 35.471 (M) of allocated funds Irregular Contract executed GE (Army) 13 DP-140 2015-16 without obtaining performance 33.992 (M) Kashmore guarantee.

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Irregular conclusion of CA in 14 DP-141 2015-16 GE (Army) Hyd piecemeal beyond the financial 33.00 (M) powers. AGE (Army) RY Irregular execution of work 15 DP-64 2015-16 27.864 (M) Khan without technical sanction HQ Southern 16 DP-247 2015-16 Command, 12 Irregular expenditure out of CSF. 26.00 (M) Corps, Quetta GE (Army) 17 DP-08 2015-16 Services Pano Irregular conclusion of contracts 17.653 (M) Aqil Un-justified encroachment of Cantt Board in A-1 Land without 18 DP-135 2015-16 Station HQrs Hyd 17.080 (M) deposition of revenue into Govt. Treasury 316 Mech Engr. Irregular expenditure out of 110.790 19 DP-242 2015-16 Bn. Pano Aqil defence fund (M) Undue benefit to contractor by GE (Army)-I avoiding recovery of liquidated 20 DP-243 2015-16 15.960 (M) Malir, Khi damages for late completion of work Non-recovery of dues from 21 DP-124 2015-16 GE (Army) Hyd 14.895 (M) contractors Loss to state due to non- 22 DP-07 2015-16 16 Div Pano Aqil 8.234 (M) implementation of A-1 land policy. ACE 5 Corps 23 DP-130 2015-16 Violation of PPRA rule 6.300 (M) Karachi Non-recovery of rent from private 24 DP-143 2015-16 GE (Army) Hyd occupants in the light of A-I land 3.552 (M) policy Non-recovery of house rent 25 DP-71 2015-16 CMH Malir 3.435 (M) allowance 602 EME Irregular procurement of MT 26 DP-260 2015-16 3.274 (M) Workshop, Khi Spares in piecemeal Un-authorized commercial use of land allotted for Welfare purposes 27 DP-136 2015-16 Station HQrs Hyd 3.253 (M) without deposition of revenue into government treasury GE (Services) Irregular execution of contract 28 DP-238 2015-16 3.109 (M) Pano Aqil without prior approval from Govt. Undue benefit to Contractor due to GE (Army) 29 DP-158 2015-16 Non-recovery of Liquidated 2.417 (M) Kashmore Damages 602 EME Unjustified excess consumption of 30 DP-261 2015-16 Workshop, Khi 2.313 (M) suigas

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Award of contracts against 31 DP-93 2015-16 ACE 5 Corps Khi security bonds not pledged in 2.358 (M) favour of Government GE (Army) Irregular/ unjustified retention of 32 DP-167 2015-16 1.855 (M) Hyderabad lapsed security deposits AGE (Army) RY Irregular electrical work by un- 33 DP-80 2015-16 1.999 (M) Khan licensed contractor Non-recovery of sales tax services 34 DP-56 2015-16 CMH Malir 1.611 (M) from Doctors on CNE patients 25 Mechanized 35 DP-97 2015-16 Non-surrender of lapsable budget 1.331 (M) Div. Malir Non-surrender of lapsable budget 36 DP-96 2015-16 Station HQrsHyd 1.296 (M) of TA/DA amounting 602 EME Irregular procurement made in 37 DP-258 2015-16 0.937 (M) Workshop, Khi excess of budget allocation 8 Engr. Bn. Non observance of PPRA rule / 38 DP-23 2015-16 0.707 (M) Hyderabad irregular procurement of stores Non-recovery of Sales Tax on 39 DP-54 2015-16 CMH Malir 0.602 (M) purchases GE (Army)-II 40 DP-31 2015-16 Overpayments to Contractors 0.525 (M) Quetta GE (Army) Maint. Loss to State due non-deduction of 41 DP-46 2015-16 0.428 (M) Pano Aqil 16% GST. 8 Engr. Bn. Overpayment against the purchase 42 DP-51 2015-16 0.308 (M) Hyderabad of cement Bags at overpriced rate Un-justified payment of non- 43 DP-59 2015-16 CMH Malir 0.288 (M) practicing allowance to Doctor GE (Army) Pano Non-production of auditable 44 DP-75 2015-16 0.00 Aqil documents Non recovery of sales tax on 45 DP-271 2015-16 GE (Army) Khi 0.00 services

Pakistan Air Force

Amount S # DP No. Year Formation Subject (Rs.) GE (Air) 1 DP-38 2015-16 Irregular payment to QESCO 8.00 (M) Samungli PAF Base Un-authorized LP of 17 Air 2 DP-72 2015-16 1.114 (M) Shahbaz Conditioners No action of blacklisting has been AGE (Air) taken against the firm on 3 DP-183 2015-16 4.979 (M) Mirpur Khas incomplete work & non-recovery of penalty

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PAF Base Un-authorized payment of 4 DP-227 2015-16 41.00 (M) Shahbaz compensation in lieu of Quarters GE (Air) Irregular technical sanction of 5 DP-240 2015-16 4.271 (M) Samungli contract Outstanding recovery of electric GE (Air) Faisal 6 DP-273 2015-16 charges from PSI 2.032 (M) Khi BK/Flats/Houses GE (Air) Faisal Unauthorized payment of suigas 7 DP-274 2015-16 138.032 (M) Khi bills of cook houses Irregular payment of electricity GE (Air) Faisal 8 DP-275 2015-16 bills without free authorization 276.776 (M) Khi board Less recovery from contractor GE (Air) Faisal 9 DP-276 2015-16 due to wrong application of 0.252 (M) Khi schedule rate GE (Air) Faisal Less recovery of water charges 10 DP-278 2015-16 6.769 (M) Khi due to charging of lower rates GE (Air) Faisal Less deduction of income tax 11 DP-279 2015-16 0.882 (M) Khi from the contractors / suppliers Irregular payment made against PAF Base 12 DP-283 2015-16 pervious year's liability without 0.823 (M) Korangi Creek allocation of budget provision Unauthorized holding of items PAF Base 13 DP-284 2015-16 without authorization Rs 1.980 1.980 (M) Korangi Creek million Irregular payment on account of PAF Base Messing and Accommodation 14 DP-287 2015-16 2.617 (M) Korangi Creek charges of foreign trainees without allocation of funds

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ML&C

Amount S.No DP No Year Unit/Formation Subject (Rs.) Un-authorized expenditure on pay & 438.933 1 235 2014-15 CB Clifton allowances of permanent and (M) temporary employees Illegal payment made to conservancy 52.019 2 194 2015-16 CBMalir contractor due to void agreement (M) Loss to state due to encroachment on 48.331 3 210 2015-16 MEO Hyd B-3 land by Sindh University (M) Hyderabad Loss to state due to deposit of 75% 41.095 4 207 2015-16 MEO Hyd share of premium of land in non- (M) public fund . Loss to state due to deposit of 75% 33.568 5 146 2015-16 MEO Karachi share of premium of state land in (M) QMG’s fund instead of public fund Expected loss to State due to non- 33.211 6 21 2015-16 MEO Quetta taking on charges trees and structure (M) of Joint Cantt at Gawadar Irregular payment of land acquired 24.288 7 213 2015-16 MEO Hyderabad without mutation/transfer (M) 234 Loss to Cantt. fund due to 15.847 8 CB Clifton dishonoured cheques (M) Non-recovery of outstanding arrears 9 197 2015-16 CBMalir 7.699 (M) of Taxes / charges CBMalir 10 200 2015-16 Irregular purchase of misc store 7.221 (M)

Expected loss to State due to disparity 11 18 2015-16 MEO Quetta in acquired Land at Turbat, 6.850 (M) measuring 137 acres Irregular expenditure on Pay & 12 201 2015-16 CBMalir Allowance of Cantt servants retained 4.735 (M) after the age of 60 years Loss to state due to encroachment on 13 214 2015-16 MEO Hyderabad 4.406 (M) A-2 land 230 Irregular expenditure on pay 14 2014-15 3.732 (M) CB Clifton &allownces of contracts employees CB Korangi 15 219 2015-16 Non-recovery of hoarding charges 2.400 (M) Creek

Irregular expenditure due to non- MEO Quetta 16 17 2015-16 preparation of Cash Book 1.511 (M)

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Retention of GST and income tax in 17 178 2015-16 CB Manora Cantt fund instead of depositing into 1.071 (M) Govt. treasury Illegal retention of Class-C land 18 145 2015-16 MEO Karachi (parking area) by the lessees besides 0.872 (M) non-recovery of ground rent Loss to Cantt Fund due to non- 19 115 2015-16 CB Hyderabad deduction of house rent from pay and 0.545 (M) stoppage of HRA Illegal payments to Judicial 20 12 2015-16 CB Faisal 0.312 (M) Magistrates Over payment on account of private- 21 19 2015-16 MEO Quetta 0.146 (M) hiring due to less covered area

Pak Navy

Amount S.No DP No Year Unit/Formation Subject (Rs.) GE (N) Const-I 399.376 1 104 2015-16 Violation of PPRA Rules Ormara (M) GE (N) Const-II 233.217 2 101 2015-16 Violation of PPRA Rules Ormara (M) GE (N) Illegal re-allocation of funds beyond 3 234 2015-16 26.00 (M) Logistics, Khi the powers Central Div Opening of MAS accounts without 21.615 4 169 2015-16 Stock (N) Khi Sanction (M) Irregular expenditure incurred on 5 108 2015-16 GE (N) East Khi 4.811 (M) procurement of Special furniture Central Div Blockage of Government Money due 6 170 2015-16 3.512 (M) Stock (N) Khi to non-disposal of surplus stores PNS Dilawar, Non recovery of decreed amount 7 299 2015-16 2.155 (M) Khi Irregular expenditure due to AGE (N) 8 166 2015-16 execution of work prior to conclusion 1.598 (M) Mauripur, Khi of contracts Un-authorized local purchase of ration provision for pre joining 9 306 2015-16 PNS Himalaya 1.296 (M) training course (PJTC) at Benazirabad Nawabshah AGE (N) 10 303 2015-16 Less deduction of Income tax 0.689 (M) Mehran

PNS Dilawar, 0.621 (M) 11 43 2015-16 Khi Un-justified withdrawal of funds

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GE (N) Karsaz, Overpayment to contractor due to 12 268 2015-16 0.493 (M) Khi incorrect application of schedule rate. Non-recovery of Government dues 13 88 2015-16 PNS Shifa, Khi 0.486 (M) on excess running of staff cars. Non recovery of rent and allied 14 305 2015-16 PNS Himalaya 0.220 (M) charges from canteen/ shops GE (N) Karsaz, Overpayment to the contractor due to 15 262 2015-16 0.177 (M) Khi incorrect application of rates GE (N) Unauthorized change of use without 16 242 2015-16 - Logistics, Khi re-appropriation of buildings

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