AUDIT REPORT ON THE ACCOUNTS OF UNION COMMITTEES / COUNCILS OF SINDH AUDIT YEAR 2018-19 AUDITOR-GENERAL OF PAKISTAN 1 TABLE OF CONTENTS ABBREVIATIONS AND ACRONYMS ............................................................ i PREFACE ............................................................................................................... ii EXECUTIVE SUMMARY .................................................................................. iii SUMMARY TABLES & CHARTS ....................................................................vi Table 1: Audit Work Statistics .................................................................................................................. vi Table 2: Audit Observations Classified by Categories ............................................................................. vi Table 3: Outcome Statistics ..................................................................................................................... vii Table 4: Irregularities Pointed Out.......................................................................................................... viii Table 5: Cost Benefit .............................................................................................................................. viii 1.1.1 INTRODUCTION ..................................................................................................................... 1 1.1.2 Comments on Budget and Accounts (Variance Analysis) ........................................................... 3 1.1.3 Brief Comments on the Status of Compliance with PAC Directives .......................................... 4 2.1 AUDIT PARAS ............................................................................................. 7 2.1.1 Production of Record ................................................................................................................... 7 2.1.2 Irregularity / Non-Compliance .................................................................................................. 10 ANNEXES ............................................................................................................ 21 i ABBREVIATIONS AND ACRONYMS CRMS Customer Relation Management System CTR Central Treasury Rules DAC Departmental Accounts Committee FTN Free Tax Number F.Y Financial Year GoS Government of Sindh GST General Sales Tax LGD Local Government Department M&E Monitoring & Evaluation MFDAC Memorandum for Departmental Accounts Committee OZT Octroi Zila Tax PAC Public Accounts Committee PAO Principal Accounting Officer P/F Providing & Fixing P/L Providing & Lying RCC Roller-Compacted Concrete R&M Repair & Maintenance SGA&CD Services General Administration & Coordination Department SFR Sindh Financial Rules SPPRA Sindh Public Procurement Regulatory Authority UC Union Council/Union Committee i PREFACE Articles 169 & 170 (2) of the Constitution of the Islamic Republic of Pakistan, 1973, read with Sections 8 and 12 of the Auditor General (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001, require the Auditor General of Pakistan to conduct audit of the receipts and expenditure of the Union Committees / Councils under Secretary, Local Government & Housing Town Planning Department, Sindh. The report is based on audit of Union Committees / Councils of 06 Districts of Karachi Division for the financial year 2017-18. The Directorate General of Audit Local Councils Sindh, Karachi, conducted audit during 2018-19 on test check basis with a view to reporting significant findings to relevant stakeholders. The main body of Audit Report includes only the systemic issues and audit findings. Relatively less significant issues are listed in the Annex-1 of the Audit Report. The Audit observations listed in the Annex-1 shall be pursued with the Principal Accounting Officer at the DAC level and in all cases where the PAO does not initiate appropriate action, the audit observations will be brought to the notice of the Public Accounts Committee through the next year’s Audit Report. Audit findings indicate need for adherence to the regularity framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. The observations included in this Report have been finalized without written response. PAO failed to convene DAC meetings for the audit year 2018-19, despite pursuance by audit. The Audit Report is submitted to the Governor of Sindh in pursuance of Article 171 of the Constitution of the Islamic Republic of Pakistan, 1973 read with Section 116 of Sindh Local Government Act 2013, for causing it to be laid before the Provincial Assembly of Sindh. Islamabad Javaid Jehangir Dated: Auditor General of Pakistan ii EXECUTIVE SUMMARY The Director General Audit, Local Councils, Sindh, Karachi is responsible to carry out the audit of 1,626 entities under the administrative control of Secretary Local Government Department, Secretary Public Health Engineering & Rural Development Department, including all Development Authorities, Karachi Metropolitan Corporation, Karachi Water & Sewerage Board, District Councils/District Municipal Corporations, Municipal Committees, Town Committees. Directorate General Audit, Local Councils, Sindh, Karachi has a human resource of 39 officers and staff for the purpose of conducting audit, which comprise 4,894 man days. The annual budget (Salaries, TA/DA, and Printing) allocated to this office for the financial year 2018-19 was Rs 83.622 million. The office has a mandate to conduct regularity audit (compliance with authority audit) on test check basis with a view to reporting significant findings to the stakeholders. This office also conducts Performance audit of programmes / projects and Special studies/Special Audits. Each Union Committee / Council conducts its operations as per Sindh Local Government Act, 2013. Secretary is the Principal Accounting Officer (PAO). Financial provisions of the Sindh Local Government Act, 2013 require the establishment of Union Councils for which Annual Budget Statement is authorized by the Union Council/Administrator in the form of Budgetary Grants. Audit of UCs was carried out with a view to determine, that whether the expenditure was incurred with proper authorization, in conformity with laws, rules, regulations and that economy was ensured in procurement of assets and hiring of services. Government policies regarding different sectors are reviewed, analyzed and commented upon. Audit of receipts was conducted to verify that the assessment, collection, reconciliation and allocation of revenue were made in accordance with laws. a. Scope of Audit Total auditable expenditure for UCs of Sindh province for the financial year 2017-18, under the jurisdiction was Rs 3,902.40 million, out of which an expenditure of Rs 1,023.923 million was audited which in terms of percentage was 26%. Total receipts (OZT share) of the UCs for the financial year 2017-18 were Rs 3,902.40 million, out of which an amount of Rs 577.753 million was audited which was 15% of the total receipt. iii b. Recoveries at the Instance of Audit No recovery was realized during the audit. c. Audit Methodology Audit was conducted to ensure completeness, accuracy, relevance and genuineness of the expenditure incurred by the Union Committees / Councils. Before starting the field activity, desk review was undertaken to gain understanding of the system, procedures and control environment of audited entities. The permanent files of the entities maintained in the Directorate General were utilized for understanding the business and legal / institutional framework of the entities. The evidence was primarily gathered by applying procedures, like enquiries from the management, review of monitoring and progress reports and examination of payment vouchers. Audit tests and analytical procedures were performed to evaluate that the expenditure was completely recorded and receipts were timely deposited into government treasury. The review of payments was made to ensure that these were validated by proper supporting documents and approval of competent authority as per applicable rules and regulations. Budget comparison with actual expenditure was made to confirm that the expenditure was incurred in accordance with the approved budget, including the revision made therein. d. Audit Impact On pointation of audit, UCs streamlined their work in accordance with rules & regulations. e. Comment on Internal Control and Internal Audit Department Audit observations included in the audit report clearly indicates that the system of internal controls within the organization is weak. All departments audited by DG Audit, Local Councils Sindh, internal audit departments exists, but is not functioning effectively, whereas, pre-audit of Union Committees / Councils is being conducted by Local Fund Audit, Government of Sindh. The system of pre-audit is almost non-functional resulting flagrant violation of government instructions. What is more alarming is the fact that similar nature of internal control violations have been reported by Audit year after year, and yet the management has not taken any remedial action. iv Several loopholes in the internal control system were noticed during the audit years. Major internal control weaknesses have been reported during Chapter-1. Moreover, other internal control weaknesses have been incorporated in Annex-1. f. The Key Audit Findings of the Report i. Non-Production of Record noted in 02 cases – Rs 30.311 million1. ii. Recoveries