AUDIT REPORT ON THE ACCOUNTS OF PAKISTAN RAILWAYS AUDIT YEAR 2017-18 AUDITOR GENERAL OF PAKISTAN TABLE OF CONTENTS Page No. ABBREVIATIONS & ACRONYMS i PREFACE iii EXECUTIVE SUMMARY iv SUMMARY TABLES I Audit Work Statistics x II Audit Observations Regarding Financial x Management III Outcome Statistics xi IV Irregularities Pointed Out xii V Cost Benefit Analysis xii CHAPTER 1 Public Financial Management Issues 1 Financial Advisor & Chief Accounts Officer, Pakistan Railways CHAPTER 2 Ministry of Railways 2.1 Introduction of Ministry 7 2.2 Comments on Budget & Accounts 9 2.3 Brief comments on the status of compliance 19 with PAC directives 2.4 AUDIT PARAS 2.4.1 Misappropriations 20 2.4.6 Non-Production of Record 31 2.4.7 Irregularity & Non-Compliance 33 2.4.26 Performance 51 2.4.32 Internal Control Weaknesses 62 2.4.36 Others 75 Annexure 84 ABBREVIATIONS & ACRONYMS ADP Annual Development Program AEN Assistant Executive Engineer AGM Additional General Manager BPS Basic Pay Scale CA Certification Audit CCM Chief Commercial Manager CDL Central Diesel Locomotive CEN Chief Engineer CFT Cubic Feet CSR Composite Schedule of Rates CSR/B Chief Supervisor/Booking C&W Carriage and Wagon DAC Departmental Accounts Committee DAEE Divisional Assistant Electrical Engineer DAO Divisional Accounts Officer DE Locomotive Diesel Electric Locomotive DEE Divisional Electrical Engineer DEN Divisional Engineer DME Divisional Mechanical Engineer DRF Depreciation Reserve Fund DS Divisional Superintendent DTO Divisional Transportation Officer ECNEC Executive Committee of the National Economic Council EDO Executive District Officer FA&CAO Financial Advisor and Chief Accounts Officer FIA Federal Investigation Agency FIR First Information Report FIS Financial Information System GM General Manager JCA/B Junior Commercial Assistant/Booking KDA Kundian KUTC Karachi Urban Transport Corporation LD Liquidated Damages LESCO Lahore Electric Supply Company LOCO Locomotive i LON Lodhran LPR Last Purchase Rate MD Managing Director MFDAC Memorandum for Departmental Accounts Committee MGPR Mughalpura MoR Ministry of Railways MS Medical Superintendent M&S Manufacturing and Services NAB National Accountability Bureau NBP National Bank of Pakistan PAC Public Accounts Committee PAO Principal Accounting Officer PC-I Planning Commission Proforma-I PD Project Director P&L Property and Land PLF Pakistan Locomotive Factory PO Principal Officer POL Petroleum, Oil and Lubricants PPRA Public Procurement Regulatory Authority PR Pakistan Railways PRA Pakistan Railway Academy PRACS Pakistan Railway Advisory and Consultancy Services Limited PSDP Public Sector Development Programme RAILCOP Railway Constructions Pakistan Limited REDAMCO Railway Estate Development and Marketing Company (Pvt) Limited RFD Rehabilitation of Flood Damaged Assets RR Rail Renewal S&C Survey and Construction SDR ShahdrahBagh SFT Square feet SM Station Master/Manager SOP Standard Operating Procedure TLA Temporary Labour Application ii Preface Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan 1973, read with Sections 8 and 12 of the AuditorGeneral’s (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001 require the Auditor General of Pakistan to conduct audit of receipts and expenditure of Pakistan Railways and its subsidiaries. This report is based on audit of the accounts of Pakistan Railways for the financial year 2016-17. Further, this report also includes observations pertaining to previous years which came to notice during audit. The Directorate General Audit (Railways), Lahore conducted audit on a test check basis during the year 2017-18 with a view to reporting significant findings to the stakeholders. The main body of the Audit Report includes only the systemic issues and audit findings carrying value of Rs 1 million or more. Relatively less significant issues are listed in Annexure-XV of the Audit Report. The audit observations listed in the Annexure-XV shall be pursued with the Principal Accounting Officer at the DAC level and in such cases where the PAO does not initiate appropriate action, the audit observations will be brought to the notice of Public Accounts Committee through the next year’s Audit Report. Audit findings indicate need for adherence to the regulatory framework besides instituting and strengthening internal controls to avoid recurrence of similar violations and irregularities. Most of the observations included in this report have been finalised in the light of discussions in the DAC meetings. The Audit Report is submitted to the President of Pakistan in pursuance of Article 171 of the Constitution of the Islamic Republic of Pakistan 1973, for causing it to be laid before both houses of Majlis-e-Shoora [Parliament]. -sd- (JavaidJehangir) Dated: 23.02.2018 AuditorGeneral of Pakistan iii EXECUTIVE SUMMARY The Director General Audit (Railways) has the mandate to conduct audit of receipts and expenditure of Pakistan Railways and its subsidiaries, viz. Pakistan Railway Advisory & Consultancy Services Limited (PRACS), Railway Constructions Pakistan Limited (RAILCOP), Railway Estate Development & Marketing Company (Pvt) Limited (REDAMCO) and Karachi Urban Transport Corporation (KUTC). This office conducts regularity audit (financial and compliance with authority audit) and performance audit of the projects run by the Ministry of Railways.The audit of receipts and expenditure was carried out on test check basis in accordance with audit methodology envisaged in Financial Audit Manual. The audit was carried out with human resource of 158 officers and staff,utilising 39,816 mandays, with annual budget amounting to Rs 160.93 million. Eight DAC meetings were held to discuss audit observations for the finalisation of this report. PR is a state managed commercial organisation with a mission “to provide a competitive, safe, reliable, market oriented, efficient and environment- friendly mode of transport”. It comprises three functional units: i) Operations ii) Manufacturing & Services and iii) Development Each unit is headed by a General Manager. Major portion of earnings of PR comes from passenger and freight traffic. Other sources of earnings include leasing of surplus Railway land for commercial and agricultural purposes. a. Scope of Audit Out oftotal expenditure and revenue of Pakistan Railways including its subsidiaries for the financial year 2016-17 auditable expenditure and revenue under the jurisdiction of DGAR was Rs 113,744.75 million (Revenue expenditure Rs 70,413.05 million and PSDP Rs iv 43,331.70million) and Rs 38,862.63 million respectively covering 01 PAO comprising 227formations. Of this, DGAR audited expenditure and revenue of Rs 49,881.29 million (Revenue expenditure Rs 38,949.29 million and PSDP Rs 10,932.00 million) and Rs 12,436.87 million respectively which, in terms of percentage, is 43.85% of auditable expenditure and 32.00% of revenue. In addition DGAR conducted performance/special audit of 08 projects/organisations. b. Recoveries at the instance of Audit Recovery of Rs 35,195.11million was pointed out, out of which recovery of Rs 2,034.41 million was effected during year 2017 at the time of compilation of Report. Out of the total recoveries Rs 10.27 million was not in the notice of the executive before audit. c. Audit Methodology The audit methodology included examination of relevant files/documents, review of financial data, site visits and discussions with management. d. Audit Impact On the pointation of Audit the Railway management agreed to segregate Public Accounts from Consolidated Fund. A dedicated account for GPF has been opened with the approval of Ministry of Finance. Further, on continuous pointation of certain lapses in financial reporting and management system, PR is working on implementation of Financial/Management Information System (FIS/MIS) to improve financial and management reporting. e. Comments on Internal Controls and Internal Audit Department The Principal Accounting Officer in conjunction with the Internal Audit organisation is responsible for ensuring that a proper system of internal controls exists within the entity. Audit observed certain lapses in internal controls regarding security arrangements, inventory management, v budgetary controls, receivables management, assets management and human resource management etc. A number of observations on weak internal controls are included in Audit Report. There is an Internal Audit organisation headed by a BPS-20 officer working directly under the Secretary, Ministry of Railways. Internal Audit produces an annual report embodying audit observations issued to the offices audited by it. Statutory Audit found that the offices which were audited showed poor response towards internal audit. The follow-up of internal audit reports by the organisation was also found inadequate. Resultantly, the discrepancies pointed out by the Internal Audit in its reports issued from the year 1999-2000 onwards remained unresolved. f. The key audit findings of the report Audit findings categorised in four major areas are depicted in the following pie chart along with the total amount of each sector. Para wise detail of the same is shown in Annexure-I. Breakup of Railways Audit Report 2017-18 (Para wise detail in Annexure-I) Issues Related to Railways Land Rs 27,660.82 million (39%) Others including theft, embezzlement and blockage of capital Rs 27,568.81 million (39%) Recoverables Pointed out by Audit Rs 11,336.76 million (16%) Issues Related to PSDP Projects Rs 3,896.47 million (6%)