PREFACE Government commercial enterprises, the accounts of which are subject to audit by the Comptroller and Auditor General of India, fall under the following categories: (i) Government companies, (ii) Statutory corporations and (iii) Departmentally managed commercial undertakings. 2. This Report deals with the results of audit of Government companies and Statutory corporations and has been prepared for submission to the Government of Karnataka under Section 19 A of the Comptroller and Auditor General's (CAG) (Duties, Powers and Conditions of Service) Act, 1971, as amended from time to time. The results of audit relating to departmentally managed commercial undertakings are included in the Report of the Comptroller and Auditor General of India (Civil) - Government of Karnataka. 3. Audit of accounts of Government companies is conducted by the Comptroller and Auditor General of India (CAG) under the provisions of Section 619 of the Companies Act, 1956. 4. In respect of Karnataka State Road Transport Corporation, Bangalore Metropolitan Transport Corporation, North Western Karnataka Road Transport Corporation and North Eastern Karnataka Road Transport Corporation, which are Statutory corporations, the Comptroller and Auditor General of India is the sole auditor. As per State Financial Corporations (Amendment) Act, 2000, the CAG has the right to conduct the audit of accounts of Karnataka State Financial Corporation in addition to the audit conducted by the Chartered Accountants, appointed by the Corporation out of the panels of auditors approved by the Reserve Bank of India. In respect of Karnataka State Warehousing Corporation, the CAG has the right to conduct the audit of their accounts in addition to the audit conducted by the Chartered Accountants, appointed by the State Government in consultation with the CAG. In respect of Karnataka Electricity Regulatory Commission, the CAG is the sole auditor. The Audit Reports on the annual accounts of all these corporations are forwarded separately to the State Government. 5. The cases mentioned in this Report are those, which came to notice in the course of audit during 2008-09 as well as those which came to notice in earlier years, but were not dealt with in the previous Reports. Matters relating to the period subsequent to 2008-09 have also been included, wherever necessary. 6. The audit in relation to the material included in this Report has been conducted in conformity with the Auditing Standards issued by the CAG. ix Overview 1. Overview of Government companies and Statutory corporations Audit of Government companies is governed by Audit noticed various deficiencies in the functioning Section 619 of the Companies Act, 1956. The of PSUs. A review of three years’ Audit Reports of accounts of Government companies are audited by CAG shows that the State PSUs’ losses of Statutory Auditors appointed by the CAG. These Rs. 549.70 crore and infructuous investments of accounts are also subject to supplementary audit Rs. 392.60 crore were controllable with better conducted by the CAG. Audit of Statutory management. Thus, there is tremendous scope to corporations is governed by their respective improve the functioning and enhance profits. The legislations. As on 31 March 2009, the State of PSUs can discharge their role efficiently only if they Karnataka had 72 working PSUs (66 companies are financially self-reliant. There is a need for and 6 Statutory corporations) and 16 non-working greater professionalism and accountability in the PSUs (all companies), which employed 1.74 lakh functioning of PSUs. employees. The working PSUs registered a turnover of Rs. 32,627.68 crore for 2008-09 as per their latest Quality of accounts finalised accounts. This turnover was equal to 12.17 per cent of State GDP indicating the important role The quality of accounts of working companies needs played by State PSUs in the economy. The PSUs improvement. During the year, out of 69 had accumulated loss of Rs. 39.93 crore as per their accounts finalised, the statutory auditors had latest finalised accounts. given unqualified certificates for 13 accounts, qualified certificates for 47 accounts, adverse Investments in PSUs certificates (which means that accounts do not reflect a true and fair position) for 7 accounts As on 31 March 2009, the investment (Capital and and disclaimers (meaning the auditors are long term loans) in 88 PSUs was Rs. 48,565.22 unable to form an opinion on accounts) for two crore. Infrastructure Sector accounted for nearly 59 accounts. There were 115 instances of non- per cent of total investment and Power sector about compliance with Accounting Standards in 41 27 per cent in 2008-09. The Government accounts during the year. Reports of Statutory contributed Rs. 6,876.14 crore towards equity, loans Auditors on internal control of the companies and grants / subsidies during 2008-09. indicated several weak areas. Performance of PSUs Arrears in accounts and winding up The working State PSUs incurred a loss of 16 working PSUs had arrears of accounts of 18 Rs. 587.97 crore in the aggregate for 2008-09 as accounts as of September 2009. Only two accounts per their latest finalised accounts. The major pertained to earlier years and the remaining were contributors to profit were Karnataka Power 2008-09 accounts. There were sixteen non-working Corporation Limited (Rs. 391.93 crore), Mysore PSUs including six under liquidation. The Minerals Limited (Rs. 192.42 crore), and The Government may consider winding up these non- Hutti Gold Mines Company Limited working companies. (Rs. 154.09 crore). The heavy losses were incurred by Bangalore Electricity Supply Company Limited Discussion of Audit Reports by COPU (Rs. 587.36 crore), Hubli Electricity Supply Company Limited (Rs. 560.51 crore) and The Audit Reports (Commercial) for 2003-04 Chamundeshwari Electricity Supply Corporation onwards are yet to be discussed fully by COPU. Limited (Rs. 217.15 crore). These five audit reports contained 21 reviews and 122 paragraphs of which 6 reviews and 41 paragraphs have been discussed. Audit Report (Commercial) for the year ended 31 March 2009 2. Performance reviews relating to Government companies and Statutory corporations Performance reviews relating to Implementation of Accelerated Irrigation Benefit Programme by Karnataka Neeravari Nigam Limited and Krishna Bhagya Jala Nigam Limited , Information System Audit Review on System development of Supply Chain Management software in Karnataka Soaps and Detergents Limited and Functioning of State Road Transport undertakings . Executive summary of audit findings is given below: Implementation of Accelerated Irrigation Benefit Programme by Karnataka Neeravari Nigam Limited and Krishna Bhagya Jala Nigam Limited. This performance review examined the cent, thereby the ultimate objective of bringing effectiveness in completion of four out of six benefit to farmers remained partly unfulfilled. irrigation projects proposed by the State (between 1996-97 and 2007-08) under Slow progress of works Accelerated Irrigation Benefit Programme (AIBP) launched by Government of India (GOI) During the review period 2003-09, in none of the with a view to accelerate irrigation potential years the budgeted works could be completed. within a short period of four agricultural The actual expenditure incurred on the seasons. budgeted works ranged from 36.51 per cent to 72.65 per cent (UKP Stage-I- Phase III), 50.86 The six projects included two projects (UKP per cent to 82.73 per cent (UKP Stage-II) and Stage I - Phase III and UKP - Stage II) executed 45.01 per cent to 69.41 per cent (Ghatprabha- by Krishna Bhagya Jala Nigam Limited Stage-III). (KBJNL) and four projects (Malaprabha, Ghataprabha, Ganodirinala and Varahi) The delay was attributable to problems of land executed by Karnataka Neeravari Nigam acquisition, change in scope of works, extra Limited (KNNL). The four projects test checked financial implications during execution, by Audit were UKP Stage-I-Phase III, UKP insufficient monitoring, etc. Stage II, Ghataprabha and Varahi for their implementation during the period 2003-09. Non completion of canals / distributaries, non synchronization of works coupled with delay in Under AIBP, the funds were released in the awarding works has also led to delay in potential form of Central Loan Assistance (CLA) towards creation of 0.40 lakh Ha. between 2004-09 in works expenditure in the ratio of 2:1 between test checked projects. Centre and State since 1999-2000. With effect from April 2004, 30 per cent of CLA received Loss of grant was convertible to Grant on timely completion of project under terms of Memorandum of The State received Rs. 599.25 crore (March 2005 Understanding between Central and State to April 2008) as grant under Memorandum of Governments. Understanding for timely completion of project in respect of UKP stage I Phase III and Stage II. Non-achievement of objective As the State failed to comply with the agreed target date of completion of the projects as The works posed under AIBP estimated at a cost stipulated in the MOU entered between GOI and of Rs. 3,135.63 crore had a cost over run of GOK, the grant was liable to be treated as loan Rs. 2,011.90 crore (March 2009) based on bringing an additional burden on the State (March 2008) estimates of Rs. 5,147.53 crore. exchequer. Further, as against 3,47,120 Ha. potential proposed for creation under UKP stage I Phase Conclusion and recommendations III and Stage II and 1,57,120 Ha. under Ghataprabha Stage III, 3,27,297 Ha. and The delay