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. This Report deals with the results of audit in respect of Government companies and Statutory corporations and has been prepared for submission to the Government of Madhya Pradesh under Section 19-A of the Comptroller and Auditor General's (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 for the year ended 31 March 2010 (Civil)- Government of Madhya Pradesh. Audit of the 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. In respect of Madhya Pradesh Road Transport Corporation and Madhya Pradesh State Electricity Board which are Statutory corporations, the Comptroller and Auditor General of India is the sole auditor. As per the State Financial Corporations (Amendment) Act 2000, CAG has the right to conduct the audit of accounts of Madhya Pradesh Financial Corporation in addition to the audit conducted by the Chartered Accountants appointed by the Corporation out of the panel of auditors approved by the Reserve Bank of India. In respect of Madhya Pradesh Warehousing and Logistics Corporation, CAG has the right to conduct the audit of its accounts in addition to the audit conducted by the Chartered Accountants appointed by the State Government in consultation with CAG. In respect of Madhya Pradesh Electricity Regulatory Commission, CAG is the sole auditor. The Audit Reports on the annual accounts of all these corporations are forwarded separately to the State Government. The cases mentioned in this Report are those which came to notice in the course of audit during the year 2009-10 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 2009-10 have also been included, wherever necessary. Audits have been conducted in conformity with the Auditing Standards issued by the Comptroller and Auditor General of India. vii Overview Overview 1. Overview of Government companies and Statutory corporations Audit of Government companies is balance sheet. The State PSUs had governed by Section 619 of the accumulated losses of ` 11,492.22 crore. Companies Act, 1956. The accounts of Government companies are audited by The losses are attributable to various Statutory Auditors appointed by CAG. deficiencies in the functioning of PSUs. These accounts are also subject to A review of three years' Audit Reports of supplementary audit conducted by CAG. CAG shows that the State PSUs' losses of ` Audit of Statutory corporations is 425.41 crore and infructuous invest- governed by their respective legislations. ments of ` 44.54 crore were controllable As on 31 March 2010, the State of with better management. Thus, there is Madhya Pradesh had 47 working PSUs tremendous scope to improve the (43 companies and four Statutory functioning and minimise/eliminate corporations) and 10 non-working PSUs losses. The PSUs can discharge their (all companies), which employed 0.47 role efficiently only if they are financially lakh employees. The working PSUs self-reliant. There is a need for registered a turnover of ` 26,067.37 professionalism and accountability in crore for 2009-10 as per their latest the functioning of PSUs. finalised accounts as on 30 September Quality of accounts 2010. This turnover was equal to 13.41 per cent of State GDP indicating an The quality of accounts of PSUs needs important role played by State PSUs in improvement. Forty eight out of 49 the state economy. accounts finalised during October 2009 to September 2010 received qualified Investments in PSUs certificates. There were 30 instances of As on 31 March 2010, the investment non-compliance with Accounting (Capital and long term loans) in 57 PSUs Standards. Reports of Statutory Auditors was ` 20,979.65 crore. It grew by 272.14 on internal control of the companies indicated several weak areas. per cent from ` 5,637.59 crore in 2004-05. Power Sector accounted for Arrears in accounts and winding up 86.46 per cent of total investment in 2009-10. The State Government Thirty three working PSUs had arrears contributed ` 4,576.33 crore towards of 67 accounts as of September 2010. equity, loans and grants/subsidies to The arrears need to be cleared by setting State PSUs during 2009-10. targets for PSUs and outsourcing the work relating to preparation of accounts, Performance of PSUs if required. There were 10 non-working companies. As no purpose is served by Out of 47 working PSUs, 27 PSUs earned keeping these PSUs in existence, they profit of ` 147.82 crore and 11 PSUs need to be wound up quickly. incurred loss of ` 3,633.82 crore as per their latest finalised accounts as on 30 (Chapter I) September 2010. Six companies did not submit their first accounts and two companies had not started their commercial operation while one company capitalised the expenditure in ix Audit Report (Commercial) No. 4 for the year ended 31 March 2010 2. Performance Audits relating to Government companies Functioning of Madhya Pradesh State Civil Supplies Corporation Limited Under Public Distribution System 2005-06 to ` 3,200.96 crore in 2009-10 (PDS), Government of India (GOI) was mainly due to huge procurements. The responsible for procurement, storage percentage of profit to sales however, and bulk allocation of foodgrains to decreased abnormally during 2009-10 States for distribution and separate (0.61 per cent) as compared to 2005-06 allotment under Targeted Public (3.66 per cent) mainly due to increased Distribution Schemes (TPDS) and Free interest burden on cash credit (CC) on Schemes. Food Corporation of India account of prolonged inventory holding. (FCI) was assigned the responsibility of Further, the procurement costs which procurement and maintenance of constituted 93 per cent of total expenses adequate stock for PDS. The State during 2009-10 were also met by Government was to fix targets of availing credit through CC. Delays in procurement based on the allocation of submission of claims by the Company for foodgrains by GOI and was also reimbursement of expenses and gaps in responsible for distribution of these realisation of incidentals from the State foodgrains to consumers through a Government/GOI resulted in availing of network of Fair Price Shops (FPS). CC for longer periods there by causing Decentralised Procurement (DCP) was further increase in the interest burden on introduced (1999-2000) in the State for the Company. Claims for advance procurement and maintenance of stocks subsidy, provisional subsidy and Mid at State level in order to provide Day Meal were also submitted with minimum support price (MSP) to farmers delays against the prescribed period. and ensure economy in transportation Delays in submission of audited accounts expenses. The Madhya Pradesh State for DCP delayed the receipt of withheld Civil Supplies Corporation Limited was subsidy of ` 138.33 crore due to delay in to work as nodal agency of the State finalisation of economic cost. During Government by providing logistic 2008-09, penal interest (` 2.91 crore) support to ensure availability of was imposed by bank due to default by foodgrains for the schemes. The the Company in maintaining the required Memorandum of Understanding stock level against outstanding CC. State executed by the Company with GOI and Government deducted ` 33.51 crore State Government regulate the during 2009-10 out of claims for Chief procurements and claims for distribution Minister's Annapurna Yojna due to of procured quantity under PDS. improper submission of claims. The Performance Audit of the Company Procurement was conducted to assess the economy, efficiency and effectiveness in Procurement of wheat under DCP was in implementation of PDS schemes during excess of targets fixed by State the period from 2005-06 to 2009-10. Government by 0.72 lakh MT in 2008-09 and 0.64 lakh MT in 2009-10. As a result, Financial Management stock of 1.19 lakh MT and 1.38 lakh MT Sales of the Company increased remained undistributed at the end of respective rabi season. significantly from ` 1,162.47 crore in x Overview Inadequate quality assurance system Antodaya Annapurna Yojna (AAY) and Mid Day Meal (MDM) schemes. In The three Business Consultants (BCs) MDM, where foodgrains were to be hired by the company for preparation of distributed free of cost out of stock lifted training module, imparting training, from FCI only, distribution was made out ensuring analysis of samples at of the stocks of other schemes causing district/regional laboratories, etc. failed loss of ` 1.43 crore during 2008-09. in achieving these objectives. As a result the quality assurance system of the Foodgrains was not distributed under company was ineffective. Samples relief for drought affected to Above analysis system laid down for Poverty Line (APL) consumers due to procurement of paddy and acceptance of lack of pursuance in approval of cost rice from millers was deficient as the sheet within validity period during samples records for submission of March 2010 and May 2010. samples to regional and state Storage laboratories were not maintained as prescribed. Deficient quality assurance Creation of storage capacity was not system resulted in acceptance of low commensurate to the growth in quality paddy of 3,101.72 MT valuing procurement of foodgrains during 2005- 10 causing deterioration in quality due to ` 3.41 crore and 13,253.78 MT rice storage in open.