Auditor General's report

The audit report for the year 2003-2004, released by the Auditor General of Pakistan (AGP), spotlights a string of grave financial irregularities, ranging from misappropriations to outright frauds involving billions of rupees of taxpayer's money, committed in different federal government departments and corporations.
There is hardly a government department, agency or division that does not figure in the report, which only goes to show the dimensions of financial rot that continues to plague the system despite claims of good governance, transparency, and accountability. It is difficult to recapitulate in this short space the financial shenanigans cited in the AGP's report.
However, Foreign Office, Civil Aviation Authority, CDA, NHA, Pakistan Post Office, National Health Institution, Ports and Shipping, Petroleum and Natural Resources, Labour and Manpower, PIA, Information, Industries and Production, Food and Agriculture, Housing and Works, Finance, Commerce and Cabinet Divisions all figure in the report, with misappropriated amounts mentioned against each. The report projects a picture of serious regulatory chaos in a government that prides itself on being transparent and accountable to the people.
According to AGP, accounts of 127 public sector organisations were required to be examined by commercial audit directors, but 49 public sector organisations did not submit their annual audited accounts despite repeated requests, which clearly amounts to a serious misconduct. The report on CAA detected losses of approximately Rs 2 billion, while Rs 3 billion losses were reported in National Highway Authority.
Financial irregularities at Pakistan's foreign missions accounted for a loss of over half a billion rupees. During the period under review, IDBP suffered a loss of Rs 1.4 billion, and the AGP detected 2,565 cases of fraud in HBFC, aside from 47 cases of fraud and misappropriation in Pakistan Post Office.
Further, PIA earned a profit of Rs 3.7 billion in 2003. But liabilities of Rs 3.1 billion in respect of rent and allied charges and financial charges of Rs 65 million plus penalties amounting to Rs 29 million for the defaulted period were not accounted for in its financial statements.
Similarly, the financial statement of State Life Insurance failed to show liabilities of Rs 175 million pertaining to pensions, Rs 481 million for compensated absence and Rs 671 million against post retirement medical benefits. This resulted in overstatement of income of Rs 1.3 billion.
Public sector corruption is often taken as a credible indicator of serious governance problems in a country. According to one estimate, the quantum of average annual corruption in Pakistan stands at Rs 6 billion, while 90 percent of defaulted loans are concentrated around a small number of influential people.
According to available data, five major banks of the country wrote off loans amounting to Rs 22.3 billion in 2005 alone, despite the fact that all loan write-offs are subject to stringent evaluation criteria. Loan write-offs are usually based on the plea of bankruptcy, ie the borrower, whether a company or an individual, has gone bankrupt.
As per practice, a sick enterprise is subjected to strict legal bankruptcy procedures by an independent agency, followed by appointment of a liquidator. Such legal formalities were often not followed in most loan write-off cases in Pakistan.
As a rule of thumb, public sector corruption thrives where laws apply to some but not to others, and where enforcement of the law is often used as a device for furthering private interests rather than protecting public interest.
AGP's audit report has exposed serious governance flaws that need to be addressed immediately, as sound financial management is an important barometer for measuring good governance in a country. Auditing of public accounts is an on-going process that often throws up stunners like the audit report for 2003-2004.
However, such disclosures can carry credibility only when there is a follow-up involving departmental or legal action against the officials found responsible for the loss to the exchequer. Secondly, the publication of such reports should be expedited so that the time lapse between the year reviewed and the appearance of AGP's report can be suitably shortened. It should not be forgotten that good governance essentially means sound economic management and distributive justice.