Utilisation of Export Market Development Fund: AGP unearths massive irregularities

The Auditor General of Pakistan has unearthed massive financial irregularities in utilisation of Export Market Development Fund (EMDF) of Commerce Ministry, including hiring of event manager firm for 'World Expo China 2010', in violation of PPRA Rules.
In terms of Rule 4 (i) (b) of EMDF Rules and Forms, the funds available with the EMDF can be utilised to conduct market surveys of one or more products that could be undertaken with the approval of the management of the fund at the request of a recognised trade organisation. The Fund can bear up to 50 percent of the total expenditure.
As regards exhibitions, expenditure on this account can be incurred as per the provisions of rule 4 (v) of EMDF Rules & Forms, according to which expenses on rent, decoration, carriage and freight charges of stalls in respect of only such exhibitions where the participation is official can be met from the Fund resources.
Audit noted that during the period 2009-10, the management of Trade Development Authority of Pakistan (TDAP) paid a sum of Rs 55.867 million from the EMDF account to various trade organisations on account of 50 percent financing of organisational expenses of fairs and exhibitions. In some cases, 100 percent payment was made to women entrepreneurs.
Audit observed that the payment was not made against bills/account in accordance with rule 4 (v) of the EMDF Resolution. Due to non-availability of bills/account, it could not be ascertained whether the amount paid by EMDF was 50 percent of the expenditure or not.
Audit also observed that neither the participation report, as required under Para 6.3 (a, b), nor response of foreign buyers were available on record. Further, TDAP did not carry out any due diligence at the time of selection of the trade organisations as some participants applied for asylum after participation in an exhibition in Canada.
In view of the observations made in the preceding paragraphs, the accuracy and authenticity of the payment of Rs 55.867 million could not be ascertained.
The management replied that all rules and regulations were followed in the subject case and the record would be provided for verification. Audit did not find the response satisfactory as it had not been provided record.
The DAC meeting was held on 25-1-2011, where the Principal Accounting Officer advised the management to provided record to Audit for review within two weeks. However, no record was forwarded till the finalisation of the report.
According to Auditor General, TDAP as a standard practice remits amount from the Export Market Development Fund (EMDF) to various Pakistani missions abroad without their demand. In line with the practice, amounts of Rs 358.120 million in 2007-08, Rs 406.427 million in 2008-09 and Rs 362.149 million in 2009-10 were remitted abroad.
Audit noted that no adjustment account was received against these remittances, even after the close of fiscal years. As per record, TDAP never even reminded the missions abroad for the adjustment of accounts and/or surrendering the unspent balances of the amount remitted to them.
During the review of record, Audit noted some instances of unspent balances lying in the accounts of missions abroad at the end of November 2010 as under:
Audit further noted that the Chief Executive of TDAP accorded sanction for the remittances, while his powers were limited to Rs 10 million. Further, TDAP did not carry out any internal audit of the remittances.
On demand, the management could not provide any evidence on benefits derived from the payments remitted to the missions abroad.
Audit maintains that the non-reconciliation of unspent balance has made the public fund vulnerable to misuse. Further, due to absence of internal audit, the scope for misappropriation cannot be ruled out.
In response to the observation, the management replied that all rules and regulations were followed in the subject case and the record would be provided to Audit for verification.
The DAC meeting was held on January 25, 2011, which advised the management to provide adjustment account to Audit and reconcile monthly expenditure statements with releases from TDAP.
Audit recommended that (a) the decision of DAC be implemented under intimation to Audit, (b) in future the amount only be remitted against demand, with the instructions that the adjustment account be furnished to EMDF for the purpose of audit, (c) missions abroad be advised to submit report on actual benefit realised from the funds received from EMDF, (d) refund the unspent amount, (e) and arrangements be made for internal audit of TDAP, in respect of remittances to missions abroad, on règu1ar basis.
Auditor General further noted that the management of the TDAP met an expenditure of Rs 5,224,006 on account of visits of Minister for Commerce to six countries, during 2009-10, from the EMDF. Audit holds that this was not a valid charge on the EMDF and the expenditure should have been met from the budget of the Cabinet Division.
Audit also observed that prior permission of the Prime Minister, Ministry of Finance and Ministry of Foreign Affairs for visits abroad, as required under the rules, was not obtained.
While reviewing the record of TDAP, Audit noted that the defunct EPB (predecessor organisation of TDAP) earned Rs 2.25 billion through auction of textile quota during the financial years 1996-97 and 1997-98. EPB failed to collect Income Tax ~ 3 percent, amounting to Rs 67.50 million, from those who purchased the textile quota. Since this was in violation of the provisions of Income Tax Ordinance, 1979, the tax authorities recovered the amount of tax from TDAP's bank account in two instalments, under notice.
Audit maintains that the non-collection of tax from the buyers/exporters and its subsequent payment from the TDAP's funds caused a loss of Rs 67.50 million to the public exchequer.
In another case, TDAP, Karachi, signed an agreement with a firm, on May 26, 2007, to provide consultancy services for organisational development. The contract valued Rs 58.79 million with a completion period of 24 months. Audit noted the following irregularities in this contract: The opportunity was not advertised at the website of the Public Procurement Regulatory Authority (PPRA), which was irregular and violation of Public Procurement Rules 2004. The stipulated completion time of contract was 24 months. However, the assignment could not be completed till November 2010.
A payment of Rs 22,921,500 (39 percent of contract) was made to consultant. However, the reports submitted by the consultant in June-July 2008 were not approved by the TDAP, owing to quality. There has been no further progress on deliverables from the consultant. The performance security @ 10 percent of the contract amount expired on 11.08.2009 but TDAP did not make any request to the consultant for its renewal.
With regard to World Expo China 2010, the Audit noted that TDAP Karachi concluded an agreement with a firm, for a sum of $ 2.834 million on 12.01.2009. Under the contract, TDAP appointed the firm as 'Event Manager' for 'World Expo China 2010' held on May-October 2010 at Shanghai, China. Audit observed the following irregularities in the subject contract: The contract was awarded to the firm without advertising the opportunity on the website of the Public Procurement Regulatory Authority and in the print media in violation of rule 12 of Public Procurement Rules 2004.
As per terms and conditions of the contract, 15 percent mobilisation advance, amounting to $ 425,175 was paid to the firm. However, no bank guarantee was obtained, in violation of rules.
As per clause 12.1 of the contract, the payments were to be released upon receipt of invoice(s) from the firm. Contrary to this provision, the entire amount was released in four instalments during March-August 2009. No invoice(s) and receipt were found in the record.
As per clause 12.1 of the contract, the firm was required 'to invest at least US $ 2,094,500 from its own resources', and the firm was under obligation to provide documentary proof about this investment to TDAP. No such documentary evidence to this effect was available in record.
Audit, in view of the above mentioned irregularities, considers the award of contract as 'mis-procurement.'
In response to the observation, the management replied that 'all rules and regulations were followed' in the subject case and the record would be provided for verification.
Audit maintains that by not complying with the Public Procurement Rules 2004, the management deprived the exchequer of the benefit of competitive bidding. Further, the observation is indicative of internal control weaknesses in the organisation, which have made the public fund vulnerable to misuse.
The Auditor General has recommended that the decision of DAC be implemented under intimation to Audit. The matter should be investigated and responsibility be fixed for the lapses reported in the observation.
TDAP is maintaining a Guest House in Defence Housing Authority, Karachi, in a rented building. The detail of rent paid from EMDF in respect of this premises amounted to Rs 6.12 million.
Audit observed the following irregularities: The payment of rent from EMDF account was not a valid charge under the EMDF Rules.
The independent surveyor hired by TDAP, recommended a monthly rent of Rs 110,000 to Rs 125,000 for the premises. However, the premises was hired at Rs 183,750 per month.
An amount of Rs 224,155 was realised on account of room rent charges collected from the guests during 2008-09, while an expenditure of Rs 227,135 was incurred on account of utility and telephone charges paid from TDAP budget, which did not have such a provision. The receipt and expenditure analysis also suggests that maintenance of guest house at this cost was against the principle of prudence.
Audit recommends that responsibility be fixed, disciplinary action be initiated against officials responsible for this lapse and the payment from EMDF and TDAP funds be stopped forthwith.