ISLAMABAD: The federal government has reportedly decided to conduct forensic audit of ten loss-making State-Owned Entities (SOEs) from FY 2016 to 2018, half of which will be under taken by Auditor General of Pakistan (AGP) while for remaining entities private audit firm will be hired, well informed sources told Business Recorder.

AGP has been asked to conduct forensic audit of Pakistan Railways, Pakistan International Airlines Corporation, Sui Southern Gas Company Limited, Peshawar Electric Supply Company (PESCO) and GENCO-III- Northern Power Generation Company Limited, Thermal Power Station.

Sharing the details, sources said, on a summary submitted by Cabinet Division on August 6, 2020 titled "ratification of the decisions taken by the ECC in its meeting held on July 28, 2020", the Prime Minister directed the then Adviser to the Prime Minister on Finance and Revenue, Dr Abdul Hafeez Shaikh, (incumbent Finance Minister), to get forensic audit of the major loss-making SOEs for the last ten years. Accordingly, Finance Division submitted a summary to the Cabinet Committee on State Owned Enterprises (CCoSOEs) for forensic audit of the major loss-making SOEs.

The CCoSOEs considered the summary in its meeting held on August 31, 2020 and directed Finance Division to obtain certain information from the Auditor General of Pakistan, audit firms and consult relevant Ministries/Divisions to select major loss making SOEs for forensic audit and submit a compliance report in the next meeting for consideration. In line with the directions of the CCoSOEs, the following actions have been taken: (i) Finance Division convened a meeting with the relevant Ministries/Divisions to identify SOEs for forensic audit. The agreed basis of identification of these SOEs included consecutive losses for several years in PSCs of various sectors. Though NHA is a loss-making entity, it was excluded because its losses are mainly due to treatment of funding as Cash Development Loans (CDL) and Foreign Relent Loans (FRL). Similarly, Pakistan Steel Mill (PSM) was excluded for being at an advanced stage of privatisation. As a result of the consultative process, 10 SOEs were recommended for forensic audit; (ii) Finance Division approached top 6 Audit Firms to indicate availability of requisite technical expertise and human resources along with estimated cost and timeframe to complete the forensic audit of 10 identified SOEs. In response, BDO Ebrahim & Co. has indicated that the forensic audit of 9 entities would be completed within 10-15 months at an estimated cost of Rs163.050 million whereas Ernest & Young has sought some clarifications before they can work out estimated cost and timeframe of the forensic audit; (iii) Finance Division also approached office of the Auditor General of Pakistan (AGP) for the purpose. In response, office of the AGP has shown its willingness to complete the exercise and notified a team of expert auditors, recommended modified ToRs and suggested the following: (a) to undertake the audit in accordance with revised ToRs for a period of last three years (2016-17, 2017-18 and 2018-19) but if required, auditors may go beyond this period; (b) to conduct audit of five out of ten SOEs in 1st phase and rest in 2nd phase; and (c) to finalise the audit report on 1st phase of audit in four months from the commencement of the audit.

Finance Division proposed that: (i) CCoSOE may approve forensic audit of 10 entities identified for the purpose in consultation with relevant Ministries/Divisions; (ii) forensic audit may be undertaken by the office of Auditor General of Pakistan (AGP) to ensure consistency and reliability of the results; (iii) the draft scope/ToRs of forensic audit as proposed by office of AGP may be approved; (v) forensic audit may be undertaken initially for a period of last three years (FY 2016-, 2017-18, 2018-19) as proposed by office of AGP and be extended to cover last ten years for selected SOEs on case to case basis by CCoSOE once the initial report is received and; (vi) Office of AGP may be advised to complete the forensic audit of 10 SOEs in two phases and submit its report to the CCoSOEs for further directions.

Forensic audit of the following 5 entities may be completed in the 1st phase within a timeframe of 120 days as proposed by office of the AGP: (a) Pakistan Railways; (b) Pakistan International Airlines Corporation; (c) Sui Southern Gas Company Limited; (d) Peshawar Electric Supply Company (PESCO); and (f) GENCO-III- Northern Power Generation Company Limited, Thermal Power Station.

While the issue was discussed by the forum threadbare, Minister for Privatisation pointed out that Privatisation Commission had already developed certain ToRs/check list for the entities on the privatisation list, which may also be made a part of proposed forensic audit.

Copyright Business Recorder, 2021