Federal, provincial SOEs: AG unearths massive irregularities

Updated 12 Apr, 2021

ISLAMABAD: The Auditor General of Pakistan (AGP) has unearthed massive irregularities in financial management, governance, transparency, operational management and procurement and contract management during financial audit of four dozen federal and provincial State-Owned Entities (SoEs), official sources told Business Recorder.

This was revealed in a presentation given by the Auditor General of Pakistan to the Federal Cabinet on April 1, 2021.

The Auditor General of Pakistan briefed the Cabinet according to Article 170 (2) of the Constitution, it has the power to audit “accounts of any authority or body established by, or under the control of, the Federal or a Provincial government."

Highlighting key points in SOEs audited by DAGP 2020-21, he informed the Cabinet that total number of federal and provincial SOEs are 150, of which 85 are federal while 65 are provincial. AGP planned to audit 98 SOEs, of which 57 are federal whereas 41 are provincial. It has completed audit of 79 SOEs till March 15, 2021, of which 46 were federal and 33 provincial.

The Federal Cabinet was informed that out of 150, 102 SOEs have not provided accounts of financial year 2019-20. Chartered Accountants have audited 48 SOEs, of which 33 were federal whereas 15 were provincial. For 18 SOEs, qualified opinion has been conveyed.

According to the AGP, key reasons for qualification of audit are: (i) financial statements not according to statutory provisions; (ii) wrongful recording of bad debts as receivables; (iii) inability to determine amounts and timelines of receivables; (iv) questionable status as a going-concern; (v) liabilities not recognised as per international accounting standards; (vi) non-reconciliation of balances; (vii) non-recognition of impairment loss; (viii) non-recognition of delayed payment surcharge and; (ix) non-implementation of asset accounting.

Highlighting key issues in DAGP reports, the Cabinet was informed that in financial management an increasing trend in accumulated losses has been identified along with increase in financial charges.

Decrease in agricultural credit disbursement of ZTBL has been witnessed during 2016-2020. The others issues like rising trade and other payables, financial sustainability issues and imprudent investments have also been highlighted.

Commenting on governance and management, AGP said that Boards of Directors are not functional. Neither independent Directors are appointed nor Chief Executive Officers (CEOs).

The other issues pointed out by the AGP are issues in frequency of board meetings, selection criteria and quality of decisions, non-resolution of RLNG-related disputes between SSGC and SNGPL, pendency of litigation and non-enhancement of storage capacity by PSO.

On transparency, AGP said that there are gaps in timely finalisation/ submission of accounts, non-transparent provision of gas connections, inadmissible/ excess payments and misappropriation of bank fund against loan cases (ZTBL).

Non-transparent acquisition of sports media rights (PTV) and inadmissible payment of port charges and demurrage have also been highlighted during audit.

The auditors have also found non-recovery of TV licence fee from electricity supply companies, less recovery from consumers of Karachi Electric. Non recovery of past dues, poor receivable management and circular debt outstanding recoveries have also been highlighted in the audit reports.

The AGP said that in operational management, loss of revenue has been noted in PIA due to non-utilisation of available cargo space, in addition to loss due to inordinate delay in aircraft maintenance work.

In oil and gas companies, AGP noted issues in operational management like, sale of off-spec gas, non-enhancement of storage capacity (oil & gas) Unjustified / excess payment of port charges (oil & gas) and loss due to underutilisation of terminal capacity and unabated and persistent UFG losses.

The AGP has also raised questions on non-finalisation of Gas Sale Agreements (GSAs), and poor procurement planning in import of LNG cargoes (spot purchases).

Non-finalisation of tripartite agreement (SSGC-PSO-SNGPL) for purchase of LNG and non-imposition of Liquidated Damages (LDs) and non-encashment of performance guarantees have also been highlighted.

During discussion, a member observed that 80 percent of SOEs had either provided qualified accounts or no accounts at all, which was really a sad state of affairs. The members desired that the presentation be made to the Cabinet Committee on SOEs, which shall subsequently give recommendations to the Cabinet.

Copyright Business Recorder, 2021

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