audit report on the accounts of … 2003-04 (2).pdf · ptcl : pakistan telecommunication company...
TRANSCRIPT
AUDIT REPORT
ON
THE ACCOUNTS OF
TELECOMMUNICATION SECTOR
AUDIT YEAR 2003-04
AUDITOR-GENERAL OF PAKISTAN
ABBREVIATIONS & ACRONYMS
1. APC : Access Promotion Contribution
2. CCRB : Cabinet Committee on Regulatory Bodies
3. DAC : Departmental Accounts Committee
4. ECC : Economic Coordination Committee
5. FAB : Frequency Allocation Board
6. LDI : Long Distance and International
7. MoIT : Ministry of Information Technology
8. IT&T : Information Technology & Telecom
9. MoF : Ministry of Finance
10. MoDP : Ministry of Defence Production
11. NTC : National Telecommunication Corporation
12. NRTC : National Radio Telecommunication Corporation
13. PTA : Pakistan Telecommunication Authority
14. PAO : Principal Accounting Officer
15. PTCL : Pakistan Telecommunication Company Limited
16. R&D : Research & Development
17. SCO : Special Communications Organization
18. USF : Universal Service Fund
19. WLL : Wireless Local Loop
CONTENTS
Page
Abbreviations & Acronyms i
Preface
ii
Executive Summary
iii
Section-I Audit Report
1-3
Ministry of Information Technology
(IT& Telecom Division)
1. National Telecommunication Corporation 4-15
2. Special Communications Organization
3. National Radio Telecommunication Corporation
15
16-22
Cabinet Division
4 Pakistan Telecommunication Authority
23-27
5. Frequency Allocation Board 28-31
Section-II Comments on Internal Controls
Recommendations
32-33
34
PREFACE
The Auditor-General of Pakistan is authorized to conduct the audit of expenditure
and receipts of the Federal Consolidated Fund and Public Account under Article 169 of
the Constitution of the Islamic Republic of Pakistan read with Sections 8 and 12 of the
Auditor-General’s (Functions, Powers and Terms and Conditions of Service) Ordinance,
2001. Section 15 of the aforesaid Ordinance also authorizes the Auditor-General to
conduct audit of Government commercial undertakings.
This report is based on audit of the accounts for the year 2006-07 of five Public
Sector Telecommunication entities. It includes comments on the accounts of audited
entities and findings of compliance audit. The audit was conducted on a test check basis
during 2007-08, by the Directorate General of Audit, Posts, Telegraphs and Telephones,
Lahore, with a view to report significant findings to the stakeholders.
The findings indicate the need for adherence to regulatory framework, prudent
decision making, professional financial management, instituting and strengthening of
internal controls to avoid recurrence of similar type of irregularities.
Audit observations included in the report were discussed with the concerned
Principal Accounting Officers in the meetings of the Departmental Accounts Committee
and have been finalized in the light of written response and discussion.
The report is submitted to the President of Pakistan in pursuance of Article 171 of
the Constitution of the Islamic Republic of Pakistan.
Islamabad
Dated: MUHAMMAD YANIS KHAN
Auditor-General of Pakistan
Executive Summary
This report presents comments on accounts for the year 2003-04, and results of audit for
the year 2002-03 of National Telecommunication Corporation (NTC), Pakistan
Telecommunication Corporation (PTA), Frequency Allocation Board (FAB), Special
Communications Organization (SCO) and National Radio Telecommunication
Corporation (NRTC). The matter relating to the audit of Pakistan Telecommunication
Company Limited is still under correspondence with the Government.
NTC, PTA and FAB were established under Pakistan Telecommunication ( Re-
Organization) Act,1996. NTC provides telecommunication services to the Public Sector.
PTA regulates the Telecommunication industry in Pakistan. FAB allocates frequency
spectrum to the Government, Providers of telecommunication service, and others. SCO
was established in pursuance of the Prime Ministers directive dated 10th May, 1976 to
provide telecommunication services in Azad Jummu & Kashmir and Northern Area.
NRTC was incorporated as a private limited company under the Companies Act, 1913
(now Companies Ordinance, 1984) to Manufacture all kinds of radio/wireless sets for
Defence Service and Pakistan Telecommunications Company Limited (PTCL). Besides
the statutory audit by the Department of the Auditor-General, the accounts of NTC, PTA
and NRTC are being audited by chartered accountants.
National Telecommunication Corporation
1. According to the report of the auditors, revenue of Rs.227 million receivable in
respect of share of international incoming traffic for the financial years 2001-02
to 2003-04 was not recognized. As a result, profit and opening balance of
retained earings for the financial year 2003-04 was understated by Rs. 6 million
and 221million respectively.
2. Un-utilized funds allocated against three projects during 2003-04 were not
surrendered at the end of the financial year but retained in the National Income
Daily Accounts maintained with the National Bank of Pakistan.(Rs. 78million).
3. Outstanding dues of leased circuits, liquidated damage and 5% normal rent were
not recovered. (45 million)
4. Ten vehicles were purchased during the ban period without obtaining relaxation
from the Prime Minister. (Rs.9 million
5. Payments were made on account of extra allowance/benefits to employees
without obtaining prior approval of the Finance Division.(Rs.5 million)
6. NTC Management Board approved, beyond its delegation powers, promotion of
an officer in BPS-20.
National Radio Telecommunication Corporation
1. Accumulated loss of the Corporation increased from Rs.8 million in 2002-03 to
Rs.39 million in 2003-04 due to prior years adjustments. These were mainly
short/excess recording of sales and improper re-congination of superannuation
liabilities.
2. Expenditure was incurred on gran of medical allowance to employees without
obtaining prior approval of the Finance Division.( Rs. 8 million)
3. Payment of bonus was made to the employees in violation of standing orders of
the Finance Division, although the Corporation was running in operating
loss.(Rs.2 million)
4. Materials for manufacturing dye parts were purchased without open
tenders.(Rs.14 million)
5. NRTC did not supply goods to Defence Production Division and Pakistan
Telecommunication Company Limited within the afreed stipulated delivery
period. As a result, liquidated damages were deducted by the clients while
making payments against 27 contracts.(Rs.9 million)
Pakistan Telecommunication Authority
1. Receipts of licence fee from tow cellular mobile telephone companies were kept
in short term deposits and remitted to the Federal Consolidated Fund after a
delay of three months, in contravention to the directive of Finance Division. This
delay had a serious Ways and Means implication in view of the heavy amount.
(Rs. 17,621million)
2. Payments were made on account of extra allowances/benefits to employees
without obtaining prior approval of the Finance Division. (Rs. 58 million)
3. Noramal rent @5% monthly emoluments was not deducted from the salaries of
PTA employees occupying requisitioned houses.(Rs.2 million)
Frequency allocation board
1. Payment were made on account of extra allowance/benefits to employees
without prior approval of Finance Division. (Rs.9 million)
AUDIT OUTCOMES
The PAC while discussing this report on 28.07.2011, 09.08.2011, 12.03.2015,
05.05.2015, 12.05.2015, 03.09.2015 and 28.10.2015 issued direction out of which none
of the directives was fully complied. However, in compliance of PAC directives recovery
of an amount Rs.3.189 million been made up till now. An amount of Rs 6.093 million
was recovered on initiation of Audit The management of these organizations was
sensitized with the importance of effective internal control system to achieve the
efficiency gains in deregulated environment.
AUDIT COMMENTS
ON THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2004
4.1 Pakistan Telecommunication Authority (PTA) is a corporate body establ ished
on 1 st January, 1996 under Pakistan Telecommunication (Reorganization)
Act, 1996 with the main objectives of regulating the telecommunication
industry, promote and protect the interests of users of telecommunication
services. It is working under the administrative control of the Cabinet
Division.
4.2 The operating results of the Pakistan Telecommunication Authority for the
year 2003-04 as compared to previous years are as under:
% %
Description 2003-04 Increasel 2002-03 Increasel 2001-02
(Decrease) (Decrease)
Income 3,739.402 480 644.662 (26.10) 872.395
Expenditure 205.160 31.59 155.904 3.64 150.432
Excess income 3,534.242 623.11 488.758 (32.30) 721.963
over expenditure
4.2.1 Income of the Authority decreased by Rs.227.733 million Le.26.10% in 2002-
03 as compared to 2001-2002 but increased by Rs.3094.740 million in 2003-
04 i.e. 480% as compared to 2002-03. This increase was mainly due to
auctioning of two new mobile cellular licences for initial license fee of US$ 29]
mill ion (equivalent to Pak Rupees 16,765 million).
4.2.2 Section 12(3) of Pakistan Telecommunication (Re-organization) Act, 1996
provides that any surplus of receipts over the actual expenditure in a year
shall be remitted to the Federal Consolidated Fund and any deficit from actual
expenditure shall be made up by the Federal Government. Finance Division
vide letter dated 25th May 2004 directed PTA to remit licence fee of two mobile
cellular licences. Surplus receipts of Rs.17, 725.323 million over the actual
expenditure for the year ended June 30, 2004 were
determined by the Authority. An amount of Rs.I04.371 million was remitted to
Federal Consolidated Fund in July, 2004 whereas remaining receipts of
Rs.17,620.952 million were kept in short term deposits with National Bank of
Pakistan yielding profit @ 1.2% per annum and deposited in the Government
accounts in September, 2004.
4.2.3 The expenditure increased by Rs.49.260 million i.e. 32% in 2003-04 as compared
to 2002-03 which was mainly due to increase in expenditure under the heads,
other allowances, welfare expenses and other staff
AUDIT PARAS
4.3 Irregular payment on account of extra ~lIowances and financial .benefits-
Rs.57.238 million
Under the standing instructions issued vide Finance Division O.M. . ~
No.F.l (1 )Imp/94, dated 26 June, 1999 duly confirmed vide U.O.No.4(2)R-99 dated 12th January, 2005, any proposal for revision in the salaries,
allowances and perquisites of the supervisory and executive staff . of public sector
eorporations, autonomous/semi autonomous organizations is required to be carried out
by the Board of Directors / Governors with prior approval of the Finance Division
(Regulation Wing).
Contrary to the above instructions, Pakistan Telecommunication ~uthority allowed extra
payments of Rs.57.238 million to its employees including supervisory -and executive
staff on account of various allowances and financial benefits during 2000-03 without
obtaining prior approval of the Finance Division as detailed below:-
S.# Description Amount (Rs.) 01. Special Allowance 11,418,432
02. Headquarter Allowance 5,101,637
03. Regulatory Allowance 9,521,562
04. Special Additional Allowance 997,870
05. Telecom Allowance 785,700
06. Utility Allowance 1,655,207
07. Computer Allowance 306,500
08. Car Advance 3,900,000
09. Leave encashment 5,616,790
10. Reward Money 1,168,307
II. Gratuity to deputationists 2,799,544
12. Petrol charges 1,854,939
13. Education Grant 2,309,780
14. Entertainment Allowance 1,716,723
15. Qualification Pay 1,193,292
16. Liveries & Uniforms 143,090
17. Outdoor Treatment 3,025,054
18. Incentive Pay 1,735,000
19. House Requisition 1,929,478
20. Washing Allowance 59,400
Total 57,238,385
It was replied in the DAC meeting held on 20.11.2004 that PT A being
constituted under Pakistan Telecommunication (Re-organization) Act, 1996
was empowered to make regulations for terms and conditions of employment
of its employees and the payments were made after approval of the Authority.
It was further contended that the instructions of the Finance Division were not
applicable as PT A was not funded by the Finance Division and approval
was, therefore, not required. The reply was not acceptable as the pay
package was not approved by the Finance Division. The instructions of the
Finance Division were also applicable to the autonomous/semi autonomous
organizations especially in the absence of any such regulations to be framed
under the Act. The DAC decided to resolve the matter in the light of the
opinion of Law Division and Finance Division regarding financial autonomy of
PT A. The matter was not resolved till the finalization of this report and the
employees continued to draw the amount which Audit considers irregular.
4.4 Irregular payment on account of honorarium to officers BPS-19 to BPS-21 and consultants- Rs.1.246 million
In terms of Finance Division OM No, F.2 (2) R-4 dated 22nd June, 1995,
honorarium is admissible upto the level of section officer and equivalent.
Contrary to the standing instructions, PT A Headquarter paid an amount of
Rs.1.246 million to its officers in BPS-19 and above including payment of
Rs.145, I 00 to consultants on account of honorarium during 2000-0 I.
Audit pointed this out to the management in February, 2002. The matter was
also reported to the Ministry in September, 2004. The management replied in
October, 2004 that Authority was empowered to make regulations of its
'employees under section 10 (3) of Pakistan Telecommunication (Re-
Organization) Act, 1996 and instructions of Finance Division V'~re not
applicable to PT A. It was further stated that honorarium was paid in
recognition of individual work performance of
26
arduous nature. The para was discussed in the DAC meeting held on 20th
November, 2004 wherein it was directed to seek decision from OFinance Division.
The compliance of DAC directive was not made till Othe finalization of the report.
Under rule 2(j) of Pakistan Allocation Rules 1993 and 2(a) of Accommodation
Allocation Rules, 2002 read with Finance Division letter No.F-2(2)R-5/2000/545,
dated 5th December, 2001, 5% deduction of normal rent is required to be made from
the monthly emoluments of a government employee ,:¥ho has been provided
accommodation whether government owned, hired or requisitioned by the
government.
Contrary to above rules, Pakistan Telecommunication Authority Headquarters did
not recover 5% normal rent of Rs.l.577 million during 1999-2003.
The management replied that it was decided by the Authority that the concerned
employees would be responsible for minor repairs of the requisitioned houses and
there would be no liability on PT A in this regard and, therefore, the recovery of 5%
was discontinued. The manageIJ1ent also contended that the Finance DiviSIon's
instructions dated 05.12.2001 were not applicable to the employees of PT A as it
was not funded by the Ministry of Finance. The reply was not acceptable as no
Service Regulations had been framed by PT A with the approval of Administrative
Ministry and concurrence 0:& the Finance Division. In the absence of any •
such regulations, PTA was required to follow the Federal Government
Rules. The DAC in its meeting held on 20.11.2004 decided to discuss the matter
further in the light of the 'opinion of Law Division and Finance Division 'about the
financial autonomy of PTA but the matter was not resolved till the finalization of the
report.
AUDIT COMMENTS ON THE ACCOUNTS FOR THE YEAR ENDING JUNE 30, 2004
5.1 Frequency Allocation Board (FAB) was established on 1st January, 1996
under Pakistan Telecommunication (Re-organization) Act. 1996. The I
Board has exclusive authority to allocate and assign frequency spectrum to
Government, providers of telecommunication services and
telecommunication systems, radio and television broadcasting operations,
public and private wireless operators and oth~rs. The Board has been , • "i'
placed under administrative control of PTA and Cabinet Division w.e.f
April, 2004. Under Section 42 (2) of Pakistan Telecommunication (Re-
organization) Act, 1996, the Board is funded by PT A to meet all its
expenditure.
5.2 The operating results of ~he Board for the year 2003-04 as compared to previous years are as under:
% %
Description 2003-04
Increase/ 2002-03. Increase/ 2001-02
(Decrease) (Decrease)
Opening balance 5.045 (22.92) 6.545 (26.49) 8.904
Revenue ReceIpts 85.900 34.79 63.731 .
- - (released by PTA) Salary and 42.338 11.92 37.828 9.84 34.439 allowances Training & 6.619 (15.89) 7.869 45.99 5.390 Welfare
Assets 1.977 (76.87) 8.546 (44.79) 15.479
Kel?aIr & 1.132 46.82 0.771 36.70 0.564 n1allltenance veneral &. 15.381 50.88 10.194 (1.99) 10.401 administrative expenses Total expenditure 67.475 3.44 65.232 (1.57) 66.273
Cash & bank 18.425 265.19 5.045 (22.92) 6.545 closing balance
5.2.1 Total expenditure of the Board increased by Rs.2.243 million i.e. 3% in 2003-
04 as compared to 2002-03, but expenditure increased under Heads 'repair &
maintenance' and 'general & administrative expenses' by 47% and 51 %
respectively. The manag6ment needs to control the increasing trend under
these heads.
5.2.2 The funds released by PT A to F AB increased by Rs.22.169 million i.e. 35%
in 2003-04 as compared to 2002-03. This indicates that funds in excess of
the requirements were provided to F AB by PT A and F AB retained
Rs.18.424 million in bank instead of its transfer to PT A. This resulted in non-
remittance of surplus receipts to Federal Consolidated Fund by PTA.
5.3 Irregular payment on account of extra allowances and perquisites- Rs.8.563 million
Under the standing instructions of the Finance Division circulated vide a.M.
No.F-l(l)Imp/94, dated 26.06.1999 and F.4(2)R-4/99, dated 13th January,
2000 duly confirmed vide U.a.No.4(2)R/99 dated 12th January, 2005, any
proposal for revision in the salaries, allowances and perquisites of the
supervisory and executive staff of public sector corporations,
autonomous/semi-autonomous organizations are required to be forwarded to
the Finance Division (Regulation Wing) keeping in view their financial
position and any increase in salaries and allowances etc is to be announced
only after clearance from the Standing Committee set up by the Finance
Division.
Contrary to above instructions, Frequency Allocation Board made payment of
Rs.8.563 million to its employees including supervisory and executive staff
on account of medical allowance, cash reward, entertainment charges and
fuel charges during 2002-03 without approval of the Finance Division as per
detailed below:-
S.# Description Amount (Rs.)
01. Medical Allowance 101,200
02. Entertainment Charges 311,355
03. Fuel Charges 826,948
04. Cash Reward 1,588,275
05. Headquarter Allowance 1,336,800
06. Special Allowance 1,869,480
07. Frequency Monitoring Management Allowance 2164,476
08. Utility Allowance 364,860
Total 8,563,394
It was replied in May, 2004 that the Finance Division vide FA's Organization
U.O. letter dated 221ld December, 2003 had agreed to extend the proposed
pay package/perquisites/facilities to the employees of F AB in line with the
PT A rules/benefits and all these allowances/perquisites were the same as
admissible to PT A and PTCL employees. The reply was
not admitted as the Financial Advisor's Organization was not competent to approve such pay packagelfinancial benefits because all cases relating to interpretation, application and relaxation of Service Regulations were required to be sent to the Finance Division (Regulation Wing)through the Financial Advisor. Moreover, the PTA regulationslbenefits were not approved by the Finance Division. The para was discussed in the DAC meeting .held on 20th November, 2004. DAC directed the management to obtain approval of the Finance Division (Regulation Wing). The requisite approval was not provided till the finalization of the report.
5.4 Non-deduction of 5% normal rent-Rs.300,267
Under rule 2(a) of Accommodation Allocation Rules 2002 read with Finance Division O.M.No.2(2)R-5/2000/545, dated 51h December, 200 I, 5% deduction of normal rent is required to be made from the monthly emoluments of Federal Government servant, who has been provided accommodation whether government owned, hired, self hired or requisitioned by the government.
Contrary to above rules, an amount of Rs.300,267 was not deducted/recovered on account of 5% normal rent from the employees of Frequency Allocation Board during 2002-03 who were provided facility of government accommodation/requisitioned houses.
It was replied in May, 2004 that in the light of instructions of Ministry of Communications, F AB had been following the pay package/ perquisites/facilities of PTCL/PT A as approved by the Finance Division. It was further stated that since PTA/PTCL were not making the 5% house rent deduction, F AB was also following the same policy. The irregularity was discussed in the DAC meeting held on 20lh November, 2004. The DAC directed to recover the amount from employees. Recovery was not made till the finalization of the report.
NATIONAL RADIO TELECOMMUNICATION CORPORATION
AUDIT COMMENTS ON THE ACCOUNTS FOR THE YEAR ENDED 30TH JUNE, 2004
3.1 National Radio Telecommunication Corporation (NRTC) was incorporated as
a private limited company on 16th February, 1966 under the Companies Act,
1913 (now Companies Ordinance, 1984). The Corporation has a paid up
capital of Rs.60 million and owned by Government of Pakistan. It is
managed by the Board of Directors under the administrative control
ofMi,nistry of Information Technology.
3.2 The main' objectives of the Corporation are'to manufacture and assemble all kinds of n~dio/wireless sets for Defence Services, battery eliminators and
distribution point boxes for Pakistan Telecommunication Company Limited.
3.3 The operating results of the Corporation for the year 2003-04 as compared to
the previous years are as under:-
% %
Particulars 2003-04 Increasel 2002'-03 Increase/ 2001-02
(Decrease) (Decrease)
Sales (net) 568.782 293.52 144.534 (10.28) 161.101
Cost of sales
509.106 191.92 ·174.394 25.69 138.742
Gross profit/(Ioss) 59.676 - (29.860) - 22.359
Operating 36.734 44.32 25.452 1.05 25.187
expenses Operating profit/ 22.941 - (55.312) ( 1855.87) (2.828)
(loss) Other Income 17.660 (50.20) 35.462 ( 1.68) 36.068
Profit/(Ioss) after 26.905 - (28.253) - 17.159
taxation Accumulated
(65.841) - 20.714 482.67 3.555
profit/(Ioss) B/F
Accumulated
(38.936) (416.46) (7.539) - 20.714
profit/(Ioss) CIF
3.3.1 The sales, of Corporation increased· by Rs.424:250 million ire. 294% in 2003-04
as compared to 2002-03. The ratio of cost of sales with reference to sales was
121 % in 2002-03 which decreased to 90% in 2003-04.
3.3.2 The Corporation incurred a loss of Rs.28.034 million in 2002-03.
However, it earned a profit of Rs.37.l-91 million (before taxation) in 2003-04.
Accumulated loss of the Corporation, however, increased from Rs.7.539 million
in 2002-03 to Rs.38.936 million in 2003-04 i.e. 416%. This was due to adjustment
of fundamental errors as per previous years. As .~ nole 23.1 of the accounts,
sales were short recorded for the year 1996-97 by Rs.2,443 million and excess
recorded for the year 2001-02 by Rs.18.665 million. Further, shortfall of
Rs,42.080 million in the superannuation liability was shown as .contingent liability
in the previous years. These amounts were reported as adjusted i,n the current
year to ,
. present the adjusted opening balances of accumulated profit/loss.
3.3.3 Other income of the Corporation decreased from Rs.35.462 million in 2002..:03
to Rs.17.660 ~iIIion in 2003-04 i.e.50%. This was mainly due to decrease of
profit on bank deposits and investments from Rs.29.l79 million in 2002-03 to
Rs.I3.012 million during 2003-04.
3.4 Irregular payment of medical allowance to employees without approval of the Finance Division-Rs.7.905- million
In terms of Finance Division O.M. No.F.I (1)lmp/94, dated 26th june, 1999 and
F.4(2)R-4/99, dated 13.0),2000 duly confirmed vide U.O.No.4(2)RJ99 dated I th
January, 2005, public sector corporations are required to forward proposal regard
ing revision of salaries and allowances of the supervisory and executive staff to
the Finance Division (Regulation Wing) keeping in view their financial position and
announce the increase in salaries and allowances after approval of the
recommendations of the standing committee constituted in the Finance Division.
Contrary to above, National Radio Telecommunication Corporation (NRTC) Board
approved.medical allowance @ Rs.800per month for all the employees of the
NRTC including Board members in March, 2001 without getting approval of the
Finance Division and made payment of Rs.7.90S million from April, 2001 to June,
2003 . . The management replied in the DAC meeting held on 11th December, 2004 that
NRTC Board of Directors examined all the aspects and approved the policy of
discontinuation of medical facility from T&T Colony Board Hospital. The Board
was the competent authority to run and control the affairs of the Corporation and
there was no need to get the expenditure regularized from the Finance Division.
The reply was not accepted by the DAC and it was directed to take· up the matter
with Ministry of Law, Justice and Human Rights for getting clarification whether
Act permits NRTC to alter the pay and allowances. If Act does not permit, the
matter be referred to Finance Division. Further progress was not intimated till the
finalization ofthe report.
3.5 Unauthorized payment on account of bonus – Rs 1.679 million
Under the standing orders of the Finance Division No.F.3(5)R-I2/80(R14)/2002-154,
dated 18th March, 2002, the bonus would be paid to the employees of the
autonomouslsemi-autonomous/public sector corporations/organizations on the
operational profit only excluding income·from other sources. Moreover, the payment
of bonus would not be made as customary but on the basis of profit earned.
The Corporation was running into operational loss during 2002-03 but bonus of
Rs.I.679 million was paid by the NRTC management to the employees in violation
of the standing instrudtions of the Finance Division.
The management contended In the DAC meeting held on 11th December, 2004 that'
Finance Division's concurrence was not essential in case of NRTC as it does not get
any budgetary support from the Government. The DAC observed that payment of
customary bonus was in total disregard of bonus policy circulated by the Finance
Division (Regulation Wing) on 18th March, 2002. This policy clearly indicated that the
bonus would be paid on operational profit of the autonomous/semi-
autonomous/public sector corporations/ organizations and the income from other
sources would be excluded. The NRTC sustained an operational loss of Rs.55.3 I 3
million during 2002-03, thus no payment of bonus could be made. The DAC directed
the management either to recover the amount or to get it regularized from the
Finance Division. Compliance ofDAC directive was not intimated till the finalization
of the report.
3.6 IrregularexpeDditure on procurement of material without calling open tenders .•. Rs.13.887 million
According to Para 144 of GFR Vol-I, as amended vide Finance Division a.M.
No.F.I(7) R-12/88-Exp-III/2002 dated 20th March, 2002, open
tenders by public advertisement should be invited as a general rule and must be
adopted in all cases in which the estimated value of the tenders to be received is
Rs.40,000 or over.
National Radio Telecommunication Corporation incurred an expenditure of Rs.13.887 million on purchase of material for manufacture of dye parts without obtaining competitive rates through open tenders from 2000-01 to 2002-03 as detailed below, in viDlation of the rules.
Sr. # Firm's Name
Purchase order No.
Amount
& date JRs1
01. Mis. Electro Composite Procl1P-114/1 4,600,000 Engg. Lahore 22.01.2001
02. -do- DC-IP-11411I 1,207,500 15.01.2002
03. Mis. Engg. Services, LP-1762/02 1,587,000 Lahore 14.09.2002
04. -do- LP-1762/02 634,800
15.04.2002
05. -do- LP-1762/02 317,400
01.02.2002
06. -do- LP-1749/02 172,500
12.07.2002
07. -do- LP-1787/02 345,000
10.06.2002
08. Mis. Biltech Int'l LP-1814/02 1,189,805
Islamabad
24.05.2002
09. Mis. Star Asia, Lahore DC-IP-123-IV/03 466,900
21.04.2003
10 -do- DC-IP-123-II/03 362,250
15.01.2002
II. -do- IP-123/01 1,207,500
19.05.2001
12. Mis. AND OR LOGIC, LP-1835/02-1 442,684
Islamabad
15.04.2003 13. Mis. Mehmood Traders, LP-1880102 483,000
Karachi 03.10.2002
14. Mis. 3-M Pakistan Pvt. LP-1785102 728,134
Ltd. Karachi 19.03.2002
15. -do- LP-1798/02 142,692
18.04.2002
Total 13,887,165
The management replied in the DAC meeting held on II th December, 2004 that
expenditure was incurred for procurement of material for manufacture of dye
parts required for different projects. The amount was not'spent on a single
purchase order but procurements were made through 18 different purchase
orders. Quotations were called for from the registered firms and expenditure was
incurred on the recommendations of the purchase committee on economical
rates. The reply was not accepted by the DAC and it was directed to obtain ex-
post facto approval of the Management Board under intimation to Audit. DAC
also directed that in future, all procurements should be made in accordance with
Procurement Policy of Government. The requisite approval was not obtained till
the finalization of the report.
3.7 Loss of Rs 9.336 million due to deduction of liquidated damages from the
Corporation
National Radio Telecommunication Corporation could not make supply of goods
to Defence Production Division and Pakistan Telecommunication Company
Limited within the agreed stipulated delivery period. These Organizations
deducted liquidated damages of Rs.9.336 million during the period from 1986 to
June, 2002 while making payments against 27 contracts to the NRTC as detailed
below:-
. (Rupee S.# Financial Year No. of Contracts Amount
I 1986-87 I 829,886
2 1987-88 2 1,758,018
3 1988-89 4 2,703,752
4 1989-90 I 194,393
5 1991-92 4 650,090
6 1993-94 I 136,974
7 1994-95 2 57,193
8 1997-98 I 7,800
9 1998-99 I 13,108
10 1999-00 2 142,717
II 2000-01 4 143,897
12 2001-02 4 2,698,475
Total 27 9,336,303
It was replied in the DAC meeting held on II th December, 2004 that liquidated damages
did not relate to financial year 2002-03 and it was an accumulated amount. An amount
of Rs.3.707 million related to PTCL and remaining Rs.6.553 million related to Defence
Production Division. Out of the total liquidated damages, the case for write off of
Rs.4.655 million was being put up to the Board of Directors as the appeals for waiver off
had I
been rejected, while the case for the remaining amount of Rs.4.681 million
were under process. The reply could not be accepted by the DAC and management was
asked to furnish facts regarding non-completion of supplies in time which caused
imposition of penalty. The compliance of DAC directive was not made till the finalization
of the report.
AUDIT COMMENTS
ON THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2004
1.1 National Telecommunication Corporation (NTC) was established on
JSI January, 1996 under Pakistan Telecommunication (Re-organization) Act, 1996
for providing telecommunication services to its designated customers that include
Federal and Provincial governments, their departments, autonomous organizations
and Defence Services throughout the country. The budget of the Corporation is
approved by the Federal Government. Any surplus of receipts over the actual
expenditure in a year shall be remitted to Federal Consolidated Fund and any
deficit from actual expenditure shall be made up by the Federal Government. The
accounts of the Corporation are audited by the Chartered Accountants in addition
to audit conducted by the Auditor-General of Pakistan.
1.2 M/s Anjum Asim Shahid Rahman, Chartered Accountants were appointed by the
Corporation as external auditors in August, 2004. The audited accounts of the
Corporation for the year 2003-04 were not approved by the NTC Management
Board till" finalization of the report.
1.3 The operating results of the Corporation for the year 2003-04 as compared to
previous years are as under:
% %
Description 2003-04 Increase/ 2002-03 Increase/ 2001-02
(Decrease) (Decrease)
Revenue 2,970.886 37.70 2,157.566 (1.07) 2,180.921
Operating costs 2,039.405 38.07 1,477.053 (l0.87) 1,657.204
Operating profit 931.481 36.88 680.513 29.94 523.717
Other income 37.158 12.06 33.160 (70.95) 114.172
Profit before 968.639 35.73 713.673 11.88 637.889
financial charges
Financial charges 76.608 (28.54) 107.207 (18.91) 132.212
Profit before 892.031 47.09 606.466 19.93 505.677 taxation
1.3.1 The revenue increased by 38% during 2003-04 as compared to 2002-03 mainly due
to additional revenue of Rs.242.261 million from MultiServices Data Network
project and interconnect receipts. The revenue on account of rent of microwave
circuits, towers, telephone and internatio'nal incoming calls also increased during
2003-04 as compared to previous year.
1.3.2 According to the report of the Chartered Accountants, revenue of Rs.227.000 million
receivable from MIs Catalyst Communications (Private) Limited (CA TCOM) was not
recognized in respect of share of international incoming traffic for the period from
2001 to 2004 (Rs.5.678 million for the year 2004, Rs.221.234 million for the period
prior to 2004), due to which the profit for the year had been understated by
Rs.5.678 million and the opening retained earlJings had also been understated by
Rs.221.234 million. Any understatement of profits effects government
1.3:3 The Corporation obtained approval of the Ministry of Science and Technology (IT&T
Division) on 26th February, 2001 and executed two contracts on 22nd April, 2002 with MIs.
Catalyst Communications (Pvt.) Limited (CA TCOM) and Mis. Zahra Communications (Pvt.)
Limited to setup, operate, m'arket and maintain, prepaid calling card service, payphone
services and international gateway exchanges. As per NTC contention, the trial operations
of these exchanges were suspended by the Ministry on 9th January, 2003. However, the
record did not show if any direction was issued by the Ministry for the suspension of
operations under these contracts. On an appeal from MIs. CA TCOM, the matter was
investigated by the Minister of State for Information Technology and Telecommunications.
The operations were restarted by Mis. CA TCOM from loth January, 2004 and by MIs. Zahra
Communications from 9th August, 2004 after an out of court settlement. The inquiry report
and
related record was~ however, not provided to Audit for examination of facts of
the case.
1.3.4 Operating cost decreased by 11% in 2002-03 as compared to 2001-02 but
increased by 38% in 2003-04. This was mainly due to increase in interconnect
charges by 29% in 2003-04, which were. paid for usage of PTCL network.
1.3.5 Profit before taxation increased from Rs.505.677 million in 2001-02 to
Rs.606.466 million in 2002-03 i.e.20% and Rs.892.031 million in 2003-04 i.e.
47%. This was due to increase in revenue by Rs.813.319 million in 2003-04
i.e. 38% over previous year and a decrease of Rs.30.599 million (28.5%) in
Financial Charges.
1.3.6 Under Section 41 (9) of Pakistan Telecommunication (Re-organization) Act,
1996, any surplus of receipts over the actual expenditure in a year shall be
remitted to the Federal Consolidated Fund. The Cash Flow Statement for the
year ended June 30, 2004 revealed that an amount of Rs.5.50 million was
surplus, which was not remitted to Federal Consolidated Fund as required
under Act.
1.3.7 Trade debts increased from Rs.586.986 million in 2001-02 to Rs.675.474 million
in 2003-04 i.e. 15%. Major amount of these debts pertained to receivables on
account of telephone bills outstanding against Government subscribers. As the
management did not provide an aging schedule, therefore, proper analysis
could not be undertaken.
1.3.8 Advances, prepayments and receivables increased by Rs.65.840 million in
2002-03 i.e.16% as compared to 2001-02 but these sharply increased from
Rs.474.608 million in 2002-03 to Rs.I,091.742 million in 2003-04 Le.130%. This
was mainly due to tax refunds due from Income Tax Department, which
increased from Rs.295.635 million in 2002-03 to
6
Rs.851.486 million in 2003-04 Le.188%. Effective steps need to be taken to
obtain the due tax refund at the earliest.
J .3.9 Funds of Rs.434.849 million were allocated during 2003-04 for different
development projects. These funds were not fully utilized by the Corporation.
Unspent funds amounting to Rs.77.951 million were retained in National Income
Daily Accounts (NIDA) with the National Bank of Pakistan instead of surrender to
Government as required under rule 95 of the GFR Vol-I. An amount of Rs. I. 744
million was earned as profit on NIDA accounts.
1.3.10 As per note 7 .to the NTC accounts for the year 2003.:.04, an amount of Rs. J
97.943 million was shown as a total liability payable to PTCL. It was, however,
observed that PTCL accounts were depicting an amount of Rs.l,308.095 million
as receivable from NTC. The difference in these payables/ receivables accounts
needs to be reconciled at the earliest.
Audit paras
1.4 Non realization of rent of circuits – Rs 37.109 million
As per para 28 of GFR, Volume I, no revenue should be left outstanding without
sufficient reason (as do the cannons of good cashl receivables management) and
where any dues appear to be irrecoverable, the orders of the competent authority for
their adjustment be sought.
Contrary to the above rule, an amount of Rs.42.027 million was outstanding on
account of rent of microwave circuits against certain Defence Organizations as on
30th June, 2003. It was replied in January, 2004 that an amount of Rs.4.919 million
was realized leaving a balance of Rs.37.109 million which was not recovered by
National Telecommunication Corporation (NTC) Headquarters despite the lapse of
considerable time.
The management replied in DAC meeting held on 11 th December, 2004 that
maximum dues i.e. Rs.32 milJion are recoverable from two Defence Organizations
for which active efforts were underway. The reply was not accepted and DAC
directed the management that efforts for recovery be strengthened under intimation
to Audit. No further progress of recovery was intimated to Audit till the finalization of
this report.
1.5 Irregular expenditure on purchase ofvehicles-Rs.8.589 million
As per Cabinet Division D.O. letter No.1/2/20000-lmp-I1, dated 28th February, 2000
and No.6-35/2000/M-II, dated 1 st December, 2003, the existing ban on purchase of
vehicles was applicable to alJ Ministries I Divisions/Autonomous/Semi-Autonomous
Bodies, Corporations, Northern Areas and FAT A and its relaxation could be granted
by the Prime Minister only.
In violation of the ban imposed by the Government, National Telecommunication
Corporation (NTC) Headquarters incurred an expenditure of Rs.8.589 million on the
purchase of ten vehicles during 2002-03 without obtaining relaxation from the Prime
Minister as required under the standing instructions.
Audit pointed this out to the management in December, 2003. The management replied on
23rd January, 2004 that cost of vehicles was approved by the Chairman.
The reply was not acceptable as the vehicles were purchased during the ban period without
obtaining relaxation from the Prime Minister. No reply was furnished during DAC meeting
held on 11 th December, 2004. The DAC directed the NTC management to furnish detailed
reply with justification to Audit. No reply was received till the finalization of the report.
According to terms & conditions of supply orders placed to Mis Telephone Industries of
Pakistan (TIP), Haripur, the liquidated damages @ 0.5% per week of the delayed works or
part thereof subject to maximum of 10% of the contract value were required to be
recovered in case of non-completion of works within the stipulated period.
NTC Headquarter made 50% ,\~vance payment of Rs 69.439 million against four orders to
Mis TIP Haripur during October, 2000 to April, 2001 for expansion ofNTC exchanges.
Works were not completed by the firm within the stipulated period, but the management did
not recover the liquidated damages to the extent of Rs.6.834 million from the firm.
The Management replied in August, 2005 that out of four supply orders, liquidated
damages against one order amounting to Rs.205,486 had been
deducted. The delivery against another order, involving an amount of Rs. 1.88 I
million was in time and liquidated damages were not due. The invoices pertaining to
remaining two orders were in process.
The reply was not found ~atisfactory as the relevant record for verification of the
Corporation's contention of timely supply was not produced and liquidated damages
of Rs.6.628 million were still to be recovered.
According to Finance Division O.M. No.F.3(5)R-12/80(R-14) Vol-II/2001-544, dated
30th November, 2001, bonus paid to employees by the corporations, without
concurrence of Finance Division will tantamount to financial irregularity. Moreover, as
per standing orders contained in the Finance Division a.M. No.F-3(5)R-1 2/80(R-I
4)/2002-1 54, dated 18th March, 2002, the Managing Director and Members of the
Board of Directors of public sector corporations and autonomous/semi autonomous
organizations are not entitled to receive bonus.
Contrary to above instructions, bonus/cash reward amounting to Rs.I.952 million was
paid to the officers/officials by the National Telecommunication Corporation
Headquarters during 2001-03 as per detail given below:-
(Rs. in million Sr. # POP No. Description Amount
01. 319-04 Officers/Officials ofNTC H/Q 1.714
02. 318-04 Chairman/Members ofNTC 0.096
Management Board
03. 317-04 Ministry Staff 0.142
Total 1.952
It was replied by the management in DAC meeting held on 11th December, 2004 that
NTC Management Board was competent to award the bonus. It was further replied
that the case had been referred to the Ministry of Information Technology for taking
up the matter with Finance Division to
10
clarify the decision of NTC Management Board with reference to the powers
entrusted to it by the Pakistan Telecommunication (Reorganization) Act, 1996 in this
matter. The DAC directed that matter be pursued with Finance Division. The matter
was not got resolved till finalization of the report.
1.8 Irregular expenditure on leave encashment- Rs.2.301 million According to
rules, leave encashment upto 180 days is admissible to a civil servant who
has thirty years qualifying service at ~is credit oris retiring on
superannuation. There is no provision in any rule that 100% leave
encashment at the time of retirement shal1 be paid. Moreover, no rule
permits leave encashment during service.
National Telecommunication Corporation (NTC) framed a policy al10wing leave
encashment upto 90 days to those employees who had two years continuous service
and 100% leave encashment at the time of retirement, resignation or death. This
policy was against the standing instructions of the Finance Division issued vide their
letter No.F.4(2)R-4/99 dated 13th Januar~, 2000 under which corporations could not
revise financial benefits to employees without prior approval of the Finance Division.
The view point of Audit had been confirmed by the Finance Division (Regulation
Wing) vide their U.O.No.4(2)R/99 dated I th January, 2005.
It was noted that leave encashment of ~s.2.30 1 million was paid to the staff in three
formations of the NTC during 2001-2003 as per detail given below:-
Sr. # PDPNo. Formation ' .
Amount .. ~
01. 321-04 NTC Headquarter 1.481
02. 344-04 Director NTC, Islamabad 0.391
03. -do- Director NTC, Peshawar 0.429
Total 2.301
It was replied in DAC meeting held on 11th December, 2004 that the case for
obtaining ex-post facto approval to regularize the expenditure had
already been taken up with Ministry of Finance through Ministry of Information
Technology. The DAC dire.cted that matter be pursued with Finance Division.
The expenditure was not got regularized till the finalization of this report.
1.9 Irregular payment on requisition of houses. at unspecified stations-Rs.1.134 million
In terms of Work's Division O.M.No.F.2(21 )90-Estate-VI dated 5th December,
1991 and Rule 2(xiii) of Pakistan Allocation Rules, 1993, house requisition is
admissible at Islamabad, Rawalpindi, Lahore, Quetta and Peshawar..
Contrary to above rule, an amount of Rs.1.134 million was paid by the Director NTC, Peshawar during 2002-03 in 49 cases of house requisitioning for employees posted at Nowshera, Mangora, Mardan, D.I.Khan, Bannu, Swabi, Kohat and Karak Agency instead of the above specified stations.
It was replied in DAC meeting held on 11th December, 2004 that the Ministry of Information Technology was requested to take up the case with the Finance Division for clarification regarding powers of the NTC Management Board. The DAC directed that matter be pursued with Finance Division. The matter was not got resolved till the finalization of this report.
Under rule 2m of Pakistan Allocation Rules 1993 and 2(a) of Accommodation
Allocation Rules, 2002 read with Finance Division letter No.F-2(2)R-5/2000/545,
dated 5th December, 200 I, 5% deduction of normal rent is required to be made
from the monthly emoluments of a government employee who has been provided
accommodation whether government owned, hired or requisitioned by the
government.
Contrary to above rule, an amount of Rs.824,257 on account of 5% normal rent
was not deducted by 3 units of the Corporation from the monthly emoluments of
the occupants of the requisitioned houses during 2001-03.
Sr. # PDPNo. Formation Amount
(Rs.)
OJ. 295-04 Director NTC, Islamabad 300,229
02. -do- Director NTC, Peshawar 93,582
03. 320-04 NTC, Headquarters, Islamabad 430,446
Total 824,257
The management replied in DAC meeting held on 11th December, 2004 that case
had been taken up with Ministry of Finance for clarification regarding decisions of
NTC Management Board with reference to the powers entrusted to it by the
Pakistan Telecommunication (Re-
I organization) Act, 1996. The DAC directed that matter be pursued with
Finance Division. The matter was not got resolved till the finalization of this report.
1.11 Promotion in BPS-20 beyond powers
As per Serial No.14 of Annexure-A to SRO No.171 (I )/99, dated 8th February,
1999, the Chairman/Management Board of NTC has been delegated full powers
for promotions upto BPS-19 within approved organizational set up.
Contrary to above, promotion. of an officer was made by the National
Telecommunication Corporation, Headquarters in BPS-20 on 5th May, 2000 by
crea~ing a new post beyond the delegated powers of the Board.
The management replied in DAC meeting held on II th December, 2004 that the case
had already been taken. up with Ministry of Information Technology for amendment in
the SRO and to regularize the promotion. DAC directed the NTC management to get
the promotion of officer, regularized from the competent authority. The unauthorized
promotion was not got regularized till the finalization of this report.
AUDIT COMMENTS ON THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2004
2.1 Special Communications Organization (SCO) was established in July, 1976 for the
operation and maintenance of telecommunication network in Azad Jammu &
Kashmir and Northern Areas. The Organization is also responsible to expand and
modernize the existing telecommunication system.
2.2 Funds of Rs.690.460 million and Rs.645.93 I million were allocated during 2003-04
against Development grant and Non-development grant
"- respectively. An expenditure of Rs.430.293 million was incurred under
Head 'establishment charges' during 2003-04 against the allocation of Rs.425 million
resulting in excess' expenditure of Rs.5.293 million. Although, the excess
expenditure was nominal and obligatory, but it was not being controlled by the
Organization effectively as there was also excess expend iture of Rs. 7.773 mill ion
during 2002-03.
2.3 The revenue of the Organization increased by Rs.477.793 million i.e. 56% in 2002-
03 as compared to 2001-02 and increased by Rs.140.0n million i.e. II % in 2003-04
as compared to 2002-03 mainly due to increase in working telephones by 2 I ,824
(Nos.) i.e. 38%.
PAC directives
