Rs 885 million irregularities detected in Ministry of Defence Production

Auditor General of Pakistan (AGP) has detected embezzlements, irregularities and mismanagement in excess of Rs 885 million in the Ministry of Defence Production disabling it from making payment of millions of rupees to Employees Old Age Benefit Institution (EOBI) within the stipulated time.
Audit Report-201-11 on Ministry of Defence Production exposed that public money in excess of Rs 865 million was lost due to irregularities, mismanagement and embezzlements in Pakistan Ordnance Factories (POFs). The audit report states that POFs faced a loss of Rs 494.68 million due to rejection/non-clearance of ammunition by the inspection authorities.
In POFs Gadwal Factory, it was observed from a letter from GM Production dated August 31, 2010 that a large number of certain types of bombs/ammunition valued at Rs 494.677 million were rejected or not cleared by the inspection authority due to various deviations in qualifying accuracy or otherwise etc.
The matter was discussed in DAC meeting held on January 18, 2011 and DAC directed the management to submit revised replies. Compliance in this regard was awaited till the finalisation of the audit report. The Audit Report further revealed that the nation faced a loss of Rs 166.778 million due to violation of Pubic Procurement Rules.
The report says that POFs Hospital, Wah issued 84 tender enquires for procurement of medicines and other medical equipment worth RS 163.874 million during the year, 2009-10. Similarly, the management procured two Olympus Binocular Microtome model CX-31 and BX-412 for RS 1.349 million and Microtome model 5040-01 for Rs 1.55 million during 2009-10 without observing PPRs.
The DAC in its meeting held on January 18, 2011 directed the management to submit the revised replies. Compliance in this regard was awaited till the finalisation of the audit report. The report reveals the following losses: Rs 41.022 million loss due to supply of defective stores to Bangladesh, Rs 15 million re-shipment of rejected store to Jamaica and back, Rs 19.88 million violation of public procurement rules, Rs 18.17 million non-advertisement of open tender, Rs 15.7 million non-conduction of PATLO inspection, and Rs 26.29 million due to defective installation of exhaust system and non-rectification thereof by the contractor. About Wah Industries Limited (WIL), the report says that it faced a loss of Rs 15.19 million due to sale of defective ammunition.
The report says that WIL executed two sales contract agreements dated April, 01, 2009 and June, 27, 2009 with Heavy Industries Taxila (HIT) for sale of 147 of 125 mm APFSDS and APFSDST valued at Rs 15.185 million at Rs 103,300 per unit. According to requirements, WIL was inspected by POF inspection authorities who cleared the said ammunition before dispatch/delivery. The said ammunition was delivered to HIT vide POFs issue vouchers dated June 30, 2009 and September 28, 2009. WIL submitted the bills on July 24, 2009 and October 15, 2009 respectively.
HIT did not entertain the bills on the grounds that ammunition supplied by WIL was defective vide their letter dated July 25, 2009 and December 2, 2009 and asked for replacement of defective ammunition. Accordingly, WIL contacted POFs Gadwal for replacement. In response POFs Gadwal vide letter dated August 17, 2009 stated that the said ammunition was dispatched after satisfactory report of inspection department and showed its inability for the replacement. This resulted in expected loss of Rs 15.19 million due to sale of defective ammunition.
The DAC in its meeting held on January 18, 2011 directed the management to submit revised replies. Compliance in this regard was awaited till the finalisation of the audit report. The auditors have also identified that Karachi Shipyard and Engineering Works Limited (KS&EWL) has sustained significant losses over past many years. The financial statements have been prepared on going concern basis and its validity is dependent upon continuous support from Government of Pakistan.
Furthermore, external auditors have also identified that the company has not been able to make payment of Rs 24.142 million to the EOBI within stipulated time. The report exposed that national kitty faced a loss of Rs 4.45 million due to irregular award of a work contract without open tender by KS&EWL.
The report states that KS&EW awarded a contract in July 2009 for work, grit blasting/cleaning and painting of various tanks without advertising and on the basis of quotations obtained from three firms. The first lowest firm had quoted the rates of Rs 525 per sq. meter for the main work and Rs 50 per sq. meter for additional painting.
However, the management negotiated the rates with the third lowest bidder who had originally quoted the rates as Rs 850 per sq. meter and Rs 30 per sq. meter for the main work and additional painting respectively. The third lowest bidder brought down the rate to Rs 700 per sq. meter and Rs 25 per sq. meter to secure the contract involving total cost of Rs 4.45 million.
The reason for rejection of first and second lowest bidder was recorded as being new contractors without any experience. Moreover it was also recorded that the first lowest bidder could not show required grit sample and the second lowest bidder did not come up for negotiation of the quoted rates.
The audit maintained that award of the contract by quotation from three selected firms was irregular as it involved cost of more than Rs 2 million and required open tendering. The audit argued that PPRA Rule regarding press tender should have been followed.