The Auditor General of Pakistan (AGP) has detected massive irregularities, embezzlements, corruption, losses and mismanagement of more than Rs 58.28 billion in National Highways Authority (NHA).
After unearthing irregularities in NHA, the AGP recommended fixing responsibility and taking disciplinary action against those found responsible. However, NHA has neither replied to the audit''s queries nor it has held a meeting of its Departmental Account Committee (DAC) to fix the responsibility. Audit Report 2010-11 on the accounts of the Government of Pakistan Civil Works revealed that the national kitty faced a loss of Rs 28.84 billion due to extension of contract to an ineligible insurance company; Rs 8.39 billion due to unauthorised charges of non-development expenditure to the development funds; Rs 4.883 billion due to award of works without tendering; Rs 2.65 billion due to acceptance of tender beyond permissible limit of 10 percent and Rs 1.098 billion due to excessive charging of establishment expense relative to what was estimated in the PC-I.
NHA circular dated 16-04-1998 for short-listing of insurance companies on NHA panel with engineering limits approved by the Controller of Insurance, provides that the approved engineering limit for EFU General Insurance Limited is Rs 844.00 million.
The General Manager KKH-Gilgit accepted insurance policy submitted by M/s CRBC from M/s EFU General Insurance Ltd, which did not cover the approved engineering limits of the work. The contract cost was Rs 29.73 billion (US $490.87 million x Rs 60.56) whereas the approved engineering limit for the EFU General Insurance Ltd was Rs 844.00 million, indicating that it did not have the capacity to insure the contract sum.
AGP observed that insurance of the work by an ineligible insurance company was accepted due to weak internal controls. The AGP pointed out irregularity in July 2010. The Authority replied that M/s CRBC was instructed to confirm the insurance coverage limit of EFU General Insurance Ltd for engineering projects.
The audit stated that reply was not tenable because it was the responsibility of the employer to safeguard the project by adhering to the approved engineering limits of the insurance company.
"The matter was also reported to the Principal Accounting Officer in September, 2010 but neither a reply was received nor did DAC meeting convened despite best efforts," the report says.
The audit recommended that work insured should be in accordance with the approved engineering limits, besides fixation of responsibility for not obtaining insurance of work in time.
The AGP also exposed Rs 8.297 billion waste due to unauthorised charging of non-development expenditure to the development funds.
The report says that PC-I of the Islamabad-Peshawar Motorway Project (M-l) contained physical contingencies at the rate of 2 percent of the PC-I cost which were required to be utilised for NHA establishment and other miscellaneous expenses (non-development/non-capital expenditure).
The General Manager, M- 1, NHA prepared year-wise release statement, which indicated that funds amounting to Rs 34.973 billion were released out of which expenditure of Rs 34.926 billion was incurred during the years 1992-93 to 2009-10. Therefore, expenditure for 2 percent physical contingencies (non-development expenses) was required to be incurred up to Rs 698.53 million against which an amount of Rs 8.995 billion was shown debited in the trial balance for the year 2008-09, which was 1,188 percent above the provision of PC-I. This resulted in unauthorised charging of Rs 8.297 billion of non-development expenditure to the development funds.
The irregularity was pointed out by AGP in November 2010 but the Authority did not furnish a reply. The matter was reported to the Principal Accounting Officer in December 2010 but neither any reply was received nor was DAC meeting convened despite best efforts.
The report further exposed that public money of Rs 4.884 billion had been embezzled due to irregular award of works without tendering.
The report says that the General Manager Punjab, NHIP awarded Contract 15, 16 and 17 for Rs 4.884 billion to M/s FWO without calling tenders in March/April, 2007. This resulted in irregular award of works for Rs 4.884 billion.
The audit observed that the irregular award of work was due to failure of internal/financial controls.
The audit pointed out this irregularity in July 2010. In its reply, the Authority stated that as a result of the devastating earthquake in 2005, the World Bank provided an additional loan to NHA to enable the reconstruction of the damaged highways. During negotiations it was assessed by the representative of the Government and NHA that FWO was the only organisation equipped and capable of carrying out the works in the mountainous areas on emergent basis. Special approval was, therefore, issued by the World Bank with the agreement of the Government for the direct appointment of M/s FWO to carry out these works as contracting of government agencies is not permitted under normal World Bank conditions.
However, the reply was not accepted terming the award of works without tendering against the rules and instructions of the government. Moreover, the lending organisations are not authorised to grant approval in violation of the established rules.
The matter was also reported to the Principal Accounting Officer in September 2010 but neither any reply was received nor DAC meeting was convened despite best efforts.
The audit report stressed an inquiry into the matter besides fixation of responsibility.
The report also revealed that a loss of Rs 2.65 billion due to acceptance of tender beyond permissible limit of 10 percent was incurred.
The report says that the General Manager, Procurement and Contract Administration Wing, NHA accepted the lowest bid of Rs 2.654 billion for Package I & II of the project, ''Dualisation and Rehabilitation of Larkana-Moenjo Daro Road'' against the PC-I cost of Rs 1.68 billion. This resulted in irregular award of work for Rs 2.654 billion in violation of laid down policy.
The audit observed that irregular acceptance of tender was made without prior approval of the next higher authority, ie NHA Executive Council, which shows non-adherence to rules and weak internal controls.
The irregularity was pointed out in August 2010. The Authority replied that tender processing was done at NHA Headquarters. The matter was referred for further guidance and clarification.
The matter was also reported to the Principal Accounting Officer in December 2010 but no DAC meeting was convened despite best efforts. The audit stressed fixing responsibility against the officers behind the fault.
The AGP also exposed that Rs 1.089 billion loss was incurred due to the irregular excessive charging of establishment expense than provision of PC-I.
The report states that PC-I of the National Highway Development Sector Improvement Programme contained the provision of one percent NHA establishment charges for Rs 236.00 million. Accounts Wing, NHA Headquarters booked an expenditure of Rs 1.326 billion against the provision of Rs 236.00 million in PC-I which was 562 percent above the permissible limit. This state of affairs indicated that extra establishment was deployed beyond the provision of PC-I. This resulted in irregular expenditure of more than Rs 1.089 billion.
The audit observed that excessive expenditure on account of establishment charges was due to weak financial and administrative controls. The irregularity was pointed out in September 2010. However, the Authority did not reply.
The matter was also reported to Principal Accounting Officer in November 2010 but neither a reply was received nor a DAC meeting convened.
The report further says that a loss of 1.12 billion was incurred due to expenditure in excess of the approved limit.
The report says that Kalat-Quetta-Chaman Section of N-25 approved by ECNEC on 01-01-2004 for Rs 6.671 billion included the approved cost of land acquisition and resettlement, consultancy and incremental/admin charges of Rs 58.00 million, Rs 197.00 million and Rs 116.00 million respectively. Loan agreement of Loan No 2019-Pak was signed with the Asian Development Bank on 17-03-2004.
The National Highway Authority (General Manager ADB) incurred an expenditure of Rs 143.21 million, Rs 202.65 million and Rs 1.14 billion for land acquisition and resettlement, consultancy and incremental/admin charges up to 30-06-2010 which was in excess of the approved limit of PC-I. This resulted in incurring of expenditure in excess of the approved limit for Rs 1.12 billion.
The audit report observed that expenditure in excess of approved limit was due to weak financial controls.
The audit pointed out the irregularity in July 2010. The Authority replied that the contracts were awarded in early 2006 with completion date by the end of 2008. The law and order situation in the project area deteriorated rapidly leading to very slow progress and suspension of works resulting in cost overruns due to price escalations. Some physical variations in the scope of the work, including realignment of work sections were also necessitated. Revised PC-I was being prepared for approval of the competent authority.
However, the reply was termed as tenable because the Authority wasted the time from March 2004 to August 2006. Further, there was increase in administration charges by about 100 percent with very little progress of work on ground.
The matter was also reported to the Principal Accounting Officer in November 2010 but neither any reply was received nor a DAC meeting was convened despite best efforts.
The report further says that the nation faced a loss of Rs 926.34 million due to non-awarding of work to the lowest bidder.
The report says that the General Manager Procurement and Contract Administration Wing, NHA invited bids for construction of Qila Saifullah-Zhob N-SO (150 KM) ICB-3B on 09-09-2008. Ten (10) firms submitted their documents for pre-qualification; five firms were pre-qualified while three firms participated in the bidding wherein M/s Husnain Cotex Ltd with its bid cost of Rs 7,006 million stood first lowest. Under the rules, the work was required to be awarded to the lowest bidder but instead the Tenders Acceptance Committee disqualified the lowest bidder and awarded the work to M/s LIMAK ZKB JV at a cost of Rs 7932.50 million which was 49.75 percent above the engineer''s estimate. This resulted in a loss of Rs 926.34 million.
The audit observed that this loss was due to violation of the Public Procurement Rules, 2004.
The audit pointed out the loss in September 2010. The Authority replied that the performance of M/s HCL on NHA projects was "found to be extremely poor". District Nazim, Zhob and Minister for Planning and Development also recommended that the work should not be awarded to M/s HCL due to the bad reputation of the contractor. The matter was also taken up with Asian Development Bank, which issued letter of no objection, subject to negotiations for cost reduction. The contract was awarded to the second lowest contractor at the negotiated bid of Rs 7,932.0 million against quoted bid of Rs 8.350 billion.
The reply was not accepted because approval of the next higher authority, ie National Highways Council, was not obtained as required under NHA Code.
The matter was also reported to the Principal Accounting Officer in November 2010 but neither any reply was received nor a DAC meeting convened.
The report says that nation faced a loss of Rs 1.15 billion due to undue financial aid contract and overpayment; Rs 758.97 million due to irregular/unauthorised acceptance of bids beyond permissible limit; Rs 758. 24 due to non-obtaining of insurance; Rs 718.62 million due to irregular expenditure without revised administrative approval; Rs 618.04 million due to irregular award of work without tendering; Rs 500 million due to irregular award of consultancy contract; Rs 448.59 million due to non-recovery of outstanding dues from the defaulting contract and other cases of million of rupees.