Audit reveals serious financial irregularities in defence sector

• AGP points out violations like advance payments, flouting of procurement rules, unauthorised work
• Calls for inquiry to fix responsibility, urges authorities to improve internal controls

ISLAMABAD: The Auditor General of Pakistan (AGP) has highlighted serious financial irre­gularities, non-transparent pro­cu­rements and unauthorised expenditures within various formations of the defence services, calling on the relevant authorities to improve internal controls and initiate inquiries to fix responsibility.

In its audit report on the accounts of Defence Services for the audit year 2023-24, the AGP published more than 300 pages of audit objections, including non-recoveries, over and advance payments, procurement-related irregularities, losses to the state and the non-production of records.

The report noted that the Ministry of Defence receives a single-line budgetary grant, which is distributed among the Ministry of Defence Production, Services Headquarters, Inter-Services Organisations, and the Strategic Planning Division. Under the administrative control of the Ministry of Defence, the main job of the armed forces — the Army, Navy and Air Force — is to defend the country’s territorial integrity and assist the civil administration when required.

The audit covered expenditures amounting to Rs566.29 billion, including Rs335.63bn during the second phase of the 2022-23 audit and Rs230.66bn in the first phase of the 2023-24 audit.

“Audit identified the non-compliance to the Defence Services Regulations in areas like advance payments before completion of works through Running Account Receipts (RARs), splitting of financial powers, non-recovery of rent and allied charges, non-deduction of applicable taxes, violation of public procurement rules, non-compliance of A-1 land policy and execution of unauthorised work as some of the key issues,” the report said.

It said the Defence Services were allocated Rs1.563 trillion as the original budget for the financial year 2022-23, which was later increased to Rs1.592tr through supplementary grants. The audit report expressed concern over the poor compliance rate of defence formations with audit objections over the past 40 years, stating that efforts to correct course and regularise accounts have been inadequate.

Giving a tabulated record since 1985, the AGP noted: “The Ministry of Defence complied with 659 directives of the Public Accounts Committee (PAC) of the parliament out of 1974, which indicates that compliance of PAC directives is very slow. The principal accounting officer should take necessary steps to expedite compliance with PAC directives.”

The performance of the Mini­stry of Defence Production was no better, as it complied with only 109 out of 372 PAC directives.

The report reiterated that the principal accounting officer (federal secretary of the ministry concerned) should take necessary steps to expedite compliance with PAC’s directives because it pertained to public money.

It pointed out that “during an audit of certain Army formations, it was observed from the record that the procurements were made in violation of relevant rules. In certain cases, the procurement and contract jobs were divided into many and given to the favourite contractors or suppliers on the same day to bypass transparent bidding”.

In some cases, the management on the questioning of auditors reported that advertisements were made through the website of the Public Procurement Regulatory Authority (PPRA) while skipping simultaneous advertisements in newspapers as “defence work was of secret nature”.

In other cases, bids were not invited because of the emergent nature of procurements for stores. However, auditors pointed out that in cases of work of a secret nature, the defence secretary, as principal accounting officer, was authorised to grant an exemption from procurement rules. It was neither ensured at the time of procurement nor after the audit, despite the auditor’s insistence.

The audit report repeatedly put on record that relevant authorities’ replies “were not tenable as no documentary evidence regarding advertisement through PPRA was produced to audit”.

Furthermore, only the defence secretary can grant exemption from Public Procurement Rules in such cases where procurement is of sensitive or urgent nature. However, no such approval was obtained, it added.

The AGP reported that the Departmental Audit Committee (DAC), which brings together auditors and relevant authorities under the federal secretary’s oversight, had recommended holding a court of inquiry or a fact-finding inquiry, as appropriate, to fix responsibility. The DAC also directed that the expenditures be regularised by the competent authority. However, these directives had not been carried out for many months by the time the annual audit report was published.

According to procurement regulations, all procurements exceeding Rs500,000 must be advertised on the PPRA’s website in a prescribed manner. However, during the audit of Army formations for the financial years 2021-22 and 2022-23, it was found that several procurements violated these rules.

In one instance and in response to audit objections, the management replied that procurement within a financial year was carried out using a comparative statement (CST) of a depot, and no deviation from it was made. This was untenable “as no documentary evidence of CST approved by the depot was produced”. It was also found that orders were issued to different contractors at the same rate, indicating favouritism.

Another case involved an Army School where funds were spent on the renovation of a Foreign Trainees Mess Shed and procurement of stores without formal contract agreements or estimates. The work was carried out without obtaining the necessary approvals from the Military Engineering Services (MES), rendering the expenditure irregular.

Furthermore, the audit revealed that in one Army formation, purchase orders were issued to contractors at rates nearly three times higher than the lowest bid, ignoring the competitive bidding process.

The Directorate General Procurement Army rules mandate a 100 per cent check at each consignee department, with a 5pc super check by the competent authority. However, the audit noted that cash receipt vouchers (CRVs) were issued without receiving items, and 5pc super check certificates were also issued.

Published in Dawn, September 2nd, 2024