AUDIT REPORT ON THE

ACCOUNTS OF MINISTRY OF
FOREIGN AFFAIRS AUDIT YEAR
2007-08
Principle of auditing

SUBMITTED BY:
MEHREEN KHAN
KAZIM HUSSAIN
Principle of auditing

Table of content

Introduction …………………………………………………………..2
Preface ………………………………………………………………… 3
Executive summary ……………………………………………… 4
Audit outcomes …………………………………………………… 5
Comments on internal control……………………………..19
Recommendation…………………………………………………20
Financial statement……………………………………………….21

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Introduction
The Ministry of Foreign Affairs is a ministry of the Government of Pakistan tasked in
managing Pakistan's diplomatic and consular relations as well as its foreign policy. The
MOFA is also responsible for maintaining Pakistani government offices abroad with
diplomatic and consular status.
The Minister of Foreign Affairs is Cabinet member who responsible maintaining
Pakistan's foreign policy as well as its diplomatic missions abroad.

Divisions
 Afghanistan, Iran & Turkey Division
 Africa Division
 Americas Division
 China & SCO Division
 CAR & ECO Division
 East Asia & Pacific Division
 Europe Division
 Middle East Division
 South Asia Division
 United Nations Division
 Audit & Consular Affairs
 Arms Control & Disarmament
 Economic Coordination & Organization of Islamic Cooperation
 Finance Division
 Legal & Treaties Wing
 Strategic Export Control
 Spokesperson Division
 Policy Planning & Research
 Press Information Office

Departments
 Bureau of Foreign Intelligence
 Department of Comprehensive Nuclear Tastings Ban
 Department of National Assessment & Security Auditing
 Department of Nuclear Disarmament, Non-Proliferation & Nuclear Power
 Foreign Service of Pakistan
 Institute of Strategic Studies
 Foreign service academy

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PREFACE
Article 169 of the Constitution of the Islamic Republic of Pakistan read with Section 8 and other
relevant provisions of the Auditor-General’s (Functions, Powers and Terms and Conditions of
Service) Ordinance, 2001, requires the Auditor-General of Pakistan to conduct audit of receipts
and expenditure from the Federal Consolidated Fund and Public Account.

This report is based on audit of the accounts of the Ministry of Foreign Affairs (HQ) and its local
formations for the period 2006-07. The audit was conducted, on a test check basis by the
Directorate General Audit (Foreign & International) during 2007-08 with a view to report
significant cases of financial indiscipline and violation of prescribed rules/regulations to the
respective stakeholders, for ensuring corrective as well as precautionary measures.

The audit findings indicate the need for adherence to rules and regulations. The accounting
function in the Ministry of Foreign Affairs, as well as in the Missions abroad need to be
strengthened for enforcing an effective system of monitoring and internal checks so that
violations of similar nature are not repeated.

Audit observations included in the report were discussed with the Principal Accounting
Officer in the Departmental Accounts Committee meeting and have been finalized in the light of
written response.

The Report is submitted to the President of Pakistan in pursuance of Article 171 of the
Constitution of the Islamic Republic of Pakistan.

Sd/-
Islamabad TANWIR ALI AGHA
Dated: 31.07.2009 Auditor-General of Pakistan

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EXECUTIVE SUMMARY
Directorate General Audit (F & I), (named as Directorate of Foreign and United Nations Audit
until 1976) was established on 01.07.1964. The prime responsibility assigned to this office by
the Auditor General of Pakistan was to conduct the audit of accounts of Ministry of Foreign
Affairs and Pakistan Missions abroad. The Ministry of Foreign Affairs has 13 local formations
(including its headquarters at Islamabad) besides 112 Missions/Consulates abroad. Some
Missions have wings representing other Ministries, such as Defense, Commerce, Labor and
Manpower, Zakat, Usher and Religious Affairs, Interior etc., whose accounts are also audited by
the Directorate General Audit (F & I). 56 PIA stations located outside Pakistan are also audited
by the Directorate General Audit (F & I).

The Directorate General Audit (F & I) carried out audit of Ministry of Foreign Affairs (HQ) and its
13 local formations during the audit year 2007-08. Expenditure audited was Rs 1,202.000 million
which was 17% of total auditable expenditure of Rs. 7,078.961 million.

During the audit process, a large number of cases pertaining to financial indiscipline, violation
of prescribed rules/regulations etc. were noticed, which were reported to Secretary Ministry of
Foreign Affairs seeking departmental response and holding meeting of the Departmental
Accounts Committee. After completion of the prescribed audit process, 17 cases of serious
nature have been selected for printing in this audit report. Amount held under observation in
these cases is Rs 396.150 million which includes Rs 50.626 million in recoveries. Recoveries of
Rs 5.519 million were effected during 2007-08 at the instance of audit and deposited into
government exchequer.

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Audit outcomes
The observations included in the Report are based on a sample audit. A brief summary of
irregularities noted by audit is mentioned below:

UN-AUTHORIZED RE-APPROPRIATION OF FUNDS RS 52.258 MILLION

As per instructions contained in Sl. No. 11 (A) (iv) of Revised System of Financial Control and
Budgeting 2006, neither Ministry nor the FA wing is competent to re-appropriate funds from, to,
or within employees related expenses and utility charges. However, FA wing may submit such
proposals to AFS (E), Ministry of Finance for approval.

In violation of above instructions, the Ministry of Foreign Affairs has re-appropriated an amount
of Rs 52.258 million from restricted heads without seeking approval of AFS (E) which resulted in
an un-authorized expenditure.

In response the Ministry informed that their Finance Directorate has been requested for
views/immediate action in the light of audit observation.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that record
would be provided for verification within one month.

No record was provided for verification till Ist July 2009.

UN-AUTHORISED EXPENDITURE OF RS 3.402 MILLION

As per existing procedure, Ministry of Foreign Affairs moves a summary (on each occasion) to
the Prime Minister for approval regarding grant of status of state guests to foreign delegates.
While going through the record/vouchers, it was noticed that ten delegations visiting Pakistan
were provided accommodation as state guests at a cost of Rs 3.402 million, without approval of
the Prime Minister. As such the whole expenditure was un-authorized.

In response the Ministry informed that the concerned section of the Ministry has been requested
for immediate action in the light of audit observation.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would provide the requisite sanctions within one month.

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No sanction was provided till 1st t July 2009.

NON ADJUSTMENT OF ADVANCES AMOUNTING TO US$ 18,000/-(RS 1.44 MILLION)

As per instructions contained in Rule-668 of FTR, advances granted under special orders of
competent authority to Govt. officers for departmental or allied purposes may be drawn on the
responsibility and receipt of the officers for whom they are sanctioned subject to adjustment
by submission of detailed accounts supported by vouchers or by refund as may be necessary.
Further, Para-III of Ministry’s letter dated 03.08.2004 regarding financial management of
Protocol Division says that no payment of tips may be made to the employees of the Mission
and the PIA. The payment of tips will be made by Head of Mission in consultation with Chief of
Protocol (CP) and the list of tips, duly signed by both HOM and CP, will be sent to the Ministry
for record.

It was observed that an amount of US$ 18,000 was paid to Chief of Protocol for payment of tips
during 2006-07 on Prime Minister’s visits abroad but no confirmation/adjustment thereof was
available on record.

Detailed utilisation of US$ 18,000 duly signed by HOM of concerned Missions and Chief of
Protocol be provided to audit for verification. Otherwise, whole amount be recovered from the
concerned officer and reported to audit.

In response the Ministry informed that protocol section had been requested for immediate
action in the light of audit recommendations.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would provide the record to substantiate payment of tips.

No record was provided till 1st July 2009.

NON-ADJUSTMENT OF ADVANCES AMOUNTING TO RS 67.896 MILLION

As per Rule 668 of FTR, Vol.-I, advances granted under special orders of competent authority to
Government officers for departmental or allied purposes are subject to adjustment by
submission of detailed accounts supported by vouchers or by refund, as may be necessary.

In the following five cases, advances amounting to Rs 67.896 million were granted to different
government departments for misc. purposes but adjustment of the same is still awaited.

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Sl. Formation & Para Amount Payment made to Purpose of

No. Period of AIR No. (Rs in Advance
mill)
DG Rangers Punjab Construction/repair of
MOFA (HQs)
1. 28 12.50 & Sindh Pak-India boundary
2005-06
pillars
DG Rangers Punjab Construction/repair of
09 12.50 & Sindh Pak-India boundary
pillars
DG ISI, DCO Rwp,
Aiwan-e-Sadar,
10 12.24 For Misc. purposes
National Council for
Arts
Trading Corporation Purchase of rice and
MOFA (HQs) 22 23.20 of Pakistan supply to Govt. of
2.
2006-07 Niger((TCP)
Trading Corporation An advance payment
of Pakistan of Rs. 26.2 million was
made to TCP for supply
of 1000 MT rice to
14 7.456
Niger. But unspent
balance of Rs. 7.456
million was not
realized.
Total 67.896

In response the Ministry informed that the matter had been taken up with the concerned for
adjustment of advances.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided
that Ministry would take up the matter with the concerned departments for early
adjustment of advances.

No further progress was reported by the Ministry till 1st July, 2009.

DOUBLE PAYMENT OF HONORARIUM WORTH RS 757,010

As per powers delegated vide (Sl.# 17) of “Delegation of Financial Powers” Principal
Accounting Officer is empowered to sanction the honorarium to an individual up to
one month pay during a financial year. It further provides that other instructions
issued from time to time should also be kept in mind while sanctioning the
honorarium. In case where an employee is granted honorarium more than his / her

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one month pay in a current financial year, a summary should be moved for the
approval of Prime Minister / Chairman Economic Coordination Committee of the
cabinet for relaxation of rule in term of ECC decision laid down in Para 1(i) of the
Finance Division O.M. dated 25.4.1995.

Audit observed that a payment of Rs 757,010 was made on account of honorarium equal to one
month pay each to the officers and staff of the Ministry who had also drawn honorarium of the
same amount from the funds allocated for ICFM in 6/07 in violation of the above O.M.
Audit requested that either the expenditure be got regularized from Finance Division or
recoveries be made.
In response the Ministry informed that Finance Directorate of the Ministry had been requested
for immediate action in the light of audit recommendations.
The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that
Ministry would pursue regularization/recovery of double payment of honorarium.

No progress was reported till 1st July, 2009.

NON-RECOVERY/ADJUSTMENT OF PAY AND

ALLOWANCES, TA/DA, HBA WORTH RS 29.406 MILLION

As per para 269 of GFR, Vol-I, adjustment of advances drawn by employees is required to be
made upon return to headquarters or 30th June whichever is earlier. Similarly, as per Rule 668 of
FTR, Vol-I, advances granted under special orders of competent authority to Government officers
for departmental or allied purposes are subject to adjustment by submission of detailed
accounts supported by vouchers or by refund, as may be necessary.

During audit of the accounts of the Ministry of Foreign Affairs, it was observed that recoveries of
Rs 1.358 million on account of non-deduction of house rent charges, overpayment of pay &
allowances, TA/DA, House Building Advance and telephone charges etc. as pointed out during
2006-07 were not affected from the concerned officials., as detailed below:

Amount recoverable
Sl. Formations & Period of Para Foreign No. of
No. AIR No. Currency Rs persons
US$
1. 25 403,782 21
49 169,190 1
50 8499.74 696,979 1
MOFA (HQ) 2006-07 43(A) 245,140 3
75 18,697,000 122

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76 1,330,461 15
48 2,493,021 10
66 5,093,693 9
2. 1 231.15 76,942 1
MOFA, Camp Office
2 11,960 1
Peshawar 2007-08
3 188,668 1
Total 29,406,836 185

In response Ministry informed that the matter has been taken up with the concerned
officers/officials for recovery/adjustment.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that
verification of recoveries, if made, be carried out by the Foreign Audit in coordination with
Ministry (Cash I & II Sections) within one month.

Nothing was provided for verification till 1st July, 2009.

LESS DEDUCTION OF INCOME TAX AND PAYMENT OF GST WITHOUT INOVICES RS 2.871
MILLION

a) Under section 153 of Income Tax Ordinance 2001, Income Tax @ Rs.3.50% and 5% on the
sale of goods and rendering of services is required to be deducted at source from the supplier

Scrutiny of record revealed less deduction of Income Tax from different vendors etc. as tabulated
below:

Para No Name of travel agents & Amount

Formation
Vendors Rs
ICFM 2006-07 9 Hotels 414,748
ICFM 2006-07 10 M/s Shirazi trading, Ibd 306,530
Total 721,278

b) As per para-23 of Sales Tax Act 1990, a registered person making a taxable supply shall
issue a serially numbered tax invoice at the time of supply of goods containing the name, address
and registration number of the supplier, amount of sales tax and value inclusive of tax.

In violation of the aforementioned clause of Sales Tax Act, Ministry of Foreign Affairs purchased
misc. items but 15% GST was charged without production of sales tax invoice as detailed below:

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Sl. Formation Para No. Amount Rs

No.
1 MOFA (HQs) 2005-06 55 130,500
121(1) 159,225
2 MOFA (HQs) 2006-07 36 325,000
3 ICFM 2006-07 3 52,500
20 1,482,612
Total 2,149,837

It was requested that recoveries pointed out as above may be effected from all concerned under
intimation to audit.

In response Ministry informed that the matter had been taken up with the concerned quarters.
The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would pursue the case with the concerned hotel/firm and report to audit within one
month.

No progress was reported till 1st July, 2009.

UN-AUTHORIZED REPAIR OF OFFICE BUILDING AMOUNTING TO RS 1.244 MILLION.

As per Para 1.2 of Central Public Works Department (CPWD) Code, all federally financed original
works and ordinary and special repairs shall be executed through the agency of Pakistan Public
Works Department.

While going through the record, it was noticed that an amount of Rs 1.244 million was incurred
by the Ministry of Foreign Affairs on repair and maintenance by itself, instead through Pak
PWD/CDA, which is against the Govt. instructions. Further expenditure was split up to avoid the
approval of next higher authority and other codal formalities as laid down under Para 146 of GFR
Volume-I and Rule 12 of PPR 2004.

In response Ministry informed that the concerned section had been requested for immediate
action in the light of audit recommendations.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would get the expenditure regularized from the competent authority.

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No regularization was received till 1st July, 2009.

NON-ACCOUNTAL/NON-PROVISION OF RECORD PERTAINING TO PROCUREMENT OF ASSETS

RS 73.412 MILLION.

a) According to paras 146,159 & 160 of GFR Vol-I and Rule 12 of PPR 2004, the head of an office
or any other officer entrusted with stores of any kind should take special care for arranging their
safe custody, keeping them in good and efficient conditions for protecting them from loss,
damage or deterioration. An inventory of the dead stock should be maintained in all Government
offices in a form prescribed by competent authority, showing the number received, the number
disposed of (by sale or loss) and the balance in hand for each kind of article.

During the audit of stores of the Ministry, the following irregularities were noticed:

i. The store was being handled by a Naib Qasid. ii. The Stock Register for the period 2001-07
was found incomplete. The assets amounting to Rs 93.790 million were procured during 2004-
05 to 2006-07 but stores valuing Rs 26.144 million only were entered in the Stock Register.
iii. Physical verification of the assets was not carried out during the whole period. As a result
the Ministry was unable to determine the quantity, value and location of its assets.

b) It was further noticed that the Ministry had incurred a sum of Rs 3.809 million on purchase of
physical assets during 2006-07. On the invoice, entry of stock register was made, but actually no
entry of the specific items was found at that specified page. Since receipt of valuable stock items
could not be confirmed under the above circumstances, as such the expenditure worth Rs 3.809
million was held doubtful.

It is requested that:

i. The Ministry should investigate the matter and take disciplinary action against the
person(s) at fault.
ii. Prepare complete list of assets and identify the location of each item.
iii. Carry out physical verification to verify the existence of physical assets regularly.

In response the Ministry informed that they were in process of updating their inventory/dead
stock register and inventory proforma for the purpose was also circulated to all of its sections.
Two officials of the rank of Assistant of the Ministry have been assigned the job. Physical
existence of the assets would be checked after collecting and updating the information
circulated in the above referred circular. The audit authorities would also be informed
accordingly.

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The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that Ministry
would provide all record for verification within one week.

No record was provided for verification till 1st July, 2009.

UN-AUTHORIZED MAINTENANCE OF FOUR BANK ACCOUNTS WITHOUT APPROVAL OF

GOVERNMENT.

According to para 17 of GFR Vol-I and Section 14 of Auditor General’s Ordinance 2001, it is the
responsibility of every departmental officer to provide auditable documents/record for audit
scrutiny.

It was observed that the Ministry has been maintaining following four (04) Bank Accounts
without the approval of the Finance Division.

Sr.
Title of account Bank
No
1 Central fund for Pak community Habib Bank Foreign Affairs
welfare Branch
2 Donation from Kuwait for ICFM Habib Bank Foreign Affairs
Branch
3 Offshore Account UBL, Dubai
4 Building Donated Fund Abu Dhabi

Despite several requests, no response in this respect was provided to audit which was violation
of AGP Ordinance:

It is requested that:

i. Ministry may clarify the matter and provide necessary information pertaining to purpose
of opening of these accounts along with signatories, source of funding and its further
utilization to audit. ii. Detail of interest/profit earned thereon may also be provided to audit.

The para was forwarded to the Ministry and also discussed in the DAC meeting held on 30 th May,
2009. It was decided that Ministry would provide the record for verification within one week.

No record was provided for verification till 1st July, 2009.

EXPENDITURE ON PURCHASE OF GIFTS AMOUNTING TO RS 24.399 MILLION

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In terms of para VI of Ministry of Foreign Affairs letter No. DG (M & F)-25/2004 dated 3.8.2004
regarding Financial Management of Protocol Division, list of gifts given to foreign
dignitaries/missions will be submitted to Foreign Secretary by Chief of Protocol through DG (M
& F).

Contrary to the above provision, it was observed that Ministry incurred a sum of Rs 24.399
million on purchase of gifts for Prime Minister/President visits abroad during 2006-07. Following
discrepancies were also noticed:

i. No policy exists in the Ministry regarding level of dignitaries and value of gifts to be
presented
ii. The items purchased were neither taken on stock nor issued properly. iii. The detail of
countries visited was not available on record.
iv. The list of recipients was not provided to audit.

In the absence of non-observance of Public Procurement Rules and non-provision of documents,

the expenditure of Rs 24.399 million was held irregular.

It is requested that: -

i. The distribution of gifts to the dignitaries may be shown to audit.

ii. A comprehensive policy regarding distribution of gifts should be formulated. iii. All gifts
items purchased during 2006-07 may be taken on stock and got verified by audit.
iv. Detail of countries be provided.
v. List of Recipients be provided.

In response the Ministry informed that the Deputy Chief of Protocol had been requested for
views/immediate action in the light of audit recommendations.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would respond to the Audit queries within one month.

No progress/record was provided for verification till 1st July, 2009.

(Para 65, 69 & 70 of AIR MOFA (HQ) 2006-07)

NON PRODUCTION OF RECORD

Under clause 7 and 8 of the Auditor General’s (Function, powers and Terms /conditions of
service) Ordinance 2001, the audit of receipt and expenditure rests with the Auditor General of
Pakistan. Moreover, under section 14(c) of the

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Auditor General’s Ordinance 2001, he may call for such information as he may require for
purpose of the audit and the officer incharge of any office or department shall afford all facilities
and provide record for audit inspection and comply with request for information in as complete
form as possible and with all reasonable expedition.

However, Ministry did not provide the following record to audit for scrutiny:

• Issuance of Tax Exemption Certificates during 2006-07 (Protocol wing).

• Construction of Foreign Office Lodges at Islamabad during 2006-08.

In response the Ministry informed that the Deputy Chief of Protocol had been requested for
views/immediate action in the light of audit recommendations. Response in the case is awaited.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would provide the record within two weeks.

No record was provided till 1st July, 2009.

(Para- 78 of AIR MOFA (HQ) 2006-07)

PAYMENT WITHOUT MAINTAINING MEASUREMENT BOOKS FOR WORK COSTING RS 135.792

MILLION

In terms of Para 209-211 of Central Public Works Account Code, all work done by the contractors
were required to be measured and recorded in the Measurement Books for payment to the
contractors, being a permanent record.

The Project Director, High Security Block in Ministry of Foreign Affairs, Islamabad allowed
payments to the contractor amounting to Rs 135.792 million upto 21 st Interim payment
certificate but no measurement, as required under the rules, was made in the Measurement
Books. This resulted into non-maintenance of necessary accounting record and irregular
payment of Rs 135.792 million. Under the above conditions, possibility of duplication of payment
for work done by the contractor cannot be ruled out. Moreover, quality of work done cannot be
vouched in the absence of Measurement Book

In response to the audit observation, consultant M/s NESPAK stated that the operating contract
was not based on conditions of Central Public Works and was being operated under FIDIC
conditions of contract, according to which certified payments to the contractor included details
of measurements of the completed work items.

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The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would approach M/s NESPAK for provision of Measurement Books (MB) for verification
within one month.

Measurement book(s) was not provided for verification till 1st July, 2009.

NON-RECOVERY OF WATER AND ELECTRICITY CHARGES RS 8.775 MILLION

Ministry of Foreign Affairs awarded contracts for civil work and air conditioning of High Security
Block at Ministry of Foreign Affairs to two different contractors. According to Special provision
No.15.3.1 and 2 of the agreement, both the contractors were required to make necessary
arrangements for water and electricity services in connection with the installation, operation
and removal thereof and pay the cost of electricity and water consumed by all trades. In case of
failure to get temporary electricity connection, a power generating set was to be furnished at
sight to the satisfaction of the Engineer-in-Charge. On completion of the works the temporary
water services equipment’s and piping was to be removed by the contractor at his own expense.

It was observed that both the contractors failed to provide documentary evidence regarding use
of electricity and water in the project from which it is assumed that both used electricity and
water from the Ministry. CDA has also given the contractor, a notice for recovery of electricity
charges. Thus the government sustained a loss of Rs. 8.775 million on this account as detailed
below:

(Rs. in mill)
Total
S. Electricity Water
Contractor amount Remarks
No. charges charges
recoverable
The recovery of
electricity/water
M/s Recent charges was
1 Construction 2.718 2.036 4.754 calculated @ 2% and
Co. 1½% of payment
made up to 21st
running bill.
The recovery of
electricity/water
M/s Airtech charges was
2 2.298 1.723 4.021
Engineers calculated @ 2% and

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1½% of the
contracted amount of
Rs. 114.902 million

Total 5.016 3.759 8.775

It is requested that recovery of Rs 8.775 million on account of water and electricity charges may
be made from the contractors under intimation to Audit.
In response Ministry informed that the Project office has already solicited approval of Special
Secretary Ministry of Foreign Affairs for recovery from the forthcoming IPC of the contractors.
The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
recovery would be effected from the contractors and a committee constituted to investigate
the source of water and electricity used by the contractors and report within one month.

No response was received till 1st July, 2009.

NON-RECOVERY OF INCOME TAX AMOUNTING TO RS 0.918 MILLION

According to Income Tax Ordinance, 2001, Income Tax @ 6 % was required to be deducted
from each payment made to the contractor on account of work done or services rendered.
The Project Director, High Security Block made advance payments for Rs 18.900 million and Rs
15.300 million vide NBP cheque No. 229218 and No.0001392 dated 15.04.2008 respectively to
the contractor on account of purchase of cooling towers for installation of HVAC system at the
High Security Block. But Income Tax as required under the rules was not deducted. This resulted
into non-recovery of Income Tax amounting to Rs 2.052 million. In response Ministry informed
that upon recommendations of the project office income tax on 1st secured advance bill
amounting to Rs 1.134 million has already been deducted from the 2 nd Running bill of
contractor. The remaining amount of Rs. 0.918 million would be deducted from the next bill.
The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that
recovery already effected would be got verified by the Audit. Remaining amount of Rs 0.918
million would be recovered from contractor and got verified by Audit.

The recovery of Rs 1.134 million had been verified by Audit however, the progress on remaining
amount was awaited till 1st July, 2009.

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NON-INSURANCE OF WORKS COSTING RS 120 MILLION AND RECOVERY OF PREMIUM OF RS

1.2 MILLION @ 1 % OF CONTRACT COST.

According to clauses 21.1– 25 of agreement for construction of Rehman Baba

School at Kabul, the contractor was required, without limiting his or the employer’s obligations
and responsibilities under clause -20 to insure the works together with materials and plant. He
was also required to get third party insurance (including employer’s property) against liabilities
for death or injuries to any person or loss or damages to the property arising out of the
performance of the contract and provide such evidence to the employer prior to start of work.
The required policies were enforceable both in Pakistan and in Afghanistan.

Contrary to above, the Director General, ATDC, Ministry of Foreign Affairs, did not get Insurance
cover as per provisions of the agreement. In this way, the property of the Government
amounting to Rs 120 million was put to risk and the contractor saved about 1 % of contract cost
worth Rs 1.20 million (120 million x 01 %) of premium included in the bid offered. This resulted
into non provision of Insurance cover to the property of the Government costing Rs 120 million
and loss of Rs 1.2 million to government exchequer because the contractor failed to provide the
insurance cover as per contract but received the insurance cost from the Ministry. Therefore,
amount had to be recovered either from the contractor or from the person responsible.

The Ministry may clarify its position in this respect and recover the amount of Rs 1.2 million from
the contractor or the person at fault.

In response Ministry has informed that as far as insurance of project is concerned, no insurance
company can insure any property or project which is carried out on the soil of other country,
especially in Afghanistan where war like conditions exist. There is no insurance company/bank
operating in Afghanistan who can be requested to insure the project. Rehman Baba School is
not the only project which has been completed by the Government of Pakistan but there are
about 9 other projects which are being carried out and none of them is insured as desired.

The issue was discussed in the DAC meeting held on 30 th May, 2009. It was decided that the
Ministry (ATDC) would provide detailed justification for non implementation of the insurance
clause within one month.

Nothing was provided to audit till 1st July, 2009.

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IRREGULAR EXPENDITURE ON LIGHT REFRESHMENT AMOUNTING TO RS 1.080 MILLION

The officers (B-20 and above) of the Ministry of Foreign Affairs are in practice to submit a
fortnightly requisition slips to the comptroller banquet hall of the Ministry for provision of light
refreshment without indicating details of meetings and number of participants which was
against the Government instructions contained in Sl.No. 9 (38) of annexure to the Finance
Division O.M. No.

F.3(2)exp/III/2006 dated 13.09.2006 while the officers draw entertainment allowance along with
their salaries.. Further the expenditure was debited to the Grant-54 of the ministry which was
meant for Prime Minister/President’s visits abroad and delegations.

Ministry had incurred a sum of Rs.1.080 million on light refreshments during 2006-07. In the
absence of record/details of meetings, the whole expenditure was held irregular. It was
requested that the expenditure incurred on this account may be recovered from all concerned
under intimation to Audit.

The issue was discussed in the DAC meeting held on 30th May, 2009. It was decided that the
Ministry would pursue the matter.

No progress was reported till 1st July 2009.

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Comments on Internal Controls

Internal control system is the most effective tool of management for good governance and for
effective use of available resources. The internal control mechanism in the Ministry of Foreign
Affairs and allied formations abroad is primarily regulated through the instructions prescribed in
the Manual of Standing Orders 1981, and the Financial Management at Missions Abroad, Vol-I
and II.

As per practice in vogue, CAO (MOFA), who is pay master of the Ministry is conducting internal
check of Ministry / Missions as well which is against GFR & International Auditing & Accounting
Standards. Being responsible to maintain accounts, he can’t effectively perform internal check
functions due to conflict of interest. Moreover, the ineffectiveness of some of the controls and
the no adherence to rules was reflected during Certification Audit and were also detected during
test audit exercise. The following instances were reflective of poor internal controls:

1. Non adjustment of advances;

2. Non-recovery of Government dues;
3. Payment of allowances to the employees not authorized to receive these allowances;
4. Procurement of stores in a non-transparent manner.

The concerned Principal Accounting Officer is requested to:

1. Introduce independent internal check system to strengthen its internal controls by

establishing its own Internal Audit Wing.
2. Ensure capacity building of officers and staff at the Ministerial level as well as in the
Missions abroad so that all concerned are aware of the relevant and existing rules and
regulations relating to management and financial procedures;
3. Ensure that the irregularities and procedural lapses detected during test audit are
considered as indicators for an exhaustive departmental effort to determine all other
identical cases for potential remedial and corrective actions under intimation to Audit.
4. Make arrangements for prompt recovery of Government dues, wherever applicable, and
their credit to Government Treasury.

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RECOMMENDATIONS
1. Principal Accounting Officer should take necessary steps to evaluate, institute and
strengthen the management, budgeting and accounting controls to achieve the following
objectives:

i) adherence to the regulatory framework and canons of financial propriety which

require public officers to exercise the same vigilance in respect of expenditure
incurred from public money as a person of ordinary prudence would exercise in
respect of expenditure of his own money;
ii) prompt recovery of Government dues, wherever applicable, and their credit into
Government Treasury;
iii) mechanism devising for timely adjustment of advances granted to
individuals/various Ministries/Departments

2. The Principal Accounting Officer should also take immediate steps to:

i) strengthen the budget management system at Headquarters and Missions

abroad.
ii) effect recoveries of Government dues as pointed out in the report.
iii) get the expenditure on irregular payments regularized, as pointed out in this
report, from the competent authority.
iv) Either Ministry of Foreign Affairs should follow prescribed rules/regulations to
ensure transparent and economic procurement through open tendering or seek
exemption from PPRA whenever required.

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Financial statement
Income statement, balance sheet and statement of cash flows

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Schedules of commitments and contingencies

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