The Auditor General of Pakistan (AGP) has uncovered significant financial irregularities, non-transparent procurement practices, and unauthorized expenditures within various defense service formations. The AGP has urged relevant authorities to enhance internal controls and launch investigations to establish accountability.
In its audit report for the fiscal year 2023-24, which focuses on the accounts of Defense Services, the AGP documented over 300 pages of audit objections. These objections include issues such as non-recoveries, excessive and premature payments, irregularities related to procurement, state losses, and the failure to produce necessary records.
The report highlights that the Ministry of Defence operates under a single-line budget grant, which is allocated among the Ministry of Defence Production, Service Headquarters, Inter-Services Organizations, and the Strategic Planning Division. Under the Ministry’s supervision, the Army, Navy, and Air Force are primarily responsible for defending Pakistan’s territorial integrity and assisting civil authorities when needed.
The audit reviewed expenditures totaling Rs566.29 billion, covering Rs335.63 billion in the latter half of the 2022-23 audit and Rs230.66 billion in the initial phase of the 2023-24 audit.
According to the report, numerous issues were identified, including non-compliance with Defence Services Regulations. Specific problems involved advance payments before work completion via Running Account Receipts (RARs), splitting of financial powers to avoid scrutiny, failure to recover rent and allied charges, non-deduction of applicable taxes, breaches of public procurement rules, non-adherence to A-1 land policy, and execution of unauthorized projects.
The report also noted that the Defense Services were initially allocated a budget of Rs1.563 trillion for the fiscal year 2022-23, which was later increased to Rs1.592 trillion through supplementary grants. The AGP expressed concern over the historically poor compliance with audit objections, pointing out that efforts to rectify and regularize accounts have been insufficient over the past 40 years.
Presenting a detailed account since 1985, the AGP reported that the Ministry of Defence had only adhered to 659 out of 1,974 directives issued by the Public Accounts Committee (PAC) of the parliament, indicating a sluggish pace in addressing PAC directives. The report called on the principal accounting officer to take urgent measures to expedite compliance.
The Ministry of Defence Production’s performance was similarly lacking, with compliance achieved on only 109 out of 372 PAC directives.
The report stressed that the principal accounting officer, typically the federal secretary of the relevant ministry, should accelerate efforts to adhere to PAC directives, emphasizing the importance of safeguarding public funds.
The report also noted irregularities in the procurement process within specific Army formations. Records showed that procurement was often conducted in violation of relevant regulations, with procurement and contract jobs sometimes divided and awarded to favored contractors or suppliers on the same day, bypassing transparent bidding procedures.
In certain cases, when questioned by auditors, management claimed that procurement notices were posted on the Public Procurement Regulatory Authority (PPRA) website but omitted simultaneous newspaper advertisements, citing the classified nature of the defense work. Additionally, bids were occasionally not solicited due to the urgent nature of store procurement. However, auditors pointed out that exemptions from procurement rules require authorization from the defense secretary, the principal accounting officer, which was neither obtained during procurement nor following the audit.
The report emphasized that responses from the relevant authorities were insufficient, as they failed to provide documentary proof of advertisement via the PPRA. The audit reiterated that only the defense secretary could approve exemptions from Public Procurement Rules in cases involving sensitive or urgent procurements, but such approval was not sought or granted.
The AGP noted that the Departmental Audit Committee (DAC), comprising auditors and relevant authorities under the supervision of the federal secretary, had recommended convening a court of inquiry or initiating fact-finding investigations to assign responsibility. The DAC also advised that expenditures be regularized by the competent authority. However, these recommendations had not been implemented by the time the audit report was finalized.
As per procurement regulations, any procurement exceeding Rs500,000 should be advertised on the PPRA website following prescribed procedures. The audit of Army formations for fiscal years 2021-22 and 2022-23 found numerous violations of these rules.
In one instance, in response to audit objections, management stated that procurements during a financial year were conducted using a comparative statement (CST) from a depot without deviation. This claim was found untenable, as no CST approval documentation from the depot was provided. The audit also uncovered evidence of favoritism, with orders issued to different contractors at the same rate.
In another case, an Army School used funds for the renovation of a Foreign Trainees Mess Shed and the procurement of stores without formal contract agreements or cost estimates. This work was conducted without the necessary approvals from Military Engineering Services (MES), rendering the expenditure irregular.
Furthermore, the audit revealed that in one Army formation, purchase orders were issued to contractors at prices nearly triple the lowest bid, disregarding the competitive bidding process.
The Directorate General Procurement Army rules require a thorough inspection of all items at each consignee department, with an additional 5% super check by the competent authority. However, the audit noted that cash receipt vouchers (CRVs) were issued without actual receipt of items, and the 5% super check certificates were also issued without verification.
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