|The Staturoy Auditors (Charttered Accountants) are required to furnish a detailed report, in the long form upon various aspects including the internal control systems of the functioning of the Company audited in accordance with the directions issued by the Comptroller and Auditor General of India to them under Section 619(3) (a) of the Companies Act, 1956 and to identify areas which needed improvement
An illustrative resume of major recommendations made or opinion expressed or comments made by Statutory Auditors on possible improvement in the accounts and system of control of some of the 266 Central Government Companies in existense as on 31 March 2001 and audited by them, is compiled by the office of CAG in Report No. 02 of 2002. We are reproducing the recommendation / opinion or comments compiled in the above mentioned report for the benefit of the readers on the following:
- Indian Petro-chemicals Corporation Limited
- Hindustan Fertilizer Corporation Limited
- Airports Authority of India
- Bhart Earth Movers Limited
|Current liabilities did not include Rs. 8.36 crore being the interest payable to Oil Natural Gas Corporation Limited (ONGC) on payment of arrears in instalments relating to revision in price of ethane / propane supplies, as per the agreement. This resulted in under-statement of current liabilities and over-statement of profit for the year by Rs. 8.36 crore.
Management stated that Company paid arrears to ONGC by June 2000 before signing of the agreement on 11 July 2000. As such their claim of interest was not tenable.
Reply of the management is not tenable, as ONGC had agreed in December 1999 to receive the price revision arrears in instalments subject to the payment of interest. In April 2000, ONGC raised a debt note on the Company towards interest payable up to 31 March 2000.
|Net los for the year was understand by Rs. 1.90 crore in view of the followinig:
- Non-provision of anticipated future loss of Rs.1.17 crore to be incurred on disposal of project leftover inventory.
Management stated that times of surplus stores was intended to put on sale through auction-cum-tender to the actual users of such items through Metal Scrap Trading Corporation Limited (MSTC). The reasonable price as was expected from the scrap dealer could not be fetched. As such, making provision for any loss on the basis of quotation for scrap dealer would grossly under-state the value of such items.
The management contention is not tenable as the spares were lying since 1982 and in this case, loss could be assessed on the basis of information available from auction undertaken by a Government organisation - MSTC on 4 December 2000.
- Non-provision of Rs. 0.73 crore on account of claim the recovery of which was doubtful.
Management stated that since the matter was pending before arbitration, the uncertainty of recovery at this stage was not ascertainable. The had also been disclosed in the Note to Accounts. The reply is not teneable as the matter was under litigation and it should have benn provided for.
- Capital reserves were overstated to the extent of Rs. 90.04 crore, being the grants received for meeting the part cost on the creation of fixed assets of the Authorit, which should either have been shownnas deduction from the cost of the assets or as deferred income to be treated as income in the Profit and Loss account over the useful.
- Current liabilities were understated by:
- Rs. 73.59 crore due to non-inclusion of amoung payable to State Governments for police guards deployed for anti-hijacking for ther period prior to January 1997; and
- Rs. 4.16 crore due to incorrect calculation of interest on working capital loan
- Provision for income tax was understated by:
- Rs. 78.88 crore on account of income-tax Rs. 22.01 crore and interest thereon Rs. 56.87 crore due to difference in the amount of depreciation (including extra shift depreciation) as claimed in the income tax returns vis-a-vis the amoung of depreciation admissible under the Income Tax Act, 1961; and
- Rs. 9.66 crore, being the income=tax (Rs. 7.67 crore) and interest thereon (Rs. 1.99 crore) due to non-deduction of TDS on canteen subsidy paid to employees in violation of the Income Tax Act, 1961.
- Physical verification of Fixed Assets had not been done in some of the offices and wherever it was done the relevant reports were not produced to audit.
- The area of land under actual possession at southern and western region in respect of National Airports Divisions (NAD) and Calcutta International Airport could not be ascertained in the absence of detailed land records with the Authority.
- 1024.95 acres of land was under encroachment and physical possession of 112.49 acres of land at Delhi could not be taken due to encroachment though acquisition cost had been paid. Further, 35 acres of land at Mumbai airport was under dispute.
- Cost of permanent buildings was overstand by Rs. 1.30 crore due to wrong classification of revenue expenditure as a capital expenditure. This resulted in over-statement on depreciation by Rs 10 lakh and under statement of profit by Rs. 1.20 crore. This was also under-stated by Rs. 2.48 crore due to non-capitalisation of expenditure of capital nature.
- Plant and equipment were understated by Rs. 136.87 crore due to non-inclusion of (i) losses of Rs. 86.86 crore on account of exchange fluctuations on loans borrowed to finance a project (ii) interest of Rs. 44.53 crore paid on loans borrowed to finance a project, and (iii) TDS of Rs. 5.48 crore paid as an obligation of the Authority on behalf of financing aganeices that financed a project.
- Capital work-in-progress was overstated by Rs. 2.54 crore being the amount advanced to CPWD against which no details were furnished by them. The same was further overstated by Rs. 9.99 crore, being the cost of equipment already installed.
- Sundry debtors were overstated by Rs. 88.10 crore due to inclusion of:
Licence fee of Rs. 39 lakh shown recoverable from oil companies but disputed by the latter; and
dues of Rs. 87.71 crore from various Government departments in contravention accounting policy no 8.s
- Deposit, loans and advances considered good and in respect of which the Authority was fully secured included an amount of Rs. 257.24 crore in respect of which the Authority did not hold any security. The deposit, loans and advances were also overstated by Rs. 2.21 crore, being the cost of CISF inducted at various airports to be met by the Authority itself.
- The profit was overstated by:
- Rs. 77 lakh due to non-inclusion onf interest leviable on the delayed payment of tax on dividend, under Section 115 (0) of the Income Tax Act.
- Rs. 6.39 crore due to short provisioning of interest on the loan portion of commencing capital resulting from adjustment of repayments in violation of decision no 1 (iv) under Rule 155 of General Financial Rules, and
- Rs. 1.75 crore (current year Rs. 58.62 lakh) due to non-billing of Route Navigational Facilities Chartes (over-flying) on various airlines
- Non-traffic revenue was understated by Rs. 6.54 crore due to wrong billing and non-raising of bills on the parties.
- Miscellaneous income was understand by Rs. 69.53 crore (current year: Rs. 16.26 crore) due to Authority's failure in raising bills on Air India Limited and Indian Airlines Limited which were likely to be privatised in near future.
- Notes forming part of the accounts did not indicate that the arbitration proceedings were going on between National Buildings Construction Corporation Limited (NBCC)and the Authority and that NBCC had preferred counter claims of Rs. 151.08 crore against the claims of Rs. 119.02 crore preferred by the Authority.
- Accountinig policy no 7 of the Authority was not correct since it allowed charging of the full value of purchases of stores and spares made during the year irrespective of actual consumption thereof.
Reply to the audit report on the accounts for the year 1999-2000 was not made available by the Authority to audit as the report had not been placed before the Board.
- As per AS -13 the current investment (short term investment) is to be valued at lower of cost or fair value. The investment of Rs. 4.96 crore in US 64 scheme of the Unit Trust of India (UTI) held by the Company had been valued at fair value as on the Balance Sheet date. However, the value of investment had been eroded considerably and sale and redemption was suspended by the UTI during the period between Balance Sheet date and the date on which Board of Directors approved the financial statements. This had not been disclosed as required in para 15 of AS -4
Management stated that since the scheme was under suspension by UTI , the losses, if any, could not be quantified.
Reply is not acceptable as if the losses could not be quantified, disclosure of the event that represent material change affecting the financial position of the Company, should have been made as required in AS - 4
- Inventories included Rs. 1.11 crore being the cost booked for a work order pending for the last 9 years for want of customer's order. Non-provision resulted in cover-statement of work-in-progress and profit by Rs. 1.11 crore
Management stated that the materials drawn against this work order were physically available and not considered as obsolete and hence not considered for necessary provision. The material would be consumed when customer order materialises.
Reply is not tenable as the Company had not manufactured the equipment after 1991-92 and there was no production plan to manufacture the equipments in 2001-02 also.
- Raw material and components included Rs. 2.94 crore being the value of inventories pertainig to equipment not moved for the last five years. Non-provision for obsolescnce had resulted in over-statement of inventories and profit by Rs. 2.94 crore.
Management stated that due to market conditions, the market off-take had been slow. The material inputs were in good condition and hence not considered obsolete.
Reply is not tenable as the Company was carrying the inventory for the last five years, hence suitable provision for obsolescenece for non-moving material was required to be made.
- Income was overstated by Rs. 5.41 crore being the sales set-up on FOR destination was not fulfilled as of 31 March 2001, accounting of such sales resulted in over-statement of sales and Sundry debtors by Rs.. 5.41 crore with over-statement of profit by Rs 2.24 crore and under-statement of inventories by Rs. 3.17 corre.
Management stated that the sales had been set-up within the ambit of Accounting Standards by fully complying with the requirements there under and consistent with accounting policy being followed.
The reply of the Management is not tenable as the contractual obligations regarding FOR destination sales were not fulfilled as on March 2001.
|An ideal cannot wait for its realization to prove its validity
- George Santayana
|Don't look back Somebody might be gaining on you
- Satchel Piage