What do you expect from state owned companies. There’s almost zero accountability. Common man has to pay for it while crooks higher up almost can get away with anything.
http://brecorder.com/story.php?css=brecord.css&story=0000652114&m=0&s=0
Management of Pakistan Telecommunication working capital in a shambles: Auditor General’s report for 1996-2001
SOHAIL SARFRAZ
ISLAMABAD (November 11 2002) : While terming current financial health of Pakistan Telecommunication Company Limited (PTCL) as not good, the Auditor General has observed that the telecom giant was apparently not in a position to pay its current liabilities in case of sudden liquidation as management of PTCL working capital was in a shambles.
Financial analysis of the published accounts of PTCL from 1996-2001 showed flagrant violation of rules, ill-planned investments, irregular purchases through banks, non-recovery of telephone losses, constant decrease in revenue from telex/telegraph and misappropriation/leakage of revenue. However, irregularities accumulated to the tune of Rs 29 billion from 1991-1992 to 1995-96.
The company lacked resources to pay long-term loans being inadequate liquidity. The audit has recommended thorough probe into the matter, particularly when the company showed handsome profits.
It was observed that PTCL not only violated Income Tax Ordinance, 1979 for not paying income tax but was also involved in the overstating cash balance (current assets) and payables (current liabilities) in the balance sheets.
The company was also unable to pay due central excise duty (CED) to be recovered through telephone calls billed to the customers. An amount of Rs 3587.154 million was shown recoverable in 1999 on account of CED from PTCL consumers. Instead of gearing up efforts, 39 percent of the total amount (Rs 1407.927 million) was charged to profit and loss accounts.
AG office says, “It can be determined safely that actual revenue of the company was reducing. Due to increase in services and rates, the revenue collection should have shown an upward trend, but on the contrary it went down. It is interesting to note that the company is enjoying monopoly situation but this advantage is not being properly capitalised”.
The audit recommended that PTCL must plug the leakage of revenue, strengthen the internal controls, minimise dependence on borrowing, rectify accounting irregularities and all assets of the company should be fully utilised whereas the doubtful transactions be investigated at ministry’s level.
The audit was surprised to note that major chunk of the company’s revenues was going to salaries and benefits of the employees, dispute the fact that there was no pay increase during this period and a ban remained imposed on fresh recruitment.
Despite huge revenues, the company was depending on heavy loans from banks and heavy service charges were being paid on them.
There was continuos increase in long-term investment from 1997-2001 despite the fact that the company was facing shortage of working capital and had to resort to short-term borrowing from commercial banks. The interest rate of these loans are very high as such investment indicate bad financial planning and mismanagement of funds.
The audit noted that the revenue from telephone charges was increasing each year, but it was not due to increase in units sold. The revenue showed increase following enhancement of local call rates, line rent and installation charges. It was also observed that the company failed to increase its revenue in proportion to increase in rates. Only in 2000-2001, the situation worsened as the company had increased local call charges and line rent by 9.83 percent and 20.09 percent respectively but the revenue per line decreased by 0.57 percent.
The balance sheets of PTCL as on June 30, 2001 showed that there was net increase amounting to Rs 1,574.941 million in long term investments during 2001. But the cash flow statements for the same period showed the net cash outflow of Rs 1534.340 million due to net increase in investment and return thereon. There is a difference of Rs 40.601 million in the two statements, which impair the reliability and correctness of the financial data made available with the PTCL.
It was noted that the continuos increase of balances under ‘doubtful debts’ indicated that the management failed to collect the old outstanding debts. In 1999, an amount of Rs 268,475,000 was written off as bad debts while the company’s receivables increased each year.
Profit and loss accounts of PTCL from 1997-2001 showed that a sum of Rs 1063.506 million had been charged for diminution in value of investment, which was made in PTCL’s subsidiary companies. This reveals ill-planned investments resulting in losses. The management did not foresee such losses and plunged into bad investment especially in 1999 and 2000.
The profit and loss account of PTCL for year ending June 30, 2000 indicated that a sum of Rs 7603.093 million was charged to income of the company account of “Effect of Changing in Accounting policy”. The details of such accounts were not available, which needed justification by the company.
Similarly, the profit/loss account for year ending June 30, 2001 showed that ‘return on deposit’ amounting to Rs 983.021 million was included in other incomes for the year. The cash flow statement for the same period indicated cash generated from return on deposit is Rs 769.783 million. The difference of Rs 113.238 million should have been shown as receivable in the balance sheet as the cash flow was not received for the same. Whereabouts of the said amount were not known from the accounts of the company.
The Auditor General’s internal audit report of 1999 pointed out weaknesses in the Accounting System of the PTCL. According to this report, no response was given to its observations by the PTCL authorities. It pointed out irregularities related to billing, embezzlement connivance of PTCL staff in losses, irregular payments, losses casual and free service telephones etc. It was also reported disciplinary action was initiated against involved officials.
Position of internal controls becomes further clear if audit reports of 1990-91 to 1995-96 are perused. Irregularities amounting to Rs 29,015.904 million were pointed out in them. These pertained to losses, leakage of revenue, irregular and doubtful expenditures, misappropriations and frauds.
In the absence of strong internal controls, performance of the Company given in the financial statements cannot be depended upon. It is disturbing to note that in the absence of strong internal audit, Auditor General’s audit and internal controls, Company is getting free hand to handle its financial and administrative matters according to the whims and caprice of a few at the helm of affairs.
Copyright 2002 Business Recorder (http://www.brecorder.com)