The stink of the state sector

While controversy swirled over the fate and alleged government inaction on the first report of the parliamentary Committee on Public Enterprises (COPE), the select committee on Friday issued another bombshell report, highlighting frauds and other malpractices running into about 6 billion rupees in 20 state institutions

Securities and Exchange commission. The committee observed numerous shortcomings in the Ministry of Finance in regard to the poor coordination between, the Secretary to the Ministry and the Commission.

The Secretary to the Ministry has failed to take appropriate steps to assure that all vacancies in the Commission are duly filled at the proper time. The Committee observed that only eight out of ten vacancies have been filled at the date of examination and the two vacancies has been kept vacant for more than ten months.

Violations, inside dealings and market manipulations have created serious doubts in the minds of the general public damaging the credibility of the institution

The target for market capitalization was to enhance it up to 50% of the G.D.P. and they have achieved only 34% as at the end of the Year 2006. The target for market turnover was to increase it annually by 50%. However the achievement was only 21% increase in the year 2001 and was a decrease by 8.2% in the year 2006, showing a downward trend as per the reported statistics.

The Committee found that surplus funds amounting to Rs.521 Million held by the Commission as at 31st July 2006 without sufficient attention. Only a portion of that surplus has been transferred in between August and December 2006.

When the Committee questioned the suitability and the appropriateness of Blue Chip companies into Sri Lankan economy, it was found that the Commission has not paid due attention over such current issues.

The Committee observed that NTC does not have an acceptable corporate plan. In the cause of examination it was found even the planned targets had been realized to the extent less than 20%.

The Committee found that the performance of reviewing the timetables also was very poor, it was targeted to review 30 (thirty) time tables during the year 2006. However the NTC had attended only four out of that targeted amount in that year.

It was observed that there were 442 and 23 such route permits issued in the year 2004 and 2005 respectively without following the stipulated procedure.

It was observed in the examination that the average run of a bus is less than six hours per day while a bus is in standby and awaiting position around 18 to 20 hours per day. It was evident that most of the buses were assigned to travel around 100 to 120 kilometres per day. Under these circumstances the Committee is of the view that while there is a high demand for public transportation there is no proper system to monitor whether they deliver the best transport service.

Furthermore the Committee noticed that the financial results as well as financial status of the NTC are deteriorating year by year. The excess of expenditure over income was Rs.44 million in the year 2005 and this unfavourable gap has widened in the year 2006 to the extent of Rs. 61 million.

The operational cost of the commission in the year 2006 was Rs.120million. The treasury has funded Rs.35 million and the NTC had generated internally only Rs.25 million for the day-to-day operational cost. As the treasury had to provide another Rs. 65 million for the capital expenditure of NTC, the full provision of the treasury has increased to Rs.I00 million in the year 2006 when that cost is compared with the service provided by the NTC.

The Committee observed that there is a shortage of staff. Out of the approved carder of 150 for the post of Investigative Officers, there are only 67 Officers, which represent 44% of the approved carder.The Committee found in the cause of examination that there is a Council consisting of 3 full time members and they were referred only 8 cases during the year 2006.

It was also observed that the Council has no administrative and financial capability to carry out their functions even to make aware to the public that there is such a separate Council. It was further observed that the Authority had not provided even a telephone, chairs and peons to the Council. It felt that the Authority is not making use of the council at least at the minimum level.

The Committee examined following facts connected with the disputed payments of compensation to the Mavilaru farmers. For the first instance 3,106 farmers had reported damages in respect of 7349 acres. The Treasury had granted Rs.176 million for this purpose and a sum of Rs.124.35 million had been paid for 2,917 farmers at Rs.25,000 per acre up to the date of examination. Subsequently a further 3000 appeals were received and those had not been put in to process due to the non-availability of funds.

The most significant issue is the deteriorating financial viability of the fund. Operating results of the fund had diminished from a surplus of Rs. 59.7 million in the year 2003 to a deficit of Rs.257 million in the year 2006. Despite this serious situation the fund had not paid adequate attention to assure whether the Regional Agents or the Regional Officers are remitting their collection of insurance premium to the Head Office promptly. The Auditor General also had observed that Rs.3.6 million collected by the regional office had not been received by the Head Office and the Head office had not yet taken remedial action on this.

SLCC had been running at losses since the year 2002 up to now. The Committee noted that the accumulated loss as at 31st December 2006, was Rs. 60.02 million.

SLCC, Corporate Plan for 2005 -2009 stated that in 2009 productivity would be brought up to the level of 650kg/hec, but the strategies were not given and currently the productivity level had been far below the average local productivity level. In 2006, productivity level of SLCC was 174 kg/hec, but in 2003 it was 289 kg/he.

The Action Plan of the Corporation stated that in 2006 it could be expanded up to 525 acres of nurseries but failed to reach up to at least 40%.

Most of the senior posts such as Deputy Directors and Assistant Directors remain vacant for a long period. It was revealed that the coconut industry is badly affected and production 'is declined due to fragmentation of coconut estates and there had been an undue delay on the part of the Authority and the Legislature to introduce relevant laws to safeguard coconut estates. As a result, the coconut production has come down to 2.75 billion nuts in 2006 and 2.54 billion nuts in 2005, whereas it had been 3.1 billion in 2000. To make the country self sufficient in near future it should be targeted to produce 4 billion nuts. But the Authority has no strategy as to what actions are to be taken to increase the production.

It was revealed that the export market had seriously declined by following percentages; coconut oil - 32%, desiccated coconut - 38%, coconut milk-16%, coconut fibre - 38%, coconut arrack – 44% vinegar- 88%. But the Authority had failed to give a satisfactory clarification to the Committee to the effect that they have any strategy to regain the export market.

The dividends and interests paid to the members of the ETF for the year 2005 had been reduced to 8.5% and that reduction was due to insufficiency of the profit earned during the year 2005. Now the Board has sought approval of the Ministry of Finance to increase it to 10%. Since the Board’s profit had been increased in the year 2004. The profit had been recorded as 4415 million Investments amounting to Rs.34 million had been written off against the profit for this year under review as finance expenses.

The expenditure incurred amounting to Rs. 1,433,054 for laying the foundation stone for the construction of the Navam Mawatha Head Office building and that expenditure had been shown as capital expenditure of the accounts of the Year 2005.

Identified losses of a sum of Rs. 1,401,250 had been spent for a case filed against the Board by employees as the Board had made some appointments without adhering to the approved scheme and subsequently those appointments had been cancelled. A sum of Rs.7, 193,250 had been paid as an advance for obtaining a building without calling quotations and this money had been in the custody of the particular company and therefore Board had lost a sum of Rs.530,000/-.

The SLRC has ordered to purchase a huge stock of videocassettes to be used at the tenth SAF Games held in Sri Lanka in August 2006, but the stock of videos had reached the SLRC only after the conclusion of the games. Similarly it was observed that certain equipment ordered for the same purpose had reached only after the conclusion of the event and a sum of Rs.166 million had been spent.

An outstanding Rs. 28 million from the Department of Election Commissioner was taken into consideration and the Election Commissioner had made a representation that the SLRC was obliged to bear the cost. The Committee accepted the justification he has made and insisted to take legal action to recover the rest of the outstanding amount Rs. 6,62,259,684.

The Authority had sold a circuit bungalow with an extent of 2100 square feet, which is on the 7th floor of the Liberty Plaza building to the Ocean View Development Company (OVDC), for a sum of Rs. 9 million. The valuer had valued the bungalow for Rs. 11.52 millions. But the sale has been done for Rs. 2.5 million below the valued price. The price for a square foot had been Rs 4000 while the market price for a square foot in the area is selling at about 1. 5 mil1ion.

The amount of bad debt in the NHDA since 1984 accounts for Rs. 3217 million. According to the reports of the Ministry of Finance the annual income of the Authority is Rs. 519 million in 2005 and the recurrent expenses is Rs. 823 million. The annual income of the Authority is not sufficient even for its day-to-day maintenance. The land in Kirimandala Mawatha which is worth about Rs. 4 billion had been sold for Rs. 75 million for an ECO Housing Project even without a Cabinet approval.

They lack high ranking executive officers such as the Deputy General Managers (03 vacancies), Additional General Managers (18 vacancies), Senior Managers (24 vacancies) and Manager Grade iv (32 vacancies).

Annual audit reports for 2005 had not been completed by the private audit firm as the answers were not given for the audit queries raised by the firm. Although there is an increase of the annual income compared to the previous year, Rs. 37 million annual income for 2004 is little for a corporation. The Corporation has entered to an agreement with an NGO called Lorance Friendship Organization and the NGO had paid Rs. 328 million to supply building materials for a tsunami housing project in 2005. But the Corporation was able to supply hardly any sacks of cement and had to repay the full amount back to the NGO.

The Committee examined about the debt management system of the SLBC and it was noted that debts remained unrecovered as at 31st December 2006 amounting to Rs. 66 million. Moreover the Committee found out that no prompt action had been taken with regard to 24 dishonoured cheques amounting to Rs. 919,794 and uncashed money orders amounting to Rs.641,881.

The Committee noted that the accumulated loss of the SLBC as at 31 December 2005 was Rs. 694 million and the SLBC had utilized bank overdraft facility for financing the loss. The Committee was highly concerned about the non availability of an Internal Auditor in the SLBC.

It further observed that 120 recruitments were made on relief basis in 2006 while the total cost of employment had increased by 34% during the year and the total cost of employment had been 73% of the total revenue of the SLBC.

The Committee observed that the council had spent 85% of their total expenditure on establishment and administrative expenses and only 15% had been spent on the main objective of youth development. The Committee feels that the Council should find ways and means to increase their internal income as the Government cannot grant around Rs. 200-300 million every year.

The Committee has found that the company had not planned for any alternative avenue for revenue such as commercial printing. It has also been observed that the company has a land to the extent of 8½ acres at Hokandara that had been idling for over 10 years. The committee extensively examined the inefficiency of the unsatisfactory debt recovery processes as huge amounts of debts have been shown as static for a long period. Debts amounting to Rs. 70.9 million have remained unrecovered for over one year.

The Corporation had no formal channel in operation to get information about unauthorized fillings of marshy lands. At present it depends on complaints received hardly from the Agrarian Service officers, the Police and the affected public. The Secretary to the Ministry also accepted the lapses in this regard.

The Committee also observed that certain projects carried out by the government had also caused flood situations in addition to the other factors. For example, the Corporation had pointed out the temporary structures constructed for the express way across the “Dadugan Oya” Ja- ela had caused the floods that occurred in that area.

The Committee seriously noted that the Corporation had neglected one of the main objectives of prevention of floods and it was unable to prevent even Colombo city from floods. The Committee observed that the Company had suffered continuous losses since 2003. According to the Auditor General the loss for the year 2004/2005 was Rs. 2.7 million.

The Committee discussed about the non-availability of a proper debt recovery system in the Corporation. As it was evident in the cause of examination, out of total debts amounting to Rs.314 million, Rs.199 million or 63% had remained outstanding for over one year of which Rs. 51 million had remained non-moving for over 5 years.

The Committee also observed that staff transfers had not been done for 10-15 years, which is reflecting inefficiency and inappropriateness of the administration of the Authority. The Committee further observed that only 3 Audit and Management committee meetings had been held from February 2004 to end of the year 2006 and noted that this is a serious lapse in exercising good governance concepts. In addition 20 Audit Queries issued by the Auditor General during the period 2004 to 2006 had remained unreplied.

The Committee observed that the Authority had created a fund by collecting 25% of the gem export income from 2001, for the establishment of a laboratory for certifying gems and under this arrangement they have collected funds amounting to Rs. 92 million. However the laboratory had not been set up even as at end of 2006, resulting in adverse effects on sale of gems locally as well as internationally.

The Committee further observed that the Authority had not taken action for the safety of the workers involved in this industry as required by section 1 of the Gem and Jewellery Authority Act. It was noted that there were around 500,000 workers in the industry at present.

The Committee noticed that 50% of the overall cost is spent as establishment cost. The EDB has requested for an allocation of Rs. 960 million for 2006 but had received Rs. 533 million and out of that Rs. 223 million; almost 50% had been spent, as administrative expenses.

The Committee found out that the EDB had participated in 24 foreign trade fairs at a cost of Rs. 72 million and the total number of persons participated was 205 including the enterprise people. The Committee felt that the resulting benefits were not satisfactory at all when compared with the expenses incurred.

The Committee questioned the present position with regard to the payment of compensation for the employees returned to Sri Lanka due to the war situation that prevailed in Kuwait. The committee found the following information regarding above matter.

Payment of compensation had been started in 1991. Out of 94,820, the total number of applicants, 89,263 applicants had been paid compensation. At present there is a balance of 11,130 applicants to be paid compensation and Rs. 1627.4 million remains with the bureau to meet this expenses.

The committee turned its attention to the memorandum of understanding signed between the Governments of South Korea and Sri Lanka. It was for the serious concern of the committee that although the bureau had obtained 11,000 job opportunities during 2005 and 2006, it had been able to send only 5330 people for these jobs.

The committee’s serious attention was focused on the selection of the welfare officer who has been presently deployed in Korea. It was reported that this officer does not have the knowledge of the Korean language and the committee’s concern was that what kind of service can be expected from a person in that calibre which involves a lot of conversations with Korean authorities.
There had been another instance which drew the attention of the committee that two persons who are above 65 years had been appointed as welfare officers in foreign countries.

The Committee noted that for 2007 recurrent expenses were estimated at Rs. 82 million and out of that, Rs. 47 million was for the salaries. Southern Development Authority had invested Rs. 43.888 million 2005 in the Venture Capital Company Limited with the purpose of granting loans and the above said company has been showing in the balance sheet only Rs. 42 million. It also showed continuous loss making due to not recovering the granted loans. The committee is seriously concerned that this was an utter wastage of the government money and advised them to recover the non performing loans

In 2000, the Ruhuna Development Bank had invested Rs. 104 million in Vanik Incorporation and they have withdrawn Rs.79 million out of it. The balance Rs. 25 million and the relevant interest had not been able to be withdrawn due to the insolvency state of the Vanik Incorporation. It is said that Rs. 25 million and interest receivable at the rate of 14% is going to be a loss to the Ruhuna Development Bank.

The officers of the Ruhuna Development Bank categorically stated that they have not received the said report up to the time of the meeting. Consequent to this serious lapse action could not have been taken on the recommendations made in the report. According to the Ministry Officials present, the report reveals that there had been serious discrepancies taken place in decision making by the Finance Manager and some contradictory decisions had been arrived at by the General Manager and the Board of Directors. In addition the Vanik Incorporation had issued dated cheques in the name of the Ruhuna Development Bank in settling the dues.

Another serious event reported by the above report is that there had been shares in the Vanik Incorporation in the names of the General Manager and the former Chairman of the bank.

Having considered the above mismanagement of the Ruhuna Development Bank, the Chairman was issued with the following directives.

a) Lodge a complaint with the Criminal Investigation Department within a period of two weeks regarding the investment of nearly Rs. 100 million in the Vanik Incorporation in fraudulent nature and the personal accounts of the General Manager and the former Chairman being credited concurrent to the above investment.
b) The General manager be disciplinarily dealt with if he has taken any illegal or undisciplined action in the above investment process of 100 million rupees in the Vanik Incorporation and report to the committee of the out come.
Mahapola Higher Education Scholarship Trust Fund

In 2003, the management of the trust had entered into an agreement with a foreign collaboration called “G-Tech” who wanted to start a lottery called “On-Line” on the licence granted to this fund.In terms of the agreement entered the foreign partner was obliged to pay a minimum of Rs. 400 million to the Fund within first three years. But it was revealed so far they have paid only 10 million and the fund was obliged to pay 10% of it by way of VAT. Accordingly, the loss suffered by the Fund during last three yeas is Rs. 1,200 million. In addition to that said lottery system was badly affected and partly defunct causing severe and continuing losses.

It is also revealed that the said overseas company has furnished an insurance bond for a sum of Rs.400 million and the fund could not claim it as there was a condition that the fund could not claim it without the consent of the said foreign company.The object and the goal of this Fund is to assist all university students. But they were unable to reach that target even after 25 years and at the moment they assist only 65% of the university students.