Audit report reveals loss of Rs700m in subsidised Ghee procurement

ISLAMABAD: The Utility Stores Corporation (USC), a subsidiary organisation of the Ministry of Industries, has met losses worth Rs700 million in procurement of subsidised ghee and cooking oil just in three-month period (Jan 2020 to Mar 2020).

The loss, according to USC’s own internal findings, occurred during procurement of ghee/cooking oil and fixing new price agreement with vendors and it is feared by auditors that this loss could be in billions of rupees if investigation goes beyond these three months (from March 2020 to Nov 2020).

“USC has sustained a huge aggregate financial loss of Rs 699.117m, mainly due to non-compliance of signed terms of agreement with the vendors, ineffective price negotiations and placement of orders without performing any due diligence,” revealed internal findings, exclusively made available with Geo News.

“Audit conducted the review of a small segment of merchandising and buying department and for one quarter [Jan to Mar] only, however, the quantum of loss could be much higher [in billions] for the complete period [of 2020] and all segments/products,” USC auditors revealed.

USC audit team reveal, “further, considering the factors such as undue favors extended to vendors, sheer negligence, incomplete records and production of bogus documents, lack of supervision and non-segregation of duties, etc., a possible chances of corruption from USC staff cannot be ruled-out and a detailed investigation is suggested to probe this matter and identify the delinquent staff, if any.”

Internal auditors’ team believed that there should be an audit of over Rs29 billion spent on purchase of ghee and oil (both subsidised and unsubsidised) from a dozen vendors (companies) by November this year. “Detailed investigation should be conducted to probe this matter further and to fix the responsibilities on delinquent staff,” auditors' report said.

This USC's internal probe after subsidized ghee and cooking oil prices jumped up in January from Rs180 to Rs 190 and subsequently in March, there was a decline in per kg average cost of subsidised ghee from Rs190 to Rs 177. Prime Minister Imran Khan approved Rs7 billion utility relief package in Jan 2020.

After the subsidy started, USC procured a large quantity of subsidised ghee and auditors were asked to investigate events of price variation where USC's interests were not protected. Auditors reviewed all transactions from January 2020 to March 2020 in GBMS accounting system where price variations (buying and selling) for subsidised ghee were negotiated and fixed by USC administration and computed the quantum of losses.

In different dates of January and February 2020, USC approved revised rates of different brands at increased price. However, instead of obtaining already ordered quantities at lower rates, administration placed new orders with the vendors at a higher rate of Rs 190/kg which caused an aggregate loss of Rs 129.017m. This amount was recoverable from five brands, namely Manpasand (Rs54.1m), Dil Dil Ghee (Rs 44.7m), Hayat Ghee (Rs 22.7m), Maan Ghee (Rs 4.2m) and Barkat Ghee (Rs 3m), auditors stated.

The USC suffered loss of Rs 378m following an undue favour/financial benefits given to a vendor named M/S IFFCO Ltd., for procurement of Hayat Ghee, says the auditors' report. “Undue favours were extended in multiple ways to one particular vendor M/S IFFCO Ltd., for procurement of Hayat Ghee. It is quite astonishing that USC management approved the cost way beyond vendor’s expectations and paid Rs37/kg in excess. As per records, 10.217mn kgs of Hayat ghee was supplied at Rs 190/kg and total Rs 378.060m was paid to M/S IFFCO Ltd., in excess of its original price i.e. 153/kg. Audit is of the view that the price was deliberately revised to qualify Hayat Ghee for subsidy as the subsidized price of ghee was approved by the government at Rs 170/kg,” revealed the report.

Audit has the following reasons to believe that approval presented by administration is appeared to be bogus and only produced to fulfill audit demands. As per purchase order report, it was also noted that while ordering, Hayat Ghee which is a relatively less renowned brand in the market, was given preference over other well-renowned and established brands. Despite the fact that other established brands had better inventory turnaround time, total 14,266MT ghee i.e. 33% of total demand was ordered to Hayat Ghee as a result huge quantities remained unsold.

Auditor also found a loss of Rs 192m against rebate claims, revealed the report, stating, “as per contract with the vendors, USC is entitled to claim differential amount as a rebate from vendors for all unsold stock. In March 2020 cost of per kg subsidised ghee was reduced from Rs190 to Rs177, therefore, USC regular price of subsidised ghee was also reduced from Rs200 to Rs190. As per data gathered from all USC regions through pre-audit team members, total 14,067,963kg of different brands was lying in warehouses/stores at the time when rates of respective brands were reduced, according to the report. This entitled USC a claim at Rs13 per kg which amounted to Rs182.883m from different brands, added the report.

A detailed response from USC is still awaited. Chairman of Board of Directors USC Zulqarnain Khan, who is currently abroad, told Geo News that “[he found a] lot of corruption at USC.” But he did not explain where he found this practice either in procurements or in administration.