Theft, waste and inefficiency in State enterprises | Sunday Observer

Theft, waste and inefficiency in State enterprises

The Government is entrusted with billions of rupees of public funds, collected from the people. It has a duty to account for them and use them in accordance with the wishes of Parliament, without excess, extravagance or waste.

Ensuring the money is properly used is the responsibility of Parliament which works through two Committees, the Committee on Public Accounts (COPA) and the Committee on Public Enterprises (COPE). COPA scrutinises the work of the Government, its Ministries, Departments, Provincial Councils and Local Authorities, while COPE scrutinises public corporations and business undertakings.

The COPE, by its own admission, is under-resourced. It lacks staff, particularly, for audit and legal support. They also lack IT systems and even a proper office.

Despite these limitations and the fact that the reports are not comprehensive-they have examined a limited number of issues in a few institutions, they are a devastating critique on the state of governance. This is only the tip of a large iceberg and underlines the need for a drastic re-think in the role of government.

COPE First Report (From January 26 to April 8, 2016)

State Pharmaceuticals Corporation

Purchase and issue of substandard drugs:

Imported pharmaceuticals are not properly tested due to lack of laboratory facilities. Drugs (later found to be substandard) are issued to patients owing to delays in testing samples prior to distribution of the drugs.

Drugs worth Rs. 250 million had been identified for destruction in 2014 and 2015, but only drugs worth Rs. 214.6m were destroyed.

Substandard drugs worth Rs.199m purchased between 1996-2014 were put on sale through Osu Sala outlets.

Substandard drugs worth Rs.1 bn had been purchased between 2011-14, the majority (Rs. 867m) for distribution free through the public health system.

[See table]

Ceylon Electricity Board

Lack of accountability of 20 subsidiaries incorporated under the Companies Act

The CEB holds a 63 percent stake in Lanka Transformers Ltd, which has stakes ranging from 50 -100 percent in 15 of other companies. The CEB also has stakes of 50-100 percent in five other companies.

LTL and its subsidiaries declined to submit details of operation to the COPE, despite the fact that the CEB owns over 50 percent of the shares. They claim to be private companies and need not report to Parliament. The accounts of 14 were submitted on March 16, 2016

The subsidiary companies have paid dividends worth Rs.14bn to LTL. The CEB should have received 7.1bn as its share, but only Rs.6.9bn was received. LTL supplies services and products to the CEB. Values and terms of contracts are not known. Salaries and allowances outside standard procedures: Eight-hundred-and-forty-nine million rupees had been spent to pay 39 allowances of employees without the approval of the Cabinet of Ministers or the Treasury.

Establishing a new salary scale known as ‘e–scale’ for engineers from January 1, 2015 and making payments in accordance with that without the recommendations of the salaries and Cadre Commission.

Janatha Estate Development Board

Land leased at low rates

Land belong to the JEDB in Vauxhall Street had been undervalued and given on long leases of 25,30 or 50 years upon a Cabinet decision.

Unpaid EPF and ETF dues for 2011-2015 period amounting to Rs.323m.

Operational loss of the JEDB

2011 - Rs. 258m

2012 - Rs.199m

2013 - Rs. 501m

2014 - Rs.169m

Land Reclamation Commission

1. Information on the lands belonging to the Commission has not been updated.

Action has not been taken to formulate a register of lands and to make it updated.

2. Special Projects for which lease agreements have not been signed

Some 280 acres of Monarakelewatta had been leased out to a private company under a 30-year-lease in February 2011 without any approval from the subject minister. Rs.1 million has been paid as advances but lease rent had not been recovered for 2011-2016 period.

Out of 12 acres of the Kumbalgoda estate, six acres have been leased out to a private Export Crop Project in an illegitimate manner.

Leasing out about two hectares of Arkediyawatta in the Badulla District. Arrears to be recovered is around one million. Without the approval of the Council, a loan of Rs.17.5 million has been obtained keeping the land as a security. No action had been taken by the Council on this matter. Six acres of the Industrial Zone at Leylandwatta, Homagama has been given to Rosell Bathware Ltd., on a 50-year-lease, and the lease rent not been properly recovered.

Elkaduwa Plantation Company Ltd

1. Leasing out the Nellaolla estate

Leasing out 125 hectares of the Nellaolla estate which consist of 358 hectares to Agri Squad company and the remainder occupied by the residents of the area.

A person as a sub lessee of the Agri Squad Company possessing the estate in an unauthorised manner.

2. Leasing out a factory owned by the company

Leasing out a factory owned by the company to the institution by the name of Pride Tea. The institution had defaulted the paying lease rent to the company and also defaulted the payment due for tea leaves to a value of Rs.30 million provided by the company.

Sri Jayewardenapua Hospital

Payment of consultants fees:

Although this is a State hospital, it runs a paying ward. Payments of fees appear to be above the normal remuneration to staff.

About 50 percent of the income charged from the patients of the paying wards has been paid as professional fees to the doctors and staff of the hospital. PAYE tax has not been deducted on the payment. Unpaid PAYE tax for 2014 and 2015 amounted to Rs.74.7m

Purchase of anesthetic equipment:

Four anaesthetic machines had been purchased at a cost of Rs. 29.9 milliom without following a proper procurement process. The purchase of the equipment had apparently gone ahead despite an offer from the Australian Government to provide them free. The purchase of the equipment had been justified on the basis of three machines being defective. No technical evaluation is available to support this. No proper procedure was followed for disposal. The committee was later informed that the disposed equipment had been provided to the Negombo, Kalutara and Monaragala hospitals.

Expired stock:

Drugs and other goods worth Rs.5.1 million had been purchased for the Neurosurgical Unit in February 2012.

About 80 percent of the stock valued at Rs.4.1m had not been used and expired.

National Secretariat for Elders

Deducting Rs.100 without the concurrence of the Finance Ministry from the elders’ allowance of Rs 2,000 paid to elders as per a budget proposal.

The Budget for 2015 proposed a monthly payment of Rs.2,000 for elders over the age of 70. The Social Empowerment and Welfare Ministry, by way of circular No. 1/2016 has ordered to deduct Rs.100 from each payment and retain the money at the Secretariat to set up a welfare fund.

The money is being deducted in spite of the opposition of the management of the secretariat and without the approval of the Finance Ministry.

The Secretariat has issued ID cards for 10,978 elders, although the plan had been to issue 40,000 cards. Assuming that the monthly allowance of Rs.2000 was paid only to those registered, the monthly payment would be Rs. 21 million and the amount retained for the ‘welfare fund’ would be Rs.1 million per month.

Bank of Ceylon

Continuous losses at the overseas branch in London.

Although the branch in the Seychelles is profitable, operations are high risk as 62 percent of the deposits are owned by three customers.

The first COPE report indicates widespread and long running malpractices and mismanagement. For example, the State Pharmaceuticals Corporation has been importing substandard drugs from at least 1996, but not only has this gone on undetected for over 20 years, the quantity of substandard drugs being imported appears to be growing.

The Land Reclamation Commission’s mission is to “to reclaim and develop every reclamation and development area declared by order under Section Two of the Amendment to the SLLRDC Act No. 15 of 1968”. This body holds custody of land that ultimately belongs to the public, but how can it possibly exercise any meaningful custodial responsibilities if they do not have a schedule of land that they manage?

These examples support the argument that all-pervasive corruption of the political system has reduced the machinery of state to a funnel that directs rewards to politicians and their cronies. The way to deal with such rampant corruption is to limit the opportunities for self-enrichment. Reducing the state spending diminishes the opportunities for corruption. The functions of the state should be pruned to the bare minimum, deregulation-cutting and simplifying regulations will close some avenues to malpractices. Exiting businesses – either transparent privatisation or closing them down will also help in this regard.

The JEDB, SPC and Elkaduwa Plantations should be wound up or sold . Lanka Transformers is already corporatised - perhaps it could be sold. The due-diligence work of a sales process would throw a lot of light on the contracts that it has with the CEB shedding light on opportunities for introducing increased competition in the supply of services. 

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