CAG recommends early decision on liquidation process of inactive PSEs

Grave financial, governance failures pointed out

14 PSUs rendered insolvent by accumulated losses

Sanjeev Pargal

JAMMU, Sept 30: The Comptroller and Auditor General (CAG) of India has recommended to the J&K Government to take an early decision regarding commencement of liquidation process in respect of inactive Public Sector Enterprises (PSEs) as they are neither contributing to economy nor meeting objectives for which they were set up as it pointed out grave financial and governance failures in the PSEs.

Follow the Daily Excelsior channel on WhatsApp 

In its composite audit report for the year ended March 2023, tabled in the Assembly today, the CAG also recommended to the Government to take remedial actions to improve performance of loss-making PSEs in the UT and direct them to ensure early finalization of their financial statements especially those which have arrear in accounts.

The report revealed that 14 PSUs have been rendered insolvent by accumulated losses, 20 reported combined losses of Rs 252.53 crore, and Rs 461.67 crore of NABARD assistance remains unutilised even as 231 of 263 rural infrastructure projects lie incomplete.

As of March 31, 2023, there were 42 PSEs under the CAG audit jurisdiction - 39 Government companies, two statutory Corporations and one Government-controlled other company. Six were inactive.

"In the absence of finalisation of accounts, the Government investments in such PSEs remain outside legislative oversight," the CAG cautioned.

It said the reported profit of UT PSEs rose to Rs 1,286.79 crore in 2022-23 from Rs 566.10 crore in 2021-22, but only 11 PSEs were profit-making and only one of them i.e. Jammu & Kashmir Bank Limited declared or paid dividend.

"The power sector cornered 78 per cent of total PSE investment,'' the report noted.

Exposing systemic breakdown in financial reporting, the CAG report revealed that out of 34 UTPSEs whose accounts for 2022-23 were due for audit, only four presented their financial statements by September 30, 2023. Nineteen have accounts in arrears for three or more years. The accounts of two statutory Corporations - J&K Road Transport Corporation and J&K and Ladakh Financial Corporation - were in arrears for two years and more,'' the report disclosed.

Significantly, only two of eight eligible PSEs appointed a whole-time Company Secretary while five others had none at all. It further said that just nine of 33 UTPSEs conducted the required number of Board meetings during 2022-23, and Annual General Meetings were not held in 24 of 33 UTPSEs.

The audit reviewed 33 UTPSEs and found widespread non-compliance with the Companies Act, 2013. Ten UTPSEs were required to appoint Independent Directors but only J&K Bank. Similarly, 10 others were required to constitute Audit Committees and Nomination and Remuneration Committees but again it was the Jammu and Kashmir Bank only which complied.

On Corporate Social Responsibility, the CAG report revealed, out of nine UTPSEs meeting the criteria, only four constituted CSR Committees and framed policies. Seven were required to incur CSR expenditure, but only three did.

As per the CAG report, the IT audit of the IFMS (Integrated Financial Management System) found that as of March 2023, only four of twelve proposed modules were fully operational, delaying full implementation by more than a decade.

"The Business Process Re-engineering was deficient, and no Core Consultant Group had been formed. Due to non-revision of the DPR and non-achievement of milestones, the UT lost central assistance of Rs 11.88 crore,'' it said, adding the lack of integration between BEAMS and TreasuryNet led to excess expenditure over allocation and rendered the system vulnerable to unauthorised modifications in bill particulars.

"The absence of robust logical access controls, password recovery options and transaction logs created opportunities for unauthorised access. The system lacks a complete audit trail of who inserted or modified records,'' the report said.

"No comprehensive Disaster Recovery and Business Continuity Plan exists, exposing the system to cyber-attacks and operational disruptions,'' the CAG noted and said the administrative control of IFMS had not been taken over by the DGAT even after 12 years.

The CAG recommended early liquidation of inactive PSEs, remedial action for loss-making ones, timely finalisation of accounts, and compliance with the Companies Act. For NABARD-RIDF, it urged timelines for Mobilisation Advance release, a system to prevent double release, and pre-execution approvals. For IFMS, it sought a Core Consultant Group, comprehensive Business Process Re-engineering, role-based access control, Multi-Factor Authentication, audit trails, a Disaster Recovery Plan and STQC certification.

A performance audit of NABARD-RIDF works by the Public Works and Jal Shakti Departments (April 2018 to March 2023) found that against the Centre's consent for raising Rs 3,900 crore, J&K availed only Rs 2,316.37 crore (59 per cent).

As of March 2023, only 32 of 263 projects due for completion were finished. The remaining 231 were either not started or incomplete. Against a total release of Rs 844.17 crore during 2018-23, expenditure was just Rs 382.50 crore (45 per cent), leaving Rs 461.67 crore unutilised. The unutilised portion ranged between four and 72 per cent each year.