RAA Papers

PART I
Chapter I      
      
1.       Introductory comments:     
2.       Audit Recoveries Accounts (ARA):  
3.       Inspection Reports (IR):     
4.       Audit Clearance (AC):        

PART – II
COMMON FINDINGS AND ISSUES    
          
Chapter I      
PROPERTY ACCOUNTABILITY:        

1.       Central Stores and obsolete inventories.   
2.       Draw on the Agriculture lands - Can we afford?    
3.       Use of Dolep for Dochag in Courtyard, plinth protection pavements, and pedestrian footpaths.         
4.       Buildings and structure inspection certificate - Are they livable and sustainable?        
5.       Misuse of Labor and People contribution in community and development services - Can we afford to lose the credibility?        

Chapter II
FINANCIAL ACCOUNTABILITY

1.       Unnecessary avoidable technical assistance - Caution may be the best discretion.
2.       Inadequate staff personnel in the security forces: need to professionalize staff functions.     
3.       Lack of supervision - The real culprit        
4.       Donor transparency  
5.       Follow up Weakness 
6.       Non maintenance of measurement books (MB) - is objectionable.
7.       Missing and misplacement of records - not acceptable excuses  
8.       Absence of Risk Management - Can we afford the long-term consequences?    
9.       Use of Trust Fund and Sustainable Development Fund - resources of ultimate resort.  
10.     Payment made without execution of works : Shouldn't the disbursing authority pay the penalty?      

Chapter III    
CORPORATE NON-CIVIL SERVANT ACCOUNTABILITY        

1.       Board of Directors - Performance   
2.       The Corporate Audit Recoveries - Founders keep. 
3.       BDFC  
4.       BARDO
5.       Potable water production: why not capitalise on this?     

Chapter IV    
REVENUE ACCOUNTABILITY 

1.       Lopsided Agreements - Public Interest Jeopardy   
2.       Surcharges : only the criminal should bear the burden of the penalty.   
3.       Outstanding revenue

Chapter V     
PROCUREMENT ACCOUNTABILITY:  

1.       Culture of paying suppliers and contractors generously:  
2.       Non maintenance of hindrance register - unethical
3.       Tendering/calling quotation: a beautiful concept deliberate misunderstanding as nuisance to many   
4.       Tender Committees - convenient scapegoats.     
5.       The optimization in country capitals - won't trust to maximize returns.

Chapter-VI    
COORDINATION AND COOPERATION, OVERLAPPING AND    REDUNDENCIES:       

1.       Repeated audited qualifications - indication of poor accountability.       
2.       Financial and service sector: does not harm to play more proactive role.         
3.       Public service installation and maintenance:  Need for coordination and cost consciousness.  

Chapter VII   
GENERAL:     

1.       Seals of office - do we need to have a system?   
2.       Changes in policies and decisions   
3.       Privatization and its consequences - If public management is the best solution?
4.       Transparency in Agencies: seed for efficiency, effectiveness, trust and faith.  
5.       Concept of Program Approach : the better option for efficient resource utilization.     

Chapter VIII  
CONCLUDING REMARKS:

Auditor General's Advisory Series-2002  

PART I 
Chapter I 

Introductory comments:

Setting the stage: 

The year 2001 saw the Royal Audit Authority adopt a Zero Tolerance Policy and urge the collective responsibility for enhancing national accountability as the duty of every Bhutanese. Truly greater mileage was gained. The awareness and education of the role and benefit of auditing is much more. The demand for auditing is so great it has become difficult for the Royal Audit Authority to cope with. 

We are more convinced now that the solution to the problem of corrupt practices rest more with kind of commitment the ministers, secretaries, chairmen, head of organizations, Board of Directors, managers and supervisors would pledge than with the auditors. If the source of the problem is controlled, timely remedial and corrective actions are taken seriously by the formers, there would not be any auditing to be done. The media, the law and judicial authorities need to focus more on stemming corrupt practices rather than acting as a mere secretive, benign and guardian figures.  

The people are more interested to see what action, be it administrative or legal that is being taken by the authorities and agencies beyond initial report and broadcast of a crime or an offence. More importantly, playing the model leadership role by the supervisors and decision-makers are crucial and urgent. There need to be more transparency in public affairs. 

The Royal Audit Authority for the first time in its history made the audit findings for a given year accessible to the public. The positive response and encouragement were overwhelming except for a few stray self-defense missives. It has definitely contributed to enhance the Bhutan ’s global image and demonstrated its sincerity in commitment to Transparency. 

We shall ensure that the Second issue for the Year 2001 will be on the Royal Audit Authority (RAA) web site:  latest by the month September 2002.  

It is also to report that several cases based on auditing are sub-judice while punitive, legal and administrative actions were taken against other individuals based on the Royal Audit Authority's findings in all the sectors and services. The active follow up is already paying dividends. 

We remind the lawmakers, decision-makers and the supervisory agencies that the Series is meant to bring home the need to take immediate measures in areas highlighted towards enhancing internal control procedures and mechanisms and the accountability system in your establishments.

2.       Audit Recoveries Accounts (ARA): 

Trends in audit recovery are ever rising as can be seen from the graph and the statement below. We reported an amount of Nu. 10 million as money recovered by audit in our last Annual Audit Report (AAR). This figure has now reached Nu.20 million approximately in the Year 2001. It is interesting to note that individuals and private companies had not shown any resentment in repaying the payments objected by the RAA, and in some cases even the commercialinterest on the amount.  

Statement of year wise Audit Recoveries

Sl. No.	YEAR	Amt.collected during the year	Refund during the year	B.Charges during the year	Amount remitted into Non-Rev. A/c.	Balance with Audit Recoveries SBA 09/1/02 (6087)
1	1985 - 1987	4,166,539.29	-	-	4,166,539.29	-
2	1988	986,051.38	-	-	530,911.47	455,139.91
3	1989	1,094,354.93	-	-	1,134,121.91	415,372.93
4	1990	717,503.46	53,606.00	368.73	662,277.23	416,624.43
	Sub Total	6,964,449.06	53,606	368.73	6,493,849.9	1,287,137.27
5	1991	624,776.31	13,264.50	57.00	457,343.93	570,735.31
6	1992	773,936.49	4,909.00	847.78	960,541.55	378,373.47
7	1993	1,534,622.32	7,212.00	567.53	-	1,905,216.26
8	1994	534,023.94	107,889.28	424.00	1,905,216.26	425,710.66
9	1995	1,235,316.33	48,875.00	451.00	1,544,874.87	66,826.12
10	1996	2,111,099.95	8,060.00	2,841.00	1,053,258.76	1,113,766.31
	Sub Total	6,813,775.34	190,569.78	5,188.31	5,921,235.37	4,460,628.13
11	1997	1,942,881.27	60,923.00	398.00	1,886,736.77	1,108,589.81
12	1998	3,521,532.13	110,569.57	614.00	2,258,616.64	2,260,321.73
13	1999	5,891,198.95	53,855.38	2,402.00	3,181,762.01	4,913,501.29
	Sub Total	11,355,612.35	225,347.95	3,414.00	7,327,115.42	8,282,412.83
14	2000	10,055,101.49	64,746.38	4,729.00	7,499,508.06	7,399,619.34
15	2001	19,859,319.85		12,767.20	22,448,423.10	4,797,748.89
16	2002 (Jan. - April)	6,992,454.33	2,913.00	4,461.00	10,443,565.92	1,339,263.30
	Sub Total	36,906,875.67	67,659.38	21,957.20	40,391,497.08	13,536,631.53
	Grand Total	62,040,712.42	536,823.11	30,928.24	60,133,697.77	1,339,263.30

 3.  Inspection Reports (IR):

The Royal Audit Authority had planned to conduct 208 audits during the Financial Year 2001/2002. As of 12^th April 2002, we have about 72% achievements in terms of numbers of audits conducted and about 50% in terms of reports issued. While we strive to accomplish the planned audits by the end of the Financial Year, we will have to prepare for the possibility of some backlogs to be cleared in issue of the audit reports. 

Status of the audits for the Financial year 2001-2002 as on 12th April 2002
Sl. No	Division	No. of audits planned	No. of Audits completed	No. of Reports issued	No. of Ongoing audits	No. of audits not done	Audit completed and reports not issued
1	I	47	40	28	3	4	12
2	III	40	26	23	9	5	3
3	IV	26	22	13	2	2	9
4	V	18	8	8	7	3
5	VI	25	17	12	4	4	5
6	VII	19	14	7	2	3	7
7	VIII	33	23	10	3	7	13
	TOTAL	208	150	101	30	28	49

For the reason that we had to divert certain budgeted time for organizing training in public works auditing and the revised financial manual organized under the Offices of the C&AG Office of the Republic of India and the Ministry of Finance, RGoB. 

4.       Audit Clearance (AC):

The Royal Audit Authority in its efforts to reduce red tape and biases in the personnel management system in the country had notified the change in the system of processing Audit Clearances for all purposes. While it was the individual responsibility to process the Audit Clearances in the past, this responsibility was shifted to the AFD's of the agencies. The new system however did not bring its desired effects to the extent anticipated by the RAA. The head of offices and their administration still do not appear to be committed to undertake the responsibility for the welfare of their employees seriously.  

It is increasingly found that there is absence of the existence of an effective reward and punishment system in organizations. The services and contributions made by the deserving individuals remain not properly appreciated or where there is a lapse, there is no effective administrative action system. It is not uncommon even of today that individual employees move around from office to office with their cases, which subject them to humiliation while putting others into awkward situations.  

It may not be untrue that such a practice is done as per the directions of the Head of offices and AFD's. Further, there appears that in no single Ministry a set understanding of the roles and responsibilities to process such matters exists. If we perpetuate this manner of processing reward and current discipline system, it  tantamounts agencies and authorities only reward people who dare to confront bosses or have access even if they may not be performers or the deserving.  

We urge all organizations to treat this responsibility as a sacred task of the Head of Organizations and AFD's and not a mere post box function. 

An abstract of the Audit Clearance Certificates issued by the Royal Audit Authority as of 30^th April 2002 for various purposes is presented in the table below. 

Sl. No.	Reference No	Purpose	Previous 3 Years			2002		Total
			1999	2000	2001	No Applied	No Issued	No Issued
			A	B	C	D	E	A+B+C+E
1	AG(25)-2001	1. Training	1333	1263	1313	609	570	4479
		2. Seminar
		3. Studies
2	AG(26)-2001	Promotion	3101	2631	2824	1996	1794	10350
3	AG(27)-2001	Resignation	646	677	651	205	195	2169
4	AG(30)-2001	Contract Extension		295	120	80	83	498
		Total	5080	4866	4908	2890	2642	17496

PART – II 
COMMON FINDINGS AND ISSUES

The findings that are described are the refrain that runs through all audit reports even in the year 2001. We hope to expect that the 2002 reports will see a diminishing trend except for the emerging problems. While the details of nature of offences would be covered and presented in the AG's Occasional Paper, individual Audit Inspection Report (AIR) and the Annual Audit Report (AAR) respectively, we present the following:   

Chapter I 
PROPERTY ACCOUNTABILITY:

1.       Central Stores and obsolete inventories.   

In the sixties and seventies, when there were no capacity in the private sector, the Central Stores were justified. With considerable advance and progress in retailing, wholesaling, transports and other national and local capacity, the necessity to maintain the stores to the present extent were questioned in the previous issue of the Annual Audit Report 2000.  

We feel that the need to sustain such stores were only due to ad-hocism and poor forecasting and planning of programmes and resources. 

Besides, a lot of obsolete immovable assets and documents are lying in stores of respective agencies without being disposed off as required by the rules. These impinge on both human and spatial resources. Further, the accountabilities become impossible to be fixed with change of responsible persons and poor documentation over the time. 

It has been seen during audit that these stores are having materials/store articles worth millions of Ngultrum lying rusted and unused since years together. This is, perhaps, due to the fact that departments generally go in for heavy purchases at the fag end of the year just to utilize the budget grant or to avoid lapse of funds resulting thereby dumping of material unnecessarily/blockade of government funds. There is no denying the fact that these could also have been resorted to patronize suppliers. This irregular practice could have been stopped had the departments streamlined their purchases based on actual demand plus certain percentage variations only.

Materials received in bulk are dumped in open space left to rains and scorching heat and in this way most of the materials is rusted and loses its strength resulting thereby ultimate loss to government.

Plenty of staff, regular as well as on muster rolls are engaged for handling the stores where as the respective departments can easily handle this work by putting a condition of supply of material at FOR project sites in the supply order itself.

It has been seen that store units have occupied a lot of space, which can, otherwise, be made use of keeping in view the acute shortage of space at Phuntsholing.

Savings in terms of transportation charges could be accrued if manufacturers/traders supply materials at FOR sites.

The need to make frequent travels by both the store officials and others that involve cost in terms of payment of DSA will not arise.

Keeping in view the position explained above, the Royal Audit Authority urges Council of Ministers to consider the desirability of closure of the store units at Phuntsholing. 

2.       Draw on the Agriculture lands - Can we afford? 

Most constructions undertaken by the Royal Government of Bhutan were as a matter of norms on agricultural lands. This also implies to recent development around the capital. 

Most of such actions are found as the consequences of administrative decision rather than that of the national policies and laws. Such actions technically must conform to the policies that are framed subsequent to the legislative actions. 

3.       Use of Dolep for Dochag in Courtyard, plinth protections, pavements, and pedestrian footpaths. 

Conforming to the tradition wherever bigger courtyards, plinth and pedestrian footpath areas are involved, the engineers had specified use of stone. However, in the absence of proper specification and subsequent lack of effective control and support, the small pieces of stones bonded by cement mixtures had become the common features in all public constructions. These neither do conform to traditional specifications, nor give aesthetic effect, nor serve the intended purpose in terms of dimensions and durability. We have old dzongs and lhakhangs with intact dochags whereas modern public structures built recently, with dilapidated dochag, footpaths, plinth protections and pavements. 

4.       Buildings and structure inspection certificate - Are they livable and sustainable? 

Quality of most civil structures are far from acceptable. Some of these in government as well as in security services have to be advised as unsafe for occupation. The structures and buildings are taken over and occupied without ascertaining the safety and completeness. The structural defects and use of standard materials often are the cause of accidents and a heavy drain on maintenance budgets. All such government buildings and structures and private properties meant for use by general public be subjected to production of a suitable certificate on completion and after occupation on periodical basis. 

Further, in order to avoid future cost, the government plans must incorporate disability facility, service lifts, and adequate parking spaces. 

5.       Misuse of Labor and People contribution in community and development services - Can we afford to lose the credibility? 

In the projects/activities where public contribution in the form of labor in particular were made, project managers and supervisors misuse such contributions at a great cost to the budget and the efficiency of the projects. In many instances, it had been observed that the labor cost component are unreasonably higher as a result of such misuses.

The Dzongkhag authorities, NCCA and the Geog officials must take interest to oversee that any project meant to benefit a community meets the test of economy, efficiency and effectiveness.

Chapter II 
FINANCIAL ACCOUNTABILITY 

1.       Unnecessary avoidable technical assistance - Caution may be the best discretion. 

Organizations employ technical assistance without giving serious thoughts to the needs. Consequently, the impact to the project of the technical assistance was found limited to the life and duration of the technical assistance only. Even activities that are normal works of the employees are being carried out by the consultants. 

2.       Inadequate staff personnel in the security forces: need to professionalize staff functions. 

The repeated auditing of the security forces revealed that the staff personnel responsible in the security forces were found inadequate. Most function manned by uniformed personnel was often not properly attended to due to lack of staff or diversion.   

Consequently, any security detailing had adverse effect on the efficiency and effectiveness of the staff services. The construction accounts, administration, and property management thus remain weakly managed. Without an adequate and appropriate provision of professional and trained personnel for staff service, it would continue to be ineffectively administered. 

3.       Lack of supervision - The real culprit 

Most of the government programmes and activities are found wanting of effective control and supervision. Due to lack of this, most activities and procurement either did not conform to rules or remain improperly utilized and unaccounted. The irregularities and delays are indicative of the absence of no supervisory and monitoring system and such roles carried out at every level of an organization. The facts are revealing in the audit reports of every agency.  

4.       Donor transparency 

The Royal Audit Authority as the auditor of the government is also responsible for the auditing of the donor-funded projects and the certifications. It is observed that the accounts lack full transparency. Most unexplained items are often reported to be those of the accounts that are maintained at the Head Quarters of a donor. 

5.       Follow up Weakness 

There has been a significant positive move in many offices that audit reports have been recognized as useful inputs in enhancing capacity building measures and system improvements. 

However, in many organizations, the follow up on the audit reports is not being viewed seriously. Consequently, even established observations of serious nature remained unaccounted. In few ministries, security force and corporations, this tantamount to the willful defiance of the government policies and directives. Instead protection were being found given to the defaulters by the competent authorities of such organizations. 

Integrity assessment in organizations where production of Audit Clearance is a not norm, personnel actions that are controversial are prevalent. 

6.       Non maintenance of measurement books (MB) - is objectionable. 

The engineering profession and the government financial rules require that measurement books (MB) are very fundamental documents that need to be maintained. The practice of non-maintenance and incorrect maintenance is prevalent in the entire engineering professionals. Even basic quality control instruments are not used to set quality standards in the construction projects. 

This practice is being found to have become a norm rather than an exception. Such practices are deliberate act of corruption by the project management and the engineering professionals. 

Most instances of excess payment/double payment are consequences of collusion among the engineers, accountants, suppliers, and contractors. 

7.       Missing and misplacement of records - not acceptable excuses 

Often audit observations are not attended nor information provided on the pretext that records are missing or misplaced. The Financial Manual requires that all documents must be accounted for as per the provisions laid down in it. 

The absence of documents unless prior report on such events are produced, the accountable authority must be held fully responsible by the competent and controlling authorities for the lapse and negligence.   

8.       Absence of Risk Management - Can we afford the long-term consequences? 

In all decision making, it is crucial that the risk has to be identified to the extent possible and measures to avert risk initiated/identified where possible. However, this element is totally absent in every aspect of decision-making and management. Consequently, a lot of losses and damages incurred are of the nature that would have been avoided/minimized if the concept of risk management were in-built in the planning and designing process. In addition, their application should be overseen at implementation and project evaluation and review process.

9.       Use of Trust Fund and Sustainable Development Fund - resources of ultimate resort. 

In principle, trust fund everywhere in the world are instituted with an objective to see through the rainy days of an organization, country or society. As such, trust fund should continue to be ploughed back into investment activities and were used only the earnings out of these.

However, in the Bhutanese context, it is increasingly becoming a trend that the trust fund managers are dispensing these resources also for purposes not directly related to the intended objectives. In short, this should be a resource of ultimate resort when all options are exhausted such as national or donor support are completely to finance essential public and national programs and services. 

10.     Payment made without execution of works : Shouldn't the disbursing authority pay the penalty? 

A lot of activities were recorded as completed and payments were found being made.  When in reality, projects were not found executed and existing. Ironically in many instances, these were made in full knowledge of the authorities in an organization. In cases of projects in the security forces, technical and administrative sanctions were accorded at the time of final payment. This puts into a situation where it has no choice but to clear it. 

11.     STCB 

The collection of cash made by an employee of STCBL was found not deposited into the bank account. The employee gambled away the money. Ironically, the employee employed by the STCB happened to be a person who on similar ground was terminated from service by the Bank of Bhutan. 

This instance must give room for CCM to consider whether gambling must be restricted while not recommending a total ban. 

Considering the significance of the matters, the statutory auditors appointed by the RAA have contemplated to express disclaimer of opinion i.e not being able to form an opinion as to whether the Balance Sheet, Profit and Loss Account and the Cash Flow Statement give respectively, a true and fair view of the state of affairs of the Company as at 31^st December, 2001, its profit and movement of cash for the year ended on that date.  

Chapter III 
CORPORATE NON-CIVIL SERVANT ACCOUNTABILITY 

1.       Board of Directors - Performance 

The RAA is of the opinion that given the nature of observations that are being made, there is a need for increased involvement of the Board of Directors in the supervision and management of corporate affairs. Otherwise, they will be failing in their duties to ensure efficient management of corporate affairs.  

It is therefore urged that either the members take up their responsibility seriously or the new members co-opted in order that the corporation and organization whose governance entrusted to them are dynamic, well managed, and productive/profitable. 

There are also Company's which had not complied with the Company's Act of the Kingdom of Bhutan . There appears no supervision from the competent authorities to oversee Company Act is respected or not. 

2.       The Corporate Audit Recoveries - Founders keep. 

Substantial money of the corporate sector and the security services are found being not accounted for. The Royal Audit Authority both during the statutory auditing and propriety auditing required the long over due advances and dues to be deposited into the Audit Recovery Account. 

However, when such money is ultimately recovered consequent upon the instances of the audit, arguments were put forward against that such money be retained by them.  

It is therefore, important to realize that the money not realized over a long period beyond permissible period becomes the money that is lost, as far as the companies management is concerned. 

As such, such money must logically reach its destination in the Audit Recovery Account subsequently. 

3.       BDFC 

The previous management of the BDFC sanctioned loans on the security of project assets. There were also cases where loans have been given to clients who have either previously been a defaulter or had a failed project. 

The Corporation by taking unnecessary risks exposed clients to risks. The Corporation had failed to insist for the primary security and carry out appropriate approval commensurate to size of the loan/project. 

4.       BARDO 

The Bhutan Agro-tech Research and Development Organisation (BARDO), company Registration No.133, was a company promoted by a group of foreign investors namely Mr. Alan W. Lam, Mr. Fred Huang, and Mr. Y. C. Chan (90%) along with a local partner, M/s Drangchu Beverages (10%).  

Though the BARDO registered itself as a company under the Companies Act of the Kingdom of Bhutan 1989 only on 14^th May 2001, the project was allowed to begin by the end of 1998.

The eventual long-term plan was to make Bhutan the leading and the largest exporter and producer of Wasabi and Wasabi products. Wasabi would also be promoted as an alternative to mustard for western dishes. With such eventual plans and activities, the aim was not only to capture oriental cuisine market but also that of western cuisine. 

During the initial discussion, the Bhutan Development Finance Corporation (BDFC) had agreed in principle to finance up to 1000 interested farmers in the initial stage to engage in supervised Wasabi farming provided the Pilot Project proves successful. BDFC will subsequently finance up to 5000 farmers throughout the country on a phased-out manner if the initial scheme works.

The Royal Audit Authority (RAA) vide report no. RAA(SA-D1)2001/3190 dated 13.7.2001 drew the attention of the Board, Management and relevant authorities on the poor performing loans naming the glaring ones. It is yet to receive the ATR report from the BDFC.

BDFC had sanctioned a loan of Nu. 25 lakhs on the security of project assets. The total repayment made was Nu. 330,000.00 inclusive of the interest. The current status of the loan (frozen) of date is Nu. 3.45 million. BDFC had spent another Nu. 117,360.53 as transportation charge to transfer the collateral security from the project site to the BDFC office. The project is not found wounded up on the ground of bankruptcy.

The project was found closed as incredibly efficiently as it had begun with no moral, legal, or social concern to everybody involved and affected by it.

The RAA found out that: 

the Wasabi crop had failed in countries and the results are yet to be observed from that of China .

Without proper feasibility study of the project, the operation was carried out in a large scale.

Consequently, prime forests to the tune of 60 acres were affected. While the allotment of land at Serbithang is no were reflected in records available to us.

The Company is yet to file for winding up of the Company or notify the Registrar of the Trade Ministry.

BDFC would have met its objective had it financed only the farmers growing Wasabi plants rather than BARDO as was its original commitment and as per its mandate.

A committee of the Ministry of Agriculture had failed to ensure that the technical details and implementation modalities are worked out.

Agreement and the minutes of the meetings of the project never mentioned regarding the financial aspect of the project.

No serious consideration was given on the FDI issue.

The credentials of the outside partners’ credibility and reliability were taken for granted.

The MoA had signed the agreement with a foreign investment partner who did not have a legal standing.

The company had never maintained a bank account in its name except the personal one in the name of Alan Wangching Lam with the Bhutan National Bank. The capital deposit was insignificant even for infrastructure costs.

BDFC went back on its initial commitment to finance the farmers not the company.

The Managing Director, BDFC had granted a loan of such magnitude of the BDFC funds to a project where 90% of the share holdings are with the foreigners.

The PVC pipes import from Taiwan that ultimately cost the project Nu. 2,808,096.00.  Its resale in a market where even PVC Druk Pipes cannot be sold is doubtful.

Future of Wasabi is made more uncertain as all fixtures are dismantled and lifted of the site without exploring the options to optimize the value of the assets.

Why did the MoA not manage the project as mushroom or Druk seed activity

Who is now going to be responsible for clearing the mess?

Who compensates the loss to the destruction of the ecosystem if the company winds up?

The Royal Government of Bhutan must therefore see that the laws, policies, and systems were not compromised hereafter while the BARDO must satisfy all stakeholders. (Details read in AG's Occasional Papers, Volume I, Issue II)  

5.       Potable water production: why not capitalise on this? 

A study on the Mineral Water Plant at Bhutan Agro Industries was carried out, as RAA found the product potential was not fully exploited. The mineral water packaging line at Bhutan Agro Industries Ltd. has an installed capacity to produce 1,296,000 bottles of mineral water in a year (by taking 200 working days in a year). On day basis, the plant can generate 6,480 bottles per day.

The plant was initiated with a view to generate a net profit of Nu.3.53 per bottle, which will contribute Nu.2 million towards overhead coverage and drastically improve the viability of the Company. 

During the year 2000 only 13.19% of its installed capacity was utilized by leaving 86.81% unutilized and during the year 2001 only 27.65% of its installed capacity was utilized thereby leaving 72.35% unutilized.  

The raw material at least for a potable water/table drinking water cannot be a problem at all. 

The sales figure for the year 2000 and 2001 based on a comparative study show that out of 40 different products, 21.72% and 29.93% during the years 2000 and 2001 respectively was made of by the mineral water.   

At Present the Mountain Spring Water alone is contributing the maximum sales within Bhutan . 41.43% of the sale in Bhutan was constituted by the sale of mineral water in the year 2000 and 49.01% in the year 2001.  

The unit cost involved in production of 1,296,000 bottles of mineral water is only Nu.4.59. If we add 50% overhead (assumption) on the raw material cost, the overall unit cost involved is only Nu.6.97 at factory gate. At present the BAIL is selling the product at Nu.10.00 per bottle which indicates that the Company is generating a profit of Nu.3.03 per bottle before tax. 

The raw material cost involved is reasonably less as compared to other products. At present the PET bottles are procured from M/s Bhutan Polythene Company in which the cost of the material is greatly reduced in the form of transportation cost as compared to purchase from Indian manufacturers. There would be no dearth of raw material to produce mountain spring water, as it is available in abundance. 

If the company utilises the installed capacity of 1,296,000 units in a year, the company would be generating a gross profit of Nu.3,926,880.00 if sold at current rate of Nu.10.00. This would greatly contribute to cover overhead cost of the Company. Even if the Company utilises 75% of the installed capacity and sale at lower price, say Nu.8.00 per bottle; the earning would be Nu.1,001,160.00 in a year.  

Bhutan had imported 40,707.00 litres of mineral water in the year 2000 whereas the export was just 11,100.00 litres. Similarly, in the year 2001, though a smaller volume of 10,463.20 litres of mineral water was imported and exported only 3,010.00 litres below the previous year. Our country is importing more quantities of mineral water than what we export despite of having our own mineral water plant at Bhutan Agro Industries Ltd. 

Bhutan Agro Industries could offset a minimum import of 25,585.10 litres of mineral water on average (average taken on the basis of import for the year 2000 and 2001) every year, which would be highly beneficial for a company from commercial point of view. If BAIL produces what we are importing today, the company would have generated an additional annual average gross profit of Nu.77,522.85 (by considering a profit margin of Nu.3.03) (Read details in AG's Occasional papers Vol I, Issue II) 

Chapter IV 
REVENUE ACCOUNTABILITY 

1.       Lopsided Agreements - Public Interest Jeopardy 

Agreements for all work & supply/ procurement and projects revealed to be drawn without taking into account the interest of the employer. Consequently, the national exchequer had to bear the losses, which would have been avoided. 

2.       Surcharges : only the criminal should bear the burden of the penalty. 

The Royal Audit Authority also observed that any levy and taxes of national significance must have national consensus or national decision.   

However, in organizations, in order to cover cost due to poor management the burden is loaded on to the customer and clients such as the loading of the transportation and insurance charges to make up the losses due to employee negligence. Without a valid administration, and decision making such practices if not monitored could have an adverse bearing on effectiveness of the activities of organizations.   

3.       Outstanding revenue 

An agreement was reached in a Meeting held on 23 April 2001 with the DRC on the realization of the substantial government revenue outstanding. These outstanding revenues are yet to be fully realized.

Chapter V 
PROCUREMENT ACCOUNTABILITY: 

1.       Culture of paying suppliers and contractors generously:                  

It is found not uncommon practice that engineering, financial and supervising personnel seldom discharge their duties with care and prudence. The professional code is lacking in most. Because of these lapses, the payment made out of the budgets is often either paid in excess, over or doubles, causing considerable financial damage to the poor government. To the audit’s surprise, rarely payments made in are short or collected fully or on time, or in excess.  

It must be a mission of every public servant, civil servant and Bhutanese that every chetrum saved for the public exchequer is as good as ones contribution to the society. 

2.       Non maintenance of hindrance register - unethical 

In most of the construction works, government money was found paid to the contractors on the simple plea that hindrances justified the payments. 

However, while auditing it was observed that no hindrance registers were being maintained and claims substantiated. Such an act would amount to favoring the private parties by Royal Government of Bhutan officials without regard and respect for any public interest. 

3.       Tendering/calling quotation: a beautiful concept deliberate misunderstanding as nuisance to many 

The procurement of goods and services through tendering and based on quotation is such a beautiful concept that not only provide opportunity for all the interested, qualifying and legal service providers but ensures a fair play to the society, taxpayers, and employers. To the treasury it gives the best deal and the maximum value for its money.  

However, to a lot of organizations and officials, this has been considered as a nuisance as it hinders free play and free will in terms of employing and procuring goods and services for his/her organization from the preferred personal sources/suppliers. 

4.       Tender Committees - convenient scapegoats. 

The Financial Manual in order to minimize the human errors and discrepancies as double check and control provides for appointment of different levels of tendering committees depending on the nature and the amount of financing to over-see that norms, rules and policies are not violated or compromised. 

However, incidences of such committees' abusing/misusing the powers that were vested upon them to regularize actions not in conformity with rules are still found not quite uncommon.

5.       The optimization in country capitals - won't trust to maximize returns. 

Most procurement or services take in Bhutan through two modes: 

One is based on procurement and supplier service purely by Bhutanese license holders and from sources within the country. The other is through open arrangements involving external suppliers and sources. As a result, supplier and management from the second mode often put the national suppliers at a disadvantage. The Financial Rules and the Government Policy intends that the procurement and suppliers should in principle and as a matter of rule be from Bhutanese license holders and origins of goods be from within the country. 

It is therefore, necessary that the supply orders from other than non-Bhutanese license holders, preference be for goods that are of Bhutanese origin. Their participation or non-participation has to be satisfied only after which the second option/mode should be considered. 

Chapter-VI 
COORDINATION AND COOPERATION, OVERLAPPING AND REDUNDENCIES: 

1.       Repeated audited qualifications - indication of poor accountability. 

In a substantial number of agencies, the same audit qualifications are found not fully complied and yet such actions are repeated. The instance of repeated qualifications are indicative of auditees either not respecting the provisions of the Financial Manual and the Royal Government of Bhutan's Policies or the accountable officials competence need to be reviewed.  

2.       Financial and service sector: does not harm to play more proactive role. 

The financial institutions and services in the country are found more bureaucratic and lack proactive-ness. The advances and recoveries management need to be efficient and effective. Further, more efforts be devoted to promote investment and develop economic productivity on their own. These bodies must take upon themselves to resolve the so-called excess liquidity problem with or without the RMA involvement. The lamenting on the liquidity issue must cease and economic invigoration and creation of investment opportunity must be high on their agenda. 

3.       Public service installation and maintenance:  Need for coordination and cost consciousness. 

Frequent uncoordinated installation of and maintenance of the essential public services such as plumbing, power cabling, drainage & sewerage, TV/computer cabling, telephone cabling at the municipality areas had not only caused inconvenience to the ever-increasing traffic in the city, but auditors had found out that avoidable costs were incurred by each agency also draining away the scarce public resources. The spontaneous, sporadic and one upmanship nature of undertaking sectoral activities should be replaced by more organized way of public management.  

It is high time that either the respective municipal or the national urban development authorities effectively coordinate such development and activities to avoid duplication of work and reduce the burden on the public exchequer through a well structured and coordinated planning and implementation process. Clear-cut ground rules if laid down as to the procedures, roles and responsibilities of each authority responsible would go a long way in tackling the chronic practice. 

Chapter VII 
GENERAL: 

1.       Seals of office - do we need to have a system? 

The seals of offices are being used by every organization. They are also necessary to authenticate documents. Such seals have become necessary to be applied both for domestic requirement and for international usage. These are also manufactured through different arrangements. It becomes necessary that there have to be at least an authentication system even if they are acceptable to be designed and manufactured individually. 

Besides, the use, usage, and custody need to be legislated in order to avoid any adverse legal consequences. In fact, the seal of office in other counties and as per the Company's Act must become the significant items at the time of taking over and handing over of senior officers. 

2.       Changes in policies and decisions 

Frequent changes in policies and decisions were found to be the reasons for a substantial number of confusion, lapses and irregularities. A policy or decisions, unless it is a time bound one by nature, should have a gestation period and maturity period and they be accordingly assessable for impact and usefulness.  

The Royal Audit Authority recommends that the policymakers and decision-makers may consider these concerns in order that man, manpower and materials are optimally deployed. 

3.       Privatization and its consequences - If public management is the best solution? 

The successful and essential activities are privatized and dis-invested to individuals and corporations with an objective to gain cost efficiency and effectiveness. It is not uncommon to notice that immediately after privatization, compromises in terms of the intended objectives of the services, in terms of cost, benefit and qualities of services.   

Whenever such a decision is implemented, the cost of services had become more dear and delivery ineffective due to arbitrary increase in rates/charges. 

4.       Decisions without proper economic analysis - can our future inheritors afford our indifference? 

The Royal Audit Authority during its audit review is confronted with a lot of programs and projects, being implemented without proper need, feasibility and liability studies. No were standards are set to determine the quality of products or services. Often such activities do cost heavily due to cost over run and design changes consequently. In addition, due to poorly conceived projects, it is in the long run economically unsustainable and burden-some.   

The Royal Audit Authority feels that all development activities, programs and projects in particular the larger ones need to be subjected to full analysis from the point of political, financial, technological, cultural, spiritual and social context. Often most activities undertaken without the completion of any or most of the basic formalities such as the economic and impact analysis resulted to be counter-productive affecting the fulfillment of the national goals and objectives. 

5.       Transparency in Agencies: seed for efficiency, effectiveness, trust and faith. 

Most of the time, audit findings are not intimated to the concerned by the responsible. It is noted by the concerned when one is in a need of an audit clearance certificate. The situations are by then too late. This indicates existence of poor decision-making system and information management. As a result, employee's integrity and sincerity is put to a compromise. The Royal Audit Authority feels that all audit findings have to be accessible and available to all interested in the organization and individuals notified. It should no longer be a secret document to be guarded by the finance officer. They should be tabled in coordination and review meetings of the organization. It should be an annual feature as much as discussions on plans and budgets. 

Accordingly, the action and decisions taken should also be made available in a widely circulated media for public to be aware of integrity and accountability system of the managers in an organization. In addition, the public must be made aware of whatever the actions taken. 

6.       Concept of Program Approach : the better option for efficient resource utilization. 

The concept of Program Approach is gaining popularity in the development field.  Bhutan to a certain extent had to accept this approach. It would be meaningful, if the present practice of encouraging piecemeal and small-scale nature of technical assistance were to be discouraged. Otherwise, it has the danger of compromising the national and individual's integrity in particular in the governance system. For example, a sophisticated bridge in between a stretch of poorly constructed and managed highway may not be a consolation as an out put for effective planning and aid management. A facility established without a clear objective and long-term operational plans and programmes is as good as adding one more monument to be burden on the treasury. A disparate aid participation binds all decision makers loyalty to an individual donor or a person. 

In addition, any project idea that look to be too attractive or to nice to be realistic must be given second thought/look in order that the mirage effect do not delude or adversely affect the national policies, systems and procedures.  

Chapter VIII 
CONCLUDING REMARKS: 

The GNH, the auditors understand is not a statement of the state of happiness of Bhutanese people at any given point of time, in the truest sense of the word. It will be simplistic to assume that all Bhutanese will emotionally be happy at the same and all the times. GNH we feel is to be interpreted as a development philosophy that aspires a level of development, which could take most Bhutanese people's socio-economic-cultural-political satisfaction to a same minimum level of wellbeing in every aspect of the 21^st century lifestyle and standard.  

Such a state is reachable if we subscribe to life goal that shall exist in a self-disciplined environment; and realization dawns that in the common wellbeing, individual wellbeing can be possible to be sustained. Not the other way round.  

This can be attained if each Bhutanese, as responsible member of our society abstain from commission of bad practices of lifestyle pointed out by the auditors. Instead, start taking the ownership and leadership role to do the common good.