Farhat Ali

The federal government, in the third year of its five- year tenure, is reported to have decided to conduct forensic audit of ten loss-making State-Owned Entities (SOEs) for the FY2016- FY2018 period.

As per the government plan, Auditor General of Pakistan (AGP) will conduct forensic audit of half of the SOEs; for the remaining half, however, audit firms from the private sector will be engaged.

The entities to be audited include Pakistan Railways, Pakistan International Airlines Corporation (PIAC), Sui Southern Gas Company Limited (SSGCL), Peshawar Electric Supply Company (PESCO) and GENCO-III- Northern Power Generation Company Limited and Thermal Power Station.

Although the decision to carry out forensic audit of SOEs is a welcome step, it’s late by two years. A comprehensive forensic audit of the SOEs should have been one of the foremost priorities of the incumbent government from the day one. An early start could have helped government save billions of rupees that it has spent on these white elephants. Moreover, the loss-making SOEs could have been turned around as viable entities by now; these must have been ready to be privatised at premium.

The engagement of AGP and financial auditors from the private sector indicates that the foreseen audit will only be a financial audit to identify cause of losses and financial irregularities - a routine exercise. An audit of this nature would at best come up with lots of financial figures and statements and some finger-pointing details.

The mess in the SOEs is strongly charcterised by a gross lack of fiscal discipline far beyond fiscal issues. For years, these SOEs have been subjected to political expediencies, massive corruption, crass incompetence and the poorest of poor governance. Unless all of these ills are diagnosed or identified and effectively addressed, forensic audit will be meaningless; it will be nothing but an optic and a witch-hunt ploy.

The need is to conduct a comprehensive forensic audit inclusive of fiscal, administrative and technical aspects, human resource, compliance and governance.

Once these major issues are effectively resolved the fiscal position of these entities will automatically improve.

The scope of the said forensic audit is beyond the expertise of AGP and local audit companies. This audit is a highly specialised task for which only few reputed audit companies are available in the world. But such an audit is critical even if it is conducted by the AGP and local private firms in view of the fact that loss-making SOEs constitute one of the major threats to the sustainability of state economy and overall fiscal discipline in public sector.

(The writer is a former President Overseas Investors Chambers of Commerce and Industry)