Audit finds discrepancies in financial records of Shillong Smart City Ltd

SHILLONG, Sep 13: An audit of the standalone financial statements of the Shillong Smart City Limited (SSCL) has found some anomalies and violations.
The observations were made in the Annual Report 2020-2021 of SSCL which was tabled in the House on Tuesday.
The auditors perused the standalone financial statements of SSCL which comprise the balance sheet as on March 31, 2021, the statement of profit and loss, statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant acting policies and other explanatory information.
The report drew attention to “Reserve and Surplus” which includes Rs 3.75 crore and Rs 2.89 crore, respectively, credited to capital reserves as project fund utilisation although these amounts were paid as mobilisation advance to the contractors immediately on allotment of the work.
The report said that no utilisation certificates were obtained by the SSCL from the contractors in this regard before considering such payments as fund utilisation. Also, as these advances are subject to recoveries from subsequent bills to be raised by the contractor, the report was of the opinion that on disbursement of such advances they should not be immediately be considered as fund utilisation, adding further, the management could not provide documents supporting their treatment of such advances as fund utilisation.
“Treating mobilisation advance as funds utilisation and submitting utilisation certificate in this regard to the funding agency without verifying actual position of work done on the ground will leave a wrong precedence for the future,” the report said.
With respect to “Mobilisation Advance”, the report draw attention to Sl. No.2 of the Office Memorandum/Circular No. 10.04.07 of Central Vigilance Commission, where it was stated that “Though the Commission does not encourage interest free mobilisation advance, but, if the management feels its necessity in specific cases, then it should be clearly stipulated in the tender document and its recovery should be time-based and not linked to progress of work.
However, according to the audit report, in the bid document for “Construction of Commercial Complex at Polo, Shillong” no such declaration with respect to interest free mobilisation advance was found and hence, providing mobilisation advance to the contractor on an interest-free basis was in violation of the said office memorandum.
As per the report, further, recovery of such mobilisation advance has been linked to future “running bills” or “completed percentage of works for the projects: “Construction of Commercial Complex at Polo, Shillong” and “Construction and Re-Development of Laitumkhrah Municipal Market at Laitumkhrah, Shillong” and was not on time basis thereby contravening the said office memorandum.
The report stated that as per the office memorandum No. F.9/4/2020-PPD dated November 12, 2020, of the Department of Expenditure, Ministry of Finance, owing to COVID pandemic it was decided to reduce performance security from existing 5-10% to 3% of the value of the contract for all existing contracts.
However, as per page 539 of the “Contract for Construction of a Commercial Complex at Polo” with M/s Badri Rai & Co., performance security has been kept at 2% of the contract price i.e., 2% of Rs 75 crore. Thus, there is a shortfall of such performance security of the contract price by Rs 75 lakh.
The report also stated that accounting and retainership charges includes prior period expenditure of Rs 10.75 lakh paid to Meghalaya Urban Development Authority (MUDA) for their services pertaining to the period January 2019 to May 2019 and although the bills were raised by MUDA in this regard in May 2020, however, no provisions were made in the books of accounts in previous years with respect to this expenditure.
“Hence, the same should have been booked as prior period expenses in the FY 2020-21. Similarly, depreciation includes depreciation for prior periods to the tune of Rs 3326. A TV cabinet worth Rs 19,500 purchased on June 11, 2020 has been booked under office equipment instead of furniture & fixtures. This has resulted in excess depreciation of Rs 1755,” the report said.
The report also said that their attention was drawn to Sl. No. 1 Revenue Grants to Note 17 – Notes to Accounts and Significant Accounting Policies whereby Rs 2.37 crore of project funds has been utilised for Administrative and Other Expenses (A&OE) and no prior approval in writing was obtained in this regard from the Board of Directors.
It also stated that tour & travelling expenses of Rs 1.26 lakh includes travelling expenditure of Rs 24,941 of Rahul Kapoor, a Director of the Company, and no boarding pass in this regard was made available during the course of the audit.
As per the Smart City Mission, the state and central government are to contribute grants in the ratio of 50:50. However, as on March 31, 2021, grant contributed by the Government of India is Rs 55 crore and that contributed by the state government is Rs 10 crore and thus, there is a shortfall of Rs 45 crore.
The report stated that as per the minutes of the meeting of the “Finalised Polo Commercial Complex Building” held at the Chamber of the Principal Secretary of Urban Affairs department on September 17, 2020, the contractor confirmed that “variance to the tendered drawings shall not be seen as change of scope of work and he shall not be entitled nor derive any monetary gain by way of disputed claims, etc., due to this variance.”
However, in case of the first running bill of “Construction of Commercial Complex at Polo”, there has been a variation in the approved BOQ resulting in excess payment of Rs 11.40 lakh. Further, as per the contract, any such variance is to be supported by the designated engineer’s certificate which, in this case, was not present.