ISLAMABAD, March 24: The opposition on Thursday accused the PIA management of nepotism in awarding a multi-million-dollar contract for European cargo sales in a non-transparent manner without calling any tenders. The matter was raised in the National Assembly on Thursday when a “calling attention notice” of Peoples Party Parliamentarians (PPP) was put on the agenda regarding irregular cargo contracts in PIA. The call attention notice was moved by PPP MNAs including Sherry Rehman, Khurshid Shah, Dr Azra Fazal Pechuho and Ch Qamar Zaman Kaira. Sherry Rehman questioned the award of cargo contract in eight European countries to Pervez Sajjad of Golden Star Aviation without calling any tenders and at much higher rates than the industry practice.
She said no precedent existed in the aviation history when a contract was awarded at such high commission rates and in a non- transparent manner.
The minister of state for defence, Zahid Hamid, conceded that no bidding was done in the award of contract for eight European countries t Golden Star Aviation. The minister, while trying to defend the award of a major contract without open bidding said the initial contract of one country (Belgium) awarded in 1998 was expanded to include other major European countries by the incumbent PIA management.
However, the minister claimed the cargo sales had started registering profits.
According to the documents available with Dawn, a test case internal audit of PIA’s cargo handling at European stations during 2003-04 revealed fraudulent practices of Rs84.91 million.
“Above state of affairs is quite alarming whereby not only unidentified AWBs (Airway Bills) series are misused but also PIA funds are withheld fraudulently,” said a letter No IA/LON/049/2003/2471 signed by the chief internal auditor of the PIA.
In view of the massive irregularities detected during the test audit of a few cases, the internal auditors sought the management’s permission for further investigations into the cargo cells at the European stations.
Another presentation given on August 25, 2004 by the chief internal auditor on status of internal audit observations revealed that 73 objections remained unresolved despite reply received from the respective stations and departments.
The documents show the internal audit identified various irregularities related to transshipment handling and coordination among various European stations with cargo cell at Heathrow, London.
The incumbent PIA management, led by Chairman Ahmed Saeed, appointed Golden Star Aviation, a firm owned by an ex-employee of the PIA, as its cargo sales agent (CSA) for booking entire cargo transportation in eight European countries.
While conceding that even the bank guarantee has been provided to the PIAC by Kales Group and not the main Golden Star Aviation with which the PIAC entered into an agreement, the corporation told Dawn, “Kales Group are business partner of Golden Star Aviation and hence bank guarantee from Kales Group is not an infringement of the agreement.”
The documents show the magnitude of the irregularities could have been much larger as the auditors in their report said due to large number of transactions, the checking was done on a test basis. In the case of unreported AWBs, Rs19.6 million was found to be unreported at London, Manchester, Amsterdam and Frankfurt.
“Concerned stations have confirmed non-billing and non-reporting of few airways bills and rest are under their checking,” said the audit report.
“As audit exercise was limited to a few European stations and for a selected period, a comprehensive exercise be carried out to determine the total number of AWBs and amount recoverable due to non-billing/reporting and necessary corrective measures be taken,” said the report.
According to the audit findings, the unreported transshipment record at Amsterdam, Frankfurt and Brussels amounted to Rs14.79 million.
The audit further noted, “during review of the agent sales reports at London, Amsterdam and Frankfurt, we have noted unidentified series used by the various agencies which are (do) not relate to PK and never issued by the head office and/or the respective station.”
“Proper monitoring at station level be done to avoid usage of unidentified series not issued by the PK/respective station and or proper billing be done to safeguard corporation interest,” the audit recommended.
“During our test review of kept record maintained at cargo revenue section head office, we have noted cases whereby other airline documents were wrongly purchased as PK documents and not being billed to respective airlines.”
The audit also noted wrong punching of AWB (Air Way Bills) record amounting to Rs46.51 million at the European stations. “During our review of lift record maintained a cargo revenue section we have noted a number of discrepancies due to wrong punching of AWB record.” Wrong punching of AWB numbers resulted in unidentified series never issued by the head office or the respective Europeans station, said the report.
A source at PIA headquarters said when the irregularities were pointed out by the internal auditors, the PIAC chairman called a meeting of all country/cargo managers from European stations in the first week of May 2004 at the cargo division, Karachi and asked them to “regularise the irregulars.”
Later, according to a PIA document dated September 27, 2004, letter No FLS/43/2004, PIA outsourced finance department related activities to a private auditor at an annual payment of Rs16.1 million with the aim to “supplement the functions of the internal audit” and “assistance in implementing of the revenue accounting system.”
Effective May 2004, the private firm was also assigned to provide assistance in the implementation of “new revenue accounting package” at a cost of Rs3.9 million per annum.
The private auditors were hired despite the fact that the Auditor General of Pakistan and the PIA’s internal audit department were fully functioning and pointing out the irregularities in the PIA.
On October 25, 2004, July-September accounts of the PIAC presented before the board of directors recorded a loss of Rs386 million but according to PIA’s own documents, the losses could go upto Rs986 million in case revenue on account of taxes (fuel surcharge, war risk) is increased by an amount of Rs600 million.
Through a “Journal Voucher,” an amount of Rs600 million in taxes was withheld to “adjust” PIA’s account statements and the same accorded approval through minute-1 on October 25, 2004.
The Director, marketing, Kamran Hassan; Director, Finance, Arif Majeed, and the PIAC Chairman Ahmed Saeed, jointly signed the minute-1, raised by the director finance.
PIA’s documents show that director, marketing, was of the view that an adjustment of Rs600 million be made in the financial statements because these were unaudited financial statements and the accuracy of this adjustment could be checked and corrections be made, if required, in the audited financial statements for the year ending December 31, 2004.
For the purpose of establishing the “accurate status for the annual accounts,” a representative of the private firm was included in the committee for creative accounting practices, the documents reveal.