The Royal Audit Authority (RAA) recovered Nu 18.77 million (M) from Bhutan Ferro Alloys Limited (BFAL) after conducting an audit for January 1, 2013, to December 31, 2015.
Auditors had initially raised 108 observations but 68 were resolved as per the management responses and justification in the exit meeting and actions were taken.
According to the audit report of April 27, 2017, there were discrepancies in the lease of land for installation of crusher at the Bhutan Oil Distribution (BOD) premises in Pasakha, which helped in recovering Nu 7.921M.
While details of the Nu 18.77M were not available, information available on some of the resolved cases indicated that audit observations of Nu 7.8M were made for the managing director (MD) for using official fund for personal expenses, Nu 2.3 for his inadmissible medical expenses and Nu 5.13M on special salary increments granted to him.
The report stated that the Nu 18.77M recovered has been transmitted separately to the management in the form of management appraisal report (MAR) for future reference and compliance.
It also stated that BFAL and Tashi Real Estate Private Limited, Phuentsholing, entered into a lease agreement on December 25, 2008, for 10 years. The RAA pointed out that the approved lease rate as per the Lease Rules and Regulations for Government Reserved Forest Land 2009 for industrial area in Phuentsholing is Nu 5 per sq.ft per annum. “But the rate between the two parties was Nu 10 per sq.ft with 10 percent increase every two years. BFAL paid excess rental charges.”
RAA also stated that BFAL invested Nu 40M in equity shares of Tashi InfoComm Ltd without return. “The management did not conduct proper investment appraisal and analysis of risk and return,” the report stated.
BFAL’s response stated that it need not issue equity share certificate as per section 24 of the Companies Act of Bhutan. “The management asserted that such investment is made in view of the long-term investment and return.”
Auditors also pointed out that BFAL has lent money interest-free amounting to Nu 4.13M.
The report stated that the company gave Nu 10M each to Bhawani Enterprise and Vinayak Resources based in Siliguri, India but at the same time availed an overdraft facility from Bank of Bhutan (BoB) at 13.75 interest per annum. “The interest-free advances were not found prudent.”
It also found that the senior general manager (Corporate) availed INR 500,000 in three years through credit card facility, undermining internal controls and transparency.
Auditors pointed out that there were instances of payment of salary above the approved pay scale, amounting to about Nu 15.340M.
It was found that while the top employees of BFAL are paid much higher than those at the same grade at the Druk Holding and Investments (DHI), those at the lower rung are paid much lower than DHI employees.
The report stated there are no human resource (HR) policy, systems and practices and no credit policy and adequate sales management system.
It also stated that the company’s mining operations were inefficient resulting in short supply of quartzite.
The report also stated that BFAL made achievements during the auditing period mentioning that BFAL earned about INR 6,468 M from 2010 to 2015, contributed about 26.38 percent ferro silicon in 2013 and 22.81 percent in 2014. It contributed Nu 596.05M in tax from 2012 to 2015.