RAA unearths Nu 179M irregularities in Dungsam Cement

DDCL: Royal Audit Authority uncovered irregularities amounting to millions of ngultrum with the Dungsam Cement Corporation Limited (DCCL) mostly in violation of the laws and rules, the annual audit report 2014 revealed.

DCCL has the largest amount of reported irregularities under the non-budgetary agencies in the fiscal year ending in June 2014. It was also the only corporation that had huge irregularities under the violation of laws and rules.

A total of Nu 179.726 million (M) was spent in excess as a result of incorrect rate analysis, irregularities in rate analysis of items of works, and other irregularities. This amount represented more than 77 percent of the total irregularities under the non-budgetary agencies followed by Bhutan National Bank far off with Nu 29.927M.

The company had paid excess payment of Nu 116.993M to the contractor for additional items at analysed rate for plant civil works.

“Although the procedure for rate analysis includes applying parameters of similar items in the Bhutan Schedule of Rates 2009, the co-efficient applied was inconsistent,” the report stated.

“Further, 10 percent entry tax and 15 percent transportation charges for certain materials were also paid, which was not required to be considered for rate analysis of item of work.”

The irregularities in rate analysis of item of works led to excess payment of Nu 35.645M. The payment was made on account of cost variations exceeding five percent of the initial contract price, which were required to be regulated as per the quoted rates unless due process was followed.

Another excess payment of Nu 26.444M to a contractor was made for additional items at analysed rate on account of 6 percent overhead and contingencies in addition to the 16 percent overhead that was already included.

Shortfalls, lapses and deficiencies came to Nu 0.644M, excluding the cost overrun of the project.

Dungsam Cement Project Authority had revised its cost three times from Nu 7,170M to 10,485M resulting in a cost overrun of 46.23 percent including the loans taken from Indian and local commercial banks.

The project authority’s improper planning and weakness in management were quoted as some of the reasons for the cost and time overrun.

“While certain factors contributing to the cost overrun were beyond the control of the project management, some could have been avoided such as those incurred due to improper planning and weakness in management,” it stated.

“Avoidable cost and time overrun include compensations paid to contractor for delay in handing over sites and drawings and unplanned or ad hoc changes in designs entailing additional costs,” the report stated.

Of the total irregularities that RAA uncovered across all sectors, the total unresolved significant issues amounted to Nu 634.313M as on March 31.

By Tshering Palden

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