IFAP Newsletter January 2012

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The Institute of Forensic Accountants of Pakistan (IFAP)(Set up under license of Federal Government of Pakistan issued by Registrar Joint Stock Companies Under the

Societies Registration Act of XXI of 1860)

January 2012

Monthly

The Forensic Accountant (FA)(Official organ of The Institute of Forensic Accountants of Pakistan (IFAP)


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Look Inside

A

Articles

How to Prevent Financial Fraud in your Organization, 11, 12

President Communication,

By: FA Barrister Sohail Nawaz - President IFAP, 4, 5

Recognizing the Elements of Fraud,

By: FA Barrister Umer Abdullah - Member Executive Council IFAP, 6-11

Top Corporate Governance Stories of 2011, 12, 13

I

IFAP

About, 74

Executive Council / Board of Directors, 75

MoUs /Reciprocal Arrangements, 73

Objectives, 74

Recent / New Members, 73

N

News

International News

ACCA News, 71, 72

ACFE News, 48-54

AICPA News, 66-68

AML & Financial Crime News, 54, 55

CIMA News, 72, 73

FASB News, 65, 66

ICAEW News, 68-71

IFAC News, 61, 62

IFAP News, 73


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IFRS News, 62-65

Serious Fraud Office (SFO NZ) News, 59-61

Serious Fraud Office (SFO UK) News, 57-59

Transparency International News, 55, 56

National News

FBR News, 32, 33

Fraud & Corruption News, 13-28

NAB News, 39-41

SBP News, 34-39

SECP News, 28-32

Transparency International Pakistan News, 41-48


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President Communication

Dear Professional Colleagues,

"There's no question that the Enrons and WorldComs of the world haveheightened the need for better governance, and that momentum has carried

all over the globe."The fast-changing world of information technology and the exponentialincrease in the use of computer systems threaten the forensic auditingfraternity. The technology used by criminals and fraudsters is changingconstantly and forensic auditors need to stay on top of their game to prevent and detect these crimes. Through the growth of the Internet and connectivity technology, the world is faced with opportunities forcrime and fraud that were not available before. Forensic auditing techniques needto evolve just as fastas the techniques used by hackers and criminals. This can be done by employing former hackers to writesecurity tools to aid Forensic Accountants/Auditors. One caveat, though, is that these security toolsshould not be exploitable by hackers and fraudsters to aid them to commit theircrimes.Employees andex-employees with a thorough knowledge of the computer systems of an organization can pose asignificant risk to the security of the system. By changing access control procedures after an employee

has left the organization, the threat of an external attack by the formeremployee can be minimized.Surprise audits can assist to control the risk of current employees perpetrating fraud. A risk assessmentcan also help to reduce the likelihood of fraud.Prosecuting computer crime and computer-based fraudis becoming increasingly difficult toaccomplish. Reforms in laws and statutes of specific countries, as wellas extradition laws and international cooperation, are necessary to bring computer criminals to justice.The rate at which the law is adapted to accommodate computer crime needs to be increased if suchcrimes are to beprosecuted successfully. Case law can help to expedite these reforms.The law and thecourts are not evolving fast enough to deal with computer crimes. New laws and statutes regardinginformation technology often take a long time to prove useful. The law needs to evolve alongsideforensic investigations to successfully transform and allow for the change in technology and the waybusiness is conducted in the world. The education of law enforcement, legislators and the judiciary incomputer literacy will also ease the task of prosecuting computercriminals. The forensic auditor is only asgood as the follow-through with successful litigation.

Responsibility for preventing and detecting fraud rest with management entities. Although the ForensicAccountant/Auditor is not and cannot be held responsible for preventing fraud and errors, in your work,he can have a positive role in preventing fraud and errors by deterring their occurrence. The ForensicAccountant/Auditor should plan and perform the audit with an attitude of professional skepticism,recognizing that condition or events may be found that indicate that fraud or error may exist. Based onthe audit risk assessment, Forensic Accountant/Auditor should develop programs to audit procedures bywhich to obtain reasonable assurance that the financial statements in their entirety, all significant errorsand fraud have been identified. It is expected that the Forensic Accountant/Auditor to implementprocedures that will lead to the discovery of errors or fraud without significant impact on the financialstatements can not be held responsible for undetected such irregularities. The ForensicAccountant/Auditor should communicate with the management of his client. He should ask themanagement information concerning any significant fraud or error has been detected in order to detectkey problems that could lead to certain activities, the implementation of audit procedures more thanusual However the Forensic Accountant/Auditor faces the risk inevitable that some significant errors to bedetected, even if the audit is planned and done properly.

With trillions of dollars in capital sailing the globe in search of investments, the shareholders' crusade formore open, well-run companies is gaining strength across many major and emerging markets. In whatsome call a worldwide corporate-governance movement, shareholders are pushing for strongercorporate-governance laws, teaming with investors from different countries and negotiating behind thescenes with businesses. In earlier years, it was hard for shareholders to dig up details from thousands of


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global companies on their finances, their directors, executives' pay packages and other informationcritical to making investment moves. Directors, regulators and shareholders, but also policymakers andthe general public, need to pay more attention to corporate governance. This tells us how firms operate,their motives and principles, their reporting lines, who they are accountable to, and how they manageprofit, remuneration and, in the case of many financial firms, other people's money. When times weregood, too many people took their eye off the ball and now we see the consequences. The public outcry

has been loud and understandable, not least in relation to executive pay. And even some topexecutives have now admitted the lack of relationship between pay and performance and called for asalaries shake-up. We now realize that constantly rising share prices is not necessarily a sign of goodcorporate governance. In fact, as recent history shows, it could actually be the opposite.

Forensic accountancy is often no more than presentation of financial issues in a form that is easilyunderstoodby disputing parties. This includes the police or other regulators, the lawyers, the Judge andthe Jury. Complexity of financial accounts is often cited as a red flag of fraud. Complex group structureswith inter-company transactions and charges often cloud the simple facts of the business taking place.Sometimes the reason is to cover up fraud, but often it can simply be the policy of the company ownersstructuring their business innocently. Many businesses will use a different bank account for each strand oftheir business operation, often having several accounts for each company. Then they might have severalcompanies to act as vehicles for different aspects of their activities. Thus one business may run with one

company and one bank account, whereas a similar business may have dozens of bank accounts and astraggling group of companies. The complexity of the group might mean that if a dispute arose, forensicaccounting would be needed to break things down to a simple level and present almost as if thebusiness was like the single company.

Many solicitors working in all areas of the law routinely use Forensic Accountants (FAs) to assist them withthe financial and business aspects of a case. However, some solicitors may be faced with the need toinstruct an expert accountant for the first time, or must explain to a particularly demanding client whythere is a need to spend additional money on appointing another person to the team! Victims of fraudmay wonder if spending more money investigating their loss is worth it. This examines why forensicaccountancy adds value to any fraud matter, business crime defense or confiscation proceedings. Anycriminal or civil dispute involving fraud, money laundering or matters of finance generally tend to bemore complex than other disputes. The reason why loss has occurred is often due to the confusing

nature of money transactions hiding somebodys attempts to steal. Sometimes business losses aretargeted by the regulators as frauds simply because the money trail is confusing! In short, there are manyinstances where it is essential that a clear and succinct picture is drawn up of any particular transaction,or series of transactions, so that a complete understanding is facilitated for all parties, many of whom donot have a clear or detailed understanding of finance issues.

Financial crimes threaten your organization at multiple points of vulnerability. Focusing on a singlechannel or line of business can hinder management visibility and allow fraud and money laundering togo undetected. A single, holistic management framework that integrates disparate detection systemswith alert and case management can automate crime prevention, helping to protect your organizationfrom the financial and reputational loss associated with financial crimes. Leveraging detection systemsfor both fraud prevention and detection and anti-money laundering (AML) processes helps reduce riskand improve analyst efficiency. Financial services organizations that undertake a comprehensive,

structured approach to the prevention and detection of fraud and financial crime can obtain benefitsthat contribute to higher performance as well as reductions in fraud loss. Activities aimed at improvingdata quality can support better business intelligence, while standardization of processes throughout theorganization improves financial services organizations overall processing efficiency.

FA Barrister Sohail Nawaz

PresidentIFAP

January 31, 2012


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Recognizing the Elements of FraudBy FA Barrister Umer Abdullah (Member Executive CouncilIFAP)

A government agency official directs the owner of a company doing businessunder contract to provide equipment and contractor staff that will be used toperform non-contract related work for the agency. When seeking payment,

the contractor bills the hours for non-contract work as having been expendedon contract related activity. The billing occurs with the knowledge of theagency official, and the agency official instructs lower level staff to approvethe bill for payment from agency accounts. Because the contract is part of afederally funded program, the agency in turn files a claim for reimbursement with the federalgovernment, which the federal government, in good faith, pays. Some people might say that theagency official is a creative manager. I'd say that agency official is a crook.

FRAUD occurs when all of the following elements exist:-

An individual or an organization intentionally makes an untrue representation about an importantfact or event;

The untrue representation is believed by the victim (the person or organization to whom therepresentation has been made);

The victim relies upon and acts upon the untrue representation; The victim suffers loss of money and/or property as a result of relying upon and acting upon the

untrue representation.

Fraud can be for the benefit and gain of an individual, or for the benefit and gain of an organizationalentity or program. When an individual commits fraud, the benefits and gains may be direct (receipt ofmoney or property), or indirect (reward of promotions, bonuses, power and influence). When anorganization (actually an employee acting on behalf of the organization) commits fraud, the benefitsand gains to the organization are usually direct, in the form of financial gain.

Some states have specific fraud statutes. Other states may have specific laws to deal with bribery andcorruption; and may prosecute other types of fraud under larceny, robbery, embezzlement or other

specific statutes. Whenever the U.S.A government is injured through fraud, the matter falls within thejurisdiction of the US Justice Department and the federal courts. Therefore, a fraud could be prosecutedas a felony under both state and federal laws.

In addition, under U.S.A federal Law, anyone who engages in fraudulent activity and uses telephones,telegraph and/or the Postal Service to discuss or either send or receive correspondence or documents infurtherance of the fraud, can be prosecuted for felony mail fraud and/or wire fraud; and if two or morepersons act in collusion to defraud, U.S.A federal conspiracy statutes also apply. Also, under U.S. federallaw, anyone who has knowledge that a felony fraud has actually been committed against the U.S.Agovernment; fails to report the fraud to appropriate authorities; and helps to conceal the fraud by givingfalse information, concealing facts, obstructing justice, or taking some other positive action, is also guiltyof a felony crime punishable by up to three years in federal prison.

In addition to the general laws governing fraud, there are U.S.A laws that deal with and/or regulate

specific industries and business transactions. These laws also usually contain specific statutes forprosecuting fraud. Some examples would be statutes pertaining to bank fraud, forgery or insurancefraud.

Generally, there are twelve crimes that fall under the umbrella of Fraud.

1. BriberyBribery is the giving, receiving, offering, or soliciting of any "thing of value" in order to influence an officialin the performance of, or failure to perform, the lawful duties of that official. This includes influencing or


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soliciting the commission, or collusion to commit, any other type of fraud; or influencing an official, orsoliciting by an official, to do, or omit to do, any act that violates the lawful duty of that official. Briberydefrauds the victim (usually an organization or political entity) of the right to honest and loyal servicesfrom those employed by the victim.

2. Commercial Bribery

Commercial bribery is the giving, receiving, offering or soliciting of any "thing of value" in order toinfluence a business decision without the victim's (usually a business organization's) knowledge orconsent.

3. Illegal Gratuity

An illegal gratuity is the giving, receiving, offering or soliciting, after the fact, of any "thing of value" for orbecause of an official act that has been taken.

Following are examples of bribery and illegal gratuities:-

A government inspector solicits payment from the owner of a business regulated by a governmentagency. In return, the inspector fails to report important safety and financial violations discoveredduring the last inspection. In this situation, the victims are those who rely upon the honest reporting of

deficiencies, and the loss is salary paid to the inspector for work not performed, plus any damagesthat result from failure to perform.

The owner of a company doing business under contract for an organization knows that the managerresponsible for overseeing the contractor's activities plays an influential role in deciding whether ornot the contractor is satisfactorily meeting the performance terms and conditions of the contract.The manager uses personal influence and position to assure that the contractor receives satisfactoryperformance evaluations and is paid, even though the contractor's work is substandard, and lowerlevel staff in the organization have legitimate concerns about the cost of the contract and thecontractor's ability to perform. The contractor secretly gives financial and other incentives to themanager in return. In this situation, the victims are those who expect satisfactory performance ofcontract terms. The loss is dollars paid for unsatisfactory work.

A senior organization official accepts financial and other incentives from a contractor to assure thata request for proposals is written in such a way that only that one contractor will be able to submit asatisfactory bid proposal. In addition, the senior official uses personal influence and position topersuade other senior officials that a good faith effort to obtain competitive bids has been made. Asa result, the favored contractor wins the bid award at a noncompetitive price. In addition, once thecontract is in effect, the same senior official approves and justifies several high cost contractamendments, for which additional illegal gratuities are received. In this situation, the victims are thosewho expect a fair and impartial competitive procurement process. The loss is dollars needlessly spentas a result of noncompetitive pricing and price gouging.

4. Conflict of Interest

A conflict of interest occurs when a person or organization acts on behalf of another individual ororganization; and has, or appears to have, a hidden bias or self-interest in the activity undertaken; andthe hidden bias or self-interest is actually or potentially adverse to the interests of the individual ororganization being represented; and the hidden bias or self-interest is not made known to the individualor organization being represented.

When a person's conflict of interest results in economic or financial loss to the individual or organizationon whose behalf the person is acting, then fraud has occurred. Conflict of interest can exist on its own, orcan be an intricate part of other frauds such as bribery and illegal gratuities. Conflict of interest lawsapply to government employees and those doing business with government. In the non-public sector,


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conflict of interest may not be a prosecutable offense, although the criminal results of such conflictwould be.

The examples given for bribery and illegal gratuities are also examples of conflict of interest resultingin fraud.

Conflict of interest can also occur and result in fraud without the presence of bribery and illegalgratuities. This happens when an individual or organization acting on behalf of another individual ororganization has a hidden financial interest in the outcome of an event or transaction.

The typical example is that of a company official or employee, or an immediate relative of an official oremployee, who has a hidden financial interest (stock or direct ownership) in a vendor doing business withthe company. If the official or employee is in a position to influence the amount of business the vendordoes with the company, then a conflict of interest exists. If that conflict of interest results in unnecessaryorders being filled or paying higher than fair market prices for the goods or services, then fraud hasoccurred. This is because the involved individuals will benefit financially through higher valuation of stockor direct distribution of proceeds from doing business with the company. The victims here are those whoexpect company officials and employees to act in the best interests of the company, rather than in self-interest. The loss is dollars needlessly spent on overpriced or unnecessary goods and services.

Conflict of interest can also exist and result in fraud when an organization has a hidden interest orbenefit from the outcome of an event or transaction. In a government environment, for example, thismore subtle type of conflict of interest could occur if government officials, acting on behalf of thegovernment, either alone or in conspiracy with providers of services, obtain state and federal fundsand use those funds for other than intended program purposes. In this instance, the governmentagency, in acting as the conduit of state and federal funds, has a hidden self-interest that is actuallyor potentially adverse to the interests of the state and federal government. An example of this wouldbe the following situation:-

An agency official directs the owner of a company doing business under contract with the agency toprovide the agency with equipment and contractor staff that will be used to perform work for theagency that is unrelated to the terms and conditions of the contract, and unrelated to the federalprogram under which the contract is funded. This favor and benefit creates a conflict of interestbecause there is no longer an arms-length relationship between the agency, which acts on behalf of thegovernment, and the contractor. When seeking payment, if the contractor intentionally bills the hours fornon-contract work as having been expended on contract related activity, then the contractor hascommitted fraud. If the fraudulent billing occurs with the knowledge of the agency official; and/or theagency official instructs lower level staff to approve the bill for payment from agency accounts; and theagency in turn files a claim for reimbursement with the federal government, which the federalgovernment, in good faith, pays, then the agency official has also committed fraud under federal law.

The example given is a fraudulent act resulting from conflict of interest because the actions of self-interest by the contractor and the official acting on behalf of the agency are hidden from the state andfederal governments, and constitutes obtaining state and federal funds under false pretense (see FalseStatements and False Claims, below). The victims are the state and the federal government, from whichthe funds were obtained, and the loss is the funds illegally obtained.

5. False Statements and False Claims

A false statement fraud and false claims fraud occur whenever anyone knowingly and willfully falsifies amaterial fact or makes a false or fictitious representation or files a false or fictitious claim that results ineconomic or financial loss to the party to whom the false representation has been made.

Example of False Statements and False Claims:-

An employee prepares and submits a monthly payroll time report, and intentionally falsifies thedocument by not reporting unpaid leave taken while the supervisor was away on business. As a


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result, the employee is paid for the time not worked. The same principle applies to an employee whofalsifies a travel voucher by reporting expenses that were not incurred. The victim is the employer,and the loss is the money wrongfully paid to the employee.

A senior company official disagrees with a court decision for which all legal remedies have beenexhausted, and which the company must therefore comply with. The decision has a significantfinancial impact on operations. The senior official knowingly and intentionally continues practices

that the court decision has prohibited. The failure to comply with the ruling results in the chiefoperating officer filing false statements, reports and vouchers with the government. The victims arethose who rely on accurate reporting to the government, and the loss is funds illegally obtained orexpended; or economic or property losses incurred because of the improper reporting.

A company performs contract work for a government agency. Under the direction of companymanagers staff charge time to a government program that reimburses 75% of incurred costs, insteadof charging the time to the actual government program that they worked on, which only reimburses50% of incurred costs. The employees recognize that the wrong program is being charged for theirtime, but are unaware of the differing reimbursement percentages. When the employees questiontheir instructions, the company managers tell them not to worry since both programs are paid fromgovernment funds, and the cross-charging doesn't really matter. The government is subsequentlyfraudulently mischarged as a result. The company managers have engaged in fraudulent activity

that results in false statements, false claims, and probably mail fraud. Under U.S. law, the employeeswho filed the false time reports are guilty of conspiracy to defraud. Though the employees neitherbenefited from the mischarging, nor were aware that the mischarging was illegal, they are alsoparties to false statements, false claims mail fraud and conspiracy statutes. The employees knew theywere improperly charging their time, and by falsely preparing the time documents, the employeesconcealed the fraud. Whether they knew that the mischarging was illegal is not a consideration. As aresult of the employees' actions, when the government was billed for reimbursement, the companymanagers were able to defraud the government of costs that should have been borne by thecompany.

6. Extortion

Extortion occurs when a person or organization obtains something from another individual or

organization under color of official office and/or through the use of actual or threatened force or fear,including fear of economic or fiscal loss.

Examples of Extortion:-

A government inspector solicits payment from the owner of a business regulated by a governmentagency, and in order to secure the payment, the inspector threatens the business owner withcharges of severe code violations and heavy fines. Faced with a threat of economic and fiscal loss,the business owner makes the payment. In this situation, the victims are those who rely upon thehonest reporting of safety issues and deficiencies. The loss is salary paid to the inspector for work notperformed and the money extorted from the business.

An official responsible for contract procurements also has a great deal of influence among contractprocurement officers in other companies and government agencies. The official informs a contractor

that in order to continue receiving contracts, the contractor must provide special gratuities, favors orservices without compensation to the contractor. If the contractor fails to cooperate, the officialthreatens to blacklist the contractor and cut the contractor off from any further work. Faced with athreat of economic and fiscal loss, the contractor complies. In this case, the victims are those whorely upon the official to carry out duties and responsibilities with honesty and integrity. The loss is thecost to the contractor of providing non-reimbursed services.


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7. Mail Fraud and Wire Fraud

Under U.S. federal law, anyone who engages in fraudulent activity and uses telephones, telegraphand/or the U.S. Postal Service to discuss or either send or receive correspondence or documents infurtherance of the fraud, can be prosecuted for felony mail fraud and/or wire fraud.

Examples of Mail and Wire fraud:-

If any of the perpetrators of the previously described crimes used the postal system to mailreimbursement claims, mail bid announcements, exchange correspondence with co-conspirators orvictims, submit/return contract amendments, or in any way used the postal system to carry out the fraud,then they can be prosecuted for mail fraud. Similarly, if a modem was used to electronically exchangedata or file claims related to the fraud; or if co-conspirators discussed related activities over thetelephones or in any way used telephones or telegraph to carry out the fraud, then they can beprosecuted for wire fraud.

8. Conspiracy

Conspiracy occurs when there is the specific intent that a crime be performed; and there is anagreement with another person to engage in or cause that crime to be performed, and one of theconspirators commits an overt act in furtherance of the conspiracy. At state and local levels, there are

various degrees of conspiracy, ranging from misdemeanors to felonies, depending upon the crime that iscommitted. Under U.S. federal law, conspiracy is a felony. When two or more persons conspire todefraud the United States, or any agency of the United States, for any purpose or in any manner, eachperson is subject to a $10,000 fine and imprisonment of five years.

Examples of Conspiracy

All of the crimes previously described could be prosecuted under conspiracy statutes if the elements ofconspiracy exist.

9. Breach of Fiduciary Duty

A breach of fiduciary duty occurs when a person, who is employed by and owes a duty to anorganization or another individual, does something that is not in the best financial interest of thatorganization or individual. Breach of fiduciary duty is a civil matter, not a criminal offense. However, as acivil offense, the elements of proof required for conviction are considerably simpler than for criminalfraud, and it is not necessary to prove wrongful intent.

Examples of Breach of Fiduciary Duty:-

All the previously cited examples of bribery, illegal gratuities, fraudulent conflict of interest, andmaking false statements are felony crimes. They are also breaches of fiduciary duty. This means thatin addition to criminal charges, the persons who have committed wrongful acts can be sued fordamages in civil court.

There are other types of breach of fiduciary duty. These fall under the umbrella of gross negligence,gross mismanagement, and abuse. An example would be failure to design adequate systems ofinternal controls that ensure the accuracy of data and information upon which company funds aredisbursed. The victim is the organization, and the loss is the funds inappropriately disbursed.

11. Embezzlement

Embezzlement is the fraudulent conversion of personal property by a person in possession of thatproperty where the possession was obtained pursuant to a trust relationship.

Examples of Embezzlement:-

Typical examples are the use of a kiting or lapping scheme to steal money.


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Kiting can occur when a bank allows withdrawals to be made on checks deposited by a customer butfor which the actual funds have not yet been collected from the bank on which the check is drawn. Inreality, the cash could either be in transit or non-existent. Goods and services are then purchased, orcash is obtained from legitimate sources, by writing checks against non-existent account balances. Thefraud is perpetuated by continuous "kiting" from bank to bank checks that are drawn on non-existentfunds. In a kiting scheme, the victim is usually the bank that has paid out on uncollected deposits, and

the loss is the money paid out by the bank.Lapping is the use of funds received from payment of accounts receivable to cover a theft of cash. Theperpetrator initially steals cash tendered in payment of an outstanding receivable. To cover the initialtheft, a payment made by a second customer is charged against the account from which the initialtheft was made, thus "lapping" the two accounts. Payment from a third customer is used to cover thesecond account, and so on. The victim in a lapping scheme is usually the company from whom themoney was stolen, and the loss is the amount of money stolen.

12. Failure to Report a Federal Felony to Appropriate U.S. Law Enforcement Authorities

If an individual: knows that a fraudulent act has been committed under federal law; and fails to reportthe fraudulent act to appropriate U.S. law enforcement authorities; and then actively engages inconcealing the fraudulent act or evidence of the fraudulent act; then that individual is guilty of a felony

crime punishable by up to three years in U.S. federal prison. Examples of acts to conceal fraud include:changing, hiding or destroying official records in order to conceal the fraudulent act; suppression ofevidence regarding the fraudulent act; directly or indirectly causing others to withhold or suppressinformation pertaining to the fraudulent act; making false statements to investigators regarding thefraudulent act; or any other affirmative action designed to conceal the fraudulent act from authorities.

Consider the implications of this for auditors: Since the auditor's primary duty is to examine, evaluate andreport, if an auditor becomes aware of fraudulent activity, and fails to report it to appropriate lawenforcement authorities a prosecutor could argue that the failure to report is an "affirmative act" by theauditor to conceal the fraud.

How to prevent financial fraud in your organizationFinancial fraud affects not only the person who commits the act, but also casts the company involved in

a bad light. The unfortunate truth is that while financial fraud is usually heavily publicized if the companyat the center of the controversy is large or publicly traded, these acts of dishonesty can also occur insmall and medium sized businesses and perhaps these companies are more susceptible to fraudbecause there may be a lack of measures in place to prevent them from taking place. The following area few steps that can help any organization to reduce the incidence of financial fraud, regardless of itssize:-

Hire the Right People

The first step to stamping out financial fraud is to be vigilant about the people you hire. If you take thetime to choose the right people from the start you are less likely to run into problems later on. This meansfollowing up on references, doing background checks if necessary and using proven interviewtechniques to detect personality traits that may raise red flags before you offer a contract for

employment.Adopt Proper Financial Standards

There are internationally accepted standards of conduct surrounding financial transactions anddepending on the industry you are in you may be legally required to train your employees to understandand accept them before they are hired. The financial industry for instance routinely deals with sensitiveinformation and there is ample opportunity for all types of financial fraud to occur, so there are strictmeasures in place to govern companies in this industry. Even if you are not mandated to follow thesestandards it is good practice to use them as a guideline for how you conduct business.


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Make Employees Aware of Rules and Procedures

It is not enough to make a high level decision to accept standards to deter financial fraud, but the rulesand procedures must be passed down to all levels of the company for them to be effective. Regularmeetings and workshops should be held to sensitize employees on the issues and possible breaches ofpolicy that may make room for financial fraud to occur.

Conduct Annual Audits

Although it may not be mandatory for your company to undergo an annual audit this type of actionsends a strong message that you are serious about detecting and dealing with financial fraud. Anannual audit also provides an opportunity to highlight issues of inefficiency that may otherwise gouninterrupted for a long time, so there are other benefits as well. There are a number of things you cando to prevent financial fraud in your organization. The tips listed above can go a long way towardscreating a creating an environment that is free from any illegal action and one that engenders the trustof your consumers and clients.

Top Corporate Governance Stories of 2011From the collapse of MF Global in the U.S., to a string of bailouts in the European banking sector, 2011

was a year filled with high-profile corporate governance stories. Below are a few highlights fromGovernance Perspective stories in 2011.

Sino-Forest- A Canada-Listed Chinese Lumber Company Comes Crashing Down

In June 2011 Sino-Forest Corporation, a Canadian-listed Chinese forestry company, saw its share price fallby more than 80% after activist investor Muddy Waters claimed that the company lacks legal rights tomuch of the land it claims to own and that there was reason to suspect stratospheric fraud.

In 2011, a number of institutional investors criticized Sino-Forest for not following globally recognized bestpractices when it comes to corporate governance. For example, investors have raised concerns aboutthe fact that Sino-Forest director Simon Murray attended fewer than 1/5 of his regularly scheduled boardand committee meetings. Other investors, like the Ontario Teachers Pension Plan (OTPP) raised concerns

about the fact that Sino-Forest never separated the roles of Chairman and CEO.

In June, I wrote an article explaining that according to data from GMI, the New York City basedcorporate governance research firm, only 1/3 of the directors at Chinese-listed corporations areindependent, compared to 75% in the U.S. Furthermore, only a fifth of the independent directors atmajor Chinese corporations appear to have significant relevant industry experience. Only two majorcompanies in China have appointed an independent director who is a risk management expert.

In the second half of 2011, Sino-Forest saw more trouble. In August the company launched an internalinvestigation into Muddy Waters claims, became the target of an investor lawsuit, and saw its CEO

resign. In November, Canadian regulators opened an investigation into the companys finances, and inDecember, Sino-Forest missed a $10 million interest payment, defaulting on $1.8 billion worth of debt.Governance policies at Chinese listed companies continue to face scrutiny from international investors.

Olympus in Focus: Japanese Camera-Maker Faces Serious Governance CriticismIn 2011 Olympus found itself at the center of the largest corporate governance scandal in Japans

recent history. In October, 2011 I wrote an article explaining that the companys British CEO, MichaelWoodford, had been summarily fired by the companys board, allegedly after he raised questions about

massive advisory fees Olympus made in connection to a recent deal.

In October, 2011 Olympus acknowledged that it paid a record-breaking $687 million to financial advisersfor its purchase of a U.K. company, confirming a key allegation made by Mr. Woodford andcontradicting statements by the companys chairman Tsuyoshi Kikukawa, who had previously said the


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payment totaled about 30B yen ($390M). The company has yet to explain why it paid advisory feesworth more than a third of the value of the deal to two financial companies, one of which is based in theCayman Islands.

In an October, 2011 article I explained that it seems clear that the companys board has failed to

effectively provide independent oversight on behalf of shareholders. Only three of the companys 14

directors are independent. None of the companys independent directors have experience in the

camera or electronics industries. One of the companys independent directors is a medical doctor.Furthermore, not one independent director appears to have significant experience in risk management.

Woodford, Olympuss former CEO, has stated publicly that he commissioned Pricewaterhouse Coopers,the accounting firm, to conduct an independent investigation, the results of which he distributed to theboard of directors. He said that the day before he was fired he had called for Olympus executives,including Mr. Kikukawa, the companys 71 year old Chairman and former CEO, to resign.

Olympus denied the allegations of misconduct, but in the end, the company found itself targeted byinvestigations by the U.S. Federal Bureau of Investigation, the U.K.s Serious Fraud O ffice, and byauthorities in Japan. In late October, Mr. Kikukawa resigned as Olympuss chairman. The company

announced that its entire board would resign by early 2012. In December, Olympus announced a $1billion hole in its balance sheet, and saw its offices raided by Japanese prosecutors. The companys

legal troubles will no doubt continue in 2012.Murdochs Management Style Comes under Fire

In July, 2011 I wrote an article explaining that as the result of an ongoing investigation into allegations ofphone hacking and other illegal conduct by News Corp employees and affiliates, Rupert Murdoch, oneof the worlds highest profile media magnates, had to testify before the U.K.s parliament. He told theaudience that this is the most humbled day of [his] life, but also added that News of the World

accounts for less than one percent of our company, which employs 55,000 people around the globe. Iexplained that for a number of analysts the current scandals are a sign of much deeper

management problems. For decades, Mr. Murdoch has held the dual roles of Chairman and CEO,stifled internal dissent, and shown no qualms about appointing his children to senior executive positions,rather than looking out to a field of better qualified external candidates.

In 2011 as authorities in the U.K. arrested one former employee after another, Murdoch closed down hisNews of the World subsidiary, and saw his management style face unprecedented criticism. In July,Murdoch told Parliament that in spite of the scandal, he thinks that he is still the best person to clean this[mess] up. In a subsequent article in October, 2011 I explained that News Corp, although publiclytraded, features a dual class share structure that allows Mr. Murdoch to effectively control directorelections and other matters that are subject to shareholder vote, even though he does not own amajority of the companys outstanding shares.Given the companys governance structure, it was nosurprise when at the companys 2011 Annual Meeting, Rupert and his slate of directors were re-electedto News Corps board. On December 21, 2011 a 52 year old British police woman was arrested inconnection to the News Corp scandal. By all accounts, News Corps legal troubles will continue in 2012.

Mr. Murdoch, however, has not indicated that he will loosen his grip on the board, or appoint anindependent chairman.

National News

Fraud & Corruption News

Expensive Government land on Murree Road allotted illegally

Government land costing billions of rupees on the Murree Road has allegedly been allotted. Whilewidening the Murree Road in 1998-99, the then Punjab chief minister, who also holds the post now, haddecided to allot alternate land instead of financial compensation to some of the affected persons.


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Working swiftly, the Highways Department first got transferred six acres of land on the main Murree Roadowned by the Agriculture Department in their own names and then transferred it illegally to fake victims.The Revenue department had also declared the allotment illegal six years back. After probe, it waslearnt that land was provided to Raja Abdul Latif without any legal justification ignoring the legalclaimant Zia Rashid. Likewise, Raja Shafqat, son of Raja Mohammad Siddiq, was also allotted land whilethe actual claimant, Mohammad Hashim Khan, son of Haji Manzoor Hussain, was ignored. Two other real

claimants Mohammad Usman and JamilaAkhtar were also not included in the list. A six-membercommittee consisting of officials of the Revenue and Highways departments in the light of a detailedreport of tehsildar Rawalpindi had ruled that all bogus allotments may be cancelled and the landillegally allotted maybe got vacated. The committee had also ruled that the genuine affected personsmay be given alternate lands elsewhere.

OGRA`s move robbed consumers of Rs.70 billion

If the gas shortage were not bad enough, the ineptness of those running the sector simply compoundsan already critical situation. Gas consumers are reported to have suffered a whopping Rs.70 billion lossover three years thanks to a single decision of the Oil and Gas Regulatory Authority (OGRA) to hike theprices in a violation of then rules. And worse still, this `wrong` decision to increase prices was leaked inadvance allowing powerful brokers to pick up extra stocks of gas companies from the market and make

a killing. No wonder then that the initial information about this scandal, thanks to an inquiry conductedunder the orders of the Supreme Court, has galvanized the National Accountability Bureau (NAB) intoaction. The bureau has sought permission to start formal criminal investigations with the aim to fixresponsibility for the `improper` decision. The story, according to the documentary evidence availablewith Dawn, starts back in Sept 2010. Then OGRA made a substantial departure from its own previousdecisions and targets, and set losses at seven per cent for 2009-10. In the past, it estimated unaccountedfor gas (UFG) losses at 4.5-5.5 per cent. As a result, there was a 13 per cent increase in gas tariff for thatyear, followed by another 15 per cent increase in August last year and about 14 per cent with effectfrom Jan 1, 2011, putting the total estimated loss at over Rs.70 billion. This burdened the gas consumerswith Rs.37 billion ( Rs.20 billion on account of Sui Southern Gas Company and Rs.16.6 billion for SuiNorthern Gas Company Limited). On the other hand, the shareholders of the two companies reapedwindfall profits. But this is not the end of this story of wrongdoing and exploitation of the consumer. Thelatter were also robbed of their subsidies which were rerouted to the companies instead. Informed

sources said the Sept 2010 decision to increase UFG to seven per cent and to treat revenues fromoperating assets as non operating income was shared by OGRA leaders with powerful stock exchangebrokers sitting on the board of directors of the gas companies. Consequently, the SSGCL share beingtraded at the stock exchange for Rs.16 on Sept 23 jumped to Rs.36 in a matter of days. Officials said thisdecision violated the World Bank and Asian Development Bank loan conditions. These conditionsspecified that required late payment surcharge meter manufacturing profit, income from Jamshoro JointVenture and sale of condensed gas was to be treated as operating income which was to be transferredto the consumer through a subsidy on bills. As the stock players earned over Rs.10 billion, the then OGRAchairman tried to reverse the decision after an onslaught of public criticism. He tried to reverse thedecision in Dec 2010 by reducing the UFG benchmark to five per cent and treating late paymentsurcharge, revenues from metering plant and Jamshoro Joint Venture as operating income in Dec 2010.However, this was vetoed by OGRA`s member gas. Under the agreement signed by the gas companies

and OGRA, the UFG losses were required to be gradually reduced to 5.5 per cent in 2009-10 from theiractual losses of about seven per cent. The agreement required that the gas companies would bear theburden of loss beyond the agreed benchmark and earn as profit if they surpassed the target. As it turnedout, the gas companies UFG losses touched eight per cent in case of SSGCL and 9.63 per cent in case ofSNGPL. These losses are now in excess of 9.5 per cent and 11.2 per cent respectively, causing over Rs350billion losses to the national exchequer on account of alternate fuel imports. The UFG benchmark wasincreased by the OGRA on the plea that in the absence of a study on UFG and change of groundrealities in terms of security situation and expansion of gas network from bulk consumers to retail sale as aresult of village gasification. A perusal of the public record, however, suggests that OGRA in its 2005-06


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determination had reported in detail the findings of the UFG study. The OGRA had reported in its 2005-6judgment that UFG in nine gas companies in the US stood at less than one per cent, 12 companies up totwo per cent and another nine companies up to four per cent. These companies had consumers inexcess of 500,000 and up to four million. It said the UFG level for similar integrated companies in Australiaranged between 1.9 per cent and three per cent, while such losses in the UK were estimated at 0.7 percent. As such, the four per cent target for UFG to be achieved in 2011-12 `is reasonable and provides

more than sufficient allowance to cater for peculiar local operating conditions, including socio-economic patterns, higher pressure requirements and related factors`, OGRA said, adding that theargument for aging network was also not sustainable for the fact that it has been allowing expenditureon system augmentation and maintenance of gas pipelines. The NAB in its inquiry report submitted to theapex court said `unless the decision is reversed Rs7-8 billion will continue to be added on a yearly basisfor indefinite period of time` and recommended `conversion of the inquiry into investigation` to scrutini zethe record for further deliberations. Under formal investigations, the NAB gets the powers to take recordinto custody and make arrests of alleged persons.

Audit refused as SESSI fraud surfaces

Sindh Employees Social Security Institution (SESSI) has once again refused to get its accounts audited,refusing to provide the required record to the audit team. According to sources, there has been no audit

of the institution during last 30 years allegedly in an attempt to conceal fraud of billions of rupees.Running under the Labor Department, the independent institution known as SESSI had been earmarkedRs 2.5 billion by the Sindh government last year. While during last 30 years, the Sindh governmentprovided funds to the institution worth billions of rupees about which reports of embezzlement andmismanagement have come up. SESSI had been established in 1970 for welfare of the workers ineducation, health and other welfare institutions in the private sector. The Audit Department, Sindh, hascomplained to the Public Accounts Committee, established by the Sindh Assembly, vide letter No.DGAS/PPC\SESSI 2011-12 that SESSI officers are avoiding audit of the institution. According to sources,five Afghan diploma holders had been appointed doctors a few months back in grade 17 in SESSI, inviolation of rules and regulations. A petition is also being heard in the Sindh High Court against theseappointments.

NRO beneficiaries not entitled to hold Government Office: CJ

Chief Justice Iftikhar Muhammad Chaudhry on Thursday declared that the beneficiaries of the defunctNational Reconciliation Ordinance (NRO) could not hold government offices. The Supreme Courtadmitted a petition for regular hearing against Sharmila Farooquis eligibility as an adviser to the Sindhchief minister as well as member of the provincial cabinet. The chief justice ordered the removal ofobjections placed by the Registrars office on the application and directed it for regular hearing.Petitioner Habib Wahabul Khairi, Chairman Al-Jehad Trust, appeared in person, and said Sharmila hadtaken relief under the National Reconciliation Ordinance. The Chief Justice observed that if she hadtaken relief under the plea bargain, then her case was a continuation of the NRO issue. He remarkedthat her eligibility as an adviser in the provincial cabinet should be reviewed as those who got reliefunder the NRO were no longer entitled for such benefits now. Khairi had made the federation, Ministry ofLaw and Justice, Government of Sindh, NAB chairman, National Savings Director General, UsmanFarooqui, Aneesa Farooqui, Sharmila Farooqui and State Bank as respondents.

Khurram Rasool swindles Rs.100 million from Karachi firm

The prime ministers former media coordinator, Mian Khurram Rasool, has swindled Rs.100 million from abig business house in Karachi, The News has learnt. Khurram Rasool had given cheques for Rs.90 millionunder different heads to the complainant and owner of Home Craft, Haji Abdul Hameed, 80, his sonsand different directors of the company. All the checks were dishonored. The accused got into a writtenagreement with the said company to import scrap of ships from Ghana, Africa, in 2008. The accusedalso kept claiming during this period to be a close buddy of Prime Minister Yusuf Raza Gilani. In 2011,Rasool took Mian Hamoodur Rehman, a director of the said company, to the PM House in Islamabad to


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pressurize him so that the business house would not proceed with litigation against him. HamoodurRehman told this correspondent that Rasool kept talking to the prime minister on the phone during aone-hour stroll at the PM House, making them believe he was a close friend of the premier, and that theFederal Investigation Agency or any other department could not act against him. Believing this, thecomplainants continuously tried to put moral pressure on Rasool to pay the amount after all hisagreements, promises, oaths, and checks were dishonored. Khurram Rasool kept ensuring the victims

that he was an honest person and would return their money. Karachi Chamber of Commerce andIndustry (KCCI) caretaker President Muhammad Saeed Shafique also wrote letters to Interior MinisterRehman Malik and FIA Deputy Director, Karachi, Altaf, on May 30, 2010 on behalf of the victim, HajiAbdul Hameed, who is also a member of the chamber, and informed them about the details of thefraud, demanding action against the accused. But the FIA did not act against Khurram Rasool evenafter one-and-a-half years. In the meanwhile, senior member KCCI Siraj Qasim Teli also met RehmanMalik in person and informed him about the details of the fraud, after which the interior ministerforwarded the application to the FIA with his reference. After a few days, FIAs Inspector NabeelMehmood called the victims and told them that a case could not be initiated against the accused onthe basis of mere claims and refused to register an FIR. Haji Abdul Hameed told this correspondent thatthe accused opened an LC for Rs.30 million at Bank Islami, Kharadar branch, to import scrap fromGhana and made three shipments from the African country to Karachi on November 17, 2008,November 27, 2008 and December 1, 2008. However, instead of delivering, the scrap was sold off fromthe godowns of Maersk shipping company, while the accused stayed put in Ghana during this period.Haji Abdul Hameed sent his business partners to Ghana, who met Khurram Rasool in his business officethere. The media coordinator to the PM kept demanding money from them on one pretext or the otherand they sent him the cash through the Western Union, receipts of which are available with thiscorrespondent. In the meantime, the accused also made Haji Abdul Hameed pay money to his friendsand business partners. KhurramRasool conned Rs.49.458 million from the victim. Haji Abdul Hameed andthe directors of his company have also filed a case against Bank Islami and Maersk in the Sindh HighCourt in which they have requested the court to order the accused to pay their money back. When FIADeputy Director Altaf was contacted, he said investigations against Khurram Rasool were in theirpreliminary stage but it looked the accused was already in deep trouble.

Another Rs.72 billion oil scam in making

The Oil & Gas Development Company Limited (OGDCL) has awarded a Letter of Intent (LOI) of $800million (Rs.72 billion) for project management consultancy services of three projects to a companywithout fulfilling the basic eligibility criteria, it was learnt. The OGDCL management has issued LOI of $800million to M/s Zishan Engineers (Private) Limited (ZEL) for developing three projects, including Kunar-Pisakhi-Deep, Neshpa and Mela, without seeking the reply of grievance committee of the company forpre-qualification of the ZEL for the multi-million dollar contract, a senior functionary of the OGDC told TheNews. The three projects will altogether add about 500 MMSCFD gas, 24,000 bbls/day oil and about 500metric tons/day LPG in the production, which will significantly reduce the current energy crises of thecountry but these have again been endangered by the OGDCL management by awarding the projectsto a non-deserving private party, feared an official of the petroleum ministry who spoke on condition ofanonymity. M/s ZEL was pre-qualified by the OGDCL to submit the bid against the tender enquiry of KPD-TAY project. The OGDCL re-tendered this KPD-TAY without returning the technical and commercial bids

to ENARthe other bidder in the tenderto accommodate the said private party, the official added.According to OGDCLs criteria, the official said, M/s ZEL was not eligible as it does not have the requiredexperience of completing five projects of similar size because allegedly M/s ZEL has not completed asingle project of commercial value of over $0.5 million. But surprisingly, it was still blessed with the lucrativeLOI. Acting Managing Director OGDCL, Basharat Mirza, who is looking after the company on ad hocbasis for the past six months, told this correspondent. There is no PPRA rules violation and M/s ZEL was thelowest bidder. To a question of grievances for eligibility criteria of M/s ZEL filed by the other bidder for this

project, Mirza said, The reply of the grievances committee of the company is not mandatory forawarding the LoI to the lowest bidder. Mirza further claimed that the losing bidders bid was nearly 100


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percent more than the awardee i.e. M/s ZEL and that is the main reasons that the management haddecided to award the contract to the lowest bidders. However, spokesman of the losing bidder alsoclaimed that they (M/s ENAR) had offered 50% lowest bid but they were knocked out on technical

basis from the bid. He further apprehended that the OGDCL management would compensate theawardee bidders by making changes through variation order, change order or amendment in the final

MOU. As per PPRA rule 48 & SOP 46 of Manual of Procurement Policies and Standard Bidding

Documents for Goods, Works and Services of PPRA, the other bidder sought rebuttal from grievancecommittee of OGDCL pointing out grass-root violation in the pre-qualifying of M/s ZEL, but the OGDCLgrievance committee called the aggrieved management for a meeting on January 23, 2012, allegedthe official of the other bidder of this multi-million dollar project. Instead of announcing the result toENARs representatives, the OGDCL had arranged a kick-off meeting on the same day with M/s ZEL forissuing the LOI of the said projects. The team of M/s ZEL comprises three ex-management officials ofENAR. Mahmood Ali Ahmad, Pervaiz Rizvi and Sajid Pervaiz have been shown as ZEL employees whereasthey are already employees of ENAR Petroleum Refining Facility (EPRF). Similarly, these executives haveallegedly been involved in malpractices, misuse of power and illegal acts by forming a trust, incurring ahuge loss to the ENAR, an attached department of the Ministry of Production. A case with FIA, Karachi,was filed against these individuals, said a letter of the ENAR to Director FIA and exclusively available withThe News. Responding to various queries by The News, Syed Atiq-uddin Shah, Managing Director of M/sZEL, only said, There is no irregularity in the bidding process and then cut off the call. The KPD-TandoAllah Yar project, which was annulled more than three times by the OGDCL management, wouldproduce 400 MMSCRFD gas, 4,500 bbl/day oil and 400 metric tonnes of LPG per day, Mela has thecapacity of producing 20 MMSCFD gas, 7,500 bbl/day oil and 20 metric tonnes/day LPG, whereas theNeshpa will produce 45 MMSCFD gas, 1,200 bbl/day oil and 40 metric tonnes/day LPG.

Switzerland returns former rulers $1.8 billion to Arab states

Switzerland said Tuesday it has returned nearly 1.7 billion Swiss francs (1.41 billion Euros, $1.83 billion) inillicitly placed assets to countries involved in the Arab Spring regime changes. The return of illicit assets is

a key component of the system set up by Switzerland to protect its financial sector and to fight againstinternational financial crime, the foreign affairs ministry said in a statement. It did not name the countries

to which money had been returned however. Switzerland revealed the figures during a meeting ofinternational experts on Monday and Tuesday in Lausanne that focused on the recovery of illicit assets

held by autocratic leaders in countries where regime changes occurred. The seminar included expertsfrom international aid organizations in 15 countries. Meanwhile, Swiss courts have expandedinvestigations into frozen Tunisian and Egyptian assets, amid suspicions that a crime syndicate may belinked to them. In addition to the suspicion of money laundering, investigators are probing the possible

involvement of a criminal organization, a spokeswoman for the Attorney Generals office, Jeannette

Balmer, told media.

Tariff differential subsidy to cost over Rs.300 billion

The power sector is losing a whopping Rs.103 billion per annum on account of power theft and non-recovery of bills. The system suffered a huge loss of Rs.63 billion in 2010-11 as bills recovery stood at 89percent with 11 percent losses. Electric power distribution companies (Discos) suffered Rs.35 billion lossesdue to power theft. If power theft in the Fata areas is also included, the amount rises to Rs.40 billion. This

disclosure was made during the special energy committee meeting of the National Assembly held hereon Tuesday. Meanwhile, the government is left with no option but to provide over Rs300 billion tariffdifferential subsidy as NEPRA has determined the new base tariff of all electric power distributioncompanies at Rs.11.826 per unit due to which the gap between the newly determined tariff andapplicable tariff has risen to Rs.3.92 per unit from Rs.1.70 per unit, NEPRA Chairman Khalid Saeed told themeeting participants. He said the cost of one electricity unit based on RFO (residual furnace oil) stands atRs.18, on high-speed diesel Rs.21-22 per unit, on gas Rs.9 per unit. And nuclear generation cost stands atRs.5-6 per unit, hydrogenation at 1.42 per unit and electricity from Iran costs Rs.9-10 per unit. The NEPRAchairman said the new base tariff was determined keeping in view the massive increase in generation


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cost because of a surge in the price of furnace oil to Rs.65,000 per ton from Rs.45,000 per ton. He saidthat passing of monthly fuel oil price of June, July on end consumers was earlier banned by the court,which was later allowed. This was also the reason for the recent inflated bills. Saeed said High SpeedDiesel is more expensive than furnace oil. The NEPRA chairman also told the meeting that the regulatorhad also proposed erasing of slab benefits of consumers who consume 1,000 units in one month. He saidthat 100 units slab consumers are highly subsidized while those who consume up to 300 units are also

substantially subsidized. But consumers who consume 700 units or more are paying the full cost and evenpaying beyond the marginal cost. He said commercial and industrial consumers are paying the fullgeneration cost of electricity, but agriculture consumers are being provided subsidy.

FTO moved against discretionary powers of tax authorities

A tax consultant body has moved the office of the Federal Tax Ombudsman (FTO) against tax authoritiesfor misusing powers for selection of cases for audit. The Karachi Tax Bar Association (KTBA) on Mondaysent a letter to the FTO Secretariat to redress the taxpayers grievances regarding selection of audit

under Section 122(5A) of the Income Tax Ordinance, 2001 by the officials of the Federal Board ofRevenue (FBR). Anwar Kashif Mumtaz, President, KTBA, in the letter mentioned that the association hadsent several letters to the revenue body regarding misusing of powers in case of the audit and multipletax years selection of single taxpayer for audit with no reason. The field officers are also misusing the

powers under the Income Tax Ordinance provision to penalize the taxpayers for their vested interestsagainst the spirit of the law, the KTBA said. The tax body urged the FTO for immediate action to save thetaxpayers from misusing of discretionary powers of the tax authorities for their vested interests. Earlier, theKTBA had urged the Member Audit, FBR, to intervene into the issue. The body had said that the audit ofthe taxpayer is important, but it is also equally important that the same should be strictly in accordancewith the provisions of the law under the income and sales tax. Unfortunately, the field officers of the

Federal Board of Revenue have negated the spirit of the Universal Self Assessment Scheme as envisagedunder the Income Tax Ordinance 2001 and STA 1990 by selecting cases of a single taxpayer repeatedlyfor a number of years, it added. The KTBA had urged the FBR to evaluate the results of the previousaudits and their fate in appeals. Repeated selection of cases for audit has resulted in widening the

bridge between the taxpayer and the tax department, the FBR was informed. The KTBA said that the tax

reform process of creating trust is being badly damaged by senseless audits. We are cautioning that thefield formations through repeated audits, multiple notices are destroying the tax reforms and as such

seriously damaging the goals of the FBR in increasing the tax-to-GDP ratio, it added. The tax body hadforwarded several recommendations regarding the audit, saying that if the taxpayers case is selected

for audit, than it should not be selected for audit for the next two years from the tax year in which the lastaudit was conducted and concluded and no significant discrepancy is unearthed during the course ofaudit. It suggested that the cases for audit should be selected only for tax year 2011 as the bestpractices of tax audit in the world, the same is always conducted for the current year and there is noconcept of audit of previous years until there is discrepancy or concealment is detected during thecourse of audit related to the previous years.

Millers flay TCP for delaying Rs.17.5 billion

The unwarranted delay by the Trading Corporation of Pakistan (TCP) in the release of Rs.17.5 billion asprice of 378,000 tons of sugar it has procured locally is creating liquidity problem for the mills and

jeopardizing payments to growers. The millers allege that the TCP is holding back their payments onfrivolous excuses of completing `codal formalities`, saying `some people at the helm of the affairs in theTCP were trying to delay the release of payments for personal gain` They say the TCP was delaying theirpayments for more than three weeks despite calls from them for an early release. Talking to Dawn onMonday, Pakistan Sugar Mills Association (PSMA) Chairman Javed Kayani rejected the TCP`s stand that itwas completing codal formalities and would release the payment only after completion of the process.`What codal formalities are the TCP officials talking about? They are using this excuse just to delay our


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payments for reasons known only to them, `he said, adding he had sent a letter to the finance minister toapprise him of the delays and its impact on the growers and the industry. `The ultimate sufferers will begrowers whose payments will be delayed due to the TCP`s attitude. He said Pakistan produced the bestquality sugar in the world. `The so-called codal formalities usually take only a few days to complete. It isfor the first time that such a long delay has been caused in the release of payments to the millers. Havethey found any virus in our sugar this time that is holding the TCP from making our payments? `He asked.

Mr Kayani said the TCP officials took no time in awarding contracts and opening LCs without fulfillingcodal formalities when low quality sugar was to be imported, but were taking their time in makingpayments against the purchase of good quality sugar. `Why? We do not understand, `he said. He saidthe TCP officials told him that some results of the tests from the PSQCA had been received and the restwere awaited. The TCP has procured sugar from the mills in line with a decision taken by the EconomicCoordination Committee (ECC) in December to create a strategic buffer stock to enable thegovernment to maintain its ability to stabilize the market in case the product`s prices rise. The ECC hasalso decided to purchase another 100,000 tons of sugar and is expected to procure up to 625,000 tonssugar. Another objective of the local procurement was to lift a part of the expected surplus of 1.1-1.2million tons from the current harvest`s output projected to be over five million tons and facilitate themillers make early payments to growers for their crop. The current crop is estimated to transfer Rs.250billion to the rural economy this year. The PSMA chairman also urged the government to allow theindustry to export up to 500,000 tons of sugar. He said even after the government`s expectedprocurement of 700,000 tons, the industry would still be left with around 400,000-500,000 tons of sugarfrom the current harvest. Dawn made several attempts to reach TCP Chairman Syed Tahir Raza Naqvi forhis views on the issue but he was not available.

Rs.3.65 billion for 2010 flood victims yet to be spent

The Sindh government has not yet spent even a single penny from the Rs.1.15 billion it has received fromthe Central Zakat Fund in addition to the Rs.2.5 billion allocated by Sindh for the reconstruction of housesdamaged or destroyed in the 2010 floods, said Sindh Zakat and Ushr Minister SajidJokhio on Monday.Mr.Jokhio, struggling to answer supplementary questions during the question hour of the Sindh Assemblysession, looked completely out of his depth as he fumbled through a bunch of papers placed before himbut did not offer any satisfactory answer until the chief minister, who was present in the house for someother business, rose in his seat in aid of his cabinet member. Monday`s session began more than three

hours behind schedule as only a few members had arrived in the assembly hall. A large number of themwere busy at a meeting being presided over by the chief minister to discuss a resolution of the NPP`sMasroor Jatoi relating to a proposed amendment to the constitution about the creation of newprovinces. The session started soon after the Zuhar azan was sounded at around 1pm. When the questionhour, which was related to the Zakat and Ushr Department, did begin, five initial questions were nottaken up as the movers the MQM`s MoinPeerzada and Heer Ismail Soho were not present in theassembly and no one else wanted to ask the question on their behalf. Arif Jatoi of the NPP, who hadasked one of the questions taken up, did not ask any supplementary question, apparently conscious ofthe three-hour lost time, and to let another Jatoi`s resolution to be taken up. The whole question hourwas completed in 10 to 15 minutes, an unusual happening in the house, where daily the entire questionhour is consumed by three to four questions and never all questions mentioned in the order of the daycould be answered. Responding to a question asked by Nusrat Seher Abbasi of the PML-F about the

funds provided for the rehabilitation of flood victims and construction of houses for them, Mr. Jokhio in awritten answer said the central Zakat council had provided Rs1.15 billion for the flood affected and thatthe government of Sindh had been planning to use the amount on the construction of houses for floodaffected families in the province. The Sindh Zakat Council was working out modalities for the constructionof houses. He had no answer to a supplementary question asked by Ms Abbasi, who wanted to know thecause of the delay saying the floods had occurred in 2010 and no house had been built even in 2012.Chief Minister Syed Qaim Ali Shah, seeing the minister utterly confused, came to his rescue and said theunprecedented floods in 2010 had caused colossal damage, particularly on the right bank of the Indus.He said as a large number of people had lost their homes, either destroyed or damaged the


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government had planned to build houses for them. He said Sindh also had Rs.2.5 billion for the housesand when Rs.1.15 billion was received from the central Zakat fund, the Sindh government also added itsshare to the amount for the purpose. He said that keeping in view the number of people affected andhouses destroyed, it would not be possible to build houses for all the affected. To handle the issue in atransparent manner, a committee had been formed which would address the issue. The step was takento ensure transparency and to preempt allegations of nepotism and favoritism, he added. The CM

agreed that around a couple of years had passed since the floods hit the province and, asking the floodvictims to be patient, said that soon the houses would be constructed and handed over to affectedpeople. He remarked: `Rome was not built in one day`. He said the federal government had alsopromised to provide funds for the houses, but the money had not yet been provided to Sindh yet.

Transmission issues: Power companies blamed for Rs.90 billion electricity losses

The Water and Power Development Authority (WAPDA) has held the board of directors of powerdistribution companies responsible for failing to improve the distribution system, which is incurring losses ofmore than Rs90 billion annually and spiraling the circular debt to record levels. In a report submitted tothe energy committee formed by the prime minister, a copy of which is available with The ExpressTribune, WAPDA says that the basic issue of majority power distribution companies (Discos) is poorgovernance and limited accountability. Hyderabad Electric Supply Company, Peshawar Electric Supply

Company, Quetta Electric Supply Company and Multan Electric Supply Company collectively are losingpower worth Rs.90 billion annually in the distribution system. These companies are not even managing topost a revenues of Rs.90 billion in a year, says the report. There should be no political and administrativeinterferences in Discos, says the report. Poor maintenance by former WAPDA operated powergeneration companies are producing almost 6 billion less units per annum than the optimum level.WAPDA recommends that provincial government representatives should be included on the boards ofpower distribution companies to share the responsibility and be administratively more involved incontrolling line losses along with improving revenue recovery. It also proposed to lease out inefficientfeeders of power distribution companies to ensure better bill collection and delivery of services. WAPDAfurther suggested that keeping in mind that tariffs are already at a high level, the revenue gap should becovered through improving inefficiencies. Owing to dismal efficiency level, generation companies areburning additional fuel worth Rs.11 billion per year, a cost that can be saved if optimum efficiency level isobtained, report adds. Power generation companies should be leased out or listed on stock exchanges

and its industrial consumption should be preferred, report adds. The National Transmission and DispatchCompany (NTDC) is losing power worth Rs.6 billion annually in transmission, more than the normalstandards. These are the real reasons of existing circular debt which has paralyzed the national economyand made life difficult for the common man, the report says. According to the report, WAPDA s hydelpower is the worst affected due to inefficiencies of power distribution companies and getting collectingmerely 55 per cent of its billed amount even after selling it at Rs.1.03 per unit. WAPDA also noted that theenergy generation mix was equally divided 50-50 between thermal and hydel but in 2010 hydels sharedropped to 32 per cent while share of thermal generation increased to 68 per cent. In year 2010-11,hydel power cost in public sector was Rs.1.54 per unit, Rs.8.74 per unit cost of electricity by public sectorthermal plants, Rs.9.07 per unit by Independent Power Producers and Rs.31 per unit cost of power byrental power plants.

Illegal allotment by CDA caused losses of billions

Chief Justice Iftikhar Muhammad Chaudhry on Monday remarked, during hearing of a suo motu notice,that illegal allotment of over 4,000 plots by the Capital Development Authority (CDA) has caused a lossof billions of rupees to the national exchequer. He was heading a three-member bench also comprisingJustice Khilji Arif Hussain and Justice Tariq Parvez. Representing CDA, Ramzan Chaudhry, said thatemployees had been allotted 20 percent quota under the governments 1993 land policy. The chief

justice responded by saying that no such policy existed, adding that the CDA should refer the issue toparliament for promulgation of a new law on plots allotment. Staff report.

FBR officials involved in Rs.6 billion tax fraud cases


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The Federal Board of Revenue (FBR) has detected tax fraud cases of over Rs.6 billion, committed throughcollusion of unscrupulous elements and corrupt tax authorities, The News has learnt. But the FBR has sofar taken no action against the officials involved in these cases. Action was taken only in one case butthat too was reversed within one week following the change of Regional Commissioner Karachi-III, a topofficial of the FBR disclosed while talking to The News here on Sunday. Such cases were also discussedduring the last commissioners conference held a few days ago at the FBRs headquarters under the

chairmanship of former chairman FBR Salman Siddique, who retired on January 21, 2012. The FBRsdirectorate intelligence and investigation has found that SRO 775 was misapplied in 7,000 cases, causingRs.1.874 billion loss to the national exchequer. The board had sent region-wise cases to all concernedauthorities to pursue them in months ahead and come up with the exact loss to the national exchequer.In a telling development, an official of Karachi Custom Intelligence, who investigated one such case,was allegedly himself found involved in getting favors. It was discovered that the persons and companiesallegedly involved in this case transferred Rs.140 million into the account of his son during the periodwhen he was investigating this particular case. The case came under discussion in the lastCommissioners conference and evidence was also handed over to the concerned authorities againstthe officers involved in these cases but no action was taken against them. The FBR also detected overRs.2 billion refund fraud cases as well as those involving stuck up withholding tax amount, which wascollected but not deposited into the national kitty. The FBR, the sources said, also detected Rs.1.995

billion frauds in Federal Excise Duty where in two major cases the tax was not deposited fully by thebeverages companies. We have identified the culprits and law will take its course, added the official.

Another scam surfaced wherein Rs.400 million bogus refunds were issued and an official of theEnforcement Wing was suspended on December 7, 2011. But when Chief Commissioner Inland RevenueService (IRS) of Karachi-111 was changed the same suspended official was restored on December 14,2011. When Member Inland Revenue Service Shahid Hussain Asad was asked why no action was takenagainst the officials involved in these fraud cases he said that an inquiry would be conducted in suchcases and stern action would be taken against those found guilty. Sources disclosed that the FBR has sofar sent 300,000 notices to potential non-filers of whom over 60,000 have filed their returns. We have sofar received tax of Rs.665 million from these persons who have now become taxpayers, the sourcesadded.

Rs.47 million to be paid to heirs of deceased Hajis

The Ministry of Religious Affairs will pay more than Rs.47 million as compensation to heirs of 158 Hujjaj, whodied during the Haj-2011, by February 10. The ministry is paying Rs .300,000 as compensation to heirs ofeach deceased pilgrim in phases and the process will hopefully be completed by February 10, the joint

secretary (Haj) of the ministry told APP. He said that Prime Minister Yusuf Raza Gilani on therecommendation of the ministry has increased the compensation amount from Rs.200,000 to Rs.300,000for the current year. Under the Haj Policy 2011, the amount of compensation was Rs.200,000. In the firstphase, checks amounting to Rs.6 million have been distributed among 20 legal heirs of deceased Hujjajon January 18, who nominated in Haj forms, after fulfilling all the codal formalities, he added. The ministryhas collected around Rs.71 million under the scheme from more than 179,000 pilgrims, who performedthe religious obligation under the government and private schemes this year. Out of these, 158 Pakistanipilgrims have died in Saudi Arabia due to natural causes. To a question, he said that claim forms arebeing received from heirs of deceased Hujjaj under the procedure adopted to ensure smooth and

transparent disbursement. He clarified that the compensation would be applicable to all pilgrimswhether they went under the government or private schemes.

Crashing figures: PIA loses over Rs.70,000 per day

Pakistan International Airlines is suffering a loss of Rs.70,676 per day. The worrying figures are in keepingwith recent reports, which suggest the airline has already lost Rs.110 billion over the past three years.Defense Minister Ahmed Mukhtar informed lawmakers in his written reply submitted to the Senate onFriday that PIA suffered Rs.19 million losses over the last 273 days. Jamiat Ulema-e-Islam Senator IsmailBuledi and Pakistan Muslim League-Q Senator Begum Najma Hameed questioned why the national flag


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carrier had faced such turbulence for so long. PIA is not on brink of collapse, however it is a fact that

the airline is in a sorry state of affairs, acknowledged the minister, replying to questions posed bylawmakers during the question and answer session in parliament. Asked why PIA was incurring lossesdespite growing domestic air traffic, Mukhtar said that high fuel costs were a factor. We are looking to

the government for help, before the national airline edges closer to the verge of collapse like PakistanRailways, he added. Despite the crippling losses, PIA employees both retired and serving enjoy free

travel in Pakistan as well as abroad, observed Senator Najma Hameed. Former directors and other boardmembers are entitled to 12 tickets in economy and business plus, including other facilities, the writtenreply stated. Lawmakers were also informed during the course of proceedings that seven out of 26airports were closed down due to the suspension of PIA flight operations on account of insufficient trafficload. Neither PIA nor any other airline is interested in conducting flight operations from the closed

airports, he said. The Civil Aviation Authority (CAA) will consider proposals to make flights operationalfrom the closed airports, said the minister. Earlier, the ministry of defense revealed that over the pastthree years 2,171 people were recruited by PIA. The number of people hired by the incumbentgovernment is the highest in the history of the national flag carrier, with 1,179 employed in 2010 alone. Aparadigm shift is needed in PIA, wrote Mukhtar in reply to this point. However, he maintained that there

would be no reduction of manpower in operational staff such as pilots, aircraft engineers andspecialized professionals. The defense minister also disclosed that over Rs.2.16 billion has been allocatedfor the Pakistan Space and Upper Atmosphere Research Commission (SUPARCO) in the current fiscalyear (2011-12) budget. The highest amount, worth Rs.1.5 billion, will be spent on the PakistanCommunication Satellite System, he said. A memorandum of understanding has been signed betweenSUPARCO and the Institute of Remote Sensing Applications for scientific cooperation on the operationaluse of remote sensing technology in the fields of agriculture, water resources and disaster risk assessment.

$1.5 billion of Pakistan looted: Swiss institute

According to the International Centre for Asset Recovery of the Basel Institute on Governance inSwitzerland, which assists developing countries in making use of international legal assistance to recovertheir stolen assets, President Asif Zardari and his late spouse Benazir Bhutto were allegedly involved inlooting $1.5 billion from the national coffers. This Switzerland-based institute, which claims to act asfacilitator, coach and legal representative in international asset recovery cases and supports countries inimplementing the provisions of Chapter V on asset recovery of the United Nations Convention against

Corruption, has revealed that only $100 million of the $1.5 billion plundered by the sitting Pakistanipresident and his late premier wife has so far been traced. It further writes on its website: During Bhuttos

terms as Prime Minister, Zardari is alleged to have masterminded various corruption related activitiesinvolving millions of dollars with Bhuttos knowledge. Zardari gained the reputation of demanding a

certain percent of government contracts issued to business people, thereby earning a succession ofnicknames: Mr.5 Percent, Mr.10 Percent, Mr.20 Percent, Mr.30 Percent, and Mr.100 Percent. In total,Bhutto-Zardari accumulated assets worth over $100 million in the United Kingdom, France, Switzerland,the United States of America and the British Virgin Islands (BVI). Some estimates place Bhutto-Zardari lootat more than $1.5 billion. The Swiss institute further writes: This sum allegedly came from illicit profits

through kickbacks in every sphere of government activity, including: rice export deals, the sell-off of stateland, purchase of planes for Pakistan International Airlines, sugar mills, oil and gas permits, awarding ofbroadcast licenses, privatization of state-owned industries and rake-offs from state welfare schemes.

Giving introduction of Asif Zardari and Benazir, this is how the Basel Institute of Governance describes theeminent Pakistani couple: A consummate politician, Benazir Bhutto was twice appointed Prime Ministerof Pakistan (1988-1990 and 1993-1996). On both occasions she was dismissed from office for allegedcorruption and misrule or bad governance. Between 1998 and 2007 Bhutto lived in exile from Pakistan inDubai and London. She returned to Pakistan in October 2007 after reaching an understanding withPresident Pervez Musharraf by which she was granted amnesty and all corruption charges werewithdrawn. However, Benazir Bhutto political life was ended with her assassinated on December 27, 2007.Her husband Asif Ali Zardari (now the current President of Pakistan) also played a prominent role in bothadministrations. He served as Minister of Investment from 1993 to 1996. The institute had cited references


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of John F. Burns 1998 article House of graft: tracing the Bhutto millions a special report; Bhutto clanleaves trail of corruption that had appeared in the New York Times and also made use of material inBBCs obituary story on Benazir Bhutto and Raymond W Bakers 2005 book Capitalisms Achilles Heel:

Dirty money and how to renew the free-market system. It is pertinent to note that the key partners of theInternational Centre for Asset Recovery of the Basel Institute on Governance in Switzerland include theInternational Monetary Fund, the International Ant-Corruption Academy, the Council of Europe, the

European Bank for Reconstruction and Development, the Organization for Economic Cooperation andDevelopment (OECD), the Swiss Agency for Development and Cooperation, State Secretariat forEconomic Affairs of Switzerland, Transparency International, For the sake of knowledge, the Stolen AssetRecovery Initiative of the World Bank and United Nations, The United Kingdom Department forInternational Development, the United Nations Development Program, the United Nations Office on Drugand Crime, Swiss National Science Foundation and the University of Basel (Sw