Performance Audit Report ON Skyrooms (PVT.) LTD (Airport Hotel) A Subsidiary of Piac

PERFORMANCE AUDIT REPORT
ON
SKYROOMS (PVT.) LTD (AIRPORT HOTEL)

A SUBSIDIARY OF PIAC
FOR THE PERIOD 2012-16
AUDITOR GENERAL OF PAKISTAN

PREFACE
Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan,
1973 read with sections 8 and 12 of the Auditor General’s (Functions, Powers and
Terms and Conditions of Service) Ordinance 2001 require the Auditor General of
Pakistan to conduct audit of expenditure and receipts of the Government of Pakistan.
The Directorate General of Commercial Audit & Evaluation (DG CA&E),

Karachi conducted Performance Audit of Skyrooms (Pvt.) Limited (SRL) for the
period 2012 to 2016 during February 2017 to April, 2017 with a view to report
significant findings to the stakeholders. Audit examined the economy, efficiency, and
effectiveness aspects of SRL. In addition, Audit also assessed, on a test check basis,
whether the management complied with applicable laws, rules, and regulations in
managing the affairs of SRL. The Performance Audit Report indicates specific actions
that, if taken, will help the management to realize the objectives. Despite repeated
requests the Principal Accounting Officer (PAO) did not convene the meeting of the
Departmental Accounts Committee (DAC).
The Performance Audit Report is submitted to the President of Pakistan in

pursuance of Article 171 of the Constitution of the Islamic Republic of Pakistan, 1973
for causing it to be laid before both Houses of Majlis-e-Shoora.
Islamabad Javaid Jehangir

Dated: Auditor General of Pakistan
TABLE OF CONTENTS
EXECUTIVE SUMMARY
SECTIONS Page
1. INTRODUCTION vi
2. AUDIT OBJECTIVES vii
3. AUDIT SCOPE AND METHODOLOGY viii
4. AUDIT FINDINGS AND RECOMMENDATIONS
4.1 Organization and Management
4.1.1 Irregular payment of salaries & remuneration to 1
officers & staff of Airport Hotel in absence of
sanctioned strength and recruitment rules -
Rs. 843.137 million
4.1.2 Irregular composition of Board of Directors of 2
Skyrooms(Pvt.) Ltd
4.1.3 Non-availability of Business Plan, Human Resource 3
and Promotion Policy, Service Rules and SOPs
4.2 Financial Management
4.2.1 Non-recovery of huge receivables - Rs. 92.73 5
million
4.2.2 Non-finalization of annual accounts by the 5
management since 2013
4.2.3 Business loss due to less receipt of revenue - Rs. 6
552.713 million
4.2.4 Loss to government on account of less deduction of 7
sales tax from transit passengers - Rs. 13.458
million
4.2.5 Non-production of record 8
4.3 Procurement and Contract Management
4.3.1 Irregular purchase of sweet water from M/s. Zain 9
Enterprises and other private parties - Rs. 70.57
million
4.3.2 Irregular award of contract for purchase of 10
vegetables / fruits - Rs. 7.54 million
4.3.3 Irregular purchase of chicken from various suppliers 11
- Rs. 3.30 million
4.3.4 Irregular award of contract for purchase of eggs 12
amounting - Rs. 2.96 million
4.3.5 Irregular purchase of vegetables/fruits without 14
competitive bidding - Rs. 1.15 million
4.4 Construction and Works
4.4.1 Irregular expenditure in split manner on renovation 15
of Airport Hotel - Rs. 7.121 million
4.4.2 Irregular purchase of furniture & fittings for Room 15
Nos.
D-5 & D-10 - Rs. 0.528 million
4.5 Asset Management
4.5.1 Non-conducting of Physical Verification of Assets - 17
Rs. 47.487 million
4.5.2 Non-registration of lease agreement with CAA due 18
to disagreement
4.6 Monitoring and Management
4.6.1 Non-implementation of PAC directives regarding 19
timely uploading of minutes of board of directors
4.7 Overall Assessment
4.7.1 Decline in occupancy rate of Rooms & Beds in 20
Airport Hotel
4.7.2 Ratio Analysis 21
5. CONCLUSION 25
ACKNOWLEDGEMENT 26
6. ANNEXES 29-32
Loss due to less Loss due to less
Passengers Room Rent
S# Year receipt of room receipt of Sales Year
in Numbers Received
rent Tax
1 2013 159,939,294 1,378,105 2013 149,005 163,251,007
2 2014 161,844,559 4,167,093 2014 146,675 182,841,691
3 2015 137,102,777 4,154,103 2015 133,953 177,686,773
4 2016 93,825,984 3,758,356 2016 106,645 156,789,766
Total Loss 552,712,614 13,457,657 Total 536,278 680,569,237
Sales Tax Loss due to
Room Rent Due deducted by Sales Tax due less duduction
SRL of Tax
323,190,300 53,564,243 54,942,351 (1,378,108)

344,686,250 54,429,570 58,596,663 (4,167,093)
314,789,550 49,360,121 53,514,224 (4,154,103)
250,615,750 38,846,322 42,604,678 (3,758,356)
1,233,281,850 196,200,256 209,657,916 (13,457,660)
Abbreviations and Acronyms
AGP Auditor General of Pakistan

BoD Board of Directors
CAA Civil Aviation Authority
CEO Chief Executive Officer
CFO Chief Finance Officer
CGR Corporate Governance Rules
CPC Central Purchase Committee
DAC Departmental Accounts Committee
DG CA&E Director General Commercial Audit & Evaluation
GFR General Financial Rules
GoP Government of Pakistan
PAO Principal Accounting Officer
PAR Performance Audit Report
PIAC Pakistan International Airlines Corporation
PPRA Public Procurement Regulatory Authority
SRL Skyrooms (Pvt.) Limited
i
ii
EXECUTIVE SUMMARY
Directorate General, Commercial Audit & Evaluation Karachi (DG
CA&E) conducted performance audit of Skyrooms (Pvt.) Limited (also
called Airport Hotel) for the years 2012 to 2016. Audit was conducted to
examine the overall performance of the entity. Audit examined the objectives
of establishing the hotel, business plan, management performance, revenue
earned, rooms and beds occupancy rate, and scrutinized accounts and
procurement contracts.
Skyrooms (Pvt.) Limited (SRL) was incorporated as a limited

company in May, 1975 under the Companies Act, 1913 (now Companies
Ordinance, 1984). It is a subsidiary of Pakistan International Airlines
Corporation Limited (PIAC). The company has paid-up capital of Rs.40.00
million against the authorized share capital of Rs.50.00 million and is 100%
owned by holding company i.e. PIAC. SRL owns and manages the ‘Airport
Hotel’ and provides hotel accommodation to PIAC transit passengers, PIAC
crew/staff, other airlines transit passengers and walk-in passengers.
On the basis of our review of data, certain irregularities have been

highlighted in this audit report. The report was finalized in the light of
management’s initial replies. The Departmental Accounts Committee (DAC)
meeting was not convened till finalization of the report despite request by the
audit to the PAO.
a. Key audit findings:
 It was observed that occupancy rate of hotel was very low.
 The management does not have business plan, service rules as

well as approved sanctioned strength enabling to run the hotel in
proper manner to achieve commercial targets.
 Irregular awards of contracts in violation of PPRA 2004 to the

parties for procurement of commodities valuing Rs. 85.52
million.
 Renovation of Airport Hotel in violation of PPRA 2004 valuing

Rs. 7.65 million.
iii
 Physical Verification of property, plant, equipment, stores &
spares and stock-in-trade amounting to Rs. 47.49 million was not
carried out.
 Non recovery of huge receivables Rs.92.73 million.
 Loss to government due to less deduction of sales tax amounting

to Rs.13.458 million.
iv
b. Recommendations:
 Efforts should be made to prepare business plan so that revenue of

the hotel may be increased by enhancing the occupancy rate of the
hotel.
 In order to run the hotel on efficient grounds, service rates, effective

operating rates may be prepared.
 Efforts for early recovery of all outstanding amounts be taken on war

footing.
 Compliance of Public Procurement Rules, 2004 may be ensured so

that procurements are made in a transparent manner.
 Action may be taken against the persons who are responsible for
receiving less revenue and depositing less tax into government
treasury.
v
1. INTRODUCTION
Directorate General of Commercial Audit& Evaluation (South) Karachi

conducted performance audit of Skyrooms (Pvt.)Limited to examine the overall
performance of the company managing airport hotel for five financial/calendar
years i.e. 2012 to 2016. This audit was included in the Audit Plan 2016-17.
PIA established a subsidiary company Skyrooms (Pvt.) Limited in

2012 to 2016 for managing the Airport Hotel. The prime objectives of hotel
were providing hotel accommodation to PIAC and other airlines transit
passengers, crew/staff and walk in passengers.
The hotel has an area of 30,468 square yards comprising open space
of 21,442 square yards and covered area of 9,026 sq. yards. In the year 1983-
84 four new blocks comprising 244 Rooms, Reception, Shops and Dining
Hall facilities were added to the hotel. In the same year, the then
management of the hotel decided to close down the old wing consisting of
100 rooms due to their dilapidated condition and unsafe accommodation.
Subsequently out of 100 closed rooms, 67 rooms were renovated and opened
for business. At present, the hotel has 310 rooms having 538 beds.
The management provided the audited accounts for the year 2012 and
unaudited accounts for the years 2013, 2014 & 2015 and account for the
years 2016 & 2017 was not provided. The comparison of assets, expenses
and accumulated losses for the year 2011and 2015 as under:
%
Sr. 2011 2015
Description Increase/
No.
(Decrease)
(Rs. in million)
1. Property Plant & Equipment 61.144 44.364 (27.44)
2. Trade debts of the hotel 49.431 95.669 93.54
3. Staff retirement gratuity 64.956 155.688 62.14
4. Accumulated loss 133.080 155.688 16.99
vi
2. AUDIT OBJECTIVES
Audit objectives were to:
a. Examine the performance of the company with a view to ensure the

effectiveness, economy and efficiency in the operations of the
Company.
b. Review compliance with the objectives for establishing the

Company.
c. Examine the adequacy of internal controls.
d. Review compliance with the applicable laws for procurement.
e. Examine the functioning of company (Airport Hotel) in

compliance with rules and regulations.
vii
3. AUDIT SCOPE AND METHODOLOGY
The assigned task of performance audit of SRL for the period 2012 to
2016 was carried out as per following scope and methodology:
AUDIT SCOPE:
A period of 5 years 2012-2016 was covered in the Performance

Audit exercise.
METHODOLOGY:
a. Check and scrutinize the record on random basis for the audit
period.
b. Visit of hotel and conduct interviews with concerned

authorities of SRL.
c. Conduct physical examination of assets and other relevant

material of the company.
d. Review of important documents (Accounting Data,

Procurement Files, Contract Agreements Contractors’ Bills,
Approvals of Payments and minutes of the Board of
Directors’)
e. Examine the documents of civil work to ensure compliance

with the applicable laws for procurement.
viii
4. AUDIT FINDINGS AND RECOMMENDATIONS
4.2 Organization and Management
4.1.1 Irregular payment of salaries & remuneration to officers & staff of

Airport Hotel in absence of sanctioned strength and recruitment
rules - Rs. 843.137 million
Establishment Division’s O.M. No.11/1/81-R.5 dated 20-8-1981 says that

(i) Appointments (by promotion, transfer or direct recruitment) to the posts for
which recruitment rules do not exist or have not been finalized in consultation
with Establishment Division/FPSC, may not be made in the absence of
recruitment rules. (ii) Recruitment rules for all posts sanctioned with the
concurrence of the competent authority, if not in existence, should be framed/
finalized within three months of the issue of this circular. Further, Sl. No. 76 (i)
of Establishment Division OM. No. 3/1/92-R.2, dated 2-1-1992 states that
Booklet of vacancies, other than those falling in the purview of the FPSC, will be
printed by the concerned Ministries/Divisions in respect of their Departments/
Subordinate Offices/Autonomous Bodies/Corporations in December and June
each year and will be made available on payment.
During Performance Audit of Skyrooms (Pvt.) Limited Karachi for the

years 2012 to 2016, it was observed that the organization does not have approved
recruitment rules and sanctioned strength of posts. Presently, the Skyrooms(Pvt.)
Limited has one Chief Executive Officer, one Executive Director, one General
Manager, one Deputy General Manager, nine Managers and two Incharges of the
departments. Similarly, there are other posts of Deputy Managers, Assistant
Mangers, Guest Relation Officers (GSO), Incharge Shift Officer. Besides, there
are staffs employed on contract by the hotel as well as through third party
contract (Annex-1). Moreover, the Skyrooms (Pvt.) Limited does not have a
'Booklet of Vacancies' printed by its controlling ministry/division. It manifests
that management has the freedom to run affairs at its sweet will.
Audit is of the view that in absence of sanctioned strength of officers &

staff and recruitment rules, the salaries & remuneration from 2012 to 2016
amounting to Rs. 843,137,148 of Airport Hotel stood as irregular.
1
Matter was reported to the management in June 2017. The management in
its reply dated January 29, 2018 stated that SRL has its own approved sanctioned
strength of 483 number of employees, but no documentary evidence was
provided to audit in support of reply. DAC meeting was not convened by PAO
despite request by audit dated August 04, December 07 and December 19, 2017.
Audit recommends fixing of responsibility on the person(s) at fault.
4.1.2 Irregular composition of Board of Directors of Skyrooms (Pvt.) Ltd
As per clause-4(4) of the Corporate Governance Rules 2013the Board

shall elect its chairman from amongst the independent directors so as to achieve
an appropriate balance of power, increasing accountability, and improving the
Board's capacity for exercising independent judgment. Clause 4(1) the office of
the chairman shall be separate, and his responsibilities distinct, from those of the
chief executive. Clause 5(2) says that Board shall evaluate the candidates based
on the fit and proper criteria and the guidelines specified by the Commission for
appointment to the position of the chief executive, and recommend at least three
individuals to the Government for appointment as chief executive of the Public
Sector Company. Further, as per clause-3, the Board shall consist of executive
and non-executive directors, including independent directors.
During Performance Audit of Skyrooms (Pvt.) Limited (SRL) Karachi for

the years 2012 to 2016, following irregularities were observed in composition of
Board which was against the Corporate Governance Rules 2013.
 The last re-composition of board was made on 25.03.2015 whereby

the CFO-PIA was nominated as Chairman as well as the CEO of
Skyrooms (Pvt.) Limited, which was in violation of above rules.
 The board remained non-functional for more than three years. Since
Board’s 55th meeting was held on 10-03-2010 and the next meeting on
19-06-2013. Hence, the Directors also expressed their displeasure in
56th meeting on lack of interest shown by the PIAC management and
over the non-appointment of CEO of Skyrooms (Pvt.) Limited.
 The Board of Directors of SRL were not independent as well. The
composition of directors was not maintained as per the rules, which
stated that there should be more than half independent directors in the
Board.
2
 The post of Chairman has been held by a non-independent Director.
Annual General Meeting has not so far been held, in violation of
company's Articles of Association.
 The annual report of the entity did not specify the Non-executive,
Executive and Independent directors as required by the rules.
The matter was reported to the management in June 2017. The

management in its reply dated January 29, 2018, stated that composition of Board
of Directors and nomination of its Directors was approved by PIA Board, but no
documents were provided in support of reply. DAC meeting was not convened by
PAO despite request by audit dated August 04, December 07 and December 19,
2017.
4.1.3 Non-availability of Business Plan, Human Resource and Promotion

Policy, Service Rules and SOPs
Board of Director in its 58th, 61st and 64thmeetings held on January 03,
2014, May 28, 2015 and June 30, 2016 respectively directed the management of
SRL to develop business plan to make SRL profitable by analyzing the
possibility to enter into Joint Venture by hiring the best human resource and
industry experts and also decided that the company should have its own service
rules like other organizations.

years 2012 to 2016, it was observed that hotel management did not formulate
Business Plan, Human Resource Policy and Standard Operating Procedures.
There were no service rules and job descriptions of officers/officials of Airport
Hotel were also not available. The whole entity is running on the Schedule of
Administrative, Financial, Miscellaneous and Standing Committee's Powers 2013
which only describe the limits of sanction to authorized persons.
Audit is of the view that the management’s failure to implement BoD’s

decision as per above directives show weak and in effective internal control.

management in its reply dated January 29, 2018, stated that business plan was
3
being prepared and would be provided to audit. However, no progress was made
till finalization of this report. DAC meeting was not convened by PAO despite
request by audit dated August 04, December 07 and December 19, 2017.
Audit recommends fixing of responsibility on the person(s) at fault,

besides ensuring compliance with the BoD’s decision.
4
4.2 Financial Management
4.2.1 Non-recovery of huge receivables - Rs. 92.73 million
Rule-5 of Public Sector Companies (Corporate Governance), 2013 states

that the Board shall exercise its powers and carry out its fiduciary duties with a
sense of objective judgment and independence in the best interest of the
company.

years 2012 to 2016, it was observed that an amount Rs.93.00 million was lying
outstanding on account of receivable, as per details Annex-2.
Audit is of the view that the management failed to recover huge amount
Rs.92.729 million since 2014 which shows inefficiency and weak internal
controls.

its reply dated January 29, 2018 stated that major part of receivable had been
received. However, no documentary evidence was produced to audit. DAC
meeting was not convened by PAO despite request by audit dated August 04,
December 07 and December 19, 2017.
Audit recommends efforts may be made for earlier recovery besides

fixing of responsibility on the person(s) at fault.
4.2.2 Non-finalization of annual accounts by the management since 2013
According to Section-233 of the Companies Ordinance, 1984 the

company shall prepare the annual accounts within four months after closing the
date of accounts for the specific year.

years 2012 to 2016, it was observed that Skyrooms did not finalize and provide
the audited accounts for the years 2014 to 2016 till the finalization of this report
in violation of above rules.
5
Audit is of the view that non-implementation of above referred directives
is a sheer violation of framed rules.

management in its reply dated January 29, 2018, stated that accounts of 2013
were under process of signature of Chartered Accountants and would be
submitted after due signature. However, no progress was reported till finalization
of this report. DAC meeting was not convened by PAO despite request by audit
dated August 04, December 07 and December 19, 2017.
4.2.3 Business loss due to less receipt of revenue - Rs.552.714 million

company.

years 2012 to 2016, it was observed that management incurred huge business loss
of Rs.552.714 million on account of less charging of room rent from passengers.
The management did not provide the detail of revenue earned during 2012.
However, other years’ detail is as under:
(Amount in Rupees)
No. of Room Rent Rate Room Rent
Year Loss
Passengers Received Due
1 2 3 (1 x 3) =4 5
2013 149,005 163,251,007 2,169 323,191,845 (159,940,838)
2014 146,675 182,841,691 2,350 344,686,250 (161,844,559)
2015 133,953 177,686,773 2,350 314,789,550 (137,102,777)
2016 106,645 156,789,766 2,350 250,615,750 (93,825,984)
Total 536,278 680,569,237 - 1,233,283,395 (552,714,158)

management in its reply dated January 29, 2018, stated that amount calculated @
Rs. 3,000 was not correct and we have different rates of PIA transit and other
6
passengers as per agreement. In the light of reply, the para was revised and the
amount was reduced as per rate of agreement. DAC meeting was not convened
by PAO despite request by audit dated August 04, December 07 and December
19, 2017.
4.2.4 Loss to government on account of less deduction of sales tax from

transit passengers -Rs. 13.458 million

company.

years 2012 to 2016, it was observed that government suffered losses during the
years 2013 to 2016 on account of less deduction of sales tax on room rent from
transit passengers. The management did not provide detail of revenue earned
during 2012. However, other years’ detail is as under:
(Amount in Rupees)
Sales Tax
Passengers Room Rent Room Rent Sales Tax
Year deducted by Loss of Tax
in Numbers Received Due Due
SRL
2013 149,005 163,251,007 323,190,300 53,564,243 54,942,351 (1,378,108)
2014 146,675 182,841,691 344,686,250 54,429,570 58,596,663 (4,167,093)
2015 133,953 177,686,773 314,789,550 49,360,121 53,514,224 (4,154,103)
2016 106,645 156,789,766 250,615,750 38,846,322 42,604,678 (3,758,356)
Total 536,278 680,569,237 1,233,281,850 196,200,256 209,657,916 (13,457,660)

its reply dated January 29, 2018 stated that tax was calculated as per rules, but the
reply was not supported with documentary evidence. DAC meeting was not
convened by PAO despite request of audit dated August 04, December 07 and
December 19, 2017.
7
4.2.5 Non-production of record
Section-14 (2) of the Auditor General’s (Functions, Powers and Terms

and Conditions of Service) Ordinance 2001 states that the officer in-charge of
any office or department shall afford all facilities and provide record for audit
inspection and comply with requests for information in as complete form as
possible and with all reasonable expedition. Further the Public Accounts
Committee directives, issued vide OM No.F-10(1)/2000/2004-PAC dated Jun 03,
2004 requires all PAOs Ministry/Divisions to make available all
information/record to Audit as and when required by them, otherwise disciplinary
action will be initiated against person(s) responsible for the delay under Section-
14(2) of the Auditor General’s Ordinance No. XXIII of 2001.

years 2012 to 2016, it was observed that the record as mentioned was not
produced to audit despite repeated requests. The detail is at (Annex-3).
Audit was of the view that non-production of record was a violation of

Section-14 (2) of the Auditor General’s Ordinance, 2001 and the directives of
PAC.
This attitude of the management tantamount to concealment of facts and figures

from government audit.
The matter was reported to the management in June 2017, but no reply
was received. DAC meeting was not convened by PAO despite request by audit
8
4.3 Procurement and Contract Management
4.3.1 Irregular purchase of water from M/s. Zain Enterprises and other
private parties - Rs. 70.57 million
PPRA Rule 8 says that within one year of commencement of these rules,
all procuring agencies shall devise a mechanism, for planning in detail for all
proposed procurements and Rule 9 prohibits splitting up of proposed
procurement and provides that a procuring agency shall announce through an
appropriate manner all proposed procurements for each financial year. Further,
PPRA Rule 12(2) says that all procurement opportunities over two million rupees
should be advertised on the Authority’s website as well as in other print media or
newspapers having wide circulation. The advertisement in the newspapers shall
principally appear in at least two national dailies, one in English and the other in
Urdu. Further, as per BoD’s directives the management should also approach
Karachi Water Board for supply of water.

years 2012 to 2016, it was observed that management of Airport Hotel purchased
water from M/s Zain Enterprises in piecemeal during 2012 worth Rs 6.87 million
without inviting open tender. The management further purchased water
amounting to Rs.63.698 million from other private parties. The detail of
purchases is at (Annex-4).
Audit is of the view that management purchased the water worth Rs.70.57
million without competitive bidding. The management should have also
approached Karachi Water Board for supply of water which was also directed by
BoD.

management in its reply dated January 29, 2018 stated that water was purchased
through tender process, but they failed to produce any evidence in support of
reply. DAC meeting was not convened by PAO despite request of audit dated
August 04, December 07 and December 19, 2017.
9
4.3.2 Irregular award of contract for purchase of vegetables / fruits -
Rs. 7.54 million
As per Rule 38 of PP Rules 2004 the bidder with the lowest evaluated bid,
shall be awarded the procurement contract, within the original or extended period
of bid validity. Rule 40 further provides that there shall be no negotiation with
the bidder having submitted the lowest evaluated bid or with any other bidder.
Further, As per tender terms & conditions of tender documents "Suppliers must
be registered with Sales Tax Authorities having GST/NTN; the supplier has to
submit 2% Earnest Money along with quotation and food law / regulatory
compliance certificate, preferably with Pakistan Standards Quality Control
Authority".

years 2012 to 2016, it was observed that management negotiated with the
contractor and awarded the contract to M/s. Trade & Technique. The bids’ details
are as under:
Name of Party No. of Item Total Value (Rs)

M/s. Trade & Technique 30 4,306,400
M/s. Khan Muhammad 18 3,233,000
Instead of awarding the contract to both of the contractors on the basis of

item wise lowest bids, management negotiated with M/s. Trade & Technique and
contract was awarded to the said contractor. Audit also observed the following
shortcomings;
1. News cutting as well as tender uploaded on PPRA site was not available.
2. Technical Evaluation of bids was not available.
3. The Supplier got registered with Sales Tax Authorities in July 1999,
whereas his registration was suspended in June 2013. This indicated that
terms of tender were not fulfilled and the contract was awarded.
4. The Supplier deposited earnest money amounting to Rs. 80,000, whereas

the Supplier was to submit Rs. 150,788 @ 2% of tender amount.
5. The Supplier submitted rates for 30 items, whereas the rates as well as
amount were to be quoted for 48 items as per tender documents.
10
6. The Supplier provided different business addresses without cogent
justification and documentation thereof.
The management was asked to furnish missing documents as pointed out

in observation memo, but it was stated that complete case file had been provided
to Audit.
Audit is of the view that award of contract to M/s. Trade &Technique was
in violation of PPRA Rules 2004.

management in its reply stated that:
i. a copy of advertisement and its uploading on PPRA is available.

ii. Technical evaluation report was made and available is on file.
iii. Sales Tax is not applicable on vegetables.
iv. Supplier had submitted Rs 80,000 as Earnest Money
v. Yes, it is true that a supplier submitted the 48 items rates its does
not affect the contract.
The management did not produce any documentary evidence in support

of the reply.
DAC meeting was not convened by PAO despite request by audit dated
Audit recommends fixing of responsibility on the person(s) at fault,

besides regularization of the irregularity from competent forum.
4.3.3 Irregular purchase of chicken from various suppliers – Rs. 3.30

million
PPRA Rule 9 prohibits splitting up of proposed procurement and provides

that a procuring agency shall announce through an appropriate manner all
proposed procurements for each financial year. Further, as per Section 3 of the
Trade Organizations Ordinance, 2007 (LXXI of 2007), the Federal Government
granted license to Pakistan Poultry Association on 29.08.2009 till 28.08.2017 as a
trade organization within the meaning of clause (q) of Section 2 of the said
11
Ordinance to represent trade, commerce, industry or service or any combination
thereof, in Poultry sector on all Pakistan-basis.

years 2012 to 2016, it was observed that management purchased chicken from
various suppliers worth Rs. 3.36 million on cash basis by splitting the contract
(Rs 1.94 million in 2012 and Rs 1.42 million in 2014).
Audit is of the view that management purchased chicken by splitting the

amount and from those who were not registered with Pakistan Poultry
Association.
4.3.4 Irregular award of contract for purchase of eggs - Rs. 2.96 million
In exercise of powers conferred by Section 3 of the Trade Organizations

Ordinance, 2007 (LXXI of 2007), the Federal Government was pleased to grant
license to Pakistan Poultry Association on 29.08.2009 till 28.08.2017 as a trade
organization within the meaning of clause (q) of Section 2 of the said Ordinance
to represent trade, commerce, industry or service or any combination thereof, in
Poultry sector on all Pakistan-basis. Further, As per tender terms & conditions of
tender documents "Suppliers must be registered with Sales Tax Authorities
having GST/NTN; the supplier has to submit 2% Earnest Money along with
quotation and the successful tenderers upon award of contract will be required to
furnish an amount equivalent to 5% of total tender value.

years 2012 to 2016, it was observed that sealed tenders were invited on single
stage two envelopes mode through newspapers on May 17, 2015 for various
items including the supply of 30,000 doz eggs. In August 2015 the contract for
supply of eggs was awarded to M/s. Trade & Technique being the lowest. The
detail is as under:
12
Sr. No. Name of Supplier Total Value (Rs)
1. M/s. Fedcom 2,992,500
2. M/s. Trade & Technique 2,964,000
Audit observes following shortcomings;
1. The technical evaluation was not carried out as required under Rule
36 (b) (v) of Public Procurement Rules, 2004.
2. The Supplier got registered with Sales Tax Authorities in July 1999,
whereas his registration was suspended in June 2013. This indicated
that terms of tender were not fulfilled and the contract was awarded.
3. The Supplier did not deposit 2% earnest money and 5% security

deposit amounting to Rs. 59,280 and respectively as per tender terms.
4. The Supplier provided different business addresses without cogent

justification and documentation thereof.
5. The supplier was not registered with Pakistan Poultry Association as

necessitated.
The management was asked to furnish missing documents as pointed out

in observation memo, but it was stated that complete case file has been provided
to Audit.
Audit is of the view that undue favour was extended to supplier as the
contractor did not fulfill the requisite criteria, thus, award of contract was held
irregular.
was furnished. DAC meeting was not convened by PAO despite request by audit
13
4.3.5 Irregular purchase of vegetables/fruits without competitive bidding -
Rs. 1.15 million
PPRA Rule 9 prohibits the splitting up of proposed procurement and

provides that a procuring agency shall announce through an appropriate manner
all proposed procurements for each financial year.

years 2012 to 2016, it was observed that management purchased vegetables/fruits
in split manner from many suppliers worth Rs 1.15 million during 2016 in
violation of above rules.
Audit is of the view that management did not devise a mechanism for a
yearly procurement and purchase vegetables/fruits worth Rs. 1.15 million in split
manner which is irregular.

management in its reply dated January 29, 2018 stated that vegetables / fruits
were purchased from M/s. Metro Pakistan. The reply is not tenable in Audit.
DAC meeting was not convened by PAO despite request by audit dated August
04, December 07 and December 19, 2017.
14
4.4 Construction and Works
4.4.1 Irregular expenditure in split manner on renovation of Airport Hotel

- Rs. 7.121 million


years 2012 to 2016, it was observed that management incurred an amount of Rs.
7.121 million on renovation of hotel in March 2014 on the directives of Advisor
to the Prime Minister. It is worth mentioning here that management gave
approval for piecemeal work, obtaining three quotations for each work &
selected the lowest quoted rate bidder, but most of the quotations were in same
handwriting whereas, the bidders were different. This needed to be justified.
Audit is of the view that management did not devise a mechanism for the
procurement under PPRA and renovated the hotel and incurred an expenditure of
Rs. 7,120,563 in split manner to avoid competitive bidding.
4.4.2 Irregular purchase of furniture & fixture - Rs. 0.528 million

During Performance Audit of Skyrooms(Pvt.) Limited Karachi for the

years 2012 to 2016, it was observed that management purchased furniture
&fixture on February 03, 2014 from M/s. Abdul Rehman Furniture & M/s.
Duratex Furniture worth Rs. 110,000 & Rs. 418,000 respectively in split manner.
Audit is of the view that management did not devise a mechanism for the
procurement under PPRA and purchased furniture & fixture worth Rs. 528,000 in
split manner to avoid competitive bidding.
15
16
4.5 Asset Management
4.5.1 Non-conducting of Physical Verification of Assets Rs. 47.487 million
Rule-151 of GFR provides that the head of an office or any other officer
entrusted with stores of any kind should take special care for arranging their safe
custody, keeping them in good and efficient condition and protecting them from
loss, damage or deterioration. He should maintain suitable accounts and
inventories and prepare correct returns in respect of the stores in his charge with
a view to preventing losses through theft, accident, fraud or otherwise and to
make it possible at any time to check the actual balances with the book balance
and the payment to suppliers, etc.

years 2012 to 2016, physical verification report of assets was called for scrutiny
by the Audit team vide Requisition dated 14-03-2107. The same was not
produced to audit. An amount of Rs. 47.487 million was shown under the
following head of accounts in un-audited account for the year 2015:
Property, plant and equipment Rs. 44,364,039

Stores and spares 2,902,750
Stock-in-trade 219,931
Total Rs.47,486,720
Audit is of the view that Fixed Assets Register was not prepared by
organization, consequently, title, completeness and valuation of certain operating
Fixed Assets and rate of depreciation charged thereon for the years under review
could not be verified.
management in its reply dated January 29, 2018 stated that audit observation was
not correct, however, no documentary evidence was provided to audit in support
of reply. DAC meeting was not convened by PAO despite request by audit dated
17
4.5.2 Non-registration of lease agreement with CAA due to disagreement
During Performance Audit of Skyrooms(Pvt.) Limited Karachi for the

years 2012 to 2016, it was observed that prepaid lease payments was made to
Pakistan Civil Aviation Authority (CAA) for acquisition of the right to use plot
of land and hotel building which are amortized over the period of 30 years on
straight line basis. Initial lease agreement was effective from June 3, 1981 for a
period of twenty years which expired on June 2, 2001. The agreement was further
extended on January 07, 2008 for further thirty years. However, the subject
agreement has not yet been registered due to disagreement between the parties
over the completion of certain legal formalities.
18
4.6 Monitoring and Evaluation
4.6.1 Non-implementation of PAC directives regarding timely uploading of

minutes of board of directors
According to the Public Accounts Committee Wing letter No.F.10

(4&7)/2012-PAC, dated 03.09.2012, whereby the PAC directed to ensure the
availability of latest minutes of Board of Directors' meeting on official website of
the organization under their respective administrative control.

years 2012 to 2016, it was observed that the minutes of Board of Directors'
meetings were not uploaded on the official website of the Skyrooms(Pvt.)
Limited.
Audit is of the view that non-implementation of PAC directives is a sheer

violation.

management in its reply dated January 29, 2018, stated that audit observation was
noted for compliance. However, no progress was made till finalization of this
report. DAC meeting was not convened by PAO despite request by audit dated
19
4.7 Overall Assessment
4.7.1 Decline in occupancy rate of Rooms &Beds in Airport Hotel

years 2012 to 2016, it was observed that management failed to achieve
satisfactory occupancy ratio. Detail is as under:
Rooms Beds
Total Rooms Rooms Beds Beds
Year Occupancy Occupancy
Days Available Occupied Available Occupied
Rate % Rate %
2013 365 113,150 99,650 88 196,370 158,922 81
2014 365 113,150 95,628 85 196,370 151,689 77
2015 365 113,150 85,661 76 196,370 135,236 69
2016 366 113,460 72,919 64 196,908 113,397 58
200000
150000
100000
Series1
50000
Series2
0
Series3
Series4
Series5
2013 2014 2015 2016

Above table/Graphic depicts declining trend during 2013 to 2016 which
requires immediate attention of the management.
Audit recommends responsibility may be fixed on the person(s) at fault.
20
4.7.2 Ratio Analysis:
In order to assess the overall performance of Skyrooms (Pvt.) Limited it

was imperative to undertake a threadbare ratio analysis of its audited accounts;
audit selected following ratios based on their relevance to the task at hand and
deciphered the results analytically:
A) Liquidity Ratios:
i) Current Ratio = Current Assets/Liabilities
Current ratios indicate a measure of liquidity (Ideally this ratio should be

between one and two); a current ratio greater than one indicates that the company
has enough short-term assets (defined as cash, short term investments, accounts
receivable, prepaid expenses, and inventory) to meet its short-term financial
obligations.
Skyrooms (Pvt.) Limited Current Ratio’s:
Year Current Ratio

2015 0.785
2014 0.705
2013 0.604
2012 0.608
(Source: Annual Accounts of Skyrooms (Pvt.) Limited)
The current ratio of Skyrooms(Pvt.) Limited for all four years depicted
above is well below the ideal benchmark which is “one”, the above shows
Skyrooms(Pvt.) Limited's current obligations exceed the ability to pay for them.
This signifies a potential cash flow problem for the hotel, and exposes to a high
risk of default while striving to meet short term debt obligations.
Liquidity ratios measure the solvency, or the ability of management to

convert current assets to cash in order to meet short term financial obligations; and
in order to obtain a more realistic position of Skyrooms' liquidity it would be
prudent to scrutinize its quick ratio:
ii) Quick Ratio = Current Assets - Stores and Spares - Stock-in-Trade - Taxation
Current Liabilities
21
Skyrooms (Pvt.) Limited Quick Ratio:
Year Quick Ratio

2015 0.351
2014 0.336
2013 0.188
2012 0.242
The quick ratio above (Ideally this ratio should be one); was used to
assess Skyrooms’ ability to convert current assets into cash in a short period of
time, in order to meet the current financial obligations of the hotel as they
become due. These ratios are particularly significant to the creditors and
potential lenders, because they determine the ability of hotel to meet current
payments of debt. From the above analysis it is evident that Skyrooms(Pvt.)
Limited is on high risk and this will severely hamper hotel's ability to secure
loans from financial lending institutions and any loans that it does manage to
obtain will entail higher than market interest rates;.
iii) Debt to Equity Ratio = Total Debt

Owners Equity
Skyrooms (Pvt.) Limited Debt to Equity Ratio:
Year Debt to Equity

2015 *
2014 *
2013 *
2012 *
During the performance audit of Skyrooms (Pvt.) Limited, Audit

observed for the year ended 2013, that the hotel had Reserves (Accumulated
Losses) amounting to Rs. 151.791 million, while the share capital (paid up
and advance against equity) amounted to Rs. 77.042 million of the hotel, this has
resulted in the hotel having a negative equity balance of Rs. 113.715 million
including an amount of Rs. 38.966 million allocated for postretirement benefits
obligation. The equity in negative balance is a severe cause for concern as it will
affect entity's operations in the future. Furthermore based on these facts audit is
22
unable to calculate the debt equity ratio of the hotel as it cannot be calculated for
an entity having a negative equity balance. It is further pointed out, that this
scenario poses a serious going concern issue as the entity will be unable to meet
its debt requirements and other liabilities payable as at the year end.
In conclusion if the hotel continues to perform operations while suffering

such losses in the future as well, which does seem highly probable as is evident
from the hotel's current and past financial statements and spiraling costs, the
hotel will have to completely rely on holding company to support and sustain its
existence, thereby causing an onerous financial burden on the holding company,
which economic state is also bad.
B) Profitability Ratios:
Profitability Ratios show how successful a company is in terms of

generating returns or profits on the investment that it has made in the business.
If a business is liquid and efficient it should also be profitable.
i) Return on Sales or Profit Margin (%) = (Operating Profit/Net Sales) x 100
ROS is a financial ratio that calculates how efficiently a company is generating

profits from its top-line revenue. It measures the performance of a company by
analyzing the percentage of total revenue that is converted into operating profits.
Investors, creditors and other debt holders rely on this efficiency ratio because it
accurately communicates the percentage of operating cash a company actually
makes on its revenue and can provide insight into potential dividends,
reinvestment potential and the company's ability to repay debt.
Skyrooms (Pvt.) Limited Return on Sales:
Net Revenue Net Profit/(Loss) Return on

Year Sales %
Rs. Rs.
2013 322,697,087 (11,028,745) (3.42)
2012 291,726,019 (7,681,815) (2.63)
2011 284,819,235 (9,747,558) (3.42)
23
ii) Return on Assets (%) = (Net Profit / Total Assets) x 100
The Return on Assets is a financial ratio that shows the percentage of profit a
company earns in relation to its overall resources. It determines its ability to
utilize the assets employed in the company efficiently and effectively to earn a
good return.
Net Total Assets Return on

Year Profit/(Loss) Assets %
Rs. Rs.
2013 (11,028,745) 268,251,386 (4.11)
2012 (7,681,815) 278,969,367 (2.75)
2011 (9,747,558) 268,297,282 (3.63)
24
5. CONCLUSION
From the above scenario it is quite evident that all key financial indicators
of Skyrooms (Pvt.) Limited are in undesirable range and are depicting lack of
liquidity, negative profitability and return on equity and its debt to equity mix is
heavily reliant on debt which has increased its financial risk. Skyrooms needs
massive doses of equity injection so the hotel can rectify its short term debt
position. The hotel needs to take corrective measures to increase efficient
utilization of its assets and reduction in its cost of operations, if corrective
measures are not adopted and implemented soon the ability of the entity to
proceed as a going concern will be in jeopardy.
25
ACKNOWLEDGEMENT
We wish to express our appreciation to the management and staff of

Skyrooms (Pvt.) Limited for the assistance and cooperation extended to the
auditors during this assignment.
26
Annexes
27
28
Annex-1
(See Para No.4.1.1)
Detail of payment of salaries & remuneration to officers & staff
Cost of Services ( Rupees)

2012 2013 2014 2015 2016
Salary &
107,081,140 104,944,907 97,163,552 101,949,357 100,327,606
Allowances
Staff welfare
35,909,471 38,579,131 45,741,741 43,020,181 34,593,088
and benefits
Sub Total 142,990,611 143,524,038 142,905,293 144,969,538 134,920,694
Administrative Expenses ( Rupees)

2012 2013 2014 2015 2016
Salary &
14,601,974 14,310,669 13,249,575 13,902,185 13,681,037
Allowances
Staff welfare
4,896,746 5,260,791 6,237,510 5,866,388 4,717,239
and benefits
Sub Total 19,498,720 19,571,460 19,487,085 19,768,573 18,398,276
Managerial Remuneration ( Rupees)

2012 2013 2014 2015 2016
Executive
1,579,693 2,649,472 0 0 0
Director
Executive 3,669,922 2,459,054 0 0 0
Sub Total 5,249,615 5,108,526 0 0 0
Grand Total 167,738,946 168,204,024 162,392,378 164,738,111 153,318,970
(each year)
Grand Total 816,392,429
29
Annex-2
(See Para No. 4.2.1)
Detail showing the non-recovery of outstanding dues
Sr. Description Amount in

No. Rupees
1. Receivable from Guests 70,123,852
2. Receivable Rent from Shop 10,076,156
3. Receivable from Employees 8,340,201
4. Receivable from Others 4,188,421
Total 92,728,630
30
Annex-3
Detail of non-production of record
Requisition No. 1 Dated 27.02.2017 Remarks

Payroll of officers and staff Not provided for the year
2016.
Budget verses actual expenditure statement Not provided.
All schedules 2012 to 2016 Not provided for the year
2016. Figures of 2012 to
2014 were not matched
with accounts.
Trial balance Not provided - 2015 &
2016.
General ledger of accounts 2012 to 2016 Not provided 2015 & 2016.
Copies of all agreements in process, cancelled, Partial record was provided.
completed and newly started
Guest inward and outward statement Not provided.
Cost statement -do-
Detail of facilities provided to guests -do-
Room's occupancy and vacant position Provided incomplete.
Detail of rent recovered and outstanding Not provided.
Log Books & Registration Books of all vehicles -do-
Detail of theft, inquiry, Police, NAB, FIA, Court -do-
and litigation cases
Requisition No. 1 Dated 27.02.2017 Remarks
Detail of tax received, deducted, deposited and -do-
adjusted
Internal Audit Reports Not provided.
Letter to the management by Chartered Accountant -do-
on disclosures
All tender files Provided 2014 & 2015
incomplete. (2012, 2013
and 2016 not provided.
List of cheques issued, received, cancelled, pending Not provided.
and dishonored
Cash Books -do-
31
Annex-4
Statement showing detail of purchase of sweet water
Amount
Year Account Code Description
(Rs.)
2012 C18-028 Sweet Water Tanker 6000 gallon 8,157,605
2016 C18-028-29 Sweet Water Tanker 5000 & 6000 gallons 17,800,000
2012 Purchased from M/s Zain Enterprises in piecemeal 6,870,000
Total 70,568,909
32

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PERFORMANCE AUDIT REPORT

SKYROOMS (PVT.) LTD (AIRPORT HOTEL)

FOR THE PERIOD 2012-16

AUDITOR GENERAL OF PAKISTAN

The Directorate General of Commercial Audit & Evaluation (DG CA&E),

The Performance Audit Report is submitted to the President of Pakistan in

Islamabad Javaid Jehangir

323,190,300 53,564,243 54,942,351 (1,378,108)

AGP Auditor General of Pakistan

Skyrooms (Pvt.) Limited (SRL) was incorporated as a limited

On the basis of our review of data, certain irregularities have been

a. Key audit findings:

 It was observed that occupancy rate of hotel was very low.

 The management does not have business plan, service rules as

 Irregular awards of contracts in violation of PPRA 2004 to the

 Renovation of Airport Hotel in violation of PPRA 2004 valuing

 Non recovery of huge receivables Rs.92.73 million.

 Loss to government due to less deduction of sales tax amounting

 Efforts should be made to prepare business plan so that revenue of

 In order to run the hotel on efficient grounds, service rates, effective

 Efforts for early recovery of all outstanding amounts be taken on war

 Compliance of Public Procurement Rules, 2004 may be ensured so

Directorate General of Commercial Audit& Evaluation (South) Karachi

PIA established a subsidiary company Skyrooms (Pvt.) Limited in

Audit objectives were to:

a. Examine the performance of the company with a view to ensure the

b. Review compliance with the objectives for establishing the

c. Examine the adequacy of internal controls.

d. Review compliance with the applicable laws for procurement.

e. Examine the functioning of company (Airport Hotel) in

A period of 5 years 2012-2016 was covered in the Performance

b. Visit of hotel and conduct interviews with concerned

c. Conduct physical examination of assets and other relevant

d. Review of important documents (Accounting Data,

e. Examine the documents of civil work to ensure compliance

4.2 Organization and Management

4.1.1 Irregular payment of salaries & remuneration to officers & staff of

Establishment Division’s O.M. No.11/1/81-R.5 dated 20-8-1981 says that

During Performance Audit of Skyrooms (Pvt.) Limited Karachi for the

Audit is of the view that in absence of sanctioned strength of officers &

Audit recommends fixing of responsibility on the person(s) at fault.

4.1.2 Irregular composition of Board of Directors of Skyrooms (Pvt.) Ltd

As per clause-4(4) of the Corporate Governance Rules 2013the Board

During Performance Audit of Skyrooms (Pvt.) Limited (SRL) Karachi for

 The last re-composition of board was made on 25.03.2015 whereby

The matter was reported to the management in June 2017. The

Audit recommends fixing of responsibility on the person(s) at fault.

4.1.3 Non-availability of Business Plan, Human Resource and Promotion

During Performance Audit of Skyrooms (Pvt.) Limited Karachi for the

Audit is of the view that the management’s failure to implement BoD’s

The matter was reported to the management in June 2017. The

Audit recommends fixing of responsibility on the person(s) at fault,

4.2.1 Non-recovery of huge receivables - Rs. 92.73 million

Rule-5 of Public Sector Companies (Corporate Governance), 2013 states

During Performance Audit of Skyrooms (Pvt.) Limited Karachi for the

Matter was reported to the management in June 2017. The management in

Audit recommends efforts may be made for earlier recovery besides

4.2.2 Non-finalization of annual accounts by the management since 2013

According to Section-233 of the Companies Ordinance, 1984 the