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| Report finds fault with Rs 4.6 bn NLC investment |
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Tuesday, November 03, 2009
By Rauf Klasra
ISLAMABAD: The findings of the inquiry report into the multi-billion rupees stock exchange investment scam revealed that the National Logistic Cell (NLC) had paid millions of rupees to four Karachi-based brokerage houses as “commission” after taking a commercial loan of Rs 2 billion from banks at 14 per cent mark-up. Three military and two civilian officers were involved in the scam.
The report claimed that the NLC bosses did not avail the opportunity of the best price brokerage, as the procedure for selection of such people was clearly violated and huge amounts were paid to them as commission from borrowed money and retirement fund of the employees.
The report was submitted to the Public Accounts Committee (PAC) last week, in which it was disclosed that the NLC had made an investment of Rs 4.6 billion and so far, Rs 1.8 billion had been lost in the volatile market.
The report said the NLC bosses even defied the orders of the then prime minister, Shaukat Aziz, in 2003 not to invest in stocks, after it was brought to his notice that some military officers with no background in the stock market business were planning to throw money at the business.
The PAC has given two weeks to Planning Division Secretary Ashraf Hayat to fix the responsibility, so that further action could be taken against those responsible in the next meeting on the same subject.
Meanwhile, according to the inquiry report, a copy of which is available with The News, a sum of Rs 32 million was paid to four brokerage houses as commission. The KASB was paid Rs 471,131, including Withholding Tax and CVT. The lion’s share was taken by the FNEL, which was paid Rs 24.11 million, while the ORIX was paid Rs 5.481 million and the AKD Rs 2.2 million as commission.
The report said the NLC was authorised to invest only 20 per cent of the surplus fund, but it borrowed Rs 2 billion from banks after its own funds were consumed in the markets and continued to invest in the stock market.
The report said neither any written investment procedure was devised, as required in the investment policy, nor an investment committee, with defined investment approval authority, was constituted.
In the absence of this committee, all investments are considered unauthorised. Likewise, the size of investment portfolio, which was to be determined on a yearly basis, was never determined.
The report levelled serious allegations that the NLC did not avail the opportunity of the best price of brokerage. It was required to maintain a list of brokers/dealers authorised to provide transaction execution to the institution.
The procedure for the selection of brokers was clearly laid down in the policy, which specified that the selection would be made through an open tender advertisement every year at the close of a financial year for a period of one year. Further, the NLC was to notify the brokers/dealers of their approval in writing on an annual basis. The inquiry committee did not see any notification to this effect. Hence, the procedure considered non-transparent and non-compliant with the investment policy.
“There is nothing on record which indicates that a written operational procedure was devised to maintain a system of internal controls. The principles of financial prudence, specified in the investment policy, were not adhered to,” the inquiry report concluded.
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ISSN 1563-9479 
