Audit uncovers Rs8.48bn financial discrepancies in KP Cities Improvement Project

A recent audit of the Rs97 billion Khyber Pakhtunkhwa Cities Improvement Project (KPCIP) has revealed financial discrepancies amounting to Rs8.48 billion, including misappropriations, unlawful payments, and wasteful expenditures, The News reported. 

The findings have raised concerns over governance, oversight, and accountability in the province. The Asian Development Bank-funded project, launched in late 2022, aims to enhance urban infrastructure in Abbottabad, Kohat, Mardan, Mingora, and Peshawar, with completion expected by the end of 2026. 

However, the audit highlights instances of financial mismanagement, including unauthorized work, cost escalations, and payments for unexecuted projects. 

Misappropriated funds included Rs8.8 million paid for work that was never carried out and Rs11.2 million falsely claimed for fiberglass installation in a parking area. Fake measurements resulted in losses of Rs34.89 million, while Rs5.48 million was paid for excavation work at the Chlorination Building despite no physical progress. In total, Rs60.39 million was misappropriated through fraudulent claims.

The report also pointed to payments made at inflated rates, including Rs1.05 billion for awarding the same work at higher costs and Rs38.91 million spent on vehicle purchases beyond the approved project capacity. 

Unauthorized alterations to the project’s scope led to an additional Rs463.3 million in expenses, Rs28.39 million was spent on a flawed Green Spaces Initiative, and Rs812.24 million was allocated for overhead reservoirs based on inaccurate cost estimates. Irregular cost escalations added another Rs441.4 million, bringing the total financial impact of unauthorized expenditures to Rs1.74 billion.

The audit further identified questionable payments to contractors, including Rs2.53 billion for construction supervision consultancy under unclear circumstances. Additional financial losses included Rs11.08 million in unjustified escalations, Rs16.13 million in excess payments due to inflated quantities, and Rs157.4 million in irregular escalations for consultants. Unauthorized remunerations and overpayments contributed to a total loss of Rs3.73 billion.

Project delays and cost escalations pushed expenditures up by 41.77 percent, resulting in an additional burden of Rs441.4 million. The government also failed to recover Rs105.6 million in delay penalties, adding to inefficiencies that cost a total of Rs547 million. The audit found that contracts were awarded at higher rates, causing losses of Rs1.7 billion, while Rs76.06 million was paid in excessive monthly salaries to consultants. Overpricing resulted in an additional Rs263.4 million in financial discrepancies, and Rs49.47 million was paid beyond actual project progress.

The report also pointed to irregularities in staffing, with project employees appointed without proper testing. Insurance contracts were awarded to a private firm instead of the National Insurance Company Limited (NICL), and Rs47 million was paid in US dollars instead of Pakistani rupees, violating approved financial guidelines.

KPCIP management stated that the audit covered the fiscal year 2023-24 and focused mainly on civil works payments under local procurement laws, disregarding ADB’s procurement policy. 

The management maintained that contracts were awarded under FIDIC agreements and expressed confidence in resolving the audit objections through the Departmental Accounts Committee. 

It also noted that an initial audit report in December 2024 contained 72 objections, which were later reduced to 34 after clarifications. Additionally, ADB’s disbursement team conducted its own review, confirming that KPCIP expenditures aligned with the loan agreement and ADB’s financial procedures.