An audit report of the Bengaluru Smart City Limited in 2020-2021 has pointed out many examples of financial mismanagement of Smart City projects, including one instance of an erroneous entry that has resulted in a notional loss of Rs 33.84 crore. From excess payment to contractors, to them being paid without work having been completed, the report raises several questions on financial discrepancies. The report notes that in the fiscal year, the company has reported a loss of Rs 73.56 cr. In Bengaluru, Smart City Limited has been working on modification of several arterial roads and pavement, redevelopment of bus terminals, markets and even botanical gardens.
The Smart City company has made an erroneous entry in their financial statements and ‘has resulted in an increase of losses by Rs. 33,83,85,463/-’ the report notes. This includes Rs 98 lakhs allotted for the redevelopment of the KR Market in the city and purchase of 90 electrical buses to the Bengaluru Metropolitan Transport Corporation (BMTC) which was approved without raising of invoices. When TNM contacted officials at the Smart City Limited, they said that the financial statement did not tally because the payment was made in April of 2021.
The irregularities came to light in December 2022, when a Congress MLC PR Ramesh spoke about the issue in the Legislative Council. Ramesh alleged that funds earmarked for Smart City projects ‘were looted’. Speaking to TNM, Ramesh said, “CM Bommai cut short my speech because I had gone prepared with documents. He immediately promised that he would order a probe. But there is still no clarity on whether that has happened or not’.
Pursuing the allegation, TNM studied the 3rd Annual Report 2020-21, Bengaluru Smart City Limited. The Chief Financial Officer TK Gopal Krishna of Bengaluru Smart City Limited meanwhile told TNM that a supplementary audit of the financial statements was conducted by the Auditor General’s office and all revisions have been made.
During the year, Smart City not just worked on roads and related infrastructure projects but also provided medical equipment to government hospitals like the Rajiv Gandhi Institute of Chest Diseases and undertook COVID-19 related Infrastructure works by Health and Family Welfare Department and Digital Health Infrastructure for BBMP.
The auditors have observed that the fixed assets of the company “have not been physically verified by the management at reasonable intervals”. It adds that contract payments are made even though work is not completed. “Excess payments have been made. Mobilization advances paid are not recovered, adjusted, no proper adequate process for frequent follow-up, reconciliation, invoking bank guarantees initiated,” the report says.
An example of this is seen in Phase A, package 7–redevelopment of Rajaram Mohan Roy Road, Lavelle Road and Brigade Road. This project is worth Rs 40.72 cr. The report notes that 55% of the work is completed but 81% of the total bill has been paid, an excess of 26%.
In another instance of a lapse, the report says that a sum of Rs 1.34 cr has been paid as mobilisation advance to contractors working on Smart City Roads. “The Work is not initiated as of today and there is no progress on the same. The Company has not initiated the process to recover the mobilization advance.” the report notes. This was for redevelopment of HKP Road in Shivajinagar and Miller’s Road in Vasanth Nagar and the total project was worth Rs 26.17 cr. The CFO said that the same roads were already taken up for repair by the BBMP so the Smart City Limited dropped the project. The mobilisation advance given to the contractor was to be adjusted in another project.
A similar lapse is seen in other projects too. For example, for a work order worth Rs 26 cr, mobilisation advance has been paid to the contractor for road works but the project was ‘descoped’ after finding it not feasible. But no effort has been made to recover the advance and instead, flouting guidelines, the company has decided to adjust in next bills.
The company has released Rs 3.27 cr for construction of a mini auditorium for the Women and Child Welfare department on Hosur Road, behind the Nimhans Campus. “But no utilization certificate is received by the company as of 31-03-2021. Accordingly, the same is treated as long-term loans and advances,” the auditors note. Essentially with no clearance, funds have been released and in the financial statements, have been falsely shown as loans.
Another payment of Rs 1cr has been made to the Karnataka Urban Infrastructure Development and Finance Corporation erroneously and has been marked as loss of Rs 1 cr.
The annual report points out that the Bengaluru Smart City Limited Board approved the purchase of 90 electrical buses to BMTC. The total amount approved was Rs. 50 Cr. Provision was made in the financial statements for an amount of Rs. 25 Cr. But while the amount was reserved, no invoice was raised. “As per the Smart Cities Mission guidelines due to non raising of invoice by the vendor the amount has been deposited with the smart city account,” the report notes. An expert TNM spoke to questioned why the amount of Rs 25 cr was deposited if the invoice has not been given.
We reached out to two of the three auditors for comment but they declined citing nondisclosure clauses and added that they have not been authorised to speak to us. But the report details the financial mismanagement that has caused the exchequer losses to run in crores.
A top official on the board of directors said that he is confident that "any audit observation done must have been complied”. Archana Kulkarni, who is the Company Secretariat for Smart City Company said that the “MD has given direction to the concerned contractors and has taken third-party inspection. He has taken a report from PMC who are our consultants”.
The report examined the financial reports of the company from April 1, 2020 to March 31, 2021. Works completed in this duration includes LED Lighting for Vidhana Soudha, Vikas Soudha, MS Building and VV Towers, COVID-19 related Infrastructure works by Health and Family Welfare Department, Digital Health Infrastructure for BBMP and Bengaluru Urban District. Some of the ongoing works include road works in several parts of the Central Business District like Commercial Street, Ulsoor Road, MG Road, Miller’s Road.
Watch: Excess payments, advances not recovered: Bengaluru SmartCity finances mismanaged?