Slide 3.4

1. Slide 3.4 • Capital expenditure implies the expenditure which will add on the earning capacity of the organization. Normally, the nature and item head of capital expenditure varies sector to sector in contrary to Revenue Expenditure which are mostly common in every organization/sector.

2. Slide 3.4 • In Telecom Sector – the capital expenditure is generally incurred on providing telephone connections to the subscribers. All the relevant activity like cable laying, exchange (A&P) commissioning, creation of transmission network etc. and the necessary required infrastructure are the major items

3. Slide 3.4 • Addition to Land : • § Examine the requirement/need to justify the procurement of land, the area, location etc.-planning section. • § Study the rules and guidelines applicable to BSNL about procurement of land. Whether BSNL is supposed to purchase land only from Govt. or Semi Govt. agencies like municipal bodies or housing and land development boards or from common manner as well.

4. Slide 3.4 • § Whether any open tender or direct purchases made. • § Whether the land title deeds got registered in favor of BNSL. • § Examine the rates, terms and conditions of payments etc. and the agreement with the seller is free from all encumbrances. • § Ensure that no disputed land is purchased by BSNL. • § Whether the land purchased in the earlier years have been used for the planned purpose or diverted to different purpose. • DAP New Mumbai – construction of Admn. Bldg. Instead of planned exchange building

5. Slide 3.4 • Building • Normally BSNL does not purchase ready or built up building. BSNL has its Civil Wing which constructs building on the land already procured as per design and specification prepared by the planning wing. • The detailed audit of building construction expenditure will be discussed in Civil Expenditure Audit, however, the following points need to be examined.

6. Slide 3.4 • § Whether after completion of construction of building, all the required clearances from Municipal bodies (NOC), water board, electricity board etc. were obtained in time (Water supply through tankers for 1 ½ years in Mumbai Juhu Danda, BSNL office at very high rates) avoiding the idleness of the building. • § Whether the building has been put to use for the stated purpose or lying vacant implying faulty planning of the requirement.

7. Slide 3.4 • § Examine the expenditures incurred on furnishing/partitions etc. of the building. Collect the detail of how many agreements were finalized and check them thoroughly. • Examine that no maintenance exp. are charged to the cost of building

8. Slide 3.4 • A & P : • Mainly this includes commissioning of exchanges. The following points may be examined: • New Exchange – This may be done as a ‘project review’ as well. • Examine the Planning: What is the need to open the exchange? Whether any demand existed in that area? How the assessment of demand and utilization of capacity of the new exchange was analyzed. Whether the calculation of Rate of Return was as per norms fixed by DOT. The viability of project was properly analyzed and got approved by the competent authority.

9. Slide 3.4 • § Examine the procurement of exchange equipment. • § Whether procurement of equipments was done as per the planned schedule or procurement was delayed? • § Examine the commissioning schedule: Whether the exchange was commissioned as per the schedule planned or delayed. If delayed this was on account of avoidable/unavoidable reasons. The probable reasons of delay in exchanges are : • Ø Delay in receipt of equipments. • Ø Delay of civil/electrical work. • Ø Lack of coordination of different wing like Transmission wing, switching equipments wing.

10. Slide 3.4 • Examination of expenditure for capital projects: There are two kind of expenditures – i)Cash ii) Stores. • i) Examine all the payments of cash vouchers so as to ensure that no over payments have taken place. • ii) Stores: All the stores issued by Stores section have been taken into consideration and the remaining unused portion has been returned to the stores.

11. Slide 3.4 • There are different types of technology exchange available – examine the type of technology procured with reference to area and the kind of facility required for the long run. For example – Procurement of E 10 B exchange which became obsolete very soon. While auditing ensures that no obsolete/old technology exchange was commissioned. • - Whether exchange capacity has been utilized in the planned period or lying idle. If idle the audit objection may be on in fructuous exp. • - Under A&P – there are several items – commissioning of RSU, RLU, DLC, WLL Exchange, mobile exchange, VPT etc.

12. Slide 3.4 • Expansion of capacity : • · As per DOT norms, the expansion of capacity should take place only when 94% capacity is already utilized or this percentage have been flexible in view of competitive environment and with a target of telephone on demand : • · The assessment of number of connections, capacity, and addition should be based on proper analysis of forecast demand, available waiting list, and future projections by market research agencies etc.

13. Slide 3.4 • ·While doing audit, most of LAP invariably have taken objection on ‘unwarranted expansion of capacity’ on ‘potential loss of revenue’. However, one general mistake observed by me is that the LAPs collect the MIS report for the whole SSA which gives the detail of total equipped capacity and working connections. Audit takes overall figure of idle capacity and reaches to the conclusion of over expansion which is a wrong audit judgment. The audit has to analyze the exchange wise expansion whether the expansion in that particular location/exchange was unwarranted. Further to that the projections made while planning might go wrong because of fast changing environment as well. All the factors needs to be integrated before making comment on unwarranted expansion.

14. Slide 3.4 • · Sometimes the expansions have taken place just to utilize the push over procurement of H.Qrs. which needs to be checked at HQrs. level about the assessment of requirement and then procurement.