Telangana audit flags over ₹1,100 crore PF irregularities in outsourcing system

A government audit and Aadhaar-based verification of outsourced employees in Telangana have flagged alleged irregularities involving more than ₹1,100 crore in provident fund (PF) contributions, putting hundreds of private manpower agencies under scrutiny, reported TOI.

The exercise covered around 1.6 lakh outsourcing employees working across government departments and institutions and also identified suspected cases of ghost employees, raising questions over the monitoring of agencies responsible for paying workers and depositing their statutory benefits.

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Preliminary findings suggest that more than 60% of outsourcing employees either did not have PF accounts or had irregular PF contributions, according to the audit findings.

The irregularities came to light during an examination of payments made to outsourcing agencies, along with an Aadhaar-seeding exercise aimed at verifying the identities of employees on agency payrolls.

How the PF system works

Under Telangana's outsourcing arrangement, government departments make payments to manpower agencies that cover employees' salaries, the employer's PF and Employees' State Insurance (ESI) contributions, agency commissions and Goods and Services Tax (GST).

Agencies are also responsible for deducting the employees' share of PF and ESI from their monthly salaries and depositing the statutory contributions.

The audit, however, found that in several cases, PF amounts deducted from employees, as well as the employer's contribution released to agencies by government departments, were allegedly not deposited with the Employees' Provident Fund Organisation (EPFO).

Based on audit reports and payment records examined over several years, the suspected diversion of PF contributions has been estimated at more than ₹1,100 crore.

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Ghost employees raise fresh concerns

The Aadhaar verification exercise also reportedly found discrepancies between the number of employees shown on agency payrolls and those actually working in government departments and institutions.

The discrepancies have raised suspicions that bogus or ghost employees may have been included on payrolls to draw salaries and other payments.

The scale of the suspected irregularities has also brought the role of private manpower agencies under the scanner, particularly their responsibility for maintaining employee records and depositing statutory contributions.

Several agencies allegedly shut down or stopped operations as scrutiny intensified, making it more difficult for authorities to trace those responsible and recover the money.

Government seeks recovery and action

The government has recommended legal action against agencies found to have violated PF norms and sought recovery of the amounts allegedly due to employees.

It has also asked regional PF authorities to initiate proceedings against agencies that failed to deposit statutory contributions.

The findings have raised questions over the oversight mechanisms within government departments, including whether officials regularly verified PF challans and electronic contribution returns submitted by outsourcing agencies.

Labour representatives have also demanded that officials responsible for lapses in monitoring outsourcing contracts be held accountable.

Calls grow to scrap outsourcing agencies

The findings have revived the debate over the role of private outsourcing agencies in government employment.

Critics argue that removing intermediaries could eliminate agency commissions and GST costs, potentially increasing workers' take-home pay while reducing the scope for manipulation of salary and PF payments.

However, dismantling the existing outsourcing system would require the government to establish an alternative mechanism for recruitment, payroll management and statutory compliance for a large workforce.

For now, the immediate challenge is to determine the exact amount of PF contributions that remain unpaid, identify the agencies and employees involved, recover the money and fix responsibility for the alleged lapses.

The findings could potentially represent one of the largest sets of financial irregularities uncovered in Telangana's government outsourcing system, with the final extent of the alleged PF violations expected to emerge as authorities complete their verification and recovery process.

With inputs from TOI