AG~4U P0Lb196mrru6 amj6m6O%)%L NATIONAL AUDIT OFFICE Seci wa FFP /TRE/B /SSNP/04/2019 n Je My No. Your No. Secretary, jt0 2 t 7120 Ministry of Finance, Economy and Policy Development Report of the Auditor General on the Financial Statements of the Social Safety Nets Project (Component 01 and 02) for the year ended 31 December 2019 The English version of the above mentioned report along with the copy of the financial statement certified is sent herewith. W.P.C.Wickramaratne Auditor General Copies to 01. Project Director, Social Safety Nets Project (Component 01 and 02) 02. Senior Financial Management Specialist, International Development Association qom 306/72, cMftf) eo. 8 ON&j@ , 9 (P.WS D. 306172, GurwWu 6d u worg hm, 9 ila,&. No. 306/72, Potdwa Road, &a.aramul1a, Sri Lanka. +94 11 2 88 70 28 - 34 +94 11 2 88 72 23 ag@auditorgeneral.gov1k www.naosl.gov.1k NATIONAL AUDIT *41t @~~aJ 10~ 1-ft FFP /TRE/B /SSNP/04/2O19 me as} June20 0 My N. jYour No. ) Da Secretary, Ministry of Finance, Economy and Policy Development Report of the Auditor General on the Financial Statements of the Social Safety Nets Project (Component 01 and 02) for the year ended 31 December 2019 1. Financial Statement 1.1 Opinion The audit of financial statements of the Social Safety Nets Project (Component 01 and 02) for the year ended 31 December 2019 comprising the statement of financial position as at 31 December 2019, the statement of expenditure and cash flow statement for the year then ended and notes to the financial statements, including a summary of significant accounting policies was carried out under my direction in pursuance of the provisions in Article 154(1) of the Constitution of the Democratic Socialist Republic of Sri Lanka read in conjunction with Section II b (3) of the Loan Agreement No.5915-LK dated 28 December 2016 entered into between the Democratic Socialist Republic of Sri Lanka and International Development Association. In my opinion, the accompanying financial statements give a true and fair view of the financial position of the Project as at 31 December 2019, statement of expenditure and its cash flows for the year then ended in accordance with Generally Accepted Accounting Principles. 1.2 Basis for Opinion I conducted my audit in accordance with Sri Lanka Auditing Standards (SLAuSs). My responsibilities, under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of my report. I believe that the audit evidence. I have obtained is sufficient and appropriate to provide a basis for my opinion. efon 41172 OOLe o, 88 w6p o 7 28mD4) +94. 3272, u3bV- uapaui, or go. No. 306/72, t wwd, o Sri "n. 0 +94 112898 70 28 -34 /1+94 112 88 72 23 ag@auditorgeneral.govl]k Jiwwwanoasi.gov.lk 009W ffi6M&rr06i4 NWGUWMLb)~t NATIONAL AUDIT OPFICE NAOSL 1.3 Other Information on Performance of the Project The other information as stated below does not include in the financial statements and my opinion thereon does not cover the other information. The operations of the Project are implemented under 03 Components and the Disbursement Link Indicators under Component 01 and 02 are consisted with the activities such as Building a Unified Social Registry and Integrated Service Delivery Systems. According to the Project Operational Manual, the International Development Association will release funds directly to the Consolidated Fund of the Government of Sri Lanka, based on fulfillment of the agreed Disbursement - Linked Indicators under Component 01 and 02. The following observations are made on the implementation of the above activities. * Eventhough the International Development Association had allocated a sum of US$ 31 million equivalent to Rs. 5,622.78 million to year 2017, 2018 and 2019 under Component 01 and 02, only US$ 2.5 million equivalent to Rs. 452.95 million had been released in year 2017 and balance amount of US$ 28.5 million equivalent to Rs. 5,169.33 had not been released during the year under review, due to non- achievement of 06 Disbursement - Linked Indicators. Further, a sum of Rs. 73.5 million had been recovered as commitment charges by the Lending Agency during the year under review. * According to the information made available, the physical and financial progress of the Project had remained in an unsatisfactory level. Further, it was revealed that the government had been granted Samurdhi Benefits to 464,212 new families in year 2018 and 2019, while the Project is being implemented. Therefore, the Project development objectives had not been fully achieved at all. * According to the information received, the Welfare Benefits Board had been established under the Welfare Benefits Act, No. 24 of 2002 and functioned with effect from 20 August 2016 under the Component -01. However, it was revealed that key personals including the Chairmen, Deputy Commissioners, 2 NATIONAL AUDIT OFFICE NAOSL Accountant and Software Engineer had not been recruited even on the date of audit 26 May 2020. Therefore, the Board Meetings were not conducted as expected during the year under review. Eventhough the Gazette notification of Welfare Benefits Scheme had been published by the Ministry of Finance on 20 June 2019, it had not been approved by the Parliament even on the date of audit 26 May 2020. Further, a provision amounting to Rs. 17 million had been provided for Welfare Benefits Board for the year under review, only a sum of Rs. 8.1 million or 47.6 per cent had been utilized. As a result, the International Development Association had not been released a sum of US$ 2.5 million allocation under this activity. The objective of the Component - 01 of the Project is to build a Unified Social Registry. The core of the reformed welfare system will be a unified social registry containing data on all current and former programmed beneficiaries and the new applicants. According to the information made available, the contract for develop of a Social Registry Information System was awarded to a private firm on 31 October 2017 and expected to be completed by 31 March 2018. However, the firm had not been completed this software development activities as at 31 December 2019. As a result, all the other activities such as establishment of Social Registry Information System, establishment of Technical Working Group, Requirement and Design documents and designing of data collection forms had not been commenced even as at 31 December 2019. * The objective of the Component- 02 of the Project is to develop a Beneficiary - Level System and processes to support the integrated delivery of Safety Net Programs under the Welfare Benefit Schemes. Progress of this component is very low as Developing Welfare Benefits Schemes had been initiated and Populating Samurdhi Data to Social Registry Information System for testing purpose had been started during the year under review after considerable period of delay'of 02 years. According to the Project Appraisal Document at the end of the year 2019, at least 40 per cent of Divisional Secretariats should have access to a computer with the Management Information System interface active and at least one staff member trainee in its use. However, until completed the NATIONAL AUDIT OFFICE NAOSL development activities of Social Registry Information System, this activity cannot be implemented. In the previous year the mission advised to establish Project Technical Cell at the Ministry of Social Empowerment, Welfare and Kandyan Heritage to coordinate the activities of Component-02. However, the action had not been taken by the officials of the Project to establish the Technical Cell during the year under review. 1.4 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Generally Accepted Accounting Principles and for such internal control as management determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Those Charged with Governance are responsible for overseeing the Project's financial reporting process. 1.5 Auditor's Responsibilities for the Audit of the Financial Statements My objective is to obtain a reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Sri Lanka Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Sri Lanka Auditing Standards, I exercise professional judgment and maintain professional skepticism throughout the audit. I also: 4 Mao 50tow M1Q& NATIONAL AUDIT OFFICE NAOSL * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. I communicate with those charged with governance regarding, among other matters, significant audit findings, including any significant deficiencies in internal control that I identify during my audit. 2. Report on Other Requirements of the Donor Agency As required by the International Development Association, I state the followings: (a) The basis of opinion of the audit is as stated above. (b) In my opinion: - the funds provided had been utilized for the purposes for which they were provided, 5 N NATIONAL AUDIT OFFICE - the opening and closing balances, withdrawals from and replenishments to the Special (Dollar) Account had been truly and fairly disclosed in the books and records maintained by the Project and the balance as at 31 December 2019 had been satisfactorily reconciled with the accounting records of the Central Bank of Sri Lanka as at that date, - the Statements of Expenditure submitted could be fairly relied upon to support the applications for reimbursement in accordance with the requirements specified in the Loan Agreement, - the satisfactory measures had been taken by the management to rectify the issues highlighted in my previous year audit report, and - the financial covenants laid down in the Loan Agreement had been complied with. W.P.C. Wickramaratne Auditor General 6