Financial Attest Audit Report on the Accounts of Rural Livelihood and Community Infrastructure Project Directorate of Projects, Merged Areas Secretariat Additional Grant Agreement No. TF4166-PK (Original Grant No.TF 11857-PK) for the Financial Year 2018-19) Auditor General of Pakistan Tslamahad TABLE OF CONTENTS Abbreviations and Acronyms .................................. .. ...................................................... ....... .... 1 PREFACE ........................... ....................................................................................................... 2 PART-1 ................................................................................................................................... 3 PROJECT OVERVIEW .................. ........ .......................................................................... ....... ..4 AUDITOR'S REPORT TO THE MANAGEMENT (Audit Opinion) .................. .... ................... 5 FINANCIAL STATEMENTS .................................................................................................... 6 PART-11 ................................................... ................................................. .. ........................ ... 7 COVERING LETTER TO THE MANAGEMENT LETTER ..................................................... 8 EXECUTIVE SUMMARY ..................................................... .. ...... ... .... .. .................................. 9 MANAGEMENT LETTER ................................................. ... ................................................. 10 1. Introduction .. ......... ....... ....................... ..... .......... ....... ........ ............................................... 11 2. Audit Objectives ............................. .. .................. ........................................ .............. ... ..... 11 3. Audit Scope and Methodology .......................................................................................... 11 4. AUDIT FINDINGS AND RECOMMENDATIONS .. ... ..... .... ........................................... 12 4 .1. Organization and Management.. .............................................................................. 12 4.2. Monitoring and Evaluation...................................................................................... 20 4.3. Financial Management ............................................................................................ 14 4.4. Assets Management ....... ... ...................................................................................... 15 4.5. Sustainability ...... ........................................................... ....... ...... ... .... ................ ..... 21 4.6 Overall Assessment. ...... ......... ........ ...... ... ................................................................ 22 5. CONCLUSION .................................................................. ... .................................... ....... 23 ACKNOWLEDGEMENT ... ..................................................... ....... ......................................... 24 ANNEXURE ................... ... ..................... ..... .......... ...................... ................... ... ................. .... 25 Abbreviations and Acronyms ACS Additional Chief Secretary AGP Auditor General of Pakistan AGPR Accountant General Pakistan Revenue AIU Agency Implementation Unit cos Community Organizations CSF Construction Supervision Firm CSR Composite Schedule Rates DAGP Department of the Auditor General of Pakistan DDO Drawing and Disbursing Officer DG Director General DOP Directorate of Projects FATA Federally Administered Tribal Areas FD Finance Division FDWP FAT A Development Working Party IPSAS International Public Sector Accounting Standards ISM Implementation Support Mission ISSA! International Standards of Supreme Audit Institutions KKT Khair Khegara Tanzeem MDTF Multi Donor Trust Fund NBP National Bank of Pakistan PMU Project Management Unit PPRA Public Procurement Regulatory Authority RLCIP Rural Livelihood and Community Infrastructure Project SRSP Sarhad Rural Support Programme PREFACE The Auditor-General of Pakistan conducts audits subject to Articles 169 and 170(2) of the Constitution of Islamic Republic of Pakistan 1973, read with Sections 8 and 12 of the Auditor- General's (Functions, Powers and Terms and Conditions of Service) Ordinance 200 I. The audit of the Rural Livelihood and Community Infrastructure Project, Merged Areas under the Directorate of Projects, Merged Areas Secretariat, Original Grant Agreement No.TFO 11857-PK and Additional Grant No TF 4166-PK was carried out accordingly. The Directorate General Audit (Federal Government) conducted audit of the Rural Livelihood and Community Infrastructure Project, Merged Areas during October, 2019 for the period 2018- 19 with a view to reporting significant findings to stakeholders. Audit examined the economy, efficiency, and effectiveness aspect of the project. In addition, Audit also assessed, on test check basis, whether the management complied with applicable laws, rules and regulations in managing the project. The Audit Report indicates specific actions that, if taken, will help the management realize the objectives of the project. The Report consists of two parts. Part-I contains Auditor's Report (Audit Opinion) and Financial Statements. Part-II contains Executive Summary, Management Letter and Audit Findings. The Report has been prepared for submission to the World Bank in terms of Grant Agreement TFO 11857- PK. Dated: 30.12.2019 AR ALI ASDI) Place: Islamabad Director General Page 2 of 25 PART-I 1. PROJECT OVERVIEW 2. AUDITOR'S REPORT TO THE MANAGEMENT 3. FINANCIAL STATEMENTS PROJECT OVERVIEW Name: Rural Livelihood and Community Infrastructure Project, Merged Areas Sponsoring Authority: Multi Donor Trust Fund (through World Bank) Executing Authority: Directorate of Projects, Merged Areas Secretariat Original Grant No.: TF 11857 and 4166-PK Additional Grant No.: TF 4166-PK PC-I Cost: Rs.2,102.105 million (Revised Cost) Date of Commencement: 01.01.2013 Actual Date of Commencement: 01.01.2013 Date of Completion ( as per PC-I): 31.12.2018 Grant Closing Date: 31.12.2018 Loan Utilization Status in FY 2018-19: Rs.41.882 million AUDITOR'S REPORT TO THE MANAGEMENT (Audit Opinion) Mr. Imran Zahoor, Project Director, Rural Livelihood and Community Infrastructure Project, Merged Areas Secretariat, Warsak Road, Peshawar Auditor's Report on the Financial Statements (FSs) of the Rural Livelihood and Community Infrastructure Project (RLCIP) We have audited the accompanying Financial Statements (FSs) of Rural Livelihood and Community Infrastructure Project Merged Areas under the Directorate of Projects, Merged Areas Secretariat, Peshawar, Additional Grant No. TF 4166-PK (Original Grant No. TF 11857-PK) that comprises Statements of Receipts and Payments, Statement of comparison of budget and actual together with the notes forming part thereof for the years ended 30th June, 2019. Management Responsibility It is the responsibility of the project management to establish and maintain a system of internal controls, and prepare and present the Statement of Receipts and Payments in conformity with the requirements of Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard. Auditor's Responsibility The responsibility of the Auditor is to express an opinion on the financial statements based on the audit conducted. We conducted audit in accordance with the International Standards of Supreme Audit Institutions. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The audit process includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion : a) The financial statements present fairly, in all material respects, the cash receipts and payments made by the project for the years ended 30th June, 2019 in accordance with Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard. b) The expenditure has been incurred in accordance with the requirements of legal agreements. Emphasis of Matter Without qualifying our opinion, we draw your attention to non-achievement of targets and failure to complete the project with cost of Rs. 2, I 02. 105 million and irregular retention of closing balance Rs.35.466 milli on after 30.06.2019 of the Rural Live Iihood and Community Infrastructure Project. Targets of the Rural Livelihood and Community Infrastructure Project need to be stren • eni to fully achieve the objective of the Project. ector General Directorate General Audit (Federal Government) Benevolent Fund Building, Zero Point, Islamabad Dated: 30.12.2019 Page 5 of 25 FINANCIAL STATEMENTS o( Rural Livelihood and Community Infrastructure Project (RLCIP) ty} Statement of Receipts and Payments Grant Agreement No.TF 11857-PK And TF 4166-PK For the Year ended 30 June 2019 Note _ _ _ _ _ _ __ 2_0_18_-_19 2017-18 Receipts (Payments) Receipts (Payments) Pak Rupees Receipts External Assistance 5 77,328,329 I Total Receipts 77,328,329 Payments Consulting Services 6 10086000 Operating Expenses 7 3 1795968 Total Payments 41881968 Increase (Decrease) in Cash 35,446,361 Cash at Beginning of Year Cash at End of Year 8 35,446,361 Finance Specialist FM Specialist (ERKF) FATA Secretariat Peshawar Audit Officer Directorate General Audit Federal Government Islamabad Rural Livelihood and Community Infrastructure Project (RLCIP) Statement of Comparison of Budget and Actual Amounts Grant Agreement No. TF 11857-PK And TF 4166-PK For the Year ended 30 June 2019 Note 2018-19 2017-18 Budgeted Actual Budgeted Actual Amount Amount Amount Amount Pak Rupees Receipts External Assistance 5 n ,328,329 11 n ,328,329 I 11 Total Receipts 77,328,329 77,328,329 Payments Consulting Services 6 10,086,000 10,086,000 Operating Expenses 7 31,795,968 31,795,968 11 Total Par.ments 41,881,968 41,881,968 ~- y, Director r r jects ----1----D_i-re o -c_t _rate of Projects Finance Specialist Proje t DireFtofA Scctt{eshawar. FM Specialist (ERKF) 't)~ ~ bl<'f~ \~UIJ\J -tA FATA Sec reta ri at o.s t>~ 0:>\1'\ Ir t\t_~l~ .. Peshc1v1ar • Rural Livelihood and Community Infrastructure Project (RLCIP) Notes to the Statement of Receipts and Payments Grant Agreement No.TF 11857-PK And TF 4166-PK For the Year ended 30 June 2019 Reporting Entity The financial statements are for Rural Livelihood and Community Infrastructure Project (RLCIP). The financial statements encompasses the reporting entity as defined in the Financing Agreement between the Islamic Republic of Pakistan and the World Bank. The Financing Agreement was signed on April 4, 2012 for an amount of US$ 12 million. The project became effective from April 4, 2012 with the closing date of 31 December, 2018. Then Additional Financing of US$ 8.1 Million was made and PC I was approved in July 2017 at a cost of US$ 20.1. Rural Livelihood & Community Infrastructure Project (RLCIP) is designed to improve and support livelihood, infrastructure, agricu lture and community participation. The project aims to improve the well-being of un-served and underserved low income communities starting with Mohmand, Bajaur and South Waziristan Agency. The Project is implemented through Directorate of Projects, FAT A Secretariat Government of Pakistan. Financing The financing is made in the form of Grant based on Standard World Bank terms. The Original Grant Agreement No. Was TF 11857-PK and Additional Financing is TF 4166-PK. 2 Certification by Project Management on Application of Funds The RLCIP management certifies that the funds have been applied / expenditure have been incurred for the purposes intended in the financing agreement. 3 Accounting Convention and Statement of Compliance The financial statements have been prepared in accordance with Cash Basis International Public Sector Accounting Standards (IPSAS) Financial Reporting under the Cash Basis of Accounting. The accounting policies have been applied consistently throughout the period. 4 Significant Accounting Policies 4.1 Foreign Currency Transaction Cash receipts and payments arising from transactions in foreign currencies are recorded in Pak Rupee by applying to the foreign currency amount, the exchange rate between the Pak Rupee and the Foreign Currency at the date of the receipts and payments I USO = PKR 124. 1554. Exchange differences arising on settlement of these transactions are recognized in the Statement of Receipts and payments. 4.2 Reporting Currency All amounts in the financial statements are in Pak Rupees. 4.3 Revenue Recognition Revenue is recognized on the date of receipt of money by bank or clearance of cheque. Revenue is recognized on gross basis and any related costs are recorded separately. 4.4 Recognition of Expenditure Expenditure is recognized on the date when payment is made or cheque is issued. Financial year to which the payments pertain is determined by the date on which a cheque or payment advice is issued. 4.5 Employee Terminal Benefits Service benefits of employees deputed from the government departments are accounted for in their respective departments, whereas the contractual employees are not paid service terminal benefits . Rural Livelihood and Community Infrastructure Project (RLCIP) Notes to the Statement of Receipts and Payments Grant Agreement No.TF 11857-PK And TF 4166-PK For the Year ended 30 June 2019 5 External Assistance External assistance was received in the form of Grant from the World Bank under financing agreement dated April 4, 2012 and Additional Financing agreement dated July , 20 17 between the World Bank and Government of Pakistan (GOP) for the purpose of the RLCIP Project. The following amounts were received by the Project during the period. 2018-19 2017-18 US$ Pak Rupees Note US$ Pak Rupees Advances from the World 622,835 77,328,329 5.1 Bank (Direct Payment) 622,835 77,328,329 5.1 This represents funds transferred during the financial year out of the total US$ 8.1 million grant to the Project's Designated Account by the World Bank on the bas is of Withdrawal App lications submitted by the Project. 5.2 There has been no instance of non compliance with the terms and conditions of the financing agreement between the World Bank and GoP which should have resulted in cancellation of the Grant. Undrawn External 5.3 Assistance Undrawn Grant at the reporting date represent amount specified in the financing agreement between the World Bank and GoP that the World Bank will disburse for the Project purposes. 2018-19 2017-18 Note Amount in US$ Total Grant amount ---8 ,-10-0- I ,0-00~ Advances from the World Bank till date ~--6_2_2~ , 8_3~5 ~-- - - - - - - ~ 7,477,165 6 Consulting Services 6.1 This represent the services hired of the Project Director and Nine Sector Specialists under individual consultancy agreements. The Project Director and Four Sector specialists including Planning Specialist, Finance Specialist, Procurement Specialist and M& E Specialist have been hired under prior review procedures whereby three shortlisted candidates CV's were shared with the World Bank and final candidate selected as per World Bank instructions. Whereas the remaining Five Sector Specialists have been hired under post review procedures. Break up of the cost is as follows: 2018-19 2017-18 ~---A_m_o~unt in Pak Rupees Project Director 1,476,000 Finance Specialist 1,230,000 Infrastructure Specialist 1,230,000 Community Development Specialist 1,230,000 Monitoring & Evaluation Specialist Planning Specialist 1,230,000 Procurement Specialist 1,230,000 Communication Specialist 1,230,000 NRM Specialist Environment and Social Safegauard Specialist 1,230,000 10,086,000 Rural Livelihood and Community Infrastructure Project (RLCIP) Notes to the Statement of Receipts and Payments Grant Agreement No.TF 11857-PK And TF 4166-PK For the Year ended 30 June 2019 7 Operating Expenses 2018-19 2017-18 Note .-----A_m_o....,unts in Pak Rupees Staff Salaries 7. I 22,488,378 I General Operating Expenditure 7.2 9,307,590 '-·_ _ _ _ _ _ _...., 31,795,968 7.1 This include salaries of the project staff excluding the salary of the Project Director and Nine Sector Specialist hired under indivisual consultancy agreements. Staff salaries are paid as per provision of the approved PC- I less applicable Taxes. The salaries are also subject to a I 0% annual increment as per approved PC- I and contracts signed with the staff members. 2018-19 2017-18 ~---A_m_o_u~nts in Pak Rupees PMU Staff Salaries AIU Bajaur Staff Salaries I 0,207 ,9351 5,519,865 I :_ AIU Mohmand Staff Salaries 4,288,756 AIU South Waziristan Agency Staff Salaries 2,471 ,822 22,488,378 ~--------~ 7.2 General Operating Expenditure 2018-19 2017-18 Note ~---A_m_o_u~nts in Pak Rupees POL and Repairs and Maintenance of Vehicles 54,520 Meeting and Conference/ Entertainment/ Study Tours Stationary, Postage and Courier 6,931 Utilities Bills 261 , 180 Office Rent 3,019,232 Advertisement, Printing and Publications T AIDA, Travelling and Conveyance Charges 40,800 Equipments Operation and Maintenance 3,900 Rented Vehicles & Rate and Taxes 5, 164,202 Others I Miscellenous Charges 3,000 Operating Expenditure Agency Implementation Units 753,825 9,307,590 8 Cash And Bank 2018-19 2017-18 Note ~---A_m_o_u~nts in Pak Rupees Cash at Bank Cash in Hand 1 35,446,36 1 35,446,361 II~------~ ' . Rural Livelihood and Community Infrastructure Project (RLCIP) Notes to the Statement of Receipts and Payments Grant Agreement No.TF 11857-PK And TF 4166-PK For the Year ended 30 June 2019 9 Authorization for Issue These finan cial statements have been authori zed for issue by the Project Director on 30/06/2019 10 General Figures have been rounded off to the nearest rupee. ~- Dy, Director P-ojects . irectora te of l'rojcct~ Finance Specialist FM Specialist (ERKF) FATA Secretariat ~ )"' t.,;..:''~. ;~:X"·!:":'"" D ~ ~q c..o\1'\\- ~US,l ~ . Peshawar