멱 Financial Attest Audit Report on the accounts of Khyber Pakhtunkhwa - Southern Area Development Project Financed by MDTF through World Bank, Local Government and Rural Development Department of Khyber Pakhtunkhwa for the financial year 2017-18 Auditor General of Pakistan Islamabad TABLE OF CONTENTS Abbreviations and Acronyms................................................................................................ Prefa ce ................................................................................................................................. 2 PART-I ............................................................................................................................... 3 Project overview...................................................................................................................4 Auditor's report .................................................................................................................... 5 * Financial Statem ents ............................................................................................................ 7 PART-I1 ............................................................................................................................ 13 Covering letter to the m anagem ent letter............................................................................. 14 Executive Sum m ary............................................................................................................ 15 M anagem ent Letter............................................................................................................. 17 1. Introduction................................................................................................................. 19 2. Audit O bjectives.......................................................................................................... 22 3. Audit Scope and M ethodology.................................................................................... 22 4. AUDIT FINDINGS AND RECOMMENDATIONS.................................................... 23 4.1 Organization and M anagem ent .................................................................................... 23 4.2 Financial M anagem entngm............................................................................................ 23 4.3 Procurement and Contract managem ent....................................................................... 23 4.4 Construction and W orks .............................................................................................. 32 4.5 Asset M anagem ent ...................................................................................................... 36 4.6 M onitoring and Evaluation .......................................................................................... 36 4.7 Com pliance with grants / loan covenants ..................................................................... 36 4.8 Enyironm ent................................................................................................................ 36 4.9 Sustainability............................................................................................................... 36 4.10 Overall A ssessm ent ..................................................................................................... 36 5. CON CLUSION ........................................................................................................... 36 ACKN OW LEDGEM EN T .................................................................................................. 38 Abbreviations and Acronyms ACS Additional Chief Secretary ADP Annual Development Program CAP Community Action Plan CBO Community Based Organization CDD Community Driven Development CEIG Clustered Economic Interest Group CTR Central Treasury Rules DIU District Implementation Unit DWP Departmental Working Party EIG Economic Interest Group FM Financial Management GCC General Conditions of Contract GFR General Financial Rules IBRD International Bank for Reconstruction and Development INTOSAI International Organization for Supreme Audit Institutions IPSAS International Public Sector Accounting Standards ISSAI International Standards of Supreme Audit Institutions - KP Khyber Pakhtunkhwa MDTF Multi Donor Trust Fund NOL No Objection Letter NRM Natural Resource Management PC - I Planning Commission Proforma-1 PCNA Post Crises Need Assessment PD Project Director PDWP Provincial Development Working Party PMU Project Management Unit TA Technical Assistance TORs Terms of Reference 1 Pag e PREFACE The Auditor General of Pakistan conducts audit under Articles 169 and 170 of the Constitution of the 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, 2001. The Directorate General Audit, Khyber Pakhtunkhwa conducted Financial Attest Audit of the "Khyber Pakhtunkhwa - Southern Area Development Project (KP-SADP)" Grant No.TF 13560 PK financed by MTDF through World Bank for the financial year 2017-18, in November, 2018 with a view to report significant findings to stakeholders. The audit examined the economy, efficiency, and effectiveness aspects of the project. In addition, audit also assessed, on a test check basis, whether the management complied with the 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 was finalized in light of discussion with the Project Management. The PAO through Management Letter was also requested to convene DAC meeting, but DAC was not convened till finalization of this report. 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 Development Partner in terms of its grant agreement with the Government of Islamic Republic of Pakistan. Dated: Q12 /2018 Ak ar Ai Peshawar Director General A it Khyber Pakhtunkhwa 2 |P age PART-I PROJECT OVERVIEW AUDITOR'S REPORT TO THE MANAGEMENT FINANCIAL STATEMENTS 31 Page PROJECT OVERVIEW Name of the Project: Khyber Pakhtunkhwa - Southern Area Development Project (KP-SADP) (MDTF) Sponsoring Agency: MDTF through World Bank Executing Authority: Local Government and Rural Development Department of Khyber Pakhtunkhwa Grant No.: TF 13560 PK PC-1 Cost (Original): Rs.1704.060 million PC-1 Cost (Revised): Rs.2304.06 million Date of Commencement: October 2012 Actual date of Commencement: October 2012 Date of Completion (as per PC-I): June 2015 Revised date of completion: December 31s', 2018 Date or Approval by PDWP 19-09-2012 Grant Closing Date: December 31st, 2018 Grant utilization status in 2017-18: Rs.230.515 million Progressive expenditure upto June 2018: Rs.l 190.701 million 4 Page OFFICE OF THE DIRECTOR GENERAL AUDIT KHYBER PAKHTUNKHWA PESHAWAR AUDITOR'S REPORT We have audited the accompanying Financial Statements of "Khyber Pakhtunkhwa - Southern Area Development Project (KP-SADP)" Grant No.TF 13560 PK, financed by MTDF through World Bank that comprises of Statement of Receipts and Payments, Statement of Comparison of Budget and Actual together with the notes forming part thereof for the year ended 30P June, 2018. Management Responsibility It is the responsibility of Project Management to establish and maintain a system of internal controls, and prepare and present the Statements 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 our audit in accordance with the International Standards of Supreme Audit Institutions. Those 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. 5 Pa g In our opinion: a) The Financial Statements present fairly, in all material respects, the cash receipts and payments by the project for the year ended June, 2018 in accordance with Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard. b) The expenditure of Rs.230.515 million has been incurred in accordance with the requirements of legal agreements. DatedW 112/2018 A r n Peshawar Dire r General udit hyber Pakhtunk wa 6 |P age FINANCIAL STATEMENTS KHYBER PAKHTUNKHWA - SOUTHERN AREA DEVELOPMENT PROJECT (MDTF) FOR THE YEAR ENDED ON 30" JUNE, 2017 Page No Statement of Cash Receipts & Payments 8 Statement of comparison of budget & actual amount 9 Notes to the Financial Statements 10-12 711 Khyber Pakhtunkhwa Southern Area Development Project Statement of Cash Receipts and Payments For the Year ended June 30, 2018 Nte 2017-18 2016-17 Receipts(Payments) Payment by Third Receipts(Payments) Payment by Third Controlled by Project Parties Controlled by Project Parties Rupees Recelgts External Assistance 5 579,380,385 - ]314,136,600 ToalReceipty 579,380,385 - 314,136,600 - Payments Consultant Services 6 20,657,543 - 20,842,199 - Operating Expenses 7 75,643,879 - 68,565,870 - Training & Workshops 8 4,115,782 183,530 - Grants 9 125,993,752 249,839,709 - Goods 10 4,103,825 - 229,117 - Technical Assistance 134,742 Total Paymen 230,649,523 339,660,425 Increase (Decrease) in Cash 348,730,862 - (25,523,825) - Cash at Beginning of Vear 143,389,292 - 168,913,117 - Cash at End of Year 11 492,120,154 - 143,389,202 'T;e accompanying notes form an integral part of these financial statements and are to be read therewith. Project Director KP-SADP Khyber Pakhtunkhwa Southern Area Development Project Statement of Comparison of Budget and Actual Amounts For the Year ended June 30, 2018 Note 2017-18 2016-17 Budgeted Amount Actual Amount Budgeted Amount Actual Amount Rupees External Assistance 5 579,380,385 579,380,385 314,136,600 314,136,600 Total Receipts 579,380,385 579,350,385 314,136,000 314,136,600 PaAnents Consultant Services 6 44,632,436 20,657,543 62,680,000 20,842,199 Operating Expenses 7 02,251,176 75,643,879 76,007,000 68,565,870 Training & Workshops 8 7,355,431 4,115,782 2,440,000 183,530 Grants 9 890,132,290 125.993,752 795,230,000 249,839,709 Goods 10 10,085,000 4,103,825 5,700,000 229,117 Technical Assistance 3,977,564 134,742 3140,000 _ Total Payments 1,048433,900 230,649,523 945,197,000 339,660,42S The accompanying notes form an integral part of these financial statements and are to he read therewith. Proj;t Dir tor Budgeted figures are on the basis of cash forcast Ptatemen) f t DTefoR V Kp- gAop Khyber Pakhtunkhwa Southern Area Development Project Notes to the Financial Statements For the Year ended June 30, 2018 1 Reporting Entity The financial statements are for Khyber Pakhtunkhwa Southern Area Development Project (KP-SADP). The financial statement encompasses the reporting entity as defined in the Financing Agreement between the Islamic Republic of Pakistan and the World Bank. The Revised Financing Agreement was signed March 30, 2017 for an amount of IS$ 22 million. The project became effective from February 6. 2013 with the closing date of December, 2019. The objective of KP-SADP is to strengthen the capacity of the poor to improve their livelihood option through access to social and productive infrastructure using participatory approaches in the selected souhtern districts of khyber pakhtunkhwa. The Project is implemented through Local Government, Elections and Rural Development Department (LGERDD) Government of KP. Financing The financing is made in the form of Orant based on Standard World Bank ter, The Grant Agreemrnt No is MDTF Orant No TF 013560-PK. - 2 CerlifICation by Project Management on Application of Funds The KP-SADP management certified that the funds have been applied/expenditure have been incurred for the purposes intended in the grant 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 Reporing 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. 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 Rccogntion 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 Recogniean of Exrpe4diure 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 advire is issued. d45 Employee Terminal Benerfle Service benefits of government dcputItioas employees are accountcd for in their Tepective ocpanrt whil terminal benefits are paid to the contractual employees r7"kDirector - Oeiatt DireCGof KP-SADP eO �.�r+� л:хуhьr F ь':h;:г^k гw>! 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' iГь г�`..�'у� п+,Ф j, } . /6 Trainings and Workshops 2017-19 2016-17 Amounts In Pak Rupees Trainings ofCommunny Members for Capacity Development 8.1 4,115,782 183,530 4,115,782 183530 &I TrainingAvorkshop 9 Grants 2017-18 20te-17 Arn.u.ts In Pak R.pees Community Physical Infrastructure (CF1) SOomcs 9 1 12S,99 ,752 249,831),709 125,993,752 Z49,W9,709.00 9.1 Thisrepre5ent community phsical infrastructure developed In the three wget districts undtF the Community Driven Development approach. whereby the schemes were identi fiod and executed by comm u n i tyorganizations. 10 Good.; 2017-18 Z916-17 Amounts in Pak Rupm Vehicles furnitures and Fixtures Office Equipment 4,103,82 229,117,DO 4, 1 UJ,825, 229,117 Cash And Bank 2017-18 Amounts in Pak Rupees Cash at Bank 492,120,154 143,389,293 49Z,120,1" 143,389,293 11 A uthoriza tie n fo r I" e These financitLI statemenm have been 4uthorized for issue by the project Director KP qA])P 13 (kneral Ftg"jQ3 have been roundcd off to the nearest rupee. Cor para,,ve figurc5 have been rearran6ed ;whcrc, neres5a, fof the Purpose U f Co rippa, ison Pro Q Eiiref,(Or Project Director KP-SADP