fl3/ R'70 ~:;;~kJ Financial Attest Audit Report on the accounts of Enhanced Nutrition for Mothers and Children Project Khyber Pakhtunkhwa Funded by World Bank For the Financial Year 2018-19 Auditor General of Pakistan Islamabad . PART-II COVERING LETTER TO THE MANAGEMENT EXECUTIVE SUMMARY MANAGEMENT LETTER 1. Introduction 2. Audit Objectives 3. Audit Scope and Methodology 4. AUDIT FINDINGS AND RECOMMENDATIONS 4.1 Organization and Management 4.2 Financial Management 4.3 Procurement and Contract Management 4.4 Construction and Works 4.5 Asset Management 4.6 Monitoring and Evaluation 4.7 Compliance with Grant/ Loan Covenants 4.8 Environment 4.9 Sustainability 4.10 Overall Assessment 5. CONCLUSION ACKNOWLEDGEMENT 16 [ Page OFFICE OF THE DIRECTOR GENERAL AUDIT DGA • 9211306 Fax: = 9222417 KHYBERPAKHTUNKHWA PBX: = 9211250-54 PESHAWAR No. FAP/FAR/2018-19/ Dated: 22/07/2019 To The Project Director, Enhanced Nutrition for Mothers and Children Project, Health Department, Khyber Pakhtunkhwa, Peshawar Subject: Annual Audit of "Enhanced Nutrition for Mothers and Children Proiect Khyber Pakhtunkhwa funded by World Bank" for the Financial Year 2018-19 Annual Audit of accounts record of your project has been scheduled to be conducted by an audit team of this office as per audit plan approved by the Auditor General of Pakistan. It is requested to ensure the production of all the relevant record of your project to enable the audit team to finalize the task within the scheduled time. It is also requested to discuss the audit observations with the audit team at the end of the audit. Deputy 4-' ~udit (FAP) 171 Page EXECUTIVE SUMMARY The Directorate General Audit, Khyber Pakhtunkhwa conducted an audit of the Financial Statements of the Project "Enhanced Nutrition for Mothers and Children Project, Khyber Pakhtunkhwa funded by World Bank" for the Financial Year 2018-19, in July, 2019. The main objectives of the audit were to express an opinion on Financial Statements of the Project, to assess whether the project was managed with due regard to economy, efficiency and effectiveness, to review project performance against the intended objectives, to review compliance with applicable rules, regulations and procedures. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions (ISSAI) . Audit findings:- • Non-achievement of PC-I targets • Irregular appointment of consultants and payment of fee- Rs.5.366 million • Procurement of laptops without PC-I provision -Rs.0.628 million • Irregular expenditure on account of printing-Rs.2.563 million Recommendations: • The Project activities may be expedited to achieve PC-I targets. • The irregular appointments of Consultants may be justified. • The purchase of laptops may be justified. • Expenditure incurred on account of printing may be justified. 181 Page OFFICE OF THE DIRECTOR GENERAL AUDIT DGA = 9211306 Fax: = 9222417 KHYBERPAKHTUNKHWA PBX: = 9211250-54 PESHAWAR No.Audit/F AP/DAC/2018-19/934 Dated: 04/10/2019 To The Secretary to Government of Khyber Pakhtunkhwa, Health Department, Peshawar. Subject: Management Letter on accounts of "Enhanced Nutrition for Mother and Children Project, Khyber Pakhtunkhwa funded by World Bank" for the Financial Year 2018-19 This office has recently completed audit of the Financial Statements of the Project "Enhanced Nutrition for Mothers and Children Project, Khyber Pakhtunkhwa funded by World Bank" for the year ended 30th June 2019. While executing the audit, INTOSAI Auditing Standards as adopted by the Auditor General of Pakistan, were applied to express audit opinion on the Financial Statements of the Project. During audit, the focal areas of internal controls and other operational spheres were examined and results thereon presented in the Appendix for consideration. The following observations were made : • Non-achievement of PC-I targets • Irregular appointment of consultants and payment of fee-Rs.5 .366 million • Procurement of laptops without PC-I provision -Rs.0.628 million • Irregular expenditure on account of printing-Rs.2.563 million The points contained in the appended report may please be looked into for remedial measures. Dated: 04/ 10/2019 Deputy ~ ~ d i t (FAP) 191 Page 1. INTRODUCTION The Director General Audit Khyber Pakhtunkhwa conducted audit of the Project "Enhanced Nutrition for Mothers and Children, Project Khyber Pakhtunkhwa funded by World Bank". The Project is being financed by the World Bank. The project actually commenced from Sep-2017 and will be completed in December- 2019 . PC-1 cost of the project is Rs. 1656.55 million. 2. AUDIT OBJECTIVES 2.1 The major objectives of the Audit were to:- 1. Attest the Project's Financial Statements. 11. Report on compliance with relevant laws, policies and procedures. 111. Report on the overall management of the project. 3. AUDIT SCOPE AND METHODOLOGY 3.1 Audit Scope The audit scope included the examination of documents, record, accounts, etc. of the Project for the Financial Year 2018-19. Record for procurement of consultants/laptops and printing materials were reviewed. 3.2 Audit Methodology • Audit methodology was devised as per the following terms of reference: a) Eligibility of expenditure incurred: Expenditure was reviewed to check that funds were expended for authorized purposes only in line with the provisions of PC-I and Contract Agreement. b) Assessment of procurement of civil works and consultancy services: Procedure adopted by the Project Management for procurement was reviewed. c) Amount expended was incorporated in the Project Account supported by documents and records: Expenditure trail was reviewed and with the help of supporting vouchers traced to accounting record and the financial statements. d) Assessing effectiveness of monitoring and evaluation mechanism: Project internal controls were assessed and test checked for effectiveness. e) Maintenance of books of accounts: Audit determined the quality and completeness of books of accounts. 20 IPage 4. AUDIT FINDINGS AND RECOMMENDATIONS 4.1 Organization and Management The Project is executed by Government of Khyber Pakhtunkhwa Health Department through Integration of Health Services Delivery with special focus on MNCH, LHW, EPI and Nutrition Programme. The Project is run by Project Implementation Unit headed by a Project Director. Moreover, the services of Financial Management Specialist, Procurement Specialist, Nutrition Advisor and Behavior Change Communication Expert have been hired specifically for "Enhanced Nutrition for Mothers and Children Project" 4.1.1 Non-achievement of PC-I targets. The Project activities were required to be completed as per approved Work Plan. In Enhanced Nutrition for Mothers & Children Project, during financial year 2018-19, it was observed that the grant agreement was signed with the World Bank on 02-02-20 I 8 with the closing date of 30-06-20 I 9. However, various activities which were required to be completed during the financial year, except from the activity shown at serial No-01 (opening of Assignment Account, application for withdrawal, transfer of funds from SBP to Assignment Account, hiring of technical experts and periodic Financial Statement), remained incomplete despite the fact that the Project life will end on 31-12-2019. .. Non-achievement of PC-I target is a serious lapse on the part of project authorities . When pointed out it was replied that the agreement was signed with the World Bank in February 2018, but due to delay in transfer of funds the project activities suffered . The reply was not convincing, as the delay in transfer of funds occurred due to non-opening of Assignment Account. The same is brought into the notice of higher ups for appropriate action. 4.2 Financial Management The Project is funded by World Bank. Funds were released to Federal Government Account-I and further transferred to Provincial Account-I, State Bank of Pakistan, Peshawar (Assignment Account Number A-1 I 3). Subsequently State Bank of Pakistan released funds to Treasury Office and Finance Department Khyber Pakhtunkhwa issued authorization for incurrence of expenditures. Payments to the suppliers/consultants of the Project "Enhanced Nutrition for mothers and Children Project" were released through Assignment Account Number A-113 . 211 Pa ge 4.3 Procurement and Contract Management 4.3.1 Irregular appointment of consultants and payment of fee-Rs.5.366 million According to Para 7.39 (Direct Selection of Individual Consultants) of Procurement Guidelines of World Bank Individual Consultants may be selected on direct selection basis, with due justifications, under the following circumstances: a. Tasks that are a continuation of previous work that the individual Consultant has carried out after being selected competitively; b. Assignments with a total expected duration of less than six months; c. Urgent situations; or d. When an individual Consultant has relevant experience and qualifications of exceptional worth to the assignment. In Enhanced Nutrition for Mothers & Children Project, during financial year 2018-19, it was observed that four individual consultants were hired and paid salaries as per detail given below: (Rs in millions) No of Name of Fee Per S.No Designation months Amount Paid Consultant Month (Rs) paid for Financial Management 01 Jalal Khan 250,000 05 Months 1.250 Specialist 02 Abid Shahzad Procurement Specialist 500,000 04 Months 2.000 DrNadeem 03 Nutrition Advisor 500,000 • Akhtar Behavior Change 03 Months 02 Months 1.500 04 UmairKhan 250,000 0.616 Communication Expert & 14 Days Total 5.366 Audit holds that the selection/appointment of consultants was irregular because the above mentioned condition for direct selection of consultants was not existed. Rather the posts should had been advertised for fair competition. Moreover, the educational documents of contesting candidates were not available to authenticate the hiring process as legal and impartial. When pointed out it was replied that the grant agreement expired on December 31, 2018 without a single rupee disbursed by the World Bank. In a progress review meeting held in December 2018, the World Bank cautioned that the funds would be forfeited . The World Bank urged the management ofIHP to take immediate steps for hiring ofconsultants. The reply was self contradictory and not convincing. The World Bank's concurrence for circumventing its own guidelines was not produced. 22 I Page 4.3.2 Procurement of laptops without PC-I provision-Rs.0.628 million According to Page 212 of PC-I, no provision for procurement of laptops were available. In Enhanced Nutrition for Mothers & Children Project, during financial year 2018-19, it was observed that 06 laptops worth Rs.628,400 were purchased. On further scrutiny of the relevant record, it was observed that purchase of laptops was not provided for in PC-I. The detail is given below: S.No VRNo Cheque No & Date Description Amount To Whom Paid 33085065 dated 20-05- 02 @ 105250 Asim Computer 01 14 210500 19 per Laptop Solution 33085053 dated 16-04- 04 @ 104475 Vision Business 02 03 417900 19 per Laptop Solution Total 628400 The lapse occurred due to weak internal control. When pointed out it was stated that the PC-I has provision of 26 computers for Stabilization Centers. The reply was not convincing, as 26 Stabilization Centers were yet to be established. Moreover, 26 computers instead of laptops were required to be purchased for Stabilization Centers. The matter is reported for appropriate action. 4.3.3 Irregular expenditure on account of printing-Rs.2.563 million According to World Bank Procurement Guidelines (Page-110) Quotations should be obtained through advertisement or, when limited competition is justified, through a request for quotations (RFQ) to a limited number of firms. To ensure competition, the Borrower should request quotations normally from not fewer than three (3) firms. Firms shall be given sufficient time to prepare and submit their quotations. RFQs shall include the description, quantity, delivery, period, location of the Goods, Works and Non-consulting Services, including any installation requirements, as appropriate. The request shall also indicate the deadline for submission of quotations and specify that quotations may be submitted by letter, facsimile or by electronic means. The evaluation of the quotations and contract award shall be carried out according to the criteria specified in the RFQ. The terms of the accepted quotation shall b,e incorporated in a contractually binding document. The Borrower shall keep records of all proceedings regarding RFQs. 23 I Page According to Para-06 of Khyber Pakhtunkhwa Public Procurement of Goods, Works and Services Rules 2014, the procuring entity shall use open competitive bidding as the ., Principal method of procurement for the procurement of goods over the value of Rs.100,000/- In Enhanced Nutrition for Mothers & Children Project, during financial year 2018-19, it was observed that an amount of Rs.2,563, 177 was paid to M/s Ishmal Traders Peshawar on account of printing charges vide cheque No.33085078 dated 17-06-2019. Audit observed that: • Request for quotation was not available on record . • The Evaluation report was not available to authenticate the suitability of the successful firm . • Contract agreement was not available on record. • The entries made in stock register were not dated. • The issuance from the main stock register to various districts was not acknowledged by any one. When pointed out it was stated that the vendors were the regular suppliers of IHP and therefore, were requested to furnish quotations. The purchase order was issued to the lowest bidder. . The reply was not convincing as supporting documents were not available to authenticate the expenditure. 4.4 Construction and Works Not applicable 4.5 Asset Management 06 laptops were purchased against the PC- I provision for procurement of one Desktop computer each for Stabilization Centers to be established in 26 districts of the province during the financial year. 4.6 Monitoring and Evaluation (M&E) Monitoring and Evaluation system of the project should be strengthened and internal audit of the project should also be carried out as required under Para 13 of GFR Vol-I. 4.7 Compliance with Grant/Loan covenants Deviations have been incorporated in the audit findings . 24 IP age • 4.8 Environment There was no negative environmental impact of the project. ., 4.9 Sustainability All the activities including procurement of medicines, supplies, staff hired under the Project both at Provincial and District level will be taken on to the Recurrent Budget and mainstream in the Health Department annual programme. In addition, it will be ensured by the Health Department that activities started under PC-I especially for nutrition, will not only be continued but also enhanced over time to ensure sustainability and scaling up. 4.10 Overall Assessment The implementation of the project should be properly managed, so that available funds are utilized as planned. The execution/implementation should be accelerated so that to avoid cost and time overrun. 4.10.1 Relevance The project is in-line with Government' s Sectoral policies. 4.10.2 Efficacy The overall physical and financial performance indicates that the project ts likely to achieve its objectives. 4.10.3 Efficiency Internal controls should be strengthened to achieve the project objectives within the approved budget and time. 4.10.4 Economy The funds should be released in accordance with the PC-I to avoid cost overrun . 4.10.5 Effectiveness The project is likely to achieve its objectives effectively. 4.10.6 Compliance with rules The Financial Rules & Regulations of donor were violated in certain cases. 4.10.7 Performance Rating of the Project The performance rating of the project is moderately satisfactory. 4.10.8 Risk Rating of the Project The risk rating of the project is medium . 25 IPage ., 5. CONCLUSION The overall progress of the Program is satisfactory. The internal control system • should be strengthened. The financial management of the Program requires an improvement specifically during procurements. 5.1 Key issues for the future: i. Issues that could limit/hamper project/program's performance and achievement of intended objectives were: a. The program should be implemented efficiently to avoid cost and time overrun. b. DAC meeting should be arranged on the audit observations. c. Funds released should be utilized as per PC-I. ii. Lesson identified: Funds should be released in line with the approved PC-I. 26 1Page ACKNOWLEDGEMENT We wish to express our appreciation to the management and staff of the Project "Enhanced Nutrition for Mother and Children Khyber Pakhtunkhwa funded by World Bank" for the assistance and cooperation extended to the auditors during this assignment. .., 271 Page Annexure-A Activity Activity 2 Task , 1 Project Financial Operational Management - 1.1 - Opening of Assignment Account(AA) 1.2 - Aoolication for withdrawal 1.3 - Transfer of funds from SBP to AA 1.4 - Hiring of technical experts 1.5 - Periodic Financial Statements 2 Communication Strategy - Development of communication strategy for 2.1 - behavioral change - Social Vulnerability and service Delivery Assessment 2.2 - Implementation of communication strategy 2.3 - Development of Grievance Redressal Mechanism Grievance Redressal Mechanism and flow of 2.4 - information from district to provinces Strengthening/Operationalization of Health 3 Facilities as OPTs - 3.1 - Gap analysis for functionality requirements of SCs 3.2 - Provision of suoolies and equipment in SCs 3.3 - Provision of functionality requirement in SCs Identification of health facilities for establishment of 3.4 - OTPs Provision of supplies and equipments in identified 3.5 - OTPs 3.6 - Recruitments of District Coordinator Nutrition Supply Chain Management of Nutrition 4 suoolements to OTS/SCs - 4.1 - Development of procurement plan 4.2 - Procurement of Nutrition supp lements 4.3 - Supply of Nutrition supplements to OTPs and SCs . Training and capacity building of OTPs/SCs 5 StaffLHS and LHWs - 5.1 - Development of training plan and training materials for different levels 5.2 - Identification of Master Trainers and ToT 5.3 - Training of OTs/SCs staff 5.4 - Trainings ofLHSs, LHWs and other community outreach workers 281 Page