la AUDIT AND INSPECTION REPORT ON THE ACCOUNTS OF SINDH SKILL DEVELOPMENT PROJECT (SSDP) EXECUTED BY SINDH TECHNICAL EDUCATION & VOCATIONAL TRAINING AUTHORITY (STEVTA) GOVERNMENT OF SINDH FOR THE FINANCIAL YEAR 2014-15 DIRECTOR GENERAL AUDIT SINDH DEPARTMENT OF THE AUDITOR GENERAL OF PAKISTAN tI TABLE OF CONTENTS Page No List of Abbreviations and acronyms I Preface III PART-I PROJECT OVERVIEW, 01 AUDITOR'S REPORT TO MANAGEMENT 03 FINANCIAL STATEMENTS 05 PART-II Covering Letter to the Management Letter 13 Executive Summary 15 Management Letter 01. Introduction 17 02. Audit Objectives 18 03. Audit Scope and Methodology i8 04. AUDIT FINDINGS AND RECOMMENDATIONS 4.1. Financial Management 4.2. Procurement & Contract Management 4.3. Overall Assessment 05. CONCLUSION 25 ACKNOWLEDGEMENT 26 Abbreviations and acronyms BBSYDP Benazir Bhutto Shaheed Youth Development Project BTE Board of Technical Education CPS Country Partnership Strategy DAE Diploma in Associate Engineering DA Designated Account DAO District Accounts Office DLI Disbursement Linked Indicator DPC District Program Coordinator DTE Department of Technical Education EEP Eligible Expenditure Program FM Financial Management FMIS Financial Management Information System GoS Government of Sindh IBRD International Bank for Reconstruction and Development ICT Information and Communication Technologies IDA International Development Association MIS Management Information System NAVTEC National Vocational and Technical Education Commission NGO Non-Governmental Organization PMU Project Management Unit SBTE Sindh Board of Technical Education SDA Special Drawing Account SDR Special Drawing Rights SIL Specific Investment Loan SSDP Sindh Skills Development Project STEVTA Sindh Technical Education and Vocational Training Authority TEVTA Technical Education and Vocational Training Authority WB World Bank PREFACE The Auditor-General of Pakistan conducts audits subject to Article 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 audit of project "Sindh Skill Development Project" under Chief Minister Secretariat was carried out accordingly. The Directorate General Audit Sindh, Karachi conducted audit of the project in the month of September 2015 for the period July 2014 to 30th June 2015 with a view to reporting significant findings to stakeholders. Audit examined the economy, efficiency, and effectiveness aspects 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 to 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-Il contains Management Letter with audit findings. The Report has been prepared for submission to the International Development Association in terms of its loan agreement of the project. Dated: 11,2015 (SIRAJ MUSTAFA JOKHIO) DIRECTOR GENERAL ii PART-I PROJECT OVERVIEW AUDITOR'S REPORT TO MANAGEMENT FINANCIAL STATEMENTS PROJECT OVERVIEW Name of Project Sindh Skills Development Project (Component-II&III) Sponsoring Authority World Bank and P&D Department, Government of Sindh Executive Authority Sindh Technical Education & Vocational Training Authority Karachi Loan No IDA Credit No. 4947-PK PC-I Cost PKR 630 Million (Component-Il PKR. 430 M) & Component III PKR. 200 M) Net Commitment: (Comp- III US $2.0 M) Date of Approval by ECNEC May 31, 2011 Date of Commencement October 21, 2011 Actual Date of Commencement January 27, 2012 Date of Completion (as per PC-I) December 31, 2014 Extended up till December 31, 2015 Date of Completion (as per revised PC-1) December 31, 2015 Loan Utilization Status in F.Y 2014-15 PKR. 97,470,506 Progressive Expenditure up to F.Y 2015 PKR. 147,587,876 1 AUDITOR'S REPORT TO THE STEERING COMMITTEE We have audited the accompanying financial statements of "Component-II and Component-Ill of Sindh Skill Development Project" executed by Sindh Technical Education & Vocational Training Authority Karachi, Loan Agreement No.1DA4947-PK, that comprise of statement of receipts & payments, statements of comparison of Budget & actual together with the notes forming part thereof for the year ended June 30. 2015. It is the responsibility of project Management to establish and maintain a system of internal control and prepare and present the statement of receipt and payment in conformity with the requirements of cash Basis IPSAS, financial reporting under the cash basis of accounting standard. The responsibility of the auditor is to express an opinion on the financial statements based on the audit conducted. The audit was conducted our audit in accordance with national standards of Supreme Audit Institutions. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. 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 our audit provides a reasonable basis for our opinion. In our opinion: The financial statements present fairly, in all material respects, the cash receipts and payments by the project for the year ended 30h June 2015 in accordance with cash basis IPSAS, financial reporting under the cash basis of Accounting standard. The expenditure has been incurred in accordance with the requirements of legal agreements. Dated: 11.2015 (SIRAJ MUSTAFA JOKHIO) DIRECTOR GENERAL 3 FINANCIAL STATEMENT Sindh Skills Development Project - IDA Credit No. 4947 - PK For the Year Ended June 30, 2015 PKR Note 2014-15 2013-14 2012-2015 Receipts Payment by Receipts Progressive (Payments Third Parties (Payments Receipts/ controlled by controlled by Expenditure Project) Project) .Receipts External Assistance - IDA 5 88.684,639 - - 121,589,985 (Component - III) 6 Government of Sind 6 37,000,000 37,500,000 74.500,000 ( Component - II) Total Receipts 125,684,639 37,500,000 196,089,985 Payments Consultancy Services 7 59,774,967 - 7,060,686 66,835,653 Services, Goods, Works 8 3,414,960 3,681,493 7,096,453 Operating Expenses 9 3,982,761 4,456,553 8,439,314 Training/Capacity- Building & Workshop 10 17,598,501 7,43,216 18,341,717 Market Driven Institutes 11 12,699,317 34,175,422 46,874,739 / Training Program Total Payments 97,470,506 - 50,117,370 147,587,876 Increase In Cash 125,684,639 37,500,000 Cash at beginning of 13,036,187 28,978,135 Year Comp-1I Total Cash 138,720,826 66,478,135 (Decrease) in cash (97,470,506) (50,117,370) Comp-III/Il Cash at End of Year 16,949,638 13,036,187 Component -Ill Un-utilized balance of 24,300,683 3,324,578 Comp-l (Lapsed) 12 The accompanying notes form an integral part of these financial statements and are to be read herewith. 5 AQIRJHU . BUDGET & EXPENDITURE STATEMENT Sindh Skills Development Project - IDA Credit No. 4947 - PK For the Year Ended June 30, 2015 Note 2014-15 2013-14 Budget Actual/Receipts Budget Actual/Receipts Amount Expenditure Amount Expenditure Receipts Opening Balance (non- 13,036,187 13,036,187 Lapsable A/c)-Comp-II External Assistance - IDA 5 88,684,639 88,684,639 28,978,135 28,978,135 Component-III Government of Sindh 6 97,000,000 37,000,000 120,021,865 37,500,000 Component -I Total Receipts 198,720,827 138,720,827 149,000,000 66,478,135 Payments Consultancy Services 7 63,000,000 59,774,967 41,000,000 7,060,686 Services, Goods, Works 8 3,600,000 3,414,960 12,000,000 3,681,493 Operating Expenses 9 5,500,500 3,982,761 10,500,000 2,846,241 Training-Capacity Building & Workshop 10 29,620,327 17,598,501 11,000,000 7,43,216 Market Driven Institutes /Training Program 11 97,000,000 12,699,317 74,500,000 34,175,422 Total Payments 198,720,827 97,470,506 149,000,000 50,117,370 The accompanying notes form an integral part of these financial statements and are to be read herewith BAO'- "JISSAEN6 Depoit, inatnr-Fh"n 6 P118177: Sindh Skills Development Project IDA Credit No. 4947 - PK Sindh Technical Education and Vocational Training Authority Component III Technical Assistance Notes to the Financial Statements For the Year ended June 30, 2015 Reporting Entity The financial statements are for Sindh Skill Development Project (SSDP) executed by Sindh Technical Education & Vocational Training Authority (STEVTA) under component II and component III of the project. The financial statement encompasses the reporting entity as defined in the Financing Agreement between the Islamic Republic of Pakistan and International Development Association (IDA). The Financing Agreement was signed on October 21. 2011 for an amount of SDR 13.4 million. The project became effective from January 27, 2012 with the extended closing date of December 31, 2015. The project has retroactive financing facility for payments made prior to date of effectiveness but on or after January 6, 2012. "The objective of the Sindh Skills Development Project (SSDP) is to support the Sindh Government in strengthening its training programs to improve the skills set and employability of Trainees. The project comprises of 3 components. The following components are executed by STEVTA. Component 11: Establishing, Improving or Upgrading Market-Driven Institutional Training Programs (SDR 2,440,000). Component III: Strengthening the Institutional Capacity of the STEVTA (SDR 1,400,000). The project controls its own Pak Rupee and US Dollar Assignment (Lapsable) Bank Accounts, Appropriations are deposited into the project's bank account. However, during period, receipts and payments for the project purpose were made from other bank accounts of STEVTA GoS prior to effectiveness. No any project agency was allowed any Imprest account for the purpose of the project. Financing Financing Agreement dated October 21" 2011, entered into between IDA and GoP under Credit No. 4947-PK, Project ID P118177-Sindh Skill Development Project. Responsible Agency A primary responsibility for overall progress and management of the Sindh Skill Development Project under component II and III has been entrusted to Sindh Technical Education & Vocational Training Authority headed by Managing Director through Project Director of the project operative under Chief Minister's Secretariat. Government of Sindh, ST-19, Block 6 Gulshan-e-Iqbal Karachi. 7 2 Certification by Project Management on Application of Funds The project management certified that the funds have been applied/expenditures 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 IPSAS Financial Reporting under the Cash Basis of Accounting." The accounting policies have been applied consistently throughout the period. 4 Significant Accounting Policies The policies applied by the executive agency are in line with approved national policies. The executive agency has maintained its all accounts according to national policy as per practice in vogue. 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 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 government deputations employees are accounted for in their respective departments while no service terminal benefits are paid to the contractual employees. 8 4.6 Payments by Third Party The payments made by third parties do not constitute cash receipts or payments controlled by the Project but do benefit the Project as the Project does not receive cash (including cash equivalents) directly from, or gain control of the bank account or similar facility established for its benefit by, the third parties. Payments by third parties. if any, are disclosed in the Payments by third parties column on the face of Statement of Cash Receipt and Payments and notes to the financial statements. 5. External Assistance External assistance was received in the form of credit from International Development Association (IDA) under financing agreement dated October 21" 2011 between IDA and Government of Pakistan (GoP) for the purpose of the Project. The following amounts were received by the Project during the period. 2014-15 2013-14 Note US$ Rupees US$ Rupees IDA-SOE Procedures 5.1 886,745.04 88,684,639 35,391 32,905,345 IDA -Reimbursement -GoS (Non Food Account) 5.2 916,909.50 93,256,022.83 - - 5.1 This represents funds transferred to the Project's Designated US Dollar Bank Account by IDA on the basis of Withdrawal Applications submitted by the Project 5.2 The word bank has reimbursed reporting amount to GoS in non food account. 5.3 There has been no instance of noncompliance with the terms and conditions of the financing agreement between IDA and GoP which have resulted in cancellation of IDA Credit. 5.4 Undrawn External Assistance Undrawn IDA credit at reporting date represent amounts specified in the financing agreement between IDA and GoP that IDA will disburse for project purposes. 2014-15 2013-14 Note Amounts in SDR Closing Balance 573.282 955,609.17 573,282 955,609.17 9 6. Government of Sind (GoS) Share GoS has released its share to Project through lapsable account for all eligible expenses as per PC-I. 7. Consultancy Services (A) M/s MTC International Development Pakistan (Pvt.) Limited was hired by the executive agency with the approval of World Bank for consultancy services during FY 2013-14 for "Upgrade Existing Training Program/Establish New Market Driven Training Program and Governance reforms in STEVTA. The MTC while working with STEVTA completed its task as per TORs/deliverables according to their contract agreement meeting the satisfaction of client as well to the World Bank. 2014-15 2013-14 Rupees MTC Payments 5 Installments 58,974,967 6,990,998 (B) The executive agency also hired services of Muhammad Harron with the approval of World Bank as an independent consultant to carry out Scoping Study of STEVTA to overview the existing management system of the organization and to suggest how to make it more efficient. The TORs of the scoping study include suggesting necessarily modifications in the organogram of the SETVTA and to identify gaps/under capacity issues and suggest how to overcome the gaps. 2014-15 2013-14 __Rupees Rupees Scoping Study 02 Payments 800,000 8. Services. Goods & Works __Rupees Procurement for PMU 3,414,960 (IT Equipment& Furniture's) And office use equipment 10 9. Operating Expenses. 2014-15 2013-14 Note Rupees Rupees Repair & Maintenance-Vehicle 187.430 275,000 POL 274,077 150,000 CNG - 117,000 Stationary 62,203 410,000 Printing & Publication 13,270 307,000 Courier 150 - Travel & Transportation 108,723 117,000 , Electronic Communication 18577 - Mobile charges 48,433 35,000 Motor- Insurance - 105,000 Vendors Payment 3,557,395 1,537,820 Total 3,982,761 2,846,241 10. Training-Capacity Building & Workshop 2014-15 2013-14 Note Rupees Rupees Training/Capacity Build.! Workshops/Con/Seminar 17,598,501 743,216 17,598,501 743,216 Services of NED University of Engineering, IBA Sukkur / Mehran University Hyderabad were procured by the executive agency for Training of 300 Trainers and Seminars and Workshops were conducted to develop capacity of 47 selected training institutions to offer Competency Based Training as envisaged in component-III of the project. The Seminars and workshops were also conducted to upgrade the capacity of officials who are responsible to manage and administer training institutions. The executive agency has constituted Institute Management Committees for better governance of the institutions and to maintain strong relationship between Institute and Industry to promote employability of graduates. 11. Market driven Institute / Training Program. The amount mentioned has been spent on staff allowances, up gradation of institutes and procurement of machinery out of total GoS funding of Rs.430 Million earmarked in Component II as per PC-I. 11 12. Unrealized Exchange Gain (Loss) 2014-15 2013-14 Pak Rupees Pak Rupees Balance as per Books of Project as at Year end 16,949,638 13,036,187 Closing Balance before Conversion as at Year end 16,949,638 13,036,187 Closing Balance after Conversion as at the Year end 16,949,638 13,036,187 Exchange (Loss) / Gain --.. -- ----- This represents national (loss) / gain on dollar amounts shown in the bank statement. The resultant (loss)/gain do not accrue to the Project. Unrealized Gain/(Loss) will be settled at the completion of the Project. The unspent dollar balance, if any, will be refunded to IDA at the end of the Project. 12.1 Cash and Bank 2014-2015 2013-2014 Note Rupees Rupees Cash in Hand Cash at Bank 16,949,638 13,036,187 16,949,638 13,036,187 13. During FY 2014-15, GoS released amount of Rs.37.00 Million, out of which Rs.12.699 Million were utilized and remaining Rs.24.30 Million were lapsed, as mentioned in Reconciliation report. 14. Contingencies and Commitments 2014-2015 2013-2014 Note Rupees Rupees Contingencies and Commitments - 15. General 15.1 Figures have been rounded off to the nearest rupee. 14.2 Comparative figures have been rearranged where necessary for the purpose of comparison. ADIL 1USSAIN 12 ACCO,,! t OFFiCER