OrO NATIONAL AUDIT OFFICE ~MiliMiiiii HUD/B/MCUDP/04/19/041 pop"aj. /ti October 2020 Secretary Ministry of Urban Development and Housing Report of the Auditor General on the Financial Statements of the Metro Colombo Urban Development for the year ended 31 December 2019 The above mentioned report is sent herewith. WP.C Wickramaratne Auditor General Copy Project Director - Metro Colombo Urban Development Project II Q ~ «« > .)c-t ci i -,)U &wi. 306/72, . c~«i«l.iA~jin u« ~«,uu Nø. 30172, i>oliiwý;i Re N>iiiil,,'i L iankai ý4 i 411 2 88702 34 7 -91 0 23 ] NATIONAL AUDIT OFFICE a aw, HUJ D/B/MC UDP/04/I/O o. " ly October 2020 h o' your No. Date Secretary Ministry of Urban Development and Housing Report of the Auditor General on the Financial Statements of the Metro Colombo Urban Development Project for the year ended 31 December 2019 1. Financial Statements 1.1 Qualified Opinion The audit of the financial statements of the Metro Colombo Urban Development Project for the year ended 31 December 2019 comprising the statement of financial position as at 3 I December 2019 and cash flow statements 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 provis ons in Article 154(1) of the Constitution of the Democratic Socialist Republic of Sri Lanka read in conjunction with provisions in the Loan agreement No. 8145 LK dated 18 May 2012 entered into between the Democratic Socialist Republic of Sri Lanka and the International Bank of Reconstruction and Development. In my opinion, except for the effects of the matters described in the basis for Qualified Opinion section of my report, the accompanying financial statements give a true and fair view of the financial position of the Project as at 31 December 2019, and of its cash flows for the year th&n ended in accordance with the Generally Accepted Accounting Principles, 1.2 Basis for Qualified Opinion Accounting Deficiencies (a) The total disbursements from the Treasury and the GOSL Funds received for the year under review had been overstated by Rs. 1,000,000 and Rs. 12,309,823 respectively in the financial statements of the project due to not reconciling of find utilization details maintained by the Treasury with the project records. No ''/7,Piduw Road, Battaramujla, Sri Lanka. 94]188 70) 28 34 +94 1 ' 88 72 23 1 .uaL a I lniorucnr,o /I .D, p dJ5 5(047Jwy .flfSJiibs,cw NAOSL NATIONAL AUDIT OFFICE (b) A4 difterence of Rs. 7487.608 w as observed between the consultancy ser ices expenditures and the detailed schedule provided relating to the project component - li in the Financial Statements. I conducted ny 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. 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. (a) According to the fund utilization details, a sum of US$ 68.4 million equivalents to Rs. 10,513.4 million representing 32 percent of the total allocation of US$ 213 million equivalents to Rs 27,890.22 million made by the Lending Agency and a sum of US$ 65.7 million equivalents to Rs. 10,105.06 million representing 60.8 percent of the total allocation of US$ 108 million equivalents to Rs. 14,141.52 million made by the GOSL, had only been utilized as at 31 December 2019. it was observed that possibility of utilization of the balance of this allocation during the further extended project period of 30 June 2021 is remained in doubt. (b) According to the progress report of the Project, financial progress of the 27 sub projects were 100 per cent as at 3 1 December 2019. But, it is observed that price differences between the awarded contract prices and the actual contract prices of 17 sub projects of component 02 and 10 sub projects of component 0 1, were within the range of 1 6 per cent to 40 per cent. The reasons for those price differences had not been explained to audit. (c) It is observed that 5 projects, the estimated cost of Rs. 7601 million, namely Design & Building New Mutwal & Torrington Tunnels, Improvements to Norris Canal, Development of Bio Diversity Park at 2 .~*- . . .- .. AOT NATIONAL AUDIT Gn Kotte Rampart, Plant )esign Supplv and Installation of Pump Station at St. Sebastian South Lock and Construction of Flood Gate with Culvert near Thalangama tank and construCtion ofC cIvert at Bauddhaloka Mawatha had been recorded less than 50 percent physical and financial progress at the end of the year under review, compared with the scheduled progress as at end of the year tinder review. (d) According to the Contract Agreement of the Construction of Flood Gate near Thalangama Tank was expected to be completed by 20 January 2020. Subsequently, further time extension had been granted to complete the works by 21 April 2020. However, sone 3 major works relating to mechanical and electrification of gates valued at Rs. 6,465,070 had not been completed even during the extended contract period by the Contractor. Nevertheless, according to the condition of contract close number 8.3 and close number 8.7, delay damages for the works had not been charged by the Project Management Unit. Ls-t 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 the 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, In preparing the financial statements, management is responsible for assessing the Projects ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project's financial reporting process. 3 NATIONAL AUDIT OFFICE N.AOSL The Project is required to maintain proper books and records of all its income. expenditure, assets and liabilities, to enable annual and periodic financial statements to be prepared by the Project. 1.4- Auditor's Responsibilities for the audit of the Financial Statements My objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, 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: * 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. 4 -'4W NATIONAL AUDIT OFFCF NAOSL * 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 Bank of Reconstruction and Development, I state the followings. (a) The basis of opinion and scope and limitations of the audit are as stated above. (b) In my opinion: - Except for the effect of the matters described in the Basis for Qualified Opinion section of my report, I have obtained all the information and explanation that required for the audit and as far as appears from my examination, proper accounting records have been kept by the Project. - the funds provided had been utilized for the purposes for which they were provided, - the Statement of Expenditure submitted could be fairly relied upon to support the applications for reimbursement in accordance with the requirements specified in the Loan Agreement, 5 NATIONAL AUDIT OVFIC - 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