FINANCIAL ATTEST AUDIT REPORT ON THE ACCOUNTS OF PUNJAB PUBLIC MANAGEMENT REFORM PROGRAM (PPMRP) PLANNING & DEVELOPMENT DEPARTMENT, GOVERNMENT OF THE PUNJAB V LOAN NO: IDA 53140-PK, FUNDED BY THE WORLD BANK FOR THE FINANCIAL YEAR 2014-15 AUDITOR GENERAL OF PAKISTAN ISLAMABAD TABLE OF CONTENTS Page No. List ofabbreviations Preface 4 PART-1 PROGRAM OVERVIEW 6 AUDITOR'S REPORT TO TIE MANAGEMENT 7 FINANCIAL STATEMENTS 8 PART-II 9 COVERING LETTER TO THE MANAGEMENT LETTER 10 EXECUTIVE SUMMARY 1 MANAGEMENT LETTER 12 1. Introduction 12 1 Audit Objectives 1 3. Audit Scope and Methodology 12 4. AUDIT FINDINGS AND RECOMMENDATIONS I--1 4.1 Organization and Management 4.2 Financial Management 4.3 Procurement and Contract Management 4.4 Overall assessment 5. CONCLUSION 3 ACKNOWLEDGEMENT 24 1 ABBREVIATIONS & ACRONYMS AG Accountant General DAC Departmental Accounts Committee DDO Drawing and Disbursing Officer DG Director General DLI Disbursement Linked Indicator FA Executinu Agency ECNEC Executive Committee of the National Economic Council GAAS Generally Accepted Accounting Standards GoP Government of Pakistan G(Ph Government of the Punjab lAs Implementing Agencies IDA International Development Association INTO SAl International Organization of Supreme Audit Institutions I PSAS International Public Sector Accounting Standards PPRA Punjab Procurement Regularity Authority PforR Program for Results PPMRP Punjab Public Management Reform Program PMl I Program Management Unit SDR Special Drawing Rights SoE Statement of Expenditure TDs Target Departments TOR' Terms of Reference PREFACE The Auditor General of Pakistan conducts audit, subject to articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan, 1973. read with Sections 7. 8 & 12 of the Auditor ieneral (Functions. Powers and Terms & Conditions of Service) Ordinance. 2001. This audit of Financial Statements of the "Punjab Public Management Reform Program- (PPMRP) for the financial year 2014415 was carried out according Iv. The Directorate General Audit. Punjab Lahore conducted audit of the Program during August and September. 2015 for the financial year 2014-15 with a view to report significant findings to stakeholders. Audit examined the economy. efficiency and effectiveness aspects of the Program. In addition, audit also assessed, on test check basis, whether the management complied with applicable laws. rules and regulations in managing the Program. The audit report indicates specific actions that. if taken. will help the management realize the objectives of the Program. The report has been discussed with the Program Management in September. 2015. The report has been prepared for submission to the World Bank in terms of Financing Agreement- (Dr. Muhammad Jamil Afaqi) Director General Audit, Punjab Datced: P'lace: Lahore. PROGRAM OVERVIEW Name of the [rogramme: Punjab Public Management Reform Program (PPMRP) Sponsoring Authority: World Bank Executing Authoritv: Planning & Development lDepartment Loan No. IDA-53 140-PAK Principal Loan Amount: USS 50.000 million Date of Commencement: 01 .07.2013 Date of Completion: 3(0.06.2018 Date of Closing of Loan Agreement: 31.12.20 18 Progressive Expend iture upto 3 0-06-2 015: Expenditure up-to Expenditure during Expenditure upto 2014-15 30-06-2015 30.06.2014 Rs. 1,486 million Rs. 2.335 mi Ilion Rs. 3.821 million 5 ADITOR'S REPORT Auditor's Report on PPMIRP's Financial Statements We have audited the accompanying Financial Statements of Punab Publie Management Reform Program that comprises of Statement of Receipts and Payments. Staternent of Comparison of Budget and Actual together with the notes forming part thereof for the year ended 30" June. 2015. Nanagenient Responsibility It is the responsibility of Program Managernent to establish and maintain a system of internal controls. and prepare and present the Statement of Receipts and Payments in conformity with the reqtiirements of Cash Basis PSAS. 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 International Standards of Supreme Audit Institutions. Those standards require that we plan and perforrn the audit to obtain reasonable assurance about whether the Financial Statements are frec of material misstatements. The audit process includes, exaiining 1on a test basis, evidence supporting the amounts and diselosures 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 reasonabie basis for our opinion. Opin ion: ln our opinion: A The aforenmenrioned Financial Statements and appended notes, that were also the subject of the audit, fairly present in all material respects the financial position of - Punjab Public Managenment Reform Program" (PPMRP) as at 304i June, 20`15 and the resulls of its operations for the period ended 30.06.2015 in conformity with te IPSAS Cash Basis Standard. applied on a basis consistent in all material respects with that of previous year. B. The Implementing Agencies and Target Departments have utilized all proceeds funded by Government of Punjab only for the purposes of the Program as agreed between the Donor and Government of the Punjab in accordance with the Financing Agreement and no proceeds of the Donors funding have been utilized for any other purpose. (Dr. MUHAMMAD JAMIL AFAQI) Director General Audit Punjab Place: Lahore Date: 6 FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 30thJUNE, 2015 7 Punjab Public Management Reform Program (PPMRP) IDA Credit No. 53140-PK Statement of Cash Receipts and Payments For the Year Ended June 30, 2015 Amount in Pak Rupees Amount in Pak Rupees Note 2014-2015 2013-2014 Receipts/ Payment Receipts/ Payment Payments by Third Payments by Third under Program Parties under Program Parties RECEIPTS Government of the Punjab 5 2.335,344,11 - 2.335,344,181 - External Asistance 6/ 6.1 - - - [ TOTAL RECEtPTS 2,335,344,181 _ 2,335,344,181 - PAYMENTS Government of the Punjab Target Departments and lAs Agriculture Department LO4081 71,956,659 - 75.385,682 - Livestock and Dairy Development L04083 53,499,440 - 34169.164 - Department Irrigation and Power Department LO4086 119,992,355 - 111,952,647 Excise and Taxation Department LD4067 43,557,458 - 59.502.125 - Health Department LQ4074 185.946,055 - 171,522,848 - Higher Education Department LO4448 95,661,063 - 96,027,123 - School Education Department LQ4451 115,069.352 - 118,335.627 - Information & Technology Board LO4429 240.638 902 - 217.598.697 - Punjat Gateway Project / LZ4697 117.645.146 E-Government Initiatives (LO11000061) Punjab Procurement Regulatory 8,376.876 Authority (L014004422) IT Centric Intervention & Smart LE4316 LZ4697 1.093.349.695 - 78.820,469 - Monitoring Under PPMRP (LO13001424) Strengthening of PMUIPRMP for LZ4030 & open Government / 39,405,929 28r947.963 Transparency related activities Urban Immovable Property Tax L04022 267,890.397 - 375.828.710 - TOTAL PAYMENTS 2,335,344,181 - 1,485,736,201 - Increase! (Decrease) in Cash - - - - Cash at Beginning of Year Cash at End of Year The accompanying notes form an integral part of these financial statements. Amounts mentioned above have been reported by respective IA and TD to PRMP through submission of Quarterly Budget Execution Reports for FY 2014-15 Deputy Program Director Program Director Punjab Resource Management Program Punjab Resource Management Program Audit Officer Directorate General Audit Punjab Public Management Reform Program (PPMRP) IDA Credit No. 53140-PK Statement of Budgeted and Actual Amount For the Year Ended June 30, 2015 Amount In Pak Rupees Amount in Pak Rupees 2014-15 2013-14 Revised Revised Estimates 2014- Estimates 2013- Actual Amount Fund entr E15tBudte Actual Amount 141 Budgeted Aculmon FuI Cete i5 Budgeted 11Bdee Amount Amount RECEIPTS Governmenl of the Punjab 2.633.909.000 2.335.344.181 1.762.757,000 1.45,736.201 External Asistance - - - - TOTAL RECEIPTS 2,633,909,000 2,335,344,181 1,762,767,000 1,485,736,201 PAYMENTS Government of the Punjab Target Depts and iAs Agriculture Department L04081 83,272,000 71,956.659 75.978.000 75.385.682 LlVes[oCK 60(3 J61'y uevelUp11eF1 L04083 54,805.000 53,499.440 36.838.000 34.169.164 Irrigation and Power Department LO4086 116.502,000 119.992.355 112.279.000 111.952.647 Excise and TaKatron Department L04067 8,550,000 43.557,458 62.168.000 59.502.125 Health Depailmeni L04074 191.943.000 185L946.055 173.490.000 171.522.848 Higher Education Department L04448 101.121.000 95.661.063 101.061.000 98.027.123 School Education Department L04451 121,449,000 115,069,352 129.147,000 118,335.627 Intorration & Technology Board L04429 257.854,000 240.638.902 228,690.000 217,598.697 Punjab Gateway Project / LZ4697 128,506,000 117.645.146 E-Govermenl Initiatives (LO110000611) Punjab Procurement Regulatory (L014004422) 38.000,000 8,376.876 - - Authority IT Centric Intervenlion & Smart LE4316 LZ4697 1,300.519,000 1.093.349.695 182,952,000 78.820.469 Monitoring Under PPMRP tL013001424) Strengthening of PMU/PRMP for open LZ4030 & government / 46.000,000 39.405,929 36,000,000 28.947,963 transparency related activities Urban immovable Property Tax L04022 313.894.000 267.890.397 495,648.000 375.828.710 TOTAL PAYMENTS 2,633,909,000 2,335,344,181 1,762,757,000 1,485,736,201 *The accompanying notes form an integral part of these financial statements. " Amounts mentioned above have been reported by respective IA and TD to PRMP Ihrough submission of Quarterly B dget Execution Reports for FY 2014-15 Deputy Program Director Program Director Punjab Resource Management Program Punjab Resource Management Program Audit Officer Directorate General Audit Punjab Public Management Reform Program (PPMRP) IDA Credit No. 53140-PK Notes to the Financial Statements For the Year Ended June 30, 2015 1 Program (PPMRP) Description i1 Introduction The Financial Slatements are for Punjab Public Management Reforn Program (PPMRP). The financial statements encompasses (he reporting entity as defined in the Financing Agreements between the Islamic Republic of Pakistan and the World Bank for the program. The Financing agreement of USS 50 million (IDA Credit No 53140-PK) was signed on December 02. 2013. 1.2 Program Objectives The PPMR program has been designed to strengthen performance monitoring system and feedback loops. improve transparency and access to information about specific services and strengthen resource management system of Governient of the Punjab in order to improve service delivery mechanisms. There are four implementing agencies of the Program which include Punjab Resource Management Program (PRMP), Punjab Information Technology Board (PITB). Punjab Procurement Regulatory Authority (PPRA) and Excise & Taxation Department (E&Td) while there are seven targeled departments as mentioned in Expendituie Framework iEF). PRMP is responsible fop overall program coordination The financing instrument used for this Program is Performance for Results (PforR). which is relatively new in Pakistan PiorR instrument supports government's existing programs and systerns. 1.3 Program Scope The disbursement is linked with achievement of cerlain agreed results called Disbursement Linked Results (DLRs) and disLurserment is made direcly to Finance Department after submission of report validated by third party firm. There is no * El;gible Expenditure Program (EEP) in this instrument. However, an Expenditure Framework (EF)" has been prepared which may be viewed at page 69 of Prograrn Appraisal Docurment (PAD), wherein, some selective cost centers /DDO codeslexpenditure themes (both from current and development side) of target departments and implementing agencies have been included on the basis of five year expenditure projections. The purpose of preparing EF is to ensure that after five years the program expenditure should be more than the financing amount of the whole Program which is 50 million USD Accountant Generaf Punjab maKes payments and maintain accounting records of coSt centers/DDO codes mentioned in EF using the government financial management information system/PIFRA System. As given in PAD, at present three implementing agencies (PITB.PPRA.PRMP) operate lapsable SDAs or Assignment Accounts, white payments of E&TD are processed through Accountant General. PRMP mairitains manual accounting records for payments made from the Designated Assignment Accounts. 1.4 Estimated Cost The Program is planned over five years with disbursements up to a maximum of SDR 32.6 million (US$50 million equivalentl) over this time. 1.5 Sources of Finance 1. World Bank 2 Government of the Puniab 1.6 Components of PPMRP Program The PPMR program has been designed to strengilen performance monitoring system and feedback loops. Improve iransparency and access to information about specific services and strengthen resource manageirent system of Government of the Punjab in order 10 improve service delivery Mechanisms. 2 Certification by Project Management on Application of Fundst Management Assertion Funds against Credit No. 53140-PK have been utilized for the project purposes as defined in the financing agreement. 3 Accounting Convention and Statement of Compliance The Financial Statements Of PPMRP have been prepared in accordance with Cash Basis international Public Sector Accounting Standards (IPSAS), Financial Reporting under the Cash Basis of Accounting. These financial statements have been prepared Using cash basis of accounting where transactions are only recognized when cash is received or paid. 4 Significant Accounting Policies : 4.1 Foreign Currency Transaction 7 Cash receipts and payments arising from transactions 4n foreign currencv are recorded in Pak Rupees by applying the exchange rate prevailing at the date of Iransactions 4.2 Reporting Currency : All arounts 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 : Eipenditure is recognized on the date when payment is made or cheque is issued. Financial year to which the payments penai-n is determined by the date on which a chelue or Dayment advice is issued. 4.5 Basis of Presentation The financial stalement has been prepared in accordance with International Public Sector Accounting Standard (IPSAS) cash basis. 4.6 Accounting Convention These financial statements have been prepared under the historical cost convention with cash basis of accounling. Accordingly, expenses are recognized when paid raIher incurred. 4.7 Foreign Currency Transactions All transactions have been made in Pak. Rupees 4.8 Fixed Assets Fixed Assets are disclosed on Historical Cost Basis. Schedule of Fixed Assets has been given 5 Receipts - Government of the Punjab : This represents the funds provided by Government of the Punjab to pay for the program [or the period July 01. 2014 to June 30. 2015. 6 Extornal Assistance 6.1 No external assistance was received during the financial year- However, an aniount of USD 15.8 million was disbursed to Firafice Department directly as budgetary support in FY 2014-15 as advance payment/reimbursemenl for PPMRP. The amount however. can not be reflected against the external assistance column under PlorR instrument and will be treated as separate amount irrespective of the program. Whereas, funding to all implementing agencies and target departments will be prvided from GOPb funds as per government's rules and procedures. Funding Mechanism: The tending instrurent under PPMR Piograin is Performance for Results (PforR), which is relatively new in Pakistan. PforR supports government's own systems and existing programs. As tar as funding of the program is concerned, as mentioned in Program Appraisal Document (PAD), program funding will be included in the provincial annual budget following the regular budget cycle and all funding will flow through distinct budget line items. Whereas. each Implementing Agency (IA) will maintain its own books of accounts for program related activities on cash basis, using the government's accounting policies and procedures. The figures mentioned in the financial statements have been reported by respective implementing agency and target department to PRMP through submission of quarterly budget execution reports for FY 2014 15 ciarified/duly reconciled with AGffreasury Offices by respective tA and TD whereas. PRMP has compiled the same fig:res in form of financial statements for FY 2014-15. Implementing Agencies and Target Departments: There are four Implementing Agencies (lAs) and seven target departments as mentioned in Expenditure Framework of Program Appraisal Document. As provided in PAD, all implemening agencies and target departments are getting funding in theLr respective regular budget line from Finance Department in the agreed DOO codes/LQs as agreed in the Expenditure Framework both from development and curreni side. The Program funding to all lAs and TDs comes from Government of Punjab only whereas World Bank releases the loan amount directly to Finance Department as budgetary support subject to achievement of agreed DLRs duly validated by third party firm. As given in PAD, the four implementing agencies will conduct ]heir own procurement. PRMP wil maintain financiai records of the Program and provincial government financial management procedures will apply. Since, in PPMRP, funds flow directly from Finance Department through distinct budget lines to tAs and TOs each having their own Drawing and Disbursing Officers (DDOs) and Principal Accounting Officers (PAOs) legally authorized for accounting controls and audit observations as per governments policies and rules: therefore, expenditures. payments, procurements and other associated activities are the responsibility of these respective entities. 11 is pertinent to mention hefe that under PforR Instrument World Bank does not provide any funding directly to implementing 6.2 The.re has been no instance of non compliance with the terms and conditions of the financing agreement between the World Bank and GoP which have resulted in cancellation of loan 7 Authorization for Issue . These financial statements have been authorized for issue by the management of PPMRP 8 General: Figuies have been rounded off to the nearest rupee. 9 Payments: PMK / PRMP received funds from Government of the Punjab through assignment account which aPble. Deputy Program Director Program Director Punjab Resource Management Program Punjab Resource Management Program Audit Cffil ? Directorate General Audit