FINANCIAL ATTST-AtJDIT REPORT ON THE ACCOUNTS OF PUNJAB IRRIGATED AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (PIPIP) WORLD BANK CREDIT NO. 50810-PK . AGRICULTURE DEPARTMENT, GOVERNMENT OF THE PUNJAB FOR THE FINANCIAL YEAR 2014-15 AUDITOR GENERAL OF PAKISTAN ISLAMABAD TABLE OF CONTENTS Page No. List of Abbreviations 2 Preface 3 PART-I 4 PROJECT OVERVIEW 5 AUDITOR'S REPORT TO THE MANAGEMENT 6 FINANCIAL STATEMENTS 7 PART-II 8 COVERING LETTER TO THE MANAGEMENT LETTER 9 EXECUTIVE SUMMARY Mo MANAGEMENT LETTER 11 1. Introduction 12 2. Audit Objectives 12 3. Audit Scope and Methodology 12 4. AUDIT FINDINGS AND RECOMMENDATIONS 12-67 4.1 Organization and Management 4.2 Financial Management 4.3 Procurement and Contract Management 4.4 Overall Assessment 5. CONCLUSION 68 ACKNOWLEDGEMENT 69 Annexures 70 71 I 1 Abbreviations and Acronyms - AG Accountant General DAC Departmental Accounts Committee DCO District Coordination Officer DDO Drawing and Disbursing Officer EA Executing Agency ECNEC Executive Committee of the National Economic Council DO District Officer GAAS Generally Accepted Accounting Standards GoPb Government of the Punjab INTOSAI International Organization of Supreme Audit Institutions ISSAI International Standards of Supreme Audit Institutions IPSAS International Public Sector Accounting Standards LC Local Currency ML Management Letter OFWM On-Farm Water Management PIPIP Punjab Irrigated Agriculture Productivity Improvement Project PC-I Planning Commission-1 PPRA Punjab Procurement Regulatory Authority * PSDP Public Sector Development Program SDR Special Drawing Rights SSCs Services & Supplies Companies I'S Technical Sanction TORs Terms of References WC Water Course WUA_s Water Users Associations 2 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 Generafs (Functions. Powers and Terms & Conditions of Service) Ordinance, 2001. The audit of Financial Statements of the Punjab Irrigated Agriculture Productivity Improvement Project financed by Government of the Punjab and World Bank for the financial year 2014-15 was carried out accordingly. The Directorate General Audit, Punjab Lahore and Director General District Audit (South), Multan conducted audit of the PIPIP during August, September, and October, 2015 for the financial year 2014-2015 with a view to report significant findings to stakeholders. Audit examined the economy, efficiency and effectiveness aspects of the PIPIP. In addition, audit also .sessed. on test check basis, whether the management complied with applicable laws, rules and regulations in managing the PIP[P. The audit report indicates specific actions that, if taken, will help the management realize the intended objectives. The report has been discussed with the PIPIP Management in September and October, 2015. The report consists of two parts i.e. Part-I contains Auditor's Report (Audit Opinion) and Financial Statements. Part-Il contains Executive Summary, Management Letter and Audit Findings. The report has been prepared for submission to World Bank in terms of Loan Agreement. (Dr. Muhammad Jamil Afaqi) Director General Audit Punjab Date: Place: Lahore. 3 PART-I 1- PROJECT OVERVIEW 2- AUDITOR'S REPORT TO THE MANAGEMENT 3- FINANCIAL STATEMENTS . 4 PROJECT OVERVIEW Name of the Project Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP). Sponsoring Authority World Bank. Credit Number IDA Credit No. 50810-PK PC-I Cost Rs.36,000.705 million (Rs.21,249.997 million by Donor and Rs. 14,750.709 million by farmers) Date of Commencement 26-04-2012 Date of Completion (as per PC-I) 31-12-2018 Grant Utilization Status: Amount utilized up-to Amount utilized during 30.06.2014 2014- 15 Rs. 8.380.962 million Rs. 4.240.512 million Progressive Expenditure upto 30-06-2015: Amount utilized up-to 30.06.2015 Rs. 12,621.474 million 5 AUDITOR'S REPORT Auditor's Report on PIPIP Financial Statements We have audited the accompanying Financial Statements of Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) 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 30'h June, 2015. Management Responsiblity It is the responsibility of Project Management to establish and maintain a system of internal controls, and prepare and present the Statement 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 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 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. Opinion 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 301h June, 2015 in accordance with Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard. (b) The expenditure has been incurred in accordance with the requirements of legal agreement. (Dr. Muhammad Jamil Afaqi) Director General Audit Punjab Place: Lahore Date: 6 FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 30 JUNE, 2015 I FINANCIAL REPORTING UNDER CASH BASIS OF ACCOUNTING GOVERNMENT - ENTITY Statement of Receipts and Payments Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) For the financial year 2014-15 ended on 30 June 2015 (Pak Rupees in Million) 2014-15 2013-14 Receipts/ Payment Receipts/ Payment Description Note by Third Total (Conmtl by Third Total by entity Parties by entity Parties Grants / Assistance (IDA Credit No,50810- 5.1* 4,577.561 - 4,577.561 4,243.967 - 4,243.967 Authorized Allocations / 51 GoPb Direct Payment by the 52 - - - World Bank Total Receipts 5 4,577.561 - 4,577.561 4,243.967 - 4,243.967 - Grants / Assistance (IDA Credit No.50810- 6 to 9 4,670,030 - 4,670,030 4,240.512 - 4,240.512 PK) Authorized Allocations 6 o9 GoPb Direct Payment by the World Bank Total Payments 4,670.030 - 4,670.030 4,240.512 - 4,240.512 Increase/ (Decrease) in Cash Cash at Beginning o 244.703 - 244.703 241.248 - 241.248 -Year Unrealized Exchange Gain (Loss) Cash at End othe 152.234 - 152.234 244.703 - 244.703 DRYear DEPUTY PR AUDITOR Receipts & Payments against Financing Sources (World Bank & GOPb) Statement of Cash Flows Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) For the financial year 2014-15 ended on 30 June 2015 (Figures in Million) Own Description Notes World Bank (IDA) Source Total (GoPb ) US$ Pak Rs. Pak Rs. Pak Rs. Opening Balance 3.015* 244.703 - 244.703 Grant / Assistance 5.1* 45.102 4,577.561 - 4,577.561 GoPb Allocation 5.1 - - -- Direct Payment 5.2 - - -- Total Receipts 5 48.117 4,822.264 - 4,822.264 From Designated 6 to 9 46.106 4,670.030 - 4,670.030 Account From GoPb Allocation 6 to 9 - - - Direct Payment by the World Bank Total Payments 46.106 4,670.030 - 4,670.030 Increase/ Decrease in Cash Closing Balance 2.011 152.234 - 152.234 *The closing balance of US$ 3.013 was shown on 30-06-2014 in statement of cash flows (2013-14). After reconciliation of account with SBP. the NBP has credited JS$ 0.002 million into the Designated Account on 30-06-2014, Resultantly, the actual opening balance comes to US$ 3.015 on 01-07-2014. DEPUTY PROJ AUDIT R Statement of Comparison of Budget and Actual Amounts Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) For the financial year 2014-15 ended on 30 June 2015 Pak Rs. in Million Pak Rs. in Million 2014-15 2013-14 ACTIVITY Budgeted Actual Budgeted Actual Amount as Amount Amount as Amount per PC-I Paid per PC-I Paid A. Improving Water Productivity Installation of High Efficiency 1,954.730 348.278 1,954.730 394,664 Irrigation Systems Provision of Laser Units 157.500 166.659 157.500 319.116 Total 2,112.230 514.937 2,112.230 713.780 B. Upgrading Farm Level Irrigation Conveyance System Improvement of 1.577.857 3,030.400 1,577.857 2,661.839 Watercourses Total 1,577.857 3,030.400 1,577.857 2,661.839 C. Adoption and Promotion of Modern Irrigation Technologies & Practices and Monitoring & Evaluation Adoption and Promotion of Modern Irrigation Technologies 119.000 35.576 119.000 17.030 & Practices Monitoring and Evaluation of 35.000 10.834 35.000 34.795 Project Impacts I Total 154.000 46.410 154.000 51.825 D. Project Management Supervision & Administrative 633.732 785.575 624,339 746.432 Cost Non Recurring Cost - 108.672 - 11.987 Project Supervision and Third 175.944 173.899 175.944 38.605 Party Validation Strategic Studies, TA and 17.000 10.137 17,000 16.044 Training etc. Total 826.676 1,078.283 817.283 813.068 Grand Total 4,670.763 4,670.030 4,661.370 4,240.512 DEPUTY PROJE CTOR AUDITR Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) Bank Reconciliation of Designated Account No.22-221079-9 NBP, Main Branch, Lahore for the Financial Year 2014-15 Out of IDA, World Bank Loan Account Pak Rs. in US $ in Million Million Opening Balance on 01-07-2014 244.703 3.015 ADD: Bank Replenishment 4,577.561 45.102 Issued Cheques Cancelled Total 4,822.264 48.117 DEDUCT: Payments during the year 2014-15 4670030 46.106 Closing Balance as per Bank 152.376 2.012 Statement as on 30-06-2015 Less: Un-presented Cheques 0.142 0.001 Closing Balance as per Cash Book as 152,234 2.011 on 30-06-2015 DEPUTY P DIRECT AUDITO Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) Notes to the Financial Statements For the financial year 2014-15 ended on June 30, 2015 1. Reporting Entity The financial statements are for Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP). The financial statement encompasses the reporting entity as defined in the Financing Agreement between Islamic Republic of Pakistan and the International Development Association. The Financing Agreement was signed on 12-04-2012 for an amount of SDRI61,200,0001- equivalent to US$250,000,000/-. The project became etfective on 26-04-2012 with the closing date of 31-12-2018. (Objective of the Pro'ect) 1. Improving productivity of irrigation water by efficient conveyance and its effective farm level use by adopting conservation agricultural practices. II. Production of more profitable crops through high efficiency irrigation systems (HEISs) for meeting increasing domestic demand and enhancing exports Ill. Strengthening the private sector service delivery capacity and sustainability for supporting irrigated agriculture. IV. Capacity building of stakeholders in better managing irrigation water for attaining higher crop yields with less production costs. (Key Participating Agencies) i. Punjab Agriculture Department through Directorate General Agriculture (Water Management), Punjab, Lahore. ii. District Governments through District Officers (OFWM) iii. Supply & Service Companies (SSCs)/Supplier Firms iv, Project Implementation and Supervision Consultants (PISCs) v. Monitoring & Evaluation Consultants vi. Participating Farmers/Water Users Associations (WUAs) [Components of Project with Loan Amount) A Improving Water Productivity A-1 Installation of High Efficiency Irrigation Systems (HEISs) (US$113.000 Million) A-2 Laser Leveling Equipment (US$. 7.900 Million) B Upgrading Farm Level Irrigation Conveyance System B-1 Improvement of Unimproved Watercourses (US$ 80.300 Million) B-2 Completion of Partially Improved Watercourses (US$ 12,200 Million) B-3 Re-habilitation of Irrigation Conveyance Systems in Non-Canal Commanded Areas (US$ 7.100 Million) C Adoption and Promotion of Modern Irrigation Technologies & Practices and Monitoring & Evaluation CI Introduction of Improved Agricultural Practices (US$. 7.000 Million) C2 M&E Project Management Support (US$. 2.000 Million) D Project Management, supervision, Technical Assistance, Training and Strategic Studies DI Project Implementation and Management (US$,10.000 Million) D2 Project Supervision & Third Party Validation (USS. 9.500 Million) D3 Strategic Studies, TA and Training etc. (US$. 1.000 MilLion) The Project controls its Designated Account No.22-221079-9 opened in National Bank of Pakistan. Main Branch, Lahore in the name of Director General Agriculture (Water Management), Punjab. As per fund flow mechanism agreed with the International Development Association/ World Bank, funds received in Designated Account are transferred into Account No. 1 (N.F) of the Punjab Government and subsequently the same are transferred with the authorization of Punjab Finance Department to the Districts Government Account No. IV and to the provincial hierarchy through A.G. Punjab against respective project code and cost center for the project. Financing Financial Agreement (IDA Credit Number 508 1 0-PK) Designated Account No.22-221079-9 Responsible Agencies A primary responsibility for overall progress and management of the Punjab Irrigated Agriculture Productivity Improvement Project (PIPIP) has been entrusted to the Project Director/ Director General Agriculture (Water Management) Punjab. 21-Davis Road. Lahore functioning under Government of the Punjab. Agriculture Department, Lahore. 2. Certification by Proiect Management on Application of Funds The Project management certifies that the funds have been received/ expenditure has been incurred for the purposes intended in the Financing Agreement. 3. Accountina 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 policy has been applied consistently throughout the period. 4. Significant Accounting Policies 4.1 Foreign Currency Transaction Cash receipts and payments arising from transaction 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 and US dollar. 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 of 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. 4.6 Payments by Third Party The payment made by third parties do not constitute cash receipts or payment 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 accounts 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 Receipts and Payments and notes to the financial statements.-----N.A 5 External Assistance External assistance was received in the form of credit from the World Bank under Financing Agreement dated 12-04-2012 between the International Development Association and Government of Pakistan, Project No. 12999 (IDA Credit No, 5081 0-PK) for the purpose of the Project. The following amounts were received by the project during the period under report. (Figures in Million) Note 2014-15 2013-14 uS $ Pak US $ Pak Rupees Rupees SOE Procedures Authorized Alloc./ GOPb 5.1 - - - Designated Account 5.1* 45.102 4,577,561 41.470 4.243.967 Direct Payment 5.2 - - - - 45.102 4,577.561 41.470 4,243.967 5. I *Indicates funds transferred to the Project Designated Account by the International Development Association on the basis of Withdrawal Applications submitted by the Project Director (PIPIP)/ Director General Agriculture (WM). Punjab Lahore. 5.2 Not Applicable. Undrawn External Assistance Undrawn Credit at reporting date represent amounts specified in the financing agreement between International Development Association and Government of Pakistan that International Development Association will disburse for project purposes. (Figures in Million) Note 2014-15 2013-14 us $ L us $ I Undrawn Balance 117.709 162.811 117.709 162.811 (Figures in Million) * Note 2014-15 2013-14 PakRupeesd PakRupees 6 Consultancy services Individuals 6.1 - Firms 6.2 173.899 38.605 Firms 6.3 10,834 34.795 184.733 73.400 6. I [Name ofIndividual Consultants, Purpose ofHiring Name ofService] 6.2 Project-Implementation Supervision Consultants (PSC) (A Joint Venture of NESPAK and NDC in Association with WCE) 6.3 Monitoring & Evaluation Consultants kM&E) (A Joint Venture of MMP, ACE & MML) 7 Overatine Expenses Remuneration and Salaries 7.1 601.468 581.965 Operating Expenses 7.2 184.107 1 64.467 Other Expenses (Civil Works) 7.3 3580.913 3,392.649 4366.488 4,139.081 7.1 Remuneration and Salaries Salaries of Officers & Staff 601.468 581.965 601.468 581.965 7.2 Operating Expenses Communication 2.892 2.844 Utilities 4.494 2.749 Occupancy Costs 3.516 5.441 Travel & Transportation 130.221 118.187 General 16.606 12.917 Encashment of LPR 4.652 0.00 Financial Assistance 3.800 1.800 Plant & Machinery 0.850 0.00 Repair & Maintenance of Durable Goods 17.076 20.529 184.107 164.467 (Figures in Million) Note 2014-15 2013-14 Pak Rupees Pak Rupees 7.3 Other Expenses (Civil Works) Watercourses 3030.400 2,661.839 Water Productivity (HEIS) 348.278 394.664 LASER Units 166.659 319.116 Adoption & Promotion of Modern 3 Irrigation Technologies & Practices 6 3580.913 3,392.649 8 Supplies and Consumable Vehicles 59.845 5.997 Furniture & Fixture 0.00 0.00 Machinery & Equipment 48.827 5.990 108.672 11.987 9 Trainings Strategic Studies, TA and Training etc 10.137 16.044 10.137 16.044 Grand Total 4,670.030 4,240.512 (A brief description of trainings and workshops conducted during the period). Annexure-A 10 Unrealized Exchange Gain (Loss) Balance as per Books of Project as at Year End 152.234 244.703 Closing Balance before Conversion as at Year End 152.234 244.703 Closing Balance After Conversion as at Year End 152.234 244.703 Exchange (Loss) / Gain This represents notional (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 International Development Association at the end of the Project. II Cash And Bank Cash in Hand - - Cash at Bank 152.234 244.703 Closing Balance After Conversion as at Yearend 152.234 244.703 (Figures in Million) Note 2014-15 2013-14 Pak Rupees Pak Ru ees * 12 Commitments Installation of HEIS 280.600 375.997 Laser Units 4.500 83.475 Watercourses 410.400 578.860 695.500 1,038.332 12 Authorization for Issue These financial statements have been authorized for issue by the Project Director on 30/09/2015. 13 General 13.1 Figures have been rounded off to the nearest rupee! dollar. 13.2 Comparative figures have been rearranged where necessary for the purpose of comparison. Note: The above breakups and disclosures are not exhaustive. These are for general guidance purposes only. The management may include breakups and disclosures tailored to project's nature of activities. DEPUTY R AUDITOR