Financial Attest Audit Report on the Accounts of Disaster and Climate Resilience Improvement Project (World Bank) Loan No. 5686-PAK Planning & Development Department For the Financial Year 2017-18 Auditor General of Azad Jammu and Kashmir le Financial Attest Audit Report on the Accounts of Disaster and Climate Resilience Iiprovement Project (World Bank) Loan No. 5686-PAK Planning & Development Department For the Financil Year 2017-18 Auditor General of Azad Jammu and Kashmir TABLE OF CONTENTS Page No. List ol Abbreviatiois PART-I Project Overview 3 Auditor's Repori to the Nanagemneni (Audit Opinion) 4-5 Vilnancial Statemenlts 6-16 >ART'-Il COVVRING 11ETER TO TIlL MANAGEVIENT LEITER 18 EXECUTIVE SUMMARY 19 MANAGEMENT LETTER 20 1. Introducition 2. Audil Objectives 3. Audit Scope mål Methodology 4. AUDIT FINDINGS AND RECOMMENDATIONS 4.1 Organization and Management 21-24 4.2 Financial Managemenl 4.3 Procurement und Conlract Management 4.4 Construction and Works 4.5 Asset Management 4.6 Monitoring and Evaluation 4.7 Compliance with Loan Covenants 4.8 .nvironmcnt 4.9 Sustainability 4.10 Overall Assessment 5. CONCLIJSION 25 ACKNOWLEDGEMENT 26 Abbreviations and Acronyms AJ& K Azad Janinu & Kashmir DAC Depaititeiil Accounits (omnmiltec DCRlP Disaster and Ullimate Resilience Iiprovemeni Project DRM Disaster Recovery Management ES M F Enviromneit and Social Management Framework FY Fina"ncial Year GOP G:owerinment of Pakistan I(11 lille imal ( lonicreilce on Populalio1 Developliiei IDA IintepiLnatioial Development Agency INTOSA 1 Inii nalional Organizalion of Supreme Audi1 ilistiiulions IPSAS International Public Sector Accounting Siandards ISSA! internalional Sandlards of Supreme Audit listitutions MDGs Millennium Development Goals NDMP National Disaster Management Plan NOL No ObJection 1eller PC- j Preliminiary Cosi/ Planning Commission-1 PDD. 1)! Planning and )evclopment )Deparlimen? PAO Principal Accounting Officer 1>1 u Project Impleinentation Unit PM U Project Management Unit RFA Revolving Fund Account RFO Request for QUlotatiolm SDNIA State Disaster Management Au thority WB World Bank 1 PREFACE The Auditor-General of Azad Jammu and Kashmir conducts audit subject to Article 50-A of the AJ&K Interim Constitution 1974, read with Sections 9 and 13 of the Auditor General's (Functions, Powers and Terms and Conditions of Service) Act, 2005. The audit of Disaster and Climate Resilience Improvement Project was carried out accordingly. The Director General Audit Azad Jammu and Kashmir conducted audit of the Disaster and Climate Resilience Improvement Project in July, 2018 for the FY 2017-18 under the Contract Agreement of the Project with a view to report significant findings to stakeholders. Audit examined the economy, efficiency, and effectiveness aspects of 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 that, if taken, will help the management to realize the objectives of the Disaster and Climate Resilience Improvement Project. The Report consists of two parts. Part-i contains Auditor's Report (Audit Opinion) and Financial Statements. Part-T contains Executive Summary, Management Letter and Audit Findings. The Report has been prepared for submission to World Bank in terms of Loan Agreement No. 5686-PAK with Islamic Republic of Pakistan. Dated: December 17, 2018 Muham lassan Rana Muzaffarabad AJK Director General Audit PART-I 1. PROJECT OVERVIEW 2. AUDITOR'S REPORT TO MANAGEMIENT 3. FINANCIAL STATEMENTS PROJECT OVERVIEW 1. Name of the Project Disasjer and inate Resilience 1mprovemen P'rojectl 2. Sponsoring Autbority World 3ank 3. xecu ting Autlorily Planning und Dcvciiirni Departmeni thri ough PI DCRIP 4. 1 oan No. 5686-PAK 5. PC-i Cosi Rs 2500.000 Million 6. Dale of ('ommeicement 140(>9-2015 7. Actual Date of Commiencement 19-05-2016 8. Dale of Completion (as per P1 1) 30-09-2019 9. Date of Approval by CDWP 19-05-2015 10. Loan Closing Date 01-12-2019 Ii. Lxpenditure uplo last F.Y 2016-17 Rs 226.594 Milion 12. Inii liliatin Status dur ing F Y 217- I Rs 215.936 Miiiion 13. Progressive Expenditurc up(o F.Y 2017-18 Rs. 442.530 Million 3 Office of the Director General Audit Azad Jammu & Kashmir DGIA=05822-920018 muzaTarabad FAX=05822-92001 1 Auditor's Report to lte Managenent (Audit Opinion) Tle 1)iiecioratle General Audit Azad Jammui and Kashiiir has audited Ilie accompanying Financial Statemenlts of "Disaster and Climate Resilience Improvement Project" as of 30.06.2018. Preparation of Financial Stalements is lte responsibilility of the mnagemeni of (lie Project. Responsibility of Audit is lo express an opinion on Ilie accoipaniyinig stalements based on the audit exercise. The audit exercise was carried out in accordance with the INTOSAI Auditing Standards as adopted by the Audilor General of Azad Jainmu and Kaslmir. The Standards rcquire lie audit to obtai reasonable assurance that Ilie Financial Slatenieis are free of material iisstatements. This audit is based on test check basis and inchudes findings, evidence supporting ilie amiounis and dIisclosu res in the Filnancial S[atements. It also includes assessment of the accountiig principles adopted by the managemenl in preparing Fimincial Statements. A professional exercise has been conducied to provide a reasonable basis for audit opinion. Tlie statements have Ieenl prepared on cashi receipts and disburseun mi basis. On Ihis basis, the revenuc is recognized when received rather when ernied, and expenses are recognized wien paid raffher flan when incurred. ln our opinion: A. Thie a foreientioied Financial Statements and appended notes subjecied to audit fairly present in all material respects Ilie financial position of Disaster and Climate Resilience lniproverient Project and results of its operations for the period ended 30.06.2018, in conformity with (lie accepted accounting principles, applied on a basis consisteniil in material respecis wit it1hal o[ previous year; f,. The managenient of Ilie P[oject has utilized all proceeds of Ilie loan withbdr awn from the World Bank for the purposes of the Project as agreed in accordance with the 1 xan Agrement and no proceeds of Ilie grant have been uti1ied for any oller plurposes. 4 In addition:- 1. Adequate supporting documentation has been maintained in support of the expenditure incurred. 2. Expenditure of Rs.215.936 million incurred during the Financial Year 2017-18, is eligible for replenishment. (Muhamma Hassan Rana) Director General Audit Azad Jammu & Kashmir FINANCIAL STATEMENTS DISASTER AND CLIMATE RESILIENCE IMPROVEMENT PROJECT (DCRIP) FOR THE YEAR END ) 30-" JUNE? 2018 Page No. i. Stateneni of Reccipts and paymncilts 7 ii. Siaffement iof Comuparison if Bludgel and Actual Ainitiiits 8 iii. Bank Slalenent and Bank Reconciliation Statement 9- 10 iv. Notes (o Financial Sileiiiciiis 13-16 6 Disaster and Climate Resilience Improvement Project, A&K Statement of Receipts and Payments For the Year Ended 30 June 2018 2017-18 2016-17 Receipt (Payments) controlled by Payments by Third Retelpt (Payments) Payments by Third Project Parties controlled by Project Parties RECEIPTS Note External Assistance 5 1,054,469,979 - 314,305,800 - Counterpart Funds 6 - - Total Receipt 1,054,469,979 314,305,800- PAYMENTS Consultancy Services 7 93,003,805 127,317,418 Operating Expenses 8 45,114,336 24,115,324 Supplies and Consumables 9 14,149,211 56,114,980 Civil Works 10 63,539,013 - Trainings 11 129,800 51,600 - Total Payments 215,936,165 207,599,322 - Increase/Decrease in Cash Cash at the beginning of year 297,246,460 190,539,992 Receipts during the year 1,054,469,979 314,305.800 Cash available 1,351,716,439 504,845,792 - Payments during the year 215,936,165 - 207,599,332 Cash at the End of Year 12 1,135,780,274 297,246,460 The accompanying notes form on integral part of these financial statements and are to be read herewith Audit Officer DG Audit Tahir Iqbal Mu al Ansar Yaqoob 0caDtProject Director, Audit A ad,saetr & CLimate Resience Imp. Proct PlanntrL ueampmeftDepa,,ent ye l uzaffarabad, Disaster and Climate Resilience Improvement Project, AJK Statement of Comparison of Budget and Actual Amounts For the Year Ended 30 June 2018 Amount in Rupees Note 2017-18 2016-17 RECEIPTS Budgeted Amounts Actual Amounts Budgeted Amounts Actual Amounts External Assistance 5 1,054,469,979 1,054,469,979 525,000,000 314,305,800 Counterpart Funds 6 Total Receipts 1,054469,979 1,054,469,979 2255000000 314,305,800 2017-18 2016-17 PAYMENTS Consultancy Services 7 93,003,805 93,003,805 127,317,000 127,317,418 Operating Expenses 8 45,114,336 45,114,336 23,938,442 24,115,324 Supplies and Consumables 9 14,149,211 14,149,211 55,753,890 56,114,980 Civil Works 10 63,539,013 63,539,013 590,000 - Train ings 11 129,800 129,800 - Total Payments 215936,165 215,936,165 207,599,332 2 0 7 ,5 4 7 ,7 2 The arcomponying notes form on integral part of these finonrcia sroremenrs and are to be read brre with Au it Officer, DG Audit Tabk fr6a u l Ansar Yaqoob Description Amount (PKR) Amount (USD) Remarks (A) Balance as per Bank Statement 1,147,697,894.00 10,283,015.93 Lg Chegues issued but not presented Cheque No. Cheque Date Amount (PKR) Amount (USD) Cheque No,25695454 31.05.2017 83,978.00 801.56 Cheque No.25695473 06.06.2017 96,946.00 925.33 Chegue No.86463777 29.06.2018 1,250.00 11.93 Cheque No.86463778 29.06.2018 6,925.00 66.10 Cheque No.86463779 29.06.2018 179,529,00 1,713.58 Cheque No.86463780 29.06.2018 10,602.00 101.19 Chegue No.86463781 29.06.2018 2,661.00 25.40 Cheque No.86463782 29.06.2018 195,925.00 1,870.07 Cheque No.86463784 29.06,2018 6,000,000.00 57,269.07 Cheque No.86463785 29.06.2018 1,78,216.00 16,495.55 Cheque No.86463786 29.06.2018 2,909,516.00 27,770.88 Cheque No.86463787 29,06.2018 253,541.00 2,420.01 Chegue No.86463788 29.06.2018 242,705.00 2,316.58 Chegue No.86463789 29.06.2018 205,826.00 1,964.58 (B) Sub Total 11,917,620,00 113,751.83 (C) Balance as per Cash Book (A-B) 1,135,780.274.00 10,169,264.10 Difference - if any ( with reasons) PrepareIib Reviewed by Aped b ed iah FinanCial ManaPMØnt SPC'31's! 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The key objective, inter aha, of the Project is to support the Go AAK for 'Restoring flood protection 'infrastructure, upgrading flood management system and strengthen state capacity to manage Disaster and Climate variability, The project is being implemented through an independent Project Implementation Unit ( PIU) under umbrella of Planning & Development Department (P&DD), Go AJ&K. Financing The Financing is made in the form of credit based on standard world bank terms. The Financing Agreement Credit Number is 56860- PK, Responsible Agency A primary responsibility for over all progress and management of the additional financial has been entrusted to Project Implementation Unit(PIU) with approval of P&DD, Go AJ&K. Z Certification by Project Management on Application of Funds The DCRIP management certified that the funds have been applied and expenditure have been incurred for the purposes intended in the financing agreement- 3 Accounting Convention and Statement of Compliance These financial statements have been prepared in accordance with Cash Basis IPSA5 Financial Reporting under the Cash basis of Accounting. 4 SignIficant Accounting Policies The Accounting Policies have been applied in consistently throughout the period. 4-1 foreign Currency Transactions All monetary transactions in foreign currencies are converted into Pak Rupees at exchange rate declared by the State Bank of Pakistan on the date of credit in Project bank account, 4.2 Reporting Currency All amounts in the financial statements are in Pak Rupees. 43 Revenue Recognition Revenue is recognized on the receipt date of receipt of money by the State Bank of Pakistan 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 payment pertains 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. 4.6 The payments made by third parties do not constitute cash receipts or payments controlled by the Project but do benefits the project as the project does not received cash ( including cash equivalents) directly from or gain control of the bank account or similar facility established for its benefit by the third parties, payment by third parties, if any are disclosed in the payments by third parties columns on the fa of the Statement of Cash Receipts and Paym p,! and notes to the financial statements. Audit Off ce r, DG Audit f4 b am ug, ral Ansar Yaqoob Project Director, Disaster and Climate Resilience Improvement Project Notes to the Financial Statements For the year ended 30 June 2018 5 External Assistance External Assistance/Credit was received from the World Bank under loan financing agreement dated 30/07/2015 between the World Bank and Government of Pakistan(GoP) and subsequent subsidiary agreement between Government of Pakistan (EAD) and Government of AJ&K (P&DD) for the activities of Disaster and Climate Resilience Improvement Project. The following payment was received by the project during the period. 2017-18 2016-17 PKR USD PKR USD SOE Procedures/Advance 5.1 1,054,469,979 9,393,170 314,305,800 3,000,000 Direct Payment Total 1,054,469,979 9,393,170 314,305,800 3,000,000 This represents funds transferred by the World Bank on the basis of Withdrawal Application, to DCRIP designated US Dollar Account no. 27- A, maintained with National Bank of Pakistan main branch, Muzaffarabad Al&K. Direct payments represent amount paid directly by the World Bank on behalf of the project in respect of goods, works and services procured by the project on the basis of Withdrawal Application. There has been no instance of non compliance with the terms and conditions of financing /subsidiary agreement which has resulted in cancellation of credit. 5.4 Undrawn External Assistance Undrawn credit at reporting date represent amounts specified in financing agreement that the World Bank will disburse for DCRIP Project activities. Amounts in USD $ 2017-2018 2016-2017 Closing Balance - undrawn 10,606,830 20,000,000 6 Counter Part Funding: No counterpart funding is available in this project. It is an 100% financed project by the World Bank Amount in Pak Rupees 7 Consultancy Services 2017-18 2016-17 7.1 Individual Consultants -- 7.2 Firms ( Detail at Annex-A) 93,003,805 127,317418 93,003,805 127,317,418 8 Operating Expenses 2017-18 2016-17 Remuneration and solories 28,784,332 13,252,841 General Operating Expenditure 16,330,004 103862,483 45,114,336 24,115,324 8.1 Salaries Salaries Officers 20,549,398 10,596,707 Salaries Staff 8,234,934 2,656,134 28,784,332 13,252,841 8.2 Office Expenses Telephone 269,931 208,221 Advertisement and Publicity 1,381,420 619,150 office maintenance 2,773,504 1,551,653 POL, Repair and maintenance 2,909,787 928,495 Stationery 1,121,634 513,375 Travelling 1,441,875 1,439,072 Other Expenses 6,431,853 5,602,527 16,330,004 10,862,493 9 Supplies and consumables 9.1 Furniture and Fixtures 4,279,515 524,310 9.2 Office Equipment 9,394,893 2,924,580 9.3 Vehicles 475,209 52,466,090 9.4 Security deposit - 200,000 14,149,211 56,114,980 10 Civil Works 2017-18 2016-17 Civil Works ( Annex-B) 63,539013 63,539,013 11 Traini 2017-18 2016-17 11.1 Trainings 129,800 51,600 11.2 Workshops 129,800 51,600 12 Cash and Bank 2017-18 2016-17 12.1 Cash in Hand - 12.2 Cash at Bank (DA) 1,135,780,274 190,539,992 1,135,780,274 190,539,992 13 Commitments 13.1 Contractor Liabilities Annex - C 275,914,806 - 13.2 Obligation under contract - Annex-D 106,798,254 199,801,487 13.3 Pending legislation - 382,713,060 199,801,487 14 Authorization for Issue These financial statements have been authorized for issue by the Project Director of DCRIP on 23rd July, 2018 15 General 15.1 Figures have been rounded off to the nearest rupee. 15.2 Figures are grouped where ever necessary for the purpose of presentation icer,DG Audit aflr Nqba M hal Ansar Yaqoob Project Director, AOhe enriqw u w Clmate ResiIence Imp. Project PAw id19 6 Development Departiment Go)K, MUZaffarabad Annex - 8 Disaster and Climate Resilience Improvement Project, AJK Detail of Payments to contractors for Civil Works For the Period Ended 30-06-2018 Total Payment Disbursement Category Description Name of Firm/ Contractor PKR) (PKR) Restoration of damaged Hydro-power Houses & M/S 0 & G Construction Co. 15,687,418 Flood Protection Structures of PDO - Package 1, 2 & 3 M/S HESPAK Engineering 26,291,960 M/s ZK & Associates 3,482,396 Civil Works M/5 Asif Hussain Shah Construction 3,536,105 Restoration of Flood Protection Structures of Pacagei (PP&H)tuBandi M/S Mumtaz & Co. 14,541,134 Package-1 (PP&H) at Bandi Bagh near Nisar Camp. Total Paymnmts 63,539,013 Audit Officer, DG Audit Tatir Iqba Ivhal Ansar Yaqoob Project Director, I ,k e Climate Resilienc Imp. Project Diiiiiina & Development Depattment !K -izaffarabad. Disaster and Climate Resilience Improvement Project, AJK Detail of Payments to Consultancy firms Annex A For the Period Ended 30-06-2018 Disbursement Total Payment Disatrsmegr Description Name of Firm/ Individual Pamn Category (PKR) Baseline creation and third party M/S Sustainable Solutions Pvt L 2,465,714 Monitoring/Validation Detailed Feasibility Study & Designing Flood MIS Techo Consult internationa Protection Works for Mandi Kotli Vulnerable P Ltd. 35,431,772 Consultancy Services Areas. Project proposal review, designing, planning, cost estimation, feasibility studies, preparation of PC- M/S Cameos Engineering. 55,106,319 1s,tender documents, resident supervision etc Total Payments 93,003,805 Audit Officer, DG Audi Tbir Iqbal ughal Ansar Y baa tto 2IOJ r~cv fjk c dtS'e &Ciae eiiB Imp. project p6'lr1lt~ oe&pmeften0t it?,C, muz aff arabad- Disaster and Climate Resilience Improvement Project, AJA Commitments as on 30-06-201 ( PKR) Contractor Liabilities / Civil Works (PKR) Annex - C Description Name of Firn Contract Amount Paid till 30-06-18 Payable Liability Remarks Restoration of damaged Hydro- M/S 0 & G Construction Co. 97,391,533 15,687,418 81,704,115 power Houses & Flood Protection Structures of PDO - Package 1, 2 & 3 M/S HESPAK Engineering 96,442792 26,291,960 70,150,832 M/s ZK & Associates 31,234,479 3,482,396 27,752,083 M/S Asif Hussain Shah Construction 3,536,105 24,685,671 21,149,566 Restoration of Flood Protection Structures of Package-1(PP&H} at M/S Mumtaz & Co. 89,699,344 14,541,134 75,158,210 Banli Bagh near Nisar Camp. Total Civil Works 339,453,819 63,539,013 275,914,806 Obligation under contract / Consultancy Services (PKR) Annex -D Description Name of Firm Total Contract Paid till 30-06-18 Payable Liability Remarks Project Management & M/5 Cameos Engin"ring. 144,653,116 68,446,364 76,206,752 Implementation Consultant (PMIC) Baseline creation and third party M/S Sustainable Solutions Pvt Ltd 29570941 12,575,145 16.995,796 Monitoring/Validation Detailed Feasibility Study & Designing Flood Protection Works M/S Techno consult international 54,478,520 40,882,814 13,595,706 for Mandi Kotli Total Consultancies 228,702,577 121,904,323 106,798,254 Audit Officer. DG Audit r lqbal Mughal Ansar Yaqoob A fcroject Direct,. Andd 0 un&DevelopmeF, <,iel GoAJK,MuZaff