on the accounts of - World Bank Documents

FINANCIAL ATTST-AtJDIT REPORT

ON THE ACCOUNTS OF

PUNJAB IRRIGATED AGRICULTURE PRODUCTIVITYIMPROVEMENT PROJECT (PIPIP)

WORLD BANK CREDIT NO. 50810-PK

. AGRICULTURE DEPARTMENT, GOVERNMENT OFTHE PUNJAB

FOR THE FINANCIAL YEAR 2014-15

AUDITOR GENERAL OF PAKISTAN ISLAMABAD

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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 68ACKNOWLEDGEMENT 69

Annexures 70

71

I

1

Abbreviations and Acronyms

- AG Accountant GeneralDAC Departmental Accounts CommitteeDCO District Coordination Officer

DDO Drawing and Disbursing OfficerEA Executing AgencyECNEC Executive Committee of the National Economic CouncilDO District Officer

GAAS Generally Accepted Accounting StandardsGoPb Government of the PunjabINTOSAI International Organization of Supreme Audit InstitutionsISSAI International Standards of Supreme Audit InstitutionsIPSAS International Public Sector Accounting StandardsLC Local CurrencyML Management LetterOFWM On-Farm Water ManagementPIPIP Punjab Irrigated Agriculture Productivity Improvement ProjectPC-I Planning Commission-1PPRA Punjab Procurement Regulatory Authority

* PSDP Public Sector Development ProgramSDR Special Drawing RightsSSCs Services & Supplies CompaniesI'S Technical SanctionTORs Terms of ReferencesWC Water Course

WUA_s Water Users Associations

2

PREFACE

The Auditor General of Pakistan conducts audit subject to articles 169 and 170 of theConstitution of the Islamic Republic of Pakistan, 1973, read with Sections 7, 8 & 12 of theAuditor Generafs (Functions. Powers and Terms & Conditions of Service) Ordinance, 2001.The audit of Financial Statements of the Punjab Irrigated Agriculture Productivity ImprovementProject financed by Government of the Punjab and World Bank for the financial year 2014-15was 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 forthe financial year 2014-2015 with a view to report significant findings to stakeholders. Auditexamined 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 andregulations in managing the PIP[P. The audit report indicates specific actions that, if taken, willhelp the management realize the intended objectives. The report has been discussed with thePIPIP Management in September and October, 2015.

The report consists of two parts i.e. Part-I contains Auditor's Report (Audit Opinion) andFinancial Statements. Part-Il contains Executive Summary, Management Letter and AuditFindings.

The report has been prepared for submission to World Bank in terms of LoanAgreement.

(Dr. Muhammad Jamil Afaqi)Director General Audit

PunjabDate: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 ProductivityImprovement Project (PIPIP).

Sponsoring Authority World Bank.Credit Number IDA Credit No. 50810-PKPC-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 AgricultureProductivity Improvement Project (PIPIP) that comprises of Statement of Receipts andPayments, Statement of Comparison of Budget and Actual together with the notes forming partthereof for the year ended 3 0 'h June, 2015.

Management Responsiblity

It is the responsibility of Project Management to establish and maintain a system ofinternal controls, and prepare and present the Statement of Receipts and Payments in conformitywith the requirements of Cash Basis IPSAS, Financial Reporting under the Cash Basis ofAccounting Standard.

Auditor's Responsibility

The responsibility of the auditor is to express an opinion on the Financial Statementsbased on the audit conducted. We conducted our audit in accordance with InternationalStandards of Supreme Audit Institutions. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the Financial Statements are free of materialmisstatements. The audit process includes, examining on test basis, evidence supporting theamounts and disclosures in the Financial Statements. It also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overallstatement 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 andpayments by the project for the year ended 3 0 1h June, 2015 in accordance with CashBasis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard.

(b) The expenditure has been incurred in accordance with the requirements of legalagreement.

(Dr. Muhammad Jamil Afaqi)Director General Audit Punjab

Place: LahoreDate:

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/ PaymentDescription 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 / 51GoPbDirect 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 - 4,240.512PK)Authorized Allocations 6 o9GoPbDirect Payment by theWorld Bank

Total Payments 4,670.030 - 4,670.030 4,240.512 - 4,240.512

Increase/ (Decrease) inCashCash at Beginning o 244.703 - 244.703 241.248 - 241.248-YearUnrealized ExchangeGain (Loss)Cash at End othe 152.234 - 152.234 244.703 - 244.703DRYear

DEPUTY PR AUDITOR

Receipts & Payments against Financing Sources (World Bank & GOPb)Statement of Cash Flows


(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 - 4,670.030Account

From GoPb Allocation 6 to 9 - - -

Direct Payment by theWorld Bank

Total Payments 46.106 4,670.030 - 4,670.030

Increase/ Decrease inCash

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$ 0.002million into the Designated Account on 30-06-2014, Resultantly, the actual opening balancecomes to US$ 3.015 on 01-07-2014.

DEPUTY PROJ AUDIT R

Statement of Comparison of Budget and Actual Amounts


Pak Rs. in Million Pak Rs. in Million2014-15 2013-14

ACTIVITY Budgeted Actual Budgeted ActualAmount as Amount Amount as Amountper PC-I Paid per PC-I Paid

A. Improving Water Productivity

Installation of High Efficiency 1,954.730 348.278 1,954.730 394,664Irrigation SystemsProvision 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 2,661.839Watercourses

Total 1,577.857 3,030.400 1,577.857 2,661.839

C. Adoption and Promotion of Modern Irrigation Technologies & Practicesand Monitoring & Evaluation

Adoption and Promotion ofModern Irrigation Technologies 119.000 35.576 119.000 17.030& PracticesMonitoring and Evaluation of 35.000 10.834 35.000 34.795Project Impacts I

Total 154.000 46.410 154.000 51.825

D. Project Management

Supervision & Administrative 633.732 785.575 624,339 746.432CostNon Recurring Cost - 108.672 - 11.987Project Supervision and Third 175.944 173.899 175.944 38.605Party ValidationStrategic Studies, TA and 17.000 10.137 17,000 16.044Training etc.

Total 826.676 1,078.283 817.283 813.068Grand 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.22-221079-9NBP, Main Branch, Lahore for the Financial Year 2014-15

Out of IDA, World Bank Loan Account

Pak Rs. in US $ inMillion Million

Opening Balance on 01-07-2014 244.703 3.015

ADD:

Bank Replenishment 4,577.561 45.102Issued 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 2.012Statement as on 30-06-2015

Less: Un-presented Cheques 0.142 0.001

Closing Balance as per Cash Book as 152,234 2.011on 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 ImprovementProject (PIPIP). The financial statement encompasses the reporting entity as defined in theFinancing Agreement between Islamic Republic of Pakistan and the InternationalDevelopment Association. The Financing Agreement was signed on 12-04-2012 for anamount of SDRI61,200,0001- equivalent to US$250,000,000/-. The project became etfectiveon 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 itseffective 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 forsupporting irrigated agriculture.

IV. Capacity building of stakeholders in better managing irrigation water for attaininghigher crop yields with less production costs.

(Key Participating Agencies)

i. Punjab Agriculture Department through Directorate General Agriculture (WaterManagement), Punjab, Lahore.

ii. District Governments through District Officers (OFWM)iii. Supply & Service Companies (SSCs)/Supplier Firmsiv, Project Implementation and Supervision Consultants (PISCs)v. Monitoring & Evaluation Consultantsvi. 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$113.000Million)

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 & Practicesand 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 andStrategic 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 ofPakistan. Main Branch, Lahore in the name of Director General Agriculture (WaterManagement), Punjab. As per fund flow mechanism agreed with the InternationalDevelopment Association/ World Bank, funds received in Designated Account aretransferred into Account No. 1 (N.F) of the Punjab Government and subsequently the sameare transferred with the authorization of Punjab Finance Department to the DistrictsGovernment Account No. IV and to the provincial hierarchy through A.G. Punjab againstrespective 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 IrrigatedAgriculture Productivity Improvement Project (PIPIP) has been entrusted to the ProjectDirector/ Director General Agriculture (Water Management) Punjab. 21-Davis Road. Lahorefunctioning 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 beenincurred 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 FinancialReporting 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 PakRupee by applying to the foreign currency amount, the exchange rate between the Pak Rupeeand the Foreign Currency at the date of the receipts and payments. Exchange differencesarising on settlement of these transactions are recognized in the Statement of Receipts andPayments.

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. Financialyear to which the payments pertain is determined by the date on which a cheque of paymentadvice is issued.

4.5 Employee Terminal Benefits

Service benefits of government deputations employees are accounted for in their respectivedepartments 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 bythe Project but do benefit the Project as the Project does not receive cash (including cashequivalents) directly from, or gain control of the bank accounts or similar facility establishedfor its benefit by, the third parties. Payments by third parties, if any, are disclosed in thePayments by third parties column on the face of Statement of Cash Receipts and Paymentsand notes to the financial statements.-----N.A

5 External Assistance

External assistance was received in the form of credit from the World Bank under FinancingAgreement dated 12-04-2012 between the International Development Association andGovernment of Pakistan, Project No. 12999 (IDA Credit No, 5081 0-PK) for the purpose ofthe Project. The following amounts were received by the project during the period underreport.

(Figures in Million)Note 2014-15 2013-14

uS $ Pak US $ PakRupees Rupees

SOE ProceduresAuthorized Alloc./ GOPb 5.1 - - -Designated Account 5.1* 45.102 4,577,561 41.470 4.243.967Direct 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 InternationalDevelopment Association on the basis of Withdrawal Applications submitted by the ProjectDirector (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 agreementbetween International Development Association and Government of Pakistan thatInternational Development Association will disburse for project purposes.

(Figures in Million)

Note 2014-15 2013-14us $ L us $ I

Undrawn Balance 117.709 162.811117.709 162.811

(Figures in Million)* Note 2014-15 2013-14

PakRupeesd PakRupees6 Consultancy services

Individuals 6.1 -Firms 6.2 173.899 38.605Firms 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 7.1 601.468 581.965Operating Expenses 7.2 184.107 1 64.467Other 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 2.844Utilities 4.494 2.749Occupancy Costs 3.516 5.441Travel & Transportation 130.221 118.187General 16.606 12.917Encashment of LPR 4.652 0.00

Financial Assistance 3.800 1.800Plant & Machinery 0.850 0.00Repair & Maintenance of Durable Goods 17.076 20.529

184.107 164.467


Pak Rupees Pak Rupees

7.3 Other Expenses (Civil Works)

Watercourses 3030.400 2,661.839Water Productivity (HEIS) 348.278 394.664LASER Units 166.659 319.116Adoption & Promotion of Modern 3Irrigation Technologies & Practices 6

3580.913 3,392.649

8 Supplies and Consumable

Vehicles 59.845 5.997Furniture & Fixture 0.00 0.00Machinery & Equipment 48.827 5.990

108.672 11.987

9 TrainingsStrategic Studies, TA and Training etc 10.137 16.044

10.137 16.044Grand 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 152.234 244.703Closing Balance before Conversion as at Year End 152.234 244.703Closing 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) willbe settled at the completion of the Project. The unspent dollar balance, if any, will berefunded to International Development Association at the end of the Project.

II Cash And BankCash in Hand - -Cash at Bank 152.234 244.703Closing Balance After Conversion as at Yearend 152.234 244.703


Pak Rupees Pak Ru ees

* 12 Commitments

Installation of HEIS 280.600 375.997Laser Units 4.500 83.475Watercourses 410.400 578.860

695.500 1,038.332

12 Authorization for IssueThese financial statements have been authorized for issue by the Project Director on30/09/2015.

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 ofcomparison.

Note: The above breakups and disclosures are not exhaustive. These are for general guidancepurposes only. The management may include breakups and disclosures tailored to project'snature of activities.

DEPUTY R AUDITOR

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