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3 1 Public Disclosure Authorized Financial Attest Audit Report Public Disclosure Authorized on the Accounts of Sindh Irrigated Agriculture Productivity Enhancement Project (SIAPEP), Hyderabad IDA-assisted Loan No.5604-PK Public Disclosure Authorized Agriculture, Supply & Prices Department Government of Sindh for the Financial Year 2018-19 Public Disclosure Authorized Auditor-General of Pakistan Islamabad PART-II MANAGEMENT LETTER EXECUTIVE SUMMARY 1. INTRODUCTION 2. AUDIT OBJECTIVES 3. AUDIT SCOPE AND METHODOLOGY 4. AUDIT FINDINGS &RECOMMENDATIONS 4.1 Financial management 4.2 Civil & Construction Works 4.3 Overall Assessment 5. CONCLUSION ACKNOWLEDGEMENT 12 OFFICE OF THE DIRECTOR GENERAL AUDIT SINDH 151 Floor, Pakistan Audit & Accounts Complex, Gulshan-e-lqbal, Block-11, Main University Road, Karachi. Ph: 021-99244751, Fax: 021-99244855 N o.DGAS/PPC/A-Prog/2018-19/F A T-07I Dated Is- ll.--2-o/ r The Project Director, Sindh Irrigated Agriculture Productivity Enhancement Project, Ground Floor, Sindh Seeds Corporation office Hussainabad, Hyderabad SUBJECT: MANAGEMNT LETTER IN RESPECT OF THE SINDH IRRIGATED AGICULTURE PRODUCTIVITY ENHANCEMENT PROJECT, HYDERABAD. We have recently completed our audit of the financial statements of Sindh Irrigated Agriculture Productivity Enhancement Project, funded by IDA credit Loan No. 5604 for the year ended June 30, 2019. In planning and performing our audit of the financial statements of the project, we considered internal controls and other issues in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements. During our audit, we noted certain matters involving internal controls and other operational matters that are presented in the report for your consideration. These comments and recommendations, all of which have been discussed with the Project Management, are intended to improve internal controls and policies which result in cost controls and operating efficiencies. Director~ General Copy to the Secretary, Agriculture and Supply & Prices Department, Ground Floor, Tughlak House, Sindh Secretariat, Government of Sindh Karachi along with the Financial Attest Audit Report, for information and necessary action. Director General 13 EXECUTIVE SUMMARY The Director General of Audit Sindh conducted an audit of Sindh Irrigated Agriculture Productivity Enhancement Project in October 2019 for the period 151 July 2018 to 30th June 2019. The main objectives of the audit were to express an opinion on financial statements of the Project, to assess whether the Project was managed with due regard to economy, efficiency and effectiveness, to review Project's performance against the intended objectives, to review compliance with applicable rules, regulations and procedures. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions (ISSA!) with the view to reporting significant findings to stakeholders. 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 pointed out that farmer's share on account of HEIS component was not obtained and Deep Ripper Equipments & Kitchen Garden Kits were not handed over to end users. Payment to WCAs was made without valid registration certificates, revised Technical sanctions of watercourses and Final Completion Reports. Expenditure on account of purchase of IT equipments was incurred without contract agreement and inspection reports. Fixed asset items were not accounted for and Cash/Bank book for the month of June, 2019 was not maintained. Also Sindh Sales Tax was not deducted on consultancy services. Audit recommends that Farmer's share on account of HEIS component may be obtained and timely delivery of equipments may be ensured. Also internal controls regarding registration of WCAs, revised Technical Sanctions of watercourses and Final Completion Reports may be strengthened. Audit needs compliance of production of requisite record and all goods purchased may be timely delivered and accounted for in the concerned stock register. Audit desires deposit of SST may be ensured. 14 1. INTRODUCTION 1.1 The Directorate General Audit, Sindh conducted audit of Sindh Irrigated Agriculture Productivity Enhancement Project, Hyderabad under loan agreement IDA Credit # 5604-PK during the month of October 2019 for the year ended June 30, 2019. The main objectives of the audit were to express an opinion on financial statements of the project, to assess whether project was managed with due regard to economy, efficiency and effectiveness, to review project performance against the intended objectives, to review compliance with applicable rules, regulations and procedures. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions (ISSAI). 1.2 SIAPEP Hyderabad developed with an objective to improve agricultural productivity among small and medium size farmers. The objective would be achieved by: (a) improving the efficiency, reliability and equity of irrigation water distribution; (b) supporting agriculture productivity enhancement measures to complement and enhance the benefits of improved water management; (c) enhancing long-term financial sustainability of irrigation system by fostering self-sustaining farmer organizations at the Watercourse and distributaries canal levels, which is a key element of the decentralized and financially sustainable institutional apparatus, Government of Sindh is endeavoring to establish. These objectives shall be achieved through establishment of WCAs and building their capacity through social mobilization, improvement of watercourses, precision land leveling through laser guided equipment. 1.3 To trigger these objectives key-performing indicators would be; • Improvement in water conveyance reliability and delivery efficiency. • · Equality of irrigation water distribution. • Increase in cropping intensity. • Reduction in the use of pesticides. • Farmers awareness though information dissemination of latest knowledge though media campaign and printed material. The Financing Agreement was signed on 09-07-2015 for an amount Of US $ 187.0 million. The project became effective from August 21, 2015 with the original closing date of December 31, 2021. 2. AUDIT OBJECTIVES 2.1 The major objectives of the audit were to: • Ascertain whether the Project Financial Statements give true and fair view. • Review project's performance against intended objectives. • Review compliance with applicable rules, regulations and procedures. 15 3. AUDIT SCOPE 3.1 The Directorate General Audit Sindh conducted audit of the SIAPEP loan agreement IDA Credit# 5604-PK, during the month of October 2019 for the year ended June 30, 2019. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions (ISSAI) as adopted by the Auditor General of Pakistan. 3.2 METHODOLOGY The assignment was certification audit in which samples from areas of expenditure and transactions including procurement, consultant services, operating expenses, recurring cost were selected to ascertain whether the financial Statements of the project give true and fair view. The accounts have been audited in accordance with the instructions, guidelines issued by the Auditor General of Pakistan. The results of examination are given under the heading "Audit Findings". 4. AUDIT FINDINGS AND RECOMMENDATIONS 4.1 FINANCIAL MANAGEMENT 4.1.1 Non-reconciliation of expenditure with District Accounts Office - Rs2,707.48 million As per Rule 41 (a) of Sindh Financial Rules "Department Controlling Officers should see that all sums due to government are regularly received and checked against demand and that they are paid into the Treasury. As per Rule-34 of Sindh Financial Rule Vol-I, the DDO is responsible to conduct the reconciliation of figures of receipt / expenditure with concerned treasury so as authenticate the figures. During the audit of office of Project Director, SIAPEP, Hyderabad for the financial year 2018-19, it was observed that an expenditure of Rs2,707.48 million was incurred but same was not reconciled with District Accounts Office Hyderabad. The details are as under; Head of Account Amount Opening Balance 1,370.750 Receipt during the year 2,141.062 Total Funds available 3511.81 Less closing Balance 804.331 Total Fund drawn from 2,707.48 Assignment Account Total 2,707.48 16 The matter was reported to the management during October, 2019 but no reply was received. Audit recommends that internal control should be strengthened to avoid such irregularities and reconciliation of expenditure may be carried out under intimation to audit. OM#13 4.1.2 Non-deposit of Sindh Sales Tax deducted on consultancy services- Rs21.730 million As per clause 5.2 Contract Agreement of Project Implementation Consultant (PIC) "Changes in the Applicable Law Related to Taxes and Duties" that if, after the date of this contract, there is any change in the Applicable Law with respect to taxes and duties which increases or decreases the cost incurred by the Consultant in performing the services, then the remuneration and reimbursable expenses otherwise payable to the Consultant under this Contract shall be increased or decreased accordingly by the agreement between the Parties, and corresponding adjustments shall be made to the amounts of contract. During the audit of office of the Project Director, SIAPEP Hyderabad, for the year 2018- 19, was observed that Sindh Services