Tel No: 2212 6758/59/60161 Fax: 22229666 e-mail: piukship@gmail.com GOVERNMENT OF KARNATAKA KARNATAKA STATE HIGHWAYS IMPROVEMENT PROJECT (Public Works, Ports & Inland Wtater Transport Department) No. PIU:KSHIP:ACTS:WB:AG:03:2018-19/Q 860 O/o The Project Implementation Unit, Karnataka State Highways Improvement Project K R Circle, Bangalore - 560 001. Date: 22.10.2018 The Country Director, The World Bank, New Delhi Office, No.70, Lodi Estate, New Delhi - 110003. Dear Sir, Sub: Audit Report on the Annual Financial Statements of KSHIP-1I Loan No. 8022-IN for the Financial Year 2017-18. Ref: Letter of the Deputy Accountant General No. AG (ERSA)/IAU-I/F/ 2018-19/28 dated 08.10.2018. With reference to the above, please find enclosed the Audit Report dated 08th October 2018 along with the Audited Financial Statements of KSHIP-II pertaining to IBRD Loan No. 8022-IN for the Financial Year 2017-18 issued by the Principal Accountant General, Karnataka Bangalore. This is in accordance with Section II Part B4 of the Project Agreement dated 30h May 2011. In the Audit Report of the Project Financial Statement, there is a Memo of disallowance of Rs. 6.316 mn (reimbursable amount at 80% Rs. 5.052 mn). In this regard payment of Rs. 6.316 mn (audit findings Rs. 5.997 mn) was paid to the Contractor in IPC 32 during FY 2017-18 (March 2018) towards tack coat over Bituminous Surface. This has been subsequently recovered by PIU, KSHIP in the IPC-34 for the period ended 30th April 2018. This fact has been replied to the AG on an Audit Enquiry issued during the course of the audit and also supplementary reply through this office letter dated It September 2018 (Copy of the same is enclosed for ready reference) and requested AG to drop the Audit Enquiry. Inspite of the reply given to AG and subsequent deduction of Rs. 6.316 mn in the FY 2018-19, AG have proposed for disallowance in the Audit Report. Further it is brought to the notice of the World Bank that, the amount deducted Rs. 6.316 mn (reimbursable amount Rs. 5.052 mn) in the IPC 34 paid on 04th August 2018 is not claimed in the IUFR Application No.58 for the period 01-07-2018 to 14-08-2018 for reimbursement. In view of the facts stated above, it is requested that World Bank may consider the action taken by PIU, KSHIP and waive the proposed disallowance by AG. Yours faithfully, Encl: (1) Audit Report dated 08-10-2018 and Audited Financial Statements for the FY 2017-18 (2) Copy of the reply furnished to AG dated sd/ 01S" September 2018 Chief Project Officer, PIU, KSHIP, Bangalore. CC: To: 1) Shri. Sameer Kumar Khare, Joint Secretary (Fund Bank & ADB), #39B, Department of Economic Affairs, Ministry of Finance, New Delhi - 110001. 2) Shri. Ashok Kumar, Task Team Leader, The World Bank, The HT House Building, 18-20 Kasturba Gandhi Marg, New Delhi - 110001. 3) Shri. Anantha Krishna Karur, Financial Management Specialist, The World Bank, No.70, Lodi Estate, New Delhi - 110003. 4) Shri. Sukhbir Singh, Controller of Aid Accounts and Audit, B wing, 5th Floor, Janpath Bhavan, New Delhi. 5) The.Additional Chief Secretary to Government, PWP & IWT Department, Vikasa Soudha, Bangalore - 560001. 6) The Additional Secretary to Government (Fiscal Reforms), PMU, Finance Department, 4 Floor, M.S. Building, Bangalore - 560001. Chief P ect Officer, ,IKSHIP, Indian Audit And Accounts Department Office of the Accountant General (E & RSA) Karnataka. No.AG (ERSA)/IAU-I/F/2018-19/2-9 CPO :.10.2018 PDt To CAO SPL. D.C. The Project Director, Project Implementation Unit, S0 Karnataka State Highways Improvement Project (KSHIP), SE K.R. Circle, -2 Bangalore - 560 001. SE-3 EE Sub: Report on the Project Financial Statement of Karnataka State Highways Improvement Project-Il (KSHIP-II) World Bank Loan No.8022 IND for the period ending 2017-18. Sir, With reference to the subject above, I am to enclose the Report on the Project Financial Statement of the Karnataka State Highways Improvement Project - II (KSHIP - II) under World Bank Loan No.8022 IND for the period ending 31s March 2018. A management letter containing recommendation that requires your attention is issued separately. The receipt of the same may please be acknowledged. Yours faithfully, Deputy Accountant General (Economic Sector-1) IftZ 'WR: ' WW, fr f . 5398 - 560 001. Audit Bhavan, 'C' Block, Post Box. No. 5398, Bengaluru - 560 001 Ph: 080 22289101 Fax: 080 22253753 E-mail: agauKarnataka2@cag.gov.in website : http://www.agkar.cag.gov.in Indian Audit And Accounts Department Office of the Accountant General (E & RSA) Indin Auit nd Acouns DpartentKornataka. REPORT OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA To The Project Director, Project Implementation Unit, Karnataka State Highways Improvement Project (KSHIP) II, ICR. Circle, Bangaloare-560001. REPORT ON THE PROJECT FINANCIAL STATEMENT We have audited the accompanying financial statements of Karnataka State Highways Improvement Project-Il World Bank Assisted Project Loan No-8022-IN including Highway Financing Modernization Component being executed through Karnataka State Road Development Corporation Limited which comprises of the Statement of Sources and Applications of Funds and reconciliation of claims to Total Application of Funds for the year ended March 2018. These statements are the responsibility of the Project's management. Our responsibility is to express an opinion on the accompanying financial statement based on our audit. We conducted our audit in accordance with the Audit Standards promulgated by the Comptroller and Auditor General of India. Those standards require that we plan and perforn the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit examines, on a test basis, evidence supporting the amounts and disclosure in the financial statements. It also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the sources and application of funds of Karnataka State Highway Improvement Project-Il for the year ended 31s March 2018 in accordance with Government of India accounting standards. In addition, in our opinion, (a) with respect to Financial Monitoring Report adequate supporting documentation has been maintained to support claims to the World Bank for reimbursement of expenditures incurred, and (b) except for ineligible expenditure Rs.63.16 lakh as detailed in the memo of disallowances appended to this audit report, expenditure is eligible for financing under the loan/credit agreement. During the course of audit, Statement of Expenditure/Financial Monitoring Reports and the connected documents were examined and these can be relied upon to support reimbursement under the loan/Credit agreement as detailed below; alftT W% : '* * W, ITM 4 . 5398 *1W3 - 560 001. Audit Bhavan, 'C' Block, Post Box. No. 5398, Bengaluru - 560 001 Ph : 080 22289101 Fax : 080 22253753 E-mail : agauKamataka2@cag.gov.in website : http://www.agkar.cag.gov.in (Rs in Millions) SI. Eligible Less Percentage of Amount Disbursement Category Expenditure EiblLes admissible as . No Expenditure inadmissible Reimbursement Reimbursable per audit Consultants' services, training, studies, Incremental Operating Costs under 1 a a 452.593 315.706 - 315.706 80% 252.565 Parts A. 1, A.2, C, and D of the Project Consultants' services, training, studies, 2 Incremental Operating Costs under 189.682 105.024 - 105,024 80% 84.019 Parts B.1, B.2 and B.3 3 Goods and works underPart A.1, C, *3126.013 2857.104 **6.316 2850.788 80% 2280.630 and D of the Project 4 GoodsandWorksunderPartA.2ofthe 3324.580 1361.306 - 1361.306 100% 1361.306 Project Goods and Works under Part B.2 of the 5 1458.220 1250.753 - 1250.753 100% 1250.753 Project 6 Front End Fee 0 0 - 0 0 0 e Total 8551.088 5889.893. 6.316 5883.577 5229.273 Note: *Includes unnecessary expenditure of i 6.316 million which was incurred due to faulty estimation which is disallowed by audit. ** While the amount held inadmissible by the audit was i 5.997 million, a sum of T 6.316 million was recovered out of IPC 34 as inadmissible by PIU, KSHIP for the period ended April 2018, hence the amount of I 6.316 million is shown as inadmissible. This report is issued without prejudice to Comptroller & Auditor General's right to incorporate the audit observations in the report of C&AG of India for being laid before Parliament/State Legislature. Deputy Accountant General Economic Sector-I O/o the Accountant General (ERSA) Karnataka, Bangalore MEMO OF DISALLO WANCES World Bank Assisted Project Loan No.8022-IN As per Ministry of Road Transport & Highways specifications Tack Coat is not required unless surface is extremely dry. Project Coordinator suggested not to apply tack coat over bituminous surface. However, despite specific instructions from the Project Authority not to operate Tack Coat over Bitumen Surface, the same was executed and paid resulting in not only undue payment of T59.97 lakh to Concessionaire(WAEP-4) which is disallowed by the Audit but also in unnecessary expenditure due to faulty estimation. In reply, PIU, KSHIP stated that a sum of T63.16 lakh was recovered as inadmissible in 2018-19. Deputy Accountant General Economic Sector-I Annexure 1 Karnataka State Highways Improvement Project - II World Bank Assisted Project - Loan No.8022 IN Statement of Sources & Application of Funds Report for the year endqd 31"t March 2018 (Rs. In Millions) Particular Receipts/Expenditure Project to date For the year Sources of Funds Opening Bank Balance - Government of Karnataka Funds 3910.858 13242.177 World Bank Funds: 0.000 PPIAF Grant 8.973 Loan Funds 4640.230 13907.805 Total Funds 8551.088 27158.955 Uses of Funds Road Improvement Works 6582.989 21125.914 Highwy Financing Modernization Component 1647.901 3803.533 Road Safety Component 86.856 315.973 Road Sector Policy & Institutional Development 146.912 343.182 Incremental Operating Costs 77.229 319.264 Advances 9.201 1212.046 Front End Fee 0.000 39.043 Total Expenditure 8551.088 27158.955 ClosingfBank Balance- t VROJtedo D ecreta (Finance), IP ProittDirector, Accountant Gene al, KSHIP 0 A0GALORE mn AHIP Karnataka. Date: 125 SEP20 8ocf&?.V Notes:. 1. This Financial Statement is prepared on a cash basis of accounting as per provisions of the Financial Rules and codes applicable. 2. The Expenditure figures are based on monthly/quarterly abstract of Tally Software used for project accounts. 3. The receipt of World Bank Loan Funds were accounted based on ACA release from Government of India. 4. Highway Financing Modernization Component expenditure Rs.1647901 Million includes Rs. 196.771 Million Expenditure out of Cumulative advance R&790.00 Million released as advance to KRDCL for Resettlement & Rehabilitation and Land Acquisition activities. 5. Names ofAccounting units whose financial statements are aggregated to prepare the consolidated accounts are: PIU-KSHIP, Bangalore and four Project Divisions namely Tumkur, Shimoga, Raichur and Belgaum. 6. During the FY2017-18, the GOK released Rs.8837.50 mn towards KSHIP-II (WB Project)and Rs.3910.86 mn shown as amount of GOK grant received represents the net amount of GOK grant utilized towards KSHIP-II after reducing KSHIP-1 Expenditure (Rs.16.13 mn), expenditure incurred towards recurrent cost/salary expenditure (Rs.80.43 mn), and re-imbursement received from World Bank (Rs.4640.23 mn) and adjusting mobilization advance recovered during the year (Rs.350.15 mn) from the total expenditure of Rs.8997.78 mn. 7. The Project Expenditure to date includes expenditure towards KSHIP-II only and does not include expenditure towards KSHIP-I (Rs.186.714 mn which includes Rs.29.215 mn upto 31-03-2010 and Rs.157.499 mnfrom 01-04-2010 to 31-03-2018) and recurrent costs fRs152.913 mn?. Annexure 2 Karnataka State Highways Improvement Project - II World Bank Assisted Project - Loan No.8022 IN Reconciliation of Claims to Total Applications of Funds Report for the year ended 31st March 2018 Amt (Rs. Million) Schedules Current Year Previous Project to Year date Bank Funds Claimed (A) IUFR-Application No.44 655.820 IUFR-Application No.45 445.624 IUFR-Application No.46 145.775 IUFR-Application No.47 356.440 IUFR-Application No.48 244.624 IUFR-Application No.49 721.576 IUFR-Application No.50 272.812 IUFR-Application No.51 228.434 IUFR-Application No.52 430.538 IUFR-Application No.53 354.521 IUFR-Application No.54 662.267 IUFR-Application No.55 715.896 Funds Claimed for the year Ref: Schedule 1 5234.327 Less: Claims of previous years IUFR 0.000 Funds claimed for the current year(A) 5234.327 Total Expenditure made (B) 8551.088 5441.349 27158.955 Expenditure as per books of account 8551.088 5441.349 27158.955 Less: Expenditure Not Claimable (C) Ref: Schedule 1 2661.195 Expenditure Not Claimed (D) 0 Claimable Expenditure (F) = (B)- (C)-(D) 5889.893 World Bank Share (E) 5234.327 Claims in excess of Expenditure (A-E) 0 PRO> D tSecr ary-Finance, S&IP oject Director, KSHIP Accountant Genera KSHIP 40ORE Karnataka Date: 7t1i SEP ZOAS'B Notes: 1) Total expenditure made during the year (B above) must be the same as the Total Expenditure shown on the Statement of Sources and Applications of Funds. 2) Total Expenditure made during the year (B above) included advances of Rs. 9.201 Mi Ilion to Consultants and Contractors. Karnataka State Highways Improvement Project - II World Bank Assisted Project - Loan No.8022 IN (Rs. In Millions) Disbursement C*egory and Expenditure for the year ended 31.03.2018 Disbursement Category Expenditure Eligible Claim Expenditure Amount Consultants' services, training, studies, Incremental Operating Costs under Parts A.1, A.2, 452.593 315.706 80% 252.565 C, and D of the Project Consultants' services, training, studies Incremental Operating Costs under Parts B.1, 8.2 189.682 105.024 80% 84.019 and B.3 Goods and works under Part A.1, C, and D of the Project 3126.013 2857.104 80% 2285.684 Goods and Works under Part A.2 of the Project 3324.580 1361.306 100% 1361.306 Goods and Works under Part 8.2 of the Project 1458.220 1250.753 100% 1250.753 Front End Fee 0 0 0 Total 8551.088 5889.893 5234.327 Breakup for claim amount: Reimbursement claimed during 3071.105 the period (Ref. Schedule - 1) Pending claim amount as of 31.3.2018 (IUFR Application No. 52 to 55) Total 5234.327 De II7etyinance, r Projec rect, KKSHIP Accountant General, KSHIP tlKarnataka Da t5 SEP 01B t Do Schedule - I Karnataka State Highways Improvement Project - 11 World Bank Assisted Project - Loan No. 8022 IN Details for Withdrawal Applications for the Year Ended 31-03-2018 (Rs. In Millions) SL. IUFR Period Expenditure Eligible Reimbur Reimburse Reimbursem Expenditure Remarks No Appl for the Period Expenditure sable ment Claim ent through Not Claimable No. for the Period %age Amount ACA Release 1 2 3 4 5 6 7 8 9=(4-5) 10 167.956 137.301 80% 109.841 1) 44 01-04-2017 to 31-05-2017 545.979 545.979 100% 545.979 654.284 30.655 Total 713.935 683.280 655.820 288.265 242.492 80% 193.994 2) 45 01-06-2017 to 14-06-2017 330.329 251.630 100% 251.630 446.685 124.472 Total 618.594 494.122 445.624 212.249 182.219 80% 145.775 3) 46 15-06-2017 to 30-06-2017 43.768 0 100% 0 145.703 73.798 Total 256.017 182.219 145.775 333.848 280.637 80% 224.510 4) 47 01-07-2017 to 31-08-2017 131.930 131.930 100% 131.930 355.316 53.211 Total 465.778 412.567 356.440 384.354 305.781 80% 244.624 5) 48 01-09-2017 to 30-09-2017 28.281 0 100% 0 243.504 106.854 Total 412.635 305.781 244.624 1006.103 901.970 80% 721.576 -49 01-10-2017 to 30-11-2017 S E. 0135.837 0 100% 0 721.300 239.970 !C Total 1141.940 901.970 721.576 Page 1 of 3 Schedule - I Karnataka State Highways Improvement Project - II World Bank Assisted Project - Loan No. 8022 IN Details for Withdrawal Applications for the Year Ended 31-03-2018 (Rs. In Millions) SL. IUFR Period Expenditure Eligible Reimbur Reimburse Reimbursem Expenditure Remarks No Appi for the Period Expenditure sable ment Claim ent through Not Claimable No. for the Period %age Amount ACA Release 1 2 3 4 5 6 7 8 9=(4-5) 10 161.762 140.213 80% 112.170 7) 50 01-12-2017 to 19-12-2017 169.279 160.642 100% 160.642 272.824 30.186 Total 331.041 300.855 272.812 61.671 54.311 80% 43.449 8) 51 20-12-2017 to 31-12-2017 226.171 184.985 100% 184.985 226.000 48.546 Total 287.842 239.296 228.434 Expenditure Claimed & (A) 4227.782 3520.090 3071.105 3065.616 707.692 ____Received during the Year _____ ____________ 323.244 291.372 80% 233.098 9) 52 01-01-2018 to 31-01-2018 247.422 197.440 100% 197.440 0 81.854 Total 570.666 488.812 430.538 31.602 18.276 80% 14.621 10) 53 01-02-2018 to 28-02-2018 780.563 339.900 100% 339.900 0 453.989 Claim is in Total 812.165 358.176 354.521 pipeline. Please 298.135 260.425 80% 208.340 refer foot note 11) 54 01.03.2018 to 19.03.2018 (2) 583.061 453.927 100% 453.927 0 166.844 Total 881.196 714.352 662.267 499.099 462.837 80% 370.270 20.03.2018 to 31.03.2018 X¼ 2 . 1560.180 345.626 100% 345.626 0 1250.816 Total 2059.279 808.463 715.896 Page 2 of 3 Schedule-I Karnataka State Highways Improvement Project - II World Bank Assisted Project - Loan No.8022 IN Details for Withdrawal Applications for the Year Ended 31-03-2018 (Rs. In Millions) SL. IUFR Period Expenditure Eligible Reimbur Reimburse Reimbursem Expenditure Remarks No Appi for the Period Expenditure sable ment Claim ent through Not Claimable No. for the Period %age Amount ACA Release 1 2 3 4 5 6 7 8 9=(4-5) 10 (B) Expenditure Claimed & yet to (B)__ be received as on 31.03.2018 4323.306 2369.803 2163.222 0.000 1953.503 (A+B) Total 8551.088 5889.893 5234.327 3065.616 2661.195 636.445 607.097 80% 485.678 13) 42 01-01-2017 to 28.02.2017 71.381 0 100% 0 485.823 100.729 Total 707.826 607.097 485.678 972.593 885.218 80% 708.175 14) 43 01.03.2017 to 31.03.2017 9258518 0787 883.725 383.560 100% 383.560 1088.791 587.540 Total 1856.318 1268.778 1091.735 Claims of previous year 2564.144 1875.875 1577.413 1574.614 688.269 received during the year Total Bank Funds Claimed 11115.232 1765.768 6811.740 4640.230 3349.464 during the Year 1115.22 765.68 81174 4640.230 3349.464 Note: (1) Application No. 52, 53, 54 & 55 were in pipeline as of 31.03.2018. (2) In the IUFR 52 to 55 for the period from 01.01.2018 to 31.03.2018, out of the eligible expenditure of Rs.2369.803 Million and Reimbursement claim amount of Rs. 2163.222 Million. The ineligible expenditure is Rs.1953.502 Million. DlKSPecretary-Fnance, ' Project Director, Accountant General, KSHIP KSHIP Karnataka DATE: 0 Page 3 of 3