Office of the Chief Project Director, Watershed Management Directorate,
                             Indira Nagar Forest Colony, Dehradun (Uttarakhand)
                                                                                Phone No. 0135-2764244, 2768712
                                                                                  Fax no. 0135-2760170, 2762839
                                                                                         E-mail: wmd-ua(dnic.in
                                                                                    Web site: www.gramya.in



To,
        Country Director-INDIA
        The World Bank.
        International Bank for Reconstruction and Development
        International Development Association.
        18-20 L.G.Marg.
        New Delhi-110001

No- l           1'</3-7-1 (SOE) / UDWDP (Phase-II) , Dehradun, fo,October,          2016


Sub :- Audit Certificate for Uttarakhand Watershed Management Project IDA Credit
        No.5369-IN ) for the financial year 2015-16
Dear sir,

                Kindly find annexed the Audit Report along with audited financial statement
        for Uttarakhand Decentralized Watershed Development Project Phase-II, (IDA Credit
        No 5369-IN ) for the financial year 2015-16 issued by the Office of the Accountant
        General (Audit) Uttarakhand vide their letter dated 06-10-2016.The audit certificate
        has been issued for INR 624.178 Million (Rs.Six hundred twenty four million,one
        hundred seventy eight thousand) only for the project which is inclusive of beneficiary
        contribution as per the attached claims.

        Enc.- As above
                                                                           r's sincerely

                                                                     (An    ;      ardhan)
                                                           Chief Project Director,
                                                           Watershed Management
                                                            Directorate Dehradun.
        Letter No-            /3-7-1 (SOE) /UDWDP dated above.

            Copy forwarded for information and necessary action.
      1- Mr.Ranjan Samantaray,Task Team Leader, (UDWDP-II), The World Bank 18-20
         K.G.Marg, New Delhi-i.
      2- Mr.S.Krishnamurthy Sr. Financial Management Specialist.The World Bank 70-
            Lodhi Estate,New Delhi- 110003
      3- Additional Secreatary (FB) Department of Economic Affair ,        inistry Finance
            Government of India North Block New Delhi-I 10001
        Enc. - As above

                                                                     (Anand Bardhan)
                                                                   Chief Project Direc r,
          OFFICE OF THE ACCOUNTANT GENERAL (AUDIT),
                        UTTARAKHAND

                                                   No./FAW/UDWDP              4L J2015-16/ 6 ss_-s
                                                   Date:o.10. 2 0 1 6
       To,
                      The Programme Director
                      UDWDP-II Project
                      Watershed Management Directorate,
                      Dehradun

                                                                of Uttarakhand
        Subject:      Issue of Audit Certificate in respect
                                                                           for the
                      Decentralised Watershed Development Project Phase-II
                      Financial year 2015-16.

        Sir,
                                                                               of World
                     I am to enclose herewith the Audit Certificate in respect
                                                                          Project Phase-
        Bank assisted Uttarakhand Decentralised watershed Development
                                                    2015-16.
        II (Credit No. 5369) for the Financial year

        End: As above
                                                                 Yours faithfully,


                                                           (Vidya Bhushan Relan)
                                                       Deputy Accountant General/FAW
                                                 0                     Date: .10.2016
         No. AG/FAW/UDWDP-II/Certification/2 15-16/
          Copy forwarded to:-
                  Principal Secretary, Watershed Management, Government      of Uttarakhand,
         1.                                                                0 1.
                   Uttarakhand Secretariat, 4- Subhash Road, Dehradun-2480
                                                                              (Department of
         2.        Director (MI), Government of India, Ministry of Finance,
                                                                                       Block,
                   Economic Affairs), Multilateral Institutions (MI) Division, North
                   New Delhi
         3.        Director General, PPG-EAP. O/o the C&AG, 9 Deen Dayal Upadhyaya
                   Marg, New Delhi- 110124



                                                             (Vidya Bhushan Relan)
                                                         Deputy Accountant General/FAW


                                                                                                    06
                                                                            Nagar, Dehradun-2480
"AT       "   1/105,       -7, tTI-248006 "Vaibhav Palace" C-1/105, Indira
                                                        A-fFI/ E-mail: agauuttarakhand@cag.gov.in
  -q'*TM/Phone: 0135-2764215,Tt/Fax:0135-2523598-99,
           OFFICE OF THE ACCOUNTANT GENERAL (AUDIT),
                                    UTTARAKHAND
         REPORT OF COMPTROLLER AND AUDITOR GENERAL OF INDIA
               REPORT ON PROJECT FINANCIAL STATEMENTS

        We have audited the accompanied Statement of Expenditure (SoE) of the
 Uttarakhand Decentralised Watershed Development Project, Phase-l (UDWDP-II) financed
 under World Bank (IDA) (credit No. 53691N) which comprises sources and application of
 fund for the year 2015-16. 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 audit in accordance with auditing standards promulgated by the
 Comptroller and Auditor General of India. 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 examines, on a test check, evidence for
 supporting the amounts and their disclosure in the SoEs. It also includes, assessing of
 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.

        In our opinion, the SoE presents true and fair view in all material respects of the
 sources and application of funds of UDWDP-II for the financial year 2015-16, in accordance
 with Government of India Accounting standards.

       In addition in our opinion in respect to SOEs, adequate supporting documentation
 has been maintained to support claims to the World Bank for reimbursement of
 expenditures incurred for the year 2015-16 amounting to Z 6241.78 lakh (Annexure-1) and
 the related documents were examined and these can be relied upon to support
 reimbursements under the loan/credit agreement.

       This report is issued without prejudice to C&AG's right to incorporate the audit
 observations in the Report of C&AG of India being laid before parliament/State Legislature.




                                                             (Vidya Bhushai Relan)
                                                        Deputy Accountant General/FAW




        " 4-1/105,
             1T           "f
                          TR,  uTi-248006 "Vaibhav Palace" C-1 /105, Indira Nagar, Dehradun-248006
-q'IW/Phone: 0135-2764215, 4MI/Fax: 0135-2523598-99, - / E-mail agauuttarakhand@cag.gov.in
                                                                                  Annexure-I


DETAIL OF EXPENDITURE INCURRED UNDER UDWDP-II PROJECT
         (CREDIT NO. 53691N) DURING THE YEAR 2015-16

                                                                     (Amount in Z)


 Particulars                                  2014-15             2015-16
 Opening Balance (a)                                 66            10854927
 Fund received from Govt. through             329355861           607640541
 budget (b)
 Fund received directly by project                      Nil                 Nil
 implementing       agency          through
 external assistance(c)
 Beneficiary contribution if any (d)           10011000            26296700
 Total receipts (e) = (a)+(b)+(c)+ (d)        339366927       *   644792168
 Expenditure incurred during financial        328512000           624178400
 year (f)
 Closing Balance (g) = (e)-(f)                 10854927            20613768
 Ineligible expenditure (h)                   139472000           146070000
 Eligible expenditure (i )= (f)-(h)           189040000           478108400
 World bank share (j) =80% of (i)             151232000           382486720




                                                   (Vidya Bhushan Relan)
                                               Deputy Accountant General/FAW
                                   Audit Observations

1.      As per the Para 27 of Project Appraisal Document (PAD) of UDWDP (Gramya II)
project, the IDA (International Development Association) will finance 80% of total project
cost and remaining 20% of project cost will be shared by the State Govt and Beneficiaries in
the ratio of 16.7% and 3.3% respectively in component 2 i.e. Watershed Treatment and
Rainfed Area Development.

       During the certification Audit of UDWDP (Gramya ll) project, it was observed that
during October 2014 to June 2016, the Jalagam Directorate, Uttarakhand had deducted
amount of beneficiary contribution (Z 401.84 lakhs) from project expenditure (Z 3891.25
lakhs) and then claimed 80% of remaining amount (Z 2791.53 lakhs) in Watershed
Treatment and Rainfed Area Development component from IDA which resulted in
reimbursement of lesser amount to the tune ofZ 321.47 lakhs.

       On being pointed out, the Jalagam directorate accepted the fact.

        fience, due to incorrect presentation of claims by the department to IDA, Z 321.47
lakhs (being 80% of beneficiary contribution of Z 401.84 lakhs) remained unclaimed during
the period from October 2014 to June 2016.

2.     As per the rule 56(2) of GFR 2005, the balances at the end of financial year should be
surrendered to government account.

        During the certification Audit for the financial year 2015-16 of UDWDP (Gramya II)
project, it was observed that out of 487 Gram Panchayats, 358 Gram Panchayats have
closing balance of Z 206.13 lakhs in their accounts as on 31.03 2016, which is against the
financial rules.

       On being pointed out the Jalagam ".irectorate replied that the project in GPs was in
planning/demonstration phase and had shortage of multi tasking teams. The
implementation of the project will be started soon.

       The reply is not acceptable because as per financial rules, Z 206.13 lakhs should be
surrendered to government account at the end of the financial year 2015-16.

3.     As per the Chapter 4 (Project Timelines) of Project Operation Manual (POM) of
UDWDP (Gramya 1l), the Gram Panchayat Watershed Development Plan (GPWDP) should be
submitted to DPD/PNGO for approval within 12 months.

        During the certification Audit for the financial year 2015-16 of UDWDP (Gramya II)
project, it was observed that selected 522 Gram Panchayats (GPs) for the UDWDP project,
only 344 GPs started work upto March 2016 and 24 GPs had not prepared their Watershed
Development Plan even after lapse of two years.

        On being pointed out the Jalagam directorate replied that out of 522 GPs, due to
disputes and workfalling under other projects' areas, the Watershed Treatment will be
carried out only in 510 GPs and only 498 GPs had prepared their GPWDPs and 344 GPs had
started works as per their GPWDPs.
           The reply is not acceptable as 178 GPs had not started Watershed Development Plan
 so far.

 4.      As per the Para 11.8 of POM of UDWDP (Gramya 1l), the bio-agents, bio-fertilisers,
 medicines and vaccines should be purchased from approved government agencies for
 demonstration and encouragement to adopt new technology of farming to get greater yield
 of crops.

         During the certification Audit for the financial year 2015-16 of UDWDP (Gramya Il)
 project, it was observed that an expenditure of Z 84.74 lakhs was carried out on purchase of
 medicines, Bio-agents and Bio-fertilisers by the various divisions from private firms, without
 assuring quality and authorisation of firms.

         On being pointed out the Jalagam directorate replied that the medicines, bio-agent
and bio-fertilisers were purchased from licensed suppliers and the Bio-agents and Bio-
fertilisers were purchased from supplier firms authorised by original productive firms.

       The reply is not acceptable because the auditee did not provide any evidence for
authorisation and testing report of medicine, bio-agents and bio-fertilisers.

       Hence, purchase of medicines, bio-agents and bio-fertilisers of Z 84.74 lakhs was not
in consonant with medical and departmental provisions.

5.     As per the Public Works Department, Uttarakhand Schedule of Rates 2010, the
labour rates of one labourer with one mule is Z 310.00 and for extra mule Z 170.00 (total
Z 480.00) per day.

        During the certification Audit for the financial year 2015-16 of UDWDP (Gramya ll)
project, it was observed that various divisions had paid Z 380.00 per day to a man with
mule, which is Z 70.00 more than the rates specified in PWD Schedule of Rate 2010.

       On being pointed out the Jalagam directorate replied that as per Superintending
Engineer, 9th Circle, PWD Dehradun letter dated 03rd May 2008, the rate of man with mule
was revised as Z 380.00 per day.

     The reply was not acceptable as the letter dated 0 3 rd May 2008 referred to by
management stood superseded by the Schedule of Rates 2010.

         Hence, Jalagam directorate paid in excess of Z 70.00 per day per man with mule. As
the bills and payments records in this regard were voluminous, it was not possible for audit
to work out the total amount of overpayment.

6.     As per the Para 11.8 of POM of UDWDP (Gramya 1l), the bio-agents, bio-fertilisers,
medicines and vaccines should be purchased from approved government agencies and
disseminate technology, quality seeds and seedlings as per para number 17 of PAD.
        During the certification Audit for the financial year 2015-16 of UDWDP (Gramya II)
project, it was observed that an expenditure of Z 169.78 lakhs was carried out on purchase
of seeds and seedlings by the various divisions from private firms, without assuring the
hybrid quality, certificate of quality checks & expiry date etc.

       On being pointed out the Jalagam directorate replied that the seeds and seedlings
medicines were purchased from supplier firms authorised by original productive firms.

       The reply is not acceptable because the auditee did not provide letter of
authorisation and quality checks report etc. of seeds and seedlings by the suppliers.

       Hence, an expenditure of Z 169.78 lakhs in purchase of seeds and seedlings were not
in consonant with medical and departmental rulings.

7. - As per the Regulations of Act, Minerals are classified into two groups, namely major
minerals and minor minerals. They include stones, gravel, ordinary clay, ordinary sand, lime
stone, boulders, kankar etc. which may be extracted in specified quantity within stipulated
period after getting permission and payment of royalty.

         During the certification Audit for the financial year 2015-16 of UDWDP (Gramya II)
project, it was observed that the various divisions of the project are not paying the royalty
for extracting the minor minerals, which were used to make village ponds, check dams,
irrigation channels, bridle path and animal shelter etc.

        On being pointed out the Jalagam directorate replied that the deductions of royalty
will be made from the bills in future.

8.    As per the para 7.1 (4) of CPWD Works Manual 2014, the payments to contractors
and others for the work done or other services rendered are made on the basis of
measurements recorded in the Measurement Book.

        During the certification Audit for the financial year 2015-16 of UDWDP (Gramya II)
project, it was observed that both PNGOs of the project have paid an amount of Z 4.65 lakh
for wall writing and slogan writing in various gram panchayats, but the unit had not made
any MBs for the work done and rate were not fixed.

       On being pointed out the Jalagam directorate replied that the work was carried out
on account of advertisement of the project and presented the details of villages, where the
work was done.

      The reply was not acceptable as the MBs was not prepared and verified by the
competent authority and the payment was done without MBs.

       Hence, an amount of Z4.65 lakh was incurred without proper MBs.
9.     As per previous audit observation for the financial year 2014-15, the expenditure
from June 2013 and onward was admissible for the project under retro-period. It was
noticed that Bageshwar and Pithoragarh divisions had charged operating expenditure of Z
1.84 lakh incurred before June 2013 (before retro-period) on this project in the months
02/2014 and 03/2014 without the approval of Uttarakhand Govt and IDA.

       On being pointed out, the Jalagam directorate replied that expenditure of Z 1.84 lakh
was incurred for the preparation of UDWDP (Gramya II) but didn't produce any evidence.

       The reply is not acceptable as the expenditure yd spertained to the period prior to
June 2013 (the specified retro period).

       Hence, audit observation of 2014-15 is still stands.

10.    During the scrutiny of records i.e. Stock registers (D-2 & D-4), Cash Books and other
records of WMD and various divisions, it is observed that:

       i)     The total number of items, number of items disbursed and number of items
       at balance under a particular category and location of asset was not ascertainable
       from the stock registers.

       ii)    Annual physical verification of assets was also not conducted by the WMD
       and divisions during financial year 2015-16.

       iii)     In divisions and units, the seal of "Paid and Cancelled" was not marked on
       bills after payments to avoid duplication.

       iv)   Cash books of divisions and units were not closed by the DDO at the end of
       each month.

       (v)     Overwritings/corrections in cash books were not verified by the competent
       authorities.




                                                            (Vidya Bhushan Relan)
                                                        Deputy Accountant General/FAW