I 4i Lj-j 2i, FINANCIAL ATTEST AUDIT REPORT ON THE ACCOUNTS OF PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT PLANNING & DEVELOPMENT DEPARTMENT GOVERNMENT OF THE PUNJAB INTERNATIONAL DEVELOPMENT ASSOCIATION (CREDIT NO. 5153-PAK) FOR THE FINANCIAL YEAR 2014-15 AUDITOR GENERAL OF PAKISTAN TABLE OF CONTENTS Page No ABBREVIATIONS & ACRONYMS I PREFACE PART- 4 PROJECT OVERVIEW 5 AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) 6 FINANCIAL STATEMENTS 7 PART-1I 20 MANAGEMENT LETTER 21 EXECUTIVE SUMMARY 2 1. Introduction 25 2. Audit Objectives 27 3. Audit Scope and Methodology 27 4. Audit Findings and Recommendations 27 4.1 Organization and Management 27 4.2 Financial Management 30 4.3 Contract Management 42 4.4 Construction and Works 48 4.5 Asset Management 59 4,6 Monitoring and Evaluation 59 4.7 Compliance with Grant/ Loan Covenants 59 4.8 Environment 60 4.9 Sustainability 60 4.10 Overall Assessment 60 5. Conclusion 61 ACKNOWLEDGEMENT 62 ABBREVIATIONS AND ACRONYMS ADP Annual Development Plan CDG City District Government CPUs City Program Units DA Development Authority DCO District Coordination Officer DFR Departmental Financial Rules DLls Disbursement Linked Indicators EE? Eligible Expenditure Program EIA Environmental Impact Assessment FDA Faisalabad Development Authority FY Financial Year GDA GuJranwala Development Authority GoPb Government of Punjab HPMO lHead Project Management Office IPSAS International Public Sector Accounting Standards ISSAl International Standards of Supreme Audit Institutions IDA International Development Association IFR Interim Financial Report LDA Lahore Development Authority LPF Low Power Factor M&E Monitoring and Evaluation MDA Multan Development Authority MRS Market Rate System MNITBF Mid-Term Budgetary FramewArk NOC No Objection Certificate O&,M Operation and Maintenance OSR Own Source Revenue PAO Principal Accounting Officer PCGIP Punjab Cities Governance Improvement Project P&DD Planning and Development Department PDO Project Development Objective PFM Public Financial Management PFMAA Public Financial Management and Accountability Assessment PFM-PR Public Financial Management - Performance Report RDA Rawalpindi Development Authority SC Steering Committee SDAC Special Departmental Accounts Committee IL SOP Standard Operation Procedures TA Technical Assistance UIPT Urban Immoveable Property Tax USPMSU Urban Sector Planning and Management Services Unit (Private) Limited WASA Water and Sanitation Agency W&S Works and Services WB World Bank I PREFACE The Auditor General conducts audit under Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan 1973, read with section 7 of the Auditor General's (Functions. Powers, Terms and Conditions of Service) Ordinance, 2001.The financial attest of the accounts for the financial year 2014-15 of "Punjab Cities Governance Improvement Project IDA Credit No. 5153-PAK" was accordingly carried out in respect of Component-I for WASAs. CDGs and Component-2 for Technical Assistance. Three field audit offices i.e. Directorate General of Audit Works (Provincial), Lahore, Directorate General Audit District Government (North) and Directorate General Audit District Government (South) conducted audit of the project for the financial year 2014-15 in August and September 2015 with a view to express opinion on Financial Statements and report significant findings to the management. Audit examined the economy, efficiency. and effectiveness aspects of the 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 Report indicates specific actions, if taken, will help the management to realize the objectives of the project in a more effective manner. The Report consists of two parts. Part-I contains Auditor's Report (Audit Opinion) and Financial Statements. Part-II contains Management Letter, Executive Summary and Audit Findings. The Report has been prepared for submission to the World Bank in terms of its Financing Agreement of the project. Dated: 23.12.2015 (IJAZ ANSOOR MALIK) Place: Lahore DIR TOR GENERAL AUDIT WORKS (PROVINCIAL) LAHORE PART-I 1. PROJECT OVERVIEW 2. AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) 3. FINANCIAL STATEMENTS 4 PROJECT OVERVIEW Name of the Project Punjab Cities Governance Improvement Project Sponsoring Authority i. World Bank (IDA) ii. Government of the Punjab Executing Agency Urban Sector Planning &Management Services Unit (USPMSU), P&D Department Loan No. IDA No. 5153-PAK Project Cost Rs 14,574 million (USS 154.00 million) Date of Signing Contract Agreement 10th December, 2012 Date of Commencement 14th February, 2013 Actual Date of Commencement 14th February, 2013 Date of Completion (as per agreement) 30th June, 2017 Loan Closing Date 30th June, 2017 Loan Utilization Status for Component I for Works S Services Department, CDG, WASAs and Component 2 for Technical Assistance in 2014-15: i. World Bank (IDA) Share Rs 2,870.320 million 1. Punjab Government Share Rs 6.009.966 million Total Amount for the year Rs 8,880.286 million Progressive Expenditure up to June 2015 Rs 16,042.879 million 5 AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) I-h Directorate General of Audit Works (Provincial). Directorate General Audit District Government (North) and Directorate General Audit District Government (South) audited the accompanying tinancial staterments of Punjab Cities Governance Improvement Project IDA Credit No. 5153-PAK (PCGIP) in respect of Component-i for Works & Services Department- CDG. WASAs and Componen-2 for Technical Assistance that comprises of Receipts and Payments. Statement of Comparison of Budget and Actual together with the notes forming part thereof for the year ended on 30'k lunc 2015. It is tle responsibility of the project management to establish and maintain a system of internal control. and prepare and present [he Statement of Receipts and Payments in conformity with the requirements of Cash Basis IPSAS. Financial Reporting under the Cash basis of Accounting Standard. The responsibility of auditor is to express an opinion on the financial statements based on the audit conducted. Audit was conducted in accordance with the International Standards of Supreme Audit Institutions (ISSAI). These standards require to plan and perform the audit to obtain reasonable assurance that the tinancial statements are free of material misstatements. The audii process includes examining. on a test check basis. evidence supporting the amounts and disclosures in the tinancial statements. It also includes assessing the accounting principles used and significant estimates made by the management. as well as evaluating the overall statement a presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion. a) The financial statements present fairly, in all material respects, the cash receipts and payments by the project for the year ended 301" June, 2015 in accordance with Cash Basis IPSAS. Financial Reporting Under the Cash Basis of Accounting Standard. 1i) The expenditure has been incurred in accordance with the requirements of legal avreement. Dated: 23. 12.2015 (IJAZ/ANSOOR MALIK) 'lace: [ahore DIR TOR GENERAL AUDIT WORKS (PROVINCIAL) LAHORE 6 FINANCIAL STATEMENTS PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT IDA Credit No. 5153-PAK FOR THE YEAR ENDED 30 T11 JUNE, 2015 Page No. i. Statement of Receipts and Payments 08 ii. Statement of Comparison of Budget and Actual Amounts 09 iii. Notes to the Financial Statements 10 I , i'ипjаiг Citics Gor•erna[ьсе �rnptavrmcпt Projeг[ ' Statemcnt of Reгcipss апд Раутсп[s for thc �'car cnScd ЭП lипе 2Q1; tiuгr 2U14_15 21}F3-14 • � GдPunj:iU i 1дА Reeripг: 7}ьiгй Party Т:,гаI GaF'unjдU 1 SpA йе[ci}ь[s Third I'аг[у 7vьа1 [1SR {Рд}'глсп[s] Payntei�гs �$R (Paymcnts} Fa}'глсп[s . бuci�,ciarv Cpntrpliгд h}� Budgctary Срппоllсд Ьу 1 аЭ1lаса:io-пз Prajccг a1Эfo�lfions Prajecг Fг�емг•г.= PiR Rupces in T1wыsands �хг:ьпиi �L:;:iSьаь,�с•Е5иslееь:и-�• �Эi[ocafions 5 7,8Q5,UG] 3,3'J�.GUU - 1l.?[10.бG7 G,877,t93 �,G02,71; - 9,5U�,3TQ � Сп�пг�:ИwгтFыпд;fе2 G Sii[ь.737 . - 1vКi,4i7 1г}гiilПi7 - 1GU.G60 '1-urai lгcгciь,ts ';]иГг,и[!4 3.395.f0U - 11,31ь1,6u,i 6,977.tiU3 :,49:.717 9,бд0,3:П !'avмrr.гs гптрп+�еггг t- f•гrГг.�гпннг� с���=� и R'агьц sг ьvиrгrrs AcnЛrtгnrnl. 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Audit Works Proviriciai, Lahor� с��ь�� �tлi �1�L a�f�C�� ilrpan 5гс!�г �kan , Лanagement i 5crviceSlЭrit �Рпьаtе} Limыг ' < р5,р Dey,�rlтвп[, Go�t. of Раггjаб . л Punjab Cities Governance Improvement Project Notes to the Financial Statements For the year ended 30 June 2015 I-Reporting Entity The financial statements are for PunJ1ab Cities Governance Improvement Project. The financial statement encompasses the reporting entity as defined in the Financing Agreement between the Islamic Republic of Pakistan and the World Bank. The Financing Agreement was signed on 10/12/2012 for an arnount of SDR 99.5 million, equivalent to US S 150 mi Ilion. The project became effective from 14/02/2013 with the closing date of 30/06/2017. The objective of Punjab Cities Govemance Improvement Project is to support the Province of PunjaVs cities in strengthening systems for improved planning, resource management, and accountability, and to improve the Province Of Punjab's capacity to respond promptly and effectively to an Eligible Crisis or Emergency. The project is implemented through Planning & Development Department of The Government of Punjab. The financing is made in the form of credit based on standard World Bank terms, with a maturity of 20 years. The financing agreement No is Credit Cr. 5153- PAK. The project implementation agencies are EDO W&S of CDGs and WASAs of Lahore, Gujranwala, Faisalabad, Rawalpindi and Multan. 2- Certification by Project Management on Application of Funds The Punjab Cities Governance Improvement Project management certified that tile funds C, have been applied / expenditure has been incurred for the purposes intended in the financing agreement. 3- Accounting Convention and Statement of Compliance The financial staternents have been prepared in accordance Nvith Cash Basis IPSAS Financial Report ing under the Cash B asis o F Accountin g. 4- Significant Accounting Policies 4.1- Foreign Currency Transaction Cash receipts and payments arising from transactions in foreign currencies are recorded in Pak Rupee by applying to the foreign currency amount., the exchange rate between the Pak Rupee and the foreign currency at the date of the receipt and paNinents. Exchange differcnc(;s arising on the settlement of these transactions are reco-nised in the statement of Receipts and C7 Payments. 4.2- Reporting Currency All amounts in the financial statements are in Pak Rupees. 4.3- Revenue Recognition Revenue is recognised on the date of receipt of money by bank or the clearance of cheque. Revenue is recognised on Gross basis and unrelated costs are recorded separately. 4.4- Recognition of Expenditure Expenditure is recognised on the date when payment is made or cheque is issued. Financial year to which the payments pertain is determined by the date on which a cheque or payment advice is issued. 4.5- Employee Terminal Benefits Service benefits of government deputation employees are accounted for in their respective departments while no service terminal benefits are paid to contractual employees. 4.6- Payments by Third Party The payments made by the third parties do not constitute cash receipts and payments controlled by the project but do benefit the project as project does not receive cash (including cash equivalents) directly from, or gain control of the bank accounts or similar facility established for its benefit by, the third party. Payments by third parties, if any, are disclosed in the payments by third parties column on the face of Statement of Cash Receipts and Payments and notes to the financial statements. 5- External Assistance External assistance was received in the form of credit from the World Bank under financing agreement dated 10/12/2012 between the World Bank and Government of Pakistan (GOP) for the purposes of Punjab Cities Governance Improvement Project. The following amounts were received by the project during the period. Receipts Amounts in millions 2014-15 2013-14 Note US Pak Rupees us $ Pak Rupees SOE Procedures (External Assistance) 5.1 29.080 2858.567 26.720 2627.100 Direct Payments 5.2 0 0 0 0 Total Receipts 29.080 2858.567 26.720 2627.100 5.1- This represents funds transferred to the Punjab Cities Governance Improvement Project's designated US Dollar Bank Account by the World Bank on the basis of withdrawal applications submitted by the project. 5.2- Direct payments represent amount paid directly by the World Bank on behalf of the project in respect of goods and services procured / imported by the project. The payments were made on the basis of the withdrawal applications submitted by the project. 2[Page 5.3- There has been no instance of non compliance with the terms and conditions of the financing agreement between the World Bank and GOP which have resulted in cancellation of the credit. 5.4- Undrawn External Assistance Undrawn credit on the reporting date represent amounts specified in the financing agreement between the World Bank and GOP that the World Bank will disburse for Punjab Cities Governance Improvement Project purposes. 6- Counterpart Funds Receipts Note Rupees in millions 2014-15 2013-14 UsS Pak Rupees us S Pak Rupees Counterpart Funding 6.1 0850 8,000 1 000 100.000 Total Receipts 0.850 85.000 1.000 100.000 6.1- This represents funding to the Punjab Cities Governance Improvement Project by the Government of Pakistan as agreed between the World Bank and GOP. 7- City wise breakup of payments. The city wise detail of the funds utilized by EDO W&S of each city is represented in the following table. Table 7a (i)- City wise breakup of payments made by EDO W&S of CDGs from IDA funds. Table 7a (i) Rs in Millions Eligible Expenditure Lahore Faisalabad Rawalpindi Multan Guiranwata Total Programs Transport A130 37.475 0.000 0.645 0.000 0.000 38.120 Machinery & A131 7.641 0.000 0,000 0.000 0,000 7.641 equipment Buildings & A133 26.380 27.000 1.411 0.000 10.698 65.489 structures Roads&streets A136 231.045 306.877 215,317 190.183 173.139 1116.561 Utilitics (Electricity, gas A033 0.000 0.000 0.000 0.000 0.000 0.000 & water) Total 1227.811 3| Page Table 7a (ii)- City wise breakup of payments made by EDO W&S of CDGs from GoPb/ OSR Budgetary Allocations. Table 7a (i) Rs in Millions Eligible Expenditure Lahore Faisalabad Rawalpindi Multan Guiranwala Total Programs Transport A130 6.859 0.486 0.097 0.244 0148 7.834 Machinery A131 23.870 0.380 0.012 0.169 0.032 24.463 equipment Buildin-s& A133 104,067 91.079 22.210 21.677 12.354 251.387 structures Roads & streets A136 304.441 462.554 9.676 36.807 175.418 988.896 Utilities (Electricity, gas A033 36.005 0.593 0.793 3.951 0.434 41.776 & water) Total 1314.3S7 Table 7b (i) - City wise breakup of payments made by WASAS from IDA funds. Table 7b (i) Rs in Millions Eligible Expenditure Lahore Faisalabad Rawalpindi Multan Guiranwala Total Programs Water supply system 7.512 46.679 158.736 12.966 33.776 259.669 Drainage system 116.837 191.184 4.985 200.070 119.651 632.727 Purchase of maintenance 246.192 2.617 0.000 11.579 17.1 stores 09 277.497 Power and energy 99.999 82.860 57.241 44.161 55.240 339.501 Total 1509.394 4|P age Table 7b (ii) - City wise breakup of payments made by WASAs from GoPb/ OSR Budgetary Allocations. Table 7b (ii) Rs in Millions Eligible Expenditure Lahore Faisalabad Rawalpindi Multan GuIranwala Total Programs Giawl __ Water supply system 73.903 10,725 319.222 6.262 10.251 420.363 Drainage system 54.328 3.610 34.734 79.838 22.945 195.455 Purchase of maintenance 27.843 3.271 1.500 0.000 1.128 stores 33.742 Power and energy 2600.156 493.554 400.888 326.487 124.039 3945.124 Total i4594.683 5 Page A4 The detail of the payments made for technical assistance is shown as following. Table 7c- Breakup of expenditure on technical assistance. Table 7c Rs in Millions 2. Technical Assistance 1.885 Machinery & Equipment 3.783 Furniture & Fixture Consultancies for DLIs 12.330 Non Consulting Services 89.372 Non Consulting Services - UIPT Automation 5.597 Salaries and salary supplements 85.005 Office Supplies 5,348 Communications& Mass Media 0.115 Printing & Publication 1.886 Telephone & Internet 4.658 Utilities 4.755 Operation & Maintenance (R&M) 2.454 Office Space Rental 4.524 Vehicle Rental & Transportation 3.796 POL for Vehicles 2.208 Travel & Lodging (TA/DA) 2.351 Conferences & Workshops 2.625 Advertisement & Publicity 1.286 General Trainings 0.061 Total Component-2 (TA) 234.041 6 Page 16 8- Project approval The Punjab Cities Governance Improvement Project has been approved by EAD. 9- Authorisation of Issue These financial statements have been authorised for issue by the Project Director on 11/09/2015. 10- General Figures have been rounded off to the thousands. Projec tor CHIEF INANG LOFFICER Urban Sect rPlanning Management Services it (Privat )Limited P&D Departme of Punjab 7 oI