AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENTS OF TRANSPORT INFRASTRUCTURE AND CONNECTIVITY PROJECT - CREDIT NUMBER 6151-LSL MINISTRY OF PUBLIC WORKS AND TRANSPORT FOR THE YEAR ENDED 31 MARCH 2019 I I TRANSPORT INFRASTRUCTURE AND CONNECTIVITY PROJECT I I MINISTRY OF PUBLIC WORKS AND TRANSPORT I I ~ FINANCIAL REPORTS FOR THE YEAR ENDED 31ST MARCH 2019 TRANSPORT INFRASTRUCTURE AND CONNECTIVITY PROJECT MINISTRY OF PUBLIC WORKS AND TRANSPORT GOVERNMENT OF LESOTHO IDA CREDIT NO. 61510-LS FINANCIAL REPORTS FOR THE YEAR ENDED 31ST MARCH 2019 TABLE OF CONTENTS Approval of the Financial Report 1 Report of the Auditor General 2-5 IDA Statement of Sources and Uses of Funds - LSL 6 IDA Statement of Sources and Uses of Funds - USD 7 Statement of Budget vs Actual - LSL 8 Statement of Budget vs Actual - USD 9 Notes to and forming part of the Financial Report 10-12 TRANSPORT INFRASTRUCTURE AND CONNECTIVITY PROJECT MINISTRY OF PUBLIC WORKS AND TRANSPORT GOVERNMENT OF LESOTHO IDA CREDIT NO. 61510-LS FINANCIAL REPORTS FOR THE YEAR ENDED 31ST MARCH 2019 Approval of the Financial Report by the Ministry The annual Financial Report of the Transport Infrastructure and Connectivity Project, Ministry of Public Works and Transport is the responsibility of the Ministry. The Ministry fulfils the responsibility by establishing and maintaining accounting systems and practices that are adequately supported by sound internal controls. These controls provide assurance that the Project's assets and liabilities are safeguarded, that the transactions are executed in accordance with management's authorization and that the financial records are reliable. The Fiancial Reports have been prepared by management in accordance with recognized accounting statandards and in compliance with the Funder's guidelines. The Financial Reports have been prepared on those bases. The accompanying Financial Reports as set out on page 6-9 wer approved by the Ministry on 27h September 2019 and signed off by responsible senior persons on its behalf by: Project Coordinator Principal Secretary Transport Infrastructure & Ministry of Public Works & Connectivity Project Transport REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS OF TRANSPORT INFRASTRUCTURE AND CONNECTIVITY PROJECT - (TICP) MINISTRY OF PUBLIC WORKS AND TRANSPORT CREDIT NUMBER 61510 FOR THE YEAR ENDED 31 MARCH 2019 Opinion I have audited the financial statements of Transport Infrastructure Connectivity Project (the Project) set on pages 6 to 12, which comprise the Statement of Source and Use of Funds Statements as at 31 March 2019, consolidated Receipts and Payments statements, Statement of Budget versus Actual Expenditure for the year then ended, and a summary of significant accounting policies and other explanatory notes. In my opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Project as at 31 March 2019, and its financial performance and its cash flows for the year then ended in accordance with International Public Sector Accounting Standards (IPSASs). Basis for Opinion I conducted my audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs). My responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Organisation in accordance with the ethical requirements that are relevant to my audit of the financial statements in Lesotho, and I have fulfilled my other ethical responsibilities in accordance with these requirements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. * 2 Key Audit Matters Key audit matters are those matters that, in my professional judgment, were of most significance in my audit of the financial statements of the current period. There were no key matters identified during the course of audit. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IPSASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A3 As part of an audit in accordance with ISSAIs, I exercise professional judgment and maintain professional skepticism throughout the audit. I also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material * misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. . Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in 4 internal control that I identify during my audit. I also provide those charged with governance with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. I describe these matters in my auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. OFFICE OF THE AUD TOR-GENERAL AUDITOR GENERAL 2 7 SEP P0. BOX 502 MONICA BESETSA (MS) DATE: FOR AUDITOR-GENERAL * Lesotho Transport Infrastructure& Connectivity Project Lesotho STATEMENT OF SOURCES AND USES OF FUNDS OR THE YEARS ENDED 31 MARCH 2019 Lesotho Loti (LSL) IDA 61510 Year 2018-2019 Year 2017-2018 ProjectTDActuals Actual(LSL) Actual (LSL) (LSL) * Opening Balances ___ USD Designated Account - Central Bank 6190160 9762646 USD Designated Account - Standard Lesotho Bank 26 676 652929 Total Opening Cash 6216836 10415 575 Sources of Funds International Development Association 27 590 554 - 38382554 Total Financing 33807391 10415575 38382554 Construction of footbridges125474 Consulting services for an assessment study for OPRC methods 5656787 167209 5823997 Consulting services to prepare design & ESIA of footbridges 1 638 226 1 315 833 3 108 393 Consulting service ESIA of additional footbridges (16) 37 183 37183 Deployment of Road Accident Data Management system 44957 44957 Provision of road safety equipment to RSD and Traffic police 1 074 789 - 1 074 789 Training and capacity building RSD of MoPWT and NRSC 248 549 248 549 E stablishment of LITIS - 152842 372729 I Consulting services for needs assess & LITIS system specs 316 316 - 316316 Consultancy services to prepare National Transport M/plan 29065 29065 Project implementation support to the MoPWT and RD _ _ _ Support in impl of citizen eng. mechanisms & HIV/AIDS & g.ac 2580 2580 Capacity building and training to the staff of RD, RF MOPWT 2 824 002 2824002 TA on community-based microenterprises for maintenance 20463 20463 1 07 745 788 439 2596 184 Communication 3000 - 3000 Software licenses 634 405 - 634 405 Printing & Stationery 89343 - 89343 Bank charges 25805 15 114 43 123 Travel & Accommodation 8536 9006 17542 Workshops, Seminars & Training 27 13 1544 16 1 9r,204 Meetings & Refreshments 44 183 50048 94231 Audit Fees 33 062 - 33 062 Office Equipment -1207 1 852078 Total Expenditure 14701606 4198738 19276769 Net Funds Available 19105785 6216837 19105785 I Closing Cash Balances USD Designated Account - Central Bank (Reconciled to Bank Statement) 18 817 727 6 190 160 18 817 727 USD Designated Account - Standard Lesotho Bank (Reconciled to Bank 288 058 288 058 Statement) 26 676 Total Closing Cash 19 105 785] 6216836 19105785 6 I Ii Audtvit Project - Lesotho SoURCES AND USES OF FUNDS for the Yearended 31st1March 2019 Year 2019 Year finishing at 31/03/2019 USDollars (USD) IDA 1510Year 2018- Year 2017- Project Y-T-D 2019 2018 Opening Balances 442 535 723 695- USD Designated Account - Central Bank 1936 48401 USD Designated Account - Standard Lesotho Bank 444471 772096 Total opening Cash Sources of Funds 2 137 821 - 2 937 821 International Development Agency 2582 293 772 096 3 382 293 Total Financing Uses of Funds by Project Component 8959 8 959 Construction of footbridges 406012 930 453 570 Consulting services for an assessment study for OPRC methods 124671 101315 237 427 Consulting services to prepare design & ESIA of footbridges 2 721 - 2 721 Consulting service ESIA of additional footbridges (16) 3 344 3 344 Deployment of Road Accident Data Management system7720-721 Provision of road safety equipment to _RSD and Traffic police 7716 412101 Training and capacity building RSD of MoPWT1 and N RSC 141 3302 3 Establishment of LITIS 26 6763 2667 Consulting services for needs assess & LITIS system specs 26196219 Consultancy services to prepare National Transport M/plan 213-29 Project implementation support to the MoPWT1'and RD 21 218 Support in impl of citizen eng. mechanisms & HIV/AIDS & g.ac 1 99419799 Capacity building and training to the staff of RD, RF MOPWT 172894 17284 TA on community-based micro enterprises for maintenance 1928867023 1958 Salaries & Allowane 2028 3 U 202 9 Communication 200 27 00 Software licenses 47 546 47546 Printing & Stationery 195 1 1825428 Bank charges 13 7452 1466 Travel & Accommodation -73119 702 12680 Workshops, Seminars & Training 316057 19 7 74480 Meetings & Refreshments 23 413 27223 Audit Fees 222 12 5722 57 Office Equipment 1 101927 6 12642 Total Expenditure 141994 4442712 14734199 Net Funds Available1439 Closin Cash Balance 4 3 5 3 USD Designated Account - Central Bank (Reconciled to Bank Statement) 1 453 036 4255S3 6 USD Designated Account - Standard Lesotho Bank (Reconciled to Bank 20131936 2 6 Statement) 139 444714319 JTotal Closing Cash 447 7 Lesotho Transport Infrastructure & Connectivity Project - Lesotho STATEMENT OF BUDGET vs ACTUAL FOR THE YEAR ENDED 31 MARCH 2019 Lesotho Lot (LSL) IDA 61510 I Project T-D Year2018-2019 Year2017-2018 Actuals Budget (LSL) Actual (LSL) Variance (LSL) Actual (LSL) (LSL) Opening Balances USD Designated Account - Central Bank 6190160 6190160 - 9762646 USD Designated Account - Standard Lesotho Bank 26676 26676 - 652 929 Total Opening Cash 6216836 6216836 - 10415575 Sources of Funds International Development Association 61924 733,10 27 590 554,38 34 334 178,72 - 38 382 554,38 Total Financing 68 141 569,53 33 807 390,81 34 334 178,72 10 415 574,77 38 382 554,38 Uses of Funds by Project Component Construction of footbridges 22521450 125 474 22395976 - 125 474 Consulting services for an assessment study for OPRC methods 13 021736 5656787 7364949 167209 5823 997 Consulting services to prepare design & ESIA of footbridges 2 144900 1638226 506674 1315833 3108393 Consulting service ESIA of additional footbridges (16) 1205000 37183 1167817 37103 Deployment of Road Accident Data Management system 1807500 44957 1762543 44957 Provision of road safety equipment to RSD and Traffic police 2410000 1074789 1 335211 1074789 Training and capacity building RSD of MoPWT and NRSC 1205000 248549 956451 248 549 Establishment of LITIS - - 152842 372 729 Consulting services for needs assess & LITIS system specs 3615000 316316 3 298 684 316 316 Consultancy services to prepare National Transport M/plan 2410000 29065 2 380935 - 29065 Project implementation support to the MoPWT and RD 3 012 500 - 3012 500 Support in impl ofcitizen eng. mechanisms & HIV/AIDS & g.ac 602 500 2580 599 920 - 2 580 Capacity building and training to the staff of RD, RF MOPWT 3615000 2824002 790998 - 2824002 TA on community-based microenterprises for maintenance 1 446 000 20 463 1425 537 - 20 463 Salaries & Allowances 1952 100 1 807 745 144 355 788 439 2596 184 Communication 36150 3000 33 150- 3000 Software licenses 572 375 634405 62030 - 634 405 Printing & Stationery 24582 89343 64761 89343 Bank charges 36150 25805 10 345 15 114 43 123 Travel & Accommodation 36150 8536 27614 9006 17542 Workshops, Seminars& Training 162675 37135 125540 1 549169 10s1304 Meetings & Refreshments 21690 44183 22493 50048 94231 Audit Fees 66 275 33 062 33 213 33 062 Office Equipment . 152078 152078 Total Expenditure :61924 733 14 701 606 47223 128 4198738 19276769 Net Funds Available 1915785 6 216837 19105785 IRepresented By: 0SD Designated Account - Central Bank (Reconciled to Bank Statepnrl1 8172 6190 160 18817727 UDDesignated Account - Standard Lesotho Bank (Reconciled to 288 058 26676 288058 Bank Statementl TotalI Closing Cash 19105785 6163 Rj11078 I I I Lesotho Transport Infrastructure & Connectivity Project - Lesotho STATEMENT OF BUDGET vs ACTUAL FOR THE YEARS ENDED 31 MARCH 2019 Year finishing at 31/03/2019 US Dollars (USD) IDA 61510 Year 2018-2019 Year 2017- Project T-D Year 2018-2019 _2018 Actuals Budget (US$) Actual (USS) Variance (US$) Budget (US$) Actual (US$) Variance (US$) (US$) Opening Balances USD Designated Account - Central Bank 442535 442535 - 723695 723695 USD Designated Account - Standard Lesotho Bank 1936 1936 - 48401 48401 Total Opening Cash 444471 4444711 772096 772096 Sources of Funds International Development Association 5 138982 2 137821- 3 001161 11532944 - 11532 944 2 937821 Total Financing 5 583 453 2582293. 3 001161 12305040 772096 - 11532944 2937821 UsesofFunds Construction of footbridges 1 869000 8959 1860 041 3400000 - 3400000 8959 Consulting services foran assessment study for OPRC methods 1080642 440640 640 002 1500000 12930 1487070 453 570 Consulting services to prepare design & ESIA of footbridges 178000 124671 53 329 200000 101 315 98685 237427 Consulting service ESIA of additional footbridges (16) 100 000 2 721 97279 - - 2 721 Deployment of Road Accident Data Management system 150 000 3 344 146 656 400000 400000 3344 Provision of road safety equipment to RSD and Traffic police 200000 77210 122790 200000 - 200000 77210 Training and capacity building RSD of MoPWT and NRSC 100000 16412 83588- - - 16412 Establishment of LITIS - - - 3500000 11330 3488670 27630 Consulting services for needs assess & LITIS system specs 300000 26676 273 324 - 26676 Consultancy services to prepare National Transport M/plan 200 000 2 193 197 807 1666666 - 1666 666 2 193 Project implementation support to the MoPWT and RD 250 000 - 250000 - - Supportinimplofcitizenengmechanisms&HIV/AIDS&g.ac 50000 218 49782 200000 - 200000 218 Capacity building and training to the staff of RD, RF M OPW T 300 000 197 994 102 006 - - - 197 994 TA on community-based microenterprises for maintenance 120 000 1728 118272 - - - 1728 Salaries &Allowances 162000 139488 22 512 277778 63 706 214072 203 195 Communication 3000 202 2 798 - - _ 202 Software licenses 47500 47500 - 90000 - 90000 47 500 Printing & Stationery 2040 7546k- 5 506 - - 7546 Bank charges 3000 1935 1065 2000 1182 818 260 Travel & Accommodation 3000 721 2279 1500 745 755 166 Workshops, Seminars & Training 13500 3107 10393 70000 119702 - 49702 229 Meetings & Refreshments 1800 3605 - 1805 5 000 4139 861 7 7 4 Audit Fees 5500 2 223 3277 - - 2 2 2 Office Equipment - - - 20000 12576 7424 12 576 Total Expenditure 5138982 1109094 4029888 11532944 327625 11205319 1464622 Net Funds Available 444471 1473199 1028728 772096 444471 327625 1473199 Represented By: USD Designated Account - Central Bank (Reconciled to Bank Statementl 13 1936 145303 USD Designated Account - Standard Lesotho Bank (Reconciled to Bank Statementl 20 163 1936 20 163 Total Closing Cash 1473199 444471 1473199 9 NOTES TO AND FORMING PART OF THE ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED 31ST MARCH 2019 1. General information The name of the project is called Transport Infrastructure and Connectivity Project (TICP). The Project Development Objectives are to (a) improve access to social services and markets in targeted rural areas of Lesotho, (b) strengthen road safety management capacity, and (c) improve the Recipient's capacity to respond promptly and effectively to an Eligible Crisis or Emergency. The components of the Project are (1) Improving Infrastructure Access (USD9.2M), (2) Improving Road Safety (USD4.4M), (3) Institutional Strengthening Support to the Transport Sector (USD4.7M) and (4) Contingency Emergency Response Component (USDO.00). The Project is financed under the Credit Agreement Number 61510-LS which became effective on 27 December 2017 and the end date is 31 December 2023. This funding is a loan to the Government of Lesotho amounting to USD18,300,000. 2. Accounting Policy/Basis of Preparation These financial statements have been prepared in accordance with the International Public Sector Accounting System (Cash Basis IPSAS). These financial statements have been prepared under the historical cost convention. The Cash Basis IPSAS prescribes the manner in which general purpose financial statements should be presented using the cash basis of accounting. The Cash Basis IPSAS is an IPSAS specifically for the public sector. As a result, there is no IFRS equivalent. The Cash Basis IPSAS defines cash as cash on hand, demand deposits and cash equivalents. This has been the treatment used to prepare the financial statements. Cash payments are defined as cash outflows/uses and cash receipts are defined as cash inflows/sources. The cash basis of accounting recognizes transactions and events only when cash (including cash equivalents) is received or paid by the project. Financial statements prepared under the cash basis provide readers with information about the sources of cash raised during the period. They also provide information on the purposes for which cash was used and the cash balances at the reporting date. The measurement focus in the financial statements is balances of cash (including cash equivalents) and any changes. This thus supersedes the inclusion of "Cashflow Statement" as the end objective gets achieved. 10 I I 3. Presentation of the financial statements The Financial Statement thus presented and termed "Sources and Uses of Funds for the years ended 31st March 2017 and 31st March 2018 reflects: A statement of cash receipts and payments which recognizes all cash receipts, cash payments and cash balances controlled by the project and separately identifies payments made by third parties on behalf of the project should they have happened. In summary, the statement reflects the sources and uses of funds as follows for the two financial years: Description 2018/2019 2018/2019 2017/2018 2017/2018 Project Project (US$) (LSL) (US$) (LSL) Cumulative Cumulative to- to-date (US$] date (LSL) Sources of $2,582,293 M33,807,391 $772,096 M10,415,575 $3,382,293 M38,382,554 funds Uses of funds $1,109,094 M14,701,606 $327,625 M4,198,738 $1,464,622 M19,276,769 Cash/Bank $1,473.199 M19,105,785 $444,471 M6,216,837 $1,917,670 M19,105,785 Balances The financial statements for 2018/2019 have been presented in both United States of America Dollars (US$) and Lesotho Maloti (LSL). The TICP has opened a US$ account with the Central Bank of Lesotho (CBL] and a Lesotho Maloti (LSL) account with the Standard Bank of Lesotho (SLB). The purpose of having a US$ account is to ease payments to foreign contractors and consultants and paying local and Rand Monetary Area (RMA) clients/suppliers/contractors/consultants in Maloti (LSL) or South African Rands (ZAR). The funding of the local account is from the US$ account at CBL while the dollar account is being funded by disbursements from the World Bank agency, International Development Association (IDA) upon request by the Project Implementation Unit. The translation of LSL into the US$, upon reporting, is based on the First-In-First-Out (FIFO). That is, the first actual rate that translated the US$ into the LSL holds until the funds in the local bank are depleted and new rate determined when funds are received from the CBL. 4. Comparative analysis of 2018 and 2019 (Summary) From the statements of both the years ended 31st March 2018 and 31st March 2019, the following can be deducted: a. Funds received from International Development Association (IDA) in 2018/2019 were $2,137,821 (LSL27,590,554) while nothing was received in 2017/2018. The balance of funds received in 2016/2017 ($800,000) (LSL10,792,000) we used to carry out the activities of 2017/2018. b. The total expenditure incurred during 2018/2019 was $1,109,094 (LSL14,701,606) as compared to $327,625 (LSL4,198738) in 2017/2018. 11 c. From these financial statements, it can be observed that major activities have kicked off, including and not limited to, Consulting Services for assessment study for Output and Performance-based for Roads Contracting (OPRC) methods ($440,640) (LSL5,656,787) in 2018/2019 and as compared to $12,930 (LSL167,209) in 2017/2018. Salaries & Allowances also went up as the Project Implementation Unit (PIU) was almost fully engaged for the better part of 2018/2019 while only two members were present in 2017/2018 and only from September 2017. It can also be observed that the cost of instituting the Lesotho Integrated Transport Information System (LITIS) have started as $26,676 (LSL316,316) was incurred in 2018/2019 while nothing was spent in 2017/2018. Again since the PIU was present in 2018/2019, capacity building plans were instituted and a number of training activities in project specific component were undertaken for the Roads Directorate and Ministry's staff; hence an increased actual cost of $197,994 (LSL2.824,002) compared to nothing in 2017/2018. The accounting software was installed in 2018/2019 ($47,500) (LSL634,405) and nothing in 2017/2018. 5. Disclosure a) The major component of IPSAS, namely Statement of Financial Position (which was known as the Balance Sheet), The Statement of Financial Performance (which was known as Income Statement/Profit & Loss Statement) and Statement of Changes in Net Assets/Equity, have not become relevant to this Project because of its nature and have not been prepared. b) The Cashflow Statement, which tries to reconcile profits to cash, has been replaced here by the Sources and Uses of Funds as the main financial statement. c) The exchange rate between the US$ and the local currency is applied to the foreign currency at the date of the receipts and payments. The cash balances held in a foreign currency were reported using the closing rate. d) The counter-part funding statement of sources and uses of funds has been solely prepared using the local currency as these funds have been sourced from the consolidated fund of the Government of Lesotho. * 12