audit reports situation

Audit Reports situation – INDIA

• For the FY 1 April 2010– 31 March 2011, 9 India projects were supposed to submit audit reports to IFAD . All submitted

• 2 out of 9 audit reports received with qualified opinion on the PFS (22%, in line with IFAD average of 30%), Loan 506 and Loan 682.

• 5 audit reports out of 9 received with more than 2 months delay • Current risk assessment methodology uses traffic light indicators (red,

yellow, green).Below is the India situation:– Red/High Risk – 0/9– Yellow/Medium Risk – 7/9– Green/Low Risk – 2/9

Most common internal control issues identified by auditors

1 - Accounting area (Accounting methodology used is not consistent, Accounts are kept manually, the accounting system allows recording of back-dated accounting entries without proper authorization, no regular bank reconciliations) – Risk of errors and mis-representation of the financial position of the project

2 – Fixed Assets management (Asset registers not maintained properly) - risk of loss/misuse of assets

3 – Unused Funds (2 Projects have a huge balance of unused funds) - risk of mismanagement of funds with consequences on project's implementation; In general projects should avoid having material cash availability and link request of funds to disbursements needs

4 – Communications with CAAA (As all the SAs are held at ministry level, there are reconciliation issues between projects, CAAA and IFAD)

Completeness of financial statements and quality of the audit work

COMPLETENESS OF FINANCIAL STATEMENTS

• The projects which submitted a complete set of financial statements are Loan 779, Loan 194, Loan 585 and Loan 682.

• Other projects submitted an incomplete set of financial statements to IFAD ; none of them provided a comparison between actual expenditures and budget estimates, 3 did not submit a WA schedule/SOEs and a cumulative status of funds by category

QUALITY OF THE AUDIT WORK

• In many cases, the assessment of the audit work is mostly satisfactory

• In 3 cases the audit work is satisfactory (Loan 682 , 779 and 784)

Detailed analysis of India loansLOAN # PROJECT NAME

PROJECT COMPONENT/LOCATION FISCAL YEAR END AUDIT OPINION

AUDIT ARRANGEMENTS (PRIVATE, GOVT)

Project Financial Statement Statement of Expenditure Special Account506 JHARKHAND-

CHHATTISGARH TRIBAL DEVELOPMENT PROGRAMME

2 components - Jharkhand and Chhattisgarh (currently closed)

fiscal year ended on 31 March 2011

Qualified - Main reasons for qualification are:

- Accounting standards used for book-keeping activities and financial statements preparation were not used consistently - financial position of the project not clearly exposed

- Fixed assets register is not kept in a proper standard format - risk of loss of fixed assets.

unqualified. unqualified. No opinion required as SA has been fully recovered

PRIVATE, EXCEPT PUBLIC AUDITOR FOR SPECIAL ACCOUNT

585 ORISSA TRIBAL EMPOWERMENT AND LIVELIHOODS PROGRAMME

one component - Orissa only


unqualified unqualified unqualified PRIVATE, EXCEPT PUBLIC AUDITOR FOR SPECIAL ACCOUNT

624 LIVELIHOOD IMPROVEMENT PROJECT FOR THE HIMALAYAS

4 components in total : 2 for Uttarakhand (Parvatiya and Gramya), 1 for Meghalaya, and 1 for grant 967-IN






Project Financial Statement Statement of Expenditure Special Account662 POST TSUNAMI

SUSTAINABLE LIVELIHOODS PROG COASTAL COMMUNIT.

only 1 component fiscal year ended on 31 March 2011


682 TEJASWINI RURAL WOMEN'S EMPOWERMENT PROGRAMME

2 components - Maharashtra (MAVIM) and Madhya Pradesh (Tejaswini Madhya Pradesh)


Madhya's financial statements were qualified for non-deductions on salaries.

unqualified unqualified PRIVATE, EXCEPT PUBLIC AUDITOR FOR SPECIAL ACCOUNT

748 MITIGATION POVERTY IN WESTERN RAJASTHAN PROJECT

only 1 component fiscal year ended on 31 March 2011

unqualified not available; but opinion on PFS covers this, so unqualified

unqualified PRIVATE, EXCEPT PUBLIC AUDITOR FOR SPECIAL ACCOUNT

779 CONVERGENCE OF AGRIC.INTERV.IN MAHARASHTRA'S DISTRESS DISTRI

only 1 component; IFAD executed the first transfer of USD 2 Million in May 2010, 2 months after the end of the reporting period - so financial statements only cover project activities financed by the Central Government of India and the Government of Maharashtra.


unqualified unqualified unqualified PRIVATE




Project Financial Statement Statement of Expenditure Special Account710 WOMEN'S

EMPOWERMENT&LIVELIHOODS PROG. IN MID-GANGETIC PLAINS



794 N.E.REGION COMMUNITY RESOURCE MGMT.PROJECT FOR UPLAND AREAS



Detailed analysis of India loansLOAN # COMPLETENESS OF FINANCIAL REPORTING LIST OF MAJOR INTERNAL CONTROL ISSUES

506 INCOMPLETE : Comparison with Budget Estimates, Withdrawal Application Schedule- SOE (annual/ cumulative), Cumulative status of funds by category (preferably in SDR) are missing. Cash not adequately disclosed and reconciled to special account.

1- Use of hybrid accounting system (partially cash, partially accrual) - risk of misstatement of financial figures 2- fixed assets register is not complete and in the right format - risk of loss/mis-use of assets

585 Complete 1 - the quality of the work of the internal audit function is not adequate due to insufficient resources allocated for such function2 - The Tally accounting software is not used properly. Many accounts are kept manually - risk of errors; risk of non efficient use of project's resources3 - There is a difference of Rs. 38 926 800 (some USD 770,000) between the bank book and the bank statement of the PSU that the Auditors were not able to reconcile - Risk of loss of assets - risk of frauds4 - ITDA Gunupur does not maintain the accounts using Tally - risk of errors and omissions5 - ITDAs and PSU execute investments and fixed deposits without any documented policy shown to auditors for the equivalent of some USD 7 Million. - Risk of non efficient use of project's assets

624 INCOMPLETE : Comparison with Budget Estimates missing for all, Withdrawal Application Schedule- SOE (annual/ cumulative) missing except for Gramya, Cumulative status of funds by category (preferably in SDR) missing except for Parvatiya. Sources and uses of funds missing,

1 - Meghalaya - An accounting manual to be drawn; various DMUs are using different accounting principles, so consolidation and exposure of the financial position of the project results not completely consistent.- There should be periodic reconciliation of funds advanced to FNGOs;- There is not a differentiation of incomes between IFAD funds and other resources and this makes difficult the tracking of money coming from IFAD and ensure that is spent for the intended purpose.2 - UGSV/ UPASaC - The internal control environment at DMUs level appear to be quite weak (errors and omissions in book-keeping activities).- In some cases, relevant procedures for staff recruitment have not been followed.- 35% of accounting entries executed in the last month of the year - that is an indicator that accounting entries are not performed regularly;- UPASaC received Rs 29 653 609.50 (some USD 570 000) from UGVS during FY 2010-11 which were not considered in the Receipt and Payments account, with consequent under-estimation of financial statements values.; - UPASaC has invested the amount of Rs.56 173 590 (some USD 1 050 000) in time deposits in local banks. Investment risks


662 INCOMPLETE: Comparison with Budget Estimates, and Cumulative status of funds by category (preferably in SDR) are missing.

N/A as management letter was not received

682 INCOMPLETE: Comparison with Budget Estimates, Withdrawal Application Schedule- SOE (annual/ cumulative), and cash reconciliation to Special Account missing for Maharashtra; no Cumulative status of funds by category (preferably in SDR) for both components; no Statement of Fixed Assets for Madhya Pradesh

Madhya Pradesh: 1 - Disclosure of financial info should improve in future financial statements; especially with regard to expenditures which should be categorized per loan cost category and not only per component, and in relation to source of funds which should be clearly stated. In attachment a financial statement template for project's consideration and possible use; 2 - The project should improve it's financial management overview on NGOs, for which the internal control structure appears to be not very solid; we can support from HQ to set up some methodologies; 3 - For the next report, the projects should perform a fixed assets inventory, update the fixed assets register accordingly and reconcile the register with the accounting records - this to ensure existence and proper use of fixed assets. 4 - Relevant corrective actions should be undertaken to recover not allowed expenditures from transfers to NGOs as detailed in the audit report. 5 - Net year management letter should contain project's replies to auditors observations

Maharashtra: 1 -The Audited Financial Statements received refer to MAVI as institution with few annexes in relation to the project. If possible, next year audit report should improve the disclosure of the financial situation of the project alone, especially in reference to IFADâ€™s funding. We are attaching a financial statements template for possible project use. 2 - MAVIM should stop financing IFAD schemes with funds of other donors and financing schemes of other donor with IFAD financing.

748 INCOMPLETE: missing Comparison with Budget Estimates, Cumulative status of funds by category (preferably in SDR), Management letter, notes to PFS.

1- Accounting software in place, but not full use for lack of training, manual accounting with subsequent input in the accounting software - risk of errors2 - Manual internal control system - risk of errors 3- No final inventory made available to auditors - risk of loss or mis-use of assets

779 INCOMPLETE: no withdrawal application schedule 1 - Manual accounting - risk of errors 2 - Training program for the accounting team when proper accounting software is installed


710Provided basic financial information also if not required due to late start of the project

N/A

794 INCOMPLETE: Withdrawal application schedule missing 1- Problems with payments in cash to various NaRMGs throughout all the districts. Sometimes payments made were not justified - risk of ineligibility 2- Some expenses in the districts could not be fully justified - risk of ineligible expenditures3- Manual accounting in many districts - risk of errors 4- Overall, increasing the level of decentralization, the internal control environment becomes less robust.

Detailed analysis of India loansLOAN # ACTION PLAN FOR NEXT YEAR

CFS ASSESSMENT OF AUDIT

506 no particular plan as the project is in its closing phase yellow

585 No particular action is being suggested as the mission fielded in Feb-12 will follow up on relevant financial aspects; If possible, we just request the mission to consider auditor's findings of which some are particularly serious.

yellow

624 1 - In general, financial statements illustrate the financial position of the project, but do not disclose sufficiently the impact and use of IFAD resources as various required statements are not part of the pack; next year report should improve; we attach financial statements template cash and accrual basis for project's consideration and use.2 - From the number an type of internal control issues highlighted in the management letters, internal control environment of DMUs appears to be quite weak. We suggest an enhancement of the internal control function (both in terms of resources and skills) to support DMUs by providing examples of correct practices to put in place3 - UGVS/UPASaC - 35% of total accounting entries performed in the last month of the year; accounting records should be updated regularly, also to monitor budget execution. Supporting documentation should be submitted regularly to the administration offices to allow a smooth registration of transactions.4 - UPASaC - to update financial records to ensure proper registration of transfers from UGVS and avoid a misrepresentation of the financial position of the company in the financial statements.5 - UPASaC - A large amount of available cash resources are invested (some USD 1.05 Million). These funds should be invested in a safe mode and in accordance to an investment policy. If the project does not have any investment policy this should be urgently set up; if there is a policy, the project should transmit it to IFAD. In general, the timeframe between receipt of resources and their use should not be long enough to allow the creation of such cash availabilities

yellow

Detailed analysis of India loansLOAN # ACTION PLAN FOR NEXT YEAR CFS ASSESSMENT OF AUDIT

662 1 -2010/11 set of financial statements were not complete as 2 tables were missing, namely: a table comparing Actual expenditures against the approved budget, and a table showing the cumulative expenditure of the project since inception; next year report should be inclusive of such missing tables; in general, the disclosure of the financial position of the project should be enhanced. We attach 2 financial statements template for project's consideration and eventual use (both cash and accrual)

2- the project did not submit to IFAD a proper management letter that should have been provided by auditors; next year audit pack should be inclusive of such document, which is very important to assess the quality of the internal control environment of the project. Next year management letter should include project's replies to auditor's observations and possibly provide an update on the status of implementation of recommendations issued in previous audit exercises

yellow

682 Madhya Pradesh:1 - Disclosure of financial info should improve in future financial statements; especially with regard to expenditures which should be categorized per loan cost category and not only per component, and in relation to source of funds which should be clearly stated. In attachment a financial statement template for project's consideration and possible use;2 - The project should improve it's financial management overview on NGOs, for which the internal control structure appears to be not very solid; we can support from HQ to set up some methodologies;3 - For the next report, the projects should perform a fixed assets inventory, update the fixed assets register accordingly and reconcile the register with the accounting records - this to ensure existence and proper use of fixed assets.4 - Relevant corrective actions should be undertaken to recover not allowed expenditures from transfers to NGOs as detailed in the audit report.5 - Net year management letter should contain project's replies to auditors observations

Maharashtra: 1 -The Audited Financial Statements received refer to MAVI as institution with few annexes in relation to the project. If possible, next year audit report should improve the disclosure of the financial situation of the project alone, especially in reference to IFADâ€™s funding. We are attaching a financial statements template for possible project use.2 - MAVIM should stop financing IFAD schemes with funds of other donors and financing schemes of other donor with IFAD financing.

yellow

Detailed analysis of India loansLOAN # ACTION PLAN FOR NEXT YEAR CFS ASSESSMENT OF AUDIT

748 1 - As requested by the mission in Oct-2011, next set of audited financial statements should include â€˜the yearly and cumulative statement of sources and application of funds, disclosing separately IFAD’ss funds, counterpart funds, other donor funds and beneficiary funds Para 67 of the report. 2 - Next year report should include a fixed asset table reconciled wit the accounts; in 2010/2011 no closed inventory was provided to auditors. Fixed assets must be continuously monitored to ensure proper use and maintenance. 3- A full reconciliation between project and IFAD records was not possible; if necessary CFS can provide the project with a financial statements template for project's consideration. 4- If possible, project staff should have additional training on the use of the accounting software and for financial statements preparation, as we noted (and also the supervision mission in Oct-11 did) some inconsistencies in the financial statements (as total expenditures per category differ from total expenditures per component for the equivalent of some USD 20 000).5 - UPASaC - A large amount of available cash resources are invested (some USD 1.05 Million). These funds should be invested in a safe mode and in accordance to an investment policy. If the project does not have any investment policy this should be urgently set up; if there is a policy, the project should transmit it to IFAD. In general, the timeframe between receipt of resources and their use should not be long enough to allow the creation of such cash availabilities

yellow

779 1 - Next year audit should include project's management replies to auditor's observations 2 - Next year auditors should provide an update on the status of implementation of previous years recommendations. We noted that recommendations issued for 2010/2011 are almost the same issued for 2009/2010 3- Its urgent the set-up of a proper accounting software at PMU, PSU and DPMTs level. Finance staff should have adequate training to ensure correct use of the system. 4- The budget execution appears not to be in line with the approved AWPB

green

710 N/A as next year’s audit report will be the first official audit report that the project submits to IFAD green

794 1- Consolidated financial statements should be set up to allow the recognition of receipt and use (by cost category) of IFAD resources. In the audited period, no transfer of IFAD resources from the SA, so costs charged to IFAD have been advanced by other financiers; we attach financial statements templates (cash and accrual) for project’s consideration; 2- Next year, management letters should replies to auditor's observations; in addition, an audit log should be established to track status of implementation of auditor's and IFADs recommendations3- Proper accounting software should be installed in all districts. Finance staff should have adequate training to ensure correct use of the system. 4- Finance staff should have adequate training to improve quality of financial records and avoid a series of inconsistencies experienced in the 2010-11 FY.

Yellow

audit reports situation – india for the fy 1 april 2010– 31 march 2011, 9 india projects were...

Documents

india projects

financial position

satisfactory loan

yellowmedium risk

greenlow risk

redhigh risk

risk of lossmisuse