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 loans
LOAN #
PROJECT NAME
PROJECT
COMPONENT/LOCATION
FISCAL YEAR END
AUDIT OPINION
Project Financial Statement
506 JHARKHANDCHHATTISGARH
TRIBAL
DEVELOPMENT
PROGRAMME
2 components - Jharkhand fiscal year ended on
and Chhattisgarh
31 March 2011
(currently closed)
AUDIT
ARRANGEMENTS
(PRIVATE, GOVT)
Statement of Expenditure
Qualified - Main reasons unqualified.
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
Special Account
unqualified. No PRIVATE, EXCEPT
opinion required PUBLIC AUDITOR FOR
as SA has been SPECIAL ACCOUNT
fully recovered
- Fixed assets register is not
kept in a proper standard
format - risk of loss of fixed
assets.
585 ORISSA TRIBAL
EMPOWERMENT
AND LIVELIHOODS
PROGRAMME
one component - Orissa
only
fiscal year ended on unqualified
31 March 2011
unqualified
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
624 LIVELIHOOD
IMPROVEMENT
PROJECT FOR THE
HIMALAYAS
4 components in total : 2 fiscal year ended on unqualified
for Uttarakhand (Parvatiya 31 March 2010
and Gramya), 1 for
Meghalaya, and 1 for grant
967-IN
unqualified
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
Detailed analysis of India loans
LOAN #
PROJECT NAME
PROJECT
COMPONENT/LOCATION
662 POST TSUNAMI
only 1 component
SUSTAINABLE
LIVELIHOODS PROG
COASTAL
COMMUNIT.
682 TEJASWINI RURAL
WOMEN'S
EMPOWERMENT
PROGRAMME
Project Financial Statement
fiscal year ended on unqualified
31 March 2011
AUDIT OPINION
Statement of Expenditure
unqualified
2 components fiscal year ended on Madhya's financial
unqualified
Maharashtra (MAVIM) and 31 March 201
statements were qualified for
Madhya Pradesh
non-deductions on salaries.
(Tejaswini Madhya
Pradesh)
748 MITIGATION
only 1 component
POVERTY IN
WESTERN
RAJASTHAN PROJECT
779 CONVERGENCE OF
AGRIC.INTERV.IN
MAHARASHTRA'S
DISTRESS DISTRI
FISCAL YEAR END
fiscal year ended on unqualified
31 March 2011
only 1 component; IFAD fiscal year ended on unqualified
executed the first transfer 31 March 2011
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.
AUDIT
ARRANGEMENTS
(PRIVATE, GOVT)
Special Account
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
not available; but opinion
on PFS covers this, so
unqualified
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
unqualified
unqualified
PRIVATE
Detailed analysis of India loans
LOAN #
PROJECT NAME
710 WOMEN'S
EMPOWERMENT&LI
VELIHOODS PROG. IN
MID-GANGETIC
PLAINS
794 N.E.REGION
COMMUNITY
RESOURCE
MGMT.PROJECT FOR
UPLAND AREAS
PROJECT
COMPONENT/LOCATION
FISCAL YEAR END
Project Financial Statement
fiscal year ended on unqualified
31 March 2011
fiscal year ended on unqualified
31 March 2011
AUDIT OPINION
Statement of Expenditure
unqualified
unqualified
AUDIT
ARRANGEMENTS
(PRIVATE, GOVT)
Special Account
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
unqualified
PRIVATE, EXCEPT
PUBLIC AUDITOR FOR
SPECIAL ACCOUNT
Detailed analysis of India loans
LOAN #
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 function
2 - The Tally accounting software is not used properly. Many accounts are kept manually - risk of
errors; risk of non efficient use of project's resources
3 - 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
frauds
4 - ITDA Gunupur does not maintain the accounts using Tally - risk of errors and omissions
5 - 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
Detailed analysis of India loans
LOAN #
662
682
748
779
COMPLETENESS OF FINANCIAL REPORTING
LIST OF MAJOR INTERNAL CONTROL ISSUES
INCOMPLETE: Comparison with Budget Estimates, and
N/A as management letter was not received
Cumulative status of funds by category (preferably in SDR)
are missing.
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 IFAD’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.
INCOMPLETE: missing Comparison with Budget Estimates, 1- Accounting software in place, but not full use for lack of training, manual accounting with
Cumulative status of funds by category (preferably in SDR), subsequent input in the accounting software - risk of errors
Management letter, notes to PFS.
2 - Manual internal control system - risk of errors
3- No final inventory made available to auditors - risk of loss or mis-use of assets
INCOMPLETE: no withdrawal application schedule
1 - Manual accounting - risk of errors
2 - Training program for the accounting team when proper accounting software is installed
Detailed analysis of India loans
LOAN #
710
COMPLETENESS OF FINANCIAL REPORTING
LIST OF MAJOR INTERNAL CONTROL ISSUES
N/A
Provided basic financial information also if not
required due to late start of the project
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 expenditures
3- 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 loans
LOAN #
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 yellow
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 place
3 - 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
LOAN #
662
682
Detailed analysis of India loans
ACTION PLAN FOR NEXT YEAR
CFS ASSESSMENT OF AUDIT
1 -2010/11 set of financial statements were not complete as 2 tables were missing, namely: a table comparing Actual
yellow
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
Madhya Pradesh:
yellow
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 IFAD’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.
LOAN #
748
Detailed analysis of India loans
ACTION PLAN FOR NEXT YEAR
CFS ASSESSMENT OF AUDIT
1 - As requested by the mission in Oct-2011, next set of audited financial statements should include ‘the yearly and
yellow
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
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
Yellow
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 recommendations
3- 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.