final amended

Financial & Systems Audit ReportStrengthening of Livestock Services Project (SLSP)-Sindh & Balochistan Project Year (PY) – 3

For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT

IN THE NAME OF ALLAH THE MOST MERCIFUL AND COMPASSIONATE

CO- DIRECTORS STRENGTHENING OF LIVESTOCKSERVICES PROJECT (SLSP)MINISTRY OF FOOD, AGRICULTURE AND LIVESTOCK, GOVERNMENT OF PAKISTANFINANCIAL & SYSTEM AUDIT REPORT (DRAFT)(DD/MM/20YY)

FINANCIAL & SYSTEM AUDIT OF STRENGTHENING OF LIVESTOCK SERVICES PROJECT (SLSP) PROVINCIAL PROJECT MANAGEMENT UNITS (PPMUs)-SINDH & BALOCHISTAN

Entity subject to audit Strengthening of Livestock Services Project (SLSP)

Country PakistanCommission service Delegation of European CommissionCommission request for services SLSP 1077Audit framework contract 2006/1-000094 Lot N 1CRIS Audit N NA

Auditor Khalid Majid Rehman, Chartered Accountants

Period subject to audit 15th September 2005 – 31st December 2005

Dates of audit fieldwork 1st July 2009 – 10th August 2009 Project status Draft Report

KHALID MAJID REHMAN CHARTERED ACCOUNTANTS(KMR is a segment of KMRSRIR)



Table of Contents

AUDITORS’ REPORT TO THE CO-DIRECTORS OF STRENGTHENING OF LIVESTOCK SERVICES PROJECT (SLSP).......ERROR! BOOKMARK NOT DEFINED.

SUMMARY OF FINDINGS..........................................................................................................5

1 THE ENGAGEMENT CONTEXT...................................................................................11

1.1 REASON FOR THE AUDIT......................................................................................................111.2 AGREEMENT TERMS AND CONDITIONS............................................................................111.3 PROJECT SUBJECT TO AUDIT................................................................................................111.4 ENTITY SUBJECT TO AUDIT..................................................................................................20

2 THE AUDIT..............................................................................................................................22

2.1 AUDIT OBJECTIVES................................................................................................................222.2 AUDIT SCOPE..........................................................................................................................252.3 AUDIT PROCESS AND METHODOLOGY..............................................................................26

3 FINDINGS AND RECOMMENDATIONS.................................................................30

3.1 FINANCIAL FINDINGS...........................................................................................................303.2 FINANCIAL FINDINGS SUBJECT TO FURTHER CONSIDERATION – QUESTIONED COST...................................................................................................................................................313.3 MANAGEMENT CONTROL FINDINGS..................................................................................353.4 OTHER COMPLIANCE FINDINGS.........................................................................................42

4 FINDINGS CONCERNING SPECIFIC MATTERS...............................................47

5 FINDINGS CONCERNING EXPERT WORK PERFORMED...........................47

ANNEXURE.......................................................................................................................................48

ANNEX 1: FINANCIAL REPORT SUBJECT TO AUDIT............................................................49ANNEX 2: CASH FLOW RECONCILIATION.............................................................................52ANNEX 3: OTHER INFORMATION-SALARY SURVEY.............................................................53Annex 4: Persons contacted or involved in the Audit..............................................54

KHALID MAJID REHMAN CHARTERED ACCOUNTANTS(KMR is a segment of KMRSRIR



AUDITORS’ REPORT TO THE CO-DIRECTORS OF STRENGTHENING OF LIVESTOCK SERVICES PROJECT (SLSP)

We have audited the accompanying Financial Report (“the statement”) of Provincial Project Management Units (Sindh and Balochistan) of “Strengthening of Livestock Services Project (“the Project”) together with the notes forming part thereof for the period from 15th

September 2005 to 31st December 2005. It is the responsibility of the Project’s management to establish and maintain a system of internal control, and prepare and present the statement in accordance with the receipt and payment basis of preparation. Our responsibility is to express an opinion on the Statement based on our audit, which is a financial audit, performed in the context of compliance with the applicable Agreement Terms and Conditions for the Project.

We have audited the

- The Financial Report of Provincial Project Management Units (PPMUs) (Sindh & Balochistan) for the period from 15th

September 2005 to 31st December 2005 as set out in Annex 1 of this report.

We conducted our audit in accordance with the International Standards on Auditing which concern Audits and Reviews of Historical Financial Information and in accordance with the basic principles and concepts of the International Framework for Assurance Engagements established by the IFAC for the performance of this audit insofar these standards can be usefully applied in this financial audit and in its specific compliance context. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Statement. This audit also involved evaluating the Project’s compliance with the applicable Agreement Terms and Conditions for the Project and which are set out in Financing Agreement EU/GoP Project PAK/RELEX/2001/0129. We believe that our audit provides a reasonable basis for our opinion.

The results of our tests disclosed the following financial audit findings in the Financial Report for the Project:

(a) There is no expenditure which we found to be ineligible;

KHALID MAJID REHMAN 3 | P a g eCHARTERED ACCOUNTANTS(KMR is a segment of KMRSRIR)



(b) total expenditure of € 1,819.83 which is questioned and may be established as ineligible after further consideration by the Commission.

(c) Neither the closing balances of cash at bank have been confirmed by the banks nor any bank statements were provided to us for our verification of expenditures.

(d) We could not observe physical count of cash, inventory and fixed assets as of December 31, 2005 because our appointment was made in August 2009.

These detailed findings and recommendations are set out in part 3 to this report.

Except for the findings at para (a) to (d) above, in our opinion:

the Financial Report of the Project for the period from 15th

September 2005 to 31st December 2005 presents, in all material respects, accurately the expenditure actually incurred and the revenue received for the Project in conformity with the applicable Agreement Terms and Conditions; and

the Project funds provided by the European Commission have, in all material respects, been used in conformity with the applicable Agreement Terms and Conditions.

This report is intended solely for the information and use of the management of the Project.

Date: Khalid Majid Rehman

Islamabad Chartered Accountants




Summary of Findings

We consider that expenditure of € 2,118.23 is not eligible. Following the financial findings set out further below and in accordance with the Agreement Terms and Conditions for the Project, we recommend that the Commission should recover € 2,118.23 from Strengthening of Livestock Services Project (SLSP).

The details are as follows:

Description €

Total expenditure claimed for the Project and set out in the Financial Report in Annex 1

34,773

Less: Financial Audit Findings -

Total eligible expenditure for the Project 34,773

Commission contribution to eligible expenditure for the Project

Total Commission funding for the Project to be paid 34,773

Less: instalment received from the Commission 34,773




Amount to be recovered by the Commission -

We question the eligibility of expenditure of € 1,935 as set out further below. We recommend that the Commission should further consider the eligibility of this expenditure.




1 Financial Findings

The financial findings of the audit (see Section 3.1) can be summarised as follows:

During the course of our audit we found out that there is no ineligible expenditure in the above mentioned period.

(1) MC is management control finding to which the financial finding is related (where applicable)

2 Financial Findings subject to further consideration – Questioned Cost

The financial findings of the audit subject to further consideration - (questioned cost) (see Section 3.2) can be summarised as follows:

Finding n°

Compliance issue

Title Amount €

Related to MC (1) finding

Entity comment

Provincial Project Management Unit (PPMU)-Sindh

01 No 01 (Questioned Cost – missing documentation

Workshop/Training – Transportation

920.90 N° 1 (Questioned Cost – missing documentation)


Workshop/Training – Transportation


03 No 01 (Questioned Cost – missing documentati

Fee Facilitator- Miscellaneous

195.47 N° 1 (Questioned Cost – missing




on documentation)

Total questioned cost –Sindh 1,692.61




Provincial Project Management Unit (PPMU)-Balochistan


Consumables, Stationary – Training


Total questioned cost – Balochistan

127.22

Grand total questioned expenditure (Sindh & Balochistan)

1,819.83




3 Management Control Findings

The management control findings can be summarised as set out below. Priority refers to the priority of the recommendation (see Section 3.3).

Finding n°

Management control issue

Title Priority

Provincial Project Management Unit - Sindh

01 Issue No 09 (Other – Wrong Allocation)

Miscellaneous Services

2

02 Issue No 9 (Other) Accommodation 1

03 Issue No 9 (Human Resource and Payroll Management)

Salaries 1

04 Issue No 7 (Cash and Bank Management)

General 2

05 Issue No 5 (Control Environment)

General 2

Provincial Project Management Unit - Balochistan

01 Issue No 5 (Control Environment)

General 2

02 Issue No 1 (Missing/ Inadequate Documentation)

Consumables 2




4 Other Compliance Findings

The findings concerning specific matters (see Section 3.4) can be summarised as follows:

Finding n°

Management control issue

Title Priority

Provincial Project Management Unit - Sindh

01 Issue No 9 (Other – Non Compliance of Income Tax Provisions)

Salaries 1

02 Issue No 7 (Cash & Bank Management)

General (Cash & Bank)

2

Provincial Project Management Unit - Balochistan


General (Cash & Bank)

2


General (Cash and Bank)

2

03 Issue No 9 (Other – Non Compliance of Income Tax Provisions)

Salaries 1




5 Findings concerning Specific Matters

There being no specific matters concerning this audit therefore no finding is observed.

6 Findings concerning Expert Work performed

No expert work required for the performance of this audit therefore no finding observed.




1 The Engagement Context

The Strengthening of Livestock Services Project was conceived in the early 1990s, as a means to combat the upsurge of rinderpest in the country. The Government of Pakistan’s basic planning document (the PC-I) was revised in 1995 and again in 2004. The European Union provided grant support for the project, which is the subject of a Financing Agreement that was signed in March 2002. Implementation started 18 months later in accordance with an Overall Work Plan and Budget (OWP/B).

1.1 Reason for the Audit

The reason for the audit is Article 9 of the technical and administrative provision, which covers Project’s duty to send audited accounts to the Commission. Conditions annexed to the Financing Agreement, which establishes that:

“The Commission shall have the right to send its own agent or authorized representatives to undertake any technical, accounting or financial assignments it may consider necessary to monitor the implementation of the project”.

1.2 Agreement Terms and Conditions

The agreement basis for the implementation of the Project includes:

1. Financing Agreement

2. Project Steering Committee (PSC) documents

3. Annual Work Plan

4. Provincial Management Unit (PMU) Documents

Other documents not part of the contractual basis for the implementation of the Programme may be relevant:

1. Internal Regulation and Procedures (referring to the EC rules applicable for the Project implementation under a Financing Agreement)

1.3 Project subject to Audit

1.3.1 ProjectTitle of the project: Strengthening of Livestock

Services Project (SLSP) in Pakistan, EU/GoP Project Pakistan/Relex/2001/0129



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT Financial Commitment: Total=€25,942,000 Comprising:

€22,900,000 from EU € 3 042 000 from GOP (equivalent in Rupees)

Financing Agreement Signed on: 06/03/2002

PC-1 for SLSP approved by ECNEC on: 03/05/2001

Duration of Programme: 6 years (starting from September 2003)

Beneficiary: Government of Pakistan (GoP)

Implementation Partners: Federal Ministry of Food, Agriculture and Livestock (MINFAL) (Executing Agency) represented by its Livestock Wing, and Provincial departments in charge of livestock

Technical Assistance: Consortium comprising Agrotec Spa (lead firm), AHT GmbH, NR International

1.3.2 Project goals/ Objectives

GOAL:To assist the Government of Pakistan (GoP) to realise the potential of livestock sector, by improvement of farmers’ livelihoods through better provision of livestock services, especially of disease control, and trough enhancing productivity.

OBJECTIVES: To strengthen the Government of Pakistan (GoP) capacity to plan and

manage the sustainable delivery of public services to the sector To examine ways in which the private sector delivery of services can

be improved.

Project components:For administrative and budgetary purposes the project has ten components. These are not watertight boxes and there is much interaction between them in working towards the Project purpose. The components are:

1) Policy and regulatory framework;2) Disease surveillance, diagnosis and reporting;3) Vaccine production;4) Strengthen field veterinary services;5) Human resource development;6) Interdisciplinary livestock sector research;7) Information and communication;8) Studies and surveys;



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT 9) Regional and sub-regional cooperation and coordination,

and;10) Core project management.

Main results

The envisaged results of the project are:1) Public and private sector services delivery system

improved/strengthened in selected districts;2) Disease reporting & surveillance system functional;3) Models for improved productivity and service delivery

demonstrated/developed;4) Information & communication (MIS) system from central

part of livestock service delivery, and; 5) System, capacities and structures for project management

development, followed and transferred to GoP.

ACTIVITIES:

1.3.3 Description of the funding source & proceduresThe operational funds are submitted from Brussels in to a special account in Euro No. 01-6000134 with the Standard Chartered Bank (SCB), Islamabad. The Co-Directors manage the amounts transferred from this Euro account into the Pakistan Rupee account No. 01-6000134-02. The Co-Directors also manage the other sub account of the FPMU and its allied units (AJK, NAs, and FATA). Similarly, the National and European Co-Manager manage the respective bank accounts in rupees in the provinces:

Bank Name Unit Account # & Currency

SCB Islamabad FPMU 01-6000134-01 Euro

SCB Islamabad FPMU 05-6000134-01 Euro

SCB Islamabad FPMU 01-6000134-02 PKR

SCB Islamabad FPMU 08-6000134-01 PKR

SCB Peshawar PPMU NWFP 01-3589188-01 PKR

SCB Lahore PPMU Punjab 01-6038956-01 PKR

SCB Quetta PPMU Balochistan 01-6022413-01 PKR

SCB Hyderabad PPMU Sindh 08-6000134-03 PKR SCB Hyderabad PPMU Sindh 01-1348620-01 PKR NBB Hyderabad PPMU Sindh 1202-5 PKR NBB Muzaffarabad AJK 5516-5 PKR NBB Gilgit Northern Areas 2725-1PKR



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT 1.3.4 Federal Project Management Unit and Recipient

Name: Strengthening of Livestock Services Project (SLSP)

Address: NARC Gate No.2 Near National Veterinary Laboratory, Chuck Shahzad, Park Road, Islamabad; Phone: 051-9255624, 051-9255625; Fax: 051-9255628

1.3.5 Audit Matters

Period of audit: Audit of SLSP project accounts for PPMUs Sindh and Balochistan for the period from September 15, 2005 to December 31, 2005.

Programme amount: Euro 25.942 Millions

EC contribution: Euro 22.9 Millions

Sources of funding and revenue Budget in €

Total amount of Commission funding as per Financing Agreement

22,900,000

Co-financing - Government of Pakistan (GoP) 3,042,000

Total amount of funding by other donors -

Total amount of other project revenue -

Total Project value 25,942,000

The Community’s Commitment

The total cost of the project is estimated to be 25,942,000 euro (Twenty five million nine hundred and forty two Euro).

The Commitment of the commission is fixed at 22. 900,000 Euro (twenty two million nine hundred thousand Euro), here-in-after referred to as the EC Grant.

The Beneficiary Commitment



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT The Beneficiary shall contribute not more than 3,042,000 Euro (three million forty two thousand euro) to the Project. The present Agreement specifies if this contribution, or part of it, is in kind as indicated in the Technical and Administrative provisions Annex 2 to Financing Agreement.

Planning and Reporting

In close collaboration with the PPMUs Co-Managers and the relevant provincial institution, the FPMU Co-Directors will prepare project plans and reports, in accordance with EC standard and using the Log frame approach where appropriate. Such documents will include the following:

An Initial Plan of Activities (IPA) with in one month of the arrival of the European Co-Director

A Memorandum of Understanding (MOU) on the two credit funds within six month of the arrival of the European Co-Director in accordance with the appendix 2 to Financing Agreement;

An Overall Work Plan and Budget (OWP/B) for six years

A project progress monitoring plan, including objectively verifiable indicators, to be submitted together with OWP;

Annual Work Plans and Budgets (AWP/B) to be presented to the PSC not later than two months before the end of each year to allow time for approval by the EC and the Executing Agency;

Standardised six monthly reports to monitor all technical and financial and administrative aspect of the utilization and impact of all resources made available to the project;

A final project completion report submitted at least two months before project completion.

Any deviation in the AWP from the OWP has to be clearly presented and justified. If approved; it initiates automatically a procedure for the approval of a revised OWP prior to the approval of the AWP and its start up.

Except for the initial activities indicated in the approved IPA, expenditure can only take place in strict compliance with an approved AWP and its conformity with the OWP.

Monitoring and Evaluation

Day-to-day technical and financial monitoring will be a continuous process as part of the FPMU Co-Directors’ and PPMU Co-Managers’ responsibility.

Independent consultants recruited directly by the EC on specially established terms of reference will implement the external



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT monitoring and evaluation on behalf of the EA and the EA and the EC.

The project will carry out baseline surveys and implement monitoring programmes to evaluate the economic and social impact of the project. Special M&E staff will be recruited and trained for this purpose. An external project evaluation will be carried midway through the project cycle as well as a final evaluation within six months of project termination.

The project shall, in accordance with EC procurement guidelines, appoint reputable chartered accountants whose role shall include monitoring the Project’s accounts for submission to the EC at the end of each financial year. The costs thereof will be paid as part of the FPMU running costs.

Visibility

The project shall be implemented in such a way to ensure maximum visibility for the European Community’s involvement at all times. Actions of communication and information shall be determined in close collaboration with the EC delegation.

Special attention shall be devoted to implementing these rules at events and in all public or official written material connected with the project. Objects, equipment and documentation connected with the project shall carry the European Community flag with the text in the language of the Beneficiary. The symbols identifying the European Community shall be of the same size and appearance as any symbols identifying the beneficiary, should the latter be present.

Financial Management

The project will open a foreign currency account at an accredited international bank in euro in Islamabad to receive project funds. This account should bear the highest possible interest for the benefit of the project. From that account, following the needs of the AWP/B (Federal and Provincial), funds will be made available in Pakistani Rupees to interest bearing operational accounts opened with commercial/financial institutions agreed by GoP and EC. Responsibility for these accounts (foreign and local currency) will be given to the project co-directors (federal) and co-managers (Provincial) responsible for the implementation of the project. The FPMU will directly manage and administer the project funds for the ICT, NAs and AJK.

The GoP will proceed to the disbursement of its financial contribution in accordance with the AWP/B as approved by the commission. The same principle applies to the contributions in kind. Any costs which overrun the EC commitment are to be covered by GoP. Funds disbursement of the EC grant is conditional to the compliance of the obligations of the GoP.

The EC funds made available to the project will be disbursed in the following way:



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT Payment of technical assistance services and equipment financed

internationally will be made directly by the EC.

Payment of local cost contribution and equipment financed locally will be made to the projects and be deposited in the accounts of the projects.

All payments will only be made on the demand of the FPMU, and endorsed by the EC Delegation.

Auditing of Accounts

1. The Commission shall have the right to send its own agents or authorized representatives to undertake any technical, accounting or financial assignments it may consider necessary to monitor the implementation of the project.

2. The Court of Auditors, in the accomplishment of its responsibilities under the Treaty establishing the European Community , shall have the right to undertake a full audit , if necessary , on the basis of supporting documents of accounts and accounting documents and any other documents relating to the financing of the project and on the spot.

3. The Beneficiary shall be notified if agents appointed by the Commission or the Court of Auditors are sent to the project site.

4. To this end the Beneficiary:

Shall undertake to provide any information or documents requested , and to take any measures to facilitate the work of persons undertaking such audits;

Shall keep the dossiers and accounts required to identify the work, supplies or services financed under this agreement and the supporting documents relating to local expenditure in accordance with the best accounting practice;

Shall assist the Court of Auditors, in the accomplishment of its responsibilities under the Treaties the European institutions, in auditing the project’s accounts, if necessary, on the spot;

Shall ensure the Commission’s representatives can inspect any accounting or other documents relating to projects financed under this Agreement and shall assist the Court of Auditors in monitoring the use made of Community funds.




Entity subject to Audit

The entity subject to audit is Strengthening of Livestock Services Project (SLSP) of Ministry of Food, Agriculture & Livestock (MINFAL) of Pakistan.

Organisation and Management Structure

PurposeAs per the overall wok plan OWP/AWP/Finance Agreement the purpose of SLSP is;

To strengthen the Government of Pakistan capacity for strategic planning and management for effective delivery of livestock services by public and private sector service providers

‘To bear technical, financial and managerial resources to find innovative and sustainable means to release the potential of the livestock sector to alleviate poverty, particularly for the rural poor, through increased and more efficient production.”

Legal Authority The authorities responsible for the legal representation of the project are the GoP and the Commission of the European Communities. These two authorities are hereinafter referred to as the “Financing Authorities”

Delegation of Responsibilities The execution of the Project in Pakistan is the responsibility of the Ministry of Food, Agriculture and Livestock through its Livestock Wing. The Financing Authorities delegate the technical, financial and administrative operations of the Project to the Federal Project Management Unit (FPMU) established within the executing agency. The FPMU is composed of national co-director, duly selected by the GoP, and a European co-director, selected by the EC. The FPMU in turn delegates responsibility for the implementation of the Project’s activities in the four main provinces to the Provincial Project Management Unit (PPMU). The PPMUs are jointly and equally headed by a national co-manager and a European co-manager, selection procedures of the co-managers is same as of the co-directors at FPMU.

Coordination Coordination between the relevant bodies and general policy guidance is vested in a Project Steering Committee (PSC) as stated in the Financing Agreement.

Work PlansFPMU is responsible for the preparation of the indicative work plan for the six year period of Project implementation, hereafter referred to as the Overall Work Plan and Budget (OWP&B) and the corresponding annual



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT plans of operation, hereafter referred to as the Annual Work Plan &Budget (AWP&B). The preparation of these work plans will be carried out in coordination with the PPMUs which will prepare individual provincial work plans and budgets, balancing the perceived needs and priorities of the areas concerned with the available resources. The PSC must endorse the OWP&B and each AWP&B which must then receive the approval of the financing authorities in order for these to become operational.

Operational Autonomy Following official approval of the OWP&B and the first AWP&B the FPMU has full operational autonomy over the use and management of all the human, financial and physical resources allocated to it within the technical and financial framework of the Financing Agreement. This autonomy remains in successive years subject to the prior approval by the PSC of the relevant AWP&B.

Co-DirectionThe co-directors of the FPMU will act in a joint and mutually binding fashion and co-sign all financial, technical and administrative documents related to the project’s planning and implementation .The co-managers of the PPMUs will act in a similar manner for matters related to the implementation of the project activities in the areas under their mandates. Project managementThe national and international personnel of the project will be managed under the authority of the FPMU, directly or where relevant through the PPMUs. The FPMU is committed to active participation of its personnel in the appraisal, implementation, operation, monitoring and evaluation of the Project activities

Absence of a Co-Director or Co-ManagerIn the case of the absence of one of the co-directors for a period exceeding 21 days, the FPMU may delegate a senior competent member of the project to temporarily exercise the absent co-director’s functions in order to promote unfettered execution of the project. In case of the absence of a European Co- manager from a provincial PPMU, the European Co-director at the FPMU or such person designated to act in his place, will exercise the functions of the absent co-manager.in the absence of the National co-manager the Deputy manager will replace him.

Arrangement for co-signing payments Each payment shall bear two signatures one from category A, the second from category B, representing the Government of Pakistan and the European Commission, respectively. Co-signatories shall be the National Co- Director and European Co-Director at federal level. At provincial level, the National Co- Manager and European Co-Manager shall be co-signatories. For each co-signatory, there shall be a named alternate, whose specimen signature the Delegation of the European Commission in Islamabad shall forward to the bank.




Category A GoP

Category B EC

Co-signatoryNational Co-Director(National Co-Manager)

Co-signatoryEuropean Co-Director(European Co- Manager)

AlternateNational Co-Director(National Co-Manager)Deputy Project Director/Manager

AlternateEuropean Co-Director(European Co- Manager)European Co- Manager(European Co-Director)

Accounting and Finance

Council regulation (EC, Euratom) no 1605/2002 of June 25, 2002 on the Financial Regulation applicable to the general budget of the European Communities.

Council Regulation (EC, Euratom) No 2342/2002 of December 23, 2002 laying down detailed rules for the implementation of Council Regulation (EC, Euraton) No 1605/2002 of June 25, 2002 on the Financial Regulation applicable to the general budget of the European Communities.General

1. The accounts Manager should be consulted first on all queries relating to project finances, claims etc.

2. Payment will be made by cheque or by direct bank to bank transfer whenever it is possible. All payments in excess of Rs 25,000 must be made by crossed cheque, stamped A/C payee or by direct credit transfer unless clear justification for a cash payment is made and authorized by the co-signatories.

3. All project expenditure must respect the terms of the financing agreement (for expenses from EU funds) and the PC 1(for expenses from government funds). The funding source indicated in these documents must be applied to all expenditure.

4. Expenditure must be drawn down against a budget in an agreed work plan. All project expenditure must have prior authorization from authorized personnel. Expenditure cannot be approved retrospectively.

5. The allocation to a major budget line,e.g budget line 4, or to a minor budget line,e.g.budget line 5.2 is fixed for each work plan and cannot be amended without recourse to the PSC and funding authorities.

6. Within a budget line some flexibility is possible but the reason for any changes should be adequately justified in the progress reports.

7. 80% of the annual budget for local expenditure is requested by the FPMU from the EC Delegation after approval of the annual work plan.

8. EC funds are received into an interest bearing account denominated in Euro held by the FPMU.Funds are transferred to a local currency account according to needs. From the local currency



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT account transfers are made to the provincial units against their funding requests.

9. Funding requests must be justified by the work plan budget and by completed accounts for the preceding month, including bank statements.

10.Expenditure will be recorded against the budget codes issued by the FPMU. The financial tables issued by the FPMU will be used to submit the record of expenditure according to the schedule required by the funding agencies.

11.Exchange rates for the month in which the payment is made must be used. The official rates can be found at

http://ec.europa.eu/budget/inforeuro/index.cfm?Language=en12.Paying units will use a safe for holding cash, bank guarantees and

important documents. Original software should be held in the safe or under other lock and key. Original registration documents for vehicles will also be held in the safe.

13.Expenditure may be recorded and transmitted in computerized form but hard cover ledgers of income and expenditure must also be maintained for audit purposes. Different journals will be used for the different types of entries (bank, petty cash, adjustments etc.).

14.Prior to a payment being made, the payment history should be checked to avoid duplicated of payment.

15.All invoices paid must be stamped “PAID” to help avoid duplicated of payment.

Financial Records

The project management will be responsible for the maintenance of proper and accurate books of accounts at all venues of operational activities i.e. FPMU and all PPMUs. The following set of records, either in electronic or manual form, will be kept or maintained for the purpose:

1. All payments/receipts/adjustments vouchers duly numbered and filed in serial with all sufficient supporting documents to justify the payment as well as to maintain transparency as to validity, verifiability and appropriateness thereof;

2. A bank book or cheque register, duly and regularly maintained to record each and every transaction (receipt or payment) from the bank accounts of the project. The bank book will be reconciled on monthly basis with the bank statement.

3. A cash book to regularly record all transactions other than the one with bank;

4. A general ledger containing summarized accounts strictly in accordance with the defined codes (general ledger, region, budget line, component, result, activity where appropriate);

5. A fixed asset register containing all data of the assets purchased, procured or transferred to the project right from the date of inception of the project. The assets register will clearly mention the full description and serial number of the individual asset, its operational condition, allotted asset code, its placement/custody, invoiced and incidental cost and specification.



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT 6. A register of advances given to various staff or outside parties for

goods, services or travel etc;7. Vouchers for disbursements must be recorded in the accounts the

same day if practicable.8. Overwriting and cutting on payment vouchers must be signed by

an accountant.

Laws and regulations

All the Laws of Government of Pakistan are applicable on the MINFAL-SLSP for performing its functions. However MINFAL-SLSP has agreed to follow the Implementation Rules of EC as regards to the financial and procurement functions.

1.4 Entity Subject to Audit

1.4.1 Introduction The European Commission (EC) and The Islamic Republic of Pakistan signed a Financing Agreement and launched the Strengthening of Livestock Services Project (SLSP) in Pakistan. The Federal Government has approved the Planning Commission Proforma-l (PC-I) for the project. The executing Agency for the project is Ministry of Food, Agriculture and Livestock (MINFAL). The EC has contracted Agrotech SpA for the provision of technical and implementation of SLSP.

The Project is being implemented in all four provinces of Pakistan including Islamabad Capital Territory (ICT), Azad Jammu & Kashmir (AJK), Federally Administered Tribal Areas (FATA) and Northern Areas (NAs) by the Livestock wing of the MINFAL and provincial livestock

The project, at the federal level, is being managed by the Federal Project Management Unit (FPMU) and covers Islamabad Capital Territory (ICT), Azad Jammu & Kashmir (AJK), Northern Areas and Federally Administered Tribal Areas (FATA). It is composed of a National Co-Director and a European Co- Director. Similarly in the provinces the Provincial Project Management Units (PPMUs) are composed of a National and a European Co-Manager. The National Co-Manager and European Co-Manager at the provincial level are the joint signatories of the EC funded project accounts.

1.4.2 Management Structure, Organizational Chart and Hierarchy at SLSP

The Ministry of Finance (MOF) signed the Finance Agreement (FA) with the EC for the Strengthening of Livestock Services Project (SLSP). According to the Financing Agreement the Ministry of Food, Agriculture & Livestock (MINFAL), Government of Pakistan, is the Executing Agency of the project. It is represented by its Livestock Wing and provincial Livestock Departments, now the Livestock wing has been separated and named as Ministry of Livestock and Dairy Development (MINLDD).




The project is implemented in Pakistan through four provincial management units (PPMUs) located in Lahore, Quetta, Hyderabad and Peshawar, which are under the overall Control of Federal Project Management Unit (FPMU) located in Islamabad Capital Territory (ICT). The FPMU also manages project directly in ICT, Federally Administered Tribal Areas (FATA) and Azad Jammu & Kashmir (AJK). Project management is responsible for planning & budgeting, co-ordination, monitoring & evaluation, reporting and timely and smooth implementation of the project.

MINFAL has established a Project Steering Committee (PSC) for policy guidance and co-ordination between all institutions involved in the project. The PSC is headed by the head of EA and includes representatives from all the relevant Ministries and national and provincial institutions. EC representative attends PSC meeting as an observer. The FPMU Co-Directors constitute the secretariat of the PSC. PSC have following members:

1. Secretary, Livestock & Dairy Development Department,Govt. of Punjab, Lahore Member

2. Secretary,Livestock & Fisheries Department,Govt. of Sindh, Karachi Member

3. Secretary, Livestock & Dairy Development Department,Govt. of NWFP, Peshawar Member

4. Secretary, Livestock and Dairy Development Department,Govt. of Balochistan, Quetta Member

5. Representative of Economic Affairs Division, Islamabad Member

6. Joint Secretary (Planning),Ministry of Food, Agriculture and livestock, Islamabad

Member7. National Co-Director,

Strengthening of Livestock Services Project Member/Secretary

8. Representative ofEuropean Commission Delegation to Pakistan

Member9. European Co-Director,

Strengthening of Livestock Services Project Observer

The function of the PSC is to review project progress, to approve the overall annual work plans and budgets, to ensure that the project is acting within the major policy directions of the Government of Pakistan, and to assist in coordination between relevant bodies. For these purposes the PSC will convene meeting twice a year. The FPMU may call for additional meeting.



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT FPMU is jointly headed by a European Co-Director and National Co-Director while the PPMUs are jointly managed by one European Co-Manager and one National Co-Manager; generally the national Co-Manager is the Director General (DG) of the department responsible for Livestock or an officer mandated by him/her.

SLSP hired the services of different types of consultants according to the requirements of the project activities. Consultants work under the supervision of Co-Directors/ Co-Managers and are responsible to report on the activities undertaken by them.




1.4.3 Internal Control SystemInternal control may be defined as the process designed and effected by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of the entity’s objective with regard to the reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. Internal control consists of following;

a) The control environmentb) The entity’s risk assessment processc) The information system, including the related business

processes, relevant to financial reporting and communicationd) Control activitiese) Monitoring of controls

2 The Audit

2.1 Audit Objectives

2.1.1 Project Management Internal Control System

The auditor will evaluate the internal control system set up for the programme management, in order to determine whether it:

is in accordance with the contractual basis of the programme; allows the programme to be conducted in an orderly and effective

way; provides for safeguarding assets; makes provision for a reasonable degree for prevention and

detection of irregularities and fraud; makes provision for the necessary reliability in entering the

programme activities in the accounts and preparing the accounts and financial reports.

The auditor will examine whether the system:

includes appropriate measures to segregate duties; includes appropriate measures to prevent management from

overriding control mechanisms; has operated throughout the whole reference period and

guarantees observance of the contractual procedures laid down in the programme and observance of the legal framework in the country concerned;

provides for appropriate procedures for avoiding conflicts of interest;

provides for the existence of an appropriate system for authorising operations.



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT 2.1.2 Auditor’s Duties

2.1.2.1 Organizational structure: Internal control structure of the management unit/beneficiary; Relations with other organizations; Where appropriate, organization of the partnership network.

2.1.2.2Planning: the following aspects in particular must be examined:

Preparation of annual work plans and cash flow forecasts; An evaluation of whether the programme managers have carried

out the duties arising from the contractual aspects of the programmes properly;

Check on implementation of the annual work plans and cash flow forecasts;

Link with the accounts.

2.1.2.3 Personnel: the following aspects in particular will be examined:

Personnel recruitment and selection procedure; Personnel training, experience and skills; Salaries paid to personnel in comparison with national scales and

similar programmes; Description of duties – their existence – and observance of them; Sufficient level of surveillance of personnel with systems such as

time sheets: use of working time and check on personnel performance.

2.1.2.4Consultants: the following aspects in particular will be examined:

Procedure for recruiting and selecting consultants; Consultant’s training, experience and skills; Fees paid to consultants compared with national scales and similar

programmes; Description of duties conferred upon consultants – their existence –

and observance of them; Sufficient level of surveillance of consultant’s work with systems

such as time sheets: check on performance.

2.1.2.5Accounting system for checking the use of funds and safeguarding assets; the following aspects in particular will be examined:

Existence of a separate accounting system for the programme or of an appropriate analytical system which provides information on the financial situation of the EU part of the programme and the overall situation, account being taken of each partner’s contribution;

Use of separate bank accounts for the programme;



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT Procedures to ensure the exhaustiveness of the programme

revenue; check that expenditure and revenue are not offset; System for accepting and authorising transactions including

amendment and deletion of data; Accounting process, including the electronic processing of data; Reporting procedures, use of accounting records and supporting

documents; Protection of software, back-up systems and access control.

2.1.2.6Surveillance function: Existence of manuals with written rules, instructions and

procedures; Authorisations and sub delegation of powers and signatures; No overlapping of powers in the organisation chart.

2.1.2.7Observance of the procedures laid down in the contract(s).

2.1.2.8Compatibility of the terms of the contract with the practices and local legislation where the programme is introduced.

2.1.2.9The inventory of fixed assets used in the programme.

2.1.2.10 The inventory of bank accounts and the rules applicable for their use.

2.1.2.11 The deadlines set in the programme.

2.1.2.12 Subcontracting policy, including with affiliated companies.

2.1.2.13 Observance of the competition rules in public procurement.

2.1.2.14 Procedures for handling and following up disputes.

2.1.2.15 Appropriate segregation of duties.

Where management shortcomings are detected, the auditor must determine the risk and the financial consequences for the programme and will make recommendations concerning the measures which should be taken in order to remedy the situation, and the possible degree of urgency of such measures. The auditor must also make recommendations in order to communicate any shortcoming in the current procedures which has not been detected by the management.



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT 2.1.3 Financial Control In order to reach the audit opinion, the auditor should ensure that the objectives and sub-objectives set out below have been respected:

Amounts invoiced to the Commission relate to eligible expenditure:a. Expenditure has been borne and was the responsibility of the

Project Management Units (FPMU & PPMUs) or person authorised by the PMUs.

b. Expenditure relates to the programme as per approved Annual Work Plan (AWP), decision of project Steering Committee Coordination Committee & decisions of PMUs. For this purpose the auditor will ensure that:

activities carried out or financed with programme funds are provided for in the contractual basis. The auditors will check that the expenditure has not been effected for private purposes;

the expenditure comes under one of the budget headings of the programme;

there is no overrun in the budget headings of the programme. If there is, check that the overruns remain within the agreed margins.

c. Expenditure is substantiated by appropriate documents and correctly entered in the accounts.

d. Expenditure has been incurred and disbursed within the periods authorised under the contract for operations effected within the period covered by the audit.

e. Expenditure charged to the programme has been correctly authorized, in accordance with the contractual basis of the programme.

f. Check that the expenditure incurred is not listed as ineligible expenditure in the contractual basis of the programme.

g. Check that the expenditure incurred is in accordance with the contractual basis of the programme and the legal system of the country.

All the programme revenue (the contribution from the EU and from the other partners and any other programme revenue) must be properly recorded indicated in the financial reports:

a. The revenue from the funds is mentioned in the financial reports and properly accounted for.

b. The revenue obtained by the beneficiaries from the programme funds has been used in accordance with the terms of the contract (s) or, failing that, in line with the explicit agreement given by the Commission to beneficiary.

c. The financial contributions to the programme from partners other than the Commission have been given in accordance with the timetable and other requirements laid down in the contract(s).



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT The assets have been acquired and are managed in accordance with the contracts(s).

a. The assets exist, are held by the PPMUs and are correctly evaluated.

b. The procedures used for acquiring assets, and the nature of the assets acquired, are in accordance with the EC rules for procurement.

c. The assets are used exclusively within the programme. In particular, there is no private use of assets (cars etc.), unless permitted by the contract(s).

All the debts and all the commitments are described in the financial reports and have been assumed in accordance with the contractual basis.

a. The debts and commitments relating to eligible expenditure under the programme are set out in the financial reports for the programme.

b. Only debts and commitments relating to the implementation of the programme are recorded.

The other administrative and financial conditions of the contract have been met.

2.2 Audit Scope

2.2.1 Agreement Terms and Conditions

The scope of the substantive audit procedures will be based on evaluation of the internal control system and application of sampling techniques.

A non-exhaustive list of examples of audit procedures to be carried out is given below. The auditors will endeavour to adapt this list and these procedures in line with the specific requirements of the audit mission:

Check an original supporting documents, consisting of original vouchers countersigned by National and European Co-Directors (for FPMU) & National & European Co-Managers (for PPMUs), accounting books, petty cash books, ledger, etc.

Reconciliation of bank accounts; Check, in accordance with the specific audit procedures, that the

following revenue has been shown in full in the financial reports for the programme:

Financial revenue relating to the programme funds; Disposal and withdrawal of the programme assets; Revenue relating to activities not laid down by the

contractual basis of the programme;

Check on the physical existence of the assets as per inventory maintained in the project office;



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT Specific audit procedures for checking the correct evaluation and

authorisation of possible contributions in kind; Where financial contributions are not paid direct to the

management unit/beneficiary/contractor, analysis of the use of the funds allocated to the programme before they are transferred to the financial account of the programme;

Obtain confirmation from the banks for the bank balances, authority to sign, guarantees, sums lent and sums borrowed etc;

Obtain confirmation from lawyers in the event of ongoing disputes.

Auditors will quantify the problems and financial adjustments noted in the course of the procedures carried out and will indicate the decisions and steps which they suggests to the Commission for taking the necessary corrective action. Where extrapolation techniques are used in order to propose financial corrections, they must be clearly substantiated and documented. Where significant recurring difference are found, the auditor will evaluate whether the sample tested should be extended in order to put a sufficiently precise figure on the part of the total population concerned by this error. In that event, the auditor must contact the Commission immediately in order to evaluate the impact on the planning of supplementary tests.

2.2.2 Scope of Work

The audit will ascertain whether the use of funds has been in accordance with the project contractual basis and within the project activities, inter alia through examination of the internal control system in place, the accounting of the European Community finds and the verification of project expenditure and the application of proper procedures as stipulated in the contractual basis. (Please see section 2.3, 3.2.1 for the project details and agreement terms & conditions respectively.)

2.2.3 Scope Limitations

With respect to cash in hand & inventory the evidence available to us was limited because we did not observe the counting of the cash in hand and physical stock as at 31st December 2005, since that date was prior to our appointment as auditor of the project.

2.3 Audit Process and Methodology

2.3.1 Planning:

a. Place of performance of the audit:

The audit was performed in Pakistan.

b. Timetable, preparatory and opening meetings:

Opening meeting was held with Strengthening of Livestock Services Project (SLSP) officials on July 2, 2009.




c. Planning activities, audit plan and audit work programmes:

We planned the audit so that it is performed in an effective and efficient manner. Adequate planning involves that appropriate attention is devoted to important areas of the audit, that potential problems are identified and resolved on a timely basis and that the audit is properly organized and managed in order to be performed in an effective manner.We prepared an audit plan that documented the audit approach and key principles of audit planning, conduct and reporting.

d. Understanding the engagement context and the entity and risk assessment procedure:

We performed risk assessment procedures that were sufficient to obtain an understanding of and document the engagement context and the entity including particularly it’s ICS and Financial Controls (FCs). The understanding was sufficient to identify and assess the risks of deficiencies in the design and operating effectiveness of both internal controls and Financial Controls.

e. Weaknesses and deficiencies and risk assessment:

We considered the risks, weaknesses and deficiencies in the design and operating effectiveness of the ICS and FC to determine the nature, timing and extent of evidence gathering procedures.This involves assessing the risks that

The agreement terms and conditions for the project are not complied with;

The objectives of the project are not , or not entirely achieved;

The project operations and activities are not performed in conformity with the agreement terms and conditions;

The financial report of the project is not reliable i.e. that it does not present, in all material respects, the expenditure actually incurred and revenue received for the project in conformity with the applicable agreement terms and conditions;

The funds of the project have not, in all material respects, been used in conformity with the agreement terms and conditions in all material respects;

Fraud and irregularities can occur or have occurred which have an impact on one or more of the above issues



For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT and which are not detected and corrected in timely manner.

2.3.2 Executiona. Internal control system and tests of controls:

During the planning stage we obtained a sufficient understanding of and documented internal control system through preparation of internal control checklists, the material of which was extracted from the documents provided by SLSP.

b. Sampling and other means of selecting items for testing:

Non-statistical audit sampling was used to select items for performing test of controls.

c. Fraud and irregularities:

Project is managed jointly by the EC & GoP through their representatives. As for as subject matter is concerned we have not found any instance.

d. Debriefing memorandum:

At the end of our audit we will submit our Observations along with our comments.

e. Closing meeting:

On September 4, 2009 meeting held with SLSP officials.

2.3.3 Documentation and audit evidence:

a. Documentation and working papers:

We have gathered sufficient, appropriate audit evidence to support our opinion and have ensured that audit is carried out in accordance with International Standard on Assurance Engagements (‘ISAE’) and relevant International Standard on Auditing (‘ISA’)

b. Audit Evidence

We have obtained sufficient, appropriate audit evidence to draw reasonable conclusions on which to base the audit opinion.

c. Letter of representation:

After the issue of initialled report we have to take representation letter.

d. Access to records and documents of the entity:




We have made available related record except in some cases as are mentioned in findings which are elaborated in section 3 of this report.

e. Audit procedures for obtaining audit evidence:

We have obtained sufficient audit evidence to draw reasonable conclusion on which we have based our opinion by performing:

Audit procedures to obtain an understanding of the entity and its internal control to assess the risks of material errors in the financial report;

Tests of controls; and

Substantive procedures

Audit procedure includes but not limited to: inspection (of records, documents and assets), observations, inquiry of management and others within the entity, confirmations, recalculations, re-performance and analytical procedures.

2.3.4 Reporting

Reporting requirements

The independent assurance report in accordance to the Annexure 3 of the TORs has to be submitted.

Audit findings

Audit findings are reported in accordance with the principles and criteria stated in Section 3.3.1 and 4.3.1of the ‘Guidelines for auditors.

Audit recommendations

The significant internal control and financial control weaknesses are mentioned in the Assurance Report while the insignificant and other deficiencies are given in the part 3 to this report.

Language of the report

The report shall be in English.

Procedure for the consultation and submission of report

The reporting is to be done in accordance with the agreed TORs.




3 Findings and Recommendations

3.1 Financial Findings

Unit wise financial findings (Ineligible cost) and recommendations are as follows:

A. Provincial Project Management Unit (PPMU)-SindhB. Provincial Project Management Unit (PPMU)-Balochistan

A. Provincial Project Management Unit (PPMU)-Sindh

B. Provincial Project Management Unit (PPMU)-Balochistan

The financial findings (Ineligible cost) of the audit relating to PPMU - Balochistan are as follows:




3.2 Financial Findings subject to further consideration – Questioned Cost

Unit wise financial findings of the audit subject to further consideration (questioned cost) are as follows:



Financial findings subject to further consideration (questioned cost) relating to Sindh are detailed below:

Finding n°: 01 Title: Workshop/Training-Transportation

Compliance issue: Ineligible expenditure – missing documentation

Description of the finding:

Payment made to various employees on account of DSA in connection with provision of A-1 training.

Facts: We are unable to verify the eligibility of the expenditure in the absence of supporting documentation related to voucher # 357 dated October 03, 2005.

Criteria: Article 11 of Annex 2 of the Finance Agreement relating to questioned cost; guides an auditor to classify an expense as a questioned cost if it is not backed by original or sufficient supporting evidence.

Cause: We have been verbally informed that the supporting documents went missing due to the continuous movement of record between different locations.

Impact: Due to non availability of the mentioned vouchers, the costs claimed remain unverified.

Amount €: 920.90 (Rs.65,104)

Related management control finding:

Inadequate record keeping.

Comments from the Entity: All the relevant supporting documents are available for verification with voucher no. 374 dated 28/10/09.

Further comments of the Auditor: The relevant supporting referred




in entity comments was not more than a copy of listing of employees to whom DSA was paid. The details regarding approval of participants, attendance sheet, computation of DSA, training dates and approval for training were not explained to us, therefore, we understand that the above referred payment is ineligible

Finding n°: 02 Title: Workshop/Training-Transportation

Compliance issue: Questioned cost – missing/inadequate documentation

Description of the finding: Facts: During the course of our audit we observed that voucher # 422 dated December 12, 2005 does not contain supporting documents relating to purpose of travel and travel approval form.




Amount €: 576.24 (Rs.40,000)



Comments from the Entity: All the relevant supporting documents are available for verification.

Further comments of the Auditor: We understand that entity comments are general and do not explain the missing documents mentioned above, therefore, the cost remains questioned.




Finding n°: 03 Title: Fee Facilitator – Miscellaneous

Compliance issue: Ineligible expenditure – missing/inadequate documentation


Facts: We have not been provided with voucher # 344 and 347, so we are unable to perform audit procedures.




Amount €: 195.47 (Rs.13,843)

Related management control finding: Inadequate record keeping.

Comments from the Entity: Voucher no. 344 to 347 was allocated to a single voucher that was prepared on a plain paper, which clearly shows that the payment is for the DSA of four course participants of AI training. Acknowledgements of receipt are also attached with the voucher. All other necessary documents are available with the voucher no. 374 dated 28/10/2005.

Further comments of the Auditor: It is evident from entity comments that proper voucher was not prepared but plain paper was used.




Further, the relevant supporting referred in entity comments was not more than a copy of listing of employees to whom DSA was paid. The details regarding approval of participants, attendance sheet, computation of DSA, training dates and approval for training were not explained to us, therefore, we understand that the above referred payment is ineligible.


Financial findings subject to further consideration (questioned cost) relating to Balochistan are detailed below:

Finding n°: 01 Title: Consumables

Compliance issue: Questioned cost – missing/inadequate documentation


Facts: We observed that voucher # 137 dated September 20, 2005 did not contain any purchase requisition for the purchase of DVD’s on animal production.




Amount €: 127.22 (Rs.9,010)






Comments from the Entity: This DVDs have been purchased by ECM from South Africa on need basis, while he was on an overseas travel, hence the purchase requisition could not be raised.

Further comments of the Auditor: We appreciate the entity comments; however, it is pertinent to mention that almost all the activities of the project are incurred due to need of those activities. The entity should have followed its procedures for procurement.

3.2 Management Control Findings

Unit wise management control findings are cited as follows:



Management control findings relating PPMU-Sindh are detailed below:

Finding n°: 01 Title: Miscellaneous Services

Management control issue:

Issue n°: 09 other – Wrong Allocation

Description of the finding: Payment for Maintenance Contract of Photo Copier has been allocated to Miscellaneous Services whereas it should be charged to Repair and Maintenance – Office equipment.

Voucher # 349 dated October 05, 2005




Recommendation: Management should charge expense in proper head of account.Recommendation priority: Prompt specific action is required.

Comments from the Entity: noted for future

Further comments of the Auditor: We offer no comments as no comments is given by the entity.

Finding n°: 02 Title: Accommodation

Compliance issue: Issue No 09 –Other missing/inadequate documentation


During the course of our audit we have not been provided with the voucher # 387B therefore we are unable to verify the expense.

Recommendation: Management should charge expense in proper head of account.Recommendation priority: Prompt specific action is required.

Comments from the Entity: noted for future





Finding n°: 03 Title: Salaries


Issue n°: 09 (Human resources and payroll management)

Description of the finding: During the course of audit we have not been provided with personnel files of employees for verification.Recommendation: Management should maintain personal files in proper form.Recommendation priority: Prompt specific action is required.

Comments from the Entity:





Finding n°: 04 Title: General

Management control issue: Issue n°: 07 (Cash and Bank Management)

Description of the finding: The bank accounts have been operated by two signatories, European Co-Manager and National Co-Manager. At the time of opening of account the following were the Co-Managers:

Mr J.H.H Maehl – European Co-Manager Mr Baig Muhammad Junejo – National Co Manager

However, during the period the National Co-Manager was changed and Mr Sarwar joined the project. However, Ex-National Co-Manager continued to sign and operate as one of the signatories, thus non-compliance of Internal Regulation & Procedures.

Recommendation: Management should take steps to ensure that the authorized signatories are updated with bank on leaving and joining of any existing signatory. Recommendation priority: Prompt specific action is required.

Comments from the Entity: Now the only signatories to the bank account of PPMU Sindh are Dr. Ghulam Sarwar Shaikh, NCM and Mr. Trevlin Webb, ECM. Dr. Saeed Ahmad, NCD and Dr. Tony Warner, ECD are alternate signatories to the account.

Further comments of the Auditor: The above comment does not address our finding.






Issue n°: 05 (Control Environment)


In several instances invoices were not stamped ‘PAID’ to avoid chances of duplicate payment as required vide provision 4.1 sub-clause 15 to Internal Regulations & Procedures.

Recommendation:

Management should take steps to ensure that invoice has been stamped as ‘PAID’ as per Internal Regulations & Procedures.

Recommendation priority:

Prompt specific action is required.

Comments from the Entity: Noted for future compliance.

Further comments of the Auditor: We appreciate future compliance by the entity.





Management control findings relating PPMU-Balochistan are detailed below:


Management control issue: Issue n°: 05 (Control Environment) Description of the finding:

In several instances invoices were not stamped ‘PAID’ to avoid chances of duplicate payment as required vide provision 4.1 sub-clause 15 to Internal Regulations & Procedures.

Recommendation: Management should take steps to ensure that invoice has been stamped as ‘PAID’ as per Internal Regulations & Procedures. Recommendation priority: Prompt specific action is required.

Comments from the Entity: Noted for future compliance.





Finding n°: 02 Title: Consumables

Compliance issue: Issue No 1 (Missing / Inadequate Documentation)


We observed that the voucher # 203 dated October 26, 2005 did not contain any purchase requisition for the miscellaneous purchases made by ECM.

Recommendation:

Recommendation priority: Prompt specific action is required.Comments from the Entity: Noted for future compliance.





3.3 Other Compliance FindingsUnit wise other compliance finds are as follows:



Other compliance findings relating to PPMU-Sindh are cited below:

Finding n°: 01 Title: Salaries – Income tax

Compliance issue: other non compliance (Income tax)


Facts: During the course of our audit we observed that income tax has not been deducted according to the Income tax Ordinance 2001 from the employees’ salaries.

Criteria: The provisions of Income Tax Ordinance 2001 require the WHT at source deduction on the payment of salaries to employees.

Cause: The management did not comment on the above mentioned finding.

Impact: Due to the non compliance with the Income Tax Ordinance 2001, the income tax authorities can take penal action.


Inadequate recording of transactions and inadequate knowledge.

Comments from the Entity: Now the taxes on salaries are deducted according to Income Tax Ordinance 2001.

Further comments of the Auditor: Tax should have been deducted by the entity else entity is responsible to pay tax not deducted.






Issue n°: 07 (Cash and Bank Management)


Project funds were kept in current accounts with Standard Chartered Bank, Karachi and National Bank of Pakistan, Hyderabad, in contravention of the requirement to place such funds on high interest bearing accounts.

Recommendation:

Management should take steps to ensure that they use the maximum interest bearing account as per Finance Agreement.

Recommendation priority: Prompt specific action is required.

Comments from the Entity: Now both accounts have been liquidated and a saving account has been opened.

Further comments of the Auditor: Management agrees with our finding.





Other compliance findings relating to PPMU-Balochistan are cited below:



Issue n°: 07 (Cash and Bank Management)


Project funds were kept in current accounts with Standard Chartered Bank, Quetta in contravention of the requirement to place such funds on high interest bearing accounts.

Recommendation:

Management should take steps to ensure that they use the maximum interest bearing account as per Finance Agreement.

Recommendation priority: Prompt specific action is required.

Comments from the Entity: At the start of the project only current accounts were opened both at FPMU and PPMUs. In compliance to auditor’s recommendations, interest bearing accounts were opened at FPMU, where major funds are kept, and the PPMUs are provided funds on need basis.

Further comments of the Auditor: We noticed that some funds remains in PPMUs bank accounts, therefore, we understand that management should comply with the recommendation.






Issue n°: 07 (Cash and Bank Management) Description of the finding:

During the course of our audit we observed that various payments made to the vendors above Rs.5000 in cash against the provisions of Income Tax Ordinance 2001. The above mentioned instance is as follows:

Voucher # 171 dated September 27, 2009Voucher # 183 dated October 10, 2009Voucher # 193 dated October 20, 2009

Recommendation:

Management should comply with the provisions of Income Tax Ordinance 2001.



Comments from the Entity: Now payments are being made according to law.

Further comments of the Auditor: We offer no comments as no comments are given by the entity.




Finding n°: 03 Title: Salaries – Income Tax


Issue n°: 09 (Other – Non Compliance of Income Tax Provisions)


During the course of our audit we observed that income tax has not been deducted from the staff salaries paid, as required by the Income Tax Ordinance, 2001

Recommendation:

Management should ensure the compliance of the provision to Income Tax Ordinance 2001.



Comments from the Entity: Now the taxes are properly deducted and deposited from salaries.

Further comments of the Auditor: Tax should have been deducted by the entity else entity is responsible to pay tax not deducted.




4 Findings concerning Specific Matters

There being no specific matters concerning this audit therefore no finding is observed.

5 Findings concerning Expert Work performed

No expert work required for the performance of this audit therefore no finding observed.




Annexure




Annex 1: Financial Report Subject to Audit




Annex 2: Cash Flow Reconciliation

Cash Flow Reconciliation for Strengthening of Livestock Services Project (SLSP)

For the period from 1st September 2008 to 30th June 2009

Description Local currency

€

Opening balance as per cashier and bank statements as at 1st September 20008 (A)

RECEIPTS

Disbursements from the Commission

Interest received

Other receipts

Total Receipts (B)

PAYMENTS

Payments made (expenditure, purchase of assets etc)

Other disbursements <specify e.g. repayments of loans, advances>

Total Payments (C)

Calculated balance (D=A+B-C)

Cash in hand

Balance of account <xxx> in Bank <xxx> held in currency <xxx>

Balance of account <yyy> in Bank <yyy> held in currency <yyy>

Total balance as per cashier and bank statements as at 30th June 2009 (E)

Differences in receipts and income in the Financial Report (1)




Differences in payments and expenditure in the Financial Report (2)

Total Project funds as at 30th June 2009 (F)

Difference (G= F - D) (2)

Annex 3: Other Information-Salary Survey

Comparison of the Salaries Paid to Professional

DesignationGross Monthly Compensation

Rupees

Variance

SLSP Market Average

Amount Rupees

%

Administration OfficerAccounts OfficerPublic Relation OfficerIT SpecialistSenior SecretarySecretaryAdministration AssistantNetwork AdministratorReceptionistSecurity GuardDriverSweeper

Comparison has been made on the basis of salaries for the month of December 2005.




Annex 4: Persons contacted or involved in the Audit

The Auditor - Khalid Majid Rehman, Chartered Accountants

Khalid Majid

Engagement Partner.

Sharif-ud-din Khilji

Engagement Manager

Muhammad Atif Saeed

Engagement Assistant Manager

Aamir Hassan Khan

Engagement Supervisor

Khurram Ijaz

Job Incharge

The Entity subject to audit - Strengthening of Livestock Services Project (SLSP)

Dr. Saeed Ahmad

National Co-Director

Mr. Qazi Sami-ur- Rahman

Accounts officer

Mr. Liaqat Ali Khan

Accounts Officer

EuropeAid Co-operation Office

Mr. Tony Warner

European Co-Director

Mr. F. K. Hoffer

Admin. & Finance Consultant
