Financial Attest Audit Report

on the Accounts of

Rehabilitation and Reconstruction ofEarthquake Damaged Roads

IBRD Loan 7341-PakIDA Credit 4816-Pak

National Highway Authority

Ministry of Communications

Government of Pakistan

For the Financial Year 2013-14

Auditor General of Pakistan Islamabad

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TABLE OF CONTENTS

Abbreviations and Acronyms ................ 1..... ................... 1Preface .... ....................................................... 2

PART-I

Project Overview .................................................. 3Auditor's Report to the Management ................... 4.... ............ 4Financial Statements .................... 6...........................6

PART-II

COVER LETTER TO THE MANAGEMENT LETTER...................... 14EXECUTIVE SUMMARY........ ....... ........................... 16MANAGEMENT LETTER ..................................... ..... 18

1. Introduction ......................................... ......... 182. Audit Objectives ............................................... 223. Audit Scope and Methodology ....................... ..... ......... 224. AUDIT FINDINGS AND RECOMMENDATIONS ......... ............. 23

4.1 Organization and Management ................................ 234.2 Financial Management............ ................... ...... 244.3 Procurement of Goods and Contracts Management/Administration........... 264.4 Construction and Works ........... . ................. ..... 264.5 Asset Management............ .................. ........... 274.6 Monitoring and Evaluation ................................... 294.7 Compliance with Loan Covenants ......................... ..... 294.8 Sustainability ............................................ 294.9 Overall Assessment .......................................... 29

5. CONCLUSION .......................................... ........ 30

ACKNOWLEDGEMENT ............................................... 31

Abbreviations and Acronyms

AJ&K Azad Jammu & Kashmir

AUD Australian Dollar

ECNEC Executive Committee of the National Economic Council

EMP Environment Management Plan

EQDR Earthquake Damaged Roads

ERRA Earthquake Reconstruction and Rehabilitation Authority

FWO Frontier Works Organization

GoP Government of Pakistan

HRP Highway Rehabilitation Project

IBRD International Bank Reconstruction & Development

IDA International Development Association

IPC Interim Payment Certificate

ISSAI International Standards of Supreme Audit Institutions

JVR Jhelum Valley Road (Muzaffarabad-Chakothi)

km Kilometer

KPK Khyber Pakhtunkhwa

MOC Ministry of Communications

N-15 National Highway-15 (Basian-Balakot-Naran Section)

N-35 National Highway-35 (Battal-Batagram-Thakot Section of KarakoramHighway)

NOC No Objection Certificate

NHA National Highway Authority

NHIP National Highway Improvement Programme

OM Office Memorandum

PEC Pakistan Engineering Council

PC-I Planning Commission (Proforma-I)

PPR Public Procurement Rules

VO Variation Order

I

PREFACE

The Auditor General conducts audit subject to Articles 169 and 170 of the

Constitution of the Islamic Republic of Pakistan, 1973 read with Section 7 of the AuditorGeneral's (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001.

The Financial Attest Audit of the Project 'Rehabilitation and Reconstruction ofEarthquake Damaged Roads' financed by the World Bank, through Loan No. 7341-Pak& IDA Credit 4816-Pak, was carried out accordingly.

The Directorate General, Audit Works (Federal), Islamabad, conducted FinancialAttest Audit of the Project (Rehabilitation and Reconstruction of Earthquake DamagedRoads having total length of 128 km in the Northern Areas of Pakistan, N-35, N-15 andJhelum Valley Road in Azad Jammu & Kashmir) during November, 2014 for the period2013-14 with a view to expressing opinion on financial statements and reporting significantfindings to the stakeholders. Audit examined the economy, efficiency, and effectivenessaspects of the project. In addition, Audit also assessed, on test check basis, whether themanagement complied with applicable laws, rules, and regulations in managing the Project.The Report indicates specific actions that, if taken, will help the management realize theobjectives of the project.

The Report consists of two parts. Part-I contains Auditor's Report (Audit Opinion)and Financial Statements. Part-II contains Management Letter comprising ExecutiveSummary and Audit Findings.

The Report has been prepared for submission to the World Bank (International Bankfor Reconstruction and Development) in terms of its Loan Agreement with the Governmentof Islamic Republic of Pakistan.

Dated: 5th January, 2015 ( anz or Akhtar Malik)Islamabad Director General Audit Works (Federal)

2

PART-I

1. PROJECT OVERVIEW

2. AUDITOR'S REPORT TO MANAGEMENT

3. FINANCIAL STATEMENTS

PROJECT OVERVIEW

Name of the Project/Program: Earthquake Damaged Roads ProjectN-35 (Battal-Batagram-Thakot Section of KarakoramHighway)N- 15 (Basian-Balakot-Naran Section)JVR (Jhelum Valley Road Muzaffarabad-Chakothi)

Sponsoring Authority: World Bank (International Bank for Reconstructionand Development)

Executing Authority: National Highway Authority

Loan No. IBRD-7341-Pak & IDA Credit 4816

PC-I Cost: Rs 6,000.000 million (Original)Rs 14,788.815 million (Revised)

Date of Commencement: 2006-07

Actual Date of Commencement: 4" May, 2007

Date of Completion (as per PC-I): 2008-09 (36 months)

Date of Approval by ECNEC: 7h March, 2007 (Original)2 9h July, 2011 (Revised)

Loan Closing Date: 3 0th June, 2009 (Original)30th June, 2012 (Revised)

Loan Utilization Status in FY 2013-14:

i. IBRD/IDA share: Rs 889.404 millionii. Government of Pakistan share: Rs 91.486 million

Total amount for the year: Rs 980.890 million

Expenditure upto June 2014: Rs 16,275.838 million

3

AUDITOR'S REPORT TO THE MANAGEMENT

The Directorate General Audit Works (Federal), Islamabad, has audited the

accompanying Financial Statements of the Project 'Rehabilitation and Reconstruction ofEarthquake Damaged Roads' that comprise of Statement of Receipts and Payments,Statement of Comparison of Budget and Actual together with the notes forming partthereof for the year ended 30th June, 2014 financed by the World Bank, through IBRDLoan No. 7341-Pak & IDA Credit 4816-Pak.

It is the responsibility of project management to establish and maintain a system ofinternal control, and prepare and present the Statement of Receipts and Payments inconformity with the requirements of Cash Basis International Public Sector AccountingStandards (IPSAS), Financial Reporting under the Cash Basis of Accounting Standard.

The responsibility of the Auditor is to express an opinion on the Financial Statementsbased on the audit conducted. Audit was conducted in accordance with the InternationalStandards of Supreme Audit Institutions. These standards require the Audit to obtainreasonable assurance that the Financial Statements are free of material misstatements. Theaudit process includes examining, on a test basis, evidence supporting the amounts anddisclosures in the Financial Statements. It also includes assessing the accounting principlesused and significant estimates made by the management, as well as, evaluating the overallstatement presentation. We believe that our audit provides a reasonable basis for ouropinion.

In our opinion:

a) The Financial Statements presents fairly, in all material respects, the cashreceipts and payments by the project for the year ended 30th June, 2014 inaccordance with Cash Basis IPSAS, Financial Reporting under the CashBasis of Accounting Standard.

b) The expenditure has been incurred in accordance with the requirements oflegal agreements.

In addition:

a) The Imprest Account gives a true and fair view of the receipts and paymentsmade during the year ended 30th June, 2014.

4

b) An amount of Rs 889.404 million was transferred from Imprest Account ofIDA Credit No. 4816 and utilized. Expenditure incurred is eligible forliquidation.

c) The receipts and payments support Imprest Account liquidation during theyear.

Dated: 5h January, 2015 anor Akhtar Malik)Islamabad Director General Audit Works (Federal)

5

FINANCIAL STATEMENTS

REHABILITATION AND RECONSTRUCTIONOF EARTHQUAKE DAMAGED ROADS

IBRD LOAN 7341-PAKIDA CREDIT 4816-PAK

(NATIONAL HIGHWAY AUTHORITY)

FOR THE YEAR ENDED 3 0 th JUNE, 2014

6

FINANCIAL STATEMENTS

REHABILITATION AND RECONSTRUCTION OFEARTHQUAKE DAMAGED ROADS

IBRD LOAN 7341-PAK

IDA CREDIT 4816-PAK

FOR THE YEAR ENDED 30t JUNE, 2014

Page No.

Statement of Cash Receipts and Payments 8

Statement of Comparison of Budget & Actual Amounts 9

Notes to the Financial Statements 10

Statement of Withdrawal Applications 11-12

Management Assertion 13

7

Statement of Cash Receipts and PaymentsV ANNUAL FINANCIAL STATEMENTS

NATIONAL HIGHWAY IMPROVEMENT PROGRAM (EDR)NHIP LOANS/CREDITS IDA CREDIT- 4816-PAK., IBRD LOAN NO. 7341-PAK

Statement of Cash Receipts and PaymentsFor the year ended June 30, 2014

FOR FY 2013-14(PKR IN MILLION) FOR FY 2012-13 (PKR IN MILLION)

Receipts/Pay Receipts/Pa Receipts/Pa TotalNote ments by yments by Talmets yments by Rets/by Receipts/

Project Third Project PaymentsThird Parties

Authorities Parties AuthoritiesReceiptsIDA & IBRD Funds 4 889.404 - 889.404 3,321.089 - 3,321.089Government Funds 5 91.486 - 91.486 - - -

Total Receipts 980.890 - 980.890 3,321.089 - 3,321.089

PaymentsCivil Works mcE Fscalation excLpayables 6 952.578 - 952.578 3,227.627 - 3227.627

Consulting Services 7 26.633 - 26.633 79.988 - 79.988

Utility Relocation 8 - - -

Land Acquisition 9 1.150 - 1.150 8.986 - 8.986Establishment 10 0.529 - 0.529 4.488 - 4.488

Total Payments 980.890 - 980.890 3,321.089 - 3,321.089

Increase/(Decrease) in Cash

Cash at beginning of year 0.000 --

Increase/(Decrease) in Cash 0.000 - - 0.000 - 0.000Cash at end of year - - 0.000 - 0.000

Pregoressive Expenditure up to 30,06.2014 16,275.838 - 16,275.838 15,294.948 15,294.948

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NATIONAL HIGHWAY IMPROVEMENT PROGRAM (EDR)NHIP LOANS/CREDITS IDA CREDIT- 4816-PAK, IBRD LOAN NO. 7341-PAK

Notes to the Financial StatementsFor the year ended June 30, 2014

I Nature and Status of the ProjectThe project provides for the reconstruction & rehabilitation of 128 kin of the following ro* ads damaged bythe earthquake on October 8, 2005. N- 15 (Basian-Balakot-Mahandri-Naran)N-35 (Battal-Thakot-Batagram) & Jhelum Valley Road (Muzaffarabad-Chakhoti)

2 Statement of Compliance

These financial statements have been prepared in accordance with approved accounting standards andinterpretations issued by the International Accounting Standards Board (the lASB) and the InternationalFinancial Reporting Interpretations Committee (IFRIC) of the IASB, as applicable in Pakistan.

3 Accounting Convention and Basis for Preparation

Financial statement have been prepared under historic cost convention in accordance with approvedaccounting standards.

Note FY 2014 FY 2013

4 IDA & IBRD Funds (PKR IN MILLION) (PKR IN MILLION)

IDA Funds 889.404 3,321.089IBRD Funds - -Total: - U9.404 3,321.089No fresh funds were received during 2013-14.This receipt represent funds transferred from HRP out of balance in hand on 30.06.2013.

5 Government Counterpart FundGovernment Funds 91.486Total: - 91.486Funds Transferred from Loan 4816 (HRP)

6 Civil WorksExpenditure from IDA and IBRD Funds 889.404 3.0227.627Expenditure from GoP 63.174 -Total: - 952.578 3,227.627

7 Consulting ServicesExpenditure from IDA and IBRD Funds - 79.988Expenditure from GoP 26.633 -Total: - 26.633 79.988

8 Utility RelocationExpenditure from IDA and IBRD Funds -Expenditure from GoP -Total: - - -

9 Land AcquisitionExpenditure from IDA and IBRD Funds - 8.986Expenditure from GoP 1.150 -

Total: - 1.150 8.986

10 EstablishmentExpenditure from IDA and IBRD Funds 4.488Expenditure from GoP 0.529 -

Total: - 0.529 4.488

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NOTES

FINANCIAL STATEMENTS

REHABILITATION AND RECONSTRUCTION OF

EARTHQUAKE DAMAGED ROADS

IBRD LOAN 7341-PAK, IDA CREDIT 4816-PAK

FOR THE YEAR ENDED 30TH JUNE, 2014

1 MANAGEMENT ASSERTION

The proceeds of the withdrawals of Loan have been utilized in the manner stipulatedin the Loan Agrrement with The World Bank (IBRD & IDA).

2 ACCOUNTING CONVENTION

Financial statement have been prepared under historic cost convention in accordancewith approved accounting standards.

A-VAudit Officer

0to. Genera. Aadh Worksr,!deral) Islama.ad