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OFFICE OF THE PRINCIPAL DIRECTOR OF AUDIT (CENTRAL)LUCKNOW,

BRANCH OFFICE - ALLAHABADSatyanishtha Bhowan, 15-A, Doyanand Marg, Allahobod-211001

No: PDA(C)/Br. AIId/ AC-Cell/2018-19/ Date: 06.08.2018

To

The Chairman,U.P. Water Sector Restructuring Project,Walmi Bhawan, Utaratia,Lucknow- 226026.

Report on the Project Financial Statements

We have audited the accompanying financial statements of the "U.P. Water SectorRestructuring Project Phase-Il" Finance under World Bank Cr. No. 5298-IN. This comprisesthe Statement of Sources and Applications of Funds and the Reconciliation of claims tototal Applications of Funds for the Financial Year 2017-18. These statements are theresponsibility of the Project's management. Our responsibility is to express an opinion onthe accompanying financial statements based on our audit.

We conducted our audit in accordance with the Auditing Standards promulgated by theComptroller and Auditor General of India. These Standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement our audit examines; on the test basis, evidencesupporting the amount and disclosures in the financial statements.

It also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall statement presentation. We believe theaudit provides a reasonable basis for our opinion.

In addition, in our opinion,

(a) With respect to Interim Financial report (IFR), adequate supportingdocumentation has been maintained to support claims to the World Bank forreimbursement of expenditure incurred and (b) except for ineligible expenditureas detailed in the audit certificate to this audit report, expenditures are eligible forfinancing Loan No. IDA Credit 5298-IN.

During the course of audit, IFR and the connected documents were examined andthese can be relied upon to support reimbursement under the aforesaid CreditAgreement.

SI. No. Credit/Loan No. Total expenditure (Z in millions)

1 IDA Credit 5298- IN 2279.700

This report is issued without prejudice to CAG's right to incorporate the observation inthe report of CAG of India for being laid before Parliament/State or UT Legislature.

We further report that:

1. The project Implementation Plan of World Bank envisaged annual action plan tocomplete the project in stipulated time frame so that the intended benefit of theproject may be obtained timely.The department prepared annual action plan to achieve the targets of the projectin 2017-18 for which budget provision for Z3000.000 million in grant 94 and 95was made. Against the budget provision ?2358.700 million was allocated and anexpenditure of Z2279.700 million could be made i.e 75.99per cent. Also there wasmismatch in SOE and actual expenditure of year 2017-18. In reply the departmentstated that the budget was released in fourth quarter therefore, the budget couldnot be utilised by 3 1 st March and surrendered Z 79.100 million. During Modelcode of conduct, the progress of t jc got affected.This shows poor approach of the department in execution of project resulting inslow pace of work.

2. As per the financial management arrangement of World Bank Guideline, theproject is being implemented through the main stream state Treasury system andCCL system. The project implementing locations are the PACT in Telibagh,Lucknow and 115 no. other accounting location. Records keeping and accountingshall be as per the provisions of UP Financial Hand Books and everydepartment/line agencies shall submit monthly financial accounts to AG as well asto the PACT. Scrutiny of vouchers of line agency revealed the following;

> Scrutiny of vouchers and BM 8 of line agency (Director, Remote Sensing)and SOE prepared by PACT revealed that Director, Remote Sensingintimated total expenditure of 2017-18 ast 10:404 million but as per SOEsent by PACT the expenditure was Z 13.412 million. Remote Sensing, theline agency, made available the vouchers of only Z 10.404 millionto audit.The remaining vouchers for Z 3.008 million were not made available toaudit as mentioned in SOE.This shows that the PACT had not reconciled theactual expenditure incurred by the line agency with the SOE. Thus, theamount of Z 3.008 million does not qualify for reimbursement.Scrutiny of records of SIRD and PACT revealed that the PACT had shownthe expenditure incurred by SIRD Z 19.224 million in SOE. The SIRD madeavailable the vouchers for Z 14.006 million to audit and also the SIRD hadshown the same as actual expenditure in BM 8. This shows that the PACT

had not reconciled the figure during preparation of SOE With theexpenditure of line agency. The vouchers for Z 5.214 million was not madeavailable to audit as per the expenditure shown in SOE. Thus, the amountZ 5.214 million does not qualify for reimbursement.

3. As per the Financial Hand book vol-V of Uttar Pradesh all transaction should beentered in cash book.

Scrutiny of records of SIRD (DIRD Lalitpur) revealed that in 2017-18 the DIRDLalitpur had drawn Z 7.5 lakhs as advance from treasury for expenditure as peraction plan. The system adopted by the DIRD Lalitpur was to first keep the drawnamount from treasury in bank account and again for expenditure purpose acheque would be issued as advance to concerned person and the cheque amountwould be entered in receipt side and simultaneously expenditure side. Thisamount was entered in cash book as receipt and as advance to concerned officialfor expenditure in payment side. However, in violation of rules provided in FHBVol-V, the vouchers of actual expenditure/adjustment were not recorded in maincash book. Thus, the amount shown as advance in main cash book 0.750 milliondoes not qualify for reimbursement.

4. As per the financial management arrangement the project is being implementedthrough the main stream State Treasury System and /or CCL System. The projectimplementing locations are the PACT in Telibagh, Lucknow and 115 no. otheraccounting location. Records keeping and accounting shall be as per theprovisions of UP Financial Hand Books and every department/line agencies shallsubmit monthly financial accounts to AG as well as to the PACT. Scrutiny ofrecords of line agency revealed the following;

> The PACT had shown the expenditure of line agency, AgricultureDepartment in SOE for 2017-18 Z 120.908 million but as per the BM 8 ofAgriculture Department the actual expenditure for 2017-18 was Z 131.920million. The difference in SOE and BM 8 of Z 11.012 million was notreconciled by the PACT. The adjustment of difference amount was notshown to audit. Thus, the amount of 11.012 does not qualify forreimbursement.

> Scrutiny of records of Ground Water Department viz BM 4 of departmentand SOE furnished by PACT revealed that the total expenditure shown inboth the documents did not match. As per BM 4 of Ground WaterDepartment the total expenditure incurred during the period was Z 74.225million but in final SOE prepared by the PACT, this was 67.530 million. Thedifference in final expenditure was Z 6.695 rnillion.The adjustment ofdifference amount was not shown to audit. Thus, the amount of 6.695million does not qualify for reimbursement.

5. The line agency Agriculture Department and SWARA procured manpower throughagency/contractor and as per the contract condition for every person oncontractual basis getting salary less than Z 15000.00, the office would bearemployer's contribution. The nodal cell incurred an expenditure of Z 74.200million on procurement of manpower for different kind of work of UPSWARP-Phase II during 2017-18.The department paid towards employer's contribution for

2017 10 to the agenicy for depcst 102 t Ic 2cmccct CL:CQ r

employee as detailed below.

Bill no. and Gross amount Employer Remark

date of bill contribution

24, 18/3/18 15623160 690393 The actual deposition of contribution pervoucher were not shown to audit and notverified in audit.

09,29/8/17 11997250 733130 Do

17,30/10/17 5047031 350542 Do

02,20/6/17 12394821 763968 Do

Total: 2538033

Further, the Line Agency SWARA had paid an amount of Z 0.351 million as

employer's contribution to contractor for procurement of manpower. The records

for deposition of the same were not available with the line agency and not

verified in audit.

The department did not take cognigence of deposition of the said amount in

concerned account of EPF of employees when payment made to contractor. Thus,

the amountZ 2.889 million does not qualify for reimbursement.

6. Scrutiny of records of line agency Investigation and planning (WR), Basti revealed

that the department entered into an agreement (No. 1/SE/2017-18 dated 12.7.18)

for procurement of goods and related services, installation, testing commissioning

and maintenance of real time data acquisition system for Rapti River Basin in UP

for Z 8.144 million plus GST. The division paid to contractor Z7.400 million as

mobilization advance.in the same year, the department had not accounted for as

per the financial Hand Book provision and this amount was directly debited to

work without its adjustment/recovery or actual expenditure on work. The

division had shown this amount as expenditure in 2017-18. Thus, the amount

Z 7.400 million does not qualify for reimbursement till adjustment in running/final

bill of contractor.

7. The LGC Division Etawah paid Z 0.667 million to contractor for execution of work

under UPSWARP phase II. The division had not provided the records agreement,progress report, PIP, form 64, Monthly account and GST receipt to audit. The

amount could not be verified in audit in line with guideline of word bank. Thus,the amount Z 0.667 does not qualify for reimbursement.

8. The Narora LGC Division incurred an expenditure of Z 1325.200 million for

execution of work of UPSWARP Phase 11 in 2017-18. There were pending works Lip

to March, 2018 in Narora Division 39.84 per cent, in ID Kashganj 73.75 per cent

and in ID Etah 85.89 per cent. The extension of time (EOT) had not been granted

for further work to contractor. The cases of EOT had been forwarded to World

Bank for their NOC by Chief Engineer (Ramganga). This shows poor progress and

lackadaisical approach of department towards execution of work.

9. The Lucknow Division ShardaNahar, Lucknow having DDO code and as per the

guideline of World Bank, the division using CCL system for drawl and payment for

execution of UPWASRP phase II work. The division by utilising CCL releases the

amount to WALMI, an autonomous entity.

Scrutiny of records of WALMI revealed that the WALM! mantan d a cureaccount with Allahabad Bank and kept the amount of Z 0.784 million as balance atthe end of March, 2018 received from Lucknow Division ShardaNahar. Thebalance amount was not surrendered to the Division as per the financialmanagement system. The Nodal Department had also not insisted for surrenderat the end of financial year. Thus, the amount of ? 0.784 million kept as balancesin current account of WALMI does not qualify for reimbursement.

10. The Ground Water Department/Sr. Hydrologist Lucknow procured 102 no. DWLR.The Division incurred the amount Z 1.309 million, Z 0.872 million and Z 0.872million on supplementary bill of 2016-17. The Division did not furnish stockentries of 102 no. DWLR and MBs to audit against which the payment was made.Thus, the amount of Z 3.053 million could not be verified in audit. The amountZ 3.053 million does not qualify for reimbursement.

11. The Quality Control Division, Kanpur incurred an expenditure of 1.928 milliontowards maintenance of its laboratory i.e. payment of salary/remuneration of labassistant, lab technician, site engineer, sweeper and chaukidar etc. This staffswere hired on contract basis through contractor. It was noticed that the divisionhad not carried out any activity in respect of UPWASRP phase 11 in 2017-18. Thus,the amount of Z1.928 million does not qualify for reimbursement.

12. As per project Implementation plan of UPSWERP Para 10.8.5. It is proposed toassign the quality control of civil works to the newly created quality control circlesand one division each in Ramganga, SardaSahayak and Betwa organization underthe direct control of respective Chief Engineers.Scrutiny of records of Quality Control Division Jhansi revealed that the qualitycontrol division generated test report of package no. 1 for Rohini Dam, 2 for RightJamini Dam, 3 for Left Jamni Dam and 4 Right Sajnam Dam. The deficiencies in civilwork reported in the test report were not complied with by the Division. Thisshows the poor approach of the executing division towards quality controlsystem.

Deputy Direct Audit/Central Expenditure