Financial Attest Audit Report on the Accounts of Digital Jobs in Khyber Pakhtunkhwa Financed by World Bank, Grant No.TFOA7171 Government of Khyber Pakhtunkhwa Science & Technology and Information Technology Department For the Financial Year 2020-21 Auditor General of Pakistan Islamabad Scanned with CamScanner TABLE OF CONTENTS Page No. List of Abbreviations . Pre lace 2 PART-I Project O verview...................................................................... 4 Auditor's Report to the Management (Audit Opinion)............................................5 F inancial S tatem ents................................................. ................................ 6 PART-1I COVERING LETTER TO THE MANAGEMENT ............................................... 16 EX EC U TIV E SU M M A RY .................................................................................... 17 M AN A GEM EN T LETTERTTER....................................... ..................... ........... 18 1. In trod uctio n .......................................................................................................... I9 2. A udit O bjectivesj.ci................................................................................ ............ 19 3. Audit Scope and Methodology ....................................................................e..od.... 19 4. AUDIT FINDINGS AND RECOMMENDATIONS...............................................20 4.1. Organization and M anagem ent ..................................................................2. 20 4.2. Financial M anagem ent.................................................................................. 20 4.3. Procurem ent and Contract M anagement......................................................... 23 4.4. A sset M anagem ent........................................................................ 4.5. M onitoring and Evaluation ........................................al........ 25 4.6. Com pliance with grant/loan covenants........................................................ -25 4.7. Environment..onn..................t-5*, ***....... 25 4.8. Sustainability.......n..........-......i.......*"y*...25.. *25 4.9 O verall A ssessm ent .....................sse.......................... 6.. ... ............. .......... 26 5 CONCLUSIONCLUSIO..27........... .......... .. I. .. ....- -......2 ACKNOWLEDGEMENT ................OWLEDGEMEN T...........29.... ANNEX ..........X -.......30.. . . . .. 30 Scanned with CamScanner Abbrevi-1tions and Acronyms B1O lusiness Process Outsourcing CO)VID)-1 ( Corona-virtis Disease - 2019 DAC Departienial Accounts Committee F'BR Federal 1oard of Revenue GER GenerAl Hiancial Rules ISSAI International Standards of Supreme Audit Institutions KPITB Khyber Pakhiunkhwa Inflormation Technology Board KPRA Khyber Pakhtunkhwa Revenue Authority MDTF Multi Donor Trust Fund M&E Monitoring and Evaluation P&D Planning and Development PC-1 Planning Commission Proforma-I PlU Project Implementation Unit PPSD Project Procurement Strategy Document PTCL Pakistan Telecommunication Limited SOPs Standard Operating Procedures YEP Youth Employment Program I Page Scanned with CamScanner PREFACE The Auditor-Gencral cond -uitS bject to Article 169 and 170 of tie euct an 1973, read with Sections 8 and 12 orthe Conitoe AeIsicRtepublic of and Terns and Conditions of Service) Ordinane sitTeaudt of the rct ins, powers and T e Pakhtulkhwa" financed by the W e Ba0I.haditrtticpro0CTF-A171 for te Financial Year 2020-21 was carried a Bank hav%inlg Grant oT-A accordingly. The Directoraie General Audit, Khyber Pakhtunkhwa conducted audit of the project "Digital Jobs in Khyber Pnakhtunkhwa" financed by the World Bank during September, 202, for the period 2020-2 with a view to reporting significant findings to stakeholders, Audit examined the economy, efficiencY, and effectiveness aspects of the project. In addition Audit also assessed, on test check basis whether the management complied with applicable lavs also asesse ,O ect.The Audit Report mndicates specifca rules, and rcgulations in managing the project. ic actions that, if taken, vill help the management realize the objectives of the project. The Report was finalized in light of written replies/ discussion with the Project Management. The Principal Accounting Officer was also requested to convene DAC meeting. However, DAC meeting was not convened till finalization of this report. The Report consists of two parts. Part-I contains Auditor's Report (Audit Opinion and Financial Statements. Part-l contains Executive Summary, Management Letter and Audit Findingys. Oiin The Report has been prepared for submission to the World Bank in terns Of its Grant Agreement No.TF-0A7171 with the Government of Islamic Republic o akistan. Dated: 9 ///2021 Peshawal m(Mahmood Ahad Khan) Director General Audit Khyber Paklitulnkhwa Scanned with CamScanner PART-1 1. I*RO,I ECT' Oygityly y 2. AUD ) ITOl'S iREPOwÍ''T' T T1lE MANAG EM ENT 3. FINANCIAL STATEMENTS 3 P a g e Scanned with CamScanner PROJECT OVERVIEW Digital Jobs in Khyber Pakhtunkhva Name oif Project World Bank sponsoring Authority Science & Technology and Information Technology Department Khyber Pakhtunkhwa, through KP Information Technology 13oard TF-0A7171 Grant No. PC-1 Cost (Original) USD 2.00 million (PKR 256.00 million) PC-1 Cost (l Revision on 17.07.19) USD 2.00 million (PKR 280.00 million) PC-1 Cost (2nd Revision on 18.02.20) USD 5.00 million (PKR 750.00 million) Date of Commencement 17f October 2018 Actual Date of Commencement : 17' October 2018 Date of Completion (as per PC-1) : 301h June,2020 Date of Completion (as per 1C revised PC-1) 30th June, 2020 Date of Completion (as per 2nd revised PC-1): 30th June, 2022 Date of Approval by PDWP : 2nd August, 2018 Grant Closing Date 30t" June, 2022 Grant Utilization Status in 2020-21 Rs. 89.400 million Progressive Expenditure upto Last FY 2019-20 Rs. 176.469 million 41 wih am c Scanned with CamScanner OFFICE OF THE DGA = 9211306 DIRECTOR GENERAL AUD[T Fax: = 9222417 KHlYIER PAillTUNKIIWA PIIX:= 211250-54 PEISHAWAR Auditor's Report to the Management (Audit Opinion) Auditor's Report on the Financial Statements We have audited the accompanying financial statements of the Project "Digital Jobs in Khyber Pakhtunkhva", financed by World Bank under Grant No. TF-0A7171 that comprises of Statement of Receipts and Payments, Statement of Comparison of Budget and Actual Amounts together with the notes forming part thereof for the year ended 30. June, 2021. Management Responsibility It is the responsibility of project management to establish and maintain a system of internal control, and prepare and present the Statement of Receipts and Payments in conformity with the requirements of Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard. Auditor's Responsibility The responsibility of the auditor is to express an opinion on the financial statements based on the audit conducted. We conducted our audit in accordance with the International Standards of Supreme Audit Institutions. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The audit process includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion: a) The financial statements present fairly, in all material respects, the cash receipts and payments by the project for the year ended 301h June, 2021 in accordance with Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard. b) The expenditure has been incurred in accordance with th r quirements of legal agreements. Dated: //(/2021 (Mahmo hniKh) Peshawar Director General Audit Khyber Pakhtunkhwa 5 1 Page Scanned with CamScanner FINANC1AL STATEM ENTS OF iE i'ROJECT -)I(;TA L ,IoUS IN IIYBER PAKITUNKIIWA" ASSISTED BY WORLD BANK FOR TIlE YEAR ENDED 30'" JUNE, 2021 ij Page No. Statement k)f Receip,s anid Paymeints 7 Statement of Cklmparison of Budget and Actual Amolnts 8 Nktes lo the Financial Statements 09-11 Statement of Desig-nated US Dollar Account 12 Bank Statemetis 13- [4 6n iC a Scanned with CamScanner l)m )о 5з.ь?•1.ооо г.оьs.00о г) зь0.nо0 н nзс) �)z.i t�c�,,•u1laoг,� мп з.�, 1 i 1 г.?s7,�oa 15. i оn.0ог) з. э г15.опд 1 г-.nтп�� sn3 и,,,1•,.hc,�< 1 г 5.д67.5ии 5.Э 10,оог) I3i).ao0 lпсгст:пl:r1 о�сгагизг; rгза 13 21 �)31,7J0 1.6•10,ООб . . .Suh ТvгиГ !'13,71�,1}S3 7,172,SUI1 29,77U,0(Ю 11.Z7-t;12a (�ггпlЛггRг7U - 2 1: �7г•лrnl 4ьсiсгпnг ��oo.i I}istdиarr:mJtioliuдrc) \on-Cnnsulnn� tirn ы:еs 1 1'1l 1 SsLrпcsl 14 l1,OS9,575 R,961,516 (7,703,U00 3.468,183 Cun,ultants' Sеп �.ri 1 rainiп�s �пJ \Surkshcэps - - In�r�mCnuri с,рrг:зипр сс„1 I5 н.оои.5ко I.71д.1 вз 3.аид.U0и 1.G;S.н�6 sиь т�,аr 1ч,0�о.15s 1о,бгs,rгг�га г1,tо�,ооа ;,sг�.о��� тгнс,rsгггз�пгР„сз гвст,огls.в<эб иг),�и0,1вв z7з,7s1.oo(1 17,,зsс),�иn 1 hc ассипзраnl'пз): гыэtсs fсэгт an inlrgnl рап uГthr�t fin�nci:d stutenзcпls апд ara lo Ьс гса� lЬсrсззitlз. � 3 � . ( �ии .� ._- , � !'ruject �1:гп:з�rг Сиипlсг tiigncd Digilal lobs iu !a' Лudit UfГCrГ F;hpbrT P:rkkцunkhи�a httiмnзaliuп с)rr« сэгliзС г) (а nы3�! �гг�l,пг,iсэ�>• tзо:згг111:гь гtзэ Pr.huиur.l:h�brr 1'лkhlunkhп:( Ccshcnrar. 1�h�hrr Paklцunkhэ�'а � Scanned with CamScanner DICIVAL.101IS IN K I I Yll I !M'A KIIIIINK I I WA Nillr% oil [lie Financial sillicinclill Vor 1hr 1'ear eirdr-if Aine JO, 2021 I Reporting Entilik I lie I'minvial Staknicnik. ate I'M DIM .Il Jolls in KhOci Pakh1lll1kl1%%;1 Projecl I lie filulucial cjlcj,nipa%sc% the iepkjritm crilih a% klel - inod in thk: Grant Aprccnient I1ct\%ccn ille INI;jjjljk, Itc,jublic Oll-1,11 isprl .1,1(1 he w rofid liank 'lite (sraril Avrccmcof v ls %ignvd on October 17. 201 K initiall% flit I ISS 2 0 nulliton I'm h1cinioic . l(ItIllit1rull F111111cilIg j,j I )S .1 Ij TrifIllill, jcfc appr(ow d by tile Wolild liank and stillwiluctrily VC-1 % as rc% i%cd koin VKII 2180 million to PKI( 75o oldlitin lite World Hank hit; invvcd -yreenical for addillon.11 financing of I ISD 1.5 11111how I Ile pr0kjVL1 liccinu: cll*t:ciivc hoin Ocloher 17. 2(118 "101 lite Ofmil, date ol'Junc 10, 2022. I-Ile Prkiicct Mvelopment Objective is to Fo train %%Omen and undeverved )outh in digital skills throut,li the Youlh I:niplo)mcnt Program TO stirl'Orl -Amcrl entrepreneurs bs,"ll-Inding tire Durshil - Communhy I jinovation Lihs nct%vork To capitalim kin [lie oppoilunifics available in the outsourcing industry and facilitate creation oftligil-11jObs 1111`0111-41 (Ile Prksixv,- Outsourcing (13[10) indu,lr) The pro,icci is implemented througOi Kit\ her PaklitunkliNva Information Tcchnalocy Board (KPIT11) Fin3ricine The financing is made in tile form ofGrant based on Standard World Bank terms. The FinanOng Grant A-rccmcnt No is TFOA71 7 1. Certific3tion hN Project Management on A pplication of Funds It is ect-tified that funds have been applicdlcxpcnditure incurTed for the purpo5cs intended in tile financing agrcurnent. 3 Accounting Convention and Statement ofCompliance 1"'hese Financial Statements have been prepared in accordance with Cash Basis International Public Sector Accounting Standards (IPSAS), Financial Reportin-under the Cash Basis ofAccouriting, Thc accounting policies h5%,c been applied consistently throughout (lie period. 4 Significant Accounting Policies 4. 1 Filreign Currencs- Tratisartion Cash receipts and payments arising from transactions in US S are recorded in Pak Rupees by applying tile US 5 amount at the exchanue rate between the Pak Rupee and US 5 on the date of receipts and payments- 4.2 ReFOrting Cu--CJ' All amounts in the Financial statements are in Pak Rupees. 4.3 i?er-enue Recognition Revenue is recognized on tile date of receipt of money by bank' or clearance Of CIICqLlc. Revenue is recognized on grok;s basis and anyrtlated costs are recorded separately 4.4 Recognition ofExpeirditure Expenditure is recognized oil the date when payment is made or chequc is issued, Financial year to %% hich tile payments pertain is determined by the datc on which a cheque or payment advice is issued. 4.5 Ej?jpjjqee Terminal Rellefits Service hCriefits uki-government deputations CMPlcYCCs ate accounted for in their respective departments %khile no smice terminal benefits are paid to the contractual employees. 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Introduction 2. Audit Objectives 3. Audit Scope and Methodology 4. AUDIT FINDINGS AND RECOMMENDATIONS 4.1. Organization and Management 4.2. Financial Management 4.3. Procurement and Contract Management 4-4. Asset Management 4.5. Monitoring and Evaluation 4.6. Compliance with grant/loan covenants 4.7. Environment 4.8. Sustainability 4.9. Overall Assessment 5 CONCLUSION ACKNOWLEDGEMENT ANNEXURE 151 Pa g c Scanned with CarnScanner OFFICE OF TiE DIRECTOR GENERAL AUDIT KilYIIER PAJITUNKiWA 0-o:Iri Road pesiiawar Canft )G 091-9211306 & iiax 091-9222417 Di)rctor)I Audit: 091-9222525 No. Audit/Admn/HQ/Audit P1rogram/2021-22/229 Dated: 23-08-2021 To The Project Director, Digital Jobs in KP, Peshnwar. Subject: ANNUAL AUDIT OF ACCONS FOR THE FINANCIAL YEAR 2020-21 The Auditor-General of Pakistan conducts audits subject to Article 169 and 170 of the Constitution of the Islamic Republic of Pakistan 1973, read with Sections 8 and 12 of the Auditor-General's (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001. The competent authority has been pleased to assign Annual Audit of accounts record of your office for the Financial Year 2020-21 to the Field Audit Team (FAT) comprising Mr. Ijaz Arif (AO) and Muhammad Javed Afridi (SA) with effect from 23d August, 2021. A requisition of record for audit will be provided by the FAT before audit or upon arrival. The audit will cover all the financial matters pertaining to observance of Rules/ Regulations, cash management expenditure, receipts, stocks, budgetary controls and store accounts etc during the period. It is, therefore, requested to extend fill co-operation to the visiting audit team in production of record/information as per requisition for audit with the direction to the staff concerned of your office to remain present during audit. Separate room for audit team, Typist, computer along with printer & stationery, photo copies facilities of required record, and necessary logistic support may be provided to the audit team. Your co-operation in the matter will highly be appreciated in the best interest of public and in discharge of the constitutional responsibility. (This issues with the approval of Director General Audit) DireeN udit 16 1pa g e Scanned with CamScanner E XECUTIVE SUMMARY The Director General Audit Khyber Pakhtunkhwa conducted audit of the Financial Sateunts Of te project "Digital Jobs in Khyber Pakhtunkhwa", financed by the World Bank under Grant N.TFxeA7 7i for the financial year 2020-21. The main objectives of the judit were to mxprss a Opinion ol financial statements of the project, to assess whether the project Was managed with due regard to economy, efficiency and effectiveness, to review project performance against the intended objectives, to review compliance with applicable rules, regulations and Procedures. The audit was conducted in accordance with the International Standards Of Supreme Audit Institutions (ISSAI). Audit findings: * Delay in progress of the project * Wasteful expenditure - Rs. 1.11 million * Overpayment of rent - Rs. 0.058 million * Less deduction of taxes - Rs. 0.236 million * Non-development of a Contract Management Plan * Non-recovery of operational cost from the BPO operator - Rs. 2.852 million * Unnecessary expenditure - Rs. 1.080 million * Improper Assets management - Rs. 0.478 million * No SOPs in place for the revenue from BPO Operators - Rs.16.459 million Recommendations: * Progress may be accelerated so that the project's objectives are achieved in time * Due diligence may be exercised when incurring expenditure in uncertain situation * Recovery of taxes and rent may be ensured from the concerned * Effective contract management may be ensured for timely completion of various assignments * Operational cost may be recovered from the BPO operator * All the assets that have not been entered in the register yet and not tagged may be registered and tagged accordingly * Revenues from the BPO operators are meant for project's sustainability and every effort should be in-place to ensure countering misuse of these funds 17! 1Palgc Scanned with CamScanner A? FICrOFFiC Fr TIE DGA = 9211306 IECTOR GENERAL AUDIT Fax: = 922 D KIl11ER PAKI UNKCHWA PBX: = 211250-54 PESIAWAR N/F\AR/D)IKP/DAC/2020-21/22 Dated: 16/09/2021 To Secretary to Government of Khyber Pakhtunkhwa, Science ard Technology & Information Technology Department, Subject. MnaY t Letter of, account of "Digital Jobs in Khvher Subject: kh tun k -1hina-i f ina nced by World Ban k u nde r Grant No.TF-:0A7 o the inanc ialYear2020- 1 This office has recently completed audit of the Financial Statements of the Project "Digital Jobs in Khyber Pakhtunkhwa", financed by World Bank for the Financial Year 2020-21. While executing the audit, International Standards of Supreme Audit Institutions (ISSAl) adopted by the Auditor General of Pakistan were applied to express audit opinion on the Financial Statements of the Project. During audit, internal controls and other operational spheres were examined and result thereof in shape of Audit findings are attached for your consideration. The following are the main findings of the report: * Delay in progress of the project * Non-development of a Contract Management Plan * Non-recovery of operational cost from the BPO operator - Rs. 2.852 million * No SOPs in place for the revenue from BPO Operators - Rs. 16.459 million * Wasteful expenditure - Rs. 1.11 million * Unnecessary expenditure - Rs. 1.080 million * Overpayment of rent - Rs. 0.058 million * Less deduction of taxes - Rs. 0.236 million * Improper Assets management - Rs. 0.478 million The issues raised in the Advance Paras annexed with this management letter may please be looked into and remedial measures should be taken besides arrangement of the DAC meeting within 5 working days to decide fate of the observations at the earliest, please Dir udit 18 Pag ae Scanned with CamnScanner 1. INTRODUCTION "l)igitrlb ral Audit Khyber Pkhtunkhwa conducted audit of the project Te)igipl Jobs i tKhyber Pakiltunkhiiwa" The project was being financed by the World Bank. e pJect had three diferent COniponlits. The beneficiaries of this project are the youth (ous-30 years) in Khyber Paktmunkiwa. The Khyber Pakhtunkiwa is to be promoted as an cOutsurcing destiaeion to atract investient and to Create digital jobs. The project actually e111Iced with PffCct from 17t" October 2018, with a completion date of June 2020 and it n a PC- 1 Cost oFRS. 256.00 million, which jumped to Rs. 280.00 million with the first PC-1 revision, The PC-I has been revised[ for the second time, with a revised PC-1 cost of Rs. 750 nillion, and a revised completion date of June 30, 2022. 2. AUDIT OBJECTIVES 2.1 The major objectives of (lie audit were to:- Attest the Project's Financial Statements. u. Report on compliance with relevant laws, policies and procedures. iii. Report on the overall management of the project. 3. AUDIT SCOPE AND METHODOLOGY 3.1 Audit Scope The audit scope included the examination of documents, record, accounts etc. of the Project for the Financial Year 2020-21. 3.2 Audit Methodology Audit methodology was devised as per the following terms of reference: a) Eligibility of expenditure incurred Expenditure was reviewed to check that funds were expended for authorized purposes only in line with the provisions of PC-1 and Contract Agreement. c) Amount expended was incorporated in the Project Account supported by documents and records. Expenditure trail was reviewed and with the help of supporting vouchers traced to accounting record and the financial statements. d) Assessing effectiveness of monitoring and evaluation mechanism Project internal controls were assessed and test checked for effectiveness. e) Maintenance of books of accounts Audit examined the quality and completeness of books of accounts. 191 P a g c Scanned with CamScanner 4. AUDIT FINDINGS AND RECOMMENDATIONS 4.1 Organization and Managemlent 4.1.1 Delay in progress of the project According to Section 2.01 (i) of the Special Conditions constituent to th (3 Agreement No.TF0A7171 dated 17-10-2019, the recipient of the grant shall ensure thatr4 Project is carried out with due diligence and efficiency. the During audit of the project "Digital Jobs in Khyber Pakhtunkhwa" for the Financ,a Year 2020-2 1. it was observed that the targets relevant to various sub-component ofntha project have not been achieved, despite the fact that the project completion date \s ofte 2022. as detailed in Annexure-A. Audit held that as the project completion date was June 2022, therefore, slow Progress of the project could hinder achievement of its overall objectives. The lapse occurred due to inefficiency in terms of procuring the consultancies and hiring the PlU staff on time, which resulted in unnecessary delay of the project activities When pointed out in August 2021, the management replied that due to the COVID19 crisis, the project activities were extremely affected, and procurements were delayed,-1 caused the utilization to slow down considerably. Many activities were delayed due to lockdowns or limited availability of resources. Moreover, the pandemic has also affected the supply chain internationally. Due to the supply-demand gap, the procured goods were takinh 50% more time to deliver than the usual delivery time. Trainings and meetings Were suffered due to restricted movements, due to which the project activities were delayed. The hiring of the Project Implementation Unit was initiated in January 2019 and three staff members (PIU) were hired, while hiring process of the remaining resources was stopped by the newly constituted Executive Committee, which asked for changes in their ToRs. The hiring of some staff was scheduled for later as the specific resources ere reqUired for a specific project component. The reply was not satisfactory as all of the project components were not vulnerable to the COVID-19 lockdowns. The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till thle Finalization of this report. Audit recommends that (he progress may be accelerated so that the project's objectives are achieved well in time, 4.2 Financial Management 4.2.1 Wasteful expenditure on relocatiol ofworIc stations - Rs. 1.110 million 201 e Scanned with CamScanner According to Subcomponent 1.1 of the Component I of Clause 9 of the approved PC- I of the project, in additional 200 seat facility wil] be established with the additional 1-i1acing, which will result in creation of a total of 550 full jobs through the BPO sector. According to Para 10 (1) of the General Financial Rules Volume-1, every public Officer is expected to exercise the same vigilance in respect of expenditure incurred from public nmoneys as a person of ordinary prudence would exercise in respect of expenditure of his Own Mfonley. During audit of the project "Digital Jobs in Khyber Pakhtunkhwa" for the Financial Year 2020-21, it was observed that the PlU has established the required number of work stations inside the office premises in Peshawar. However, the said work stations were relocated to another floor inside the same premises, resulting in a dismantling and relocation ex\penditure of Rs. 1,1 15,015/- Audit held that the dismantling of the work stations not only resulted in wasteful expenditure but also deprived the KPIT Board of the potential revenue that could have been obtained from the BPO operators during the period in which the work stations remained idle. This was evident from the fact that for the last few months, the potential BPO operators have already been showing interest to rent-in further work stations. However, as on date of Audit i.e. August 2021, these work stations were not yet re-established. The lapse occurred due to mismanagement of the situation and poor planning, which resulted in wasteful expenditure on relocation of work stations. When pointed out in August 2021, the management replied that the dismantling of the first floor was done because another BPO Operator "Afiniti" is establishing their facility which would help in creating 150 additional jobs. They would bring in their own investment for procuring their Equipment and Furniture for the establishment of 150 seats facility. The Equipment and Furniture has been relocated to the ground floor. The cost of relocation is approved by the World Bank, copy of the approval annexed. The reply was not convincing, as keeping in view the fact that the revenue from Affinity for the ISt floor space could not stream-in until the 1st floor's setting-out period of 4 months ends i.e. in September 2021. Therefore, it was not appropriate to forego the revenue that could have been earned from other BPO operators during this period of relocation and re- establishment of the work stations on the ground floor. The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till the finalization of this report. Audit recommends investigating the matter and fixing responsibility against the persons at fault. 4.2.2 Overpayment of rent - Rs. 0.058 million According to the rental agreement signed with CECOS University on Ist April, 2019; the rent for the 11,761 sq. feet space on first floor will be Rs. 49 per sq. feet, with an annual increase of 5%, 211 Page Scanned with CamScanner During audit of the project "Digital Jobs in Khyber Pakhtunkhwa" for the n Year 2020-21, it was observed that 11,761 sq. feet of space on first floor was rented f CECOS University in its building located in the Industrial Estate Hayatabad Peshaw ar.or per agreement signed on I" April, 2019 and valid up to 30(h June, 2020, the rate of rent Rs. 49 per sq. feet, with annual increase of 5%. However, after one year, the Project as charged a rent of Rs. 52 per sq. feet, instead of 51.45 per sq. feet for 9 months from Jl Was to March 2021, resulting in a monthly overpayment of Rs. 6,469/- and total ove auyet 20 Rs. 58,221/- (Rs. 6,469 X 9 months), which resulted into a loss to the Project. of rent. The lapse occurred due to weak internal controls, which resulted in overpayment of When pointed out in August 2021, the management replied that the excess arno,,, would be recovered and compliance would be ensured in future. The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till the finalization of this report. Audit recommends recovery. 4.2.3 Less deduction of taxes- 0.236 million According to the withholding tax rules of the Federal Board of Revenue, under Section 152(2A) b(ii) of the Income Tax Ordinance 2001, as amended, the withholding of tax on services from companies should be made at the rate of 8% (if filer), while the withholdin of tax on services from other than companies should be made at 10%, in case of filer and at 20%, in case of non-filer. Furthermore, sales tax of 15% is levied on the servic provided under Classification Code 9846.0000 Event Management Services of the Second Schedule of Appendix-lV of the Khyber Pakhtunkhwa Finance Act 2013, as amended up to Fina ct 2019.FiacAG During audit of the project "Digital Jobs in Khyber Pakhtunkhwa" for the Financial Year 2020-2 1, it was observed that the withholding of advance income tax Linder the FBR rules and services tax under the KPRA rules was not done as per the prevailing rates, which resulted in less deduction of taxes worth, Rs\a t oea e h rvIligrtshc reslte inles deucton f txes~vothRs. 236,3 15/- from the internet service providers (M/S Wateen, NayaTel and PTCL), architecture services provider (silal Khan) and event management service provider (M/S Media Reflections), as detailed in Annexure B, which resulted in a loss to the Federal and Provincial excheqUers respectively. taxes. The lapse occurred due to weak internal controls, which resulted in less deduction of When pointed out in August 2021, the managent replied that in case of Serial No. 1, recovery would be made after consulting the record, while for Serial No. 2, the recovery would be made from their next invoice. Furthermore, for Serial No. 3, the matter would be consulted with KPRA and recovery would be made, if required . The department was requested vide letter dated 16-901frhligoteDA meeting. However, no DAC meeting was convened till the -09-2021 for holding of the DAC hefinalization of this report. 22 11 Pge Scanned with CamScanner ..ekidit recommends that the lss deducted advance tax may be recovered from the ,n;:rnd comanires, if theo have lot yet deposited the required tax with FBR and the tin ay be requested o char-ge taxes at tihe required rates and any previous under- may~ be recowered from thle consultant's invoices. 4.3 Procurement and Contract Managenent 4.3.1 Non-development of Contract Managenient Plan According to Annex-I Para 3.7 "Value for Money", and Annex Xi Para 2.4 ,Contract reveN of the World Bank's "Procurement Regulations for IPF Borrowers" July 2016 enied NovemSber 2017 and August 2018; to effectively manage a contract, for contracts identified in PPSD, the Borrower shall develop a Contract Management Plan with key rertriance indicators and "lilestOne events and shall proactively manage contracts throughout their duration against the Contract Management Plan. During audit of the project "Digital Jobs in Khyber Pakhtunkhwa" for the Financial Year 2020-21. it was observed that the consultancy for the assignment "Business Process Outsourcing Work Platform was awarded to MI/S Cyber Vision Intemational on 21-02-2020 for a contract price of Rs. 48 million for a period of 12 months and that of "Women Empowerment through Digital Skills" was awarded to MIS DEMO & Tech Valley JV on 03- 03-2021 for a contract price of Rs. 15.66 million for a period of 12 months. However, Contract Management Plans have not been developed and resultantly both the consultants could not complete their assignments within the 12 months period. The contracts have been extended up to 30-06-2021 in the Procurement Committee meeting held on 04-02-2021, but it is important to mention here that as on the date of audit i.e. 27h August, 2021, both the assignments were still incomplete. Audit held that the delay in completion of the assignments hindered the overall progress of the project. The lapse occurred due to ineffective contract management, which resulted in non- completion of the assignments by the consultants. When pointed out in August 2021, the management replied that the performance of different consultants was monitored against the deliverables described in the contract. Each consultant has submitted a detailed report against every deliverable which was reviewed by the concerned team at KPITB for approval. Payment against a deliverable was only released after the approval of the concerned deliverable. The reply was not convincing as it is not always necessary that the consultant's deliverable(s) are timely and according to the contract. Therefore, the Contract Management Plan is a useful tool that helps the PlU to plan and monitor on how and when the deliverable(s) should have been submitted by the consultant. The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till the finalization of this report. Audit recommends ensuring effective contract management for timely completion of Various assignments. 231 Page Scanned with CamScanner ini cost from tle IiO (peraior - Rs. 2.852 million . ncoi ry to orati he separate Contracts eXcCIted with M/S SMSAMI ti ~ tO sal pa.) of e seatpe nonIth as Operational Cost of the 3P Accore ? ,,, (1S8- ii per seilt per M0 he1PORed1Fciiy.1 Ith le ii I pcrator shall hedtN poessionl of the 13p0 Ready Facility -e R)eadtjFaclity vto KhTll from tllh tiei the 5th day ofeach month or on tie subsequent oeiraionlal COst shal be li . Ii K h lier-[1nk USD to PKR conversion rates on the due date shll be opplicable). dale shoit be toepproabct igital Jobs in Khyber Pakltunkliwa" for the Financial Durin Iu*it ,,Ioere t oD a f Rs. 2,852,507/- wals outstanding against the Year 2020-2 1, it was observed that an1 amoutelnt provided by thle plU (Annexure-C). 111O operator NI S SMSANIl. as per the statement prov Audit held that non-recovery of the total am1ioun11t of Rs. 2,852,507/- was a loss to the KPIT Board. The lapse occurred due to inadequate contract management, which resulted in non- recovery of the operational cost. When pointed out in August 2021, the management replied that the COVID-19 pandemic hit the businesses of the BPOs severely; non-recovery of rental amount was atTected due to this reason. The matter has been taken up with the concerned and the amount \\ill be recovered. The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till the finalization of this report. Audit recommends recovery. 4.3.3 Wasteful expenditure of rent - Rs. 1.080 million According to Section 2.01 (i) of the Special Conditions, constituent to the Grant Agreement No.TFOA7171 dated 17-10-2019, the recipient of the grant shall ensure that the Project is carried out vith due diligence and efficiency. During audit of the project "Digital Jobs in Khyber Pakhtunkhwa" for the Financial Year 2020-21, it was observed that according to the revised PC-1, one "Durshal Access" center was required to be established under the project which would be a publicly accessible facility and would provide outreach to the local community. District Svat was selected for establishing the Durshal Access Center and accordingly I building was rented in lbrar Plaza Mingora Swat for a monthly rent of Rs. 270,000/-. H December 2020, while progress on establishing the DHovelver, te building was rented froil 2021, w,.hich meanis that thle building\.IDusa Center was only mnitiated in April 2021, which Reas. that (Rse buildi was left idle for 4 months, resulting in wasteful rental pay'ments of' Rs. 1,0i80,000/- (its. 270,000 X 4 monthis),wihrsle i ost h project. which resulted in a loss to the The lapse occurred due to poor planning \,g hich resulted in wasteful expenditUre. When pointed out in August 202 I, th building for Durshal Access was most feasible anwag nt replie that the location and rent that was why the building was rented out hl XV Is available on very nominal monthlN relted01,1. vI it w"as available, 24 PagL Scanned with CamScanner k7e I.CIlN Was not ColNvincing a Sne, h f' I lie eply " ~ ~ ~"~ ~ el in iti as ted then (lie establ ishiment of *m' cess center in that facility shiould have I eat u iented te h salsueto the dep:1rtm1en1t wos requeslted viLle letter datCd 16-09-2021 flor holding of the DAC 1¶oting. Iloweker, n1).\C meeting was convened till the 1inlization of this report. Audit recommends investigating the malter and fixing responsibi lity. 4.4.1 Improper assets ImnaItalgement - R1s. 0.478 million A\ccording to GFI Volume 11 Para 148, the officer receiving the stores should also be rcquired t) give a certificate that he has actually received the materials and recorded them in the apprCprite stock register. During audit of the project "Digital Jobs in Khyber Pakhtunkhiva" for the Financial Year 2020-21. it was observed that 01 Camera and 36 Fire Extinguisher equipment valuing Rs. 478.886/- were purchased, however, entry of these assets could not be made in the assets reistcr and the assets were not tagged. Audit held that the non-tagging of assets as inappropriate safeguarding of assets. The lapse occurred due to violation of rules and regulations, which resulted in improper assets management. When pointed out in August 2021, the management replied that compliance would be ensured in future. The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till the finalization of this report. Audit recommends that safeguarding of the project's assets may be given priority. The assets may be properly recorded in the electronic/ manual register and tagged properly. 4.5 Monitoring and Evaluation (M&E) The PIU has been regularly reporting the progress to the World Bank and P&D Department Khyber Pakhtunkhiva. Hence, the monitoring & evaluation is properly done. 4.6 Compliance with Grant / Loan Covenants The project implementation was in accordance with the grant covenants. 4.7 Environment The Project had no negative environmental impacts. 4,Nl Sustainability 251 P a g e Scanned with CamScanner The project is likely to attract investllents. After completion of the project, it wilI rnot nl lieilitate the Government departments in expanding their digitalization process but Will help absorb the local digitalIy skilled talent pool within the province. Hence, the Project i sulstainable: however, it is important that the revenues generated from the project are Properly saflguarded from misuse or utilization elsewhere. L-81l Nondevelopment of SOPs for the revenic fron BPO Operators - Rs. 16.459 million According to the revised PC-1 of the project, the Sub-Component BPO Ready Space will contribute to the sustainability of the project by collection of per work station fee from the BPO operators. During audit of the project "Digital Jobs in Khyber Paklitunkhwa" for the Financial Year 2020-21, it was observed that a revenue of Rs. 16,459,636/- was earned from the BPO Operators which was credited into the bank account of KPIT Board. However, there were no procedures or SOPs in place as to how that revenue would be safeguarded from being spent for the KPITB's operations. Furthermore, there was no clear guidance on ensuring that the same revenue is invested in profitable opportunities so that the size of this sustainability fund could be increased. Audit held that non-existence of guidelines in this matter could result in spending of these funds. The lapse occurred due to financial mismanagement, which resulted in non- development of standard operating procedures. When pointed out in August 2021, the management replied that the matter would be Consulted with the management and action would be taken as per the decision of the managzement. iAudit is of the view that the revenues from BPO operators are meant for project's sustainability and every effort should be made to ensure safeguarding and countermiueo these funds. misuse of The department was requested vide letter dated 16-09-2021 for holding of the DAC meeting. However, no DAC meeting was convened till the finalization of this report. Audit recommends that proper guidelines may be defined for safeguarding the revenue and bank statement showing the balances of this fund as on 30-06-2021 may be produced to Audit. 4.9 Overall Assessment Although the consultancy firms for the developient of'online ottsourcing plitform and one-window facilitation facility have not delivered any tangible output yCt, tie overall progress of the project is satisfactory. The BPO Ready Facility has be developed to generate jobs in the digital field, for which agreemently has been e wh lopeato This project has currently created 170 jobs and is likely to been made with a BPO operator. of 2021. Other components such, as traiit ( t create more than 550 jobs by end of ~ ~ ~ ~ ~ ~~~"11 22.OhrcpoetsuhatriigOf women under the women empowerment component and the incubation of female led star-ups ha,nve shol thenwomn poe a On signillcant progress. 261 Page Scanned with CamScanner Spro 'As i line wvith' Governient Scetoral policies, lefrastrUcture for the effective implcIeimation Of tie project has been established for Online Platform for OutSourcingla fre projec a b n eaisd ton training of women ol Digital Skills under KP-Yn asgndt one- n ill re into with Consultants. Progress on componets sucs and PO Operator has been Cllier Swat Will soon be initiated. d Fund and Durshal Acces ii. fficiency The project was expected to be implemented efficiently However due to COVID-19 restrictions and lockdowns the project has faced certain constraints and the progress was disturbed. However, the project is expected to be executed efficiently during 2021-22 because 3lmost all the constraints have been removed. . Economy The project is expected to be completed within the allocated budget and time. v. Effectiveness The project is likely to be effective if all the consultants could deliver their output in time. ji. Compliance with rules The overall implementation of the project was in compliance with rules; however in some cases deviation from rules was made. Tii. Performance Rating of the Project The performance rating of the project was satisfactory. Viii. Risk Rating of the Project The risk rating of the project was medium. 5. CONCLUSION The project is likely to achieve its objectives. The overall progress of the project was s(isfactory. The Consultancy Firms for the development of online outsourcing platform will ikely deliver the platform by end of 2021. The training of women on employable digital skills will soon be completed. The BPO Ready Facility has been developed and is likely to enerate more than 550 jobs by end of 2021. The progress on developing one window faiitaition platform has been accelerated while the Durshal Access Center Swat will soon be "Utional. Consultant for the Seed Fund component has been hired and it is expected that '-tiPs Will start getting the necessary finances in near future. 1 KeY issued for the future: 27 Page Scanned with CamScanner -1h1 kvy lwe htculhme r jcI-erformanlce mu11 hi1een1o iigntned objeefiics NNVe, a. l he eiTecti e iiiiplenmetilae oflinll t1e 1,rocuirer:11t pla ICees to he nurmed, l. Cniract MNaiiiemiienit Plan IIeeds to be developed So thalt lie ColislIti progress could lie elTectisely Ionitored. c. The PC-1 targets may be uirsued. d. Some of the project sta w as not hired, which need to be hired. e. The oserail imds mere less inilized as compared to ie hudget alltan Io. -e dVlilable timds need to be utilied as per PlC-l ulcaition, f. Taxes may be deducted fom ithe payments to the sUMppiers 5.2 Lessons Learned: The etTective implementation of Ilie projcct should be ensured by timely carryjig out the activities as planned in the PC.[. 28| Page Scanned with CamScanner ACKNOWLEDGEMENT We wish to express our appreciation to the management and staff of the Project Jobs in Khyber Pakhtunkhwa" for the assistance and cooperation extended to the idit team during this assignment. 29 i C Scanned with CamnScanner _ .. _ _ - ,� � .п •j © r�, �• Г1 � Г� ; ,, с , �, г 1 � д � У а .ci w .- _ J ?у ^ r Г1 � !� _ � О �� �s _ � .. О и .�� � г� LJ ✓ i �. G Гi �� � 3 w � � г� !J •i! � 'J J � г "гJ С ",J 't^. � 6l "J rJ L '7 V '� гJ и С'3 г7 i V � � ' м а л ;Е � ,, "� v n л � ; �'' � п h �.�� с с � С _• _.С С С iл •«' � j у 6 ., ,�, '�. � � ,, ' ,, .rs д д ? 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Architect 1Bilal Khan was paid Rs. 360,000/- vide voucher No. BPV-148 dated 17-05- 2021 For his consultancy, However, advance income tax of Rs. 36,000/-'was withheld from him @ 10% despite the fact that he was a non-flier and tax should have been withheld @ 20% instead. Total Invoice Tax @ Tax \'~In, 20% WithhelI Diffrce 360,000 72,000 36,000 36,000 3. Market Reflections was awarded services contract under sub-component "Marketing & Outreach" wherein the contractor was required to provide marketing and events management services to the Project. In their invoices dated 25-02-2021, the service provider has charged a services tax of 8% instead of 15% on the amounts related to the event management services which has resulted in under-taxation of Rs. 76,868/-; Total Value of Invoice Event Tax @ Tax Difference Value Mgt 15% Charged Services 2,804,850 1,098,123 164,718 87,850 76,868 Note: It is important to mention that the Khyber Pakhtunkhwa Sales Tax on Services (Withholding) Regulation, 2020 requires that the tax amount so calculated shall be withheld from within the invoice value and paid to the Government accordingly, Hence recovery of any under- charging of tax from Media Reflections should not be over and above the contract value but should be withheld within their invoices value. 32 Page Scanned with CamScanner