AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENTS OF SOCIAL ASSISTANCE PROJECT ORIGINAL FINANCING - SAP (5834-LS) FOR THE PERIOD ENDED 31 AUGUST 2021 AUDITOR GENERAL P.O. BOX 502 MASERU 100 LESOTHO MINISTRY OF SOCIAL DEVELOPMENT SOCIAL ASSISTANCE PROJECT ORIGINAL FINANCING (5834 - LS) FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31ST AUGUST 2021 Executive Summary Project Overview and Background Social Assistance Project (SAP) and its additional funding is intended to support the reform processes mainly on social protection looking at social assistance major programs in MOSD, and MOF. The Key feature of the reform is to achieve over the year's fiscal savings by: Improving the efficiency of social Assistance interventions. The focus is on key coordination and harmonised mechanisms for these social assistance programs. The objective of the project is Support the GOL in improving the efficiency, equity and shock-responsive function of selected social assistance programs. Ultimately contributing to the reduction of poverty and vulnerability through increased coverage of the poor. Project progress and Achievements a. Social Assistance Reforms: The main agenda related to the harmonization of social assistance programs, targeting as well as improving payment systems. Integrated Social Safety Nets policy has been adopted by the Ministry of Social Development with the aim of harmonising targeting, enrolment, payments and case management of all social safety nets including the envisaged programmes like Disability Grant. b. OAP Reforms: The OAP is managed at MOF/Pensions unit. The SAP supported initiatives under this programme which includes: * OAP MIS Enhancement * Enhancement of MIS * Proof of Life for OAP Beneficiaries * Adoption of National Identity * Pilot of improved payment system c. OAP Operational Manual Disbursement Linked Indicators (DLIs): SAP was designed to have 21 DLIs which after midterm review were restructured and reduced. The Project had 14 Active DLIs and were all achieved as of 31st August 2021. d. Results Frame Work Administrative efficiency of the social assistance system improved. Of 10 results indicators related to improving efficiency, 4 are fully achieved, 5 are partially achieved, and only 1 is not yet achieved. e. Project Implementation and Management: Overall Project rating remains Moderately Satisfactory at the end of the project. The project Financial and Procurement are also satisfactory. Audits were conducted in 2018/2019, 2019/2020 and 2020/2021. The project maintained the "Unqualified Audit Rating" for the consecutive years. f. Financial management The total Budget for Social Assistance Project is $40 million US Dollars, out of which $39 million has been received as disbursement from The World Bank and $39 million has been actually spend. These translates into the disbursement rate of the project 99% and the actual expenditure rate 99% of the total budget of the project. MANAGEMENT'S RESPONSIBILITY AND APPROVAL The Government of Lesotho (GoL) through the Ministry of Social Development has received two credits (Credit number 5834- LS and 5932- LS) from the International Development Association (IDA) administered by the World Bank under Project called Social Assistance Project (P151442). The objective of the Social Assistance Project and its Additional Financing is to support the Government of Lesotho in improving the efficiency, equity and shock responsive function of the selected social assistance programs and, in the event of an eligible crisis or emergency, to provide immediate and effective response to the emergency or crises. The project is implemented by the Project Implementation Unit established within the Ministry of Social Development. The Project's management is required to keep accurate accounting records and integrity of the financial statements and making sure that other related financial information is maintained. It is their responsibility to make sure that annual financial statements satisfy the financial reporting standards and present fairly the statement of cash receipts and payments and the objective of the project. The annual financial statements are prepared based on appropriate accounting policies consistently throughout the life of the project. The management is responsible for developing a system of financial accounting and internal controls and place a strong control environment through setting standards for internal controls aimed at reducing risk of error or loss. The standards include segregation of duties and effective accounting procedures to ensure an acceptable level of risk. The controls are monitored throughout the project and all employees are required to adhere and maintain the highest ethical standards in ensuring the project objectives are maintained in a manner that is reasonable. The accompanying financial statements set out on pages to were approved on 1st February 2023 and signed by: ). e ........r........ Nthabiseng A. Sekete (Ms.) Molaoa Maqhama (Mr.) Principal Secretary -Social Development Director of Finance p2ag A222 2 OFFICE OF THE AUDITOR - GENERAL P.O. BOX 502, MASERU 100 LESOTHO REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS OF SOCIAL ASSISTANCE ORIGINAL FINANCING PROJECT FOR THE PERIOD ENDED 31 AUGUST 2021 Opinion I have audited the financial statements of Social Assistance Original Financing Project Number 5834-LS (the Project) set on pages 6 to 11. The financial statements comprise statement of Receipts and Payments by category, for the period ended 31 August 2021; the statement of Sources and Uses of funds by category, for the period then ended, as well as notes comprising a summary of accounting policies and the other explanatory notes. In my opinion, the accompanying financial statements present fairly, in all material respects, the receipts and payments of the Project for the period ended 31 August 2021, and the statement of Sources and Uses of funds for the period then ended, in accordance with International Public Sector Accounting Standards (IPSASs). Basis for Opinion I conducted my audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs). My responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of financial statements section, in my report. I am independent of the Project in accordance with International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), together with ethical requirements that are relevant to my audit of the financial statements in Lesotho. I have fulfilled my other ethical responsibilities in accordance with these requirements. I believe that the evidence I have obtained is sufficient and appropriate, to provide basis for my opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the Project. There were no key audit matters identified during the audit. 3 4th floor * Finance House * High Court Road * laseru * Lesotho Telephone (+266) 22323904/22314247 * Fax (+266) 22310366 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IPSASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud, or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern, and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an audit report that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISSAIs, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error, and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users, taken on the basis of these financial statements. As part of an audit in accordance with ISSAIs, I exercise professional judgment and maintain professional skepticism throughout the audit. I also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence, that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal controls relevant to the audit, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by 4 management. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, assess whether a material uncertainty exists, related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my audit report, to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my audit report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that I identify during my audit. I also provide those charged with governance with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them, all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore, the key audit matters. I describe these matters in my audit report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so, would reasonably be expected to outweigh the public interest benefits of such communication. 'MATHABO GAIL MAKENETE (MS) DATE: 24 FEBRUARY 2023 AUDITOR-GENERAL P. 5 SOCIAL ASSISTANCE PROJECT ORIGINAL FINANCING - SOURCES AND USES OF FUNDS BY CATEGORIES FOR THE PERIOD ENDED 31ST AUGUST 2022 Designation 2020/2021 2021/2022 Opening Cash Balance SAP Special Account 4432 18 984 SAP Maloti Account 2 612 20 644 Total Opening Cash 7 044 39 627 Sources of Funds Funds from IDA 2440714 320000 Direct Payments 386 832 Other Income Total Sources of Funds 2827546 320 000 Total Financing 2834589 359627 Less Uses of Funds by Categories Goods 129 206 11 196 Consultants 1085519 159137 Non Consulting Services 191 379 41 528 Training 12 423 Operating Costs 315 163 78 597 Direct Transfers to Beneficiaries 1059 192 Total Expenditures 2792881 290458 Cash available less total Expenditure 41709 69170 Foreign Exchange Difference 2 081 1 890 Closing Cash Balances SAP Special Account 18984 63996 SAP Maloti Account 20 644 3 283 Total Closing Cash Balances 39627 67279 6 SOCIAL ASSISTANCE PROJECT ORIGINAL FINANCING - STATEMENT OF CASH RECEIPTS AND PAYMENTS BY CATEGORIES FOR THE PERIOD ENDED 31ST AUGUST 2021 Designation 2020/2021 2021/2022 M M M M Opening Cash Balance SAP Special Account 79841 283488 SAP Maloti Account 47 054 308 277 Total Opening Cash 126 894 591765 Sources of Funds Funds from IDA 43137894 4610189 Direct Payments 6 569 939 Other Income Total Sources of Funds 49707 833 4 610 189 Total Financing 49834727 5201954 Less Uses of Funds by Categories Goods 2 180 767 158 585 Consultants 18 172 336 2 252 308 Non Consulting Services 3 157 106 585 938 Training 218 250 Operating Costs 5 114 400 1122 996 Direct Transfers to Beneficiaries 18 193 410 Total Expenditures 47036268 4119827 Total Financing less total Expenditure 2798458 1082127 Exchange rate Difference 2 206 693 97 777 Closing Cash Balances SAP Special Account 283 488 936 310 SAP Maloti Account 308 277 48 040 Total Closing Cash Balances 591765 984 350 7 STATEMENT OF SPECIAL ACCOUNT ENDED 31 AUGUST 2022 SOCIAL ASSISTANCE PROJECT RECEIPTS $ $ Opening Bank Balance 18 983,77 Designated Account 18 983,77 Funds from IDA Transfer Reference: W/P 046 250 000,00 W/P 047 70000,00 Total Sources of funds 320 000,00 Total Receipts 338 983,77 PAYMENTS Transfer to Maloti Account SAPPV2104001$ 17 000,00 SAPPV2104002$ 70 000,00 SAPPV2105001$ 70 000,00 SAPPV2106001$ 100 000,00 Total Transfers to Maloti A/c 257 000,00 Other Payments - Consultants Dr Tjonga Selaolo 17600,00 Bank Charges 387,95 17 987,95 Total Payments 274 987,95 Closing Bank Balance Designated Account 63 995,82 8 SOCIAL ASSISTANCE PROJECT NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31sT AUGUST 2021 1. BACKGROUND The Social Assistance Project aims to support the implementation of the National Strategic Development plan that lead to all social protection interventions and policy formulation. In June 2016, the World Bank approved funding to finance the Social Assistance Project (SAP) with the aim to support Government's effort to alleviate poverty and inequality. The Project has three mutually reinforcing components, namely (i) Strengthening the Implementation of selected Social Assistance Programs; (ii) Support for Implementation and Crises response and (iii) Direct Transfers to Beneficiaries. PROJECT DEVELOPMENT OBJECTIVE The specific objective of the project is to support the Government of Lesotho in improving the efficiency and equity of selected social assistance programs and to provide immediate and effective response to the emergency/crisis. These selected social assistance programs are; Child Grants Program, OVC Bursary Scheme, Public Assistance Program and Old Age Pension. 1.1 SCOPE AND REPORTING PERIOD The period covered by the financial statements is the five months ended 31tAugust 2021, which is within the Governments of Lesotho Financial Year commencing 1st April 2021 and ending 31t March 2022, The Project Implementation Unit (PIU) is mandated to oversee the day to day operations and therefore maintains accounts in respect of funding provided for the Project. The accompanying financial statements cover funding provided by the International Development Association - World Bank under the Loan No. P151442 (Social Assistance Project Original Financing - 5834) 2. BASIS FOR PREPARATION AND ACCOUNTING POLICIES The Financial Statements have been prepared in accordance with Cash Basis IPSAS, "Financial Reporting under the Cash Basis of Accounting". Under the Cash Basis, accounting transactions and other events are recognized when cash is received or paid. The accounting policies have been applied consistently throughout the period. 2.1 Presentation Currency These Financial statements are presented in both Lesotho Maloti (which is the functional currency for the Government of Lesotho) and US Dollars (which is the reporting currency for the Donor) 2.2 Foreign Currency Transactions and Closing Balances . All funds received under the Loan from IDA are recorded when funds are received; and expenditures disbursed directly to third parties are recorded upon receipt of notification 9 that the disbursement has been made. These are converted at the exchange rate ruling on the date of disbursement. * All transfers from Designated Accounts to local currency account are translated in Maloti at the rate on the date of the transaction. * All expenditures incurred in local currency are converted to US dollars at the rate prevailing on that day. * The closing cash balances at the end of the five months (31st August 2021) are reported using the closing rate of; 1USD = 14.6308 as published by the Central Bank of Lesotho. 3. PROJECT FINANCING The total financing for the Project is equivalent to US$ 40 Million (at the exchange rate of 1XDR= 1.4US$) with both Credits (Original Financing and Additional Financing) allocated US$20 Million each. During the period under review, IDA disbursed US$ 320 000 (M 4 610 189.00) for Component 2 and US$ 3 659 325.45 (M52 127 836.77) for Component 1. 4 FIXED ASSETS Fixed Assets are expensed in full on acquisition and a Fixed Assets Register is maintained for all assets under the organization's control. 5 DISBURSEMENT LINKED INDICATORS - Component 1 is structured around 21 Disbursement Linked Indicators (DLI's). Disbursement takes place once technical proof that the DLI has been met and financial evidence on adequate Government spending under the Eligible Expenditure Program are presented to the World Bank. This current year, two DLI's have been met; Date Reference XDR USD LSL 09 APR 2021 22 1 500 000.00 2 142 840.00 30 451 042.10 06 JUN 2021 19 1065 000.00 1516 485.45 21676 794.67 6 OTHER DICLOSURES * No Budgetary performance as at 31st August 2021 as the activities under the period were a continuation of last Financial Year to complete the Project. * All information on Assets acquired are recorded in the Fixed Asset Register. * The Project ended 30th June 2021. 10 IDA 5834 Withdrawal Applications 046 12-Apr-21 USD 250 000,00 LSL 3659 575,00 14,6383 047 09-Juni-21 USD 70 000,00 LSL 950 614,00 13,5802 Total Disbursed USD 320 000,00 LSL 4 610 189,00 Disbursement Linked Indicators 048 23-Jun-21 XDR 1 500 000,00 USD 2,142,840.00 LSL 30,451,042.10 14,20 049 01-Jul-21 XDR 1 065 000,00 USD 1,516,485.45 LSL 21,676,794.67 14,2941 Total Disbursed XDR 2 565 000,00 USD 3,659,325.45 LSL 52,127,836.77 V1