THE MALAWI GOVERNMENT MINISTRY OF AGRICULTURE Agriculture Sector Wide Approach-Support Project II IDA PROJECT NUMBER P164445 PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 THE MALAWI GOVERNMENT- MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH- SUPPORT PROJECT II IDA PROJECT NUMBER P164445 PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 INDEX Page The Controlling Officer's report 1-2 Statement of Controlling Officer's responsibilities 3 Independent auditors report 4-5 Project financial statements - Statement of cash receipts and payments 6 Notes to the statement of cash receipts and payments 7-11 Supplementary information 12 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT 1i IDA PROJECT NUMBER P164445 THE CONTROLLING OFFICER'S REPORT For the 9 months period ended 31 March 2022 The Secretary for Agriculture pleasure in submitting this report together with the project financial statements of the Ministry of Agriculture - ASWAp SP II project for the 9 months period ended 31 March 2022. Change in reporting period The project has changed its reporting date from 30 June to 31 March to align with the reporting period for the Government new financial year. As such these project financial statements have been prepared for nine months. The comparative figures are for twelve months hence the current amounts and prior year amounts are not entirely comparable. The Ministry overview: Agriculture Sector Wide Approach-Support Project 11 (ASWAp 11) is a three-year project being implemented by the Ministry of Agriculture with a total grant of USD55,000,000. The financing agreement was signed between the Republic of Malawi and the International Development Association on 13 April 2018. Project objective The Project Development Objective (PDO) is to improve the productivity and market access of at least four selected commodities for small-holder farmers in the project districts. Project components The project has four components as follows: Component 1: Sustainable agricultural productivity and diversification Component 2: Improvement for rural road infrastructure for market access Component 3: Institutional capacity development for NAIP Component 4: Project coordination and management Cross cutting issues The project is mainstreaming gender, nutrition, climate smart agriculture and resilience throughout its components. Regarding gender, the project will help close the gender gaps in the areas of productivity and access to agriculture inputs and services. It will also seek innovative ways to reduce the women's work burden. In line with National Nutrition Policy and Strategic Plan, the project will support interventions aiming at improving production and utilization of nutritious foods. The project will further create synergies with Bank interventions to improve nutrition (under preparation) e.g. nutrition sensitive agriculture pilot project and Investment in Early Years for Growth and Productivity. The ASWAp-SP 11 project is also supporting climate smart agriculture and resilience through climate smart and environmental practices, such as promotion of climate change resilient crops, sustainable land management practices and integrated pest management practices. Climate smart practices to minimize production risks and enhance resilience will be integrated within activities under crop diversification and productivity. This report covers the audit of project's financial statements for the ASWAp SP II project for nine months period ended 31 March 2022. Financial performance: The results of the project are set out in the accompanying project financial statements, significant accounting policies and explanatory notes. 1 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA PROJECT NUMBER P164445 THE CONTROLLING OFFICER'S REPORT (CONTINUED) For the 9 months period ended 31 March 2022 Registered office and physical location: Ministry of Agriculture The Second Agricultural Sector Wide Approach (ASWAP SP 11) P.O. Box 30134 Capital City LILONGWE 3 Independent auditor: Grant Thornton Chartered Accountants and Business Advisors (Malawi) Anamwino House P.O. Box 30453 Capital City LILONGWE 3 Bankers: Reserve Bank of Malawi The independent auditors, Grant Thornton Chartered Accountants and Business Advisors have indicated their willingness to continue in office as auditors for the ensuring financial year. S ECREtATO 1- ULTURE DIRECTOR OF FINANCE PR EC ORDINATO Date O 2022 2 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT lI IDA PROJECT NUMBER P164445 STATEMENT OF CONTROLLING OFFICER'S RESPONSIBILITIES For the 9 months period ended 31 March 2022 It is the responsibility of the Controlling Officer to prepare and fairly present the project financial statements for each financial period which presents fairly in all material respects, the state of affairs of the project as at the end of each period and of the operating results of that period. The Controlling Officer is required to ensure the project keeps proper accounting records which disclose with reasonable accuracy at any time the financial operations of the project and enable them to ensure that the project financial statements comply with the Public Finance Management Act and International Public Sector Accounting Standards ("IPSAS") - Financial Reporting under the Cash Basis of Accounting. In preparing the project financial statements, the Controlling Officer accepts responsibility for the following: - * the provisions of the Public Finance Management Act are complied with; * advice on financial management is provided to the responsible Minister; * all accounts and records relating to the functions and operations of the project are properly maintained; * all necessary precautions are taken to safeguard the collection and custody of public money; * there is no over-expenditure or over-commitment of funds and a review is undertaken each month to ensure that there is no such over-expenditure or over-commitment; * all expenditure is incurred with due regard to economy, efficiency and effectiveness and the avoidance of waste and that the expenditure is incurred in line with project financing agreement; and * all necessary precautions are taken to safeguard project's resources. * an effective system of internal control is developed and maintained and, unless the Secretary to the Treasury approves otherwise in circumstances provided for in Treasury Instructions, an effective internal audit function is developed and maintained. The Controlling Officer accepts responsibility for taking such steps as are reasonably open to them to safeguard the assets of the project and to maintain adequate systems of internal controls to prevent and detect fraud and irregularities. The Controlling Officer is of the opinion that the project financial statements present fairly in all material respects, the operating results of the project. The auditor is responsible for reporting on whether the financial statements are fairly presented in accordance with the International Public Sector Accounting Standards ("IPSAS") - Financial Reporting under the Cash Basis of Accounting, and in the manner required by the Public Finance Management Act. Approval of project financial statements .2 an. The project financial statements for the project were approved for issue on the '0 2022 and is signed on its behalf by: SECRETARY URE DIRECTOR OF FINANCE PROJE DINATOR 3 O GrantThornton 2 63 a2 2hQ An instinct for growth INDEPENDENT AUDITOR'S REPORT TO THE SECRETARY FOR AGRICULTURE - AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA (PROJECT NUMBER P164445) ON THE FINANCIAL STATEMENTS OF THE PROJECT. Opinion Grant Thornton We have audited the project financial statements of the Ministry of Agriculture -Agriculture Malawi Sector Wide Approach-Support project lI IDA project number P164545 as set out on Chartered pages 6 to 11 which comprise the statement of cash receipts and payments for the 9 chatd months period ended 31 March 2022, and the notes to the project financial statements, Accountants and including a summary of significant accounting policies. Business Advisors Nurses Council Building In our opinion, the project financial statements present fairly, in all material respects, the New Capital City financial position of Ministry of Agriculture - Agriculture Sector Wide Approach-Support Centre project II (IDA project number P16445) as at 31 March 2022 and of its cash receipts and P.O. Box 3053 disbursements for the period ended 31 March 2022 in accordance with the International Public Sector Accounting Standards ("IPSAS") Financial Reporting under the Cash Basis Lilongwe 3, Malawi of Accounting. Basis for opinion T+265 01773 855 We conducted our audit in accordance with International Standards on Auditing (ISAs). T +265 0212 859 653 Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the Project financial statements section of our report. We email: mw-nformationomw.gt.com are independent of the Ministry of Agriculture- Agriculture Sector Wide Approach-Support Project II (IDA project number P16445) in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and we have fulfilled our ethical responsibilities in accordance with the IESBA code. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Basis of accounting and restriction on distribution and use Without modifying our opinion, we draw your attention to Note 2.1, which describes the basis of accounting. The project financial statements are prepared to provide a financial report to Ministry of Agriculture in line with the program agreement. As a result, the project financial statements may not be suitable for other purposes. Other information The Controlling Officer is responsible for the other information. The other information comprises the Controlling Officers' Report, Statement of Controlling Officers Responsibilities and Supplementary Information. The other information does not include the project financial statements and our auditor's report thereon. Our opinion on the project financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the project financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the project financial statements, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Controlling Officer for the project financial statements The Controlling Officer is responsible for the preparation of the project financial statements that presents fairly, in all material respects, in accordance with International Public Sector Accounting Standards ("IPSAS") - Financial Reporting under the Cash Basis of Accounting, and for such internal control as the Ministry determine is necessary to enable the preparation of the project financial statements that are free from material misstatement, whether due to fraud or error. In preparing the project financial statements, the Controlling Officer is responsible for assessing the program'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 the Ministry either intend to liquidate the program or to cease operations, or have no realistic alternative but to do so. Resident Partners Chartered Accountants and Business Advisers Registered in Malwi, Company number RN 3832 LM.Gama GrantThornton Malami is a memberaf Grant Thornton International Ltd (GTI) G1Land thememberfirmsorenotoworldwide H.B. NVirenda partnership, GTILand each member firm is a separate ongol entlty. Services are delivered Independently bU the member firms. GTIL B.J. Mwenelupambe does not provide services to clients. GTIL and its member firms are notagents of, and do not obligate,one another and are not G. Tembo liable forone onother's acts or omissions. 4 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA PROJECT NUMBER P164445 INDEPENDENT AUDITOR'S REPORT (CONTINUED) For the 9 months period ended 31 March 2022 Auditor's responsibilities for the audit of the project financial statements Our objectives are to obtain reasonable assurance about whether the project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs 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 this project financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the project 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 our 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 control 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 program's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Controlling Officer. * Conclude on the appropriateness of the Controlling Officer's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the program's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the project financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the program to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the project financial statements, including the disclosures, and whether the project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Controlling Officer regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Grant Thornton J I Mwenelupedbe artered Accountant (Malawi) artner Lilongwe, Malawi Date 5 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT 11 IDA PROJECT NUMBER P164445 STATEMENT OF CASH RECEIPTS AND PAYMENTS For the 9 months period ended 31 March 2022 MK'000 USD'000 MK'000 USD'000 9 months to 9 months to 12 months to 12 months to Note 31 March 2022 31 March 2022 30 June 2021 30 June 2021 Receipts Direct payments 6 - - 2,834,938 3,740 World Bank IDA advance receipts 7 5,301,665 6,494 10,899,350 14,253 Government contribution 9 134,003 169 160,671 218 Exchange gains 10 11,763 88,454 - 5,447,43 13,983,413 Payments Promotion of diversified crop production and management system 774,920 972 1,587,396 2,123 Promotion of integrated soil fertility management 40,531 50 282,546 379 Livestock development 93,352 114 - - Improvement of rural unpaved roads 2,094,510 2,619 11,059,552 14,571 Implementation of support district councils 22,954 29 323,311 428 Institutional capacity building - - 17,225 23 Strengthening M&E and agricultural statistics 132,749 162 430,077 575 Project coordination 5 660 623.166 839 Total payments 11 34662812 7 Increase I (decrease) in cash 161 2U Cash at beginning of the period 2,634,416 3,319 2,974,276 4,046 (increase)/Decrease in cash 1,760,610 2,057 (339,890) _(727I Cash at period end 5 490 .2.634,416 M3M The statement of cash receipts and ments for the project was approved for issue on the 2022 and is signed on its behalf by: SECRETARY FGU URE DIRECTOR OF FINANCE PROJECT ORDINATOR 6 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT ii IDA PROJECT NUMBER P164445 NOTES TO THE PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 1 Audit executive summary Audit of the project financial statements of Ministry of Agriculture (MoA) - Agriculture Sector Wide Approach- Support Project II" implemented by Ministry of Agriculture with funding from World Bank" under financing agreements for the year July 1, 2021, through March 2022. Background and project identification The Government of Malawi is implementing Second Agricultural Sector Wide Approach Support Project (ASWAp- SP II) through Ministry of Agriculture. Second Agricultural Sector Wide Approach Support Project (ASWAp-SP 11) is a follow up to ASWAp-SP I that was implemented between 2014 and 2016. The project was declared effective on 25 April 2018 and will close on 31st December 2021. Malawi Government successfully negotiated for an additional financing which will run from 01st January,2022 to 30th June 2023.The project is currently being financed by five donors namely the EU, Irish Aid, Flanders, USAID and Norway as a Multi Donor Trust Fund managed by the World Bank. So far, only three donors have pumped in their contributions, namely EU, Irish Aid and Flanders, however, there is also commitment from the USAID and Norway to support the project. Project development objective The Project Development Objective (PDO) of ASWAp-SP 11 is to improve productivity and market access of selected commodities for small-holder farmers in targeted districts of Malawi. The ASWAp-SP Il is addressing the PDO through a community demand driven approach, building on lessons and successes of ASWAp-SP 1. Key outcomes i) Increasing production volume of selected agricultural commodities/value chains across the targeted districts with equal weight and measures given to each commodity. ii) Linking/connecting agricultural marketing centers that are used for marketing of both inputs and agricultural produce by the rehabilitated roads in the project districts. iii) Reaching farmers with agricultural assets or services of which 50% are female farmers. Project beneficiaries and implementation districts The project is expected to benefit 300,000 households (of which 50% are female) which shall include, wherever possible (i) smaliholder farmers and local communities who will benefit from improved agricultural interventions and jobs, (ii) road users from improved road infrastructure, (iii) staff trained, and (iv) institutions including: MoAIWD, Roads Authority, District Councils and the construction industry. The project will ensure that women and youth are well represented as beneficiaries of the project. Project implementation is in 12 districts. Selection of the districts was based on the following criteria as agreed by Government and donors: (i) actual and potential agricultural productivity, (ii) poverty levels, and (iii) population. This is aimed at ensuring a comprehensive package of support from production to marketing of selected agricultural commodities/value chains, while targeting smallholder and emerging farmers. 7 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA PROJECT NUMBER P164445 NOTES TO THE PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the project financial statements are set out below: 2.1 Basis of accounting The project financial statements have been prepared in accordance with the International Public Sector Accounting Standards ("IPSAS") - Financial Reporting under the Cash Basis of Accounting as at the period end. 2.2 Reporting currency The Project financial statements are presented in Malawi Kwacha and the United States Dollar. All amounts have been rounded up to thousands. 2.3 Funds Funds represent funding from the donors which are transferred to Reserve Bank of Malawi. 2.4 Basis of measurement The Project financial statements have been prepared on a historical cost basis. 2.5 Functional and presentation currency Items included in the project financial statements are measured using Malawi Kwacha, as functional currency of/also the primary economic environment in which the entity operates. The Project financial statements are also presented in US Dollars as the Ministry's presentation currency. 2.6 Payments Payments are made in Malawi Kwacha through the various operating bank accounts. 2.7 Foreign currency recognition The transactional currency for the Program is in Local Currency which is the Malawi Kwacha. Funds from the Ministry of Agriculture - ASWAp II are received in US Dollars into a US Dollar Denominated Bank Account. These funds are transferred into a Malawi Kwacha Account using an exchange rate ruling at the date of transfer the central bank (Reserve Bank of Malawi). All payments in the Local Currency are converted to US Dollar using this same rate until the respective resources are fully utilized. Foreign exchange gain/loss - At the end of the reporting period, the balance in the Local Currency Account is reconverted to the US Dollar at the exchange rate ruling as at 31st March of that year. The difference between the use of the original rate and the current rate being used brings out the exchange gain or (loss) which ever the case may be. 2.8 Motor vehicles and equipment Motor vehicles and equipment and all other fixed assets purchased by the project are expensed in the period of purchase and are not depreciated. 2.9 Government contribution These amounts relate to Government officers that are engaged on project activities. It comprises of salaries of these officers which the government contributes. 2.10 Comparative information Comparative information for the project is restated where applicable due to prior period material error or changes in accounting policies. 2.11 Cash Cash comprise cash on hand and cash equivalents comprising balances held with commercial banks and the Reserve Bank of Malawi. 8 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA PROJECT NUMBER P164445 NOTES TO THE PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 MK'000 USD'000 MK'000 USD'000 9 months to 9 months to 12 months to 12 months to 31 March 2022 31 March 2022 30 June 2021 30 June 2021 3. Capital expenditure Office equipment - - 4220 63 4. Operating costs Total expenses 3,686,821 4,606 14,323,273 18,938 Total assets - - (47.220) (63) 3.68,821Afi0 14.276.53 5. Cash and bank balances ASWAp II Designated 1,228,161 1,504 250,085 310 ASWAp It Holding 2,636,530 3,244 189,52 266 ASWAp RFA DA 12,797 16 829,139 1,029 ASWAp RFA Holding 28,872 20 1,321,317 1,655 ASWAP 1l - Karonga 19,200 24 121 - ASWAP II - Mzuzu 33,662 41 3 - ASWAP II - Kasungu 54,043 66 1,260 2 ASWAP II - Lilongwe 136,303 167 24,372 33 ASWAP II - Machinga 38,771 47 2,395 3 ASWAP II - Blantyre 130,533 160 9,257 12 ASWAP II - Bvumbwe 14,712 18 2,759 4 ASWAP It - Chitedze 49,069 54 5,049 6 ASWAP II - Lunyangwa 12,375 15 (863) Cash and cash balances 4350 The overdraft in 2021 represents overdrawn (cash book position) as the Ministry does not have an overdraft facility. 6. Direct payments 24.08.20- FNC/Meshozi Joint Venture - - 156,097 211 04.09.20- SOS Construction - - 361,592 488 07.10.20- Victory Vision Civil Engineering - - 195,411 263 22.10.20- SOS Construction - - 90,752 122 29.10.20- DIKA Construction Company - - 97,705 131 24.11.20- DIKA Construction Company - - 84,760 113 04.12.20- China Railway 20 Bureau Group Corp. - - 78,171 103 04.12.20-Sempha Investment Company Ltd - - 85,738 113 04.12.20- DIKA Construction Company - - 112,087 147 07.12.20- TAHIT Networks - - 158,677 207 08.12.20- FNC/Meshozi Joint Venture - - 138,335 182 15.12.20- Sempha investment Company Ltd - - 91,200 120 22.12.20- Master Construction - - 112,405 148 22.01.21- Master Construction - - 108,868 143 22.01.21- China Railway 20 Bureau Group Corp. - - 117,311 153 22.01.21- DIKA Construction Company - - 85,376 ill 25.01.21- Einstein Construction Limited - - 94,394 124 26.02.21- Sempha Investment Company Ltd - - 292,471 379 09.03.21- DIKA Construction Company - - 105,027 136 18.03.21- TAHIT Networks - - 185,157 239 29.03.21- SOS Construction - - 83,404 107 These are payments paid by donor direct to the suppliers on request by Ministry of Agriculture and Roads Fund Administration. 9 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA PROJECT NUMBER P164445 NOTES TO THE PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 7. World Bank IDA advance receipts MK'000 USD'000 9 months to 9 months to 31 March 2022 31 March 2022 03.02.2022 Designated Account HQ 2,776,540 3,401 03.02.2022 Designated Account HQ 2,525.125 3,093 5.301,665 6 12 months to 12 months to 30 June 2021 30 June 2021 04.09,2020 Designated Account HQ 2,254,093 3,000 04.09.2020 Designated Account RFA 1,728,135 2,300 10.12.2020 Designated Account RFA 3,879,699 5,078 07.04.2021 Designated Account RFA 3037423 3875 10.899.350 8. World Bank IDA financing MK'000 USD'000 MK'000 USD'000 9 months to 9 months to 12 months to 12 months to 31 March 31 March 12 mnt to21 mnt to 2022 2022 30 June 2021 30 June 2021 Direct payments Note 6 - - 2,834,938 3,740 Transfer to bank account Note 7 5,301665 6,494 10,899,350 5,301,665 1A4 13,734,288 9. Government contribution Total Government contribution to Zi1 These relate to Ministry of Agriculture officers that are engaged on project activities. These contributions are for salaries to these officers which the Ministry pays and proportional to the amount they spent on the project activities. Detailed schedule for the contributions provided under supplementary information on page 14. 10. Exchange gains Closing designated account balances in Malawi Kwacha 1,240,958 1,520 1,079,224 1,339 Translated Designated Account closing balances in Malawi Kwacha. (1,229,195) (1.520) (990,770) (1,339) 11.763 - 8.5 11. Project expenditure Promotion of diversified crop production and management system 774,920 972 1,587,396 2,123 Promotion of Integrated Soil Fertility Management 40,531 5D 282,576 378 Livestock Development 93,352 114 - - Improvement of Rural Unpaved Roads 2,094,510 2,619 11,059,552 14,570 Implementation Support to the District Council 22,954 29 323,311 428 Institutional Capacity Building - - 17,225 23 Strengthening M&E and Agricultural Statistics 132,749 162 430,077 575 Project Coordination 57,85 660 623,166 839 3W662 4A 14,3,273 10 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT 1I IDA PROJECT NUMBER P164445 NOTES TO THE PROJECT FINANCIAL STATEMENTS For the 9 months period ended 31 March 2022 12. Related parties In the context of the project with the project, related party balances include transactions made by any of the following parties: * World Bank * Malawi Government * Roads Fund Administration * Roads Authority The project undertakes to disclose the nature of related party relationships, types of transactions, and the elements of the transactions necessary for the understanding of the annual financial statements. The details of the balances are shown in the statement of cash receipt and payments under appropriate notes. The following transactions took place between the project and its related parted parties: MK'000 USD'O00 MK'000 USD'000 9 months to 9 months to 12 months to 12 months to 31 March 31 March 12 mnt to21 mnt to 2022 2022 30 June2021 30 June 2021 World Bank Direct payments - 2,834,938 3,740 World Bank IDA advance receipts 5,301,665 6494 10,899,350 1 5316 13,734 288 Malawi Government Government contribution 2in Road Fund Administration and Roads Authority Improvement of rural unpaved roads 2 51 5 13. Foreign exchange rates and inflation The average of the year-end buying and selling rates of the major foreign currencies affecting the performance of the project are stated below, together with the National Consumer Price Index, which represents the official measure of inflation. 2022 2021 Kwacha/Euro 911.2 958.9 Kwacha/US Dollar 816.4 805.6 KwachalSouth Africa Rand 56.3 56.5 Inflation rate (%) 4A At the time of signing the project financial statements the exchange rates were as follows: - Kwacha/Euro 1,252.3 1,127.7 Kwacha/US Dollar 1,026.2 817.7 Kwacha/South Africa Rand 63.9 55.9 Inflation (%) 24.5% 11.1% 14. Contingent assets and contingent liabilities There are no contingent assets and/ or liabilities requiring disclosure in this project financial statements. 15. Commitments There are no commitments requiring disclosure in this project financial statements. 16. Subsequent events There are no significant events that have occurred after year end which necessitates adjustments to or disclosure in the project financial statements. 11 THE MALAWI GOVERNMENT MINISTRY OF AGRICULTURE Agriculture Sector Wide Approach-Support Project II IDA PROJECT NUMBER P164445 SUPPLEMENTARY INFORMATION The following pages do not form part of this Project financial statements. 12 THE MALAWI GOVERNMENT-MINISTRY OF AGRICULTURE AGRICULTURE SECTOR WIDE APPROACH-SUPPORT PROJECT II IDA PROJECT NUMBER P164445 STATEMENT OF FINANCIAL POSITION For the 9 months period ended 31 March 2022 As at 31 March 2022 As at 30 June 2021 Assets MK'000 USD'000 MK'000 USD'000 Non-current assets Office equipment - 47,220 63 Project operating costs 3,686,821 4,606 14,276,053 1 Total non-current assets 3,686,821 4 14,323,273 1 Current assets Bank balances 4,395,026 AU 2,634,416 31 Total current assets 4,395,026 2,634,416 19 Total assets 884257 Financing World Bank IDA financing 7,936,081 9,813 16,708,564 22,039 Government contribution 134,003 169 160,671 218 Exchange gains 11.763 - 88,454 - Total financing 8,081,847 13 О р о д д О о о о О О О о б С] д О д О Q о О д О о о Q Q г n: ш со о о сд о о о м со v и о со м ао, а? и rn rn м м г о м т У ai со oi об ш ni cti гv �_ мi ш n_i со о м �ri ri и v tr v ео ri ni цi ао .= м о и и h О V' t0 М О� И О� ар и'l n о N О1 N О (О о о �' и Qr � г О а0 �D д7 N о0 fO а? � ni N oQ h т М г и N h h s-^ м и l�7 м[у со v г� г� ао v ср л � ао и с� v г �� ' � м со м �п - оо ао цi �r �r v�. w и а о г� со г� i+ ш о г� er м,п v м г- и � о c�i м .- rn с� м о� м м r� и w г� о о v и v м са rn сд м г� �.�- и � �*i ' ri м v м N ' - ai с.� а д с- .` с О U О О О О О О О G О О � О О О о о о о О О О О О а о о р О О b а р q С О О о о о о о о о а о о о о q а О о о о о о о о о о о о м м м м д о м о о о м м м м м м м м м м м м м м м L+ У о � � д .с с о с� д д д О о о о О о О О О д О о О О о О О о О О о о О б О р а о о о о о о о о о о о о о о о о о о л о о о о о о о_ о �' h s� N fP CD N N N г и {� N оО fV О N г (О С7 � м м г_ h О ср 7� 61 tП м 61 д V' N М о 00 V N о �П в- UO 00 t-� а0 (О � f_D h � б� СО Ф и и � N [V [D д т И О О 00 tD а0 т 01 С7 М д М LV � у,� _м (D Оv� цi !� с0 С4 с0 f� О� Pt tY (О 'д' N ре} h М ц1 63 N f� ц7 и в- V� 'у� р а0_ �1' �У ONO � с�'I rn М М а� N да р цлi tf) м_ 05 �� м N h� о Q� СР СО г д; и д м r- и Ор М �� д' {f3 д м 7 N w r М'О iD и7 М М м V' м т (р и �� м И п 4, м � О }- о О О о О о д д G � О О 4 О д О о О О 4 q О о д д 4 И О_ о О р О д о О О О о О д о о О О 4 О О о О Q о р �� � N (V О о LЛ 1+ 1л tD 'сУ N N о V iЛ tA а- м 1� д h О с цr и м v м пt rn и ао г� м и rn rn г ао rn гд с� м v а� с� и м `7 о и ао и и v ti в? о ш сд и с� сц rn.- г w м г ао v_ и i. о н �� г� со ео гд мi cv г� ек о5 v v�г' м� пi е- cri а n� °� й Q м г ео о и ~ м и т и о г� г� rn ао л �r г� й й м ао о г v со г о и v ni л и м с�г с� v со ti г� г .- й v_ м и с� w .� N �r д м r г� т" ао м ni е- т `' � ь�°v � oL �� О � о о О д О р О О О о о О О 4 О о О О О О Q р О о О О }. %1 Q О О О О О д д О С Q р о О О О р р О О О О д д р О О � w ц] N б' � N N N N аб И N N �0 �0 О N LV �' 00 N N т V [0 О � fD � О V М и V rn м О д� �гi ш и Л rn � б1 � `t .-- и а м rv ~ й rn w rn о м ао м и rn ао ао ао � н м w й г`W R г � ai _~ оо пi � v с� л" � h_ ai оо й sr ai гй й c�i т v г� м_ м er ai LL Ql 'с1' т � д' СО N Ф О OS А [О N 1� SЛ V 1С1 � � О � � � V а, (О У N � OD_ 00 �0 'V W N О) (D N N а0 N О) М С1[ М �-ч •� � 1� [О 1� � N М (О М(�f N N N N [D �' М N N ' N N ар и w �i о и Е- с] с �� � �� �� � и о о о 4� о�°о д са ❑ о о д ;� r � r с � -с � � � а ¢ ¢ ¢ ¢ а ¢ а ¢ ¢ °¢ °¢ °¢ °¢ 7 7 7 � � 3 � 7 � (0 (6 (6 (6 (О dS N �С fU LЛ � ¢� 67 СЛ СЛ U1 Q1 S6 RS fб SO (6 ПS '� й 3 '3 7 � 7 � 7 7 а С с С С С С С С Ы iЛ � '8 'L3 '8 й 'й и "О V "О 'R � � � 3 7 7 7 � � с � LЛ t71 � i7I U �' га м г° �п т Ш �v �о �а св У S�C У У У Х У У ��" о О о о ш � w ы д а д¢ т т т ш ш О с � У=�_° z z т т У У � У У У� = д r си w м ti г� м м ги м ао �гr с� i. о со оо и rn со rn„� N и N СО V N о ар 01 (р 1� � tt (р м N f� 00 (р (� F- � О и д� о aD вt (D д и r h tA О V 1� 1� о о ц) �� i � м О � N ti г (О а0 1~ 6� N [о h (О 1� М �.- Ш � О � �� и v � �r и Г с� й.r о м � fL 7 N N (� � С а � с � OU � � О ё. �' а щ �а� �W �а_� т ш�� ��� � � ��щ � � �' rn W U т ш � о ° О� у,_ �п �� е �у � Ш � � �� 3 �е �л � 0 °-� °� � su � � G °� _ � 'й о д Q � � О И � а �6 � � У�- �� с а ё. д�� �� т о а п�s Е а о��°� г � м� iv гв � гrs � т и.5г ¢ т г� С (i ц1 �� - Z и � и � �0 �� � � х т т � и Ш b П� р � 1- и д � Е�� g,� � а С7 х.с iв и• �а 5с � �с о и�•_ _ U r т с `ш �. � т Z ш сл У_�. 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ц! �У N д(О V(У Ш д �}' N °. у г`"*� N � v й � � в � ti r� � й v N� rn � м м v м г,э пг о� гv r с� м ni м r� а, N т "'i � N г .� fL.1 О � F- ы � о о о о о о о а о о о о о о о б о о о _л Й о С] С] б о о о р о о о о о о О о о о О 3 а�л f�f N N �0 00 (V (V fp N д N [V N О ар о рр 7 С iC1 и О а(7 iV д'eF 9 д д s} N д м sf и � � М а„ О а� а? � о0 N N N �1f N со N h N м n1 ср ц� т м t� г ОдΡi rn ц� itS а0 а0 а0 ц� со Cv оо lV а0 Р цi цi а0 Q гп д^ д� М 1+ CD �t д !� � N д т V h G6 СО tF м h V� �7 N �9 М (И м 00 т М N М ар д о и N 1` � 'и г fO CD а0 (О r- '� д I� д N д ц1 'СУ СО N N N tO д� .--i .Lг о м м N _ н а� ci о ы rд с О н-. - Й и гп и и и и и о и и и гл и и и }- � ������� ш р ш ш ш щ ш ш ш Ш ❑ U� � 0¢0 � � U О� La] р р Q р р р 7 ш О и cn о со и v со го cv с� ао м v ti лi �� м~ м с�э с� о и пi _ш rn о г� м s� �� �� ` д д� � и � г� [О f� 1� � CD r 1� � GD � а' °� пмi � � (L С (:i � в+ а и� � �� � pV л а0 Ё йа ш �а� �а ш �, �- ❑ Z � т О ��� о � г О W м ы ��о �� а ° � � т О �� z диi м У��-_' � p1 й с ��� Z� L w 0. а Q ._ С7 Ш � LL' т �O г � � .д' 0. _о � ш <в и -о � �, �i �~ и N� С � а С ы} � � ы О � 16 Ф 3�ш о Ё й� с� р r�` ��� � х Q Ё`� ш aV� � г �af°-��тх `_° d��c�t��c��� � о •L W iC �' � р ао rn о м м v и� ш � со и о г� м Т'U а о г ш ш г� �+ � r ti г� г� t� г� г� ао ао ао со м¢° t� GrantThornton An instinct for growth" Ministry of Agriculture-Agriculture Sector Wide Approach (ASWAP 11) Management report for the 9 months period ended 31 March 2022 Financial Statements Audit September 2022 J 777 Grant Thornton Chartered Accountants and Business Advisors GrantThornton Anamwino House PO Box 30453 An instinct for growth Lilongwe, Malawi Private and confidential T +265 01 773 855 T +265 01 773 392 The Secretary Email mw-information@mw.gt.com Ministry of Agriculture The Second Agriculture Sector Wide Approach (ASWAP SP 11) P.O. Box 301344 Lilongwe 3 Dear Sir, Management letter for Ministry of Agriculture - The Agriculture Sector Wide Approach (ASWAP SP II) for the 9 months period 31 March 2022. We have completed our audit of the financial statements for the period ended 31 March 2022 and we wish to record our appreciation for the assistance given to us by your management and staff. The primary purpose of our audit was to enable us to express an opinion as to whether or not the financial statements give a true and fair view of the financial position of Ministry of Agriculture- The second Agriculture Sector Wide Approach (ASWAP SP 11) as at 31 March 2022 and of its financial performance and cash flows for the year then ended, in accordance with the International Public Sector Accounting Standard ("IPSAS"). Financial Reporting under the Cash Basis of Accounting. We reviewed and evaluated the system of internal accounting control only to the extent we considered necessary, in order to establish the nature, timing and extent of auditing procedures necessary for expressing an opinion on the financial statements. Our audit of the financial statements for the period ended 31 March 2022 would not necessarily disclose all weaknesses in the system because it is based on selective tests of accounting records. This report summarizes certain observations and recommendations which resulted from our audit.The implementation of these recommendations should assist management in improving internal accounting controls. Grade Significant deficiency - A significant deficiency in internal control is a deficiency or combination of deficiencies in internal control that, in our professional judgment, is of sufficient importance to merit the attention of those charged with governance. Control deficiency - A deficiency in internal control exists when: - a control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis, or - a control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing. Other matter - An other matter is a deficiency in administrative processes that, in our professional judgment, does not meet the definition of a significant deficiency or control deficiency. Finally, we shall be pleased to discuss and explain these recommendations and to provide the assistance you may require to put them into effect. This report is provided on the basis that it is for your information only and that it will not be copied or disclosed to any third party or otherwise quoted or referred to, in whole or in part, without Grant Thornton's prior written consent. red Accountants a d Business Advisors Lilongwe, Malawi. Date I Pf & 0 -___.___ ltesidentPartners Chartered Accounta ts and Business Advisers Registered in MalaW . Company number BN 3832 L.M. Gama Grant Thornton Malawi Is a member of Grant Thornton International Ltd (GTIL). GTil and the member firms are not a worldwide partnership. GTIL H,B. Nytreada and each member firm is a separate legal entity. Services are delivered independently by the member firms, GTIL does not pronide services to BJ. Mwenelupembe clionts. GTIL and its member firms are not agents oft and do not obligate, one another and are not rable, for one another's acts or omission§ G. Tembs Contacts The coniacts a rant Thornton in coneri on with this report are: Joel Mwenelupernbe, Engagement Patiner, Lilongwc, Grant Thomton Tel: + 265 1 773 371 lo_etjnwýenelup_eeLbeQnp_q-o ,pýygtcorn Alexander Chimnimba, Engagement Manager, Lilongwe, Giant Thornton Tel: + 265 1 773 371 alexande .chimlniba!&@nw,t.cori * zj Contents Page Scope and objective 2 Contacts 3 Contents 4 Performance improvement observations - Prior year update 5 Performance improvement observations - Current year 9 1.0 Significant deficiencies 10 1.1 Executive management and National steering committee meetings 11 1 2 Payment of subsistence allowance within duty station 12 G ot'thormton Document Classification; Grant Thornton Confidential Performance Improvement Observations -Prior year update 5 Performance improvement observations - Prior year update This section is a summary of the key findings from prior year and the results of the follow-up in the year under review. Executive management committee Resolved. Not applicable, minutes provide an official record of the meetings where discussions have been undertaken in accordance with a set agenda discussed by those charged with governance and directly responsible in the implementation of the project. Meetings undertaken by those charged with governance and those directly responsible for implementation of the project affect the strategic operations such as monitoring the quality of the project, providing advice, it also provides support, guidance and oversight to the project which may also materially impact on the accuracy of the financial reporting of the project. Discussions and decisions that have been made are recorded in the minutes. Therefore, to make these discussions and decisions authentic and legally binding, they should be signed by the appointed persons. During the review of the executive management committee minutes, the meeting that was held from 19 to 22 August 2019, we noted that the minutes of this meeting were not signed by the appointed persons. Management confirmed that the meetings were held but the minutes were not signed for. Gv e During our review of income for the Not resolved. The basis Management continues to consult cnr i project we noted that the Malawi for government with relevant authorities on how Government through the Ministry contribution has not yet best this can be dealt with. contribute 30% of the basic salary for been provided in the officers who work specifically part time period ended 31 for the project. However, we were not March 2022. provided with a detailed or proper basis of calculating the contribution. We were also not provided with supporting documentation to support the basis of the contribution i.e. time sheets for the hart time officers. D aGonthoru taft 6 Document Class[fication: Grant Thornton Confidential Performance improvement observations - Prior year update This section is a summary of the key findings from prior year and the results of the follow-up in the year under review. Treasury instructions 2004, Section 2.6.1 Not fully resolved. A Management has authorized (1) states that the responsibilities of similar finding was the district to be paying night controlling officers include ensuring that all noted on 1.2 below. allowances to officers who . necessary precautions are taken to will be working in the EPAs safeguard public resources. that are far from the District office. The letter to that effect During the audit of expenses, we noted that subsistence allowances were paid to is attached. officers working within Chitipa District. We discussed the matter with management of Karonga Agriculture Development Division, which is the cost centre for Chitipa district Agriculture Development Office, management justified the occurrence due to the poor road network and the locality of Extension Planning Areas which are very far making it difficult for officers to commute on a daily basis. In addition, management indicated that communication requesting a waiver from headquarters had been written in the past to allow that some areas that are very far within the district should be allowed to claim full subsistence allowance. This documentation nor the response from headquarters were not provided for verification During the audit we noted that subsistence Not fully resolved. Management continues to allowance and fuel paid for the plan and monitor A implementation of ASWAP activities was implementation to prevent done either weeks or months before the such cases to occur again in implementation of the activity or weeks or future. months after the implementation of the project activity. Upon our enquiry management indicated that this happened due to the timing of the implementation of certain projects which could not wait on the availability of funds. We enquired how these projects were implemented without the availability of funds and we were informed that staff could use personal resources to fund the activities. We also noted that there were no properly established systems and controls that could assist in accountability of the quality of the implementation of the projects and to account for the timing spent on the activity to align with the funds that were paid hence potentially affecting the whole objective of the programme. Taggin* * * It is considered a best accounting practice Resolved. Not applicable. . t that an organization should tag all items of assets with unique codes for proper asset safeguarding and easy monitoring. However, during the audit, we noted that the Project had not tagged some of the assets that had been purchased during the yea r. cGrantThomton G Document Ciassification: Grant ThGrnton Confidentiai Performance improvement observations - Prior year update This section is a summary of the key findings from prior year and the results of the follow-up in the year under review. IIissing Best accounting practice require that Issue resolved. No Not applicable. supporting transactions should be properly supported exception was documentation and filed for easy access when they are noted. required for referencing. However, during the review of cash and bank balances we noted that there were no supporting documents for reconciling items for Roads Fund Administration. Long Outstanding An effective bank reconciliation ensures Issue resolved No Not applicable. items-bank that it corrects, identifies and prevents exception was reconciliation misstatements arising from error or fraud. noted. However, during our review of cash and bank balances we noted that the Holding account bank reconciliations for some cost centers had reconciling items which were long outstanding, and the other long outstanding items did not have sufficient details to show whether they were related to ASWAP project activities or not. Expenditure Cut In good accounting practice, expenses are Issue resolved. No Not applicable, off accounted for in the period the goods or exception was services have been procured or provided. noted. This properly aligns and accounts for the funds used against the period in which the expenses are incurred. However, during our review we noted the payment voucher for a transaction indicated that the activity occurred from 19 to 21 July 2021 and payment was made on 9 July 2021 this activity appearing in the transaction for 2020/2021 as such, the payment was recorded in the wrong accounting period. Dc e Cls athoanotnofei 8 Document Classification: Grant Thornton Confidential Performance Improvement Observations - Current Year 9 1. Significant deficiencies 1.1 Executive management and National Steering Committee meetings Not applicable Significant deficiency in accordance with the Project Implementation manual there will be a National Project Steering Committee (NPSC) consisting of Principal Secretaries, who will meet quarterly and be responsible for general policy making, approval of annual work plans and budgets and considering recommendations from the project technical committee. The NPSC will be assisted by a Project Executive Management Committee (PEMC).The PEMC will be responsible for oversight implementation of the project, monitoring and reporting, and coordination amongst the implementing agencies at technical level. During the 9 months period, the executive management committee only met once on 16 December 2021 and the National Project Steering Committee did not meet as there were no: minutes that were shared to indicate that these meetings had taken place. The project implementation manual has specifically stipulated the responsibilities of the two committees in annex 2 and 3 respectively of the project implementation manual. These responsibilities cannot be achieved if the committees are not meeting on a regular basis as I required by the manual. The Committees should meet on a regular basis so that their oversight responsibilities are achieved. Management has noted your observation. However, the project was mindful of the restrictions on gatherings put by government as one way of controlling spread of covid 19 contributed to this, Document Classification: Grant Thornton Confidential 1.2 Payment of subsistence allowance within duty station Expenses Significant deficiency Treasury instructions 2004, Section 2.6.1 (1) states that the responsibilities of controlling officers include ensuring that all necessary precautions are taken to safeguard public resources. However, during the review of expenses we noted that subsistence allowances were paid within duty station. Ref to the table below for details: Payment voucher Cost centre Chq No Details Amount(MK) Allowances for staff supporting operations of plant clinics in 017 KRADD 002885 Kavukuku 540,000.00 Allowances for staff developing and disseminating technical messages on IPDM, CSA in Lufita 022 KRADD 002890 and Misuku 540,000.00 Allowances for staff training 040 KRADD 002909 farmers in IHF in Lufita EPA 240,000.00 Allowances for staff monitoring seed sources and quality seed in 054 KRADD 002924 Kameme and Lufita 240,000.00 Allowances for staff training farmers in goat management in Kameme and Lufita from 19 to 21 013 KRADD 002881 April2022 240,000.00 Allowances to train staff in Chitipa macropropagation in Kameme, 187 DADO 003060 Mwamkumbwa and Lufita 204,000.00 Non-compliance with policies may result in disciplinary action. Payment of subsistence allowances should be made for work done away from duty station as the government policy stipulates. Management has noted the observation. The issue of Chitipa and other exceptional centers has been carefully thought through. Management has decided to authorize these districts to spend night allowances within the district taking into account the distances. As it was reported previously, the distances make it not feasible for officers to be travelling to the EPAs that are as far as 120km and come back using earth roads on the same day. We have the authority document by the PS to that effect. We shared the same accordingly and we will share again. Among the transactions appending same issue are for NAMIS trainings that took place in Karonga, Rumphi and Mzuzu. May you reconsider these as they do not qualify to be under the category of allowances within duty station. [The letter was approved on 14 March 2022, some of the transactions had been incurred before the approval date. It asio specified the following areas to be paid subsistence allowance: Vinthukutu, Misuku and Kavukuku EPA in Mahowe. 0u nCsfno raootCnd l12 An in ,iDocument Clnasfication: Grant Thornton Confidential Grant Thomnton THANK YOU © 2022 Grant Thornton Malawi, a Malawi Partnership and a mnember firm of the Grant Thornton International Limited(GTIL), GTIL and the mernber firms are not a wor dwide partnership Services are delivered by the imember firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. The name "Grant Thornton", the Grant Thornton logo, including the Mobius symbol/device, and "Instinet for Growth" are trademarks of GTIL, All copyright is owned by GTIL, including the copyright in the Grant Thornton logo; all rights are reserved The information contained herein is of a general nature and is not intended to address the circurnstances of any partieular individual or entity. Aithough we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2022 Grant Thornton, a Malawi Partnership and a member firm of the Grant Thornton International Limited(GTIL), GTIL and the member firrms are not a worldwide partnership. Services are delivered by the ember firms. GTIL and its nember firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. The name "Grant Thornton", the Grant Thornton logo, including the Mobius symbol/device, and "Instinct for Growh" are trademarks of GTIL, All copyright is owned by GTlL, including the copyright in the Grant Thaonan logo; ali rights are reserved,