LOVESH KALRA & CO. Hotel City Star Campus, 108, Subhash Road, Dehradun - 248 001 Phone 0135 - 3592841, 2715850 CHARTERED ACCOUNTANTS Fax :0135-2650695 Email caloveshkalra@gmail.com independent Auditor's Report To, Project Director Uttarakhand Health System Development Project 2nd Floor, Indian Red Cross Society Building P.O.Gujrara, Dandalakhond, Sahastradhara Road, Dehradun, Uttarakhand Report on the Audit of the Project Financial Statements Opinion We have audited the accompanying special purpose financial statements of Uttarakhand Health System Development Project (the Project) financed by the International Development Association (IDA) under Credit/Loan 5948-IN and implemented by Department of Medical Health & Family Welfare, Uttarakhand. These financial statements comprise of the Statement of Sources and Uses of Funds, Statement of reconciliation of claims along with notes to accounts to these financial statements, including a summary of significant accounting policies (collectively referred to as the "Project Financial Statements"). These statements are the responsibility of the Project's management on which we are expressing our opinion on the Financial Statements provided by them and other documents connected with the records, maintained & produced before us to base our opinion. Our responsibility is to express an opinion on the accompanying financial statements based on our audit. In our opinion,the aforesaid special purpose Project Financial Statements give a true and fair view of the financial position of the Project as on March 31, 2023, and receipts and disbursements of the Project for the year ended on March 31, 2023 and the expenditure of the Project for the year ended on March 31, 2023, in accordance with the financial reporting provisions of Section 5.09 of the General Conditions of the World Bank read with the Financing Agreement and Project Agreement both dated 3rd Day of March 2017. Basis for Opinion We conducted our audit in accordance with the Standards on Auditing issued by Institute of Chartered Accountants of India (ICAI). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the implementing agency in accordance with the ICAI's Code of Ethics for undertaking this assignment, and we have fulfilled our ethical responsibilities in accordance with ICAI's Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter We draw attention to the PFS describing the basis of accounting. The PFS is prepared to assist the Uttarakhand Health System Development Project to meet the financial reporting requirements of the Project's Financing Agreements for Investment Project Financing dated 23 dMarch 2017 in respect of preparation of the Project Financial Statements in a manner to reflect the operations, resources and expenditures related to the Project. As a result, these special purpose financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. Responsibilities of Management and those charged with Governance for the Project Financial Statements The Management of the implementing agency is responsible for the preparation and fair presentation of the Project Financial Statements in accordance with the financial reporting framework described in these financial statements, and for such internal control as management determines is necessary to enable the preparation of Project Financial Statements that are free from material misstatement, whether due to fraud or error. The Management and those charged with governance are responsible for overseeing the implementing agency's financial reporting process. 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 the Standards of Auditing 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 Standard of Auditing, we exercise professional judgment 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 2| Page 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. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the Project Financial Statements, including the disclosures and whether these financial statements present the Project's operations and underlying transactions and events in a manner that achieves fair presentation in accordance with the financial reporting provisions described in Notes to the Project Financial Statements. * 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 control that we identify during our audit. * Provide those charged with governance with a statement that we 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 our independence, and where applicable, related safeguards. Other Matter The implementing agency Uttarakhand Health & Family Welfare Society has prepared a separate set of entity financial statements for the year ended March 31, 2023 on which M/s Parul Goyal & Co. are conducting audit. Report on Other Legal and Regulatory Requirements Further to our opinion on the Project Financial Statements we further report that: a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; b) in our opinion, proper books of accounts have been kept by the implementing agency for Project purposes so far as appears from our examination of those books; c) the Project Financial Statements dealt with by this report is in agreement with the books of accounts; d) the Project funds were utilized for the purposes for which they were provided; e) expenditures including assets created under the Project, shown in the PFS are eligible for financing under the Project Financing Agreements; 31 Page f) Interim Financial Reports (IFR) submitted by the Project management can be relied upon to support applications for withdrawal of the Loan, and adequate supporting documentation has been maintained to support these claims; g) Procurement has been carried out In line with the agreed procedures as detailed in the Operations Manual/Procurement Manual/Project Implementation Plan/Legal Agreements; and h) The Project has an adequate Internal financial control system (including IT controls)and such controls were operating effectively as at March 31, 2023 and the Project complies with the provisions on financial management contained in the Operations Manual/Project Implementation Plan/ Financial Management Manual, in all material aspects. For Lovesh Kalra & Co. Chartered Accountants N:016432C Lovesh Kalra (Chartered Accountant) MRN: 416001 UDIN: z 3916ocI c )5(n% LogA 91 Place of Signature: Dehradun Date: 13/12/2023 41 Page Notes to Accounts Forming Part of Financial statement as on March 31, 2023 1) The Following are the details of the sources and application of funds of the project for FY 2022-2023: * Opening Balance of Grant was Rs. 69,40,45,638/- (Rupees Sixty Nine Crores forty Lakhs forty five thousand six hundred thirty eight only). * An amount of Rs. 1,62,83,00,000.00/- (Rupees One Hundred Sixty Two Crore eighty three lakhs Only) was received as grants during the year. * Total expenses reported for the project are Rs. 1,24,14,83,647.77/- (Rupees One Hundred Twenty four Crore Fourteen Lakh Eighty ThreeThousand six Hundred forty seven and seventy seven paise Only). 2) The project is following cash basis of accounting wherein an expense is recorded when cash is paid out. 3) Interim Unaudited Financial Report (IUFR) for the project has been submitted for the following periods: * 31st May 2022 * 30th Sep 2022 * 31st Dec 2022 * 31st Mar 2023 Page 68 of the Operational manual states that "IUFR based disbursement will be used for the Projecbe submitted to the Bank on a guarter/v basis within 45 days he end of the quarter." 4 IUFRs have been submitted during the year and the same are on quarterly basis as mentioned in the operational manual. 4) During the Course of the Audit, it was observed Bank account balance as per IUFR submitted for the last quarter of F.Y. 22-23 is not as per the Bank Balance available in TALLY. Details are mentioned in table below: Balance as per IUFR Balance as per TALLY on Difference on 31.03.2023 31.03.2023 107,66,80,000 107,68,48,084.2368,0823 5) During the Course of the Audit, it was observed Expenses as per IUFR submitted to the World Bank for F.Y. 22-23 is not as per the data in TALLY. Details are mentioned in table below: Expenses as per IUFR Expense as per TALLY for FY Difference For FY 2022-23 2022-23 124,15,20,000 124, 14, 83,647.77 36,352.23 6) An amount of Rs. 69,000/- has been deducted as TDS under section 194 J but is not deposited till date. The same is recorded under current liabilities as on 31.03.2023 7) During the audit it has been observed that an addendum was signed on 05.09.2022 with M/s Shubham Sarvam Medical Projects LLP and mobilization advance of Rs. 5,00,00,000 has been released to them which is to be recovered up to 30.09.2023 in equal monthly installments along with balance amount of mobilization advance released earlier in February 2020. The monthly deduction amount thus arrived is Rs. 60,76,500/-. However, it has been observed that GST on the above amount although being charged by the service provider is not reimbursed as per terms of contract. Management is advised to reconcile the relevant invoices and pay any remaining amount of GST reimbursement. 8) During the audit it was observed that as per the contract with T & M Services Consulting Private Limited for Recruitment and Management of HR Recruitments at 5 government district hospitals in Uttarakhand and Project Implementation Team (PIT) under Clause 6.2 " The value of the contract shall be 1.69% of the Gross Emoluments paid to the Human Resource Hired through and managed by the service provider under the contract. 2 1 P ag e The provisional value of the contract figure is Rs. 1,33,51,000/- subject to change, based on the emoluments paid." However, the government has restricted the management fees to be paid as per Pay Band of Rs. 1.50 lakh to Rs. 1.75 lakh which was later approved in PGB minutes dated 13th August, 2021. The HR Agency has charged the management fees on Actual/Revised Pay Band which was also approved by UKHSDP. It is suggested that management fee should be paid as per Contract clause 6.2. This observation was raised in last year audit report as well. 9) During the audit it was observed an expenditure of Rs. 20475 by bill no. 27538 dated 03.02.2023 has been recorded under the head meeting and conference expenses. This bill is not present in original on the relevant file but Xerox copy is only available. Also, as per the approval process the bill was for meeting held on 30-31 January 2023 but the bill date is 03.02.2023. Approval from the competent authority is unavailable on the payment note sheet. Account details of two different firms is handwritten on the Xerox copy of bill. Hence, approval process is not followed. Management is advised to ensure compliance of the established approval process and payment be made upon submission of original bills and account details. 10) During the audit it has been observed that an amount if Rs. 47318 has been paid to panacea digital systems on 14.03.2023. On discussion it was communicated that same was for printer cartridges. However, it has been booked under the head office expenses instead of Printing and stationery expenses. Management is advised to ensure proper booking of expenditure under relevant accounting heads in TALLY. 11) As per accounting standard-10, Property Plant and Equipment, depreciation should be charged on the Fixed Assets, but during the 31 Page current year management has not charged depreciation on the Fixed Assets. 12) Uttarakhand Health System Development Project should focus on efficient contract management to ensure timely completion of contracts in accordance with contract conditions. 13) The management is advised to follow maker checker policy for approval and payment process in order to strengthen internal control mechanism, For Lovesh Kalra & Co. Chartered Accountant FRN: 016432C - Lovesh Kalra (Chartered Accountant) MRN: 416001 UDIN: L311 600 9I LX A 9//1_ Date: 13/12/2023 Place: Dehradun 41 Page Annexure-I UKHSI)P PROJECT-5948 IN Sources and use of Funds (Amount in Z Lakhs) Expenditure Non Particulars claimable Eligible Reimburseme Reimbusable FOR the Expenditure nt % amount FOR the year year Sources 1 2 3=(1)-(2) 4 5= 3x4 Opening bank Balance as on 01.04.2022 6940.46 6940.46 80% Add: Amount received during the year 16283.00 16283.00 Add: Interest 110.65 110.65 Less: Interest refund to GoUK -151.98 -151.98 Add: Other Receipts:- Tender Fee and amount reversed 1.20 1.20 Total Sources 23183.32 23183.32 Expenditure by Component: Component 1: Innovations in engaging the private sector Sub-component 1.1: Innovations in integrated delivery of Healthcare Services 7909.03 7909.03 80% 6327.22 Sub-component 1.2: Innovations in Healthcare Financing Component 2: Stewardship and System Improvement Project core team and office expenses 2210.42 2210.42 80% 176834 Capacity Building, Information System, Research as per PP Covid Emergency Response Component 2295.383 2295.38 80% 1836.31 TOTAL Uses (PROJECT EXPENDITURE) 12414.8361 12414.84 80% 9931.87 Closing Balance as on 31.03.2023 10768.481 10768.48 Finance rmptroller Project irect 1. This financial statement is prepared on CASH basis o accounti c UVJ(AI - 2. Any other project specific Note. UOIKlSI) I' ROJ EC'I'-5948 IN Annexire-2 (Amount in .akhs) IlI~'t IOnrs Scheitex Cu~rrewt Yuear Previom Priject to Year Date Bank Funds claimed (A) I 9932,16 10496.1 29877.86 Withdrawal ciaims for Ist half yer as per R11R 4657.36 6900.7 13703,86 Withdrawal claims for 2nd half year as per IUPR 5274.8 3595.4 16174.0 Total Unnk funds claimed Total expenditure made during the i'ear (1l) Expenditure as per books of account 12414,836 13124.68 37346.89 Less: Ineligible expenditure (C) II Expenditure not claimed (D) Ill Total eligible ex enditure clailned (E)=(lI)-(C)-(D) 12414.836 13124.68 37346.89 World Bank Share (a 80% of (E)=(F) 9931.869 10499.74 Excess/Shortage of claims ovcr expenditure (A)-(F) 0.291 -3.64 Finance omptroller Projce Dir ctor Notes:- 1 Total expenditure made during the year (B above) must be th same as the Total Project Expenditure (A) shown on the Statement of Sources and Applications of Fu Is. 2 Expenditures not claimed (D above) my reflect timing differe ices for eligible expenditures incurred during the year but claimed after the year end.