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Secretary,
Ministry of Finance.
Report of the Auditor General on the Financial Statements of the Warehouse Receipts
Financing Project for the year ended 31 December 2014
The English version of the above mention report is sent herewith.
W.P.C.Wickramaratne
Acting Auditor General
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Secretary,
Ministry of Finance.
Report of the Auditor General on the Financial Statements of the Warehouse Receipts
Financing Project for the year ended 31 December 2014
The audit of financial statements of the Warehouse Receipts Financing Project for the year ended
31 December 2014 was carried out under my direction in pursuance of provisions in Article
154(1) of the Constitution of the Democratic Socialist Republic of Sri Lanka read in conjunction
with Section II B 3 of Schedule 2 of the Credit Agreement No.TF 6138 (TF 012186) dated
17July 2012 entered into between the Democratic Socialist Republic of Sri Lanka (GOSL) and
the International Development Association (IDA).
1.2 Implementation, Objectives, Funding and Duration of the Project
According to the Credit Agreement of Warehouse Receipts Financing Project, the
Department of Development Finance is the Executing Agency and then Ministry of
Finance and Planning, presently the Ministry of Finance is the Implementation Agency of
the Project. The objective ofthe Project is to provide local farmers with access to quality
storage facilities for agricultural products and facilitate the use of such products as
collateral to access financial services by developing an electronic and negotiable
warehouse receipt financing program. The estimated cost of the Project was US$ 6.5
million equivalent of Rs.852.8 million and entire cost of the Project was agreed to
financed by International Development Association. The Project activities were
commenced on 17 July 2012 and expected to be completed by 31 May 2015.
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1.3 Responsibility ofthe Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with Sri Lanka Accounting Standards and for such internal
control as the management determines is necessary to enable the preparation of financial
statements that are free from material misstatements, whether due to fraud or error.
1.4 Auditor's Responsibility
My responsibility is to express an opinion on these financial statements based on my
audit. I conducted my audit in accordance with Sri Lanka Auditing Standards. Those
standards require that I comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free from
material misstatements. An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the Project's
preparation and fair presentation of the financial statements 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. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the management as well as evaluating the overall
presentation of the financial statements. I believe that the audit evidence I have obtained
is sufficient and appropriate to provide a basis for my opinion. The examination also
included such tests as deemed necessary to assess the following.
(a) Whether the systems and controls were adequate from the point of view of
internal control so as to ensure a satisfactory control over Project management
and the reliability of books, records, etc. relating to the operations of the Project.
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(b) Whether the expenditure shown in the financial statements of the Project had been
satisfactorily reconciled with the enhanced financial reports and progress reports
maintained by the Project. '
(c) Whether adequate accounting records were maintained on a continuing basis to
show the expenditure of the Project from the funds of the Government of Sri
Lanka and the Lending Agency, the progress of the Project in financial and
physical terms, the assets and liabilities arising from the operations of the Project,
the identifications of the purchases made out of the Loan, etc.
(d) Whether the withdrawals under the Loan had been made in accordance with the
specifications laid down in the Credit Agreement.
(e) Whether the funds, materials and equipment supplied under the Loan had been
utilized for the purposes ofthe Project.
(f) Whether the expenditure had been correctly identified according to the
classification adopted for the implementation of the Project.
(g) Whether the financial statements had been prepared on the basis of Sri Lanka
Accounting Standards.
(h) Whether satisfactory measures had been taken by the management to rectify the
issues highlighted in my previous year audit report, and
(i) Whether the financial covenants laid down in the Credit Agreement had been
complied with.
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2. Financial Statements
2.1 Opinion
So far as appears from my examination and to the best of information and according to
the explanations given to me, I am of the opinion that,
(a) the Project had maintained proper accounting records for the year ended 31
December 2014 and the financial statements give a true and fair view of the state
of affairs of the Project as at 31 December 2014 in accordance with Sri Lanka
Accounting Standards.
(b) the funds provided had been utilized for the purposes for which they were
provide,
(c) the Statements of Expenditure (SOEs) submitted could be fairly relied upon to
support the applications for reimbursement in accordance with the requirements
specified in the Credit Agreement,
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(d) satisfactory measures had been taken by the management to rectify the issues
highlighted in my previous year audit report, and ..
(e) the financial covenants laid down in the Credit Agreement had been complied
with.
3. Financial and Physical Performance
3.1 Utilization of Funds
Certain significant statistics relating to the financing, budgetary provisions for the year
under review, utilization of funds during the year under review and the cumulative
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expenditure as at 31 December 2014 are shown below.
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Source Amount agreed to be Provision Funds Utilized
financed as per Credit made in the .------------------
Agreement Budget during the As at 31 December 2014
Estimate for year under
year 2014 review
-------------.------------------ -------------- -------------- ------------- ---------
US$ million Rs. millions Rs. million Rs. million US$ million Rs. million
IDA 6.5 852.8 400.0 216.4 1.8 237.9
GOSL 3.0
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6.5 852.8 403.0 216.4 1.8 237.9
- ==== -
-- ==== ==== ==:===
According to the above information, out of the total allocation of US$ 6.5 million
equivalent to Rs 852.8 million, only US$ 1.8 million equivalent to Rs 237.9 million had
been utilized at the end of 1 Y2 years of the operation of the Project as at 31 December
2014. Therefore, the possibility of using of balance of allocation of US$ 4.7 million in the
rest of the period of 05 month is doubtful in audit.
3.2 Physical Progress
The following observations are made.
(a) According to the information received the Project had taken action to construct
03 large warehouses to implement the Warehouse Receipt System and out of
those, the construction works of the warehouse at Huruluwewa was completed in
May 2015 and physical progress of warehouses at Buttala and Mannar was
remained at 55 per cent and 20 per cent only as at 31 May 2015.
(b)
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Further, the Project had provided financial and technical supports to the fanners
engaged in cultivation of big onions to construct their own warehouses.
According to the infonnation received, 370 fanners had entered into agreements
with the Project to construct big onion warehouses and out of that only 287
fanners had completed the construction works of their warehouses as at 31 May
2015.
(c) According to the Project documents, it was proposed to develop a mechanism to
allow warehouse operators to provide electronic receipt to the Commercial Banks,
as collateral for loans requested by the fanners and thereby, allowing to fulfill
immediate financial needs of the fanners. However, the Project Monitering Unit
had not taken action to establish the proposed mechanism even as at 31 December
2014.
S.3 Matters in Contentious nature
The following observations are made.
(a) According to the infonnation received, the location of the construction of a
warehouse at Ampara had been subsequently shifted to Buttala and as a result
of this decision, the mobilization advance amounting to Rs.29.3 million made
on 10 November 2014 had remained in the hand of the contractor up to 26
January 2015.
(b) A sum of Rs.660,574 had paid to the Technical Officers attached to the
Divisional Secretariats for the purpose of providing technical instructions,
inspection and preparation of document for the financial assistances granted to
the fanners for construction of big onion warehouses.
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Acting Auditor General
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