(8fb4ui ff 6 d iru1iJ6q W ~6-u w ffi NATIONAL AUDIT OFFICE qoBea ~qoOC 6':T - FFP/AGL/C/ASMP/MOA/04/20 9 0 it September 2020 Miy No. rr No Datej Secretary, Ministry of Agriculture Report of the Auditor General on the Financial Statements of the Agriculture Sector Modernization Project - Part 02 for the year ended 31 December 2019 The English version of the above mentioned report along with a copy of the certified financial statement is sent herewith. W.P.C.Wickramaratne Auditor General Copies to 01. Secretary, Ministry of Finance 02. Project Director, Agriculture Sector Modernization Project - Part 021 03. Senior Financial Management Specialist, International Development Association q 306/72 d 0. 11 7 028 - 3 . +94. 306 72. 2 ,i No. 306/72, wowdwa Road, Brar-h, Sri L.nk . +91 872-4+94 11 288 7223 audtrgnrl.ol www.naosl.gov.lk 5,EfT4 ui ffi 6nl)]fi ru i4 q i6-uwLb NATIONAL AUDIT OFFICE 0 FFP/AGL/C/ASMP/MOA/04/2OsI o. September 2020 MN No. Your No. Date S Secretary, Ministry ofAgriculture Report of the Auditor General on the Financial Statements of the Agriculture Sector Modernization Project - Part 02 for the year ended 31 December 2019 1. Financial Statements 1.1 Opinion The audit of financial statements of the Agriculture Sector Modernization Project - Part 02 for the year ended 31 December 2019 comprising the statement of financial position as at 31 December 2019 and the cash flow statement for the year then ended and notes to the financial statements, including a summary of significant accounting policies 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 Schedule 2, Section II, B.3 of the Financing Agreement No. 5873- LK dated 17 January 2017 entered into between the Democratic Socialist Republic of Sri Lanka and the International Development Association. In my opinion, the accompanying financial statements give a true and fair view of the financial position of the Project as at 31 December 2019 and its cash flows for the year then ended in accordance with Generally Accepted Accounting Principles. 1.2 Basis for Opinion I conducted my audit in accordance with Sri Lanka Auditing Standards (SLAuSs). My responsibilities, under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of this report. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. 1 S3,)6/72. 016 M, '2 O13,7 f~' ~ ~ ~ N* 06/72, I'oIdv, R,k-d, 11 ....-,. Sfi U-,ka.. ~ 94 11 288 70) 28 -34 +.~ 94 11 2872 23 ag(tz.naosl.gov.lkgOvA NATIONAL AUDIT OFFICE NAOSL, 1.3 Other Information on Performance of the Project The other information as stated below does not include in the financial statements and my opinion thereon does not cover the other information. According to the Project Appraisal Document, the activities relating to capacity building for farmers and farmers organizations, establishment of modem Agriculture Technology Parks and improvement and rehabilitation of production and market infrastructure and analytical and policy advisory support were scheduled to be implemented by the Project for the purpose of productivity enhancement diversification and commercialization of agricultural products. In this--connection following observations are made on the progress of the activities implemented by the Project. According to the information made available the physical and financial progress of the Project had remained moderately unsatisfactory level. Further, it was observed that out of the allocation of US$ 62.5 million equivalent to Rs. 9,121.88 million made under the Loan, only US$ 15.54 million equivalent to Rs. 2,264.32 million representing 36.5 per cent of the total allocation had been utilized as at 31 December 2019 after lapse of 3 years from the commencement of activities of the Project. As a result of poor performance of the Project, a sum of EURO 25 million to be received as a Grant had not been granted by the Donor Agency. The core activities of the Project are to establish the Modem Agriculture Technology Parks in Jaffna, Mullaitivu, Batticaloa, Monaragala, Anuradhapura, Polonnaruwa and Matale Districts with the assistance of the internationally recognized Agriculture Technology Service Provider. However, contract for design, establish, operate, manage and transfer agriculture, technology demonstration parks was awarded to an international service provider at an estimated cost of US$ 4.35 million on 16 October 2019 with delays over 33 months and expected to be completed by 30 November 2021. As a result, all the activities of the Project had delayed over three years. 2 NATIONAL AUDIT OFFICE NAOSL * An allocation of US$ 4.28 million equivalent to Rs. 624.67 had been made for sub component of analytical and policy advisory support. However, only US$ 0.3 million equivalent to Rs. 44.72 million had been utilized up to the end of the year under review. Further, it was releveled that 8 policy development contracts had been awarded to 8 consultancy firms at an estimated cost of Rs. 69.55 million. Eventhough a sum of Rs. 36.4 million had been paid to the consultancy firms during the year under review, the final reports thereon had not been submitted on expected due dates. * The contract for Design, Develop, Install and Maintain a Beneficiary Information System had been awarded at an estimated cost of Rs.8.25 million on 28 October 2018 and expected to be completed by 27 February 2019. Eventhough, a sum of Rs.1.65 million had been paid at the end of the year under review, the respective works had not been completed even on the date of audit 30 June 2020 after lapse of 16 months. * The audit inspection carried out in June 2020 at the stores of the Project Monitoring Unit had revealed that stock of 8,606 nos of training manuals valued at Rs. 16 million had remained unutilized without distributing to farmer business organization over one year, due to training programs were conducted without proper plan. * The site visit made by the auditors at the agriculture lands in Anuradhapura district had revealed that the curtain fencing, mulching and drip irrigation systems had been used only, one cultivation season and removed thereafter without being used continuously. Therefore, expenditure incurred Rs. 488 million thereon become fruitless. * Computers and Accessories procured at a cost of Rs. 11.9 million had not been recorded in the Register of Computer and Accessories required to be maintained as per Circular No: IAI/2002/02 of 28 November 2002 of the Ministry of Finance. As a result, laptops and other computer accessories cannot be used for the intended purposes of the Project and facilitate to utilize for other purpose as records for the issued items were not made available in the Project office. 3 NATIONAL AUDIT OFFICE NAOSL * Action had not been taken by the Project to recruit an Internal Auditor as required by the Management Audit Circular No. 02/2016 of 10 June 2016 of the Department of Management Audit. Further, transactions of the Project had not been subjected to audit of Internal Audit Section of the Ministry of Agriculture. * Contrary to paragraph 7.39(b) in the Procurement Regulations for IPF Borrowers of the World Bank, a procurement consultant had been hired over six months at a monthly remuneration of Rs.250,000 since August 2018 and paid a sum of Rs 1.5 million as remuneration at the end of the year 2019. 1.4 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Generally Accepted Accounting Principles and for such internal control as the management determines as necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project's financial reporting process. 1.5 Auditor's Responsibilities for the Audit of the Financial Statements My objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor's 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 Sri Lanka Auditing Standards 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. 4 NATIONAL AUDIT OFFICE NAOSL As part of an audit in accordance with Sri Lanka Auditing Standards, I exercise professional judgment and maintain professional scepticism 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 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 Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. * 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, significant audit findings, including any significant deficiencies in internal control that I identify during my audit. 2. Report on Other Requirements of the Donor Agency As required by the International Development Association, I stated the followings: (a) The basis of opinion of the audit is as stated above. (b) In my opinion: 5 - the funds provided had been utilized for the purposes for which they were provided, - the Statement of Expenditure submitted could be fairly relied upon to support the applications for reimbursement in accordance with the requirements specified in the Financing Agreements, - the opening and closing balances, withdrawals from and replenishments to the Special (Dollar) Accounts had been truly and fairly disclosed in the books and records maintained by the Project and the balances as at 31 December 2019 had been satisfactorily reconciled with the accounting records of the Central Bank of Sri Lanka as at that date, and - the financial covenants laid down in the Financing Agreement had been complied with. W.P.C. Wickramaratne ' Auditor General 6