‫د اÙ?غانستان اسالمي جمهوري دولت‬ ‫دولت جمهوری اسالمی اÙ?غانستان‬ ‫د پلټنÛ? عالي اداره‬ ‫اداره عالی تÙ?تیش‬ Islamic Republic of Afghanistan Supreme Audit Office Reference Number: ………… Date: / / Auditor General's Report To, His Excellency, Minister of Finance, Government of the Islamic Republic of Afghanistan Report on the Audit of the Financial Statements Qualified Opinion We have audited the accompanying Statements of Cash Receipts and Payments (the "Financial Statements") of Irrigation and Restoration Development Project (IRDP) bearing World Bank Project ID Number P-122235 financed under Grant Number H6810 & TF12029 (hereinafter referred to as "Project") for the financial year ended on 30 Qaws 1398 (21 December 2019), which comprise a summary of significant accounting policies and other explanatory notes forming part of the financial statements. In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying financial statements present fairly, in all material respects, the cash receipts and payments of the Project for the financial year ended on 30 Qaws 1398 (21 December 2019) in accordance with Cash Basis IPSAS (International Public Sector Accounting Standard) - "Financial Reporting under the Cash Basis of Accounting" and comply with the terms and conditions of the Project's Grant/ or Financing Agreement. Basis for Qualified Opinion There is a breach of procurement procedures and law due to an unauthorized increase in the contract value by a total of AFN 26,014,147 while the World Bank NOL and NPA approval for the extension have not taken. The project failed to comply with the terms of reference of the Invitation for Bid, resulting in an ineligible overpayment of AFN 2,352,704. We conducted our audit in accordance with the International Standards of Supreme Audit Institutions ("ISSAIs"). 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 the Supreme Audit Institution (SAI) of the Islamic Republic of Afghanistan and independently derive our legal mandate from the Supreme Audit Office Law and in accordance with the Code of Ethics implemented by the SAO based on the ISSAI 130- Code of Ethics together with the ethical requirements that are relevant to our audit of the financial statements in Afghanistan and applicable to SAO auditors including external experts for the audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics of SAO. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. 1 Responsibilities of the Ministry of Finance for the Financial Statements The Ministry of Finance is responsible for the preparation and fair presentation of the project financial statements in accordance with International Public Sector Accounting Standards "Financial Reporting under the Cash Basis of Accounting" and for such internal control as ministry determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and selecting and applying appropriate accounting policies. The ministry is also responsible for ensuring that activities and financial transactions and information reflected in the Financial Statements are in compliance with the project's Grant/ or Financing Agreement. Those charged with governance of the ministry are responsible for overseeing the project’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our 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 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 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, we exercise professional judgment and maintain professional skepticism throughout the audit. We 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 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 project’s internal control. • 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 financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Evaluate the financial transactions and information reflected in the Financial Statements and whether they are in compliance with the terms and conditions of the Project's Grant/ or Financing Agreements. We 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. 2 We also 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. Report on Other Requirements Management Letter highlighting the areas of improvement in financial management including the compliance with covenants of the Grant/ Financing Agreements and results of its operations for the financial year ended on 30 Qaws 1398 (21 December 2019) has been attached to this report. These observations and recommendations have been communicated to and discussed with project management and intended to improve internal control and result in other operating efficiencies of the Project. Mohammad Naiem Haqmal (FCCA, CPFA) Auditor General Supreme Audit Office 3