Reporting on Economy, Efficiency & Effectiveness in the use of Public Resources AIN: ECD-2024-321 FINANCIAL AUDIT REPORT OF THE WORLD BANK PROJECT ‘FOOD SECURITY AND AGRICULTURE PRODUCTIVITY PROJECT (FSAPP)’ IMPLEMENTED BY DEPARTMENT OF AGRICULTURE, MINISTRY OF AGRICULTURE AND LIVESTOCK, THIMPHU PERIOD: 01.07.2023 TO 30.06.2024 SEPTEMBER 2024 “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty King Jigme Khesar Namgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan | Tel: +975-2-322111 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt RAA/ECD/AR/MoAL/DoA/FSAPP/05/2023-24/2992 Dated: 30th September 2024 The Director Department of Macro-fiscal and Development Finance Ministry of Finance Thimphu. Subject: Financial Audit Report of World Bank Project ‘Food Security & Agriculture Productivity Project’ for the period 1st July 2023 to 30th June 2024 Sir, Enclosed herewith, please find three sets of audited financial statements and auditors’ report thereon in respect of the World Bank Project ‘Food Security & Agriculture Productivity Project (FSAPP)’ implemented by Department of Agriculture (DoA), Ministry of Agriculture and Livestock (MoAL) for the financial year ended 30th June 2024 along with the Audit Findings & Recommendations. The audit was conducted as required under the Audit Act of Bhutan 2018, and in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Two sets of the audited Financial Statements and Auditors’ Report may please be forwarded to World Bank, Bhutan Country Office, BDBL Building, Chubachu, Thimphu, Bhutan Auditor’s Report on the Financial Statement As may be noted from the auditors’ report, the financial statements are prepared by the Project, in all material respects, in accordance with Financial Rules and Regulations 2016, and the Project Agreement. Accordingly, the Royal Audit Authority (RAA) has expressed unmodified (clean) opinion on the financial statements. Audit Findings and Recommendations The auditors’ review of the accounting records, internal controls and operations of the Project revealed some deficiencies and lapses which are detailed in Part-I of the report along with recommendations, which also forms part of the audited financial statements for the year ended 30th June 2024. The significant ones are briefly highlighted below: 1. Non-renewal of Performance Guarantee for the Construction of Integrated Cold Stores at Samtse and Dagana Dzongkhag - Nu. 1,853,735.00 (Refer Para No. 1.1); 2. Non-renewal of Performance Guarantee for the Construction of Centralised Pack House at Dagapela - Nu. 783,497.35 (Refer Para No. 2.1); “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty King Jigme Khesar Namgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan | Tel: +975-2-322111 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt 3. Non-renewal of Mobilisation Advance Guarantee for the Construction of Centralised Pack House at Dagapela - Nu. 783,497.35 (Refer Para No. 2.2); 4. Excess payment due to difference in quantity paid and quantity executed in the Construction of Centralised Pack House at Samtse Dzongkhag - Nu. 536,350.82 (Refer Para No. 3.1); 5. Non-maintenance of Assets in the Government Inventory Management System (GIMS) - Nu. 16,300,278.00 (Refer Para No. 4); and 6. Construction materials including cement bags and CGI sheets not utilised as intended and planned at ARDC, Yusipang- Nu. 49,098.19 (Refer Para No. 5) The RAA has reviewed the replies furnished by the Project and incorporated in the report. Out of 14 (Fourteen) audit findings, 8 (Eight) audit findings were settled in view of replies and related supporting documents, recovery made and evidences furnished subsequently which are transmitted separately to the Project in the form of Management Appraisal Report for future reference and compliance. The Project Management is requested to review the deficiencies and lapses pointed out and institute appropriate check and balance systems to curb such lapses in future. The RAA would appreciate receiving an Action Taken Report (ATR) within one month from the date of issue of the report. The RAA acknowledges the kind co-operation and assistance extended to the audit team by the officials of the Project which facilitated the completion of the audit. Yours sincerely, (Chhoden) Deputy Auditor General Copy to: 1. Director, Department of Agriculture, MoAL, Thimphu; 2. Dasho Dzongda, PIU, Dzongkhag Administration, Chukha, Dagana, Haa, Samtse, and Sarpang; 3. Director, PIU, DAMC, MoAL, Thimphu; 4. Program Director, Project Management Unit, FSAPP, Thimphu; 5. Program Director, ARDC-Yusipang, Bajo, and Samtenling; 6. Head, Cluster Finance Service, MoAL; 7. AAG, PPD, Royal Audit Authority, Thimphu; 8. AAG, Follow-Up & Legal Services Division, Royal Audit Authority, Thimphu; and 9. Office copy. TITLE SHEET 1. Title : Financial Audit Report of the World Bank Project ‘Food Security & Agriculture Productivity Project’ implemented by Department of Agriculture, Thimphu 2. AIN : ECD-2024-321 3. Head of the Agency : Younten Gyamtsho, Director EID No.: 201***157, CID No.: 109****2164 E-mail address: yontengyamtsho@moal.gov.bt 4. Drawing & : 1. Tempa Gyeltshen, Chief Finance Officer Disbursing Officer EID No.: 97***09, CID No.: 115****3879 E-mail address: tgyeltshen@moal.gov.bt From: July 2021 To Date 2. Kinga Wangmo, Dy. Chief Finance Officer EID No.: 200***099, CID No.: 117****0990 E-mail address: kingawangmo@moal.gov.bt From: March 2023 To Date 5. Name of Finance : Kuenzang Lhadon, Accounts Assistant Personnel EID No.: 21***86, CID No.: 120****0316 E-mail address: kuenzangl@moal.gov.bt 6. Period Audited : 01/07/2023 to 30/06/2024 7. Schedule of Audit : Start Date: 12/08/2024 End Date: 27/08/2024 8. Composition of : Team Leader: Audit Team 1. Choki Wangmo, Sr. Audit Officer CID No.: 119****1819 & EID No.: 2017****996 Email ID: chokiw@bhutanaudit.gov.bt Team Members: 1. Penjor, Sr. Auditor II, CID No.: 115****1520 & EID No.: 97***60 Email ID: penjorpenjor@bhutanaudit.gov.bt 2. Sonam Tenzin, Sr. Auditor II, CID No.: 107****1403 & EID No.: 94***42 Email ID: sonamtenzin@bhutanaudit.gov.bt 3. Pema Lhaden, AAO CID No.: 107****3162 & EID No.: 2024****6885 Email ID: plhaden@bhutanaudit.gov.bt 9. Supervising Officer : Tenzin Chhoedup, Asstt. Auditor General EID No.: 200****48 10. Overall Supervising : Chhoden, Dy. Auditor General Officer EID No.: 200****91 11. Audit Intimation : RAA/ECD/MoAL/FSAPP-02/2023-24/2666 dated 8 Letter No. August 2024 12. Focal Person : Choki Wangmo 13. Date of Audit Exit : 17/09/2024 Meeting ACRONYMS AIN : Audit Identification Number AR : Audit Report AAG : Assistant Auditor General ARDC : Agriculture Research & Development Centre CID No. : Citizen Identity Number DAG : Deputy Auditor General DAMC : Department of Agriculture Marketing and Co-operatives DoA : Department of Agriculture ECD : Economic Cluster Division EID No. : Employee Identity Number FRR : Financial Rules & Regulations FLSD : Follow-up & Legal Services Division FSAPP : Food Security & Agriculture Productivity Project GAFSP : Global Agriculture and Food Security Program ISSAIs : International Standard on Supreme Audit Institutions MoAL : Ministry of Agriculture and Livestock NCOA : National Centre for Organic Agriculture PD : Project Director PIU : Project Implementation Unit PMU : Project Management Unit PPD : Policy & Planning Division RAA : Royal Audit Authority RGoB : Royal Government of Bhutan WB : World Bank TABLE OF CONTENTS AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS OF THE WORLD BANK PROJECT ‘FOOD SECURITY AND AGRICULTURE PRODUCTIVITY PROJECT’ FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2024 ................................................................. 1 PART - I: DEFICIENCIES & LAPSES ................................................................................... 3 1. Construction of Integrated Cold Store at Samtse Dzongkhag (Package I) & Construction of Integrated Cold Store at Dagana Dzongkhag (Package II) – DAMC PIU ................................ 3 1.1 Non-renewal of Performance Guarantee as per contract provision Nu. 1,853,735.00 [2.2.61] ....................................................................................................................................... 4 2. Construction of Centralised Pack House with Office Building including dismantling and site development works at Dagapela (Package II)- DAMC PIU ............................................... 6 2.1 Non-renewal of Performance Guarantee as per contract provision Nu. 783,497.35 [2.2.61] .................................................................................................................................................... 6 2.2 Non-renewal of Mobilization advance Guarantee as per contract provision Nu. 783,497.35 [2.2.61] .................................................................................................................... 9 3. Construction of Centralised Pack House with Office and Staff Quarter at Samtse Dzongkhag (Package I) – DAMC PIU .................................................................................... 10 3.1 Excess payment due to difference in quantity paid and quantity executed - Nu. 536,350.82 [2.2.16] ..................................................................................................................................... 10 4. Non-maintenance of Assets in the Government Inventory Management System (GIMS) - Nu. 16,300,278.00 [3.2.65] ...................................................................................................... 13 5. Construction materials not utilised as intended and planned- Nu. 49,098.19 [6.2.19] ........ 15 APPENDICES ............................................................................................................................... 2 FINANCIAL STATEMENTS ....................................................................................................... 5 PROFILE ....................................................................................................................................... 2 AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS OF THE WORLD BANK PROJECT ‘FOOD SECURITY AND AGRICULTURE PRODUCTIVITY PROJECT’ FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2024 Opinion We have audited the financial statements of the World Bank Project ‘Food Security & Agriculture Productivity Project’ (Grant Nos. TFA04224 (FIC 4584) & TFB6044 (FIC 5733)) implemented by Department of Agriculture, MoAL, Thimphu which comprise of the Statement of Sources and Application of Funds, Statement of Annual expenditures, Fund Reconciliation Statement, Reconciliation of Claims & Application of Funds, including summary of significant accounting policies for the financial year ended 30th June 2024. In our opinion, the accompanying financial statements are prepared, in all material respects, in accordance with Financial Rules and Regulations 2016 and Standard Conditions of the Grant Agreement. Basis for Opinion We conducted our audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report. We are independent of Project Management, and we have fulfilled our responsibilities in accordance with the requirement outlined in RAA’s Oath of Good Conduct, Ethics and Secrecy of Auditors. We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter – Basis of Accounting We draw attention to Note 1 to the special purpose project financial statements, which describe the basis of accounting. The special purpose project financial statements are prepared to assist the project’s management to comply with the financial reporting provisions of the Project Agreement, which requires the special purpose project financial statements to comply with the Project Agreement. As a result, the special purpose project 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 Financial Statements Management is responsible for preparation of the financial statements in accordance with the Financial Rules and Regulations 2016 and Standard Conditions of the Grant Agreement, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project’s financial reporting process. “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty King Jigme Khesar Namgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan | Tel: +975-2-322111 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt 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 is 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 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 judgement 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 omission, 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 Project Management. We communicate with the management, among others, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. We report that; • The funds provided under Grant Nos. TFA04224 & TFB6044 have been utilised for the purpose for which they were provided; • The flow of funds from the Designated Account and balance thereon could be fairly relied upon. The control mechanism put in place for the operation of the accounts could also be fairly relied upon. • All expenditures incurred and reported are eligible for financing under the Grant Agreements; • With respect to Statement of Expenditures (SoEs), adequate supporting documents have been maintained to support claims to the World Bank for reimbursements of expenditures incurred; • The FOREX conversation rate for fund transfer is recognised based on exchanged rate prevailing on the date of transfer of fund to Department of Treasury Accounts (DTA) from the designated Account maintained with Royal Monetary Authority (RMA) of Bhutan; and • The overall reconciled fund balance of the Project as at 30th June 2024 stands at Nu. 3,497,826.69 for Grant No. TFA04224 (FIC 4584) and Nu. 48,329,672.07 for Grant No. TFB6044 (FIC 5733). (Refer Exhibit III Fund Reconciliation Statement). (Tenzin Chhoedup) Assistant Auditor General Date: 30th September 2024 AUDIT FINDINGS AND RECOMMENDATIONS 1|Page 2|Page AUDIT FINDINGS AND RECOMMENDATIONS OF THE WORLD BANK FUNDED PROJECT “FOOD SECURITY AND AGRICULTURE PRODUCTIVITY PROJECT” FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2024 The Royal Audit Authority while reviewing the accounting records, internal controls and operations of the Project observed certain deficiencies and lapses as detailed under Part - I of the report. PART - I: DEFICIENCIES & LAPSES The deficiencies and lapses observed in the audit of the Project were as discussed below: 1. Construction of Integrated Cold Store at Samtse Dzongkhag (Package I) & Construction of Integrated Cold Store at Dagana Dzongkhag (Package II) – DAMC PIU The work for the Construction of Integrated Cold Store at Samtse Dzongkhag (Package I) & Construction of Integrated Cold Store at Dagana Dzongkhag (Package II) was awarded to M/s Druk Wangyel Traders with the following details: Name of Work : Construction of Integrated Cold Store at Samtse Dzongkhag (Package I) & Construction of Integrated Cold Store at Dagana Dzongkhag (Package II) Name of the contractor : M/s Druk Wangyel Trader CDB No./Trade License : R1009454 No. Work order No : DAMC/EDCU/2022-23/02/1250 dated 13/06/2023 Estimate Amount (Nu.) : 20 million (Samtse ICS) 15 million (Dagana ICS) Contract amount (Nu.) : 21,386,162.86 (Samtse ICS) 15,748,514.10 (Dagana ICS) Revised Contract amount : NA (Nu.) Actual Payment (Nu.) : Ongoing Work start date : 13/06/2023 Work end date : 13/02/22024 Revised work end date : 30/11/2024 Contract duration : 8 months Actual Completion Date : Ongoing Site Engineer : Dawa Tshering, Sr. Marketing Officer The review of related documents observed deficiencies and lapses as discussed in the subsequent paras: 3|Page 1.1 Non-renewal of Performance Guarantee as per contract provision Nu. 1,853,735.00 [2.2.61] Clause 11 of the Contract Agreement between DAMC and M/s Druk Wangyel Traders states, ‘The Performance Security shall be provided to the Employer no later than the date specified in the Letter of Acceptance and shall be issued in an amount and form and by a bank acceptable to the Employer. The Performance Security shall be valid until a date 28 days from the date of issue of the Certificate of Completion in the case of a Bank Guarantee.’ Additionally, ITB Section A, Clause 13 stipulates that, ‘Within 15 days of receiving letter of acceptance, the successful bidder shall deliver to the Director, DAMC, MoAL, the performance security (either a bank guarantee or a bank draft in favor of the Employer) for an amount equivalent of 5% of the contract price.’ Scrutiny of related documents revealed that the Project management retained the performance guarantee of 5% of Contract Price amounting to Nu. 1,069,309.00 for Package I and Nu. 784,426.00 for Package II. However, both guarantees were found expired on 25th July 2023, despite the fact that work was still ongoing as of the date of audit of 27th August 2024), with a renewed work order extending the completion date to 30th November 2024. The RAA opines that retaining an expired Performance Guarantee provides no assurance that the Contractor will fulfill their contractual obligations exposing the project to potential financial and operational risks. Therefore, the Project management should take immediate action to renew the bank guarantee with the required validity in accordance with the provisions of the contract. The actions taken should be communicated to the RAA without delay. Auditee’s Response: On September 5th, 2024, the Department of Agricultural Marketing & Cooperatives officially issued a letter to Druk Wangyel Construction Pvt. Ltd., instructing the company to renew the performance guarantee as stipulated in the contract and to submit it to the Department at the earliest. The Department acknowledges the lapses that have occurred and is committed to preventing such oversights in the future. These lapses were primarily due to the absence of dedicated engineer or technical personnel to oversee the construction works. 4|Page RAA’s Further Comments & Recommendations: The response of Project management stating that the lapses had occurred due to absence of dedicated engineer or technical personnel to oversee the construction works is noted. However, given that the work is still ongoing and there is no guarantee against the new time extension granted, it is prudent and in the interest of the Government that the Project management secures the renewal of the Performance Bank Guarantee. Therefore, the Project Management should take prompt actions to renew the Bank Guarantee at the earliest under intimation to RAA. Who is Accountable? Direct Accountability : 1. Dawa Tshering, Sr. Economic Development and Marketing Officer 5|Page CID No.: 111****3220 & EID No.: 2017****966 2. Ms Druk Wangyel Traders License No: R1009454 Supervisory Accountability : Tashi Dorji, Director, DAMC CID No.: 1170****661 & EID No. 200***101 2. Construction of Centralised Pack House with Office Building including dismantling and site development works at Dagapela (Package II)- DAMC PIU The work for the Construction of Centralised Pack House with Office Building including dismantling and site development works at Dagapela (Package II) was awarded to M/s Rinzin Dorji Construction with the following details: Name of Work : Construction of Centralised Pack House with Office Building including dismantling and site development works at Dagapela (Package II) Name of the contractor : M/s Rinzin Dorji Construction CDB No./Trade License : 1099 No. Work order No : DAMC/EDCU/2022-2023/02/1126 dated 12/05/2023 Estimate Amount : 5,000,630.00 Contract amount : 7,834,973.50 Revised Contract amount : NA Actual Payment : Ongoing Work start date : 19/05/2023 Work end date : 19/11/2023 Revised work end date : 11/09/2024 Contract duration : 6 months Actual Completion Date : Ongoing Site Engineer : Jamyang Dorji, Chief Engineer, Dagana Dzongkhag Upon reviewing the documents, the following inconsistencies were identified; 2.1 Non-renewal of Performance Guarantee as per contract provision Nu. 783,497.35 [2.2.61] Clause 11 of the Contract Agreement between DAMC and M/s Rinzin Dorji Construction states, ‘The Performance Security shall be provided to the Employer no later than the date specified in the Letter of Acceptance and shall be issued in an amount and form and by a bank acceptable to the Employer. The Performance Security shall be valid until a date 28 days from the date of issue of the Certificate of Completion in the case of a Bank Guarantee.’ Additionally, ITB Section A, Clause 13 stipulates that, ‘Within 15 days of receiving letter of acceptance, the successful bidder shall deliver to the Director, DAMC, MoAL, the performance security (either a bank guarantee or a bank draft in favor of the Employer) for an amount equivalent of 5% of the contract price.’ 6|Page Scrutiny of related documents revealed that the Project management retained the performance guarantee of 10% of Contract Price amounting to Nu. 783,497.35. However, the performance guarantee was found expired on 28th October 2023, despite the fact that work was still ongoing as on the date of audit 27th August 2024, with a renewed work order extending the completion date to 11th November 2024. The RAA opines that retaining an expired Performance Guarantee provides no assurance that the Contractor will fulfill their contractual obligations exposing the project to potential financial and operational risks. Therefore, the Project management should take immediate action to renew the bank guarantee with the required validity in accordance with the provisions of the contract. The actions taken should be communicated to the audit team without delay. Auditee’s Response: On September 5th, 2024, the Department of Agricultural Marketing & Cooperatives officially issued a letter to Rinzin Dorji Construction Pvt. Ltd., instructing the company to renew the performance guarantee as stipulated in the contract and to submit it to the Department at the earliest. The Department acknowledges the lapses that have occurred and is committed to preventing such oversights in the future. These lapses were primarily due to the absence of dedicated engineer or technical personnel to oversee the construction works. 7|Page RAA’s Further Comments & Recommendations: The response of Project management stating that the lapses had occurred due to absence of dedicated engineer or technical personnel to oversee the construction works is noted. However, given that the work is still ongoing and there is no guarantee against the new time extension granted, it is prudent and in the interest of the Government that the Project management secures a renewal of the Performance Bank Guarantee. Therefore, the Project Management should take prompt actions to renew the Bank Guarantee at the earliest under intimation to RAA. Who is Accountable? Direct Accountability : 1. Dawa Tshering, Sr. Economic Development and Marketing Officer CID No.: 1110****220 & EID No.: 2017****966 8|Page 2. M/s Rinzin Dorji Construction, CDB No.: 1099 Supervisory Accountability : Tashi Dorji, Director, DAMC CID No.: 1170****661 & EID No.: 200***101 2.2 Non-renewal of Mobilization advance Guarantee as per contract provision Nu. 783,497.35 [2.2.61] Clause 3.1 of the Contract agreement states, ‘Payments to the second party for the construction work will be released by the first party in the following manner: On Signing of Agreement: 10% of the contract price on receipt of unconditional bank guarantee (The Guarantee shall remain effective until the advance payment has been paid).’ Scrutiny of related documents revealed that a mobilization advance amounting to Nu. 783,497.35 (10% of Contract Price) was released vide D.V. No. 5.3 dated 18th May 2023. The Project management had retained a mobilization advance guarantee, which was valid only up to 28th October 2023 and had hence expired as on date of audit of 27th August 2024. Till date, a total of Nu. 750,000.00 was found recovered, leaving a balance recoverable amount of Nu. 33,497.35. Therefore, the failure on the part of Project management to renew the mobilization advance guarantee until the date of 100% advance repayment should be justified besides taking immediate action to renew the guarantee with required validity as per the provisions of the contract under intimation to RAA. Auditee’s Response: On September 5th, 2024, The Department of Agricultural Marketing & Cooperatives officially issued a letter to Rinzin Dorji Construction Pvt. Ltd., on 5th September 2024 instructing the company to renew the Mobilization advance Guarantee stipulated in the contract and to submit it to the Department at the earliest. The Department acknowledges the lapses that have occurred and is committed to preventing such oversights in the future. These lapses were primarily due to the absence of dedicated engineer or technical personnel to oversee the construction works. RAA’s Further Comments & Recommendations: The response of Project management stating that the lapses had occurred due to absence of dedicated engineer or technical personnel to oversee the construction works is noted. However, given that the work is still ongoing and there is no guarantee against the time extension granted, and with risk of litigations, it is prudent and in the interest of the Government that the Project management secures a renewal of the Mobilization advance Bank Guarantee. Therefore, the Project Management should take prompt actions to renew the Bank Guarantee at the earliest under intimation to RAA. 9|Page Who is Accountable? Direct Accountability : 1. Dawa Tshering, Sr. Economic Development and Marketing Officer CID No.: 111****3220 & EID No. 2017****966 2. M/s Rinzin Dorji Construction, CDB No.: 1099 Supervisory Accountability : Tashi Dorji, Director, DAMC CID No.: 1170****661 & EID No. 200***101 3. Construction of Centralised Pack House with Office and Staff Quarter at Samtse Dzongkhag (Package I) – DAMC PIU The work for the Construction of Centralised Pack House with Office and Staff Quarter at Samtse Dzongkhag (Package I) was awarded to M/s Tsamgar Construction Pvt. Ltd. with the following details: Name of Work : Construction of Centralised Pack House with Office and Staff Quarter at Samtse Dzongkhag (Package I) Name of the contractor : M/s Tsamgar Construction Pvt. Ltd. CDB No./Trade License 3998 No. Work order No : DAMC/EDCU/2022-23/02/1064 dated 19/04/2023 Estimate Amount : 4,766,745.00 Contract amount : 5,743,434.50 Revised Contract : NA amount Actual Payment : 5,008,763.00 Work start date : 19/04/2023 Work end date : 19/10/2023 Revised work end date : NA Contract duration : 6 months Actual Completion Date : 4/9/2023 Project Status : Completed Site Engineer : Tshewang, Samtse Dzongkhag Upon reviewing the documents, the following inconsistencies were identified. 3.1 Excess payment due to difference in quantity paid and quantity executed - Nu. 536,350.82 [2.2.16] During the physical verification conducted on 23rd August 2024 along with the concerned officials of Department of Agricultural Marketing and Cooperatives (DAMC), it was found that the quantities paid were not in line with the quantities actually executed at site for wood work item. This difference was mainly due to erroneous conversion of unit from millimeter to meter in the dimension of the wood work. Subsequently, it has resulted in the excess payment of Nu. 536,350.82 as shown in Table 1 and the details are attached in Appendix A: 10 | P a g e Table 1: Excess payment for works less executed Sl. Actual Excess Unit Rate Excess Item Description Qty paid Unit No. Qty Qty (Nu.) payment P/F in position dressed wood work in frames of doors, windows, clerestory windows and other frames, 1 wrought and framed (Class B Conifer) Railing (70mmX70mm) 15.48 0.15 15.32 cum 35,000.00 536,350.82 Vertical post Total excess payment (Nu.) 536,350.82 Therefore, the management should recover the excess payment of Nu. 536,350.82 besides providing valid justifications for the above lapses. Auditee’s Response: The department contacted Tsamgar Construction Pvt. Ltd. regarding the audit findings, and the contractor clarified that the measurement in the audit memo pertained solely to the veranda area. The excess payment identified in the memo, amounting to BTN 536,350.82, was for the veranda. However, the contractor further explained that the total cost for the woodwork was BTN 532,124.57. Upon remeasurement conducted by the site engineer of Tsamgar Construction, an excess quantity of 15.20 cubic meters was determined. The contractor has requested for re-measurement of woodwork quantities vide letter no. TCPL/TH/2024/204 dated 11th September, 2024. 11 | P a g e RAA’s Further Comments & Recommendations: The justification submitted by the Project Management is not tenable since the total payment for the whole wood works was Nu. 665,700.00. And the excess payment of Nu. 536,350.82 worked out during the physical verification in the presence of the concerned Project Official was based on the incorrect conversion of unit measurement (from mm to m) in the railing posts for verandah area. 12 | P a g e Therefore, as decided during the audit exit meeting held on 17th September 2024, the Project management should recover the excess payment of Nu. 536,350.82 and deposit into the Audit Recoveries Account within one month from the date of issue of the report beyond which penalty @ 24% per annum would be levied as per Section 55(21) of Audit Act of Bhutan 2018. The Project Management should ensure that the Contractor’s bills and claims are properly verified before making payment in full to avoid similar lapses in future. Recurrence of similar lapses would entail administrative actions against the responsible officials. Who is Accountable? Direct Accountability : 1. Dawa Tshering, Sr. Economic Development and Marketing Officer CID No.: 1110****220 & EID No.: 2017****966 2. M/s Tsamgar Construction Pvt. Limited, CDB No.: 3998 Supervisory Accountability : Tashi Dorji, Director, DAMC CID No.: 1170****661 & EID No.: 200***101 4. Non-maintenance of Assets in the Government Inventory Management System (GIMS) - Nu. 16,300,278.00 [3.2.65] As per Notification Ref. No. FM/DNP/GP-36/2020-2021/626 dated 1st February 2021, assets inventory must be maintained in the Government Inventory Management System (GIMS) Phase I, which is an enhanced Version 2.0 of the Asset Inventory Management System (AIMS). Further, the Notification Ref. No. MoF/DNP/CPPMD-08/2020-2021/428 dated 12th October 2021, requires agencies to record the assets falling under five main categories of assets; Land, Building, Vehicle, Equipment and Furniture in GIMS following the standard guidelines for GIMS. During the financial year 2023-2024, the project management purchased equipment/items for Integrated Cold Stores, Centralized Pack House and Field Pack House which was subsequently issued to Project Implementing Units at Samtse, Haa, Chukha, Dagana and Sarpang Dzongkhags. The final payment, amounting to Nu. 6,263,500.00, was found released via Voucher No. DV 5.3 dated 8th May 2024. The equipments were recorded and shown as issued to the focal persons as per the Stock Ledger. However, these assets were not maintained in the GIMS as required by the aforementioned notification. As a result, the assets in question were found without any assigned custodian in the system, as required by the notification. This procedural lapse could lead to accountability issues concerning ownership in the future. Consequently, the assets valued at Nu. 6,263,500.00 remains unrecorded in the system as on the date of audit of 27th August 2024. The details are presented in Table 2: Table 2: Assets not recorded in GIMS Sl. Equipment/Machines Unit Qty Rate (Nu.) Amount (Nu.) No. 1 Plastic Pallets Nos 400.00 3,685.00 1,474,000.00 2 Plastic crates Nos 2,500.00 549.00 1,372,500.00 3 Trolley Nos 8.00 21,900.00 175,200.00 13 | P a g e 4 Bubble washing machine Set 3.00 329,000.00 987,000.00 5 Conveyor belt Set 3.00 299,000.00 897,000.00 6 Drying machine Set 3.00 398,000.00 1,194,000.00 7 Stainless steel work table Nos 7.00 23,400.00 163,800.00 Total 6,263,500.00 Additionally, fixed assets totaling Nu. 10,036,778.00, including the Mushroom Shed in Samtse and the Centralized and Field Pack Houses in Samtse and Haa Dzongkhags, which were completed during the Financial Year 2023-24, were found to be unrecorded in the GIMS. The details of the total construction cost amounting to Nu. 10,036,778.00 are presented in Table 3: Table 3: Cost of Mushroom sheds Sl. Completed Infrastructure under FSAPP Budget Total Cost (Nu.) No. Construction of Mushroom Shed at Namesalling under Sang-Ngag- 1 958,535.00 Choeling gewog Construction of Centralised Pack House with Office and Staff Quarter at 2 5,008,763.00 Samtse Dzongkhag (Package I) 3 Construction of Centralized Packhouse, Sangbaykha, Haa, 3,077,397.00 4 Construction of Field Pack House at Eusu gewog, Haa, 992,083.00 Total Asset Value (Nu.) 10,036,778.00 Therefore, the project management must ensure that all unrecorded assets are promptly entered into the GIMS. Besides, the management should intimate the RAA about the status of the remedial actions taken, including details of assets updated in the system and the custodians assigned. Auditee’s Response: With regard to the statement in the above table mentioned in Sl.No. 1 and 2, the PIU Samste Dzongkhag had tried to enter in the GIMS as soon as the Audit team has advised during the field visits time. However, since there is some problem in registration of Land in the system, we were unable to update in the GIMS as we need to register and follow up with the GIMS focal at the Head Quarter, Thimphu to get register the Land in order to record the structures in the GIM. However, the PIU Samste will ensure to follow up soon and intimate the RAA once it is entered and recorded. Therefore, we would like to request the RAA to reflect in the managerial Appraisal report. Regarding the assets under the Department of Agricultural Marketing and Cooperatives (DAMC) that have not been recorded in the Government Inventory Management System (GIMS), the Department has initiated the process of inventorying these items in the system. RAA’s Further Comments & Recommendations: The justification on the challenges of land registration in the GIMS for fixed assets is well noted. As discussed during the Audit Exit Meeting held on 17th September 2024, the Project Management should initiate necessary follow-up with Department of Procurement and Properties (DPP) on the aforementioned items to incorporate in GIMS. 14 | P a g e The Project Management should update the status of assets in the GIMS with complete and accurate information as envisaged in the above notifications and intimate RAA accordingly. Who is Accountable? Direct Accountability : Dawa Tshering, Sr. Economic Development and Marketing Officer CID No.: 111****3220 & EID No.: 2017****966 Supervisory Accountability : Tashi Dorji, Director, DAMC CID No.: 1170****661 & EID No. 200***101 5. Construction materials not utilised as intended and planned- Nu. 49,098.19 [6.2.19] In order to improve the soil nutrient contents for the farmers, the Project Implementing Unit (PIU) initiated the construction of Bio-digesters as a pilot project by extending materials support while labour contribution were provided by the beneficiaries in line with annual work plan. Accordingly, the supply of construction materials for further distribution to the beneficiaries of Chukha and Haa Dzongkhags was awarded to the lowest evaluated bidders as detailed in Table 4: Table 4: Purchase of construction materials DV No. & date Particulars Quantity Rate (Nu.) Amount (Nu.) 4.11 of 9/4/2024 Cement (50 Kgs) 105 bags 466.234 48,954.57 CGI sheet 12’ 60 pcs 1,639.00 98,340.00 4.21 of 29/4/2024 Bricks 6000 Pcs 24.50 147,000.00 4.15 of 9/4/2024 Sintex tank (500 Ltrs) 15 Pcs 3,700.00 55,500.00 Total (Nu.) 349,794.57 However, on review of materials receipt and issue records, it was observed that some materials was found issued to the beneficiaries under Chukha Dzongkhag however, a balance materials amounting to Nu. 107,923.19 still remained to be distributed as presented in Table 5: Table 5: Details of construction materials not distributed Purchased Particulars Issued Qty. Diff. in Qty. Rate (Nu.) Amount (Nu.) Qty. Cement (50 Kgs) 105 bags 70 bags 35 bags 466.234 16,318.19 CGI sheet 12’ 60 pcs 40 pcs 20 pcs 1,639.00 32,780.00 Bricks 6000 Pcs 3750 Pcs 2250 Pcs 24.50 55,125.00 Sintex tank (500 Ltrs) 15 Pcs 14 Pcs 1 Pcs 3,700.00 3,700.00 Total (Nu.) 107,923.19 Further, the project implementing unit (ARDC, Yusipang) had released full payment to M/s Gangkhap Cement Agent, Thimphu without receiving 35 bags of cement valuing Nu. 16,318.19 (35 bags@466.234) as highlighted in the Table 5. Releasing of full payment without actually receiving the cement and recording as receipt in stock ledger is highly irregular which indicated undue favour to the suppler. During the physical inspection conducted on 15th August 2024, the RAA noted that 20 pieces of CGI sheets worth Nu. 32,780.00 (20 Nos.@1,639.00) 15 | P a g e which were intended for distribution to farmers, were instead used by JICA for roofing of garage. On enquiry, the dealing official stated that given the remote locations and lack of transportation budget, beneficiaries could not collect the materials on time. To avoid cement from setting, it was left with the supplier, as the office did not have proper storage facilities. This impacted timely implementation of the planned activities. The CGI sheets were then temporarily provided to JICA for garage roofing, with the understanding that they would be returned and issued to the farmers later, as per the statement given by dealing official. In view of the above, the project implementing unit (ARDC, Yusipang) should justify for the lapses and initiate immediate action to utilise the construction materials as intended and planned. Auditee’s Response: During the FY 23-24, FSAPP provided support for the construction of 15 numbers of bio- digesters to promote and enhance soil fertility in project gewogs under Chhukha and Haa on cost sharing basis. Raw materials like cement, bricks and CGI sheets were support through project funding whereas labour and sand including transportation were born by the beneficiary farmers. Out of the 15 bio-digesters, 10 bio-digesters were constructed in Chhukha Dzongkhag and remaining 5 were planned for under Haa Dzongkhag. However, the construction of 5 bio-digesters under Haa Dzongkhag could not be completed during the financial year mainly due to non-ability of the beneficiary farmers to transport the raw materials provided by the project. NCOA (ARDC), Yusipang (PIU) also couldn’t facilitate the transportation due to budget constraints. As such, PIU decided to implement the construction of the remaining bio-digesters in next financial year (2024-25). In this regard, the materials (bricks and CGI sheets) for the remaining 5 bio-digesters were brought to NCOA, Yusipang whereas the cement (35bags) was kept with the cement agent itself as there was no proper storage facility at NCOA, Yusipang to store cement and with an understanding that it will be collected later. An undertaking letter from the cement agent stating that 35 bags cement is lying with them and will be supplied as and when required is attached for kind reference. 16 | P a g e Further, the observation made by RAA team with regard to use of 20 numbers CGI sheets for garage construction support by iNTECrop project, the NCOA management would like to clarify that it was used on replacement basis. The replacement has been provided by the iNTECrop project and now the 20 number CGI sheets are in stock at NCOA, Yusipang. The documents of CGI sheets and picture are enclosed here for kind reference. 17 | P a g e The NCOA Management would like to admit that there was a lapse in following the provision of procurement rules by releasing full payment for the cement to M/S Gangkhap Cement Agent and also the use of CGI sheets for other activities which was purely unintentional and due lack of expertise on procurement system. Therefore, NCOA management would like to request RAA to consider the above submissions and kindly drop the observation. The management would also like to assure that the remaining cement (35 bags) will be collected at the earliest and handed over to the beneficiary farmers in Haa at the earliest along with 20 number of CGI sheets. NCOA will also provide technical support for to the farmers for the construction of bio-digesters. RAA’s Further Comments & Recommendations: The justification on the acceptance of lapses for non-compliance to the procurement rules and regulations is well noted. However, as discussed and decided during the audit exit meeting held on 17th September 2024, the Project Management should initiate immediate action to utilise the construction materials as planned to ensure the intended objectives are achieved, and beneficiaries receive timely benefits, Besides, the Project Management is cautioned to strengthen its internal control process and ensure that payments are made for good received, and fund are utilised for intended purposes. Who is Accountable? Direct Accountability : Tashi Tshering, Sr. Agriculture Supervisor CID No.: 1020****810 & EID No. 2020****166 Supervisory Accountability : Kailash Pradhan, Program Director CID No.: 112****4431 & EID No. 93***18 18 | P a g e APPENDICES 1|Page Appendix A APPENDICES 2|Page 3|Page FINANCIAL STATEMENTS 4|Page FINANCIAL STATEMENTS 5|Page 6|Page 7|Page 8|Page 9|Page 1|Page 2|Page 3|Page 4|Page 5|Page 6|Page 7|Page 8|Page 9|Page 10 | P a g e 11 | P a g e 12 | P a g e 13 | P a g e 14 | P a g e 15 | P a g e 16 | P a g e 17 | P a g e 18 | P a g e 19 | P a g e 20 | P a g e 21 | P a g e 1|Page PROFILE Background The Food Security and Agriculture Productivity Project (FSAPP) is a transformative project implemented by the Department of Agriculture, Ministry of Agriculture and Livestock. Launched in 2017 with the fund support of the Global Agriculture and Food Security Program (GAFSP) and supervised by the World Bank, FSAPP aims to bolster agricultural productivity and improve market access for farmers in the southwestern region of Bhutan. The project spans five dzongkhags—Chhukha, Dagana, Haa, Samtse, and Sarpang—covering a total of 29 gewogs. Initially scheduled to conclude in December 2022, with an initial financing of USD 8 million, the timeline was extended till December 2024 with an additional funding of USD 4.6 million. This extension underscores the commitment to addressing persistent challenges faced by the COVID-affected youths and ensuring the sustainable development of agricultural practices in the targeted regions. The project is administered by a dedicated Project Management Unit (PMU), led by a National Project Director, and supported by nine Project Implementing Units (PIUs). These PIUs include key Regional Research Centres such as the Agriculture Research and Development Centre in Samtenling (South), the Agriculture Research and Development Centre in Bajo (West), and the National Centre for Organic Agriculture in the Central West. Additionally, the Department of Agriculture Marketing and Cooperatives (DAMC) plays a crucial role in facilitating market access and promoting cooperative efforts among farmers. The selection of the southwestern dzongkhags was strategic, as these regions are characterized by higher levels of poverty, low agricultural productivity, and significant market accessibility challenges. Since its inception, FSAPP has employed a comprehensive approach to address these issues, focusing on the holistic development of the agricultural sector. Grant Details: Project title Food Security and Agriculture Productivity Project (FSAPP) Project ID P155513 Grant Number TF0A4224-BT/TF0B6044 Donor Global Agriculture and Food Security Program (GAFSP) Trust Fund Supervising Entity World Bank Project duration 1 July 2017 to 30 December 2024 Implementing Department of Agriculture, Ministry of Agriculture and Livestock, agency Royal Government of Bhutan Implementing 5 Districts (Chhukha, Dagana, Haa, Samtse & Sarpang) partner(s) 3 ARDCs (Bajo, Samtenling & Yusipang) Department of Agricultural Marketing & Cooperatives Project Management Unit, DoA, MoAL Total Grant USD 12.460 million Contribution from USD 0.54 million beneficiaries Contribution from USD 1.52 million host government Project Objective: The primary objectives of FSAPP are twofold: i. Enhancing Agricultural Productivity: By providing farmers with essential equipment, inputs, and capacity-building programs, the project seeks to increase crop yields and promote sustainable agricultural practices. ii. Improving Market Access: The development of vital infrastructure and the promotion of market linkages aim to facilitate farmers' access to markets, thereby improving their livelihoods and economic stability. The project objectives are manifested through 4 distinct components as follows: Component & Sub-components Component 1: Formation and Strengthening of farmers/producers group Sub-component 1.1: Formation and Strengthening of Farmers' Groups Sub-component 1.2: Strengthening of Producers' Groups Sub-component 1.3: Contributing to Improved Nutrition Component 2. Enhancing Farmer Productivity Sub-component 2.1: Irrigation, micro-irrigation and strengthening of WUAs and WUGs Sub-component 2.2: Providing technical and institutional capacity building to farmers, extension services, and selected agricultural institutions to improve farm management and sustain Project activities Sub-component 2.3: Provision of equipment and goods to Eligible Beneficiaries Component 3. Enhancing Access to Markets Sub-component 3.1: Post-harvest and Market Infrastructure Support Sub-component 3.1 ( b): Creation of, and provision of equipment and goods to, Food Processing Groups for preparation, packaging and marketing of food Sub-component 3.2: Linkage to Domestic and Export Markets Component 4: Project Management Budget Vs Expenditure (Abstract): (Nu. in millions) Financial Approved Budget (Nu.) Expenditure (Nu.) Balance (Nu.) Year 2023-2024 191.99 174.59 17.40 ********* Royal Audit Authority P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan Tel: +975-2-322111 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt