AUDIT OF THE READINESS PREPARATION ACTIVITIES OF THE FORESTRY DEVELOPMENT AUTHORITY, LIBERIA

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1 OF THE FORESTRY DEVELOPMENT AUTHORITY, LIBERIA () Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized in association with MGI MONBO & COMPANY

2 LIST OF ABBREVIATIONS AND ACRONYMS Abbreviations Meaning DSA FCPF FDA FPM GAM IDA IFAC IFR INTOSAI IPSAS ISA MHA PFMU PFS PPCU REDD RIU R-PIN R-PP SOE CSO SESA NCCS UNFCCC Daily Subsistence Allowance Forest Carbon Partnership Facility Forest Development Authority Financial Procedures Manual Global Audit Methodology International Development Association International Federation of Accountants Interim Financial Report International Organisation of Supreme Audit Institutions International Public Sector Accounting Standards International Standards on Auditing Million Hectares Project Financial Management Unit Project Financial Statements Public Procurement and Concession Commission Reducing Emissions from Deforestation and Forest Degradation REDD Implementation Unit Readiness Preparation Idea Note Readiness Preparation Proposal Statement of Expenditure Civil Society Organisations Strategic Environmental and Social Assessment National Climate Change Secretariat United Nations Framework Convention on Climate Change

3 TABLE OF CONTENTS SECTION PAGE REF 1. TRANSMITTAL LETTER 1 2. EXECUTIVE SUMMARY Background of the assignment Audit objectives Scope of the audit and methodology Pre-Audit Steps Output of the audit Financial highlights Oversight/Governance Structure Activities financed during the year Statement of financial management Status of financial management Summary of key findings and recommendations FINANCIAL STATEMENTS General Information Independent auditors report on the project financial statements Independent auditors report on the Designated Account Statement Independent auditors report on the Statement of Expenditure Withdrawal applications Statement of financial position Statement of receipts and payments Statement of cash flows Notes to the financial statements Designated Account Statement Statement of expenditure withdrawal applications 4. MANAGEMENT LETTER Internal Control findings and recommendations FRAUD, ERROR AND IRREGULARITIES APPENDICES Persons contacted during the course of the audit Copy of bank confirmation response letter Copy of donor confirmation response letter Management verbatim comments 28-31

4 SECTION 1 TRANSMITTAL LETTER

5 December 23, 2015 The Managing Director Forestry Development Authority, Liberia Whein Town, Mount Barclay Montserrado County Liberia Attention: Mr. Harrison Karnwea Dear Mr. Karnwea AUDIT OF THE READINESS PREPARATION ACTIVITIES OF THE FORESTRY DEVELOPMENT AUTHORITY We are pleased to present our report on the audit of the Readiness Preparation Activities of the Forestry Development Authority, Liberia for the year July 1, 2014 to June 30, Our report is structured as follows. Section 1: This transmittal letter. Section 2: Executive summary which summarizes the Project s background, audit objectives and scope of work, financial highlights and key findings from the assignment. Section 3: Financial statements which highlights the financial position and performance of the project. Section 4: Management Letter which reports on the internal control, financial management and compliance weaknesses of the Project in addition to status of prior year audit findings. Section 5: Fraud, Error and Irregularities highlights significant fraud, error and other irregularities noted during the course of our work. Section 6: Appendices We would like to express our appreciation to the management and staff of the Project Implementation Unit (PIU) of the Forest Development Authority and Project Financial Management Unit of the Ministry of Finance for their cooperation and assistance during the course of the audit. Yours truly, Victor Gborglah PARTNER victor.gborglah@gh.ey.com For: Ernst & Young Chartered Accountants Accra Sam D. Monbo EXECUTIVE DIRECTOR monboco@yahoo.com For: MGI Monbo & Company Certified Public Accountants Monrovia Liberia 1

6 SECTION 2 EXECUTIVE SUMMARY

7 2.0 EXECUTIVE SUMMARY 2.1 Background of the assignment Reducing emission from deforestation and forest degradation and enhancing forest carbon stock in developing countries has emerged as a new performance based instrument under the United Nations Framework Convention on Climate Change (UNFCCC) negotiations. The instrument aims to mitigate climate change effects by cutting carbon dioxide emissions originating from the destruction of forests. The establishment of an international mechanism to compensate countries for reducing emissions from deforestation and forest degradation (REDD+) offers an opportunity for Liberia to serve the common interest in managing its forests in a balanced way for longterm sustainable economic growth; to support the livelihood of local and rural communities; and to ensure that its important national and global heritage is conserved. The Forest Carbon Partnership Facility (FCPF), a multi-donor initiative became operational in 2008 to assist countries in establishing the key pillars of REDD+ readiness by; developing their national reference scenarios for emissions from deforestation and forest degradation; adopting and complementing national strategies for stopping deforestation and forest degradation; and designing national monitoring, reporting and verification systems for REDD+. These activities are referred to a REDD+ Readiness. The concept of readiness and the process of getting ready for REDD+ is however a continuum. While the FCPF has established key milestones to be reached as part of the readiness process, the process depends on the country s context and there is not a specific pre-defined output set by the FCPF for every country. Liberia contains approximately 4.3 million hectares (Mha) of lowland tropical forest. This is under threat due to continued clearance and degradation for the expansion of agriculture and mining activities. Between 1990 and 2010, Liberia lost 12.2% of its forest cover. Liberia received a grant of US$3.6 million for readiness activities in preparation for REDD+ implementation. The Grant was based on the Readiness Preparation Idea Note (R- PIN) and the REDD+ Readiness Preparation Proposal (R-PP). The World Bank grant is to support readiness work by the REDD+ Implementation Unit (RIU) that is scheduled to be completed by May The RIU is the governmental institution, under a mandate from the Forestry Development Authority, under the Ministry of Agriculture, that is responsible for facilitating the implementation of REDD+ readiness in Liberia, as guided by the R-PP and its sub-components. 2

8 The components of the FCPF Grant are as follows; Component Amount (US$) Support to the coordination of the REDD Readiness Process and consultations 1,610,000 Contribute to the design of the national REDD strategy 800,000 Reference level or Scenario 600,000 Project management 590,000 Total 3,600, Objectives of the audit The objectives of the audit are to express a professional opinion on the financial position of the FCPF Grant for the Readiness Preparation Activities at the end of the accounting year and of the funds received and expenditures incurred for the accounting period as reported by the Project Financial Statements. The audit will also provide assurance on the Statement of Expenditures and Designated Accounts activity covering the period of one fiscal year during which the withdrawals were made in accordance with International Standards on Auditing (ISA) as published by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC), 2.3 Scope of the audit and methodology Our Scope We were engaged to perform an audit of the Project financial statements of the Readiness Preparation Activities for the year July 1, 2014 to June 30, We executed the audit in accordance with International Standards on Auditing (ISA) and guided by the relevant provisions of the Grant Agreement signed between FCPF and the Government of Liberia Our Methodology Our Global Audit Methodology (GAM) is mainly risk based and control focused and is generally in accordance with International Standards on Auditing (ISA). We focused on the control environment and the control procedures regarding the Readiness Preparation Activities. In addition, the audit also ensured that; All external funds have been used in accordance with the conditions of the relevant financing agreements with due attention to economy and efficiency, and only for the purposes for which the financing was provided under the relevant financing agreements; Works, goods and services financed have been procured in accordance with the relevant financing agreement; All necessary supporting documents, records, and accounts have been kept in respect of all project ventures (including expenditures reported via SOEs). Clear linkages existed between the books of account and report presented to IDA; 3

9 The Credit account reconciliation between the amount shown as received by the Project from IDA and that shown as being disbursed by IDA has been properly prepared and is presented the Designated Account Statement. This reconciliation statement indicates the mechanism of disbursement; and The projects accounts have been prepared in accordance with consistently applied International Accounting Standards and give a true and fair view of the financial situation. 2.4 Pre-audit steps We reviewed the following documents: The Grant Agreement between IDA and the Government of Liberia and the FDA that govern the terms of the Readiness Preparation Activities; Readiness Preparation Proposal Assessment Note; National REDD+R-PP Implementation Mid-Term Progress Report and request for additional funding; World Bank Guidelines for Selection and Consultants Employment; World Bank Guidelines for procurement of goods, works and non-consultancy services; The Liberia Public Procurement and Concession Commission (PPCU) Act 2005, The Financial Procedures Manual (FPM) of the PFMU; Operational Manual; Minutes of Project committee meetings; The draft financial statements of the Readiness Preparation Activities for the period under review. 2.5 Output of the audit In accordance with the terms of reference for the assignment, we issued the following reports: Project Financial Statements which include; an unqualified independent audit opinion on the Project financial statements (PFS) and notes to the Project financial statements for the year ended June 30, The Project financial statements comprise the following; a) Statement of financial position of the IDA fund balances, fixed assets, inventories, other assets of the program, and liabilities if any; b) A statement of Receipts and Payments c) A statement of cash flows d) Notes to the financial statements presenting background information, the accounting principles, detail analysis and relevant explanation of the main accounts/major balances. a separate unqualified opinion on the Designated Account Statement Account for the year ended June 30, 2014; and a separate unqualified opinion on the Statement of expenditure withdrawal applications used during the year confirming that the amounts transferred by IDA agreed with the amount received by the Project Financial Management Unit. 4

10 A management letter which highlights; comments and observations on the accounting records, systems and controls that were examined during the course of the audit; specific deficiencies identified and areas of weakness in the systems and controls and recommendations for their improvement; the degree of compliance with the provisions of the Grant Agreement and applicable Liberia laws and regulations; and relevant and practical recommendations to assist in correcting the weaknesses identified in the short, medium and long term. 2.6 Financial highlights Inflow of funds During the year under review, funds received from IDA into the Designated Account are as follows; Receipts US$ FCPF/MOF/008 83,335 FCPF/MOF/009 30,467 FCPF/MOF/010 61,840 FCPF/MOF/ ,604 FCPF/MOF/ ,873 FCPF/MOF/013 15,215 FCPF/MOF/014 30,551 FCPF/MOF/015 39,238 FCPF/MOF/016 27, ,111 These amounts were deposited into the Designated Account at Guaranty Trust Bank (Liberia) Limited. This account was set up and managed by PFMU on behalf of FDA in accordance with the provisions of the IDA Grant Agreement Expenditures Project expenditures incurred during the year are as follows; Expenditure US$ Consultants services 509,220 Training and workshop 8,050 Operating costs 176,217 Equipment and goods 31,587 Total 725,074 5

11 2.7 Oversight/Governance Structure REDD+ in Liberia is coordinated and implemented through the RIU, which is hosted at the Forestry Development Authority. The RIU consists of both administrative and technical specialists headed by the National Coordinator. The RIU is headed by the National REDD+ project Coordinator who handles the day- to- day affairs of the unit. The RIU is to provide leadership, managerial and administrative support to the Implementing Agencies and Ministries. The financial management function of the Project is the responsibility of Project Financial Management Unit (PFMU) at the Ministry of Finance. The PFMU has a strong budgetary, accounting, financial reporting and internal control arrangements that are satisfactory to the World Bank. PFMU has a laid down internal control procedures and processes that ensure that transactions are approved by appropriate personnel and ensure segregation of duties between approval, execution, accounting and reporting functions. PFMU accounting for the use of the project funds using a cash basis of accounting using Sun Accounting system that provides adequate segregation of duties and accurate recording of all accounting transactions of the project. A project fixed assets register was maintained to correctly reflect assets acquired for the project. PFMU prepared quarterly interim financial report (IFR) that was submitted to the World Bank. Funds for project activities are disbursed directly into a designated account set up and managed by PFMU. PFMU submitted withdrawal applications to the World Bank. Banking and payment processing will be managed centrally by the PFMU in order to ensure adequate control and financial monitoring. 2.8 Activities financed during the year Below are a summary of activities/expenditures financed during the year under review. Furnishing the office of the National Climate Change Secretariat (NCCS) that is currently housed at the Environmental Protection Agency of Liberia. Funding was also provided for the launching of the NCCS in Buchanan, Grand Bassa County for 29 participants. Fauna & Flora International was hired to develop Liberia s REDD+ Communication Strategy. In line with this, a REDD+ Communication Strategy Validation Workshop was held on March 30 to 31, 2015 for 37 participants. The Liberia Strategic Environmental and Social Assessment (SESA) was carried out and the Environmental and Social Management Framework (ESMF) was developed. Six (6) SESA case studies to research and document community level perspectives on key drivers of deforestation and forest degradation in order to understand community perspectives on the opportunity costs of forest conservation. 2 weeks nationwide awareness campaign on REDD+, REDD+ Technical Working Group (RTWG) meetings and regular SESA working group meetings were held. 6

12 Capacity Building workshop was held for SESA Working Group Members in Buchanan Grand Bassa County for 33 participants. Dialogue and information sharing with Two Civil Society Organisation (CSO) on REDD+ activities and the Liberian Norwegian Partnership. A quarterly briefing of the Forestry Sector Working Group is held to update and inform members on developments and initiatives unfolding in the sector and how to synergize various interventions. Under the south South exchange program, two (2) Persons participated in a Regional workshop on Jurisdiction Landscape Program organized by the FCPF and the Government of Mozambique. 2.9 Status of financial management The Government of Liberia established the Project Financial Management Unit (PFMU) at the Ministry of Finance to be responsible for providing centralized accounting, disbursement and reporting services for donor funded programs that are being executed by the Government of Liberia. The PFMU therefore has overall financial management responsibility for the operations of the Readiness Preparation Activities. Our assessment of the internal control system of PFMU showed notable qualities in internal control procedures and financial reporting. This conclusion is based on our assessment of the financial control environment, accounting procedures, samples of transactions tested and interviews with key personnel of the PFMU and PIU as part of our audit procedures. Inspite of the significant qualities noted in the general controls, we have also identified certain weaknesses in the financial management system which we have reported for the necessary corrective measures to be made. We have summarized the weaknesses and provided related remedies for management consideration. These issues have been presented in section 2.9 below Summary of key findings and recommendations There is no evidence that the internal audit unit reviewed the Project s activities for the year ended June 30, Inconsistencies or lack of adherence to the provisions of the Grant Agreement may go unnoticed. This issue has persisted since the inception of the Project activities. Management of PFMU should make alternative arrangements that will ensure that the Project activities are reviewed at least once a year by the Internal Audit Team We noted that the Bank made an erroneous deduction of US$1,424 which has not been reversed as at June 30, We have not been provided with subsequent months bank statements to verify whether this deduction has been reversed. Management of PFMU should follow up with the bank to ensure that the erroneous debit is reversed. 7

13 SECTION 3 PROJECT FINANCIAL STATEMENTS

14 TABLE OF CONTENTS PAGE REFERENCE GENERAL INFORMATION 8 INDEPENDENT AUDITORS REPORT ON THE PROJECT FINANCIAL STATEMENTS 9 10 INDEPENDENT AUDITORS REPORT ON THE DESIGNATED ACCOUNT STATEMENT INDEPENDENT AUDITORS REPORT ON THE STATEMENT OF EXPENDITURE WITHDRAWAL APPLICATIONS STATEMENT OF FINANCIAL POSITION 15 STATEMENT OF RECEIPTS AND PAYMENTS 16 STATEMENT OF CASH FLOWS 17 NOTES TO THE FINANCIAL STATEMENTS STATEMENT OF DESIGNATED ACCOUNT STATEMENT 22 STATEMENT OF EXPENDITURE WITHDRAWAL APPLICATIONS 23

15 GENERAL INFORMATION Project Financial Management Unit Project Implementation Unit Project Location Bankers Auditors Rev. Dr. Christopher Sokpor Unit Manager Mr. Salia Hussein Senior Project Accountant Mr. Saah A. David Jr National REDD+ Project Coordinator Mrs. Lorpu Sangai Project Accountant Mr. Ephraim Swen Procurement Officer Mr. Peter Mulbah REDD Technical Working Group Coordinator Mr. Zinnah Mulbah Strategic Environment & Social Assessment Coordinator Forestry Development Authority Paynesville Liberia Guaranty Trust Bank (Liberia) Limited 13 th Street Sinkor Monrovia Ernst & Young/MGI Monbo & Company 8

16 INDEPENDENT AUDITORS OPINION ON THE PROJECT FINANCIAL STATEMENTS TO THE MEMBERS OF PROJECT IMPLEMENTATION UNIT OF THE FORESTRY DEVELOPMENT AUTHORITY Report on the financial statements We have audited the accompanying Project financial statements of the Readiness Preparation Activities of the Forestry Development Authority, Liberia (FCPF Grant No. IDA TF12350) which comprise the statement of financial position as of June 30, 2015 and the statements of receipts and payments and cash flows for the year then ended, and a summary of significant accounting policies and explanatory notes on pages 15 to 21. Management s responsibility for the financial statements Management of the Project Financial Management Unit is responsible for the preparation and fair presentation of the financial statements in accordance with International Public Sector Accounting Standards (IPSAS) and with relevant provisions of the Project Grant Agreement. This responsibility includes; designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and International Organisation of Supreme Audit Institutions (INTOSAI). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Project financial statements are free from material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Project financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the Project financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant the entity s preparation and fair presentation of the Project 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the Project financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 9

17 Opinion In our opinion, the Project financial statements present fairly in all material respects the financial position of the Readiness Preparation Activities of the Forestry Development Agency, Liberia (FCPF Grant No. IDA TF12350) as at June 30, 2015 and of its financial performance and cash flows for the year ended, in accordance with International Public Sector Accounting Standards (IPSAS), and the relevant provisions of the Grant Agreement between the IDA and the Government of Liberia. Additionally, the statement of receipts and payments has been prepared in accordance with the Grant Agreement between the IDA and the Government of Liberia. All payments have been made wholly and necessarily for the realization of the objectives of the Readiness Preparation Activities of the Forestry Development Authority, with due attention to economy and efficiency. We have obtained all the confirmations and explanations necessary for the purpose of the audit. Victor Gborglah (ICAG/P/115) For and on behalf Ernst & Young (ICAG/F/2015/126) Chartered Accountants Accra Ghana MGI Monbo & Company Certified Public Accountants Monrovia Liberia Date: December 23, 2015 Date: December 23,

18 INDEPENDENT AUDITORS REPORT ON THE DESIGNATED ACCOUNT STATEMENTS TO THE MEMBERS OF THE PROJECT IMPLEMENTATION UNIT OF THE FORESTRY DEVELOPMENT AUTHORITY We have audited the accompanying Designated Account Statement of the Readiness Preparation Activities Project of the Forestry Development Authority, Liberia (FCPF Grant No. IDA TF12350) which comprise the cash receipts and payments for the period ended June 30, 2015 and cash balances controlled by Project Financial Management Unit as of June 30, 2015 as on page 22. Management s responsibility for the Designated Account Statements The Management of Project Financial Management Unit is responsible for the preparation and fair presentation of the Designated Account Statements in accordance with provisions of the Grant Agreement. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on the Designated Account Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Designated Account Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Designated Account Statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the Designated Account Statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the Designated Account 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 entity'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 Designated Account statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 11

19 Opinion In our opinion, the Designated Account Statements presents fairly in all material respects the fund balance as of June 30, 2015, as well as the receipts and disbursements during the year in accordance with the provisions of the Grant Agreement between the IDA and the Government of Liberia. Victor Gborglah (ICAG/P/115) For and on behalf Ernst & Young (ICAG/F/2015/126) Chartered Accountants Accra Ghana MGI Monbo & Company Certified Public Accountants Monrovia Liberia Date: December 23, 2015 Date: December 23,

20 INDEPENDENT AUDITORS REPORT ON THE STATEMENTS OF EXPENDITURE WITHDRAWAL APPLICATIONS TO THE MEMBERS OF THE PROJECT IMPLEMENTATION UNIT OF FORESTRY DEVELOPMENT AUTHORITY We have audited the accompanying Statements of Expenditure Withdrawal Applications of the Readiness Preparation Activities of the Forestry Development Agency, Liberia (FCPF Grant No. TF12530) which comprise nine (9) withdrawal applications for the period ended June 30, 2015 as on page 23. Management s responsibility for the Statements of Expenditure Withdrawal Applications The Management of Project Financial Management Unit is responsible for the preparation and fair presentation of the Statements of Expenditure Withdrawal Applications in accordance with provisions of the Project Grant Agreement. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Statements of expenditure Withdrawal Applications that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on the Statements of Expenditure Withdrawal Applications based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Statement of expenditure withdrawal applications are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statement of Withdrawal Applications. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the Statements of expenditure withdrawal applications, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation and fair presentation of the Statement of expenditure withdrawal applications 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Project Financial Management Unit, as well as evaluating the overall presentation of the Statement of expenditure Withdrawal applications. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 13

21 Opinion In our opinion, the Statement of Expenditure Withdrawal Applications and supporting documents represent genuine project expenditures and are eligible in accordance with provisions of the Grant Agreement between the IDA and the Government of Liberia. Victor Gborglah (ICAG/P/115) For and on behalf Ernst & Young (ICAG/F/2015/126) Chartered Accountants Accra Ghana MGI Monbo & Company Certified Public Accountants Monrovia Liberia Date: December 23, 2015 Date: December 23,

22 STATEMENT OF FINANCIAL POSITION AS AT JUNE 30, 2015 ASSETS EMPLOYED Note June 30, 2015 June 30, 2014 US$ US$ Current assets Cash and bank balances 3 194, ,627 FUND BALANCES Financed by: Accumulated fund 194, ,627 Signed on behalf of the Project Financial Management Unit The notes 1 to 8 form an integral part of these financial statements. 15

23 STATEMENT OF RECEIPTS AND PAYMENTS Notes Cumulative Cumulative June 30, 2015 June 30, 2014 June 30, 2015 US$ US$ US$ Receipts Receipts from IDA Grant 4 682, ,643 1,276,754 Disbursements Training and workshop 5 8,050 39,431 47,481 Consultants services 6 509, , ,885 Operating costs 7 176,217 59, ,588 Equipment and goods 8 31,587 77, ,136 Total Disbursements 725, ,016 1,082,090 (Deficit)/Excess of receipts over payments (42,963) 237, ,664 Fund balance at July 1 237, Accumulated Fund balance at June , , ,664 The notes 1 to 8 form an integral part of these financial statements. 16

24 STATEMENT OF CASH FLOWS Cash flows from operating activities June 30, 2015 June 30, 2014 US$ US$ Receipt from Designated Accounts 682, ,350 Consultant services (509,220) (173,265) Operating costs (176,217) (53,590) Net cash flows from operating activities (3,326) 62,495 Cash flows from investing activities Training and workshop (8,050) (35,274) Equipment & goods (31,587) (77,549) Net cash used in investing activities (39,637) (112,823) Net Decrease in cash balance (42,963) (50,328) Fund Balance as at July 1 237, ,955 Fund Balance as at June , ,627 The notes 1 to 8 form an integral part of these financial statements. 17

25 NOTES TO THE FINANCIAL STATEMENTS 1. ACTIVITIES The Forestry Development Authority (FDA) has received financing from the Forest Carbon Partnership Facility (FCPF) for the Readiness Preparation Activities. The objective of this financing is to carry out a consultative and quantitative analysis of the different land use options for the development of the national REDD+ (reducing emissions from deforestation and forest degradation) Strategy for Liberia, to be approved by the National Climate Change Steering Committee. The project comprises of the following four (4) components: Component 1: Support to Coordination of the REDD+ Readiness Process and Consultations. Component 2: Contribute to the design of the national REDD+ strategy Component 3: Develop a Reference Level or Scenario (including Forest Cover Mapping and Forest Inventory in priority areas). Component 4: Project management. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements have been prepared in accordance with the cash basis of accounting as required by the Ministry of Finance PFMU Financial Procedures Manual, relevant conditions Grant Agreement between IDA and the Government of Liberia and in compliance with International Public Sector Accounting Standards (IPSAS). This implies that all expenditures are expensed whether they are revenue or capital in nature and receipts are recognized when funds are received from the contributing donors. Foreign Currency Translation The financial statements have been presented in United States of America Dollars (US$). Transactions denominated in other currencies are translated into US Dollars and recorded at the rates of exchange ruling at the date of transactions. Balances denominated in other currencies are translated into US Dollars at the rate of exchange ruling at the reporting date. Cash and cash balances This represents cash and bank balances, bank overdrafts and investments in marketable securities that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and bank balances, 91 day treasury bills and fixed deposits. 18

26 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 3. CASH AND BANK BALANCES June 30, 2015 US$ June 30, 2014 US$ June 30, 2015 Cumulative Bank balance 198, , ,608 Unpresented cheque of US$5,735 (5,735) - (5,735) Adjusted bank balance 193, , ,608 Erroneous debit of US$1,424 by the bank not resolved as at June , , ,418 Expected bank balance 194, , , RECEIPTS FROM DESIGNATED ACCOUNT Cumulative June 30, 2014 US$ Cumulative June 30, 2015 US$ June 30, 2015 Application Ref. US$ FCPF/MOF/ , ,000 FCPF/MOF/002-5,293 5,293 FCPF/MOF/003-15,515 15,515 FCPF/MOF/004-50,369 50,369 FCPF/MOF/005-37,773 37,773 FCPF/MOF/006-48,721 48,721 FCPF/MOF/ , ,972 FCPF/MOF/008 83,335-83,335 FCPF/MOF/009 30,467-30,467 FCPF/MOF/010 61,840-61,840 FCPF/MOF/ , ,604 FCPF/MOF/ , ,873 FCPF/MOF/013 15,215-15,215 FCPF/MOF/014 30,551-30,551 FCPF/MOF/015 39,238-39,238 FCPF/MOF/016 27,988-27, , ,643 1,276, TRAINING AND WORKSHOP June 30, 2015 US$ Cumulative June 30, 2014 US$ Cumulative June 30, 2015 US$ DSA, Hotel & Accommodation 8,050 39,431 47,481 19

27 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 6. CONSULTANTS SERVICES June 30, 2015 US$ Cumulative June 30, 2014 US$ Cumulative June 30, 2015 US$ National REDD & Project Coordinator 48,680 70, ,980 Procurement Specialist 38,200 27,000 65,200 Strategic Environment & Social Assessment Coordinator 37,700 27,000 64,700 REDD & Technical Working Group Coordinator 11,250 30,000 41,250 Project Accountant 19,370 1,400 20,770 Consultants 301, ,810 JV Metria/G. Ville 48,000 24,000 72,000 Petty cash 3,047-3,047 Catering - Den L 1,128-1, , , , OPERATING COSTS June 30, 2015 US$ Cumulative June 30, 2014 US$ June 30, 2015 Cumulative US$ Bank charges 5,403 4,614 10,017 Communication Petty cash 2,635 18,467 21,102 Fuel 7,498 2,696 10,194 Audit fees 26,311 2,837 29,148 DSA 67,189 10,324 77,513 Airfare 16,436 1,664 18,100 Office furniture - 4,745 4,745 Office Supplies 26,342-26,342 Insurance - 4,219 4,219 Hall rental 18,245 2,034 20,279 Incidental Reimbursement 3, ,220 Entertainment 1, ,779 Vehicle registration 4, ,861 Reversal to nullify on PVs (25,748) (25,748) Advertising & publicity 23,142 5,875 29, ,217 59, ,588 20

28 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 8. EQUIPMENT AND GOODS June 30, 2015 US$ June 30, 2014 US$ June 30, 2015 Cumulative Vehicle 11,878 66,490 78,368 Office equipment 19,709 11,059 30,768 31,587 77, ,136 21

29 DESIGNATED ACCOUNT STATEMENT

30 DESIGNATED ACCOUNT STATEMENTS Account Name Preparation of the Readiness Account Number 203/303693/2/1/0 Depository Bank Address IDA Credit Number Currency Guaranty Trust bank (Liberia) Limited 13th Street Sinkor, Liberia Monrovia IDA TF12350 US Dollars Advances/Replenishment from IDA June 30, 2015 June 30, 2014 Cumulative June 30, 2015 US$ US$ US$ FCPF/MOF/ , ,000 FCPF/MOF/002-5,293 5,293 FCPF/MOF/003-15,515 15,515 FCPF/MOF/004-50,369 50,369 FCPF/MOF/005-37,773 37,773 FCPF/MOF/006-48,721 48,721 FCPF/MOF/ , ,972 FCPF/MOF/008 83,335-83,335 FCPF/MOF/009 30,467-30,467 FCPF/MOF/010 61,840-61,840 FCPF/MOF/ , ,604 FCPF/MOF/ , ,873 FCPF/MOF/013 15,215-15,215 FCPF/MOF/014 30,551-30,551 FCPF/MOF/015 39,238-39,238 FCPF/MOF/016 27,988-27,988 Funds in Designated Account 682, ,643 1,276,754 Less: Disbursements during the year (725,074) (357,016) (1,082,090) Balance as at June 30, 2015 (42,963) 237, ,664 Opening balance at July 1, , Designated Account Balance 194, , ,664 22

31 STATEMENT OF EXPENDITURE WITHDRAWAL APPLICATIONS

32 STATEMENT OF EXPENDITURE WITHDRAWAL APPLICATIONS Date Application Ref. Amount US$ Mode of Disbursement Fund Source 5 Oct 2012 FCPF/MOF/ ,000 Advance Payment IDA Grant 22 May 2013 FCPF/MOF/002 5,293 Reimbursement IDA Grant 11 Sept 2013 FCPF/MOF/003 15,515 Reimbursement IDA Grant 4 Dec 2013 FCPF/MOF/004 50,369 Reimbursement IDA Grant 13 Jan 2014 FCPF/MOF/005 37,773 Reimbursement IDA Grant 11 Mar 2014 FCPF/MOF/006 48,721 Reimbursement IDA Grant 25 June 2014 FCPF/MOF/ ,972 Reimbursement IDA Grant 21 Jul 2014 FCPF/MOF/008 83,335 Reimbursement IDA Grant 26 Sep-2014 FCPF/MOF/009 30,467 Reimbursement IDA Grant 19 Nov-2014 FCPF/MOF/010 61,840 Reimbursement IDA Grant 10 Dec-2014 FCPF/MOF/ ,604 Reimbursement IDA Grant 20 Feb-2015 FCPF/MOF/ ,873 Reimbursement IDA Grant 19 Mar-2015 FCPF/MOF/013 15,215 Reimbursement IDA Grant 22 Apr-2015 FCPF/MOF/014 30,551 Reimbursement IDA Grant 12 May-2015 FCPF/MOF/015 39,238 Reimbursement IDA Grant 23 Jun-2015 FCPF/MOF/016 27,988 Reimbursement IDA Grant 1,276,754 23

33 SECTION 4 MANAGEMENT LETTER

34 4.0 MANAGEMENT LETTER 4.1. INTERNAL CONTROL FINDINGS AND RECOMMENDATIONS No internal audit reports available Condition There is no evidence that the internal audit team carried out any review of the Project s activities for the year ended June 30, As a result, we were not provided with any internal audit report. This issue has existed during the past two audits. Cause The Internal Audit Unit does not have adequate staff to audit the increased number of large projects and smaller projects including the REDD Project. Criteria Section 14 of the PFMU Financial Procedures Manual requires that the Internal Audit Unit reviews Project activities regularly. This is to ensure the orderly and efficient conduct of operations including, among others, the adherence to Project rules and regulations, safeguarding of Project assets, prevention and detection of errors and irregularities and promoting the accuracy and reliability of the accounting records. Effect Inconsistencies or lack of adherence to the provisions of the Grant Agreement may go unnoticed as the activities of the Project are not reviewed regularly by Internal Audit. Recommendation We recommend that management should make arrangements that will ensure that Project activities are reviewed at least once a year by the Internal Audit Unit. Management comments PFMU Internal Audit conducts audit of all projects on a quarterly basis. During the period under review, the internal audit report was prepared despite the challenges faced in meeting people during the Ebola period. PFMU has also strengthened its internal control environment by hiring additional two (2) auditors for proper monitoring of projects implemented by the Unit. 24

35 4.1.2 Outstanding reconciling items Condition We noted from our review of bank reconciliation statements that some reconciling items have been outstanding and not resolved as at June 30, The bank erroneously made a deduction of US$1,424 from the Project bank account. This has resulted in a difference between the cash book balance and bank balance. Details are provided in the table below. Month Cash book balance Bank balance Difference US$ US$ US$ June , ,240 1,424 We have not been provided with subsequent bank statements to verify whether these two transactions have been cleared. Cause Management of PFMU explained that they have taken up the issue with the bank however the bank has not taken any action to correct the error. Criteria Best practice requires that errors identified during the review of bank reconciliation statements should be promptly documented and appropriate corrective measures taken to resolve them. Effect The delay in reversing this transaction has resulted in the cash and bank balance not being equal to the Project fund balance as at June 30, Recommendation We recommend that Management of PFMU should follow up with the bank to ensure that the amount deducted from the Project bank account is reversed. Management comments The bank wrongly charged our account and it took the Project Financial Management Unit series of effort to get it finally reversed in August 2015 as per the Bank reconciliation statement sent in our earlier communication. According to our bankers, they had to conduct investigations before making the reversal, hence the delay. The recommended action was already taken before the commencement of this audit. 25

36 4.2 STATUS OF PRIOR YEAR AUDIT REPORT No internal audit reports available Condition The Internal Audit Unit is basically responsible for evaluating internal control, advising management, evaluating risks and reviewing compliance report periodically or annually. During our review of the project financial statements for the year ended June 30, 2014, the Internal Auditors who are responsible for evaluating internal control, advising management, evaluating risks and reviewing compliance did not provide us any internal audit report relating to the REDD Project for the year ended. The Internal Auditors indicated the Internal Audit Unit did not audit the REDD Project during the period under review. The Internal Audit Unit does not have adequate staff to audit the increased number of large projects and smaller projects including the REDD Project. Recommendation We recommend that Management should institute measures that will ensure the internal audit reports are prepared on time for all projects managed by the Project Financial Management Unit. Status Not implemented Outstanding reconciling items Condition We noted from our review of bank reconciliation statements that some reconciling items have been outstanding for a long time and the matter has not been resolved. The bank erroneously made two deductions totaling US$107,992 from the Project bank account. This has resulted in a difference between the cash book balance and bank balance. Our review of subsequent bank statements showed that US$99,592 was reversed on July 2, 2014 by the bank leaving US$8,400 outstanding to be reversed. Recommendation We recommend that Management of PFMU should follow up with the bank to ensure that the outstanding amount of US$8,400 is also reversed. Status This was reversed by the bank in October

37 SECTION 5 FRAUD, ERROR AND IRREGULARITIES

38 6.0 FRAUD, ERROR AND IRREGULARITIES Consistent with ISA 240 -The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements, in planning and performing the audit we obtained reasonable assurance about whether the financial statements are free of material misstatement as a result of fraud. Management of the project has the responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error and for the accounting policies and accounting estimates inherent in the financial reports. As part of our audit procedures, we considered the following: Likelihood of misstatements arising from fraudulent financial reporting or omissions of amounts or disclosures designed to deceive financial statement users; Likelihood of misstatements arising from misappropriation of assets involving theft and embezzlement of assets. We also reflected on reasons why fraud or errors are committed. These may include: Management or staff having an incentive; A culture or environment that enables management to rationalize committing fraud; Rationalization of committing a dishonest act due to pressure; Circumstances, such as ineffective controls and the ability to override controls; During our fieldwork, no issues of fraud came to our attention. 27

39 SECTION 6 APPENDICES

40 APPENDIX PERSONS CONTACTED DURING THE COURSE OF THE AUDIT

41 Persons contacted during the course of the audit. PROJECT IMPLEMENTATION UNIT Mr. Harrisson S. Karnwea Sr Managing Director FDA Mr. Saah A. David Jr National REDD+Project Coordinator Mrs. Lorpu Sangai Project Accountant Mr. Ephraim Swen Procurement Officer Mr. Peter Mulbah REDD Technical Working Group Coordinator Mr. Zinnah Mulbah Strategic Environment & Social Assesment Coordinator. PROJECT FINANCIAL MANAGEMENT UNIT Rev. Dr. Christopher K. Sokpor, Unit Manager Mr. Salia Hussein, Senior Project Accountant 28

42 APPENDIX COPY OF BANK CONFIRMATION RESPONSE LETTER

43 BANK CONFRIMATION RESPONSE 29

44 APPENDIX COPY OF DONOR CONFIRMATION RESPONSE LETTER

45 DONOR CONFIRMATION RESPONSE 30

46 APPENDIX MANAGEMENT VERBATIM COMMENTS

47 MANAGEMENT VERBATIM COMMENTS Outstanding reconciling items Management Response PFMU Internal Audit conducts Audit of all projects on a quarterly basis. During the period under review, the internal audit report was prepared despite the challenge face in meeting people during the Ebola period. PFMU has also strengthened its internal control environment by hiring additional two (2) auditors for proper distribution of projects implemented by the Unit Outstanding reconciling items Management Response As per our earlier response, the bank wrongly charged our account and it took the Project Financial Management Unit series of efforts to get it finally reversed in August 2015 as per the Bank reconciliation Statement sent in our earlier communication. According to our bankers, they had to conduct investigations before making the reversal, hence the delay. The recommended action was already taken before the commencement of this audit. 31