Rural Renewable Energy Agency (RREA) Financial Audit Report. for the period from 1 March 2016 to 30 June Project ID: P

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1 Public Disclosure Authorized Public Disclosure Authorized Rural Renewable Energy Agency (RREA) Financial Audit Report for the period from 1 March 2016 to 30 June 2017 Public Disclosure Authorized Liberia Renewable Energy Project (LIRENAP) Project ID: P Donor: World Bank Grant N. TF and IDA Credit N LR Public Disclosure Authorized December 2017

2 Table of contents EXECUTIVE SUMMARY... 3 THE AUDIT ENGAGEMENT... 4 Audit Objective... 4 Scope of the Audit... 4 EXECUTIVE DIRECTOR S DECLARATION...Error! Bookmark not defined. INDEPENDENT AUDITOR'S REPORT FINANCIAL AUDIT... 6 The Executive Director Responsibility for the Financial Report... 6 Auditor s Responsibility... 6 Independence... 6 Auditor s Opinion... 7 INTERNAL CONTROL FINDINGS... 8 COMPLIANCE FINDINGS... 9 ANNEXES ANNEX 1: STATEMENT OF FINANCIAL PERFORMANCE ANNEX 2: USES OF FUNDS BY ACTIVITY ANNEX 3: FUND DISBURSEMENT STATUS ANNEX 4: SCHEDULE OF FIXED ASSETS ANNEX 5: SCHEDULE OF FUND WITHDRAWAL ANNEX 6: STATEMENT OF DESIGNATED ACCOUNT The World Bank has requested this report. The views expressed in this report are those of the external auditor, Moore Stephens LLP, and in no way reflect the official opinion of the World Bank. This report is intended solely for the information and use of RREA and the World Bank. This report should not be used by any other party or for other than its intended purpose. 2

3 EXECUTIVE SUMMARY Moore Stephens LLP entered into an Engagement Agreement with the Rural Renewable Agency in Liberia ("The national implementing entity") on 22 February 2017 to carry out an audit of Liberia Renewable Energy Access Project which is funded by the World Bank to increase access to electricity and to foster the use of renewable energy sources. The period subject to audit was 1 March 2016 to 30 June We have provided our audit opinion on the project financial statements in the Audit Opinion section of the report. The audit findings are summarised in the table below. Details of these are provided in the relevant findings sections in pages 8 to 11 of the report. Audit area Overall rating Number of findings per priority rating Financial impact High Medium Low Financial findings Satisfactory None Internal control findings Compliance findings Partially Satisfactory Partially Satisfactory TOTAL

4 THE AUDIT ENGAGEMENT Audit Objective The main purpose of the audit was to enable the auditors to express an opinion on the LINERAP financial statements from 1 March 2016 to 30 June The project's accounting system (books and records) provides the basis for the preparation of the PFS was established to record the financial transactions of the project, and is maintained by the Project's national implementing entity, RREA. Scope of the Audit The audit was conducted 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), with special reference to ISA 800 (Auditor s Report on Special Purpose Audit Engagements) and to relevant World Bank guidelines. In conducting the project audit, special attention was paid to the following: Bank financing (and all external financing where the World Bank is not the only financier) has 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 LIRENAP project financing agreements; Government contribution has been provided and used in accordance with the relevant financing agreements, with due attention to economy and efficiency, and only forth purposes for which they were provided; Works, Goods and Services financed have been procured in accordance with the relevant financing agreement including specific provisions of the World Bank Procurement Policies and Procedures; All necessary supporting documents, records, and accounts have been kept in respect of ail project ventures (including expenditures reported using SOEs or Interim Unaudited Financial Statements (IFRs) methods of reporting. The auditor is expected to verify that respective reports issued during the period were in agreement with the underlying books of account; Designated Accounts have been maintained in accordance with the provisions of the relevant financing agreements and funds disbursed out of the Accounts were used only for the purpose intended in the financing agreement; National laws and regulations have been complied with, and that the financial and accounting procedures approved for the project (e.g. Operational manual, financial procedures manual, etc.) were followed and used; Financial performance of the project is satisfactory. Assets procured from project funds exist and there is verifiable ownership by the implementing agency or beneficiaries in line with the financing agreement. Ineligible expenditures included in withdrawal applications are identified and reimbursed to the Designated Accounts. These should be separately noted in the audit report. 4

5 EXECUTIVE DIRECTOR S DECLARATION FOR THE PERIOD FROM 1 MARCH 2016 TO 30 JUNE

6 INDEPENDENT AUDITOR'S REPORT FINANCIAL AUDIT Unqualified Opinion We have audited the accompanying financial report of Liberia Renewable Energy Project (LIRENAP) ( the Project ), which comprises the financial statement as at 30 June 2017, and other explanatory notes and the Executive Director s Declaration. The Executive Director Responsibility for the Financial Report The Executive Director is responsible for the preparation and fair presentation of the financial report and has determined the accounting policies used as described in Note 1 are consistent with the financial reporting requirements under the Project s funding agreement and are appropriate for the needs of the Project. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is 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. Auditor s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with the International Standards on Auditing which concern Audits and Review of Historical Financial Information and in accordance with the basic principles and concepts of the International Framework for Assurance Engagements established by the IFAC for the performance of this audit, insofar as these standards can be usefully applied in this financial audit and its specific compliance context. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation of the financial report that gives a true and fair view 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 controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Project Manager, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have met the independence requirements of the International Federation of Accountants ( IFAC ) Code of Ethics for Professional Accountants. 6

7 Auditor s Opinion In our opinion, the financial statements of RREA presents fairly, in all material respects, the financial position of the Liberia Renewable Energy Access Project (LIRENAP) as at 30 June 2017 and of its performance for the period from 1 March 2016 to 30 June 2017 in accordance with the accounting policies described in the financial statements. Auditors' signature Tim Woodward 150 Aldersgate Street, London, EC1A 4AB 13 December

8 INTERNAL CONTROL FINDINGS Internal control finding 1 Title: Priority rating: Lack of internal audit reporting Medium Description We noted that the Rural Renewable Agency (RREA) implementing the project has no internal audit department. Furthermore, according to Section 2.2 of Liberia Internal Audit Agency Act, the central government of Liberia has established an Internal Audit Agency with the purpose of establishing and directing internal audit functions within all branches of Government including the Executive, Legislative and Judiciary, as well as all public sector entities such as public corporations, autonomous agencies, autonomous commissions, Government ministries and the Central Bank of Liberia. In spite of this, we have not received any reports from the Internal Audit Agency relating to the project during the implementation period. Recommendation In order to improve the control activities being implemented by the Agency, management should either establish an internal audit department or request that the Internal Audit Agency conduct and document regular internal audit activities on the RREA's operations. This would help to improve the quality of the internal control systems and the accuracy and reliability of financial reports. Management response Management notes observation 8

9 Internal control finding 2 Title: Priority rating: Inadequate stamping of invoices Medium Description Best accounting practice requires that all payment vouchers which have been selected for payment of goods or services must be stamped PAID" in order to avoid the same voucher being reused. Whilst this practice has been put in place, we noted examples where it was being implemented without sufficient control, including instances of specific vouchers being stamped, but which had not been cleared for payment. For example, documented quotations and pro forma invoices which have not been selected for payment are stamped as "PAID IN FULL". This practice could lead to incorrect payment vouchers being posted to ledgers, causing transaction errors. Recommendation In order to avoid errors in the recording of payment vouchers as supporting documents for transactions, vouchers should be stamped with a more appropriately worded stamp. Only those documents which support payments which have actually been made should be stamped PAID IN FULL, whilst other appended documents and vouchers should be stamped with different wording which more accurately describes their connection with the transaction which they support. Management response These quotations been stamped are supporting document for a particular payment and the stamp is to ensure that these documents are not reused. We believe that it is very unlikely that error in recording the voucher may occur because it is stamped paid. However, we take note and will implement recommendation. 9

10 Internal control finding 3 Title: Priority rating: Failure to accrue for the 'Pandora's Basket' restaurant bill Medium Description Page 11 of section 2, sub-section 2.2 'Basis of preparation of Financial Statements of the Financial Management Policies and Procedures of LIRENAP' states that " the financial statements shall be prepared on a cash basis with adoption of an accrual principle where possible and in accordance with International Public Sector Accounting Standards (IPSAS). We noted however, that the standard has not been adequately applied. For instance, a singled source supplier, Pandora's Basket Bar and Restaurant, which had been approved by the World Bank, was contracted to perform a catering service on June 12, 2017, but was not subsequently paid for the service. The outstanding payment was not accrued and disclosed as required. Payment details: Payment for catering service for World Bank supervision mission to LIRENAP: US$ Recommendation In order to comply with the requirement of the 'Financial Statements of Financial Management Procedures of LIRENAP', management should ensure that all outstanding payments incurred during the implementation of the project are clearly and adequately accrued and disclosed. Management response Pandora Basket did not provide bank account for payment instead requested LIRENAP to pay to an individual. The stand-off has not been resolved leading to the outstanding payment. 10

11 COMPLIANCE FINDINGS Compliance finding 1 Title: Priority rating: Non-compliance with IPSAS requirements regarding public accounting Medium Description IPSAS standards formally require public autonomous entities like the RREA to produce a general purpose, combined financial report. This combined financial report includes the financial statements of the Agency in its role as a government entity, and also of one of its implemented projects. The requirement to do this may be established either by legislation, by the Agency's founding documents, by its parent entity, or the responsible Minister. We noted that the Rural Renewable Agency (RREA) does not prepare such a combined financial report. Recommendation We recommend that the Agency make arrangements to prepare its combined financial report in order to comply with IPSAS standards. Management response Management note this observation 11

12 ANNEXES ANNEX 1: STATEMENT OF FINANCIAL PERFORMANCE For the period from 1 March 2016 to 30 June

13 ANNEX 2: USES OF FUNDS BY ACTIVITY As at 30 June

14 ANNEX 3: FUND DISBURSEMENT STATUS 14

15 ANNEX 4: SCHEDULE OF FIXED ASSETS 15

16 ANNEX 5: SCHEDULE OF FUND WITHDRAWAL 16

17 ANNEX 6: STATEMENT OF DESIGNATED ACCOUNT 17

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