ANDHRA PRADESH RURAL WATER SUPPLY AND SANITATION PROJECT (APRWSSP) FINANCIAL MANAGEMENT MANUAL FOR DEPARTMENT OF RWSS, SWSM AND DWSM FINAL REPORT

Transcription

1 Financial Management Manual for Department of RWSS May 2008 ANDHRA PRADESH RURAL WATER SUPPLY AND SANITATION PROJECT (APRWSSP) FINANCIAL MANAGEMENT MANUAL FOR DEPARTMENT OF RWSS, SWSM AND DWSM FINAL REPORT AUGUST,

2 Disclaimer This report has been prepared by PricewaterhouseCoopers (P) Limited for the Project Director (PD), World Bank funded Andhra Pradesh Rural Water Supply and Sanitation Project (APRWSSP), Government of Andhra Pradesh (GoAP). Contents of this report should not be copied or reproduced by any third party or otherwise quoted or referred to, in whole or in part, without the prior permission of PricewaterhouseCoopers, PD, ARWSSP or World Bank in writing. PricewaterhouseCoopers disclaims any responsibility for any loss or damage suffered by any third party by taking reliance of this report. Furthermore PricewaterhouseCoopers will not be bound to discuss, explain or reply to queries raised by any agency other than the intended recipients of this report. The report has been prepared on the basis of limited study done at some of the offices of Rural Water Supply & Sanitation (RWSS) department and Panchayati Raj Institutions (PRIs) i.e. Zilla Parishad, Mandal Parishad and Gram Panchayat. Our assessment and recommendations are based on the facts and details provided during our visit and may not be similar across the organization/ state. If any of these facts or details provided is not complete or accurate, the conclusions given could cause us to change our opinion. The conclusions drawn and recommendations made are based on the information available at the time of writing this report and PricewaterhouseCoopers will not be responsible to rework any such conclusion or recommendation if new or updated information is made available. PricewaterhouseCoopers does not accept any liability or responsibility for the accuracy, reasonableness or completeness of, or for any errors, omissions or misstatements, negligent or makes any representation or warranty, express or implied, with respect to the information contained in this document. The information contained in this document is selective and is subject to updation, expansion, revision and amendment. It does not, and does not purport to, contain all the information that a recipient may require. Further this is not an audit report and no reliance should be based on this report for the purposes of audit. Each recipient must conduct its own analysis of the information contained in this document and is advised to carry out its own investigation into the proposed project, the legislative and regulatory regime which applies thereto and by all matters pertinent to the proposed project and to seek its own professional advise on the legal, financial, regulatory and taxation consequences of entering into any agreement or arrangement relating to the proposed project. 2

3 Table of Contents LIST OF ACRONYMS 4 CHAPTER 1 - INTRODUCTION 5 CHAPTER 2 INSTITUTIONAL ARRANGEMENTS 7 CHAPTER 3 FLOW OF FUNDS 10 CHAPTER 4 FINANCIAL AND ACCOUNTING POLICIES 12 CHAPTER 5 FINANCIAL AND ACCOUNTING PROCEDURES 15 CHAPTER 6 FORMAT OF BOOKS OF ACCOUNTS 16 CHAPTER 7 FINANCIAL REPORTING 17 CHAPTER 8 AUDITING 18 ANNEXURE 19 ANNEXURE 1: FORMATS FOR BOOKS OF ACCOUNTS 20 ANNEXURE 2: FORMATS FOR FINANCIAL REPORTS 23 ANNEXURE 3: TERMS OF REFERENCE FOR INTERNAL AUDIT 24 3

4 List of Acronyms Andhra Pradesh Rural Water Supply & Sanitation Project Abbreviation AEE APRWSSP CAG CBO CE CSS DD DEE DPSU DWSC DWSM E in C EE FMM GoAP GoI GP GPWSC IEC IUFR LoC M & E MoF MoU MP MTP MVS MVS-WSC NGO O & M PAO PD PRI PSU RWSS SE SVS SWSM ToR WB ZP Full Form Assistant Executive Engineer Andhra Pradesh Rural Water Supply & Sanitation Project Comptroller and Auditor General Community Based Organisations Chief Engineer Community Sanitation Scheme Demand Draft Deputy Executive Engineer District Project Support Unit District Water & Sanitation Committee District Water & Sanitation Mission Engineer in Chief Executive Engineer Financial Management Manual Government of Andhra Pradesh Government of India Gram Panchayat Gram Panchayat Water & Sanitation Committee Information, Education and Communication Interim Unaudited Financial Report Letter of Credit Monitoring & Evaluation Ministry of Finance Memorandum of Understanding Mandal Parishad Medium Term Sector Program Multi Village Scheme Multi Village Water Supply Committee Non Governmental Organisations Operation and Maintenance Pay and Accounts Office/ Officer Project Director Panchayati Raj Institution Project Support Unit Rural Water Supply & Sanitation Superintending Engineer Single Village Scheme State Water & Sanitation Mission Terms of Reference World Bank Zila Parishad 4

5 Chapter 1 Introduction INTRODUCTION Andhra Pradesh Rural Water Supply & Sanitation Project 1.1 The Andhra Pradesh Rural Water Supply and Sanitation Project (APRWSSP) is a World Bank funded Project which is being implemented by the Government of Andhra Pradesh (GoAP). 1.2 Government of Andhra Pradesh has prioritized Rural Water Supply and Sanitation (RWSS) as a key area of its development agenda. The vision for the RWSS sector and related policy notes were issued by GoAP in October Key elements of GoAP's Vision are: (i) (ii) Significant improvement in service levels and coverage; Devolution to PRIs; (iii) Enforcement of full recovery of O&M cost and sharing of capital cost (taking into consideration affordability, particularly of disadvantaged groups); and (iv) Improvement of the "accountability framework" by clarifying roles and responsibilities of various actors of the RWSS sector at the state, district and village levels. 1.3 GoAP has envisioned an APRWSSP which forms a part of the overall RWSS sector investment program and implementation action plan for realising the goals for medium term as per the Vision of GoAP for the RWSS sector by The Project will support RWSS programs in about six Districts in AP, selected through transparent self-selection criteria, with priority for taking up not covered and no safe source habitations. It serves as an action plan for channelling resources for integrated rural water supply and sanitation development in six Districts of the state. PROGRAM COMPONENTS 1.4 The Project comprises of three main components: Component A Sector development: This component will provide institutional capacity support to implement, manage and sustain the project activities, along with sector development studies. The main sub-components include: (a) Capacity Building and Training activities for state level institutions, PRIs and sector stakeholders; (b) Communications Strategy and Information, Education and Communications (IEC) Program; (c) Sector Development Studies to inform policy decisions. Component B Infrastructure Development: This component will support investments for improving water supply and sanitation services in the project habitations, including construction of new infrastructure or rehabilitation and augmentation of existing schemes with safe disposal of waste-water. These investments would be made in an integrated manner with source strengthening and catchment area protection activities; soak-pits; construction of latrines for BPL households; community awareness programs for improving sanitation and hygiene practices; and incentives for achieving open defecation free status. Solid waste management and surface drainage activities will be taken up in major GPs. Underground piped drainage will be supported in select Mandal Headquarters. About 80% habitations are expected to be served by SVS using local groundwater sources. The MVSs, mainly relying on surface water sources, will be taken up for habitations where the local source is either not sustainable or of not acceptable quality. 5

6 Component C Project Implementation Support: A Program Support Unit (PSU) under the SWSM, assisted by staff in the districts (D-PSUs), will implement and manage the WB Project. Main functions of the PSU will be to coordinate with various stakeholders including the SWSM, DWSM, DWSC; procure external services (as required) to support the implementation of the WB Project; and review and report the progress of the WB Project. This component includes establishing and operationalizing the following systems: (i) Sector Information System (SIS) and Monitoring and Evaluation System (M&E) for the Sector Program and WB Project; and (ii) financial management system for administering funds and expenses for the WB Project. APPLICABILITY 1.5 This Manual lays down the Financial Management System to be followed by the RWSS Department. All committed and on-going schemes under any program which are outside the sector approach are outside the preview of this manual. The new schemes and related expenditure will be governed by the proposed fund flow arrangements and enhanced/ strengthened accounting, reporting and auditing rules and regulations. 1.6 The implementing agencies where this manual will be followed are Division Offices of RWSS Department. OBJECTIVES OF FINANCIAL MANAGEMENT MANUAL 1.7 The Financial Management Manual (FMM) has been designed with a view to build on and update the current accounting system to meet the requirements/ expectations of the World Bank financed project as also to meet the new challenges of handling the sector program. The main objectives of FMM shall primarily be: To ensure a single reporting and auditing system for all the activities in the sector To achieve better Project management by providing timely information on financial aspects and on key performance indicators to Project management To meet the financial reporting requirements of various stakeholders To keep track of funds utilization To provide reasonable assurance that the resources/ funds are being used effectively and efficiently for their intended purpose To ensure that all Project related activities are reflected in the IUFRs and the same be closely aligned with the Project components as per the Medium Term Sector Program To improve creditability and control over data integrity through effective internal control arrangement. ADMINISTRATION OF THE MANUAL 1.8 This Manual shall be administered in the manner given below: Finance Department, GoAP shall authorize use of the manual The manual is a living document and may be amended by the Principal Secretary, Department of Rural Water Supply and Sanitation as and when required and as learning accumulates within the project. All participants in the Project are encouraged to share their learning and experiences of the Project implementation so as to improve the proposed arrangements made to attain the Project objectives. Concurrence of Finance Department shall be taken for any amendments in the Manual All amendments made to this Manual shall 6

7 Be circulated to SWSM/ E-in-C and to all the CE/ DWSM/ DWSC/ EE/ GPWSCs. The circular/ notification shall clearly state the paragraph(s) and line(s) to be replaced. All such circulars/notifications shall be serially numbered Mention the date from which the change shall be effective Be annexed to the manual with a cross reference at the appropriate places in the manual. Chapter 2 Institutional Arrangements 2.1 The proposed institutional arrangement has been summarized here for the state, district & village levels. The project will support progressive decentralization and devolution to the PRIs, with increased community participation, financial sustainability and enhanced accountability at all the levels. 2.2 The Andhra Pradesh Panchayat Raj Act, 1994, focuses on devolution of important responsibilities pertaining to the RWSS sector, among other sectors, to the Panchayat level. In the RWSS sector, responsibilities pertaining to O&M of SVS and intravillage facilities of MVS are given to the GPs and the responsibilities pertaining to O&M of common facilities of MVS are given to the ZPs. INSTITUTIONAL ARRANGEMENTS 2.3 The implementation arrangements for the Project at the state level, district level, mandal level and the GP/users level is as follows: State level: 2.4 State Water and Sanitation Mission (SWSM): The SWSM will be responsible for the entire RWSS Sector Program. The Executive Committee of SWSM, headed by Secretary RWSSD will be responsible for planning and policy formulation; capacity building; fund flow; approval of annual plan and budget allocation; review, monitoring and evaluation of the Sector and District Programs. It will also be responsible for coordination with various departments of GoAP, GoI and other sector partners wherever necessary. 2.5 Rural Water Supply & Sanitation department (RWSSD): The RWSSD will work as the facilitator for all aspects of District Programs, including technical support for RWSS activities (as required), capacity building, training programs, etc. RWSSD Engineering Wing will continue to plan and implement the MVSs in participation with ZP, while O&M will be devolved to the ZP. 2.6 State Project Support Unit (PSU): The State PSU will implement the World Bank Project in the selected districts. It will assist SWSM in monitoring and implementation of policy decisions by the Project partners such as various departments of GoAP, GoI etc. The Project Director (PD), PSU will be of the rank of a CE. The PD-PSU will oversee the implementation of the World Bank supported District Program. In addition, the Project Director, PSU will also be responsible for: (a) Overseeing the implementation of policy decisions by SWSM relating to all aspects including Community participation, Communications and Capacity Building (b) Dissemination of policy decisions of SWSM and assisting SWSM in monitoring the implementation of the policy decisions by various Project partners 7

8 (c) Overseeing the implementation of World Bank funded Projects in 6 selected Districts (d) Monitoring participation of PRIs along with village communities for implementation of IEC programs. (e) Coordination with various departments of GoAP, GoI and other sector partners (f) as appropriate on Project implementation issues. Reporting of Project implementation progress to all authorities concerned, including the World Bank. (g) Appointing state level Independent construction quality surveillance consultants for the project. District level: 2.7 District Water and Sanitation Mission (DWSM): The DWSM will be the governing body at the district level and has already been established under the Swajaldhara program. DWSM will be responsible for providing policy guidelines received from the SWSM for the implementation of the district program. DWSM will also be responsible for overseeing implementation of the Sector Program, ensuring that the decentralization and community participation agenda is implemented. The overall functions of DWSMs include overall planning of RWSS in the district, approval of the annual budget related to RWSS, prioritization/selection of GPs to be included in the proposed SVS/MVS and review implementation progress. The DWSM will be assisted by the District Water and Sanitation Committee (DWSC), which will function as its executive arm. 2.8 District Water and Sanitation Committee (DWSC): The DWSC established under Swajaldhara will be headed by the District Collector and will be responsible for implementation of entire District Program in the state. The SE will function as its Member Secretary. The DWSC will facilitate in decision making of all district RWSS activities, including design and implementation of all schemes and sanitation program through concerned GPs, administrative sanctions, capacity building, IEC programs, and management and monitoring of all district projects. The DWSC will also take a decision on the works to be carried out at the district level (if necessary, packaging of GP programs for cost effectiveness) and the requirement of engineers and Self Help Group (SHG) or Support Organizations (SOs). In case the RWSSD Engineers are not available or do not have the capacity, the DWSC could hire the services of private Technical Service Providers. 2.9 District Project Support Units (D-PSU): The District Collector will be the Program Director who will head the D-PSU. D-PSU will report to the DWSC and will have staff for supporting the implementation of program and policies of DWSM, including technical, financial, communications, capacity building, monitoring and evaluation of programs and social audits. The D-PSUs will coordinate with various departments at the district level RWSSD Engineering Wing: The RWSSD Engineering Wing at the district level (Superintendent Engineer / Executive Engineer) will be responsible for designing and implementing the MVS in partnership with the MVS-WSC. All design, supervision or operational activities will be undertaken through an agreement between the RWSSD, DWSC and MVS-WSC. The MVS-WSC will sign off on all activities related to the MVS. The DWSC can also select the RWSSD Engineering Wing to provide engineering support, through a service contract agreement, for SVS Zilla Parishad: The ZP through its sub-committee MVS-WSC (one for each MVS) will be responsible for management of common facilities of MVS. 8

9 2.12 Multi Village Scheme - Water Supply Committee (MVS-WSC): The MVS-WSC at the district level will be a representative committee of the group of GPs for a MVS. This will be a sub-committee of the ZP and will work closely with the RWSSD Engineering Wing in planning, designing and implementing the MVS. The responsibilities of MVS-WSC is to ensure community participation and to put forth the requirements of the user (group of GPs) in terms of preferences for technology, site selection, infrastructure requirements such as household connections etc. to the RWSSD for consideration Technical Service Providers (Engineering Support): RWSSD will provide technical support to DWSC to carry out planning, designing, procurement and implementation of SVS and MVS. In case of capacity constraints at RWSSD to provide technical support, DWSC will have the option to recruit private TSP. Monitoring of RWSSD or private TSP will be the responsibility of DWSC. In either case, the RWSSD or private TSP will be accountable to the DWSC and the concerned GP through a service contract agreement. Village level: 2.14 Gram Panchayat: The GP will be responsible for endorsing (signing off) the planning, designing and implementation of scheme, tariff fixation, accounts management, financial audits, M&E and conflict resolution under village level programs. It will provide capacity support to the GP-WSC and will ensure regular O&M and cost recovery through user charges Gram Panchayat Water & Sanitation Committee (GP-WSC): The GP-WSC, constituted under the Gram Panchayat will be in-charge of O&M of SVS and intravillage facilities of MVS and will work with the DWSC for scheme planning, designing and implementation of SVS. The GP-WSC will endorse the planning, designing and implementation of the scheme and sign off payments at all stages. The Committee will perform a similar role for intra-village facilities of MVS. The tariff fixation and O&M of the SVS and intra-village facilities of MVS will also be the responsibility of GP-WSC Self Help Group (SHG) / Support Organizations (SOs): The SHGs or SOs / NGOs shall be identified and selected by DWSC based on pre-agreed criteria. They would be responsible for carrying out IEC and capacity building activities based on reform principles and policies issued by SWSM and DWSMs. The SHGs or SOs would closely interact with the GPs/ GP-WSCs for executing their responsibilities. They would also obtain guidance from the Social and Community specialists working at the D-PSUs at the district levels. 9

10 Chapter 3 FLOW OF FUNDS INTRODUCTION Andhra Pradesh Rural Water Supply & Sanitation Project 3.1 This chapter contains the process of flow of funds from the World Bank to the Project implementing agencies. All the new schemes under the Program will be guided by the funding mechanism as detailed in this chapter. The schemes which are on-going will be guided by the existing funding mechanisms. FUND FLOW AND DISBURSEMENT ARRANGEMENTS 3.2 The proposed fund flow arrangements for new schemes are given in the figure below: World Bank Govt. of India Flow of Funds Requirements of Funds Govt.of AP, Finance Dept. Authorisation for payment BRO Secretary, RWSSD E-in-C RWSSD SWSM LoC Division-wise requirement of funds DWSC Authorisation of payment EE, RWSSD & PSU PAO MVS-WSC Bills endorsed and sign-off GP (GP-WSC) Bills endorsed and sign-off Works Contractors/ Executing Agency 3.3 The procedure for disbursement of funds to the implementing agencies under the Project is as under: World Bank to GoI: The World Bank shall make available project funds into the Special Account opened by GoI with Reserve Bank of India. The World Bank releases funds into the special account as reimbursement based on quarterly Interim Unaudited Financial Reports (IUFRs) prepared by the 10

11 PSU on the basis of consolidated actual expenditure in the specified agreed formats GoI to GoAP: MoF, GoI will transfer the Rupee equivalent of the funds credited into the Special Account to the Consolidated Fund of GoAP within specific number of days on a back to back arrangement GoAP, Finance Department to RWSSD: GoAP, Finance Department will provide the BRO to E-in-C, RWSSD as per project requirements RWSSD to respective Divisions: The Engineer-in-Chief will release LoCs based on the annual allocations by DWSC Community contributions: Community contributions shall be received by the GPWSC as per the rates laid down in the user cost sharing principles. The community contribution shall be received in cash/ cheque/ DD/ kind towards the capital costs of the scheme and money will be deposited into a separate GPWSC bank account. FUND FLOW ARRANGEMENTS UNDER THE ON GOING SCHEMES 3.4 The fund flow arrangements for on-going schemes shall remain as at present i.e. through the LoC route. 11

12 Chapter 4 Financial and Accounting policies INTRODUCTION 4.1 This chapter describes the annual scheme wise budgeting process both at the department level and district level. The applicable financial and accounting policies under the project are also given in this chapter. 4.2 The financial and accounting policies contained in this manual shall supplement the policies and procedures given in GoAP State Financial Rules. BUDGET OBJECTIVES 4.3 The main objectives of the budgeting system can be summarized as under: a. To ensure participation at all levels in the budgeting process b. To provide a basis for periodical monitoring of the performance of Project implementing and that of all the executing agencies under the implementing agency c. To meet World Bank s monitoring requirements of the Project funds d. To facilitate fixation of accountability for budget variances. BUDGET CENTRE 4.4 A budget centre is an office which shall be responsible for budget preparation and shall be accountable and responsible for budgetary control. The proposed planning and budgeting under the Project shall be done at the following offices At State level: The SWSM will be responsible for overall planning and budgeting at the state level under the Project. The SWSM will receive requirement of funds from the DWSCs on a scheme-wise basis. The SWSM shall then prepare Division-wise budgets and send to Secretary, RWSS for approval. At District level: DWSC will be responsible for overall planning and budgeting at the district level. It will receive scheme wise requirements from the respective GPWSCs/ MVS- WSCs/ RWSS Department. The district budget will be sent to SWSM for approval. At Village level: GPWSC (SVS & Intra Village Facilities of MVS) will be responsible for overall planning and budgeting at the scheme level. The Department or Engineering Support will provide technical assistance to GPWSC in preparing the Budget and the same will be sent to DWSC for approval. BUDGET PREPARATION EXERCISE 4.5 The APRWSSP shall form the overall framework within which the budget centres shall prepare their respective budgets for the budget period. 4.6 The budget preparation will be guided by the scheme cycle, i.e. Pre-planning, Planning, Implementation and O & M. All the implementing agencies while 12

13 preparing its budget shall have to factor in the cost/ expenditure associated with the scheme cycle. 4.7 While preparing the budget the budget centres shall also analyze the actual vs budgeted performance for the previous period except for the first period when it is not possible. BUDGET PERIOD AND REVISION OF BUDGETS 4.8 Budget period shall be the same as the financial year followed by Project implementing agencies i.e. from April 1 to March Normally, budgets should be applicable for a full year. As the budgeting process involves forecasting on the basis of certain assumptions, the possible variations should be planned at the time of preparation of the budgets. Any significant variations from the original assumptions would necessitate revision of budgets within the budget year itself. The revised budgets if any shall be approved by SWSM. CORE SYSTEM OF ACCOUNTING 4.10 The accounts at various offices of the Project shall be maintained manually as per the Government system of accounting. Since project activities will be undertaken by different accounting entities including Divisions/ GPWSCs, this will involve recording and consolidation of accounting information from a large number of accounting locations The principles of accounting in the proposed Project will follow the State Government accounting systems such that the overall accounting system in the project is based on GoAP State Financial Rules. ACCOUNTING CENTRES 4.12 The accounting for the Project will be done at: Divisional Office, Department of RWSS GPWSC ACCOUNTING POLICIES AT DIVISION OFFICES 4.13 The Accounting policies to be followed at the Divisional Office for the purpose of recording Project expenditure is as follows:- Method of Accounting (a) Accounts shall be maintained on single entry book keeping system and accounting shall be done on cash basis i.e., all payments in respect of the Project shall be accounted for on the basis of actual payments made. (b) All payments should be charged of to the relevant expenditure head of account at the time of making payment. Valuation of Stocks (a) Materials and supplies purchased for the Project should be charged as expenditure at the time of its payment. 13

14 Andhra Pradesh Rural Water Supply & Sanitation Project Expenditure incurred by Technical Service Agencies and Support Organizations (a) MOU s shall be entered with the Technical Service Agencies and Support Organizations to provide support. Any payments made to these shall be treated as expenditure since these payments are to be made on completion of certain milestones. Accounting to Contractor/ Executing Agency for Project Expenditure (a) The expenditure incurred on project activities shall be booked to the relevant account head provided for the sub-component under the component. 14

15 Chapter 5 Financial and Accounting procedures 5.1 This chapter contains the financial and accounting procedures for the project to be followed by the Division Offices of RWSS Department, SWSM and DWSM for important transactions have been explained alongwith updation of books and records and internal control mechanism. Overview of Financial and Accounting Procedures 5.2 The financial and accounting procedures are covered in this chapter under the following broad heads: (a) General Guidelines/ Standard Internal Controls (b) Payment to Contractors/ Executing Agency (c) Consolidation of Accounts for Project Reporting General Guidelines/ Standard Internal Controls 5.3 General guidelines/ standard internal controls are as follows: (a) The existing GoAP and CAG rules and regulations for accounting and other financial management activities shall continue to apply for the project. (b) Instruction to PAO for payment of bill to Contractor/ Executing Agency is only after it has been approved by the GPWSC/ MVS-WSC, verified by DWSC and further checking by the EE. (c) The project shall be subject to Internal Audit by an independent firm of Chartered Accountants on a half-yearly basis. As the project funding increases, the periodicity can be reviewed and made on a quarterly basis or as and when required. Payment to Contractors/ Executing Agency 5.4 No advance payment shall be made to any contractors/ executing agency. The DEE on completion of specific milestones shall raise running bills and payment shall be made on the basis of these bills. The bills shall be first approved by the AEE and then by GPWSC (SVS and Intra Village MVS) or MVS-WSC (MVS) and verified by DWSC. To enable monitoring of payments, a Contractor s Payment Register (Annexure 1, Form 1) shall be maintained. A LoC Register (Annexure 1, Form 2) shall also be maintained to keep control over LoCs received and utilised. Consolidation of Accounts for Project Reporting 5.5 To facilitate reporting to World Bank from books of accounts in a consolidated manner, consolidation of accounts shall be done. This will be done as IUFRs to be prepared and submitted on a quarterly basis. 15

16 Chapter 6 Format of books of accounts Overview of various formats 6.1 The formats to be used by the accounting units are mentioned in this chapter. In case computerized accounting software is used, the formats as designed therein can be adopted, as long as it suffices the basic data requirements of the formats prescribed in this chapter. The format number, title, purpose and the periodicity for updation/ preparation shall be as follows: Form No. Form 1 Form 2 Title Contractor s Payment Register LoC Register Purpose To record all the bills raised by contractors and actual payment made To record funds sanctioned in favour of the division for various activities under the scheme Periodicity for updation/ Preparation As and when raised As and When 6.2 The formats are contained in Annexure 1 to this Manual. 16

17 Chapter 7 FINANCIAL REPORTING 7.1 This chapter describes the reporting requirements by the project implementing agencies i.e. Division Offices of the Department. 7.2 The financial report shall be prepared by the Divisions for the project financial status as per the books of accounts maintained by them. 7.3 The reports shall be sent by the Division Offices to the E-in-C on a quarterly basis. A copy of the same shall also be sent to the DWSC. The DWSCs shall compile the report and send it to the SWSM. Interim Unaudited Financial Report (IUFR) (Quarterly) 7.4 The IUFR (Annexure 2, Form IUFR/1) shall be the sole report to be prepared on a quarterly basis and submitted to the World Bank. IUFR shall report expenditure on the project activities made in the previous quarter alongwith % of reimbursement by World Bank. 7.5 The IUFR shall be compiled by E-in-C/ SWSM based on the information received from the Divisions at least 7 (seven) days before the due date of reporting by E in C to GoAP. The format is annexed in Annexure 2 to this Manual. 17

18 Chapter 8 AUDITING Andhra Pradesh Rural Water Supply & Sanitation Project 8.1 Audit of accounts, statements and reports provides means to ensure accuracy and check in financial system of an organization. To ensure proper functioning of the financial system on prescribed norms in the Manual, the Project requires an exhaustive auditing arrangement. In this chapter, essential elements involved in the mechanism of conducting financial audit have been highlighted. Two types of audits would be carried out as follows: a. Internal Audit by an independent firm of Chartered Accountants on half yearly basis. b. Statutory Audit by CAG on annual basis. 8.2 The detailed Terms of Reference for Internal Audit by an independent firm of Chartered Accountants is given in Annexure-3. STATUTORY AUDIT (ANNUAL) 8.3 The Comptroller and Auditor General of India (CAG) through its offices in Andhra Pradesh will be the statutory auditor for the project. Audit by CAG shall include the Divisions of RWSS implementing the project. 8.4 The audit report will be submitted to the Bank within six months of the close of each financial year. INTERNAL AUDIT 8.5 Objective The objective of the Internal Audit is to provide comfort to the Project management and to various stakeholders (Government of India, State Government and World Bank) on the accuracy of the IUFR, compliance with loan covenants and satisfactory working of the financial management systems. 8.6 System of Audit a. An audit for review of the IUFR and internal control measures will be conducted on half yearly basis by an independent firm of Chartered Accountants, appointed for the purpose by the Project with well defined terms of reference (ToR). b. In accordance with the World Bank operational policies, the ToR and the qualification of the independent firm of Chartered Accountants have to be reviewed by the World Bank. 8.7 Coverage a. The audit will cover all offices of the Project i.e. SWSM/ DWSC/ Divisions/ GPWSC. b. The audit includes the verification of expenditure incurred directly by these offices, for the purpose of the Project. c. The audit will include checking of prescribed financial and management reports generated at various levels periodically. d. The audit would also include payments for consultancy / training / research or other contracts/ agreements where it is made to the contractor / consultant / institute. 18

19 ANNEXURE 19

20 ANNEXURE 1: FORMATS FOR BOOKS OF ACCOUNTS Form No. Form 1 Form 2 Contractor s Payment Register LoC Register Title 20

21 Financial Management Manual for Department of RWSS May 2008 Form 1 Contractor s Payment Register Name of Party: Sr. No. Particulars of Bill CONTRACTOR S PAYMENT REGISTER FOR THE YEAR Payment details No. of Amount days Bill No. Bill Date. Sanctioned Amount between Date of Reason for Amount of (Rs.) and Cheque no. Disallow approva Payment disallowance Bill (Rs.) date of ed (Rs.) l dt. and approval paymen t dt Remark s (reason for delay beyond 3 days) Note: Open separate folio for individual parties 21

22 Form 2 - LoC Register Name of the Division LoC REGISTER Order/Designation of the Authority sanctioning the LoC: Date of Order: Period of the LoC: Sanctioned Amount (Rs.): Expenditure on specific LoCs Balance LoC (Rs.) Sr. No. LoC No. LoC Date Amount Date Amount (Rs.) Amount (Rs.)

23 Financial Management Manual for Department of RWSS May 2008 ANNEXURE 2: FORMATS FOR FINANCIAL REPORTS Form No. IUFR/1 Interim Unaudited Financial Report (IUFR) Title Form IUFR/1 - Interim Unaudited Financial Report (IUFR) IUFR No.: For the Quarter Ended: (Amount in Rs.) Particulars Expenditure for the Quarter (Actual) Reimbursement % Reimbursement amount Expenditure cumulative (Actual) For the Year (2 X 3) 5 6 Till date Component 1: Details sub-component wise Component 2: Details sub-component wise Component 3: Details sub-component wise Total 23

24 Financial Management Manual for Department of RWSS May 2008 ANNEXURE 3: TERMS OF REFERENCE FOR INTERNAL AUDIT Background: APRWSSP Draft Terms of Reference (ToR) for Internal Audit 1.1 The Andhra Pradesh Rural Water Supply and Sanitation Project (APRWSSP) is a World Bank funded Project which is being implemented by the Government of Andhra Pradesh (GoAP). 1.2 Government of Andhra Pradesh has prioritized Rural Water Supply and Sanitation (RWSS) as a key area of its development agenda. The vision for the RWSS sector and related policy notes were issued by GoAP in October Key elements of GoAP's Vision are: (i) (ii) Significant improvement in service levels and coverage; Devolution to PRIs; (iii) Enforcement of full recovery of O&M cost and sharing of capital cost (taking into consideration affordability, particularly of disadvantaged groups); and (iv) Improvement of the "accountability framework" by clarifying roles and responsibilities of various actors of the RWSS sector at the state, district and village levels. 1.3 GoAP has envisioned an APRWSSP which forms a part of the overall RWSS sector investment program and implementation action plan for realising the goals for medium term as per the Vision of GoAP for the RWSS sector by The Project will support RWSS programs in about six Districts in AP, selected through transparent self-selection criteria, with priority for taking up not covered and no safe source habitations. It serves as an action plan for channelling resources for integrated rural water supply and sanitation development in six Districts of the state. 1.4 The project comprises of three main components: Component 1 - Sector development Component 2 - Infrastructure development Component 3 - Project implementation support Financial Management Arrangements: 1.5 World Bank to GoI: The World Bank shall make available project funds into the Special Account opened by GoI with Reserve Bank of India. The World Bank releases funds into the special account as reimbursement based on quarterly Interim Unaudited Financial Reports (IUFRs) prepared by the PSU on the basis of consolidated actual expenditure in the specified agreed formats. 1.6 GoI to GoAP: MoF, GoI will transfer the Rupee equivalent of the funds credited into the Special Account to the Consolidated Fund of GoAP within specific number of days on a back to back arrangement. 24

25 1.7 GoAP, Finance Department to RWSSD: GoAP, Finance Department will provide the BRO to E-in-C, RWSSD as per project requirements 1.8 RWSSD to respective Divisions: The Engineer-in-Chief will release LoCs based on the annual allocations by DWSC. 1.9 Community contributions: Community contributions shall be received by the GPWSC as per the rates laid down in the user cost sharing principles. The community contribution shall be received in cash/ cheque/ DD/ kind towards the capital costs of the scheme and money will be deposited into a separate GPWSC bank account. Scope of Work: 1.10 Internal audit of the project at all concerned offices i.e. SWSM/ DWSM/ all Divisions of RWSS where the project is being implemented/ GPWSC. Internal audit shall stress on all areas of financial management and fiduciary arrangements. Outline of Tasks to be carried out: 1.11 Audit of expenditure Auditing on a test basis all expenditure and giving opinion whether all expenditure has been made for the purposes intended for, have been used with due attention to economy and efficiency and after following all relevant rules and procedures of the project and World Bank. The Financial Management Manual to be followed shall be taken as the base document and complied with Procurement Checking that all procurement of goods and services has been done as per the Procurement Manual and reporting any deviations from the Manual or cases of undue favour, mis-procurement, etc Checking of all IUFR Checking of the IUFR prepared by Divisions and confirming that the same have been made on a true basis and based on books of accounts Compliance - Ensuring compliance with laid down procedures in the Financial Management Manual. Internal Audit Report 1.15 The auditor shall express his opinion in the internal audit report and submit the same not later than one month after completion of audit. The report shall cover the current processes, deviations from Manual and general accounting principles, monetary impact of deviation, person responsible and suggestions for improvement The auditor should submit three copies of the Report. Methodology (expected): 1.17 The methodology to be adopted by the consultant in carrying out the his work may be summarized as under: Audit plans; Review of documents (e.g., Reports, Financial Statements, etc); Compliance to Financial Management Manual Discussions as required to validate findings and discuss suggestions. Periodicity: 25

26 1.18 Internal audit shall be conducted on a half-yearly basis and as-and-when required. As the project funding increases, the periodicity can be reviewed and made on a quarterly basis. Outputs: 1.19 The consultant will be responsible for the following reports: Output Contents Due Draft Internal The report shall cover the current processes, Audit Report deviations from Manual and general accounting principles, monetary impact of deviation, person responsible and suggestions for improvement Final Internal Audit Report Opinion that funds have been used for the purposes intended Compliance to Financial Management Data, services and facilities to be provided: Manual Compliance to Procurement Manual Incorporation of comments on Draft Final Report Within 3 weeks of completion of audit Within 1 week of receiving comments from concerned office 1.20 All concerned offices shall provide access to all vouchers, supporting, books of accounts, previous audit statements and all relevant documents. DWSM/ SWSM to monitor consultant's work: 1.21 DWSC will be responsible for monitoring the progress of the Internal Audit work at District Level and SWSM will monitor at State. DWSC/ SWSM will be free to seek comments and input on the consultant's work from World Bank Staff and other experts as appropriate. List of Key Professionals required for each audit: 1.22 The consultant must engage the following personnel for internal audit work: Key Person Qualification Specialization Experience Audit Manager Chartered Experience of conducting internal Minimum 10 Accountant audit of government institutions, government departments, rural or years in audit Audit Assistant Articled Assistant (PE II passed) urban local bodies Experience of conducting internal audit Minimum 1 year Key staff s inputs of 1 (one) person month is estimated for internal audit at each occasion. In addition the Auditor shall provide the requisite support staff as required. Terms of payment: 1.23 The terms of payment are as under: a. On submission of Draft Audit Report 70% b. On submission of Final Audit Report 30% 26