ON THE ACCOUNTS OF PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT PLANNING & DEVELOPMENT DEPARTMENT GOVERNMENT OF THE PUNJAB

Public Disclosure Authorized Public Disclosure Authorized FINANCIAL ATTEST AUDIT REPORT ON THE ACCOUNTS OF PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT Public Disclosure Authorized PLANNING & DEVELOPMENT DEPARTMENT GOVERNMENT OF THE PUNJAB INTERNATIONAL DEVELOPMENT ASSOCIATION (CREDIT N05153PAK) Public Disclosure Authorized FOR THE FINANCIAL YEAR 201314 AUDITOR GENERAL OF PAKISTAN

\ FINANCIAL ATTEST AUDIT REPORT ON THE ACCOUNTS OF PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT PLANNING & DEVELOPMENT DEPARTMENT GOVERNMENT OF THE PUNJAB INTERNATIONAL DEVELOPMENT ASSOCIATION (CREDIT N05153PAK) FOR THE FINANCIAL YEAR 201314 AUDITOR GENERAL OF PAKISTAN "I

TABLE OF CONTENTS Page No " ABBREVIATIONS & ACRONYMS PREFACE PARTI PROJECT OVERVIEW AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) FINANCIAL STATEMENTS PARTII MANAGEMENT LETTER EXECUTIVE SUMMARY 1 Introduction 2 Audit Objectives 3 Audit Scope and Methodology 4 Audit Findings and Recommendations 41 Organization and Management 4 2 Financial Management 43 Contract Management 4 4 Construction and Works 4 5 Asset Management 46 Monitoring and Evaluation 47 Compliance with Grant/ Loan Covenants 48 Environment 49 Sustainability 4 1 0 Overall Assessment 5 Conclusion ACKNOWLEDGEMENT 1 3 4 5 6 7 16 17 18 20 22 22 22 22 23 26 29 32 33 33 33 33 34 34 35

ABBREVIATIONS AND ACRONYMS ADP CDG CPUs DA DCO DFR DLis EEP EIA FDA FY GDA Go Pb HPMO IP SAS ISSA! IDA IFR LDA LPF M&E MDA MRS MTBF NOC O&M OSR PAO PCGIP P&DD PDQ PFM PFMAA PFMPR RDA SC SDAC Annual Development Plan City District Government City Program Units Development Authority District Coordination Officer Departmental Financial Rules Disbursement Linked Indicators Eligible Expenditure Program Environmental Impact Assessment Faisalabad Development Authority Financial Year Gujranwala Development Authority Government of Punjab Head Project Management Office International Public Sector Accounting Standards International Standards of Supreme Audit Institutions International Development Association Interim Financial Report Lahore Development Authority Low Power Factor Monitoring and Evaluation Multan Development Authority Market Rate System MidTerm Budgetary Framework No Objection Certificate Operation and Maintenance Own Source Revenue Principal Accounting Officer Punjab Cities Governance Improvement Project Planning and Development D~partment Project Development Objective Public Financial Management Public Financial Management and Accountability Assessment Public Financial Management Performance Report Rawalpindi Development Authority Steering Committee Special Departmental Accounts Committee 1

SOP TA UIPT USPMSU WASA W&S WB Standard Operation Procedures Technical Assistance Urban Immoveable Property Tax Urban Sector Planning and Management Services Unit (Private) Limited Water and Sanitation Agency Works and Services World Bank 2

PREFACE The Auditor General conducts audit under Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan 1973, read with section 7 of the Auditor General's (Functions, Powers, Terms and Conditions of Service) Ordinance, 2001 The financial attest of the accounts for the financial year 201314 of "Punjab Cities Governance Improvement Project IDA Credit No 5153PAK"was accordingly carried out in respect of Component 1 for WASAs and Component 2 for Technical Assistance The Directorate General of Audit Works (Provincial), Lahore conducted audit of the project for the financial year 201314 in August 2014 with a view to express opinion on Financial Statements and report significant findings to the management Audit examined the economy, efficiency, and effectiveness aspects of the project In addition, Audit also assessed, on test check basis, whether the management complied with applicable laws, rules, and regulations in managing the project The Report indicates specific actions, if taken, will help the management to realize the objectives of the project in a more effective manner The Report consists of two parts PartI contains Auditor's Report (Audit Opinion) and Financial Statements PartII contains Management Letter, Executive Summary and Audit Findings The Report has been prepared for submission to the World Bank in terms of its Financing Agreement of the project Dated: I 2,122014 Place: Lahore 29~d (IFI'IKHAR AHMAD) DIRECTOR GENERAL AUDIT WORKS (PROVINCIAL) LAHORE 3

PARTI 1 PROJECT OVERVIEW 2 AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) 3 FINANCIAL STATEMENTS 4

PROJECT OVERVIEW Name of the Project Sponsoring Authority Executing Agency Loan No Project Cost Date of Signing Contract Agreement Date of Commencement Actual Date of Commencement Date of Completion (as per agreement) Loan Closing Date Loan Utilization Status 2 in 201314: i World Bank (IDA) Share 11 Punjab Government Share Total Amount for the year Progressive Expenditure up to June 2014 Punjab Cities Governance Improvement Project i World Bank (IDA) IL Government of the Punjab Urban Sector Planning &Management Services Unit (USPMSU), P&D Department IDA No5153PAK Rs 14,574 1 million (US$ 15400 million) 10th December, 2012 14th February, 2013 14th February, 2013 30th June, 2017 30th June, 2017 Rs 1,142241 million Rs 3,986538 million Rs 5,128779 million Rs 5,128779 million 1 As per Project Appraisal Document @ PKR 9464 per US$ 2 Loan utilized pertaining to Component I for W ASAs and Component 2 for Technical Assistance 5

AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) The Directorate General of Audit Works (Provincial) Lahore audited the accompanying financial statements for the financial year ended on 30th June, 2014 pertaining to Punjab Cities Governance Improvement Project IDA Credit No 5153P AK (PCGIP) in respect of Component 1 for W ASAs and Component 2 for Technical Assistance that comprises of Receipts and Payments (Statement of Sources & Uses of Funds), Statement of Comparison of Budget and Actual together with the notes forming part thereof It is the responsibility of the project management to establish and maintain a system of internal control, and prepare and present the Statement of Receipts and Payments in conformity with the requirements of Cash Basis IPSAS, Financial Reporting under the Cash basis of Accounting Standard The responsibility of auditor is to express an opinion on the financial statements based on the audit conducted Audit was conducted in accordance with the International Standards of Supreme Audit Institutions (ISSAI) These standards require to plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatements The audit process includes examining, on a test check basis, evidence supporting the amounts and disclosures in the financial statements It also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall statement presentation We believe that our audit provides a reasonable basis for our opinion In our opinion; a) The financial statements present fairly, in all material respects, the cash receipts and payments by the project for the year ended 30th June, 2014 in accordance with Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting Standard b) The expenditure has been incurred in accordance with the requirements of legal agreement Dated: /)122014 Place: Lahore (IFfIKHAR AHMAD) DIRECTOR GENERAL AUDIT WORKS (PROVINCIAL) LAHORE 6

FINANCIAL STATEMENTS PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT IDA Credit No 5153PAK FOR THE YEAR ENDED 30 JUNE, 2014 Page No 1 Statement of Receipts and Payments 8 11 Statement of Comparison of Budget and Actual Amounts 9 111 Notes to the Financial Statements 10 7

Punjab Cities Governance Improvement Project Statement of Receipts and Payments for tbe year ended 30 June 2014 ~~'~~~~~~2_0~ ~ ~4~~~~~~ u~~,~~~~20~ ~~~ ~3~~~~~ GoPunjab I IDA Receipts Third Party Total GoPunjab I IDA Reoeipts Third Party Total OSR (Payments) Payments OSR (Payments) Payments Budgetary Controlled Budgetary Controlled alllocations by Project alllocations by Project Pak Rupees in Thousands External Assistance/Budgetary Alllocations 5 Counterpart Funding 6 Total Receio!s 6,897,6031 2,602,717 1 100,000 6,997,603 2,602,717 9,500,320 II 100,000 9,600,320 lll!!!m!i Component 1 Performuce Grutl Works &: Serviees Dep11rtmml, CDGs qtlin&,,,,,;,,tnuutc~: Tnmaport Mochinay & equipment Roads & streets Buildings & structures Utilities (Electricity, gu & > Tollll W&SCDGs P~ 7a 6,471 5,239 8,157 20,891 824,266 863,481 236,622 30,716 10,472 27,499 1,085,988 947,826 11,710 29,048 1,687,747 267,338 37,971 2,033,814 b WASAs qtlin &,,,,,;,,1ett1111u: wsupply system Drainage system Purchase of maintenance stores Power and energy Tlltlll WASAs Pqmma 7b 348,858 130,711 168,715 145,884 97,503 28,570 3,287,399 691,889 3,902,475 997,054 479,569 314,599 126,073 3,979,288 4,899,529 Compoaml 2 Tedonical AssisWce Macbincty & Equipment Fmoiture & Fixture Consultancies for Olis Non Consulting Services Non Consulting Servicca UIPT Automation Salaries and saluy supplements Office Supplies Communications& Mass Media Printing & Publication Telephone & Internet Utilities Open1ion & Maintenance (R&M) Office Space Rental Vehicle Rental & Transportation POL for Vehicles Travel & Lodging (T AIDA) Confereuces & Woibhops Advc:rtiJement & Publicity ~Trainings Toal Compoaeal2 (TA) Tota) P1ymmg (compogwt1 &2) 7 c 44,217 11,393 11,056 28,919 45,397 31,134 33,124 956 1,211 598 2,874 1,031 6,129 1,443 948 3,592 2,892 2,273 63 84,063 145,187 5,072,526 2,090,067 44,217 11,393 11,056 74,316 64,258 956 1,211 598 2,874 1,031 6,129 1,443 948 3,592 2,892 2,273 63 229,250 7,162,593 Increase (Decrease) In Cash Cash at beginning of year Cash at end of year 1,925,077 512,650 ltj25,077 512,650 2,437,727 2,437,727 Contingencies and commitments The accompanied notes form an integral part of these financial statements and are to be read therewith Aud Ole the :J rn Audit Works (PM B

hnjab Cities GovernHce lmprovemeat Project Statemeat of Comparison of Budi:et and ActHI amouats for die year ended 30 June 2014 GoPunjllb I IDA Tocal OSR Receipts Budgetary (Payments) a!uocations Controlled by Project ~ Pak Rupees in Thousands External Assistance Counterpart Funding Tota!Rmjob fmm!h Cpeemt 1 PerformHce Gn ta Werb 4 Seniceo Depant, CDGo RqMin t _;,,u,,,,,,,, Trmsport Machinory & equipmeur Roads&streets Buildings & structures Utilities (Electricity, gas & ) T1 WU CDG1 P ylld b WASAI Repain 4 maiathaace: War supply system Drainage system Purchase of maintenance stores Power and~ TIWASUPqllD C~t 2 Tec~aical Auista11c:e Machinery & Equipment Furniture & Fixture Consultancies for DL!s Non Consulting Services Non Consulting Services UlPT Automation Salaries and sa1ay supplemcnls Office Supplies Communicalions& Mass Media Printing & Publication Telephone & Internet Utilities Opention & Maintenance (R&M) Office Space Renla1 Vehicle Rmtal & Trmsportation POLfor V ehiclcs Tram & Lodging (T AIDA) Conferences & Worbhaps Advertisement & Publicity Gonenl Trainings T I cpot2 {fa) Total PHl!e!!ll (gmd=l42l 7,098,586 2,602,717 9,701,303 6,897,603 2,602,717 9,500,320 6,897,603 2,602,717 9,500,320 ~000 ~000 ~000 ~000 ~000 ~000 7,198,586 2,602,717 9,801,303 6,997,603 2,602,717 9,600,320 6,997,603 2,602,717 9,600,320 6,806 59,490 66,296 10,231 42,768 52,999 6,471 5,239 11,710 31,542 32,324 63,866 26,482 29,363 55,845 8,157 20,891 29,048 1,031,055 993,912 2,024,967 986,159 1,048,096 2,034,255 824,266 863,481 1,687,747 358,108 59,216 417,324 310,932 59,216 370,148 236,622 30,716 267,338 62953 62000 124 953 44 783 27,499 12282 10472 27 499 37 971 I 490 464 1,206 942 2 697 406 1,378 586 I 206 942 2 585 528 I 085 988 ' ' ' ' ' 947 826 2 033 814 433,773 200,167 633,940 359,073 147,826 506,899 348,858 130,711 479,569 202,616 277,289 479,905 193,177 260,116 453,293 168,715 145,884 314,599 152,650 36,895 189,545 134,674 80,300 214,974 97,503 28,570 126,073 4 819083 692 590 5 511,673 4 832 093 691,895 5,523 988 3 287 399 691 889 3 979,288 5,608,122 1206 941 6815063 5,519,017 1,180,137 6,699154 3 902 475 997,054 4,899,529 57,536 57,536 56,542 56,542 44,217 44,217 17,900 17,900 16,350 16,3SO 11,393 11,393 24,129 24,129 24,129 24,129 11,056 11,056 6,000 6,000 6,000 6,000 30,000 50,000 80,000 30,000 50,000 80,000 28,919 45,397 74,316 27,033 35,753 62,786 31,553 35,753 67,306 31,134 33,124 64,258 3,820 3,820 2,596 2,596 956 9S6 2,000 2,000 2,000 2,000 1,260 1,260 1,272 1,272 1,211 1,211 2,700 2,700 1,080 1,080 598 598 4,200 4,200 3,120 3,120 2,874 2,874 2,400 2,400 1,500 1,500 1,031 1,031 4,800 4,800 6,160 6,160 6,129 6,129 5,460 5,460 2,580 2,580 1,443 1,443 5,760 5,760 1,449 1,449 948 948 7,140 7,140 3,780 3,780 3,592 3,592 11,840 11,840 10,440 10,440 2,892 2,892 2,400 2,400 2,280 2,280 2,273 2,273 200 200 191 191 63 63 111,013 191,317 302,330 100,000 188,774 288,774 84,063 145,187 229,250 7,209,599 2,605,200 9,814,799 6,997,603 2,575,854 9,573,457 5,on,526 2,090,067 1,162,593 Note : The Statement shows amounts of year 201314 only ~couse It Is the first yeor of the project

Punjab Cities Governance Improvement Project Notes to the Financial Statements For the year ended 30 June 2014 1Reporting Entity The financial statements are for Punjab Cities Governance Improvement Project The financial statement encompasses the reporting entity as defined in the Financing Agreement between the' Islamic Republic of Pakistan and the World Bank The Financing Agreement was signed on 10/12/2012 for an amount of SDR 995 million, equivalent to US $ 150 million The project became effective from 14/02/2013 with the closing date of 30/06/2017 The objective of Punjab Cities Governance Improvement Project is to support the Province of Punjab's cities in strengthening systems for improved planning, resource management, and accountability, and to improve the Province of Punjab's capacity to respond promptly and effectively t9 an Eligible Crisis or Emergency The project is implemented through Planning & Development Department of The Government of Punjab The financing is made in the form of credit based on standard World Bank terms, with a maturity of 20 years The financing agreement No is Credit Cr 5153 PAK The project implementation agencies are EDO W &S of CDGs and W ASAs of Lahore, Gujranwala,Faisalabad, Rawalpindi and Multan 2 Certification by Project Management on Application of Funds The Punjab Cities Governance Improvement Project management certified that the funds have been applied I expenditure has been incurred for the purposes intended in the financing agreement 3 Accounting Convention and Statement of Compliance The financial statements have been prepared in accordance with Cash Basis IPSAS Financial Reporting under the Cash Basis of Accounting 4 Significant Accounting Policies 41 Foreign Currency Transaction Cash receipts and payments arising from transactions in foreign currencies are recorded in Pak Rupee f>y applying to the foreign currency amount, the exchange rate between the Pak Rupee and the foreign currency at the date of the receipt and payments Exchange differences arising on the settlement of these transactions are recognised in the statement of Receipts and Payments 42 Reporting Currency All amounts in the financial statements are in Pak Rupees llpage lo

43 Revenue Recognition Revenue is recognised on the date of receipt of money by bank or the clearance of cheque Revenue is recognised on Gross basis and unrelated costs are recorded separately 44 Recognition of Expenditure Expenditure is recognised on the date when payment is made or cheque is issued Financial year to which the payments pertain is determined by the date on which a cheque or payment advice is issued 45 Employee Terminal Benefits Service benefits of government deputation employees are accounted for in their respective departments while no service terminal benefits are paid to contractual employees 46 Payments by Third Party The payments made by the third parties do not constitute cash receipts and payments controlled by the project but do benefit the project as project does not receive c~h (including cash equivalents) directly from, or gain control of the bank accounts or similar facility established for its benefit by, the third party Payments by third parties, if any, are disclosed in the payments by third parties column on the face of Statement of Cash Receipts and Payments and notes to the financial statements 5 External Assistance External assistance was received in the form of credit from the World Bank un~er financing agreement dated 10/12/2012 between the World Bank and Government of Pakistan (GOP) for the purposes of Punjab Cities Governance Improvement Project The following amounts were received by the project during the period Receipts Rupees in millions 201314 201213 Note US$ Pak Rupees US$ Pak Rupees SOE Procedures (External Assistance) 51 26800 2,627100 Direct Payments 52 0 0 Total Receints 26800 2,627100 51This represents funds transferred to the Punjab Cities Governance Improvement Project's designated US Dollar Bank Account by the World Bank on the basis of withdrawal applications submitted by the project 52 Direct payments represent amount paid directly by the World Bank on behalf of the project in respect of goods and services procured I imported by the project The payments were made on the basis of the withdrawal applications submitted by the project 21Page 11

53 There has been no instance of non compliance with the terms and conditions of the financing agreement between the World Bank and GOP which have resulted in cancellation of the credit 54 Undrawn External Assistance Undrawn credit on the reporting date represent amounts specified in the financing agreement between the World Bank and GOP that the World Bank will disburse for Punjab Cities Governance Improvement Project purposes 6 Counterpart Funds Receipts Note Rupees in millions I 201314 I 201213 US$ Pak Rupees US$ Pak Rupees Counterpart Funding 61 I 1000 I I 100000 I I I I Total Receiots 1000 100000 61This represents funding to the Punjab Cities Governance Improvement Project at 25% of the total project cost by the Government of Pakistan as agreed between the World Bank and GOP 7 City wise breakup of payments The city wise detail of the funds utilized by EDO W &S of each city is represented in the following table Table 7a (i) City wise breakup of payments made by EDO W&S of CDGs from IDA funds Table 7a (i) Rs in Millions Eligible Expenditure Prdgrams Lahore Faisalabad Rawal12indi Multan Gujranwala Total Transport A130 3278 0000 l961 0000 0000 5239 Machinery & equipment A131 18000 2891 0000 0000 0000 20891 Roads & streets Al36 80223 285996 165692 162025 169544 863481 Buildings & structurd A133 29000 1716 0000 0000 0000 30716 Utilities (Electricity, gas A033 27499 0000 0000 0000 0000 27499 & water) Total 947826 3IPage 12

Table 7a (ii) City wise breakup of payments made by EDO W&S of CDGs from GoPb/ OSR Budgetary Allocations Table 7a (ii) Rs in Millions Eligible Expenditure Programs Lahore Faisalabad Rawalgindi Multan Gujranwala Total Transport Al30 4938 0497 0242 0200 0594 6471 Machinery & equipment Al31 6757 1022 0022 0313 0043 8157 Roads & streets Al36 229880 364007 16393 65739 148247 824266 Buildings & structures Al33 65932 90661 32333 29392 18304 236622 Utilities (Electricity, gas A033 5870 0561 1040 2361 0640 10472 & water) Total 1085988 Table 7b (i) City wise breakup of payments made by W ASAs from IDA funds Table 7b (i) Rs in Millions Eligible Expenditure Programs ~ F!jS!IS!bS!d R!wali;iiadl MultS!D ~ujr!nw!la ~ Water supply system 36665 11535 53912 10370 18229 130711 Drainage system 9225 17623 1930 76625 40481 145884 Purchase of maintenance stores 14940 4930 0000 0000 8700 28570 Power and energy 200000 251813 139224 0000,100852 691889 Total 997054 4jPage f 3

Table 7b (ii) City wise breakup of payments made by W ASAs from GoPb/ OSR Budgetary Allocations Table 7b (ii) Rs in Millions Eligible Expenditure Programs Lahore Faisalabad Rawal12indi Multan GujranwS!la Total Water suppl~ system 70258 5988 249232 13295 10085 348858 Drainage system 24334 3587 41892 72745 26157 168715 Purchase of maintenance stores 88521 3903 0505 0000 4574 97503 Power and energy 2279785 388635 260205 267330 91444 3287399 Total 3902475 SIP a ge 14

The detail of the payments made for technical assistance is shown as following Table 7c Breakup of expenditure on technical assistance Table 7c Rs in Millions 2 Technical Assistance Machinery & Equipment Furniture & Fixture Consultancies for DLis Non Consulting Services Non Consulting Services UIPT Automation Salaries and salary supplements Office Supplies Communications& Mass Media Printing & Publication Telephone & Internet Utilities Operation & Maintenance (R&M) Office Space Rental Vehicle Rental & Transportation POL for Vehicles Travel & Lodging (TA/DA) Conferences & Workshops Advertisement & Publicity General Trainings Total Component2 (TA) 44217 11393 11056 74316 64258 0956 1211 0598 2874 1031 6129 1443 0948 3592 2892 2273 0063 229250 8 Project approval The Punjab Cities Governance Improvement Project has been approved by EAD; 9 Authorisation of Issue These financial statements have been authorised for issue by the Project Director on 27/11/2014 een rounded off to the thousands RAF AT \LI BHANGOO l'\ter"'alalidit OFFICER L"SP & :\IL' (THE V RBAN LJ,'\IT) F ~t!'i ~::?~~ ~{~ \? E'\:!', LAHC!{E 6IPage t5

ACKNOWLEDGEMENT We wish to express our appreciation to the Management and staff of "Punjab Cities Governance Improvement Project, Lahore" for the assistance and cooperation extended to the auditors during this assignment, I 35