Final Amended

Financial & Systems Audit Report
Strengthening of Livestock Services Project (SLSP)-Sindh & Balochistan

Project Year (PY) – 3
For the period from 15th September 2005 to 31st December 2005 DRAFT REPORT
IN THE NAME OF ALLAH THE MOST MERCIFUL AND COMPASSIONATE
CO- DIRECTORS
STRENGTHENING OF LIVESTOCKSERVICES PROJECT (SLSP)
MINISTRY OF FOOD, AGRICULTURE AND LIVESTOCK, GOVERNMENT OF
PAKISTAN
FINANCIAL & SYSTEM AUDIT REPORT (DRAFT)
(DD/MM/20YY)
FINANCIAL & SYSTEM AUDIT OF

STRENGTHENING OF LIVESTOCK SERVICES PROJECT (SLSP) PROVINCIAL
PROJECT MANAGEMENT UNITS (PPMUs)-SINDH & BALOCHISTAN
Entity subject to audit Strengthening of Livestock Services Project

(SLSP)
Country Pakistan
Commission service Delegation of European Commission
Commission request for services SLSP 1077
Audit framework contract 2006/1-000094 Lot N 1
CRIS Audit N NA
Auditor Khalid Majid Rehman, Chartered
Accountants
Period subject to audit 15th September 2005 – 31st December 2005
Dates of audit fieldwork 1st July 2009 – 10th August 2009
Project status Draft Report
KHALID MAJID REHMAN

CHARTERED ACCOUNTANTS
(KMR is a segment of KMRSRIR)
Table of Contents
AUDITORS’ REPORT TO THE CO-DIRECTORS OF STRENGTHENING OF LIVESTOCK

SERVICES PROJECT (SLSP)...............................................................................................................3
SUMMARY OF FINDINGS..................................................................................................................5
1 THE ENGAGEMENT CONTEXT...................................................................................................14

1.1 REASON FOR THE AUDIT.....................................................................................................................14
1.2 AGREEMENT TERMS AND CONDITIONS..................................................................................................14
1.3 PROJECT SUBJECT TO AUDIT................................................................................................................14
1.4 ENTITY SUBJECT TO AUDIT.................................................................................................................25
2 THE AUDIT .......................................................................................................................................28
2.1 AUDIT OBJECTIVES...........................................................................................................................28
2.2 AUDIT SCOPE....................................................................................................................................33
2.3 AUDIT PROCESS AND METHODOLOGY...................................................................................................34
3 FINDINGS AND RECOMMENDATIONS....................................................................................38
3.1 FINANCIAL FINDINGS..........................................................................................................................38
3.2 MANAGEMENT CONTROL FINDINGS......................................................................................................43
3.3 OTHER COMPLIANCE FINDINGS............................................................................................................52
4 FINDINGS CONCERNING SPECIFIC MATTERS......................................................................57
5 FINDINGS CONCERNING EXPERT WORK PERFORMED ...................................................57
ANNEXURE..........................................................................................................................................58
ANNEX 1: FINANCIAL REPORT SUBJECT TO AUDIT......................................................................................59
ANNEX 2: CASH FLOW RECONCILIATION...................................................................................................62
ANNEX 3: OTHER INFORMATION-SALARY SURVEY......................................................................................63
ANNEX 4: PERSONS CONTACTED OR INVOLVED IN THE AUDIT........................................................................64
KHALID MAJID REHMAN

(KMR is a segment of KMRSRIR
AUDITORS’ REPORT TO THE CO-DIRECTORS OF

STRENGTHENING OF LIVESTOCK SERVICES PROJECT (SLSP)
We have audited the accompanying Financial Report (“the statement”) of

Provincial Project Management Units (Sindh and Balochistan) of
“Strengthening of Livestock Services Project (“the Project”)
together with the notes forming part thereof for the period from 15th
September 2005 to 31st December 2005. It is the responsibility of the
Project’s management to establish and maintain a system of internal
control, and prepare and present the statement in accordance with the receipt and
payment basis of preparation. Our responsibility is to express an opinion on the
Statement based on our audit, which is a financial audit, performed in the
context of compliance with the applicable Agreement Terms and
Conditions for the Project.
We have audited the
- The Financial Report of Provincial Project Management Units

(PPMUs) (Sindh & Balochistan) for the period from 15 th September
2005 to 31st December 2005 as set out in Annex 1 of this report.
We conducted our audit in accordance with the International

Standards on Auditing which concern Audits and Reviews 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 these standards can be usefully
applied in this financial audit and in its specific compliance context.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall presentation of the Statement. This audit also involved
evaluating the Project’s compliance with the applicable Agreement
Terms and Conditions for the Project and which are set out in
Financing Agreement EU/GoP Project PAK/RELEX/2001/0129. We
believe that our audit provides a reasonable basis for our opinion.
The results of our tests disclosed the following financial audit

findings in the Financial Report for the Project:
(a) There is no expenditure which we found to be ineligible;
(b) total expenditure of € 1,819.83 which is questioned and may

be established as ineligible after further consideration by the
Commission.
KHALID MAJID REHMAN 3|Page

(c) Neither the closing balances of cash at bank have been
confirmed by the banks nor any bank statements were
provided to us for our verification of expenditures.
(d)We could not observe physical count of cash, inventory and

fixed assets as of December 31, 2005 because our
appointment was made in August 2009.
These detailed findings and recommendations are set out in part 3

to this report.
Except for the findings at para (a) to (d) above, in our opinion:
• the Financial Report of the Project for the period from 15th
September 2005 to 31st December 2005 presents, in all material
respects, accurately the expenditure actually incurred and the
revenue received for the Project in conformity with the applicable
Agreement Terms and Conditions; and
• the Project funds provided by the European Commission have,

in all material respects, been used in conformity with the
applicable Agreement Terms and Conditions.
This report is intended solely for the information and use of the
management of the Project.
Date: Khalid Majid

Rehman
Islamabad Chartered
Accountants

Summary of Findings
We consider that expenditure of € 2,118.23 is not eligible. Following the
financial findings set out further below and in accordance with the
Agreement Terms and Conditions for the Project, we recommend that the
Commission should recover € 2,118.23 from Strengthening of Livestock
Services Project (SLSP).
The details are as follows:
Description €
Total expenditure claimed for the Project and set out in the 34,773
Financial Report in Annex 1
Less: Financial Audit Findings -
Total eligible expenditure for the Project 34,773
Commission contribution to eligible expenditure for the

Project
Total Commission funding for the Project to be paid 34,773
Less: instalment received from the Commission 34,773
Amount to be recovered by the Commission -

For the period from 15th September 2005 to 31st December 2005
DRAFT REPORT
We question the eligibility of expenditure of € 1,935 as set out further
below. We recommend that the Commission should further consider the
eligibility of this expenditure.

1 Financial Findings
The financial findings of the audit (see Section 3.1) can be summarised as
follows:
During the course of our audit we found out that there is no ineligible
expenditure in the above mentioned period.
(1) MC is management control finding to which the financial finding is

related (where applicable)
2 Financial Findings subject to further consideration –

Questioned Cost
The financial findings of the audit subject to further consideration -

(questioned cost) (see Section 3.2) can be summarised as follows:
Findin Complia Title Amou Relate Entity

g n° nce nt d to comme
issue € MC (1) nt
finding
Provincial Project Management Unit (PPMU)-Sindh
01 No 01 Workshop/Training – 920.90 N° 1
(Questioned Transportation (Questi
Cost – oned
missing Cost –
documentati missing
on docume
ntation)
02 No 01 Workshop/Training – 576.24 N° 1
(Questioned Transportation (Questi
Cost – oned
missing Cost –
documentati missing
on docume
ntation)
03 No 01 Fee Facilitator- 195.47 N° 1

(Questioned Miscellaneous (Questi
Cost – oned
missing Cost –
documentati missing

on docume
ntation)
Total questioned cost –Sindh 1,692

.61

Provincial Project Management Unit (PPMU)-Balochistan
01 No 01 Consumables, Stationary 127.22 N° 1

(Questio – Training (Questi
ned Cost oned
– missing Cost –
documen missing
tation docum
entatio
n)
Total questioned cost – 127.2

Balochistan 2
Grand total questioned 1,819.

expenditure (Sindh & 83
Balochistan)

KHALID MAJID REHMAN 10 | P a g e

3 Management Control Findings
The management control findings can be summarised as set out below.

Priority refers to the priority of the recommendation (see Section 3.3).
Findin Management Title Priori

g n° control issue ty
Provincial Project Management Unit - Sindh
01 Issue No 09 (Other – Miscellaneous 2

Wrong Allocation) Services
02 Issue No 9 (Other) Accommodation 1
03 Issue No 9 (Human Salaries 1

Resource and Payroll
Management)
04 Issue No 7 (Cash and General 2

Bank Management)
05 Issue No 5 (Control General 2

Environment)
Provincial Project Management Unit - Balochistan
01 Issue No 5 (Control General 2

Environment)
02 Issue No 1 (Missing/ Consumables 2

Inadequate
Documentation)

4 Other Compliance Findings

The findings concerning specific matters (see Section 3.4) can be
summarised as follows:
Findin Management Title Priori

g n° control issue ty
Provincial Project Management Unit - Sindh
01 Issue No 9 (Other – Salaries 1

Non Compliance of
Income Tax
Provisions)
02 Issue No 7 (Cash & General (Cash & Bank) 2

Bank Management)
Provincial Project Management Unit - Balochistan
01 Issue No 7 (Cash & General (Cash & Bank) 2

Bank Management)
02 Issue No 7 (Cash & General (Cash and 2

Bank Management) Bank)
03 Issue No 9 (Other – Salaries 1

Non Compliance of
Income Tax
Provisions)

5 Findings concerning Specific Matters
There being no specific matters concerning this audit therefore no finding

is observed.
6 Findings concerning Expert Work performed
No expert work required for the performance of this audit therefore no

finding observed.

1 The Engagement Context
The Strengthening of Livestock Services Project was conceived in the early

1990s, as a means to combat the upsurge of rinderpest in the country.
The Government of Pakistan’s basic planning document (the PC-I) was
revised in 1995 and again in 2004. The European Union provided grant
support for the project, which is the subject of a Financing Agreement that
was signed in March 2002. Implementation started 18 months later in

accordance with an Overall Work Plan and Budget (OWP/B).
1.1 Reason for the Audit
The reason for the audit is Article 9 of the technical and administrative
provision, which covers Project’s duty to send audited accounts to the
Commission. Conditions annexed to the Financing Agreement, which
establishes that:
“The Commission shall have the right to send its own agent or authorized
representatives to undertake any technical, accounting or financial
assignments it may consider necessary to monitor the implementation of
the project”.
1.2 Agreement Terms and Conditions
The agreement basis for the implementation of the Project includes:
1. Financing Agreement
2. Project Steering Committee (PSC) documents
3. Annual Work Plan
4. Provincial Management Unit (PMU) Documents
Other documents not part of the contractual basis for the implementation
of the Programme may be relevant:
1. Internal Regulation and Procedures (referring to the EC rules

applicable for the Project implementation under a Financing
Agreement)
1.3 Project subject to Audit
1.3.1 Project
Title of the project: Strengthening of Livestock Services
Project (SLSP) in Pakistan, EU/GoP
Project Pakistan/Relex/2001/0129

Financial Commitment: Total=€25,942,000 Comprising:
€22,900,000 from EU € 3 042 000
from GOP (equivalent in Rupees)
Financing Agreement Signed on: 06/03/2002
PC-1 for SLSP approved by ECNEC on: 03/05/2001
Duration of Programme: 6 years (starting from September

2003)
Beneficiary: Government of Pakistan (GoP)
Implementation Partners: Federal Ministry of Food,

Agriculture and Livestock (MINFAL)
(Executing Agency) represented by
its Livestock Wing, and Provincial
departments in charge of livestock
Technical Assistance: Consortium comprising Agrotec Spa

(lead firm), AHT GmbH, NR
International
1.3.2 Project goals/ Objectives
GOAL:
To assist the Government of Pakistan (GoP) to realise the potential of
livestock sector, by improvement of farmers’ livelihoods through better
provision of livestock services, especially of disease control, and trough
enhancing productivity.
OBJECTIVES:
• To strengthen the Government of Pakistan (GoP) capacity to plan and
manage the sustainable delivery of public services to the sector
• To examine ways in which the private sector delivery of services can
be improved.
Project components:
For administrative and budgetary purposes the project has ten
components. These are not watertight boxes and there is much
interaction between them in working towards the Project purpose.
The components are:
1) Policy and regulatory framework;

2) Disease surveillance, diagnosis and reporting;
3) Vaccine production;
4) Strengthen field veterinary services;
5) Human resource development;
6) Interdisciplinary livestock sector research;
7) Information and communication;
8) Studies and surveys;

9) Regional and sub-regional cooperation and coordination, and;
10) Core project management.
Main results
The envisaged results of the project are:

1) Public and private sector services delivery system
improved/strengthened in selected districts;
2) Disease reporting & surveillance system functional;
3) Models for improved productivity and service delivery
demonstrated/developed;
4) Information & communication (MIS) system from central part
of livestock service delivery, and;
5) System, capacities and structures for project management
development, followed and transferred to GoP.
ACTIVITIES:
1.3.3 Description of the funding source & procedures

The operational funds are submitted from Brussels in to a special account
in Euro No. 01-6000134 with the Standard Chartered Bank (SCB),
Islamabad. The Co-Directors manage the amounts transferred from this
Euro account into the Pakistan Rupee account No. 01-6000134-02. The Co-
Directors also manage the other sub account of the FPMU and its allied
units (AJK, NAs, and FATA). Similarly, the National and European Co-
Manager manage the respective bank accounts in rupees in the provinces:
Bank Name Unit Account # &

Currency
 SCB Islamabad FPMU 01-6000134-01

Euro
Euro
PKR
PKR
 SCB Peshawar PPMU NWFP 01-3589188-01
PKR
 SCB Lahore PPMU Punjab 01-6038956-01 PKR
 SCB Quetta PPMU Balochistan 01-6022413-01
PKR
 SCB Hyderabad PPMU Sindh 08-6000134-03 PKR
 SCB Hyderabad PPMU Sindh 01-1348620-01 PKR
 NBB Hyderabad PPMU Sindh 1202-5 PKR
 NBB Muzaffarabad AJK 5516-5 PKR
 NBB Gilgit Northern Areas 2725-1PKR

DRAFT REPORT
1.3.4 Federal Project Management Unit and Recipient
Name: Strengthening of Livestock Services

Project (SLSP)
Address: NARC Gate No.2 Near National Veterinary

Laboratory, Chuck Shahzad, Park Road,
Islamabad; Phone: 051-9255624, 051-9255625;
Fax: 051-9255628
1.3.5 Audit Matters
Period of audit: Audit of SLSP project accounts for PPMUs Sindh and
Balochistan for the period from September 15, 2005 to
December 31, 2005.
Programme amount: Euro 25.942 Millions
EC contribution: Euro 22.9 Millions
Sources of funding and revenue Budget in €
Total amount of Commission funding as per 22,900,000

Financing Agreement
Co-financing - Government of Pakistan (GoP) 3,042,000
Total amount of funding by other donors -
Total amount of other project revenue -
Total Project value 25,942,000
The Community’s Commitment
The total cost of the project is estimated to be 25,942,000 euro (Twenty

five million nine hundred and forty two Euro).
The Commitment of the commission is fixed at 22. 900,000 Euro (twenty

two million nine hundred thousand Euro), here-in-after referred to as the
EC Grant.
The Beneficiary Commitment

The Beneficiary shall contribute not more than 3,042,000 Euro (three
million forty two thousand euro) to the Project. The present Agreement
specifies if this contribution, or part of it, is in kind as indicated in the
Technical and Administrative provisions Annex 2 to Financing Agreement.
Planning and Reporting
In close collaboration with the PPMUs Co-Managers and the relevant
provincial institution, the FPMU Co-Directors will prepare project plans and
reports, in accordance with EC standard and using the Log frame approach
where appropriate. Such documents will include the following:
• An Initial Plan of Activities (IPA) with in one month of the arrival of

the European Co-Director
• A Memorandum of Understanding (MOU) on the two credit funds

within six month of the arrival of the European Co-Director in
accordance with the appendix 2 to Financing Agreement;
• An Overall Work Plan and Budget (OWP/B) for six years
• A project progress monitoring plan, including objectively verifiable

indicators, to be submitted together with OWP;
• Annual Work Plans and Budgets (AWP/B) to be presented to the PSC

not later than two months before the end of each year to allow time
for approval by the EC and the Executing Agency;
• Standardised six monthly reports to monitor all technical and

financial and administrative aspect of the utilization and impact of
all resources made available to the project;
• A final project completion report submitted at least two months

before project completion.
Any deviation in the AWP from the OWP has to be clearly presented and
justified. If approved; it initiates automatically a procedure for the
approval of a revised OWP prior to the approval of the AWP and its start
up.
Except for the initial activities indicated in the approved IPA, expenditure
can only take place in strict compliance with an approved AWP and its
conformity with the OWP.
Monitoring and Evaluation
• Day-to-day technical and financial monitoring will be a continuous

process as part of the FPMU Co-Directors’ and PPMU Co-Managers’
responsibility.
• Independent consultants recruited directly by the EC on specially

established terms of reference will implement the external

DRAFT REPORT
monitoring and evaluation on behalf of the EA and the EA and the
EC.
• The project will carry out baseline surveys and implement

monitoring programmes to evaluate the economic and social impact
of the project. Special M&E staff will be recruited and trained for this
purpose. An external project evaluation will be carried midway
through the project cycle as well as a final evaluation within six
months of project termination.
• The project shall, in accordance with EC procurement guidelines,

appoint reputable chartered accountants whose role shall include
monitoring the Project’s accounts for submission to the EC at the
end of each financial year. The costs thereof will be paid as part of
the FPMU running costs.
Visibility
The project shall be implemented in such a way to ensure maximum

visibility for the European Community’s involvement at all times. Actions
of communication and information shall be determined in close
collaboration with the EC delegation.
Special attention shall be devoted to implementing these rules at events

and in all public or official written material connected with the project.
Objects, equipment and documentation connected with the project shall
carry the European Community flag with the text in the language of the
Beneficiary. The symbols identifying the European Community shall be of
the same size and appearance as any symbols identifying the beneficiary,
should the latter be present.
Financial Management
The project will open a foreign currency account at an accredited

international bank in euro in Islamabad to receive project funds. This
account should bear the highest possible interest for the benefit of the
project. From that account, following the needs of the AWP/B (Federal and
Provincial), funds will be made available in Pakistani Rupees to interest
bearing operational accounts opened with commercial/financial
institutions agreed by GoP and EC. Responsibility for these accounts
(foreign and local currency) will be given to the project co-directors
(federal) and co-managers (Provincial) responsible for the implementation
of the project. The FPMU will directly manage and administer the project
funds for the ICT, NAs and AJK.
The GoP will proceed to the disbursement of its financial contribution in

accordance with the AWP/B as approved by the commission. The same
principle applies to the contributions in kind. Any costs which overrun the
EC commitment are to be covered by GoP. Funds disbursement of the EC
grant is conditional to the compliance of the obligations of the GoP.

DRAFT REPORT
The EC funds made available to the project will be disbursed in the
following way:
• Payment of technical assistance services and equipment financed

internationally will be made directly by the EC.
• Payment of local cost contribution and equipment financed locally

will be made to the projects and be deposited in the accounts of the
projects.
All payments will only be made on the demand of the FPMU, and endorsed
by the EC Delegation.
Auditing of Accounts
1. The Commission shall have the right to send its own agents
or authorized representatives to undertake any technical,
accounting or financial assignments it may consider
necessary to monitor the implementation of the project.
2. The Court of Auditors, in the accomplishment of its

responsibilities under the Treaty establishing the European
Community , shall have the right to undertake a full audit , if
necessary , on the basis of supporting documents of
accounts and accounting documents and any other
documents relating to the financing of the project and on the
spot.
3. The Beneficiary shall be notified if agents appointed by the

Commission or the Court of Auditors are sent to the project
site.
4. To this end the Beneficiary:
• Shall undertake to provide any information or

documents requested , and to take any measures to
facilitate the work of persons undertaking such audits;
• Shall keep the dossiers and accounts required to

identify the work, supplies or services financed under
this agreement and the supporting documents
relating to local expenditure in accordance with the
best accounting practice;
• Shall assist the Court of Auditors, in the

accomplishment of its responsibilities under the
Treaties the European institutions, in auditing the
project’s accounts, if necessary, on the spot;
• Shall ensure the Commission’s representatives can

inspect any accounting or other documents relating to
projects financed under this Agreement and shall

assist the Court of Auditors in monitoring the use
made of Community funds.
Entity subject to Audit

The entity subject to audit is Strengthening of Livestock Services Project
(SLSP) of Ministry of Food, Agriculture & Livestock (MINFAL) of Pakistan.
Organisation and Management Structure
Purpose
As per the overall wok plan OWP/AWP/Finance Agreement the purpose of
SLSP is;
To strengthen the Government of Pakistan capacity for strategic planning

and management for effective delivery of livestock services by public and
private sector service providers
‘To bear technical, financial and managerial resources to find innovative

and sustainable means to release the potential of the livestock sector to
alleviate poverty, particularly for the rural poor, through increased and
more efficient production.”
Legal Authority
The authorities responsible for the legal representation of the project are
the GoP and the Commission of the European Communities. These two
authorities are hereinafter referred to as the “Financing Authorities”
Delegation of Responsibilities
The execution of the Project in Pakistan is the responsibility of the Ministry
of Food, Agriculture and Livestock through its Livestock Wing. The
Financing Authorities delegate the technical, financial and administrative
operations of the Project to the Federal Project Management Unit (FPMU)
established within the executing agency. The FPMU is composed of
national co-director, duly selected by the GoP, and a European co-director,
selected by the EC. The FPMU in turn delegates responsibility for the
implementation of the Project’s activities in the four main provinces to the
Provincial Project Management Unit (PPMU). The PPMUs are jointly and
equally headed by a national co-manager and a European co-manager,
selection procedures of the co-managers is same as of the co-directors at
FPMU.
Coordination
Coordination between the relevant bodies and general policy guidance is
vested in a Project Steering Committee (PSC) as stated in the Financing
Agreement.

Work Plans
FPMU is responsible for the preparation of the indicative work plan for the
six year period of Project implementation, hereafter referred to as the
Overall Work Plan and Budget (OWP&B) and the corresponding annual
plans of operation, hereafter referred to as the Annual Work Plan &Budget
(AWP&B). The preparation of these work plans will be carried out in
coordination with the PPMUs which will prepare individual provincial work
plans and budgets, balancing the perceived needs and priorities of the
areas concerned with the available resources. The PSC must endorse the
OWP&B and each AWP&B which must then receive the approval of the
financing authorities in order for these to become operational.
Operational Autonomy
Following official approval of the OWP&B and the first AWP&B the FPMU
has full operational autonomy over the use and management of all the
human, financial and physical resources allocated to it within the technical
and financial framework of the Financing Agreement. This autonomy
remains in successive years subject to the prior approval by the PSC of the
relevant AWP&B.
Co-Direction
The co-directors of the FPMU will act in a joint and mutually binding
fashion and co-sign all financial, technical and administrative documents
related to the project’s planning and implementation .The co-managers of
the PPMUs will act in a similar manner for matters related to the
implementation of the project activities in the areas under their mandates.
Project management
The national and international personnel of the project will be managed
under the authority of the FPMU, directly or where relevant through the
PPMUs. The FPMU is committed to active participation of its personnel in
the appraisal, implementation, operation, monitoring and evaluation of the
Project activities
Absence of a Co-Director or Co-Manager

In the case of the absence of one of the co-directors for a period
exceeding 21 days, the FPMU may delegate a senior competent member
of the project to temporarily exercise the absent co-director’s functions in
order to promote unfettered execution of the project. In case of the
absence of a European Co- manager from a provincial PPMU, the European
Co-director at the FPMU or such person designated to act in his place, will
exercise the functions of the absent co-manager.in the absence of the
National co-manager the Deputy manager will replace him.
Arrangement for co-signing payments

Each payment shall bear two signatures one from category A, the second
from category B, representing the Government of Pakistan and the
European Commission, respectively. Co-signatories shall be the National
Co- Director and European Co-Director at federal level. At provincial level,
the National Co- Manager and European Co-Manager shall be co-
signatories. For each co-signatory, there shall be a named alternate,

DRAFT REPORT
whose specimen signature the Delegation of the European Commission in
Islamabad shall forward to the bank.
Category A Category B
GoP EC
Co-signatory Co-signatory
National Co-Director European Co-Director
(National Co-Manager) (European Co- Manager)
Alternate Alternate
National Co-Director European Co-Director
(National Co-Manager) (European Co- Manager)
Deputy Project Director/Manager European Co- Manager
(European Co-Director)
Accounting and Finance
Council regulation (EC, Euratom) no 1605/2002 of June 25, 2002 on the

Financial Regulation applicable to the general budget of the European
Communities.
Council Regulation (EC, Euratom) No 2342/2002 of December 23, 2002

laying down detailed rules for the implementation of Council Regulation
(EC, Euraton) No 1605/2002 of June 25, 2002 on the Financial Regulation
applicable to the general budget of the European Communities.
General
1. The accounts Manager should be consulted first on all queries

relating to project finances, claims etc.
2. Payment will be made by cheque or by direct bank to bank transfer
whenever it is possible. All payments in excess of Rs 25,000 must
be made by crossed cheque, stamped A/C payee or by direct credit
transfer unless clear justification for a cash payment is made and
authorized by the co-signatories.
3. All project expenditure must respect the terms of the financing
agreement (for expenses from EU funds) and the PC 1(for expenses
from government funds). The funding source indicated in these
documents must be applied to all expenditure.
4. Expenditure must be drawn down against a budget in an agreed
work plan. All project expenditure must have prior authorization
from authorized personnel. Expenditure cannot be approved
retrospectively.
5. The allocation to a major budget line,e.g budget line 4, or to a minor
budget line,e.g.budget line 5.2 is fixed for each work plan and
cannot be amended without recourse to the PSC and funding
authorities.
6. Within a budget line some flexibility is possible but the reason for
any changes should be adequately justified in the progress reports.
7. 80% of the annual budget for local expenditure is requested by the
FPMU from the EC Delegation after approval of the annual work
plan.

8. EC funds are received into an interest bearing account denominated
in Euro held by the FPMU.Funds are transferred to a local currency
account according to needs. From the local currency account
transfers are made to the provincial units against their funding
requests.
9. Funding requests must be justified by the work plan budget and by
completed accounts for the preceding month, including bank
statements.
10.Expenditure will be recorded against the budget codes issued by
the FPMU. The financial tables issued by the FPMU will be used to
submit the record of expenditure according to the schedule
required by the funding agencies.
11.Exchange rates for the month in which the payment is made must
be used. The official rates can be found at
http://ec.europa.eu/budget/inforeuro/index.cfm?Language=en
12.Paying units will use a safe for holding cash, bank guarantees and
important documents. Original software should be held in the safe
or under other lock and key. Original registration documents for
vehicles will also be held in the safe.
13.Expenditure may be recorded and transmitted in computerized form
but hard cover ledgers of income and expenditure must also be
maintained for audit purposes. Different journals will be used for the
different types of entries (bank, petty cash, adjustments etc.).
14.Prior to a payment being made, the payment history should be
checked to avoid duplicated of payment.
15.All invoices paid must be stamped “PAID” to help avoid duplicated
of payment.
Financial Records
The project management will be responsible for the maintenance of proper

and accurate books of accounts at all venues of operational activities i.e.
FPMU and all PPMUs. The following set of records, either in electronic or
manual form, will be kept or maintained for the purpose:
1. All payments/receipts/adjustments vouchers duly numbered and

filed in serial with all sufficient supporting documents to justify the
payment as well as to maintain transparency as to validity,
verifiability and appropriateness thereof;
2. A bank book or cheque register, duly and regularly maintained to
record each and every transaction (receipt or payment) from the
bank accounts of the project. The bank book will be reconciled on
monthly basis with the bank statement.
3. A cash book to regularly record all transactions other than the one
with bank;
4. A general ledger containing summarized accounts strictly in
accordance with the defined codes (general ledger, region, budget
line, component, result, activity where appropriate);
5. A fixed asset register containing all data of the assets purchased,
procured or transferred to the project right from the date of
inception of the project. The assets register will clearly mention the
full description and serial number of the individual asset, its

DRAFT REPORT
operational condition, allotted asset code, its placement/custody,
invoiced and incidental cost and specification.
6. A register of advances given to various staff or outside parties for
goods, services or travel etc;
7. Vouchers for disbursements must be recorded in the accounts the
same day if practicable.
8. Overwriting and cutting on payment vouchers must be signed by an
accountant.
Laws and regulations
All the Laws of Government of Pakistan are applicable on the MINFAL-SLSP

for performing its functions. However MINFAL-SLSP has agreed to follow
the Implementation Rules of EC as regards to the financial and
procurement functions.
1.4 Entity Subject to Audit
1.4.1 Introduction
The European Commission (EC) and The Islamic Republic of Pakistan

signed a Financing Agreement and launched the Strengthening of
Livestock Services Project (SLSP) in Pakistan. The Federal Government has
approved the Planning Commission Proforma-l (PC-I) for the project. The
executing Agency for the project is Ministry of Food, Agriculture and
Livestock (MINFAL). The EC has contracted Agrotech SpA for the provision
of technical and implementation of SLSP.
The Project is being implemented in all four provinces of Pakistan

including Islamabad Capital Territory (ICT), Azad Jammu & Kashmir (AJK),
Federally Administered Tribal Areas (FATA) and Northern Areas (NAs) by
the Livestock wing of the MINFAL and provincial livestock
The project, at the federal level, is being managed by the Federal Project
Management Unit (FPMU) and covers Islamabad Capital Territory (ICT),
Azad Jammu & Kashmir (AJK), Northern Areas and Federally Administered
Tribal Areas (FATA). It is composed of a National Co-Director and a
European Co- Director. Similarly in the provinces the Provincial Project
Management Units (PPMUs) are composed of a National and a European
Co-Manager. The National Co-Manager and European Co-Manager at the
provincial level are the joint signatories of the EC funded project accounts.
1.4.2 Management Structure, Organizational Chart and Hierarchy

at SLSP
The Ministry of Finance (MOF) signed the Finance Agreement (FA) with the
EC for the Strengthening of Livestock Services Project (SLSP). According to
the Financing Agreement the Ministry of Food, Agriculture & Livestock
(MINFAL), Government of Pakistan, is the Executing Agency of the project.
It is represented by its Livestock Wing and provincial Livestock

DRAFT REPORT
Departments, now the Livestock wing has been separated and named as
Ministry of Livestock and Dairy Development (MINLDD).
The project is implemented in Pakistan through four provincial

management units (PPMUs) located in Lahore, Quetta, Hyderabad and
Peshawar, which are under the overall Control of Federal Project
Management Unit (FPMU) located in Islamabad Capital Territory (ICT). The
FPMU also manages project directly in ICT, Federally Administered Tribal
Areas (FATA) and Azad Jammu & Kashmir (AJK). Project management is
responsible for planning & budgeting, co-ordination, monitoring &
evaluation, reporting and timely and smooth implementation of the
project.
MINFAL has established a Project Steering Committee (PSC) for policy

guidance and co-ordination between all institutions involved in the project.
The PSC is headed by the head of EA and includes representatives from all
the relevant Ministries and national and provincial institutions. EC
representative attends PSC meeting as an observer. The FPMU Co-
Directors constitute the secretariat of the PSC. PSC have following
members:
1. Secretary,
Livestock & Dairy Development Department,
Govt. of Punjab, Lahore Member
2. Secretary,
Livestock & Fisheries Department,
Govt. of Sindh, Karachi Member
3. Secretary,
Livestock & Dairy Development Department,
Govt. of NWFP, Peshawar Member
4. Secretary,
Livestock and Dairy Development Department,
Govt. of Balochistan, Quetta Member
5. Representative of
Economic Affairs Division, Islamabad Member
6. Joint Secretary (Planning),
Ministry of Food, Agriculture and livestock, Islamabad
Member
7. National Co-Director,
Strengthening of Livestock Services Project
Member/Secretary
8. Representative of
European Commission Delegation to Pakistan Member
9. European Co-Director,
Strengthening of Livestock Services Project Observer
The function of the PSC is to review project progress, to approve the

overall annual work plans and budgets, to ensure that the project is acting
within the major policy directions of the Government of Pakistan, and to
assist in coordination between relevant bodies. For these purposes the
PSC will convene meeting twice a year. The FPMU may call for additional
meeting.

FPMU is jointly headed by a European Co-Director and National Co-Director

while the PPMUs are jointly managed by one European Co-Manager and
one National Co-Manager; generally the national Co-Manager is the
Director General (DG) of the department responsible for Livestock or an
officer mandated by him/her.
SLSP hired the services of different types of consultants according to the

requirements of the project activities. Consultants work under the
supervision of Co-Directors/ Co-Managers and are responsible to report on
the activities undertaken by them.

1.4.3 Internal Control System

Internal control may be defined as the process designed and effected by
those charged with governance, management and other personnel to
provide reasonable assurance about the achievement of the entity’s
objective with regard to the reliability of financial reporting, effectiveness
and efficiency of operations and compliance with applicable laws and
regulations. Internal control consists of following;
a) The control environment

b) The entity’s risk assessment process
c) The information system, including the related business
processes, relevant to financial reporting and communication
d) Control activities
e) Monitoring of controls
2 The Audit
2.1 Audit Objectives
2.1.1 Project Management Internal Control System
The auditor will evaluate the internal control system set up for the
programme management, in order to determine whether it:
 is in accordance with the contractual basis of the programme;

 allows the programme to be conducted in an orderly and effective
way;
 provides for safeguarding assets;
 makes provision for a reasonable degree for prevention and
detection of irregularities and fraud;
 makes provision for the necessary reliability in entering the
programme activities in the accounts and preparing the accounts
and financial reports.
The auditor will examine whether the system:
 includes appropriate measures to segregate duties;

 includes appropriate measures to prevent management from
overriding control mechanisms;
 has operated throughout the whole reference period and
guarantees observance of the contractual procedures laid down in
the programme and observance of the legal framework in the
country concerned;
 provides for appropriate procedures for avoiding conflicts of
interest;
 provides for the existence of an appropriate system for authorising
operations.

2.1.2 Auditor’s Duties
2.1.2.1 Organizational structure:

• Internal control structure of the management unit/beneficiary;
• Relations with other organizations;
• Where appropriate, organization of the partnership network.
2.1.2.2Planning: the following aspects in particular must be

examined:
• Preparation of annual work plans and cash flow forecasts;
• An evaluation of whether the programme managers have carried
out the duties arising from the contractual aspects of the
programmes properly;
• Check on implementation of the annual work plans and cash flow
forecasts;
• Link with the accounts.
2.1.2.3 Personnel: the following aspects in particular will be

examined:
• Personnel recruitment and selection procedure;
• Personnel training, experience and skills;
• Salaries paid to personnel in comparison with national scales and
similar programmes;
• Description of duties – their existence – and observance of them;
• Sufficient level of surveillance of personnel with systems such as
time sheets: use of working time and check on personnel
performance.
2.1.2.4Consultants: the following aspects in particular will be

examined:
• Procedure for recruiting and selecting consultants;
• Consultant’s training, experience and skills;
• Fees paid to consultants compared with national scales and similar
programmes;
• Description of duties conferred upon consultants – their existence –
and observance of them;
• Sufficient level of surveillance of consultant’s work with systems
such as time sheets: check on performance.
2.1.2.5Accounting system for checking the use of funds and

safeguarding assets; the following aspects in particular
will be examined:
• Existence of a separate accounting system for the programme or of
an appropriate analytical system which provides information on the
financial situation of the EU part of the programme and the overall
situation, account being taken of each partner’s contribution;

• Use of separate bank accounts for the programme;
• Procedures to ensure the exhaustiveness of the programme
revenue; check that expenditure and revenue are not offset;
• System for accepting and authorising transactions including
amendment and deletion of data;
• Accounting process, including the electronic processing of data;
• Reporting procedures, use of accounting records and supporting
documents;
• Protection of software, back-up systems and access control.
2.1.2.6Surveillance function:
• Existence of manuals with written rules, instructions and
procedures;
• Authorisations and sub delegation of powers and signatures;
• No overlapping of powers in the organisation chart.

2.1.2.7Observance of the procedures laid down in the
contract(s).
2.1.2.8Compatibility of the terms of the contract with the

practices and local legislation where the programme is
introduced.
2.1.2.9The inventory of fixed assets used in the programme.
2.1.2.10 The inventory of bank accounts and the rules

applicable for their use.
2.1.2.11 The deadlines set in the programme.
2.1.2.12 Subcontracting policy, including with affiliated

companies.
2.1.2.13 Observance of the competition rules in public

procurement.
2.1.2.14 Procedures for handling and following up disputes.
2.1.2.15 Appropriate segregation of duties.
Where management shortcomings are detected, the auditor must

determine the risk and the financial consequences for the
programme and will make recommendations concerning the
measures which should be taken in order to remedy the situation,
and the possible degree of urgency of such measures. The auditor
must also make recommendations in order to communicate any
shortcoming in the current procedures which has not been
detected by the management.
2.1.3 Financial Control

In order to reach the audit opinion, the auditor should ensure that the
objectives and sub-objectives set out below have been respected:
Amounts invoiced to the Commission relate to eligible expenditure:

a. Expenditure has been borne and was the responsibility of the
Project Management Units (FPMU & PPMUs) or person authorised by
the PMUs.
b. Expenditure relates to the programme as per approved Annual
Work Plan (AWP), decision of project Steering Committee
Coordination Committee & decisions of PMUs. For this purpose the
auditor will ensure that:
• activities carried out or financed with programme funds are

provided for in the contractual basis. The auditors will check

For the period from 15th September 2005 to 31st December 2005DRAFT REPORT
that the expenditure has not been effected for private
purposes;
• the expenditure comes under one of the budget headings of
the programme;
• there is no overrun in the budget headings of the
programme. If there is, check that the overruns remain
within the agreed margins.
c. Expenditure is substantiated by appropriate documents and

correctly entered in the accounts.
d. Expenditure has been incurred and disbursed within the periods
authorised under the contract for operations effected within the
period covered by the audit.
e. Expenditure charged to the programme has been correctly
authorized, in accordance with the contractual basis of the
programme.
f. Check that the expenditure incurred is not listed as ineligible
expenditure in the contractual basis of the programme.
g. Check that the expenditure incurred is in accordance with the
contractual basis of the programme and the legal system of the
country.
All the programme revenue (the contribution from the EU and from the
other partners and any other programme revenue) must be properly
recorded indicated in the financial reports:
a. The revenue from the funds is mentioned in the financial reports

and properly accounted for.
b. The revenue obtained by the beneficiaries from the programme
funds has been used in accordance with the terms of the contract
(s) or, failing that, in line with the explicit agreement given by the
Commission to beneficiary.
c. The financial contributions to the programme from partners other
than the Commission have been given in accordance with the
timetable and other requirements laid down in the contract(s).
The assets have been acquired and are managed in accordance with the
contracts(s).
a. The assets exist, are held by the PPMUs and are correctly
evaluated.
b. The procedures used for acquiring assets, and the nature of the
assets acquired, are in accordance with the EC rules for
procurement.
c. The assets are used exclusively within the programme. In
particular, there is no private use of assets (cars etc.), unless
permitted by the contract(s).
All the debts and all the commitments are described in the financial
reports and have been assumed in accordance with the contractual basis.

a. The debts and commitments relating to eligible expenditure under
the programme are set out in the financial reports for the
programme.
b. Only debts and commitments relating to the implementation of the
programme are recorded.
The other administrative and financial conditions of the contract have

been met.
2.2 Audit Scope
2.2.1 Agreement Terms and Conditions
The scope of the substantive audit procedures will be based on evaluation

of the internal control system and application of sampling techniques.
A non-exhaustive list of examples of audit procedures to be carried out is

given below. The auditors will endeavour to adapt this list and these
procedures in line with the specific requirements of the audit mission:
 Check an original supporting documents, consisting of original

vouchers countersigned by National and European Co-Directors (for
FPMU) & National & European Co-Managers (for PPMUs), accounting
books, petty cash books, ledger, etc.
 Reconciliation of bank accounts;
 Check, in accordance with the specific audit procedures, that the
following revenue has been shown in full in the financial reports for
the programme:
• Financial revenue relating to the programme funds;
• Disposal and withdrawal of the programme assets;
• Revenue relating to activities not laid down by the
contractual basis of the programme;
 Check on the physical existence of the assets as per inventory

maintained in the project office;
 Specific audit procedures for checking the correct evaluation and
authorisation of possible contributions in kind;
 Where financial contributions are not paid direct to the
management unit/beneficiary/contractor, analysis of the use of the
funds allocated to the programme before they are transferred to the
financial account of the programme;
 Obtain confirmation from the banks for the bank balances, authority
to sign, guarantees, sums lent and sums borrowed etc;
 Obtain confirmation from lawyers in the event of ongoing disputes.
Auditors will quantify the problems and financial adjustments noted in the
course of the procedures carried out and will indicate the decisions and
steps which they suggests to the Commission for taking the necessary
corrective action. Where extrapolation techniques are used in order to

DRAFT REPORT
propose financial corrections, they must be clearly substantiated and
documented. Where significant recurring difference are found, the auditor
will evaluate whether the sample tested should be extended in order to
put a sufficiently precise figure on the part of the total population
concerned by this error. In that event, the auditor must contact the
Commission immediately in order to evaluate the impact on the planning
of supplementary tests.
2.2.2 Scope of Work

The audit will ascertain whether the use of funds has been in accordance
with the project contractual basis and within the project activities, inter
alia through examination of the internal control system in place, the
accounting of the European Community finds and the verification of
project expenditure and the application of proper procedures as stipulated
in the contractual basis. (Please see section 2.3, 3.2.1 for the project
details and agreement terms & conditions respectively.)
2.2.3 Scope Limitations
With respect to cash in hand & inventory the evidence available to us was
limited because we did not observe the counting of the cash in hand and
physical stock as at 31st December 2005, since that date was prior to our
appointment as auditor of the project.
2.3 Audit Process and Methodology
2.3.1 Planning:
a. Place of performance of the audit:
The audit was performed in Pakistan.
b. Timetable, preparatory and opening meetings:
Opening meeting was held with Strengthening of Livestock

Services Project (SLSP) officials on July 2, 2009.
c. Planning activities, audit plan and audit work programmes:
We planned the audit so that it is performed in an effective and

efficient manner. Adequate planning involves that appropriate
attention is devoted to important areas of the audit, that
potential problems are identified and resolved on a timely basis
and that the audit is properly organized and managed in order to
be performed in an effective manner.
We prepared an audit plan that documented the audit approach
and key principles of audit planning, conduct and reporting.

DRAFT REPORT
d. Understanding the engagement context and the entity and risk
assessment procedure:
We performed risk assessment procedures that were sufficient

to obtain an understanding of and document the engagement
context and the entity including particularly it’s ICS and Financial
Controls (FCs). The understanding was sufficient to identify and
assess the risks of deficiencies in the design and operating
effectiveness of both internal controls and Financial Controls.
e. Weaknesses and deficiencies and risk assessment:
We considered the risks, weaknesses and deficiencies in the

design and operating effectiveness of the ICS and FC to
determine the nature, timing and extent of evidence gathering
procedures.
This involves assessing the risks that
• The agreement terms and conditions for the project are not complied
with;
• The objectives of the project are not , or not entirely achieved;
• The project operations and activities are not performed in conformity

with the agreement terms and conditions;
• The financial report of the project is not reliable i.e. that it does not
present, in all material respects, the expenditure actually incurred and
revenue received for the project in conformity with the applicable agreement
terms and conditions;
• The funds of the project have not, in all material respects, been used in
conformity with the agreement terms and conditions in all material respects;
• Fraud and irregularities can occur or have occurred which have an

impact on one or more of the above issues and which are not detected and
corrected in timely manner.
2.3.2 Execution
a. Internal control system and tests of controls:
During the planning stage we obtained a sufficient

understanding of and documented internal control system
through preparation of internal control checklists, the material of
which was extracted from the documents provided by SLSP.
b. Sampling and other means of selecting items for testing:
Non-statistical audit sampling was used to select items for

performing test of controls.

c. Fraud and irregularities:
Project is managed jointly by the EC & GoP through their

representatives. As for as subject matter is concerned we have
not found any instance.
d. Debriefing memorandum:
At the end of our audit we will submit our Observations along

with our comments.
e. Closing meeting:
On September 4, 2009 meeting held with SLSP officials.
2.3.3 Documentation and audit evidence:
a. Documentation and working papers:
We have gathered sufficient, appropriate audit evidence to

support our opinion and have ensured that audit is carried out in
accordance with International Standard on Assurance
Engagements (‘ISAE’) and relevant International Standard on
Auditing (‘ISA’)
b. Audit Evidence
We have obtained sufficient, appropriate audit evidence to draw

reasonable conclusions on which to base the audit opinion.
c. Letter of representation:
After the issue of initialled report we have to take representation

letter.
d. Access to records and documents of the entity:
We have made available related record except in some cases as

are mentioned in findings which are elaborated in section 3 of
this report.
e. Audit procedures for obtaining audit evidence:
We have obtained sufficient audit evidence to draw reasonable

conclusion on which we have based our opinion by performing:
• Audit procedures to obtain an understanding of the entity and its

internal control to assess the risks of material errors in the financial report;
• Tests of controls; and

• Substantive procedures
Audit procedure includes but not limited to: inspection (of

records, documents and assets), observations, inquiry of
management and others within the entity, confirmations,
recalculations, re-performance and analytical procedures.
2.3.4 Reporting
Reporting requirements
The independent assurance report in accordance to the

Annexure 3 of the TORs has to be submitted.
Audit findings
Audit findings are reported in accordance with the principles and

criteria stated in Section 3.3.1 and 4.3.1of the ‘Guidelines for
auditors.
Audit recommendations
The significant internal control and financial control weaknesses

are mentioned in the Assurance Report while the insignificant
and other deficiencies are given in the part 3 to this report.
Language of the report
The report shall be in English.
Procedure for the consultation and submission of report
The reporting is to be done in accordance with the agreed

TORs.

3 Findings and Recommendations
3.1 Financial Findings
Unit wise financial findings (Ineligible cost) and recommendations are

as follows:
A. Provincial Project Management Unit (PPMU)-Sindh

B. Provincial Project Management Unit (PPMU)-Balochistan

The financial findings (Ineligible cost) of the audit relating to PPMU -
Balochistan are as follows:

3.2 Financial Findings subject to further consideration –

Questioned Cost
Unit wise financial findings of the audit subject to further consideration

(questioned cost) are as follows:

Financial findings subject to further consideration (questioned cost)

relating to Sindh are detailed below:
Finding n°: 01 Title: Workshop/Training-Transportation
Compliance issue: Ineligible expenditure – missing documentation

Description of the finding:
Payment made to various employees on account of DSA in connection

with provision of A-1 training.
Facts: We are unable to verify the eligibility of the expenditure in the

absence of supporting documentation related to voucher # 357 dated
October 03, 2005.
Criteria: Article 11 of Annex 2 of the Finance Agreement relating to

questioned cost; guides an auditor to classify an expense as a questioned
cost if it is not backed by original or sufficient supporting evidence.
Cause: We have been verbally informed that the supporting documents

went missing due to the continuous movement of record between
different locations.
Impact: Due to non availability of the mentioned vouchers, the costs

claimed remain unverified.
Amount €: 920.90 (Rs.65,104)
Related management control finding:
Inadequate record keeping.
Comments from the Entity: All the relevant supporting documents are
available for verification with voucher no. 374 dated 28/10/09.
Further comments of the Auditor: The relevant supporting referred in

entity comments was not more than a copy of listing of employees to

whom DSA was paid. The details regarding approval of participants,
attendance sheet, computation of DSA, training dates and approval for
training were not explained to us, therefore, we understand that the
above referred payment is ineligible
Finding n°: 02 Title: Workshop/Training-Transportation
Compliance issue: Questioned cost – missing/inadequate

documentation

Facts: During the course of our audit we observed that voucher # 422
dated December 12, 2005 does not contain supporting documents
relating to purpose of travel and travel approval form.



Amount €: 576.24 (Rs.40,000)
Comments from the Entity: All the relevant supporting documents are
available for verification.
Further comments of the Auditor: We understand that entity

comments are general and do not explain the missing documents
mentioned above, therefore, the cost remains questioned.

Finding n°: 03 Title: Fee Facilitator – Miscellaneous
Compliance issue: Ineligible expenditure – missing/inadequate

documentation
Facts: We have not been provided with voucher # 344 and 347, so we
are unable to perform audit procedures.



Amount €: 195.47 (Rs.13,843)

Comments from the Entity: Voucher no. 344 to 347 was allocated to a
single voucher that was prepared on a plain paper, which clearly shows
that the payment is for the DSA of four course participants of AI training.
Acknowledgements of receipt are also attached with the voucher. All
other necessary documents are available with the voucher no. 374 dated
28/10/2005.
Further comments of the Auditor: It is evident from entity comments

that proper voucher was not prepared but plain paper was used. Further,
the relevant supporting referred in entity comments was not more than a
copy of listing of employees to whom DSA was paid. The details regarding
approval of participants, attendance sheet, computation of DSA, training
dates and approval for training were not explained to us, therefore, we
understand that the above referred payment is ineligible.
Financial findings subject to further consideration (questioned cost)

relating to Balochistan are detailed below:
Finding n°: 01 Title: Consumables
Compliance issue: Questioned cost – missing/inadequate

documentation
Facts: We observed that voucher # 137 dated September 20, 2005 did
not contain any purchase requisition for the purchase of DVD’s on animal
production.



Amount €: 127.22 (Rs.9,010)


Comments from the Entity: This DVDs have been purchased by ECM
from South Africa on need basis, while he was on an overseas travel,
hence the purchase requisition could not be raised.
Further comments of the Auditor: We appreciate the entity

comments; however, it is pertinent to mention that almost all the
activities of the project are incurred due to need of those activities. The
entity should have followed its procedures for procurement.
3.2 Management Control Findings
Unit wise management control findings are cited as follows:

Management control findings relating PPMU-Sindh are detailed below:
Finding n°: 01 Title: Miscellaneous Services
Management control issue:
Issue n°: 09 other – Wrong Allocation

Payment for Maintenance Contract of Photo Copier has been allocated to
Miscellaneous Services whereas it should be charged to Repair and
Maintenance – Office equipment.
Voucher # 349 dated October 05, 2005

Recommendation:
Management should charge expense in proper head of account.
Recommendation priority:
Prompt specific action is required.
Comments from the Entity: noted for future
Further comments of the Auditor: We offer no comments as no

comments is given by the entity.
Finding n°: 02 Title: Accommodation
Compliance issue: Issue No 09 –Other missing/inadequate

documentation
During the course of our audit we have not been provided with the
voucher # 387B therefore we are unable to verify the expense.
Recommendation:
Management should charge expense in proper head of account.
Comments from the Entity: noted for future



Finding n°: 03 Title: Salaries
Issue n°: 09 (Human resources and payroll management)

During the course of audit we have not been provided with personnel files
of employees for verification.
Recommendation:
Management should maintain personal files in proper form.
Comments from the Entity:


Finding n°: 04 Title: General

Issue n°: 07 (Cash and Bank Management)

The bank accounts have been operated by two signatories, European Co-
Manager and National Co-Manager. At the time of opening of account the
following were the Co-Managers:
• Mr J.H.H Maehl – European Co-Manager
• Mr Baig Muhammad Junejo – National Co Manager
However, during the period the National Co-Manager was changed and Mr
Sarwar joined the project. However, Ex-National Co-Manager continued to
sign and operate as one of the signatories, thus non-compliance of
Internal Regulation & Procedures.
Recommendation:
Management should take steps to ensure that the authorized signatories
are updated with bank on leaving and joining of any existing signatory.
Comments from the Entity: Now the only signatories to the bank
account of PPMU Sindh are Dr. Ghulam Sarwar Shaikh, NCM and Mr.
Trevlin Webb, ECM. Dr. Saeed Ahmad, NCD and Dr. Tony Warner, ECD
are alternate signatories to the account.
Further comments of the Auditor: The above comment does not

address our finding.


Issue n°: 05 (Control Environment)
In several instances invoices were not stamped ‘PAID’ to avoid chances of
duplicate payment as required vide provision 4.1 sub-clause 15 to
Internal Regulations & Procedures.
Recommendation:
Management should take steps to ensure that invoice has been stamped
as ‘PAID’ as per Internal Regulations & Procedures.
Comments from the Entity: Noted for future compliance.
Further comments of the Auditor: We appreciate future compliance

by the entity.

Management control findings relating PPMU-Balochistan are detailed

below:
Issue n°: 05 (Control Environment)
In several instances invoices were not stamped ‘PAID’ to avoid chances of

duplicate payment as required vide provision 4.1 sub-clause 15 to
Internal Regulations & Procedures.
Recommendation:
Management should take steps to ensure that invoice has been stamped
as ‘PAID’ as per Internal Regulations & Procedures.

by the entity.

Finding n°: 02 Title: Consumables
Compliance issue: Issue No 1 (Missing / Inadequate Documentation)

We observed that the voucher # 203 dated October 26, 2005 did not
contain any purchase requisition for the miscellaneous purchases made
by ECM.
Recommendation:

by the entity.


3.3 Other Compliance Findings

Unit wise other compliance finds are as follows:

Other compliance findings relating to PPMU-Sindh are cited below:

Finding n°: 01 Title: Salaries – Income tax
Compliance issue: other non compliance (Income tax)

Facts: During the course of our audit we observed that income tax has
not been deducted according to the Income tax Ordinance 2001 from the
employees’ salaries.
Criteria: The provisions of Income Tax Ordinance 2001 require the WHT at
source deduction on the payment of salaries to employees.
Cause: The management did not comment on the above mentioned

finding.
Impact: Due to the non compliance with the Income Tax Ordinance 2001,
the income tax authorities can take penal action.
Inadequate recording of transactions and inadequate knowledge.

Comments from the Entity: Now the taxes on salaries are deducted
according to Income Tax Ordinance 2001.
Further comments of the Auditor: Tax should have been deducted by

the entity else entity is responsible to pay tax not deducted.


Project funds were kept in current accounts with Standard Chartered
Bank, Karachi and National Bank of Pakistan, Hyderabad, in contravention
of the requirement to place such funds on high interest bearing accounts.
Recommendation:
Management should take steps to ensure that they use the maximum
interest bearing account as per Finance Agreement.
Comments from the Entity: Now both accounts have been liquidated
and a saving account has been opened.
Further comments of the Auditor: Management agrees with our

finding.

Other compliance findings relating to PPMU-Balochistan are cited below:

Project funds were kept in current accounts with Standard Chartered
Bank, Quetta in contravention of the requirement to place such funds on
high interest bearing accounts.
Recommendation:
Management should take steps to ensure that they use the maximum
interest bearing account as per Finance Agreement.
Comments from the Entity: At the start of the project only current
accounts were opened both at FPMU and PPMUs. In compliance to
auditor’s recommendations, interest bearing accounts were opened at
FPMU, where major funds are kept, and the PPMUs are provided funds on
need basis.
Further comments of the Auditor: We noticed that some funds

remains in PPMUs bank accounts, therefore, we understand that
management should comply with the recommendation.


During the course of our audit we observed that various payments made
to the vendors above Rs.5000 in cash against the provisions of Income
Tax Ordinance 2001. The above mentioned instance is as follows:
Voucher # 171 dated September 27, 2009

Recommendation:
Management should comply with the provisions of Income Tax Ordinance
2001.
Comments from the Entity: Now payments are being made according
to law.

comments are given by the entity.

Finding n°: 03 Title: Salaries – Income Tax

Issue n°: 09 (Other – Non Compliance of Income Tax Provisions)
During the course of our audit we observed that income tax has not been
deducted from the staff salaries paid, as required by the Income Tax
Ordinance, 2001
Recommendation:
Management should ensure the compliance of the provision to Income

Tax Ordinance 2001.
Comments from the Entity: Now the taxes are properly deducted and
deposited from salaries.
Further comments of the Auditor: Tax should have been deducted by

the entity else entity is responsible to pay tax not deducted.

4 Findings concerning Specific Matters

There being no specific matters concerning this audit therefore no finding
is observed.
5 Findings concerning Expert Work performed

No expert work required for the performance of this audit therefore no
finding observed.

Annexure

Annex 1: Financial Report Subject to Audit



Annex 2: Cash Flow Reconciliation
Cash Flow Reconciliation for Strengthening of Livestock Services

Project (SLSP)
For the period from 1st September 2008 to 30th June 2009
Description Local €
curren
cy
Opening balance as per cashier and bank

statements as at 1st September 20008 (A)
RECEIPTS
Disbursements from the Commission
Interest received
Other receipts
Total Receipts (B)
PAYMENTS
Payments made (expenditure, purchase of assets etc)
Other disbursements <specify e.g. repayments of

loans, advances>
Total Payments (C)
Calculated balance (D=A+B-C)
Cash in hand
Balance of account <xxx> in Bank <xxx> held in

currency <xxx>
Balance of account <yyy> in Bank <yyy> held in

currency <yyy>
Total balance as per cashier and bank

statements as at 30th June 2009 (E)
Differences in receipts and income in the Financial

Report (1)

Differences in payments and expenditure in the
Financial Report (2)
Total Project funds as at 30th June 2009 (F)
Difference (G= F - D) (2)
Annex 3: Other Information-Salary Survey

Comparison of the Salaries Paid to Professional
Gross Monthly Variance

Designation Compensation
Rupees
SLSP Market Amount %
Average Rupees
Administration
Officer
Accounts Officer
Public Relation
Officer
IT Specialist
Senior Secretary
Secretary
Administration
Assistant
Network
Administrator
Receptionist
Security Guard
Driver
Sweeper
• Comparison has been made on the basis of salaries for the

month of December 2005.

Annex 4: Persons contacted or involved in the Audit
The Auditor - Khalid Majid Rehman, Chartered Accountants
Khalid Majid Engagement Partner.
Sharif-ud- Engagement Manager

din Khilji
Muhammad Engagement Assistant Manager

Atif Saeed
Aamir Engagement Supervisor

Hassan
Khan
Khurram Job Incharge

Ijaz
The Entity subject to audit - Strengthening of Livestock Services

Project (SLSP)
Dr. Saeed National Co-Director

Ahmad
Mr. Qazi Accounts officer

Sami-ur-
Rahman
Mr. Liaqat Accounts Officer

Ali Khan
EuropeAid Co-operation Office
Mr. Tony European Co-Director

Warner
Mr. F. K. Admin. & Finance Consultant

Hoffer


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Financial & Systems Audit Report

Strengthening of Livestock Services Project (SLSP)-Sindh & Balochistan

IN THE NAME OF ALLAH THE MOST MERCIFUL AND COMPASSIONATE

FINANCIAL & SYSTEM AUDIT OF

Entity subject to audit Strengthening of Livestock Services Project

KHALID MAJID REHMAN

AUDITORS’ REPORT TO THE CO-DIRECTORS OF STRENGTHENING OF LIVESTOCK

1 THE ENGAGEMENT CONTEXT...................................................................................................14

5 FINDINGS CONCERNING EXPERT WORK PERFORMED ...................................................57

KHALID MAJID REHMAN

AUDITORS’ REPORT TO THE CO-DIRECTORS OF

We have audited the accompanying Financial Report (“the statement”) of

- The Financial Report of Provincial Project Management Units

We conducted our audit in accordance with the International

The results of our tests disclosed the following financial audit

(a) There is no expenditure which we found to be ineligible;

(b) total expenditure of € 1,819.83 which is questioned and may

KHALID MAJID REHMAN 3|Page

(d)We could not observe physical count of cash, inventory and

These detailed findings and recommendations are set out in part 3

• the Project funds provided by the European Commission have,

Date: Khalid Majid

KHALID MAJID REHMAN 4|Page

The details are as follows:

Less: Financial Audit Findings -

Total eligible expenditure for the Project 34,773

Commission contribution to eligible expenditure for the

Total Commission funding for the Project to be paid 34,773

Less: instalment received from the Commission 34,773

Amount to be recovered by the Commission -

KHALID MAJID REHMAN 5|Page

KHALID MAJID REHMAN 6|Page

(1) MC is management control finding to which the financial finding is

2 Financial Findings subject to further consideration –

The financial findings of the audit subject to further consideration -

Findin Complia Title Amou Relate Entity

Provincial Project Management Unit (PPMU)-Sindh

03 No 01 Fee Facilitator- 195.47 N° 1

KHALID MAJID REHMAN 7|Page

Total questioned cost –Sindh 1,692

KHALID MAJID REHMAN 8|Page

Provincial Project Management Unit (PPMU)-Balochistan

01 No 01 Consumables, Stationary 127.22 N° 1

Total questioned cost – 127.2

Grand total questioned 1,819.

KHALID MAJID REHMAN 9|Page

KHALID MAJID REHMAN 10 | P a g e

3 Management Control Findings

The management control findings can be summarised as set out below.

Findin Management Title Priori

Provincial Project Management Unit - Sindh

01 Issue No 09 (Other – Miscellaneous 2

02 Issue No 9 (Other) Accommodation 1

03 Issue No 9 (Human Salaries 1

04 Issue No 7 (Cash and General 2

05 Issue No 5 (Control General 2

Provincial Project Management Unit - Balochistan

01 Issue No 5 (Control General 2

02 Issue No 1 (Missing/ Consumables 2

KHALID MAJID REHMAN 11 | P a g e

4 Other Compliance Findings

Findin Management Title Priori

Provincial Project Management Unit - Sindh