Audit UNDP LOTFA 2011 ML Final 140512 · ensuring that all the expenditures described in the...

ABCD

KPMG Afghanistan Limited

United Nations Development Programme - Law and Order Trust Fund for

Afghanistan (LOTFA)

Award No. 00049760 and00061104

Project No. 00060964 and00077273, 00077274, 00077275 &00078879

Management Letter

For the period from 01January 2011 to 31 December 2011

kpmg KPMG Afghanistan Limited Management Letter

UNDP Country Office Afghanistan/Law and Order Trust Fund for Afghanistan (LOTFA) – 00061104

II

Management Letter

United Nations Development Programme Law and Order Trust Fund for Afghanistan (LOTFA)

Award No: 00049760 and 00061104

Project No: 00060964 and 00077273, 00077274 00077275&00078879

Period Covered: 01 January 2011 to 31 December 2011

Date of Report: 30 April 2012


UNDP Country Office Afghanistan/Law and Order Trust Fund for Afghanistan (LOTFA) – 00061104

III

INDEX

1. Executive Summary ................................................................................................... 1

1.1 Audit Objectives .............................................................................................. 1

1.2 Scope of the Audit ........................................................................................... 2

1.3 Field work and Reporting ................................................................................ 2

1.4 Background of the Project ............................................................................... 2

1.5 Management Arrangements ............................................................................ 9

1.6 Monitoring and Evaluation ............................................................................ 11

1.7 Project Budget & Funding............................................................................. 11

1.8 Review of Project’s Progress ........................................................................ 12

1.9 Review of Monitoring and Evaluation .......................................................... 19

1.10 Field Visits ................................................................................................. 19

1.11 Review of Project Progress and Assessment of Internal Control Systems 19

1.12 Acknowledgement ..................................................................................... 22

2. Detailed audit observations .................................................................................... 23

3. Certified prior year (2010) follow-up action plan (attachment) .......................... 39

ANNEXURE I ................................................................................................................. 40

ANNEXURE II ................................................................................................................ 41

ANNEXURE III .............................................................................................................. 42


UNDP Country Office Afghanistan/Law and Order Trust Fund for Afghanistan (LOTFA) –00061104

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1. Executive Summary 1.1 Audit Objectives

We have been engaged by the United Nations Development Programme (UNDP) Country Office for Afghanistan to carry out audit of Award ID 00049760, Project ID 00060964 (Phase V) and Award ID 00061104, Project ID 00077273, 00077274, 00077275 & 00078879 (Phase VI)(“the Project”) implemented by Ministry of Interior (MoI), for the period from 1 January 2011 to 31 December2011. We conducted our audit in accordance with International Standards on Auditing (ISAs). Those standards require that we plan and perform the audit to obtain reasonable assurance;

Whether the Statement of Expenditure (“the CDR”) presents fairly, in all material respects, the expenditure incurred by the Project for the period from 1 January 2011 to 31 December 2011in accordance with UNDP accounting policies. Our opinion is limited to the Project’s expenditures, which are defined as including all disbursements listed in the quarterly financial reports submitted by MoI and the direct payments processed by UNDP through Request for Direct Payment (RDPs) by MoI. We are further required to verify the mathematical accuracy of the CDR by ensuring that all the expenditures described in the supporting documents (the quarterly financial reports, the list of direct payments processed by UNDP at the request of MOI) are reconciled to the expenditures, by disbursing source, in the CDR.

We expressed an unqualified (clean) opinion on the statement of expenditure.

Whether the Statement of Cash position presents fairly, in all material respects, the cash and bank balance of the Project as at 31 December 2011 in accordance with UNDP accounting policies.

We expressed an unqualified (clean) opinion on the statement of cash position.

Whether the Statement of Assets and Equipment fairly, in all material respects, the balance of inventory of the Project as at 31 December 2011 in accordance with UNDP accounting policies.

We expressed an unqualified (clean) opinion on the statement of assets and equipment.

Follow up on prior year’s audit recommendations forms part of our management letter and is attached with our comments on the status of implementation of recommendations provided by the management.



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1.2 Scope of the Audit

In addition to expressing an opinion on the statement of expenditure, statement of assets and equipment and statement of cash position with certification of the follow up on the prior year’s audit recommendations, we were further required to carry out: A general review of project progress and timeliness in relation to progress

milestonesand the planned completion date as stated in the Project Document or Annual Work Plan. General review is restricted to stating general compliance with broad covenants such as implementation of project with economy and efficiency.

An assessment of the Project's internal control system with equal emphasis on: (i)

theeffectiveness of the system in providing the project management with useful and timelyinformation for the proper management of the project; and (ii) the general effectiveness ofthe internal control system in protecting the assets and resources of the project. The internal controls in the following major areas were covered by us:

Human Resources Finance Procurement Asset Management Cash Management General Administration Information Systems

1.3 Field work and Reporting

We initiated our audit fieldwork on 29 February 2012 and completed our audit fieldwork on 03April 2012. The preliminary findings were communicated to the project management and UNDP Afghanistan Country Office on 13 April 2012. Management’s responses to our findings were received on25April 2012. After considering management’s responses on our observations, the reports and management letter were issued on30 April 2012.

1.4 Background of the Project

In phase-VI of LOTFA, in accordance with the scope and mandate laid out in the document, the Fund received financial contributions from the international community (IC) members under 3 consolidated Pillars (”windows”) to cover the following prioritized components, over the period 01 January 2011 to 31 March 2013: Pillar 1: Support to the Police Remunerations and Police Infrastructure

Payment of the police force remuneration; Payment of remuneration of uniformed personnel employed by the Central

Prisons Department (CPD) through specially earmarked contributions; Procurement, maintenance and operations of non-lethal police equipment and

supplies; and Construction, rehabilitation, maintenance and operations of police facilities.



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Pillar 2:Consolidated Capacity Development and Institutional Reform

Capacity development (CD) and institutional reform of the Ministry of Interior (MoI) at the policy, institution and individual police level;

Linked to the CD component above, gender orientation (recruitment, training and gender mainstreaming of female police).

Pillar 3: Community Policing: Building of Effective Police-community Partnerships under Police-e-Mardumi Project

Building of service delivery oriented police-community partnerships under

Police-e-Mardumi project, based on best democratic policing principles.

According to the Terms of Reference (ToRs) for LOTFA (signed in May 2002), the fund was designed to cover “all reasonable costs associated with the start-up and operational needs of the police force.” (Annex-I). The project document, “Support to Law and Order in Afghanistan” signed on 03 December 2002, has since provided a framework for the activities undertaken with LOTFA funding, including prioritization of proposed expenditures and activities. Subsequent phases of LOTFA have been developed around this document, with appropriate modifications based on situational changes.

Phase-I (01 November 2002-31 March 2004)

During phase I -01 November 2002 through 31 March 2004 (covering 5 months of Afghan Fiscal Year (FY) 1381 and full FY 1382) - LOTFA reimbursed the Ministry of Finance (MOF) for police salary payments to the amount of USD 44.4 million. This covered police remunerations in all 32 provinces. Joint Government-UNDP missions verified the salary payments. The project placed two public finance management officers in MoI to support the preparation of timely financial reports, regularization of the payroll system, and training of the Ministry’s financial staff. Activities were also initiated with donor support for the computerization of the payroll system at MoI. The project, through contributions to the National Development Budget and other funding windows also procured and made available to the police 1,100 vehicles with communications equipment and spare parts for a total of USD 11.45 million. During phase 1, funding limitations prevented LOTFA from moving substantially beyond its first and second priorities: police salaries and equipment. Phase-II (01 April 2004- 31 March 2005)

During Phase II -from 01April 2004 through 31 March 2005 (covering FY 1383) - LOTFA ensured payment of police salaries in all 34 provinces. A total of USD 54.1million of salary benefits were paid out. In order to establish a more efficient and accountable scheme for national police salaries, the in-house Electronic Payroll System (EPS) was configured. The software was prepared and tested in Kabul and Ghazni provinces. The construction of eight police stations in provinces and highway police check posts on Torkham-Kabul-Herat highways was undertaken. Non-lethal equipments were also procured for the police. Regular joint missions to the provinces were conducted to monitor the effectiveness of police payments. 47 staffs of the finance department of MoI were trained in financial management systems. An evaluation of the LOTFA Phase-II was conducted and revealed that expected outcomes such as reduction in crime, increased security, and public perception of police were not clear in the absence of measurement mechanisms; that there was a



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need to address issues such as sustainability of recurrent costs; payroll computerization; strengthening the role of the Management Support Unit (MSU); and greater leadership of the MOI. It recommended active resource mobilization from both committed and new donors.

Phase-III (01 April 2005- 31 March 2006)

During Phase III- from 01 April 2005 through 31 March 2006 (covering Afghan Fiscal Year (FY) 1384) – LOTFA reimbursed police salaries in all 34 provinces to the amount of USD 67.5 million. It funded the construction of highway check posts to an amount of USD 3 million. Nine police stations in five provinces were constructed or rehabilitated. LOTFA also provided funding for the construction for border police office in Torkham. The EPS was further modified and deployed in 14 provinces. The project continued to build financial and project management capacity within MoI. Over 100 MoI and provincial HQ staffs were trained in financial management and reporting, computerization of payroll and personal data entry. Monitoring missions were fielded to 11 provinces to ensure proper accountability and transparency of expenditure at the provincial level. LOTFA also contributed to the initiation of the Pay and Rank Reform of the ANP, including development of the new tashkeel.

Phase-IV (01 April 2006- 31 August 2008)

During the extended Phase IV- from 01 April 2006 through 31 August 2008 (covering Afghan FY 1385, full FY 1386 and 5 months of FY 1387) – LOTFA ensured payment of police salaries in all 34 provinces. It transferred USD 316.3 million to MoF towards police remuneration. During this phase, LOTFA also paid for the temporary Afghan National Auxiliary Police (ANAP) force within the approved ceiling, to support the police operations in the insecure regions of the country. The computer-based EPS was deployed in all 34 provinces and made operational in 106 out of 115 payroll stations of MoI. EPS system also played a vital role in introducing the Electronic Funds Transfer (EFT) process of paying police officers through individual bank accounts. By the end of Phase-IV, around 32,000 police officers received their salaries through EFT. LOTFA secured funding for the implementation of the gender mainstreaming project in MoI and 100 women joined the police force. LOTFA also commenced providing incentive payments to female recruits undergoing training. During this phase, important decisions on back pay for ANP, severance pay, and ANP food allowance parity were taken. In April 2008, the original LOTFA Terms of Reference (ToRs) were amended to include payment of salaries of uniformed personnel employed by the Central Prisons Department (CPD) through specially earmarked contributions, as part of the broader reform supported by the IC to improve the prison infrastructure and facilities. It was also during this phase that based on the decision of the JCMB –VII (February 2008), LOTFA took over the payment of salaries and procurement of equipment of the newly established Disbandment of Illegal Armed Groups (DIAG) cell within MoI to enable it to continue operations under the GoA leadership and ownership. In response to donor concerns and to ensure proper accountability and transparency, continued emphasis was placed on monitoring of expenditures and effectiveness of payments to the police force.

Phase-V (01 September 2008- 31 December 2010)

During the extended Phase V – from 01 September 2008 through 31 December 2010 (covering 7 months of FY 1387, full FY 1388 and 9 months of FY 1389) – LOTFA would have transferred an estimated amount of around USD 873.7 million to MoF



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(USD 715.8 million actual expenditure from September 2008 until September 2010; and USD 157.9 million anticipated from October to December 2010) towards payment of police salaries in all 34 provinces. Given the importance of institutional development within MoI (especially in the financial and personnel management domains), this was given higher priority in this phase of LOTFA. Remunerations of uniformed personnel of the prisons department of the Ministry of Justice (MoJ) was added as a new activity, based on judicial sector pay and rank reform, and funded through specially earmarked contributions. By the end of this phase, 99.7% of all police were brought under the EPS and 79% under the EFT, receiving salaries through individual bank accounts. Alternate disbursement technologies i.e. M-paisa mobile salary payment scheme was piloted and expanded to identified districts of Wardak and Khost. A centralized web-based data application system to link all MoI payroll and HR sources as well as EPS data with other existing applications was developed and expanded to Kapisa, Parwan, Panjsher and identified Kabul and Balkh police units as another effective accountability mechanism. An independent Monitoring Agent (MA) was deployed in all police zones to conduct fiduciary reviews and oversight. 1,000 MoI and provincial officials were trained in financial management, accountancy, HR, administration, new age payrolls, EPS and EFT systems. 300 police trainers were trained on gender concepts. The number of female police reached around 934. Procurement and construction activities were up scaled. An evaluation of LOTFA-IV was undertaken during this phase, and recommendations relating to prioritization of institutional development in the next phase, imperative of greater donor predictability of funds, need for specialization of project management unit, and downsizing of gender unit for being commensurate with the funding at disposal, were followed-up appropriately. The national Police Perception Surveys-2009 and 2010 were contracted out to gauge the level of trust in police services, the results of which formed important benchmarks for institutional annual surveys on police performance indicators and outputs. Phase-VI (01 January 2011-31 March 2013)

During 2011, the focus of the LOTFA was on seizing the transition opportunities in the security, development and governance areas for expansion of project activities in the transition districts announced in Phase-I. This was particularly true for community policing, gender enhancement, capacity development and web-based payroll expansion activities. Phase-VI of LOTFA was operationally effective by 01 January 2011 until 31 March 2013, moving beyond the traditional trust fund management role into a more in-depth programme. The three-Pillar structure has a more substantive capacity development component and a new community policing component for more effective decentralized service delivery. An agreement was also reached between the donors and UNDP on the reduction of the UNDP-General Management Services (GMS) fee rate from 5% to 4% as an exceptional measure, in recognition of the larger volumes of funds committed under this phase. Considerable resource mobilization work was undertaken for meeting the budgetary requirement of USD 596 million for Fiscal Year 2011 which was fully met. Funding was also mobilized to bridge the shortfall for CPD through inclusion of non-traditional donors like Japan and Germany.

Updated list of donors include Canada, Denmark, European Commission, Finland, Germany, Italy, Japan, Netherland, Norway, Switzerland, United Kingdom and United States of America



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Objectives of the Project The prime objective of the project is fully in line with the National Development Framework and National Development Budget that envision a professional and disciplined police force that is loyal to the Ministry of Interior (Mol) and widely visible to the public, creating a sense of comfort among the population. The project is aligned with the goals and objectives of the Afghanistan National Development Strategy (ANDS) and directly supports the "Security" pillar of ANDS.

Project Activities A better trained and appropriately resourced Afghan National Police is the uppermost aim of the project that contributes to the law and order across the country, in turn promoting national, regional and global security.

LOTFA effectively supported the MoI and MoF during 2011 to ensure that it was able to meet the substantive commitments under Phase VI. Measurable progress towards the development outcomes was made, impacting on the local populace. An overview of the performance and progress under its 3 Pillar’s window is provided below, in full recognition of the fact that the results were the products of effective partnerships with all stakeholders (particularly GoA), who jointly contributed to the achievements.

Pillar I: Support to the police remunerations and police infrastructure:

Activity Results Description Target Progress Efficiency of police and CPD functions enhanced for contribution to more effective law and order maintenance throughout the country and overall stabilization and security.

More efficient police functioning and service delivery through timely and accurate payment of police and CPD remunerations (including1,300 female police as well as incentives to female trainees in Police Academies) in all 34 provinces.

100%

Greater accuracy, verification, accessibility and sustainability of police payroll and technical/institutional capacity of MoI/(MoJ)strengthened.

Greater accountability, accuracy and sustainability in payroll through timely and computerized EPS reports in all provinces (exception of Nuristan); expansion of WEPS in 14 provinces in total and additional Kabul Units; provision of regular technical support to all 161 EPS stations nationwide for conduct of independent operations; and development of on-job skills at grassroots level (all Regional commands).

99.2% EPS coverage for ANP (17.5% increase in police numbers over 2010) and 83% for CPD (work in progress) – as per AWP target.

Transparency and efficiency in individualized police payments (EFT).

Efficiency and systematization in individualized EFT payments through commercial banks; and utilization of alternative new-age salary transfer mechanism (i.e. M-paisa) in inaccessible areas (expanded to 4 new districts in Badakhshan during 2011, with total of 466 police).

81% EFT coverage for police (18.7% increase in police numbers over 2010) and 83% coverage for CPD (5% increase over 2010) (full realization still constrained by external factor of non-expansion



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Activity Results Description Target Progress of commercial banks at

sub-national level) - as per AWP target.

Sustainability and ownership of MoI enhanced with progressive hand-over of core project functions.

Strengthened MoI ownership and sustainability of institutional systems through progressive hand-over of core work, particularly EFT in 2011.

100% (on track as per target of 60-65% hand-over of overall tasks in 2011).

Quality assurance through M&E mechanisms for effective, efficient and accountable ground delivery of Outputs.

Robust oversight over project deliveries through implementation of established project monitoring, evaluation and reporting systems; LOTFA field missions to 11 provinces and Kabul districts; as well as coverage of all 34 provinces by MA(award of new contract in Aug 2011).

100%

Pillar 2: Consolidated capacity development and institutional reform:

Activity Results Description Target Progress

Overall police mobility, responsiveness and efficiency improved for better police service delivery and operational capacity.

Potential progress on strengthened police mobility through procurement of equipment for PTCs (including for female police) in Kabul, Adraskan and Herat.

100% progress for PTCs

Working and living conditions of ANP improved, resulting in better police morale and confidence.

Potential progress in improvement of police training infrastructure through advancement of admin process for construction of Ghor Police Training Centre (project withdrawn in Sep at request of donor); potential progress in improvement of police living conditions through on-track progress in construction of housing complex for families of ANP martyrs (also for female police).

Admin process suspended for Ghor Training centre, at request of donor; 43% work completed for ANP martyrs housing complex; 100% progress for proposal formulation for MoI Admin HQs Building.

MoI administrative institutional systems strengthened for long -term institution building.

(i) Progress in institutional reform of MoI through systems development of identified MoI departments of finance &budget, procurement, logistics and Facilities through provision of technical expertise; (ii) 300 ANP officials from across the country empowered in administrative disciplines through CD workshops from Aug-Oct; (iii) 965 provincial police better capacitated in identification of payroll risks, procurement law, inventory management, through training by MA provincial teams.

70% implementation of identified proposals.

ANP next generation leadership developed.

(i) 500 ANP officers on course towards becoming potential leaders of the 21st century through 6-month leadership training at Police

100% targeted administrative process completed.



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Activity Results Description Target Progress Training Centre, Siva, Turkey (ii) potential for capacity development of ANP in traffic management, crime investigation and general policing duties, under new proposal of ANP training in police training institutions in Indonesia, as part of South-South cooperation.

Media management in MoI and advocacy for police improved.

MoI Department of Media and Public Relations capacitated for delivering on improved police advocacy through technical expertise provided through LOTFA.

Ongoing

On-job-skills of MoI Departments in policy and planning improved.

All MoI Departments better capacitated for policy making and developing annual work plans for implementation of NPS and NPP through conduct of 3 workshops in partnership with DFID-UK.

Ongoing

Gender awareness across all levels of police increased.

Enhanced gender awareness in MoI through conduct of gender awareness / mainstreaming activities, particularly at provincial level(including transition ones).

70%

Capacity of MoI-GMU and ANPWA strengthened.

Improved capacity and independent decision making ability of MoI-GMU and ANPWA at central and provincial level (including in transition provinces) through provision of technical, logistics and administrative support.

Ongoing

Pillar 3: Community Policing: Building of effective police-community partnerships under police-e-mardumi project:

Activity Results Description Target Progress

Police-community relations strengthened for resolution of local issues and information sharing.

Improved security, info sharing and resolution of cases through conduct of police-community meetings in 8 districts of Kabul and 14 districts of Nangarhar and Laghman, with participation of cross section of communities, including women; Multi-lot RFPs evaluated for civil society facilitation of police-community consultations in identified expansion districts; lots for consultations in 38 districts submitted to UNDP Regional Bureau for approval. Lots for 14 districts to be re-advertised.

100% administrative process for evaluation of RFPs; Ongoing for future process

Knowledge and advocacy for local police work improved.

Advancement in knowledge building and advocacy through interaction with civil society, DDA members, district administration,

80 - 90%



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Activity Results Description Target Progress local parliamentarians and media. (Contracts awarded for university outreach, seminars and CP best practices, which also have advocacy components).

Women’s platform promoted for building knowledge on policing issues.

Greater empowerment of women in policing issues through continued functioning of women shuras in some districts of Kabul. [In response to RFP for establishment of women’s platforms in Phase-II districts, no qualified proposal received and will be re-advertised).

Ongoing

CRCs established and police capacity improved for better service delivery.

Public complaints mechanism strengthened through operation of CRC (number 100 helpline). RFPs evaluated for setting up of CRCs in Herat, Balkh and Nangarhar police zones.

100% RFP evaluation process; Ongoing future process

Police - community information sharing systems improved.

Strengthened information sharing mechanisms through advancement in establishment of information desks in police stations in 12 additional districts in Kabul, Nangarhar and Herat; 6-month contract awarded for info desks in 31 additional districts.

Ongoing

Public awareness raised of local police work and for communities to reach out to the police.

Reinvigorated public awareness through re-launch of media campaign in Kandahar region covering all southern provinces. [RFP recalled for public awareness and education campaign for Herat, Balkh and Nangarhar regions as MoI in process of standardizing all operating systems (helpline No 119)].

Ongoing

1.5 Management Arrangements

The Project was designated to Ministry of Interior (MoI) as an implementing Agency and Ministry of Finance (MoF) as implementing Partner for the LOTFA under the national implementation (NIM) modality. The Implementing Agency is therefore responsible for the overall achievements of the results, for the UNDP - assigned project and the full involvement of the relevant Departments in the project activities. Stakeholders of the Project The Project is implemented through the involvement of following stakeholders: Implementing Agency

In particular, implementing agency is required to: a) Assign, in consultation with UNDP, a National Director for the project who



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will support the Project and serve as focal point on the part of the Government.

b) Identify, designate, and make available on a full time basis among its own personnel the staff that may be required and will serve as a direct counterpart to, and work in close cooperation with, the Management Support Unit in particular within the Finance, Procurement and Construction Departments.

c) Provide adequate office space and facilities, individual identification, and access to relevant buildings to the Project staff.

Implementing Partners

The MoF acts as an implementing partner for the purpose of reimbursement of National Budget expenditures and the individualized payment to police personnel. Other implementing partners may be selected by the Implementing Agency for the carrying out of specific activities under the Project.

Project Steering Committee

To ensure co-ordination among the main stakeholders and effective, efficient and transparent utilization of the inputs made available to the project, a Steering Committee is already in place. The Steering Committee is chaired by the Ministry of Interior, with representation from MoF, Ministry of Justice (MoJ), United Nations Assistance Mission in Afghanistan, UNDP and all LOTFA donors.

Management Support Unit

Management Support Unit (MSU) was established under the supervision of the Implementing Agency to carry out the tasks that cannot be handled by the existing Government mechanism and strengthen its capacity, and transfer the necessary skills to the relevant Government Counterparts. MSU is managed by an international Project Manager and supported by an International Technical Advisor/Monitoring & Evaluation expert in support to National Implementation of the project by the Government and for the coordination of the project activities, liaise with partners and stakeholders, is focused on qualitative monitoring of the LOTFA activities, coordinate the activities of the monitoring sub-committee, ensure actions on findings, prepare reports, support resource mobilization and donor relations, with a view of ensuring that the necessary capacity be built within the Ministry. The unit would include national staff.

UNDP Country Office Under the supervision and leadership of the Steering Committee and in close consultation and cooperation with the Mol and other technical institutions, the LOTFA administrator (UNDP) is responsible for the overall fiduciary management of the project. UNDP supports resource mobilization for the project, ensuring that the necessary staff and other inputs be available at its country office in support to the project, as required. UNDP has appointed a project manager who organizes and lead a project team to provide management, technical and operational support to the project. The project manager is responsible for overall project management and ensures achieving the intended results. Also the increase in the size, scale and complexity



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of LOTFA, the pursuit of reforms by the Ministry of Interior, need for strengthening accountability systems, together with weak government capacities have a major impact on how LOTFA is managed. Engaging in all of the stated requires extensive preparatory work, negotiations, follow-up support, continued monitoring of additional elements, and expenditure, review of work plans and reports, coordination as well as dialogue with government partners and donor agencies. This requires considerable engagement of the UNDP Country Office's and Headquarters’ senior international and national staff including operational and oversight management units.

1.6 Monitoring and Evaluation Monitoring will be conducted by UNDP on a regular basis to oversee the quality, quantity and timeliness of progress towards delivering intended results and benchmarks identified in the Results and Resource Framework and Annual Work Plan. UNDP closely monitors the project in line with its Results Based Management principles and using relevant tools and technical assessments done by other project and partners. The progress and quality of the deliverables being produced is assessed based on the quality criteria established in the indicators, targets and benchmarks as per the planned schedule. If changes are required, the Deliverable Description and/or schedule is updated in a form of Quarterly Plan and presented at the Steering Committee meeting. Any project implementation issues are recorded in the progress report and critical issues (such as time and resource plan) are brought to the attention of the Steering Committee members by the Project Manager. Quarterly progress reports are submitted by the Project Manager to UNDP for Project Assurance and to the Steering Committee. An annual progress report is produced with more focus on the extent to which progress is being made towards outputs. In order to address the need to monitor and support financial management and accountability practices until capacity of the Mol is built in these areas, an independent Monitoring Agent (MA) would be contracted to monitor and review disbursements, payments, accounting and reporting for LOTFA activities. The project is also subject to audit in accordance with the UNDP programming procedures.

1.7 Project Budget& Funding

Original project budget by outputs for the project for the period from Jan 2011-March 2013 (Phase VI)is as follows:

Description Budget (USD) Pillar 1 output 1: a. Police force remuneration 1,266,891,406 b. Remuneration of uniformed personnel of CPD 36,413,532 Pillar 1 output 2: a. Procurement of equipments 21,000,000b. Construction of police infrastructure 16,000,000



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Pillar 2 output 1: Capacity of MoI developed in identified areas and administrative institutions strengthened 16,133,135 Pillar 2 output 2: Improved capacity in police force with enhanced gender balance 3,408,907 Pillar 3 output 1: Policing community partnership strengthen for enhanced local security, service delivery and accountability 13,936,680 Others: Project management support unit 4,767,612GSM @ 4% 55,142,051 Total 1,433,693,322

(Source: Project Document Jan 2011-March 2013, inclusive of GMS @ 4%)

Funding

The status of the donor-wise financing, transfer of funds from Phase V and interest earned on funds for the Project is laid out in the table below;

Donor Name

Amount Committed

Amount Rece ived to Date

Balance Receivabl

e

Amount Transferred from Phase

V-VI

Total Avai lable

Funds

Amount US$ Denmark 6,939,844 6,939,844 - - 6,939,844 Canada 12,337,397 12,337,397 - - 12,337,397 EU 54,333,333 51,616,667 2,716,666 48,919,334 100,536,001 Finland 5,442,177 3,500,345 1,941,832 - 3,500,345 Germany 48,511,628 48,511,628 - - 72618722 Italy 1,225,014 1,225,014 - - 1,225,014 Japan 240,000,000 240,000,000 - - 248,659,605 Netherlands 14,666,667 14,666,667 - - 14,666,667 Norway 15,938,297 15,938,297 - - 15,938,297 Switzerland 2,672,832 2,672,832 - - 2,672,832 USA 257,074,432 257,074,432 - 136,396,913 393,471,345 UK 13,319,459 13,319,459 - - 13,319,459 Interest 1,451,019 1,451,019 - - 1,451,019 Total 887,336,547

(Source: Annual Progress report 2011)

1.8 Review of Project’s Progress

Delivery status The Output/ Activity-wise cumulative delivery status of the Project for the period

from 01 January2011 to 31 December 2011is as follows:

Project Output Budget 2011 Expenditure

2011 Delivery

Rate Pillar 1 Police Remuneration 549,613,520 546,098,882 99.36% CPD Remuneration 15,642,445 15,639,515 99.98% Electronic Payroll System 510,000 459,037 90.01% Procurement of non-lethal equipments 2,247,650 2,194,111 97.62% Police infrastructure 2,209,132 1,341,786 60.74% GMS fee @ 4% 22,808,910 22,629,333 99.21% Total Pillar 1 593,031,657 588,362,664 99.21%



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Project Output Budget 2011 Expenditure

2011 Delivery

Rate Pillar II Capacity development 6,186,430 4,179,890 67.57% Gender mainstreaming 1,130,000 1,129,941 99.99% GMS fee @ 4% 292,657 212393 72.57% Total Pillar II 7,609,087 5,522,224 72.57% Pillar III Capacity development 660,000 56,340 8.54% Public- Police relation development 1,449,985 825,297 56.92% GMS fee @ 4% 84,399 35,265 41.78% Total Pillar III 2,194,384 916,902 41.78% Project management unit (PMU) 2,128,215 1,941,535 91.23%GMS fee @ 4% 27,050 22,229 82.18% Total PMU 2,155,265 1,963,764 91.11% Grand Total 604,990,393 596,765,554 98.64%

(Source: Annual Progress Report 2011)

Status of planned activities We have reviewed progress of the Project’s activities and the status of the Project’s implementation as of 31 December 2011. Our review was based on Project’s annual progress reports, Project document LOTFA- Phase-VI, combined delivery report (CDR)liaisons with implementing partners, Monitoring and evaluation agent report, our discussions with the Project’s management, observation during the course of audit and supporting information/documents. Based on our review of the above, the status of project activities as of 31 December 2011is as follows: Pillar I: Support to the police remunerations and police infrastructure 1. Police force is supported to perform their jobs effectively and efficiently:

a) Ensuring payment of police and CPD salaries LOTFA reimbursed police remunerations of ANP in all 34 provinces and ensured that the payments were made in a timely and transparent manner. During 2011, the combined expenditure for police salaries and food allowance (as per LOTFA mandate) totaled USD 560.40 million. Additionally, there was a release of USD 160 million as advance to MoF forQuarter-1/ 2012 to ensure continuity in payment of ANP remunerations. The food allowance of CPD was covered by MoF from internal resources.

Further, we understand from our discussions with management that important agreements have been reached with MoF towards fiscal sustainability of LOTFA expenditures i.e. MOF taking over 3% of police salary budget and food allowance of 82,000 ANP in 1390 (commenced March 2011) and 7.5% of salary budget and food allowance of 98,239 ANP in 1391 (March 2012) from its own revenues.

b) Computerization of police payroll system and expansion of centralized web-

based (EPS)



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During 2011, EPS remained operational in all 34 provinces, including 65 client payroll stations in Kabul zone and MoI central departments, covering around 136,080 police personnel. Of this, 20,276 new police were added during 2011, constituting 99.2% of the total existing police force (17.5% increase of police numbers over 2010). Additionally, 83% of CPD personnel were covered under EPS, and work is in progress for covering the remaining personnel, as management capacity is further developed.

Further, work was considerably advanced during 2011 by the LOTFA-EPS team on the expansion and monitoring of the web-based database application system for centralizing payroll and personnel information at one central server. During 2010, Parwan, Kapisa, Panjsher, Herat provinces had been covered under the WEPS (all transition provinces except Kapisa). During 2011, 10 additional provinces of Bamiyan, Balkh, Takhar, Kunduz, Laghman, Nangarhar, Faryab, Kandahar and Baghlan were covered bringing the total to 14 provinces.

c) Expediting the EFT and Advancement of alternate salary transfer mechanism

During 2011 Electronic fund transfer (EFT) continued to be functional in all 34 provinces not all districts. The number of uniformed police personnel who received salaries by EFT by the end of 2011 reached approximately 110,728 (17,454 new police), constituting 82%of the total existing police force 18.7% increase of police numbers over 2010). Additionally,83% of CPD personnel were covered under EFT (5% increase over 2010). The LOTFAEPS team continued to liaise with commercial banks for expansion of the branches to cover more districts, but the instability of the New Kabul Bank situation having the largest infrastructure at the district level kept the process somewhat stalled. In parallel, alternative salary transfer mechanism M-Paisa was advanced particularly for inaccessible regions.

In 2010, M-paisa was introduced to 3 districts of Wardak and 2 districts of Khost provinces covering 255 police staffs. In 2011, the M-paisa was advanced to 4 additional districts in Badakhshan with total coverage in all pilot districts of Khost, Wardak and Badakhshan reaching around 466 personnel (211 new personnel; 83% increase over 2010).

d) Progressive Transfer of EPS/EFT processes and core functions to MoI

The progressive transfer of EPS/EFT was continued in 2011 when 65% of EPS and 80% of core EFT functions were handed over (i.e. production of EPS reports at sub-national level, commercial bank liaison, tracking of bank accounts, data back-up) in keeping with transition goal of GoA ownership.

e) Monitoring and Evaluation

The project undertook various M&E mechanisms for ensuring efficient and accountable deliverables. These included the services of the independent LOTFA Monitoring Agent for better oversight on the project expenditure, as well as capacity development in financial management, fiduciary reviews and accounting systems for application of better controls in these areas. The MA team remained positioned in all the police zones and was provided robust LOTFA oversight. Weekly, monthly and quarterly reports were regularly shared with all stakeholders.



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Pillar II: Consolidated capacity development and institutional reform of MoI

1. Police force equipped with required equipment and infrastructure for

improved mobility, responsiveness, operational efficiency and morale

a) Procurement of non-lethal police equipment During quarter-1 “the MoI Drug Rehabilitation Centre” was officially \inaugurated in with supply of medicines, vehicles, laboratory as well as house-keeping equipment. More than 1,400 police were successfully treated at the Centre, after which they could return to operational duties. Further, at Police Training Centres (PTCs) in Adraskan, Herat and Kabul; all gym, IT, stationery, logistics, clothing and training equipments were delivered. The equipments were considered by the management of PTCs as vital training assets towards improvement of police operational efficiency and responsiveness.

b) Construction of police infrastructure

In mid 2011, construction of Ghor Police Training Centre funded by Japan was cancelled by donor due to change in MoI priorities although the processes for design and construction contract were finalized in liaison with all relevant MoI departments as well as the Japanese Embassy. Further, over 2011 43% of the work was completed on construction of housing for families of ANP martyrs and disabled in District 4 under Italian funding.

2. Capacity of MoI developed in identified areas and administrative institutional

systems strengthened

a) Strengthening of MoI institutional system/administrative enablers

During the year, work was progressed on the long-term skills development of identified MoI administrative departments for providing enabling environment for police professionalization, in keeping with the Minister’s key priority. Towards this: (i) Systems development of finance, procurement, logistics, information and communications technology (ICT) departments was prioritized for needs-based capacity assessment. (ii) Six technical specialists were assigned to MoI Departments of Finance & Budget, Procurement and Logistics for provision of on-the-job mentorship and sustainable skills development of MoI officials. (iii) Three batches of 100 officials each, ranking from 2nd Lieutenant to Major from all administrative departments from Kabul as well as regional and provincial police HQs were provided month-long training programmes from August– October, 2011, at the Kabul Police Academy for consolidated knowledge enhancement in police administrative disciplines towards more efficient functioning; (iv) As part of the curriculum, short capsules was delivered on anti-corruption disciplines by the UNDP-ACT.

Additionally, 75 training sessions were conducted by the MA for 965 finance, procurement, logistics and HR officials from all police zones on payroll risks and controls, accounting, inventory management, contract management and



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regulations, internal controls, storekeeping, human resource management and procurement law and regulations.

b) Supporting programmes for ANP leadership development

Leadership development is a top MoI priority for building the ANP in the transition phase for taking on independent responsibilities and leadership roles. Towards this, 500 ANP cadets were set on course for becoming multi-faceted leaders of the 21st century through a 6-month leadership training programme in Sivas, Turkey, which was completed in 2011

3.Improved capacity of police force with enhanced gender balance

a) Undertaking of female recruitment campaigns

Around 300 new female police were recruited during 2011 (9% increase over 2010) bringing the total number of Afghan police women to around 1,300. Recruitment missions were undertaken to Wardak, Bamiyan, Panjsher, Parwan, Kunduz, Faryab and Kandahar. The key constraints for enhanced female recruitments identified by the provincial authorities were; lack of female accommodation at the regional training centers, insufficient positions for females in the tashkil and lack of a clear-cut delineation of operational responsibilities for the female police.

b) Gender capacity and institution development activities

Two 3-month leadership, management and accounting training courses for 42 senior ANP female officers were organized at the Kabul Police Academy in two phases, one at the level of Lieutenant Colonel and above, and the other at the level of below Lieutenant Colonel based on needs analysis of female leadership development. This type of on-the-job training was assessed to be a key component of that strategy.

c) Conduct of gender awareness and mainstreaming activities

During 2011, supplementary gender awareness material, including1390 calendars on gender themes, posters, brochures, flipcharts, stickers and guide books were printed and distributed to the provincial police Education Departments and GMUs.

LOTFA participated in the Elimination of Violence Against Women (EVAW) campaign led by UN Women thorough publicizing of the theme through billboards in all 34 provinces, distribution of illustrative notebooks and talks by senior female police officials in girls’ schools for building awareness.

d) Conduct of gender awareness and mainstreaming activities

GMU /MoI was provided sustained logistics support at central and provincial level, including in transition provinces to further enhance its day-to-day functional capability. Office and IT equipments were procured for the GMU units in Kabul and regions, towards regional gender enhancements.



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Over the previous two years, LOTFA had established the Afghan National Police Women Association (ANPWA) in MoI (Kabul) and targeted regional zones of Nangarhar, Herat and Balkh as an informal platform for recruited women police to share experiences and concerns. Monthly meetings of the ANPWA were facilitated. On-the-job training towards formulation of project proposals was provided, as a capacity development measure.

Pillar 3: Community policing: Building of effective police community

partnerships under police-e-mardumi project

1. Police community partnerships strengthened for enhanced for enhanced local security, service delivery and accountability

a) Institutionalization of police-community meetings

Institutional mechanisms were established in the pilot phase in 8 districts of Kabul for regular police-community interface that continued to be functional for resolution of local issues and information sharing. For the phase-II provincial expansion, community consultations in 14 districts / sub-districts of Nangarhar and Laghman were progressed while the RFPs relating to the remaining districts were sent up for approval to the relevant UNDP channel or re-advertised on the account of lack of technically qualified responses. The results based on periodic assessments by MoI-LOTFA-NTM-A were encouraging.

Additionally, police and community sports programme to strengthen police and community relationships and improve police fitness and discipline were commenced in eight districts of Nangarhar province, six districts in Jalalabad city and one district in Laghman province. As precursors to actual sports events, information sessions were conducted highlighting relevant aspects of the constitution, laws and religious teachings that touched on the need for strong cooperation between the police and the community and the health and discipline benefits to both the police and community from participating in sport.

b) Knowledge building and advocacy on community policing issues Interaction with civil society organizations and media was undertaken for advocacy on local policing and security issues. Contracts were awarded in Quarter-4 relating to (i) 5 Universities outreach, (ii) community policing best practices documentary, and (iii) conduct of series of policy seminars – which have integral components of advocacy. During 2011, awareness building regional workshops were organized in Balkh, Herat, Panjsher, Parwan and Nangarhar with participation of regional and provincial police chiefs, Governors, local communities and civil society. This contributed to enhanced knowledge about policing roles among the local communities.

c) Promotion of women’s platform to build knowledge on

In the pilot phase of this activity, women’s shuras were established n 7 Kabul pilot districts. Women’s views on security matters were considered to be productive and taken more seriously by the police towards enhanced service delivery. A Conference on Women and Security was held on 8-9 October, 2011, which came up with strong recommendations relating to



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gender justice, gender and crime, women’s rights, access to 119 helpline and Afghan law relating to women.

d) Establishment of CRCs and trainings on service delivery for the police The Kandahar Police Crisis Response Centre (CRC/No. 100 helpline) was set up and operational trainings on SOP procedures provided for receiving and following up on complaints. As per the feed-back from MoI, Kandahar CRC received around 400 calls per day, of which 8-10 were valid cases relating to insurgency, street fighting and seeking general information on police services. Building on this, there was proposal for setting up of CRCs in Herat, Balkh and Nangarhar police zones but there was some delay in this as MoI was in process of standardizing the 119 number across the country with more advanced operational technology (regional centers were to use the same technological applications as the Kabul centre). The contract will be awarded in the beginning of 2012.

e) Establishment of information desks at police stations

Information desks were established in 12districts (in addition to the 8 pilot districts), 4 each in Kabul, Nangarhar and Herat -to support a positive police-community interface as well as to record and follow-up on complaints. The progress report was shared with all stakeholders.

Another contract for establishment of information desks in additional 31 districts was awarded to the selected firm for a 6-month implementation period and work is in progress. This was complemented with needs-assessment trainings on operation of the desks and equipping the centers with the necessary infrastructure. This led to improved information gathering and sharing between the police and local communities, resulting in better security and police delivery.

f) Development of public awareness/education campaigns using multiple media tools

Public awareness campaigns had been instituted in the pilot phase on ways for the communities to know about the police work, reach out to the police for seeking effective assistance and rendering information on local issues (including on insurgent activity).For the provincial expansion phase, during Quarter-3, there was a proposal for public awareness and education campaign for Herat, Balkh and Nangarhar regions. However, the RFP had to be recalled as MoI was in process of standardizing the central 119 centre and wanted the same system to be used for all provincial public awareness tools. A competitive International Police Film Festival was also finalized in which grants are proposed to be given to 10 best proposals for production of short films based on police themes specific to local communities. This is expected to encourage positive developments between police and local Afghans in the civil security and peace-building process. Apart from showcasing the perspectives that define the ANP, it will provide a springboard for dialogue between the MoI and civil society.



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1.9 Review of Monitoring and Evaluation

We reviewed the minutes of the meetings of the Steering Committee and assessed whether the clear guideline is provided on the implementation of the project activities and regular oversight is exercised through required quarterly meetings. Regular steering committee meetings were held during the quarter. Further, we reviewed the annual work plan, project document and progress reports and monthly reports of monitoring agent.

1.10 Field Visits

We conducted field visits to Central Ministry Kabul, Jalalabad, Kandahar Herat and Kabul Province and reviewed the documents. Our review included the verification of expenses at site offices, review of police personnel files and review of procurement documents. We also conducted visits to police stations on test basis and interviewed the policemen.

1.11 Review of Project Progress and Assessment of Internal Control Systems

a) Review of Project Progress

We reviewed the management aspects in terms of Project approvals, work plans, budget formulations, Project resources, monitoring and evaluation of implementation towards achievement the Project objectives and periodic progress reporting against planned objectives and work plans.

Findings in this specific area are as follows;

Limited Monitoring of Government disbursements by UNDP LOTFA Reconciliation for differences between salary records of Ministry of interior

and Ministry of Finance was not prepared at Central Ministry, Kabul office and Jalalabad office.

Continued uncertainty regarding New Kabul Bank, with potential implication for LOTFA funds as most ANP accounts are maintained in Kabul Bank risking payment of salaries to ANP

b) Assessment of Internal control

We have assessed the adequacy of operational and internal control systems by reviewing the following areas:

Human Resources Finance Procurement Asset Management Cash Management General Administration Information Systems

Results of our assessment of internal control systems in the areas as discussed earlier are produced briefly along with standard audit ratings as per Annexure 1. Based on our assessment, overall rating is Satisfactory.



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Finance We evaluated the adequacy of the accounting and financial operations and reportingsystems. These include review of controls relating to budget control, cash management, certification and approving authority,receipt of funds, disbursement of funds, recording of all financial transactions in expenditure reports, records maintenance and control. Specific procedures included the following:

Review the implementing partner accounting records and assess their adequacy formaintaining accurate and complete records of receipts and disbursements of cash; and forsupporting the preparation of quarterly financial report.

Review expenditures made by MoI and assess whether these are inaccordance with project document, annual work plan and budgets; and are in compliance with theUNDP User Guide on Results Management.

Review the records of requests for direct payments and ensure that they were signed and approved byauthorised government and UNDP country office officials.

Findings in this specific area are as follows; Limited cases of double Payment of salaries in Kandahar and difference between

number of police personnel as per HR and EPS records Non-compliance with provisions of Afghanistan Income Tax Law

Based on our assessment of this area our comment on rating for this area is Partially Satisfactory. Human Resources Our review in this particular area covered the internal controls to ensure the competitiveness, transparency and effectiveness of the recruitmentprocedures for hiring of personnel and further internal controls relating to performance appraisal, attendance control and management of personnel records.

Specific procedures included review of the process for recruiting project personnel and consultants and assess whether itwas transparent and competitive.

Review of personnel files of project personnel and police to assess proper management of personnel records

Based on our assessment of this area our comment on rating for this area is Satisfactory.

Procurement We evaluated the competitiveness, transparency and effectiveness of theprocurement activities of the Project in order to ensure that the equipment and services purchasedmeet the requirement of LOTFA and review the internal controls including:



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Delegations of authorities, procurement thresholds, call for bids andproposals, evaluation of bids and proposals and approval/signature of contracts andpurchase orders;

Preparation of receiving and inspection procedures to determine the conformity of equipment with theagreed specifications and, when applicable, the use of independent experts to inspect thedelivery of highly technical and expensive equipment;

Evaluation of the procedures established to mitigate the risk of purchasing equipment thatdo not meet specifications or is later proven to be defective;

Management and control over the variation orders.

We also evaluated the use of consulting firms and theadequacy of procedures to obtain fully qualified and experienced personnel and assessment oftheir work before final payment is made. Specific procedures included review the process for procurement/contracting

activities and assess whether it wastransparent and competitive. Based on our assessment of this area our comment on rating for this area is Satisfactory. Asset Management We reviewed the adequacy of the procedures for receipt, storage, and disposal of the equipment including vehicles and office equipment purchased for the use of the Project. Specific procedures included review the use, control and disposal of non-expendable equipment and assess whether itis in compliance with UNDP User Guide on Results Management; and also whether theequipment procured met the identified needs and whether its use was in line withintended purposes. Based on our assessment of this area our comment on rating for this area is Satisfactory. Cash Management We reviewed the adequacy of the operational and internal controls relating to cash funds held by the Project and review procedures forsafeguarding of cash. Based on our assessment of this area our comment on rating for this area is Satisfactory. General Administration We reviewed the operational and internal controls relating to travel activities, vehicle management, shipping services, officepremises and lease management, office communications, and records maintenance. Based on our assessment of this area our comment on rating for this area is Satisfactory.



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Information Systems We assessed the adequacy, efficiency and security of the information systems, particularly those established and maintained from project funds to meet the management and reporting requirements of the Project. Findings in this specific area are as follows; Lack of or inadequate information system controls and checks Based on our assessment of this area our comment on rating for this area is Satisfactory.

1.12 Acknowledgement

We wish to place on record our thanks and appreciation to the management of the Project, relevant Government personnel in Ministries and UNDP Country Office of Afghanistan for the cooperation extended to us during the audit.



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2. Detailed audit observations

Observation No: 1 Audit area: Project Management Issue title: Limited monitoring of Government disbursements’

procedures by UNDP LOTFA Condition Salaries of police staff are initiated by Ministry of Interior (MoI) based on records from Electronic Payroll System (EPS) and province-wise departmental payrolls are prepared in the form of M-41 together with payment voucher in the form of M-16. The information is directly submitted to Ministry of Finance (MoF) for its review and processing. Upon completion of all relevant reviews and approvals by MoF, bank intimation letters for transfer of funds are circularized to Da Afghanistan Bank (DAB) with copy to MoI, from where it is forwarded to the concerned departments. The concerned personnel from all departments approach their relevant banks with details regarding staff salaries and bank accounts for transfer of payments accordingly. We observed that a limited review and monitoring is being carried out by UNDP LOTFA Project over this process from inception to final payment to the police force. Criteria As per UNDP Monitoring and Evaluation policy, Monitoring and evaluation are essential management functions that are interactive and mutually supportive. Monitoring and evaluation must be continuously strengthened to enable UNDP to respond to demands for: Greater accountability in the use of resources; A clearer basis for decision-making; and More practical lessons from experience to guide future development

interventions. Cause

Lack of/or inadequate guidance/supervision at project level Impact or risk Limited monitoring of Government disbursement may have the following impacts/risks; Funds may be utilized for purposes/activities other than the project objectives. Funds may be utilized for activities not included in the Annual Work Plan. Excessive costs may be incurred for project activities leading to inefficiencies. Financial irregularities at project level may remain unidentified on timely basis. Payments may be made for activities not actually incurred.

Recommendation We recommend that LOTFA Project management should continue reviewing EPS data on regular basis to avoid any human errors and thereby ensure that all the information from EPS is updated on regular intervals for staff inducted and or



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terminated and the line ministries documentation is complete, in-line with the government rules and regulations and processed adequately. Risk level High Management comments LOTFA can only play a limited role in monitoring the government disbursement procedures EPS data is already updated on monthly basis, and shared with stakeholders However, LOTFA will assign EPS team to undertake regular checks and monitor EPS data to ensure further improvement in data accuracy and avoid possible human errors. Responsible Manager Project Manager Expected Completion Date 31 May 2012



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Observation No: 2 Audit area: Project Management Issue title: Reconciliation of records between MoI and MoF not

prepared on quarterly basis Condition While reviewing the information flow of police force salary disbursements, we have observed differences between salary and food expenses records of MoI and MoF.We were given understanding by the Project management that these are timing differences because reports from provinces are received late due to security and logistics concerns and at times payments are delayed/ rejected by MoF due to non-availability of budgets or non-compliance of certain procedural activities by MoI. We were also given understanding that reconciliation is prepared on annual basis. However, we noted that the reconciliation between salary and food expenses records of MoI and MoF was not prepared till the date of this report at Central Ministry whereas in Jalalabad, Kabul, Herat and Kandahar offices MoF data regarding police salaries in the form of AFMIS reports was not available. Criteria Since data entry errors or other types of mistakes may occur when information is recorded from various sources, it is important to identify those errors and make corrections on timely basis. Account reconciliations are an important component of internal control strategy designed to reduce risks and ensure quality of financial information. Timely reconciliation of project records provides effective control over project activities and also helps to detect mistakes/errors in financial records on timely basis. Cause

Lack of/or inadequate guidance/supervision at project level Lack of/or insufficient human and technical resources

Impact or risk There is a risk that the timing differences are not reconciled on timely basis; and There is a risk of overstatement/understatement of salary and food expense in

monthly reporting and risk of inappropriate use of resources of the Project. Recommendation We recommend that salary and food expenses reconciliation between records as

per Ministry of Finance (MoF) and Ministry of Interior (MoI) should be prepared on regular intervals at least on quarterly basis as appropriate.

We further recommend that measures should be taken to get the information from provinces on timely basis and provinces that lack adequate resources to submit the required information within the stipulated time should be equipped with the minimum required relevant support for an efficient and effective submission of the information.



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Risk level High Management comments The discrepancies are due to timing differences and reports from provinces are not received by MoI on timely manner due to security and logistics constraints. Sometimes payments are delayed/ rejected by MoF due to non-availability of allotment. The final reconciliation is only maintained on annual basis upon receipt of complete annual data from provinces. Reconciliation for 1389 was shown to the audit team and the team was satisfied with it. For 1390, the complete MoI data will be available from all provinces around a month after the closure of the AFY. However, the full reconciliation has been done with MoF AFMIS. Quarterly reconciliation is possible but it will not fully accurate and complete. As per GoA financial management system the reconciliation is due at the end of each financial year. Besides, transfer of documents from vulnerable provinces is risky practice for MoI and it is may not be possible to get these documents from remote provinces on quarterly basis. The recommendation is noted. Responsible Manager Project Manager Expected Completion Date 15 June 2012



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Observation No: 3 Audit area: Project Management Issue title: Uncertainty regarding New Kabul Bank Condition We observed that around 83% of the police force salaries are paid through Electronic Fund Transfer (EFT) mechanism and as designated disbursement agent, police staffs have to maintain their bank accounts with New Kabul Bank. It is worth mentioning that there had been reports in early August 2010 about misappropriations and large financial losses in Kabul Bank, the operations of which have been taken over by the New Kabul Bank. No analysis of risks involved has been carried out and documented to continue maintaining accounts of police staffs in the New Kabul Bank. Criteria As per the requirements of Project documents, the Project under its consolidated 3 pillars’ window has to cover the following prioritized components including but not limited to; Payment of police force remuneration. Payment of remuneration of uniformed personnel employed by the Central Prison

Department (CPD). Cause

Inadequate planning

Impact or risk Uncertainty attached to New Kabul Bank due to takeover of operations of Kabul Bank may affect payment of salaries to Police and Central Prison Department (CPD).

Recommendation We recommend that Project management should take appropriate steps and encourage Ministry of Finance to expand the banking base by awarding contracts to other banks operating in Afghanistan for payments of police force salaries in order to diversify the risks relating to payment of police remunerations through only one bank. Risk level Medium Management comments The issue has been raised several times with MoF and also raised regularly at LOTFA Steering Committee meetings. MoF has provided complete assurances for smooth operations of New Kabul Bank. The salary payments have not been affected in any manner. In worst case scenario, MoF has alternative Option B of “payment by list” but this is not likely to happen. Award of contracts to other banks is fully MoF decision. However other banks have not yet expanded their branches on provincial and district level which is a gradual process and require resources, infrastructure and authorizations from the Central Bank. 4 banks were contracted initially for the



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services of government employees, but apart from new Kabul Bank, only Azizi Bank was part of EFT initiation and that too, only in Khost and Nanagarhar provinces. Other banks were have not been able to establish banking infrastructure at provincial levels for police at provincial levels. Responsible Manager Project Manager Expected Completion Date 30 September 2012



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Observation No: 4 Audit area: Finance Issue title: Limited cases of double payment of salaries in Kandahar

and difference between number of police personnel as per HR and EPS records

Condition During the course of our field visit to Jalalabad and Kandahar offices, we noted certain instances of double payments of salaries in employees’ bank accounts. We observed that data of some employees was posted twice in Form M-41 (EPS) which resulted in double payment of salaries to the employees. Further, we noted certain instances where EPS contained different employee names with the same bank account numbers. Instances where double payments of salaries were found in Kandahar Office are as follows:

Name of Staff Father Name Bank A/C # Department Designation Amount

(Afs) Abdullah Rajab 005-66705679

Police Hawza 7

Kandahar Sarabaz Police Milli

11,537

Abdullah Rajab 005-66705679

QataGarnizon Q 1 Kandahar

Sarabaz Police Milli

11,537

Abdul Raziq Amir Mohammad

005-66689189

Police Hawza 2 Kandahar


11,537

Abdul Raziq Amir Mohammad

005-66689189

Police Hawza 12 Kandahar


11,537

Shafqatullah A.Zahir 005-66723166 Kamarband officers

11,537

Shafqatullah A.Zahir 005-66723166 KandakKamar bank shehriNo.1

3rdSatanman 13,174

Abdul Karim M. Rahim 1005112005851 Police TooliQarargah


11,537

M.Karim Abdul Rahim 1005112005851 Police TooliQarargah


11,537

Bashir Ahmed Fida Mohammad

005-66702643 Q 1 Pinjwai Kabul Bank


11,537

Bashir Ahmed Fida Mohammad

005-66702643 Police Hawza 15 Kandahar


11,537

Abdul Hameed

Gul Ahmed 005-66731091

Q 1 maiwand Kabul Bank


11,537

Abdul Hameed

Gul Ahmed 005-66731091



11,537

Abdul Hameed

Gul Ahmed 005-66731091



11,537

Instances where EPS data contained different employee names with same bank account numbers resulting in double payment of salaries in a single account in Jalalabad office;

Name of Staff

Father Name

Bank A/C # Department Designation Amount

(Afs) Ningyali Kalamdin 00701481018361 Q 1

WalswaliNazyan

3rdSatanman 11,938

Ningyali M. Zaman 00701481018361

Q 1 WalswaliAche

3rdSatanman 11,939



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Name of Staff

Father Name

Bank A/C # Department Designation Amount

(Afs) en

Auaz Khan Gulroz 00701481033514

Q 1 WalswaliHasarak


10,191

Mir Kalan Khushal 00701481033514

Q 1 WalswaliHasarak


10,191

MujeebUllah A.Rahman 000703103098173 Q 1 WalswaliPajeera gam


10,191

IzatUllah M. Hakim 000703103098173 Q 1 Walswali Kama


10,191

Najeeb ShaftaloGul 000703104305366

Lonistar LumriSatanman

13,839

Ahmed Sharif

Abdul Rafu 000703104305366

Lonistar LumriSatanman

13,840

We also observed differences between number of police personnel as per HR record maintained by MOI and EPS records. We noted that EPS record was showing excess number of police personnel than the number of police personnel appearing in the HR record. Instances of such differences for the month of December 2011 are as under:

Area/Province No. of Staff As Per

HR Record No. of Staff As Per

EPS Record Excess No. of Staff

As Per EPS Asmayi Region 37,414 38,523 1,109 Shumshad HQ 202 346 352 4 Nangarhar 3,205 3,405 200 Parwan 1,171 1,262 91 Kapisa 1,003 1,069 66 Nuristan 2,657 2,658 1 Kunar 1,491 1,920 429 Laghman 1,018 1,043 25 Pamir HQ 300 457 989 532 Balkh 2,339 2,357 18 Kunduz 2,054 2,203 149 Badakhshan 1,884 2,103 219 Jawzjan 1,047 1,085 38 Baghlan 2,904 2,954 50 Samangan 928 933 5 Daikondy 1,033 1,045 12 Paktiya 1,933 1,980 47 Logar 798 1,094 296 Wardak 1,217 1,235 18 Ansar HQ 606 731 914 183 Badghis 1,786 1,834 48

Moreover, we also observed that EPS contained domain/column for National ID card number of employees. However employees’ bank account numbers were used instead of National ID card number. Criteria As per the approved Annual Work Plan the project activities include;



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Production/generation of police computerized payroll transparently, accurately and on timely basis; and

Monitoring and verifying police payments Provision of quality HR data for payroll report

Cause Lack of/or inadequate policies/procedures/guidelines; Lack of/or inadequate guidance/supervision at project level; Inadequate training Human error

Impact or risk

Double payment of salaries to staff results in direct financial losses to the

Project. Differences in personnel records between HR and EPS may have following

impacts/risks: o Salaries may be paid to persons who are not actually on the payroll. o Double payments of salaries may be made to staff members.

Recommendation

We recommend that cases of double payments should be investigated and corrective actions be taken on priority basis. We also recommend that differences between the captioned records should be investigated and reconciled on priority basis. Further, employee’s ID card number should be used in EPS in specified domain and duplication checks should be implemented in EPS to detect similar records.

Risk level High Management comments In general, based on MoF procedures, individual checks are not authorized for unpaid salary from previous month. Payment of previous month salary is recorded in the EPS separately showing double record. Well established manual HR system is in place to make sure that salary is not reported twice. In case of Nangarhar, the audit team revived initial report received from districts which is filtered and worked to prepare unified M-41 (salary report). However, due to attack on New Kabul Bank in Nangarhar the salaries in Qous were temporary paid through “pay by list.” Copies of evidences of individually signed M-41 for the mentioned month, where the payments were only made once to these ANPs, were provided. In the case of Kandahar, there were indeed, 2 cases of double payments. This is a very small size for a Kandahar EPS force size of 9,554 by end 2011. But it is well noted. Directive has been issued by MoI for recovery of these payments. The issue



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will be regularly followed through LOTFA monitoring agent teams in headquarter regions and provinces. In the past too, there were limited instances of double payments reported by the LOTFA Monitoring Agent as well in Kandahar. Soon after receipt of MA report, MoI deployed its internal audit and the money was swiftly recovered. Proof was provided to the auditors. 2. EPS team is already doing reconciliation of data on monthly basis. With respect to use of police ID number in specified domain, ID numbers are indeed, being used in all cases where these are available. However, the ID card process is being handled by DynCorps and they have not been able to issue ID cards to all ANP which are based on physical verification, biometrics, etc. In cased where police ID numbers have not been issued, national ID (tashkira) or registration number is used as unique ID. This system is working well but will continue to monitor. Responsible Manager Project Manager Expected Completion Date 30 June 2012



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Observation No: 5 Audit area: Finance Issue title: Non-compliance with provisions of Afghanistan Income

Tax Law Condition We observed that taxes on salaries of local staff were not withheld and paid to government authorities as per provisions contained in Afghanistan Income Tax Law 2009 for the Service contract holder staff. Criteria Article 58 of Income Tax Law 2009 of Afghanistan states that: “All natural or legal profit and non -profit persons, ministries, state enterprises, municipalities and other State departments employing two or more employees in any month of a year shall be required to withhold taxes as provided in Article 4 of this Law from payment of salaries and wages and pay the amount withheld to the Government account”. Further, UNDP Service Contracts Policies states that: “The remuneration paid to the SC is not exempt from national or local taxation. UNDP is not responsible for payment of tax on earnings or other taxes due on the remuneration of the SC, nor is UNDP responsible for reimbursement of taxes paid by SC holders in respect of earnings received under SC with UNDP. The payment of taxes is the sole responsibility of the individual under SC. UNDP reserves the right to request proof of payment of taxes by the SC holder.” Cause Inadequate guidance/monitoring at UNDP country office level Impact or risk Non-payment of taxes may lead to tax penalties and additional taxes. Moreover, for all income taxes, including staff salaries, provisions of Afghanistan Income Tax Law 2009 supersede any other contractual obligations. Therefore, the liability to withheld and deposit staff taxes rests with the employer and mere insertion of clause in staff contracts cannot eliminate employer’s liability. Recommendation We recommend that the Services Contract holders should comply with the provisions of Afghanistan Income Tax Laws and UNDP service contracts policies whereas measures should be taken by UNDP to resolve all tax related issues with the government authorities. Risk level Medium



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Management comments This is a UNDP management issue. LOTFA will follow up on any directive issued from the CO senior management. Responsible Manager Project Manager Expected Completion Date 31 July2012



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Observation No: 6 Audit area: Information Technology Issue title: Lack of or inadequate information system controls and

checks Condition We observed a number of control discrepancies while reviewing the adequacy, efficiency and security of the information systems in terms of meeting management and reporting requirements of the Project. As Electronic Payroll System plays vital role in initiation, processing and recording of police staff salaries and other relevant payments, we deem it necessary to bring all shortcomings in the system for management to address. These are detailed below: Consolidation of reports from EPS including financial reports comprising of staff

salaries and food allowances records, HR reports etc is prepared manually. EPS System does not provide the options for integrating the offline branches data in a central location to generate the consolidated reports.

The project is using two versions of EPS, of which one is standalone and the other is web based. However there is no integration between both versions of application. Central Office manually prepares the consolidation on the basis of both application data separately.

The MoIis using a decentralized, legacy-based application and security controls are not implemented.

Physical access controls are not implemented by the project to detect, prevent and or mitigate unauthorized access to EPS.

Approvals for user ID are not obtained. IT support staff provides access to the branches’ staffs as per their requirement after visiting the remote office.

User IDs of Electronic Payroll System does not meet standard practice naming conventions.

In certain branches salary is paid to the staff on cash basis. However, there is no option in the EPS to record the cash payment made to the staff.

MoI does not have the documented backup policy, and periodic testing of backup is not properly documented. Further, periodic backup restoration is not being performed to ensure the effectiveness of the backups and the quality of backup media.

Daily application log is not being generated by the application to monitor the activities especially in offline branches where finance staffs authorize changes and use administrator ID to archive the monthly data and make the changes in the parameters.

Criteria Individual criteria are detailed below: As per approved Annual work plan, the project activities include implementation

of centralized web-based EPS system to cover all the provinces. According to risk analysis carried out at project level, the project document raises

question regarding security/confidentially of information and provides assurances to protect the confidentially and security of project’s information by implementing following control techniques:



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Identify clear communication nodal points in each department so that confidential information regarding personnel is not leaked out or available to unauthorized persons under any circumstance; and

The implementation of advance centralized web-based (more secure) EPS payroll

As per standard Information technology practices, following system controls and

checks should be adopted: There should be integration between various systems used by the

entity/project and system should have capability of generating the consolidated reports instead of preparing them manually.

Allocation of user IDs and system access rights should be backed by appropriate approvals to ensure user accountability and integrity/confidentially of information.

User IDs in Information system should follow the standard naming conventions such as allocated employee ID number, National ID number

Information system should have the capability to record and trace the payments

The entity/project should have a documented backup policy as a part of overall information technology policy

The system should have built in monitoring controls and should have the capability to provide logs in respect of user activities to ensure integrity of information

Cause Lack of/or inadequate guidance/supervision at project level Lack of/or inadequate policies/procedures/guidelines Lack of/or insufficient technical resources

Impact or risk Lack of adequate and adoption of standard procedures in information based system critical to the financial reporting and limited monitoring controls and checks might lead to the following substantial risk: Preparation of manual reports may result in under-utilization of the system and

un-necessary overhead expenses. Additionally the manual work increases the risk of human errors as compared against the system automation.

Non-integration of the web-based and standalone applications may have the risks of data redundancy, duplication and vulnerability to manipulation whereas erroneous reporting and human errors might also be caused leading to waste of resources in terms of time, efforts and costs.

Legacy-based applications provide insufficient and ineffective controls over application security and expose entity’s critical data to loss or limiting its confidentiality, integrity and availability.

Lack of proper approval for issuance of user IDs might lead the project to the risks of limited user accountability, inconsistency in assignment of access rights and difficulties in tracking user activities.

In cases where information system does not meet the naming conventions, the project might fail to observe proper accountability of users accessing into the system besides inconsistency in user-ids.



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Not recording cash disbursements to staffs in the EPS might lead to duplicate and or unauthorized to staff and difficulties in tracking payments.

Without regular testing of the backup tapes and cartridges, there is a risk of accidental loss of backup data. Further, in the absence of documentation of backup test results management may not be able to know the errors and problems faced during the restoration process.

Without completion of Logs, there is no assurance that correct changes are implemented, correct data is entered and authorized and parameters are defined according to the instructions.

Recommendation We have provided detailed recommendations as follows: In order to ensure the effective reporting, as well as to reduce the manual

overheads, the consolidation process should be automated in EPS and same system should deploy throughout the regions.

Management should consider integration between web based and standalone EPS application.

The project should deploy WEPS Application covering the current security requirements and standards that fulfils the entity’s medium to long-term business requirements.

Project management should ensure that allocation of user’s ID assigned to each user on application are properly approved and documented.

Project management should establish procedures to ensure that user IDs created in the applications should comply with the best practice naming convention standards.

Management should incorporate appropriate check and balance in system to ensure effective operations of the project activities and to avoid risks relating to cash payments.

Backup data, tapes and devises should be regularly tested to prevent accidental loss. It is prudent to attempt a restore of the system from backup tapes at regular intervals, in order to ensure that the data stored is both usable and appropriate.

Test results should be properly documented and authorized by management and backup should be stored in taps and moved to offside location and IT staff should maintain the inventory of media with proper label showing the time stamp along with backup type.

Project management should consider introducing changes in the system in order to ensure that logs are available for review to verify that the changes are made in data according to the given instructions. Further Logs should be reviewed periodically in order to ensure the compliance of the given instructions.

Risk level Medium Management comments 1. LOTFA developed the new central version payroll for MOI which is under

implementation phase at national and sub-national levels. The subject issue will be resolved soon after full implementation of WEPS.

2. There is full synchronizations between both systems, making data integration easy and efficient.



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3. The system has been built taking into account the role-based security model and only the WEPS administration have the full privilege to give access to end-users.

4. Security logs are regularly maintained by the WEPS/EPS system to monitor the end-user activities.

5. In every payroll station only two end-users are authorized to access the EPS/WEPS: finance officer and EPS Operator.

6. The security naming convention maintained by the system matches the naming convention and it is case sensitive.

7. EPS maintains records for those ANPs which are paid by cash and separate reports prepared on monthly basis.

8. The backup policy is developed and maintained by the MOI ICT and LOTFA is complying with that policy. Besides that, LOTFAEPS has the licensed backup software installed in WEPS main server, which makes back-up the complete image of SQL Server data on timely basis (as per the schedule set by the WEPS administrator) and it is stored in three separate physical locations to ensure the data restoration in case of any disaster.

9. User trace utility is configured and reports generated by the WEPS. However, only WEPS administration have the privilege access the reports.

Responsible Manager Project Manager Expected Completion Date 30 June 2012



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3. Certified prior year (2010) follow-up action plan (attachment)



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ANNEXURE I Definition of Standard Audit Ratings Standard Rating Definition Satisfactory Internal controls and risk management practices were

adequately established and functioning well. No high risk areas were identified. Overall, the office objectives are likely to be achieved.

Partially Satisfactory Internal controls and risk management practices were

generally established and functioning, but needed improvement. One or more high and medium risk areas were identified that may impact on the achievement of office objectives.

Unsatisfactory Internal controls and risk management practices were

either not established or not functioning well. The majority of issues identified were high risk. Hence, on the overall, office objectives are not likely to be achieved.



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ANNEXURE II Categorization of Audit Findings by Risk Severity Priority Definition High Action that is considered imperative to ensure that

UNDP is not exposed to high risk (i.e. failure to take action could result in major consequences and issues).

Medium Action that is considered necessary to avoid exposure

to significant risks (i.e. failure to take action could result in significant consequences).

Low Action that is considered desirables and should result

in enhanced control or better value for money.



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ANNEXURE III Classification of Possible Causes of Audit Findings 1. Lack of/or inadequate policies/procedures/guidelines

2. Lack of/or inadequate guidance/supervision at the project level

3. Inadequate guidance/monitoring at UNDP country office level

4. Lack of/or insufficient resources (financial, human or technical resources)

5. Inadequate planning

6. Inadequate training

7. Human error

8. Intentional overriding of internal controls

9. Inadequate management structure

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