Rural Renewable Energy Agency (RREA) Financial Audit Report...an internal audit department or...
Transcript of Rural Renewable Energy Agency (RREA) Financial Audit Report...an internal audit department or...
Rural Renewable Energy Agency (RREA)
Financial Audit Report
for the period from 1 March 2016 to 30 June 2017
Liberia Renewable Energy Project (LIRENAP)
Project ID: P149683
Donor: World Bank
Grant N°. TF016873 and IDA Credit N°. 5759-LR
December 2017
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Audit of Liberia Renewable Energy Access Project (LIRENAP)
2
Table of contents
EXECUTIVE SUMMARY ....................................................................................................................................... 3 THE AUDIT ENGAGEMENT ................................................................................................................................. 4
Audit Objective .................................................................................................................................................... 4
Scope of the Audit .............................................................................................................................................. 4
EXECUTIVE DIRECTOR’S DECLARATION .........................................................Error! Bookmark not defined. INDEPENDENT AUDITOR'S REPORT – FINANCIAL AUDIT .............................................................................. 6
The Executive Director Responsibility for the Financial Report ......................................................................... 6
Auditor’s Responsibility ...................................................................................................................................... 6
Independence ..................................................................................................................................................... 6
Auditor’s Opinion ................................................................................................................................................ 7
INTERNAL CONTROL FINDINGS ........................................................................................................................ 8 COMPLIANCE FINDINGS ..................................................................................................................................... 9 ANNEXES ............................................................................................................................................................ 12
ANNEX 1: STATEMENT OF FINANCIAL PERFORMANCE ........................................................................... 12
ANNEX 2: USES OF FUNDS BY ACTIVITY .................................................................................................... 13
ANNEX 3: FUND DISBURSEMENT STATUS ................................................................................................. 14
ANNEX 4: SCHEDULE OF FIXED ASSETS .................................................................................................... 15
ANNEX 5: SCHEDULE OF FUND WITHDRAWAL .......................................................................................... 16
ANNEX 6: STATEMENT OF DESIGNATED ACCOUNT ................................................................................. 17
The World Bank has requested this report. The views expressed in this report are those of the external auditor, Moore Stephens LLP, and in no way reflect the official opinion of the World Bank. This report is intended solely for the information and use of RREA and the World Bank. This report should not be used by any other party or for other than its intended purpose.
Audit of Liberia Renewable Energy Access Project (LIRENAP)
3
EXECUTIVE SUMMARY
Moore Stephens LLP entered into an Engagement Agreement with the Rural Renewable Agency in Liberia ("The
national implementing entity") on 22 February 2017 to carry out an audit of Liberia Renewable Energy Access
Project which is funded by the World Bank to increase access to electricity and to foster the use of renewable
energy sources. The period subject to audit was 1 March 2016 to 30 June 2017.
We have provided our audit opinion on the project financial statements in the Audit Opinion section of the report.
The audit findings are summarised in the table below. Details of these are provided in the relevant findings
sections in pages 8 to 11 of the report.
Audit area Overall rating Number of findings per
priority rating Financial impact
High Medium Low
Financial findings Satisfactory None
Internal control findings Partially Satisfactory
- 3 - -
Compliance findings Partially Satisfactory
- 1 - -
TOTAL - 4 - -
Audit of Liberia Renewable Energy Access Project (LIRENAP)
4
THE AUDIT ENGAGEMENT
Audit Objective
The main purpose of the audit was to enable the auditors to express an opinion on the LINERAP financial
statements from 1 March 2016 to 30 June 2017.
The project's accounting system (books and records) provides the basis for the preparation of the PFS was
established to record the financial transactions of the project, and is maintained by the Project's national
implementing entity, RREA.
Scope of the Audit
The audit was conducted in accordance with International Standards on Auditing (ISA) as published by the
International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC),
with special reference to ISA 800 (Auditor’s Report on Special Purpose Audit Engagements) and to relevant
World Bank guidelines. In conducting the project audit, special attention was paid to the following:
Bank financing (and all external financing where the World Bank is not the only financier) has been used in
accordance with the conditions of the relevant financing agreements with due attention to economy and
efficiency, and only for the purposes for which the financing was provided under the LIRENAP project
financing agreements;
Government contribution has been provided and used in accordance with the relevant financing
agreements, with due attention to economy and efficiency, and only forth purposes for which they were
provided;
Works, Goods and Services financed have been procured in accordance with the relevant financing
agreement including specific provisions of the World Bank Procurement Policies and Procedures;
All necessary supporting documents, records, and accounts have been kept in respect of ail project ventures
(including expenditures reported using SOEs or Interim Unaudited Financial Statements (IFRs) methods of
reporting. The auditor is expected to verify that respective reports issued during the period were in
agreement with the underlying books of account;
Designated Accounts have been maintained in accordance with the provisions of the relevant financing
agreements and funds disbursed out of the Accounts were used only for the purpose intended in the
financing agreement;
National laws and regulations have been complied with, and that the financial and accounting procedures
approved for the project (e.g. Operational manual, financial procedures manual, etc.) were followed and
used;
Financial performance of the project is satisfactory.
Assets procured from project funds exist and there is verifiable ownership by the implementing agency or
beneficiaries in line with the financing agreement.
Ineligible expenditures included in withdrawal applications are identified and reimbursed to the Designated
Accounts. These should be separately noted in the audit report.
Audit of Liberia Renewable Energy Access Project (LIRENAP)
5
EXECUTIVE DIRECTOR’S DECLARATION
FOR THE PERIOD FROM 1 MARCH 2016 TO 30 JUNE 2017
Audit of Liberia Renewable Energy Access Project (LIRENAP)
6
INDEPENDENT AUDITOR'S REPORT – FINANCIAL AUDIT
Unqualified Opinion
We have audited the accompanying financial report of Liberia Renewable Energy Project (LIRENAP) (“the
Project”), which comprises the financial statement as at 30 June 2017, and other explanatory notes and the
Executive Director’s Declaration.
The Executive Director Responsibility for the Financial Report
The Executive Director is responsible for the preparation and fair presentation of the financial report and has
determined the accounting policies used as described in Note 1 are consistent with the financial reporting
requirements under the Project’s funding agreement and are appropriate for the needs of the Project. This
responsibility includes establishing and maintaining internal controls relevant to the preparation and fair
presentation of the financial report that is free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable
in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with the International Standards on Auditing which concern Audits and Review of Historical
Financial Information and in accordance with the basic principles and concepts of the International Framework
for Assurance Engagements established by the IFAC for the performance of this audit, insofar as these
standards can be usefully applied in this financial audit and its specific compliance context. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit engagements and plan
and perform the audit to obtain reasonable assurance whether the financial report is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor's judgement, including the assessment of the
risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal controls relevant to the entity's preparation of the financial report
that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the Project Manager, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Independence
In conducting our audit we have met the independence requirements of the International Federation of
Accountants (“IFAC”) Code of Ethics for Professional Accountants.
Audit of Liberia Renewable Energy Access Project (LIRENAP)
7
Auditor’s Opinion
In our opinion, the financial statements of RREA presents fairly, in all material respects, the financial position of
the Liberia Renewable Energy Access Project (LIRENAP) as at 30 June 2017 and of its performance for the
period from 1 March 2016 to 30 June 2017 in accordance with the accounting policies described in the financial
statements.
Auditors' signature
Tim Woodward
150 Aldersgate Street, London, EC1A 4AB
13 December 2017
Audit of Liberia Renewable Energy Access Project (LIRENAP)
8
INTERNAL CONTROL FINDINGS
Internal control finding 1
Title: Lack of internal audit reporting
Priority rating: Medium
Description
We noted that the Rural Renewable Agency (RREA) implementing the project has no internal audit department.
Furthermore, according to Section 2.2 of Liberia Internal Audit Agency Act, the central government of Liberia has
established an Internal Audit Agency with the purpose of establishing and directing internal audit functions within
all branches of Government including the Executive, Legislative and Judiciary, as well as all public sector entities
such as public corporations, autonomous agencies, autonomous commissions, Government ministries and the
Central Bank of Liberia.
In spite of this, we have not received any reports from the Internal Audit Agency relating to the project during the
implementation period.
Recommendation
In order to improve the control activities being implemented by the Agency, management should either establish
an internal audit department or request that the Internal Audit Agency conduct and document regular internal
audit activities on the RREA's operations. This would help to improve the quality of the internal control systems
and the accuracy and reliability of financial reports.
Management response
Management notes observation
Audit of Liberia Renewable Energy Access Project (LIRENAP)
9
Internal control finding 2
Title: Inadequate stamping of invoices
Priority rating: Medium
Description
Best accounting practice requires that all payment vouchers which have been selected for payment of goods or
services must be stamped “PAID" in order to avoid the same voucher being reused. Whilst this practice has been
put in place, we noted examples where it was being implemented without sufficient control, including instances
of specific vouchers being stamped, but which had not been cleared for payment. For example, documented
quotations and pro forma invoices which have not been selected for payment are stamped as "PAID IN FULL".
This practice could lead to incorrect payment vouchers being posted to ledgers, causing transaction errors.
Recommendation
In order to avoid errors in the recording of payment vouchers as supporting documents for transactions, vouchers
should be stamped with a more appropriately worded stamp. Only those documents which support payments
which have actually been made should be stamped “PAID IN FULL”, whilst other appended documents and
vouchers should be stamped with different wording which more accurately describes their connection with the
transaction which they support.
Management response
These quotations been stamped are supporting document for a particular payment and the stamp is to ensure
that these documents are not reused. We believe that it is very unlikely that error in recording the voucher may
occur because it is stamped paid. However, we take note and will implement recommendation.
Audit of Liberia Renewable Energy Access Project (LIRENAP)
10
Internal control finding 3
Title: Failure to accrue for the 'Pandora's Basket' restaurant bill
Priority rating: Medium
Description
Page 11 of section 2, sub-section 2.2 'Basis of preparation of Financial Statements of the Financial Management
Policies and Procedures of LIRENAP' states that " the financial statements shall be prepared on a cash basis
with adoption of an accrual principle where possible and in accordance with International Public Sector
Accounting Standards (IPSAS). We noted however, that the standard has not been adequately applied. For
instance, a singled source supplier, Pandora's Basket Bar and Restaurant, which had been approved by the
World Bank, was contracted to perform a catering service on June 12, 2017, but was not subsequently paid for
the service. The outstanding payment was not accrued and disclosed as required.
Payment details: Payment for catering service for World Bank supervision mission to LIRENAP: US$ 375.00
Recommendation
In order to comply with the requirement of the 'Financial Statements of Financial Management Procedures of
LIRENAP', management should ensure that all outstanding payments incurred during the implementation of the
project are clearly and adequately accrued and disclosed.
Management response
Pandora Basket did not provide bank account for payment instead requested LIRENAP to pay to an individual.
The stand-off has not been resolved leading to the outstanding payment.
Audit of Liberia Renewable Energy Access Project (LIRENAP)
11
COMPLIANCE FINDINGS
Compliance finding 1
Title: Non-compliance with IPSAS requirements regarding public accounting
Priority rating: Medium
Description
IPSAS standards formally require public autonomous entities like the RREA to produce a general purpose,
combined financial report. This combined financial report includes the financial statements of the Agency in its
role as a government entity, and also of one of its implemented projects. The requirement to do this may be
established either by legislation, by the Agency's founding documents, by its parent entity, or the responsible
Minister.
We noted that the Rural Renewable Agency (RREA) does not prepare such a combined financial report.
Recommendation
We recommend that the Agency make arrangements to prepare its combined financial report in order to comply
with IPSAS standards.
Management response
Management note this observation
Audit of Liberia Renewable Energy Access Project (LIRENAP)
12
ANNEXES
ANNEX 1: STATEMENT OF FINANCIAL PERFORMANCE
For the period from 1 March 2016 to 30 June 2017
Audit of Liberia Renewable Energy Access Project (LIRENAP)
13
ANNEX 2: USES OF FUNDS BY ACTIVITY
As at 30 June 2017
Audit of Liberia Renewable Energy Access Project (LIRENAP)
14
ANNEX 3: FUND DISBURSEMENT STATUS
Audit of Liberia Renewable Energy Access Project (LIRENAP)
15
ANNEX 4: SCHEDULE OF FIXED ASSETS
Audit of Liberia Renewable Energy Access Project (LIRENAP)
16
ANNEX 5: SCHEDULE OF FUND WITHDRAWAL
Audit of Liberia Renewable Energy Access Project (LIRENAP)
17
ANNEX 6: STATEMENT OF DESIGNATED ACCOUNT
Audit of Liberia Renewable Energy Access Project (LIRENAP)
18
Audit of Liberia Renewable Energy Access Project (LIRENAP)
19
Audit of Liberia Renewable Energy Access Project (LIRENAP)
20
Audit of Liberia Renewable Energy Access Project (LIRENAP)
21