Eswaraiah & Co.Chartered Accountants

HIG 36, Phase V, KPHB Colony, Kukatpally, Hyderabad-85Ph : 040-23390036 Email : contact@escas.in

Website: www.escas.in

To

The Chief Executive Officer,SERP, TelanganaHyderabad.

Introductory ParagraphWe have audited the accompanying financial statements of the Telangana Rural Inclusive growthProject financed under World Bank Credit No. IDA Cr.5573-IN as of March 31, 2016. Ourresponsibility is to express an opinion on these financial statements based on our audit.

Management's Responsibility for the Financial StatementsThe management is responsible with respect to the preparation of these financial statements thatgive a true and fair view of the financial position, financial performance of the scheme inaccordance with the accounting principles generally accepted in India. This responsibility alsoincludes the maintenance of adequate accounting records for safeguarding of the assets of theorganization and for preventing and detecting the frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design, implementation and maintenance of internal financialcontrol, that were operating effectively for ensuring the accuracy and completeness of theaccounting records, relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement, whether due to fraud or error.

Scope ParagraphWe conducted our audit in accordance with Auditing and Assurance Standards issued by theInstitute of Chartered Accountants of India. Those Standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. Audit also includes assessing the accountingprinciples used and significant estimates made by Management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit.An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the financial statements, whether

Khairatabad Branch: Vijayawada Branch: Visakhapatnam Branch:6-2-969/304, D.No. 40-12-5/2, Ramaswamy Street, D.No. 27-5-01,Intech Residency, Khairatabad, Beside Ram's Apartment, Padamatalanka, Old Karnavani Palem, Gajuwaka,Hyderabad - 500 004, T.S. Vijayawada - 520 010, A.P. Visakhapatnam - 530 044, A.P.

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Ir p\ Eswaraiah & Co.Chartered Accountants

HIG 36 Phase V, KPHB Colony, Kukatpally. Hyderabad-85Ph : 040-23390036 Email : contact@escas.in

Website : www.escas.in

due to fraud or error. In making those risk assessments, the auditor considers internal financialcontrol relevant to the Entity's preparation of the financial statements that give true and fair viewin order to design audit procedures that are appropriate in the circumstances. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness of theaccounting estimates made by Management, as well as evaluating the overall presentation of thefinancial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion on the financial statements.

Opinion ParagraphIn our opinion, the financial statements give a true and fair view of the Sources and Applicationof Funds and the financial position of Telangana Rural Inclusive Growth Project for the yearended March 31, 2016, in accordance with relevant national standards and the financial positionfor the period ended March 31,2016.In addition to the above,

(a) with respect to IFRs adequate supporting documentation has been maintained to supportclaims to the World Bank for reimbursements of expenditures incurred; and

(b) which expenditures are eligible for financing under the Credit Agreement IDA Cr.5573-IN.

(c) the IFR submitted and procedure and internal controls involved in their preparation can berelied upon to support the withdrawals.

For Eswaraiah& CoChartered Accountants

Firm RegistratioANo.006157S

Steemyasa Rao G43rier

Place: Hyderabad Membership No: 027565Date: 25.04.2017

Khairatabad Branch: Vijayawada Branch: Visakhapatnam Branch:6-2-969/304, D.No. 40-12-5/2, Ramaswamy Street, D.No. 27-5-01,Intech Residency, Khairatabad, Beside Ram's Apartment, Padamatalanka, Old Karnavani Palem, Gajuwaka,Hyderabad - 500 004, TS. Vijavawada - 520 010, A.P. Visakhantnam - AA A 0

Eswaraiah & Co.Chartered Accountants

HIG 36, Phase V, KPHB Colony Kukatpally, Hyderabad-85Ph 040-23390036 EmaJl contact@escas in

Website :wwwescas.in

To

The Project Management,Telangana Rural Inclusive Growth Project (TRIGP)

In connection with our audit of the financial statements of the Telangana Rural Inclusive GrowthProject for the year ended 31 March, 2016, we familiarized ourselves with Project documentsand the internal guidelines / circulars applicable during the period under audit. We also reviewedthe business of the Project and evaluated the accounting systems and related internal controls ofthe Project in order to plan and perform our audit.This Letter to Project Management includes observations noted during the course of our auditexamination in the following areas:

* Matters having a significant impact on the implementation of the Project* Opportunities for strengthening financial management records, systems and controls,together with recommendations for improvement* Status of maintenance of Project books and records* Accuracy of Project financial statements

* Status of prior audit recommendations

The matters contained in this Management Letter are intended solely for the information ofProject management, for such timely consideration and action as Project management may deemappropriate. They have all been considered by us in formulating the audit opinion expressed onthe project financial statements in our audit report dated March 31,2016, and they do not alter theopinion expressed in that audit report. We wish to take this opportunity to thank ProjectManagement for the courtesies and cooperation extended to our auditors.

For Eswaraiah& CoChartered AccountantsFirm Registrat n No.006157S

Sreenivasa ao GPartner

Place: Hyderabad Membership No:027565

Date: 25.04.2017

Khairatabad Branch: Vijayawada Branch: Visakhapatnam Branch:6-2-969/304, D.No. 40-12-5/2, Ramaswamy Street D.No. 27-5-01,Intech Residency, Khairatabad, Beside Ram's Apartment, Padamatalanka, Old Karnavani Palem, Gajuwaka,Hyderabad - 500 004, TS. Vijayawada -520 010, A. P. Visakhanatnam - 53'40 (A A P

Society for Elimination of Rural Poverty - TelanganaTelangana Rural Inclusive Growth Project- World Bank

Receipts and Paymcnets Account for the year ended 31 st March,20J16Receipts Schedule Rs. Payments Schedule Rs.

To Opening Bank balance 0To Bank account opening 1,500 By Programme wise expenditureTo Miscellaneous receipts By Value chain componeret 19,224,158To Bank Interest 1 2,251,827 By Human development 4,355,475To Grant Received from Telangana Govt By Digital local Government 324,997To GrantS 2 75,000,000 By Project Implmentation Support 6,504,626

By LoansBy SSP 50,000,000Loans By closing outstanding advances 3 3,666,600SSP 50000,000 By Closing Bank balances 4 33,177,471

Total 127,253,327 Total 12,53,327

For Eswaraiah & CoChartered Accountants

By ValechaicompoN 006n157S

SERP- Telangana S RP-rt nganaeship No: 027565

Place: HyderabadDate: -. t.-b

Society for Elimination of Rural Poverty - TelanganaTelangana Rural Inclusive Growth Project- World Bank

Income and Expenditure Account for the year ended 31st March,2016Expenditure Rs, Income Ras.To Miscellaneous payments BY Miscellaneous receipts

To Programme wise expenditure BY Bank Interest 2,251,827To Value chain componenet 19,224,158 BY Grant Received from Telangana Govt.To Human development 4,355,475 BY Grant 75,000,000To Digital local Government 324,997To Project Implementation Support 16,504,626

To Excess of Income over expenditure 36,842,571

Total 77,251,827 Total 77,251,827

For Eswaraiah & CoChartered Accountantsirm,Registration No,#06157S

Sreex a Rao G Director (Finance) Chie'Ex E utive officerSERP- Telangana SERP-Tngana

bership No: 027565

Place: HyderabadDate. 17

Society for Elimination of Rural Poverty - TelanganaTelangana Rural Inclusive Growth Project- World Bank

Balance sheet as on 31st March,2016Liabilities Rs. Assets SCH Rs.Opening Capital fund - Advances receivable 4 3,666,600Add:Excess of Income over expenditure 36,844,071 36,844,071 Closing bank balances 3 33,177,471

36,844,071 36,844,071

For Eswaralah & CoClart red AccountantsViin 'Restration N 06157S

ree Ra Director (Finance) Chief Execi t cerSERP- relangana SERP-Tela ganamnbership No: 027565

Place: HyderabadDate: -c0 -. orl

Schedule-1

SPMU Bank InterestS.No Particulars Amount

I Reserve 808,7842 Nodal SBH 1,432,1263 Cost Center 8,861

Total 2,249,771

Bank InterestS.No Particulars Amount

I SPMU 2,249,7712 Ranga Reddy 1633 Warangal4 Nalgonda5 Medak 8756 Nizambad 2487 Mahabobnagar .8 Adilabad9 Karimnagar 49310 Khammam11 Badrachalam12 Utnoor 27713 Eturunagaram .

2,251,827

Schedule- 2 - GrantsSno Particulars Amount1 Govt.Of Telangana 75,000,000

Schedule-3-AdvancesS.No Particulars Amount

1 SPMU 131,0002 Khammam 28,0003 Kowdipalli 1,095,0004 Kaveri Mandal 1,095,0005 Narayanpur 1,095,0006 Adilabad 50,0007 Karimnagar 60,0008 Nalgonda 112,600

Grand Total 3,666,600

Schedule-4-SPMU Bank balances

Name of the Name of Balance as onS.No. account the bank 31.03.2016

1 Reserve account IDBI 808,7842 Cost Center SBH 29,9313 Nodal SBH 32,306,665

Grand Total 33,145,380

DPMU Bank BalancesS No Level District Account Closing Balances

1 DPMU Ranga Re Cost Centre 1632 DPMU Warangal Cost Centre -

3 DPMU Nalgonda Cost Centre -4 DPMU Medak Cost Centre 7505 DPMU Nizambad Cost Centre 6,7116 DPMU Mahabobr Cost Centre -7 DPMU Adilabad Cost Centre 4458 DPMU Karimnag, Cost Centre 23,7399 DPMU Khamman Cost Centre -10 TPMU Badrachal; Cost Centre -II TPMU Utnoor Cost Centre 27712 TPMU Eturunaga Cost Centre 6

Total B 32,091

NOTES TO THE ACCOUNTS

1. The books of accounts of the Telangana Rural Inclusive Growth Project (TRIGP) were closedfor the period ended 31st March 2016 (01-04-2015 to 31-03-2016).

2. Accounting policies adopted

a) Income recognitionThe grants received from the Government has been recognized on receipt basis. Theinterest on deposits has been recognized on receipt basis.

b) ExpenditureThe Expenditure is considered on cash basis. The advances are adjusted against utilizationcertificate and balance carried to the next accounting period.

3. The State Management has informed that the unspent balances at the period ended 31-" March2015 were spent in subsequent period i.e. from 01-04-2015 to 31-03-2016 and sought to carriedforward of the unspent balances for utilization of same as grants for the period 01-04-2016 to31-03-2017.

For Eswaraiah&Co.,Chartered AccountantsFRN:006157S

Sreenivbsa Rao G.Partn rM.No.027565.

Place: Hyderabad,Date: 25.04.2017

FAReport |SERP -SPMU, Telanigana

Financial Audit Report of TRIGP-SPMU,TelanganaIndex for Contents

S. No. Particulars Page No.

I Audit Team 3

II Abbreviations 4-5

III Grand Index

1 SPMU 7-16

Page 2

FAReport I SERP - SPMU, Telangana

|. Audit Team

S.No. Name of the Member Designation

i CA. Mallikarjuna K Partner2 Harish .V Article Assistant

3 Ruthwik CM Article Assistant

FAReport SERP - SPMU, Teang a a

Abbreviations

AbbreviaS. No. tosFul forrntions

1 SERP Society for Elimination of Rural Poverty

2 SPMU State Project Monitoring Unit

3 DPMU District Project Monitoring Unit

4 ZS ZillaSamakhya

5 MS MandalaSamakhya

6 DCB Demand Collection Balance

7 BRS Bank Reconciliation Statement

8 DWCRA Development of Women and Children in Rural Areas.

9 SHG Self Help Group

10 NPM Non Pesticides Management

11 CA Community Activist

12 VA Village Activist

13 MSA Mandalasamakhya Accountant

14 CMLT Community Management Level Training

15 AC Area Coordinator

FAReport SERP - SPMU, TeIa

16 OB Office Bearer

17 CIF Community Involving Fund

18 SGSY Swarnajayanthi Gram SwarozgarYojana

19 DPM District Project Manager

20 SHG Self Help Group

21 ESI Employee State Insurance

22 EPF Employee Provident Fund

23 FTE's Fixed Tenure Employee's

24 CC Community Coordinator

25 TA Travelling Allowance

26 DA Dearness Allowance

FAReport SERP - SPMU, TOd, n, :.-a

Financial Audit Report of Telangana Rural Inclusive GrowthProject (TRIGP)-SPMU,Telangana

Index for Contents

S. No. Particulars Page No.Detailed Observations & Recommendations

1 Non Accounting of Advances 7

2 Misclassification of heads in recording

expenditure

Difference in claiming of expenditure with World3 9

bank

FAReport SERP - SPMU, Teangana

Non Accounting of Advances

* The SPMU has given an amount of Rs.32,85,000/- as advance on 02.04.2015 to KowdipafliMS,Kaveri MS, Narayanpur MS @ Rs.10,95,000/- each.

* The same routed through EFMS of Assistance to SERP by creating TRIGP budget line id andtagged with TRIGP bank account. So the same is not reflecting in the EFMS of TRIGP.

Due to non accounting of the same it may lead to differences between the SPMU advancesand the concerned MS advances.

* It may also lead to misappropriation of funds if the accounts are not upto date.* We may also face difficulties while recovering or adjusting the above advances.

* Reconciliation should be done.* The above advances are to be adjusted with immediate effect.

* lobe received.

FAReport SERP - SPMU, Telangana

Misclassification of heads in recordingexpenditure

rnO

* An amount of Rs.4,29,379/- proceedings generated in Human DevelopmentComponent on 31st March, it was rejected by Director Finance login on the sameday, however the same was not deleted from DPM Finance Login, the same wasshown as expenditure in the IUFR, it was deleted from DPM Finance login aftersubmission of the IUFR.During our audit process we have observed that,the SPMU and DPMUs havemisclassified some of the expenditure The details are as follows.Cost center Amount Actual head Misclassified asKhammam 5,200 Livestock-Capacity PG & RA

buildingKhammam 4,400 Livestock-Capacity PG & RA

buildingNalgonda 7,200 Capacity building PG & RASPMU 5,700 Retail chain PG & RA

component -Capacity Building

SPMU 5,000 Retail Chain - PG & RACapacity Bu ilding

* EFMS does not have facility to passing the journal voucher entries.

* Once it is disapproved by Director-Finance login, the same was to be deleted by theDPM-Finance immediately.

* The heads are to be verified before booking expenditure.2 P

FAReport SERP - SPMU, Telangana 0

* They are to be reviewed at regular intervals,* Journal Voucher entries screen shall be provided.

* To be received

FAReport SERP - SPMU, Tel,ng

Difference in claiming of expenditure

* SPMU have sent the claim for Rs.6,22,34,824/- out of Rs.4,35,64,376/- which isequal to 70% of the total expenditure through their quarterly IUFR's(interimunaudited Financial Reports).

* But as per the audit the total expenditure is Rs4,04,09,256/-out of which the Worldbank share amounts is Rs.2,82,86,479/- only.

* The difference of Rs.1,52,77,897/- is due to the following reasons.* The differential expenditure is that the proceedings generated on 31st March,2016.

But the same was posted in cash book on 2nd April,2016 which fall in the followingFinancial Year i.e. 2016-17.But the SPMU have prepared the lUFR based on the proceedings generated on 31'tMarch,2016 as per website report.

This may lead to booking of excess expenditure than actually incurred.

*The society is following Cash basis of accounting. So the expenditure is to bebooked when the amount is paid.

* To be received