a 2FEB 2015

FINANCIAL ATTEST AUDIT REPORT

ON THE ACCOUNTS OFSUSTAINABLE DEVELOPMENT OF WALLED CITY

LAHORE PROJECT

LOCAL GOVERNMENT & COMMUNITYDEVELOPMWT DEPARTMENT

GOVERNMENT OF THE PUNJAR

M I MATIONAL BANK FOR RECONSTRUCTION &DEVELOPMW-p0W

(LOAN NO. 738WP

FOR THE FINANCIAL YEAR 201344

AUDITOR GENERAL OF PAISTAN

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FINANCIAL ATTEST AUDIT REPORT

ON THE ACCOUNTS OFSUSTAINABLE DEVELOPMENT OF WALLED CITY

LAHORE PROJECT

LOCAL GOVERNMENT & COMMUNITYDEVELOPMENT DEPARTMENT

GOVERNMENT OF THE PUNJAB

INTERNATIONAL BANK FOR RECONSTRUCTION &DEVELOPMENT (IBRD)

(LOAN NO. 7380-PAK)

FOR THE FINANCIAL YEAR 2013-14

AUDITOR GENERAL OF PAKISTAN

TABLE OF CONTENTS

Page No

ABBREVIATIONS & ACRONYMS 1PREFACE 2

PART-I 3

PROJECT OVERVIEW 4AUDITOR'S REPORT TO THE MANAGEMENT(AUDIT OPINION) 5FINANCIAL STATEMENTS 6

PART-II 16

MANAGEMENT LETTER 17

EXECUTIVE SUMMARY 18

1. Introduction 192. Audit Objectives 213. Audit Scope and Methodology 214. Audit Findings and Recommendations 21

4.1 Organization and Management 214.2 Financial Management 224.3 Contract Management 234.4 Construction and Works 234.5 Asset Management 254.6 Monitoring and Evaluation 254.7 Compliance with Grant/ Loan Covenants 254.8 Environment 264.9 Sustainability 264.10 Overall Assessment 26

5. Conclusion 27

ACKNOWLEDGEMENT 28

ABBREVIATIONS & ACRONYMS

ADP Annual Development Programme

BOQ Bill of QuantitiesB&R Code Buildings & Roads Department Code

Cft Cubic Feet

EIA Environmental Impact Assessment

EMP Environmental Management Plan

FD Finance Department

IBRD International Bank for Reconstruction & Development

IPSAS International Public Sector Accounting Standards

ISSAI International Standards of Supreme Audit Institutions

IT Information Technology

MRS Market Rates System

MTDF Medium Term Development Framework

NAM New Accounting Model

P/L Providing and LayingPDWP Provincial Development Working Party

PMU Project Management Unit

SDAC Special Departmental Accounts Committee

SDAP Social Development Assistance Plan

Sft Square Feet

SDWCL Sustainable Development of Walled City LahoreTSE Technical Sanction Estimate

TST Triple Surface Treatment

WB World BankXEN Executive Engineer

1

PREFACE

The Auditor General conducts audit under Articles 169 and 170 of the Constitution of theIslamic Republic of Pakistan 1973, read with section 7 of the Auditor General's (Functions,Powers, Terms and Conditions of Service) Ordinance, 2001. The financial attest of the accountsfor the financial year 2013-14 of "Sustainable Development of Walled City Lahore Project IBRDLoan No. 7380-PAK" was carried out accordingly.

The Directorate General of Audit Works (Provincial), Lahore conducted audit of the project forthe financial year 2013-14 in September 2014 with a view to express opinion on FinancialStatements and report significant findings to the management. Audit examined the economy,efficiency and effectiveness aspects of the project. In addition, Audit also assessed, on test checkbasis, whether the management complied with applicable laws, rules and regulations inmanaging the project. The Report indicates specific actions that, if taken, will help themanagement to realize the objectives of the project in a more effective manner.

The Report consists of two parts. Part-I contains Auditor's Report (Audit Opinion) and FinancialStatements. Part-II contains Management Letter, Executive Summary and Audit Findings.

The Report has been prepared for submission to the World Bank in terms of Loan Agreement ofthe project.

Dated: A5.12.2014 (IFTIKHAR AHMAD)Place: Lahore DIRECTOR GENERAL

AUDIT WORKS (PROVINCIAL)LAHORE

2

PART-I

1. PROJECT OVERVIEW

2. AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION)

3. FINANCIAL STATEMENTS

3

PROJECT OVERVIEW

Name of the Project Sustainable Development of Walled CityLahore Project

Sponsoring Authority i. World Bank (IBRD)ii. Government of the Punjab

Executing Authority Director GeneralProject Management Unit (PMU)Sustainable Development of Walled CityLahore Project

Loan No. IBRD No.7380-PAKPC-I Cost Rs 551.00 million

Rs in million

PC-I Cost (Revised) Revision Date Amount1 23.06.07 609.002 06.11.07 862.003 23.02.08 862.004 28.01.09 838.005 11.01.11 1,143.166 07.03.12 1,359.777 03.10.13 1,369.25

Date of signing Loan Agreement 5 June, 2006

Date of Approval by PDWP September 2006

Date of Commencement September 2006

Actual Date of Commencement April 2012

Date of Completion (as per PC-I) August 2010

Date of Completion (as per revised 7hPC-I) March 2014

Loan Closing Date 3 0 th November, 2012Loan Closing Date Revised 30' November, 2013

Loan Utilization Status in 2013-14:i. World Bank (IBRD) Share Rs 141.852 millionii. Punjab Government Share Rs 98.925 million

Total amount for the year Rs 240.777 million

Progressive expenditure up to June 2014 Rs 958.041 million

4

AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION)

The Directorate General of Audit Works (Provincial) Lahore audited the accompanying financialstatements for the financial year ended on 30' June, 2014 pertaining to Sustainable Developmentof Walled City Lahore Project, Loan No.7380-Pak that comprises of Receipts and PaymentsStatement, Statement of Comparison of Budget and Actual together with the notes forming partthereof.

It is the responsibility of the project management to establish and maintain a system of internalcontrol and prepare and present the Statement of Receipts and Payments in conformity with therequirements of Cash Basis IPSAS, Financial Reporting under the Cash basis of AccountingStandard.

The responsibility of auditor is to express an opinion on the financial statements based on theaudit conducted. Audit was conducted in accordance with the International Standards ofSupreme Audit Institutions (ISSAI). These standards require to plan and perform the audit toobtain reasonable assurance that the financial statements are free of material misstatements. Theaudit process includes examining, on a test check basis, evidence supporting the amounts anddisclosures in the financial statements. It also includes assessing the accounting principles usedand significant estimates made by the management, as well as evaluating the overall statementpresentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion;

a) The financial statements present fairly, in all material respects, the cash receipts andpayments by the project for the year ended 30 h June, 2014 in accordance with Cash BasisIPSAS, Financial Reporting under the Cash Basis of Accounting Standard.

b) The expenditure has been incurred in accordance with the requirements of legalagreement.

Dated: O12.2014 (IFTIKHAR AHMAD)Place: Lahore DIRECTOR GENERAL

AUDIT WORKS (PROVINCIAL)LAHORE

5

FINANCIAL STATEMENTS

SUSTAINABLE DEVELOPMENT OF WALLED CITY LAHORE PROJECT, IBRDLOAN NO. 7380-PAK

FOR THE YEAR ENDED 30m JUNE, 2014

Page No.

Statement of Receipts and Payments 7

Statement of Comparison of Budget and Actual Amounts 8

Notes to the Financial Statements 9

6

SUSTAINABLE DEVELOPMENT OF WALLED CITY OF LAHORE Project Management Unit (PMU)Statement of Receipts and Payments Sustainable Development of Walled City of Lahore Project

For the period ended 30 June, 2014 * LG&CD Department, Government of the Punjab, Lahore

'I

2013-14 2012-13 To dateReceipts/ Receipts/ Receipts/

Notes (Payments) Third Party (Payments) Third Party (Payments) Third Partycontrolled by Payments controlled by Payments controlled by Payments

Project Project Project

Rupees

ReceiptsFrom the World Bank (IBRD) Loan 4.1 74,089,269 200,268,000 - 577,832,845 [Counter Part Fund (GoPb) 4.2 235,162,000 200,000,000 988,355,000 -

Total Receipts 4 309,251,269 - 400,268,000 - 1,566,187,845

PAYMENTS

From IBRD Assignment Account:

Civil Works 5.1 118,394,117 - 245,039,000 - 439,644,367Consultancies 5.1 23,457,582 - 18,464,000 - 68.976,085Incremental Operating Cost 5.1 - - 7,545,000 - 41,336,659

From GoPb 5.2 98.925,034 - 39,572.000 - 408,085,000

Total Payments 5 240,776,733 - 310,620,000 - 958,042,111

Amount Surrendered/lapsed in 7.2 (136,236,966) (160.428,000) (580,270,000)

Increase/(Decrease) in Cash (67,762,430) - (70,780,000) - 27,875,734

Cash at beginning of year (IBRD) 3 95,638,164 - 166,418,164 -

Cash at end of the Year 6 27,875,734 - 95,638,164 - 27,875,734

* Note-1: Period of June, 2014 shown for GoP Share* Note-2: For IBRD funds, period till 31 March, 2014 may be considered

The accompanying notes form an integral part of these financial statements and to be read therewith.

DIRECTOR (AD ISTRATION) A ITProject Manag ment Unit Aid Officer

Sustainable Development of Walled City O/e the Di ctot General

of Lahore Project Audit Works ( vitcial) Labore

7

SUSTAINABLE DEVELOPMENT OF WALLED CITY OF LAHORE Project Management Unit (PMU)Statement of Comparison of Budget and Actual Amounts Sustainable Development of Walled City ofLahore ProjectFor the period ended 30 June, 2014 * LG&CD Department, Government of the Pnjab, Labore

Notes

2013-14 2012-13 To date

Original Revised Original Revisedi cualude ActaBOr R e Actual BB e Actual Budget AtaBudgeted Budgeted Amut Budgeted Budgeted Amount Amount J Amunt

Aon Amut Aon AmutAmount Amount Amount Amount

RupeesReceiptsFrom the World Bank (IBR 4) 4 21,000,000 74,089,269 74,089,269 200,268,000 200,268,000 200,268,000 577,832,845 577,832,845Loan III ICounter Part Fund (GoPb) 4 9,162,000 235,162,000 235,162,000 200,000,000 200,000,000 200,000,000 988

,355

,000

985 5 ,0 0

0

Total Receipts 4 30,162,000 309,251,269 309,251,269 400,268,000 400,268,000 400,268,000 1,566,187,845 1,566,187,845

PAYMENTSFrom IBRD AssignmentAccount:Civil Works 5 118,394,117 118,394,117 118,394,117 245,039,000 245,039,000 245,039,000 439,644,367 439,644,367Consultancies 5 23,457,582 23,457,582 23,457,582 18,464,000 18,464,000 18,464,000 68,976,085 68,976,085Incremental Operating Cost 5 - - - 7,545,000 7,545,000 7,545,000 41,336,659 41,336,659

From GoPb 5 98,925,034 98,925,034 98,925,034 39,572,000 39,572,000 39,572,000 408,0S5,000 408,085,000

Total Payments 5 240,776,733 240,776,733 240,776,733 310,620,000 310,620,000 310,620,000 958,042,111 958,042,111

Note4: Period of June, 2014 shown for GoP ShareNote-2: For IBRD funds, period till 31 March, 2014 may be considered

The accompanying notes form an integral part of these financial statements and to be read therewith.

DIRECT4R (AD INISTRATION) UrfDI ect MaitAn JflProject Man ement Unit eer

Sustainable Development of Walled o0 e Di l1 Generalof Lahore Project *Cis! LAore

Sustainable Development of Walled City Lahore ProjectLocal Government & Community Development Department

Government of the PunjabNotes to the Financial Statements

1. Project Description

1.1 Introduction

The project was consequent upon a pre-feasibility study, conductedby Mr. Raffaele Gorjux in August, 2005. On June 5, 2006, a loanagreement was signed with the World Bank, which assignedUS $6 million (revised at US $7.7 million) for cultural heritageactivities through funding line already available in Punjab MunicipalServices Improvement Project (PMSIP), in the Urban DevelopmentSector.

1.2 Project Objectives

Urban Unit was entrusted with the task of developing a PC-I for theproject that was approved by PDWP in September, 2006. Majorcomponents of the approved PC-I were;

i. Establishment of a PMU/ Authority for restoration,development and management of Walled City Lahore

ii. Developing a sound regulatory and Institutional frameworkfor sustainable development and restoration of culturalheritage in the province.

iii. Pilot Project: Restoration of Shahi Guzargah (from DelhiGate to Lahore Fort, including Wazir Khan, Sonehri andBegum Shahi mosques), entailing complete restorationand renovation of the entire built heritage, urbaninfrastructure and services.

1.3 Scope of the Project

Planned period of the Project was four years from September, 2006extended for three years till November, 2013 with a grace period offour month i.e. till March, 2014.

1.4 Estimated Cost

The Project was financed with a total cost of Rs.1369.253 million.

SSd t'ADEEM Audit

Director (Administration)Walled City of Lahore Authority

Sustainable Development of Walled City Lahore ProjectLocal Government & Community Development Department

Government of the PunjabNotes to the Financial Statements

1.5 Sources of Finance

The Project was financed with a total cost of Rs.1369.253 million withTechnical Assistance Loan through World Bank having a total outlayof US $7.7 million equivalent to Rs.702.293 million (51%) andRs.666.960 million (49%) as counterpart funding by Government ofthe Punjab in local currency.

1.6 Components of PMU-SDWCL

There are four components of PMU-SDWCL:

1. Developing a sound regulatory and institutional frameworkII. Establishment charges/ Purchase of Equipment and other

administrative expensesill. Implementation of the pilot projectIV. Urban Rehabilitation and infrastructure improvement

2. Significant Accounting Policies

2.1 Basis of Presentation

The financial statements have been prepared in accordance withCash Basis under IPSAS. The accounting policies have been appliedconsistently throughout the period.

2.2 Accounting Convention

These financial statements have been prepared under the historicalcost convention with cash basis of accounting. Accordingly,expenses are recognized when paid rather incurred.

2.3 Foreign Currency Transactions

Cash receipts and payments arising from transaction in foreigncurrencies are recorded in Pak Rupees by applying to the foreigncurrency amount, exchange rate between the Pak Rupee andForeign Currency at the date of receipts and payments.

2.4 Fixed Assets

Fixed Assets are disclosed on Historical Cost Basis.

Proje 'ti AuditSHA I DEEM

Direc -r (Adrn istrat7on)Walled City of Lahore Authority

Sustainable Development of Walled City Lahore ProjectLocal Government & Community Development Department

Government of the PunjabNotes to the Financial Statements

2.5 Provisions

Due to cash basis of accounting, no provision is recognized infinancial statements. However, if there is any event which may havea legal or other obligation with contingent financial Implication, then itwould be identified by separate disclosure in the notes to thefinancial statements.

2.6 Offsetting

Neither asset-liabilities nor fund flow and expenditure have been setoff in the financial statements.

3. Opening Balance

Opening balance comprises:

Description US$ Rs.

Cash in Hand --- ---

Cash at Bank (IBRD) 1,497,240.76 95,638,163.78

Total 1,497,240.76 95,638,163.78

4. Receipts

4.1 IBRD Receipts

Total receipts are Rs.169.727 million (i.e. opening balance ofRs.95.638 million and Rs.74,089,268.71 equivalent to US$724,507.94 received from World Bank) during Financial Year2013-14. Status of IBRD receipts Withdrawal Application wise for theFinancial Year 2013-14 is enclosed as Annexure-A.

4.2 GoPb Receipts

An amount of Rs.235.162 million was allocated for the FY 2013-14out of which an amount of Rs.98.925 million was utilized. An amountof Rs.106 million was surrendered and Rs.30.237 million was lapsed.

Project :ntl t AuditSHA DJ EEM

Direct r (Admiiu t;a!on)Walled City of Lahore Authority

Sustainable Development of Walled City Lahore ProjectLocal Government & Community Development Department

. Government of the PunjabNotes to the Financial Statements

5. Payments

5.1 Payment from World Bank Financing

(Rupees in '000)Sub-Components 2013-14 2012-13

Civil Works 118,394 245,039Consultancies 23,458 18,464Incremental Operating Cost ------ 7,545

Total 141,852 271,048

5.2 Payments from GoPb Funds

(Rupees in '000)

Description 2013-14 2012-13Establishment Charges 1,964 20,167Repair & Maintenance of Durable Goods 146 2,063Rent of Office Building/Rate & Taxes 21 7,082Travel & Transportation Charges 104 3,852Communication Expenses 18 660Utilities Expenses 1,434General Expenses 709 4,202Pay to others for services rendered 9,797Repair of other buildings 85,045Land & Buildings 1,112

Medical Charges 9 112Total 9895 3,7

6. Closing Balance

Closing balance comprises:

Description US$ Rs.

Cash -at -Bank - 13 BRD _ _787,716.09 -27,875,733.49

Total 2787,716.09 27,875,733.49

The unspent dollar balance was refunded to the World Bank.

t AuditDirector (Adm~ Istratr,on)

Walle4 City Of L, 9 Authority

142206

Sustainable Development of Walled City Lahore ProjectLocal Government & Community Development Department

Government of the PunjabNotes to the Financial Statements

7. Reconciliation:

7.1 Special Account

Description Pak Rs. US $

Balance as per Bank Statement on01.07.2013 95,638,163.78 1,497,240.76

Received against W/A No.16-SDWCL 74,089,268.71 724,507.94

Cheques Issued and Cleared during 141,851,699.00 1,434,032.61the year 2013-14

Balance as per Bank Statement on 27,875,733.49 787,716.0931.03.2014

Less: Cheques issued but notpresented till 31.03.2014

Balance as per Cash Book on 27,875,733.49 787,716.0931.03.2014

7.2 GoPb Account

During the FY 2013-14 Funds released by the GoPb wereRs.235.162 million whereas expenditure was made by the SDWCLfor Rs.98.925 million. An amount of Rs.106 million was surrenderedand Rs.30.237 million was lapsed.

8. Management Assertion

This is certified that the funds have been utilized by thePMU-SDWCL for the intended purposes as per legal requirements ofIBRD Loan No.7380-PAK for the financial year 2013-14.

9. Authorization

These financial statements were authorized for issuance bymanagement of the Sustainable Development of Walled City ofLahore Project.

A AAudit

Dlire tor (Ad1hr istration)Walled City of Lahore AuthoritY 1-3

Sustainable bevelopment of Walled City Lahore ProjectLocal Government & Community bevelopment bepartment

Government of the PunjabNotes to the Financial Statements

Annexure - A

Project Management Unit

STATEMENT OF WITHDRAWALIBRD Loan No.7380-PAK (FY-2012-13)

ReleasedSr. by . Amount in Exch. Amount in

N.WIApp. No. PatbulrNo. SBP/World US $ Rate PKR

BankAdvance &

1 16-SDWCL 13-08-2013 Documentation of 724,507.94 102.2615 74,089,268.71Prior Advance

Total 724,507.94 74,089,268.71

Projec Ee itv AuditSHAt D D-EEM

Direct r (Admin trationlWalled City of Lahore Authority

Project Management Unit

STATEMENT OF WITHDRAWAL

IBRD Loan No.7380-PAK (FY-2013-14)

Sr. Released by Amount in U Exch.WIApp. No. SBP/World Particulars $ Amount in PKR

No. Bank Rate

Advance &1 16-SDWCL 13-08-2013 Documentation 724,507.94 102.2615 74,089,268.71

of Prior Advance

Total 724,507.94 74,089,268.71

PROJEC I AUDITSHAUP4W