Management Letter
On the Labor Based Public Works Project Supplementary
Grant
For the Fiscal Period 2012/2013
Yusador S. Gaye, CPA, CGMA
Auditor General
Monrovia, Liberia
December 2015
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
1 Promoting Accountability of Public Resources
ACRONYM
Acronym/Abbreviation/Symbol Meaning
APA Assistant Project Accountant
CA Chartered Accountant
CBL Central Bank of Liberia
CGMA Chartered Global Management Accountant
COBIT Control Objective Information Technology
COSO Committee of Sponsoring Organization of the Treadway
Commission
CPA Certified Public Accountant
CSA Control Self-Assessment
EA Executing Agency
GAC General Auditing Commission
GoL Government of Liberia
IA Implementing Agency
IFAC International Federation of Accountants
ILO International Labor Organization
IPSAS International Public Sector Accounting Standards
ISSAI International Standards of Supreme Audit Institutions
IT Information Technology
LBPWP Labor Based Public Works Project
MPW Ministry of Public Works
PA Project Account
PFMU Project Financial Management Unit
PFS Project Financial Statement
PIU Project Implementation Unit
PV Payment Voucher
SA Special Accounts
SOE Statement of Expenditure
US$ United States Dollars
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
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Table of Contents
1.1 Introduction ...................................................................................................... 3
1.2 Scope and Determination of Responsibility ..................................................... 3
2 DETAILED FINDINGS AND RECOMMENDATIONS ............................................ 4
2.1 Administrative Issues ........................................................................................ 4
2.1.1 Internal Audit Function ......................................................................................... 4
2.1.2 Disaster Recovery Plan ........................................................................................ 5
2.1.3 Risk Management Policy ....................................................................................... 6
2.1.4 Control Self-Assessment ....................................................................................... 7
2.1.5 Audit Trail ........................................................................................................... 8
2.1.6 Environmental Control .......................................................................................... 9
2.1.7 Segregation of Duties ........................................................................................ 10
2.1.8 Access control (IT Security) ................................................................................. 11
2.2 Financial Issues ............................................................................................... 12
2.2.1 Authorization Date ............................................................................................. 12
2.2.2 Presentation of Comparison of Budget and Actual Amounts ................................... 13
2.2.3 Chart of Account Code ....................................................................................... 14
2.2.4 Financial ledger .................................................................................................. 16
2.2.5 Annual Statement of Expenditure ......................................................................... 17
2.3 Internal Control Issues ................................................................................... 18
2.3.1 Fixed Asset/Other Registers ................................................................................ 18
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
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1.1 Introduction
1.1.1 The audit of the Labor Based Public Work Project (LBPWP) Initial Grant Financial
Statements for the fiscal period 2012/2013 was commissioned by the Auditor-General
under her statutory mandate as provided for in Section 53.3 of the Executive Law as
well as the Engagement (Audit) Terms of Reference. The audit was scheduled to be
completed and the report issued before 31 December 2014, however, due to the
outbreak of the deadly Ebola Virus Disease, the execution was delayed by several
months.
1.1.2 The LBPWP project account is managed by the Ministry of Public Works in terms of the
Grant agreement of 29 February 2008.
1.2 Scope and Determination of Responsibility
1.2.1 The audit was conducted in accordance with International Standards of Supreme Audit
Institutions (ISSAIs) as well as the Engagement (Audit) Terms of Reference. These
standards require that we plan and perform the audit so as to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the annual
financial statements.
1.2.2 An audit includes:
• Examination on a test basis of evidence supporting the amounts and disclosures in the financial statements;
• Assessment of the accounting principles used and significant estimates made
by management; and
• Evaluation of the overall financial statements presentation.
1.2.3 The audit will also include an examination, on a test basis, of evidence supporting
compliance in all material respects with the relevant laws and regulations which came
to our attention and are applicable to financial matters.
1.2.4 The financial statements, maintenance of effective control measures and compliance
with laws and regulations are the responsibility of the Project Coordinator and the Unit
Manager of the PFMU. Our responsibility is to express our opinion on these financial
statements.
1.2.5 The scope for this audit does not cover an audit of United Nations Organization.
Henceforth, an amount of US $ 1,250,000.00 allotted to the ILO for the procurement of
Labor Based Equipment and the implementation of a component under the project
agreement shall be audited under the framework for auditing United Nations
Organizations.
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
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2 DETAILED FINDINGS AND RECOMMENDATIONS
2.1 Administrative Issues
2.1.1 Internal Audit Function
Observation
2.1.1.1 Section 14.1.1 of the PFMU Financial Procedures Manual states that “Project/Program
activities would be periodically reviewed by the Internal Audit Team which will be in
place as part of Public Financial Management Unit (PFMU). The internal auditing
function shall ensure the orderly and efficient conduct of operations including, among
others, the adherence to Project/Program Management policies, rules and regulations,
safeguarding of Project/Program assets, prevention and detection of errors and
irregularities and promoting the accuracy and reliability of the accounting records”.
2.1.1.2 Section 14.1.2 of the PFMU Financial Procedures Manual also provides that “The
internal auditor should work within a well-defined framework of programs and reporting
requirements. Importantly, the internal auditing function should be closely linked to and
complement the project‟s monitoring and evaluation system. The internal audit program
for each year should be developed by the internal auditor and discussed with the Heads
of the PFMU and Project Implementing Units and finalized thereafter”.
2.1.1.3 During the period under audit we could not find any evidence that the LBPWP activities
at the PIU in the Ministry of Public Works had been reviewed by the Internal Audit Unit.
Interview with the Project Coordinator for the Labor Based Project at the MPW revealed
that there was no Internal Auditor recruited for the Project.
Risk
2.1.1.4 The lack of internal audit function in the LBPWP operations and activities may lead to
the non-detection of errors, omission and safeguarding of project assets.
Recommendation
2.1.1.5 The PIU at the MPW should recruit an Internal Auditor who shall review the activities of
all project managed by the PIU including the Labor Based Project in line with the
guideline of the PFMU Financial Procedure Manual.
Management’s Response
2.1.1.6 The PFMU and the PIU have over the period co-existed and work closely together.
Consistent with its mandate, PFMU has a full functional Internal Audit Section. The
Internal Audit Section as part of its mandate, reviews all projects activities at the
various PIUs including LBPWP at MPW. For the period under audit there was risk
assessment conducted by the PFMU Internal Audit Section on the activities of the
LBPWP. (See Internal Audit Report attached).
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Management’s 2nd Response (October 1, 2015)
2.1.1.7 As explained during the conduct of the Audit, Labor Based Public Work Project did not
make provision for the hiring of a separate internal Auditor. As such, the Project
Financial management issues pertain to this project have always been reviewed by
PFMU Internal Audit Section whilst technical issues are the responsibility of the Ministry
of Public Works. Hence, risk management matters which are non-financial in nature are
purely the responsibility of the Ministry of Public works.
Auditor General’s Position
2.1.1.8 The scope of internal auditing within the PIU is broad and may involve PIU's
governance, risk management and management controls over: efficiency/effectiveness
of operations (including safeguarding of assets), the reliability of financial and
management reporting, and compliance with laws and regulations. Moreover, section
14.1.2 of PFMU Financial Procedure Manual states that the Internal Auditing function of
the PFMU should closely be linked to and complement the project‟s monitoring and
evaluation system. In the absence of evidence to show that the internal auditing
function covered the entire operations (financial and non-financial) of the PIU, we
maintain our recommendation.
2.1.2 Disaster Recovery Plan
Observation
2.1.2.1 COBIT 4.1 DS 4.2 states that “management should develop IT continuity plan based on
the framework and designed to reduce the impact of a major disruption on key
business functions and processes. The plans should be based on risk understanding of
potential business impacts and address requirements for resilience, alternative
processing and recovery capability of all critical IT services. They should also cover
usage guidelines, roles and responsibilities, procedures, communication processes, and
the testing approach”.
2.1.2.2 During the conduct of the audit, the PFMU Management and the PIU at the MPW had
not developed a documented Disaster Recovery Plan to help recover transaction data
and information in the event of disaster to ensure business continuity.
Risk
2.1.2.3 The failure to establish a disaster recovery plan may result in the complete loss of
transaction data and information in the occurrence of an unforeseen event.
Recommendation
2.1.2.4 The Project Coordinator for the LBPWP and Unit Manager at the PFMU must establish a
disaster recovery plan for the project as part of its risk management strategy. This
would mitigate the risk of loss of transaction data and information in the event of an
unforeseen occurrence.
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Management’s Response
2.1.2.5 PFMU since its establishment in 2006 has established and implemented disaster
recovery strategies. The Unit has put in place backups both onsite and offsite. There
are two functional servers onsite whilst the third server is located outside the Ministry of
Finance - at the Infrastructure Implementation Unit (IIU) of Ministry of Public Works.
Whereas daily backups are carried out onsite, that of the offsite is done weekly. In spite
of numerous frequent power outages during the period under audit, the unit has
continued to strive at all times because of efficient and effective disaster recovery
program. This issue came up in the IPFMRP Audit but mechanism is been put in place
to adapt the Ministry of Finance Disaster Recovery Plan since this is a unit under the
Ministry (Copy already submitted to you, however re-attached for your review).
Auditor General’s Position
2.1.2.6 The assertions made by PFMU Management are not backed by any documentary
evidence. Hence, we maintain our recommendation.
2.1.3 Risk Management Policy
Observation
2.1.3.1 The Committee on Sponsoring Organization of the Treadway Commission (COSO)
framework required the Project Coordinator for the LBPWP to establish a documented
risk management policy which will set the basis for conducting a formal risk assessment
within the project and the beneficiary entities. Risk assessment process entails
identifying and analyzing the risk that may impact negatively on the achievement of
PIU‟s objectives and determines appropriate responses. This implies risk identification,
risk evaluation, assessing PIU‟s risk appetite, and developing appropriate risk
responses. Risk identified should be recorded in a risk register. The performance of risk
assessment as a component of internal control plays a key role in the selection of the
appropriate control activities to be undertaken.
2.1.3.2 During the audit, the PIU at the MPW could not provide evidence that they had
developed Risk Management Policy.
Risk
2.1.3.3 The failure by the PFMU Management to develop Risk Management Policy could indicate
that the PIU at the MPW is unable to track risks that exist within the project‟s
operations. This may also have negative impact on the PIU‟s ability to deliver quality
service and achieve desired outcome.
Recommendation
2.1.3.4 The PIU must establish a Risk Management Policy which will guide the entire risk
identification and management processes.
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
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Management’s Response
2.1.3.5 All of the Financial Management activities of the LBPWP are performed by PFMU. The
PFMU has a comprehensive Risk Management Policy that covers LBPWP. In as much as
all of the controls over the project‟s financials lie within the scope of PFMU, the absence
of Risk Management Policy at the PIU does not pose substantial risks to the Financial
data of the project. However, Audit Recommendation noted.
Auditor General’s Position
2.1.3.6 We acknowledge PFMU Management‟s acceptance of our recommendations. However,
we shall make a follow up on the implementation of the recommendations by the PFMU
Management.
2.1.4 Control Self-Assessment
Observation
2.1.4.1 Section 11.3.2 of the PFMU Financial Procedure Manual stipulates that “The Internal
Control or Control Self-Assessment (CSA) Checklist provided in Appendix 28 may be
used by the Implementing Agencies/PFMU Management as a guide for assessing the
adequacy of the Project / Program Internal Control System”.
2.1.4.2 The Management at the PFMU and the PIU at the MPW provided no evidence that
Control Self-Assessment of the Labor Based Project was conducted during the period
under audit.
Risk
2.1.4.3 The effective and efficiency of internal control activities cannot be assured.
Recommendation
2.1.4.4 Internal Audit function at the PFMU must conduct on a timely basis an assessment of
established internal control procedures.
Management’s Response
2.1.4.5 PFMU in compliance with its Risk Management Policy conducted its Annual Risk
Assessment of the LBPWP for the period under audit. (see copy of report).
Management’s 2nd Response (October 1, 2015)
2.1.4.6 We acknowledged the error of omission in the fiscal year to which this report relates
during the audit. Going forward, we will not only perform the task, but will ensure that
the period to which the Control Self-Assessment related is adequately disclosed.
Auditor General’s Position
2.1.4.7 We acknowledged Management‟s admittance of the omission of the fiscal year to which
the report relates and acceptance of our recommendation. However, we shall make a
follow up on the implementation of the recommendations by the PFMU Management
during subsequent audit.
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2.1.5 Audit Trail
Observation
2.1.5.1 COBIT 4.1 part DS10.2 states that for Problem Tracking and Resolution, management
should ensure that the problem management system provides for adequate audit trail
facilities that allow tracking, analyzing and determining the root cause of all reported
problems considering:
All associated configuration items
Outstanding problems and incidents
Known and suspected errors
Tracking of problem trends
2.1.5.2 In addition, section 11.2.2 of the Financial Procedure Manual states that the Project‟s /
Program‟s Information System or that of its PFMU shall provide:
A complete audit trail for each transaction.
A chain of evidence that connects account balances and other summary
results with original transaction data through:
i. Proper coding
ii. Appropriate cross references, and
iii. Adequate documentation.
2.1.5.3 During the review of the Sun-System, it was observed that the System Administrator
had not enabled the audit trail on the System. We were unable to track the flow of
transactions that were processed through the Sun-System during the period under
audit.
Risk
2.1.5.4 Failure by the system administrator to enable the audit trail on the Sun-System may not
provide evidence of timely detection of security violation, performance problem and
flaws in the application.
Recommendation
2.1.5.5 The System Administrator must subscribe to the provision of part 10.2 of the COBIT
Standard and section 11.2.2 of the Financial Procedure Manual of the PFMU.
Management’s Response
2.1.5.6 Audit recommendation is being considered for suitable implementation.
Auditor General’s Position
2.1.5.7 We acknowledge PFMU Management‟s acceptance of our recommendations. However,
we shall make a follow up on the implementation of the recommendations by the PFMU
Management.
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2.1.6 Environmental Control
Observation
2.1.6.1 COBIT 4.1 part DS12.4 states that “Management should design and implement
measures for protection against environmental factors. Install specialized equipment
and devices such as fire alarm, fire suppression system to monitor and control the
environment”.
2.1.6.2 During the audit, we did not find evidence that the IT environment had a complete Fire
suppression system to help detect and control hazardous conditions that made arise.
2.1.6.3 Physical inspection of the PFMU environment revealed that there were two (2) fire
extinguishers installed, however, there was no evidence that the staff of PFMU had
undergone fire drills to provide knowledge on the use of the fire extinguishers.
Risk
2.1.6.4 An IT environment without installed fire suppression system may not provide any
assurance of the safety for the IT equipment, data and personnel.
2.1.6.5 Failure by the PFMU Management to prepare a documented procedure to guide
employees on the usage of fire extinguishers in the event of disaster, may lead to the
loss of critical data and IT equipment.
Recommendation
2.1.6.6 The PFMU Management should collaborate with management of the Ministry of Finance
and Development Planning to install fire alarm and fire suppression system.
2.1.6.7 Additionally, the PFMU Management should liaise with the Liberia National Fire Service
to conduct fire drill for its staff.
Management’s Response
2.1.6.8 PFMU has not only fully installed Fire suppression mechanism in the Unit, but also
ensured that the Liberia National Fire Service conducted a drill on the full use of the
extinguishers. This issue came up in the IPFMRP Audit and measure has been put in
place to ensure compliance.
Management’s 2nd Response (October 1, 2015)
2.1.6.9 Please see attached the communication made on May 7, 2015 to the Deputy Minister
for Administration - Finance and Development Planning requesting his authorization for
full implementation of similar recommendation raised during the audit of IPFMRP during
the 2013/14 fiscal year. This is being worked on. See Exh 1 attached.
Auditor General’s Position
2.1.6.10 We acknowledge PFMU Management‟s acceptance of our recommendations. We will
make a follow up on the implementation of the recommendations by the PFMU
Management.
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2.1.7 Segregation of Duties
Observation
2.1.7.1 COBIT 4.1 part DS5.3 states that “management should ensure that all users (internal,
external and temporary) and their activity on IT systems (business application, IT
environment, system operations, development and maintenance) are uniquely
identifiable. Enable user identities via authentication mechanisms. Confirm that user
access rights to systems and data are in line with defined and documented business
needs and that job requirements are attached to user identities. Ensure that user
access rights are requested by user management, approved by system owners and
implemented by the security-responsible person. Maintain user identities and access
rights in a central repository. Deploy cost-effective technical and procedural measures,
and keep them current to establish user identification, implement authentication and
enforce access rights.
2.1.7.2 Additionally, section 11.3.1 of the Financial Procedure Manual in parts states that
control procedures will be established to ensure, as far as possible, that the Project‟s /
Program‟s overall objectives are achieved. Control procedures shall include general
(where the system is computerized) and/or applications controls including proper
authorization, appropriate documentation and independent checks; segregation of
duties, physical controls and performance reviews.
Duties within the PFMU would be segregated so that work of one individual
automatically provides a cross check on the work of another such that the
added benefit of an independent check results.
2.1.7.3 It was observed during the audit that there was no evidence of segregation of duties
for top level managers on the Sun-System. The Unit manager, the Senior Project
Accountant and the System Administrator had the access right to perform the same
duties on the system.
Risk
2.1.7.4 Failure by the Management of the PFMU to segregate the duties of top level managers
may lead to overlapping of functions and misused of access right on the Sun-System.
Recommendation
2.1.7.5 The Management at the PFMU should adhere to the provision section 11.3.1 of the
Financial Procedure Manual.
2.1.7.6 The duties of the Unit Manager, Senior Project Accountant and System Administrator on
the Sun-System should be segregated, documented and communicated.
Management’s Response
2.1.7.7 Following recommendation from the GAC Audit of the IPFMRP, corrective steps have
been taken. As at now, there is only one Super User, and one Systems Administrator
(See copy of user levels attached).
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Management’s 2nd Response (October 1, 2015)
2.1.7.8 In our attempt to implement the recommendation of GAC, we observed that it was
impracticable for Amos Fahn (IT System Administrator) to efficiently operate the entire
IT environment if he was not a super user – as he had to wait for the Unit Manager (Dr.
Chris Sokpor) on many issues before he could assist over twenty (20) Project
Accountants in the performance of their respective duties. Hence, substance over form
concept, as prescribed in accounting had to be applied in this instance.
Auditor General’s Position
2.1.7.9 The issue raised in our observation has to do with equal rights by the three top users
on the SUN System. We therefore maintain our recommendation.
2.1.8 Access control (IT Security)
Observation
2.1.8.1 COBIT 4.1 part DS5 provides that “the need to maintain the integrity of information and
protect IT assets requires a security management process. This process includes
establishing and maintaining IT security roles and responsibilities, policies, standards,
and procedures. Security management also includes performing security monitoring and
periodic testing and implementing corrective actions for identified security weaknesses
or incidents. Effective security management protects of all IT assets to minimize the
business impact of security vulnerabilities and incidents. It is also best practice in IT
that access passwords are change frequently”.
2.1.8.2 Furthermore, part 3 paragraph 3 of PFMU IT Policy, in part, states that “Good practice
with passwords will largely be enforced by the systems themselves. However, users are
required to comply with the following.
Passwords must be a minimum of eight characters in length and they should
either contain both alphabetic and numeric characters or be a phrase of two or
more unrelated words. They must not be generated in a way which makes
them easy to guess, for example using personal details, obvious dates or
generic text (such as “password”, PFMU).
Password change is prompted by the system every 90 days. Please do so
when requested to”.
2.1.8.3 It was observed during audit that the staff of the PFMU having access to the Sun-
System did use their passwords for the more than the period required by the IT Policy.
Also, there was no reminder on the system which prompts the user for the change of
password after its expiration date.
Risk
2.1.8.4 The failure to set criteria on the system to monitor and remind users to change
passwords on a regular basis could lead to unauthorized access to the Sun-System.
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
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Recommendation
2.1.8.5 The System Administrator should abide by the provision of part 3, paragraph 3 of PFMU
IT Policy and COBIT 4.1 Part DS5 for the monitoring and change of password.
Management’s Response
2.1.8.6 All users of the SunSystem database have secret passwords that conform to standard
practices. These are changed regularly and cannot be guessed as purported. Our IT
system is designed to suit our activities.
Management’s 2nd Response (October 1, 2015)
2.1.8.7 We still stand by our assertion that all ALL Users have secret passwords which are
forcefully change after ten (days). During the conduct of the audit, only your IT
personnel (Madam Yamah) requested and was provided with the System‟s access. She
only accessed (used it for a week. Even though the audit was conducted for over 90
days, those audit staff were not accessing the SunSystems and was impracticable to
confirm this assertion. See Exh 3 attached.
Auditor General’s Position
2.1.8.8 Part 3 paragraph 3 of PFMU IT Policy states that ALL USERS of the system shall be
prompted every ninety (90) days for change of password not within ten (10) days as
asserted by the PFMU Management. Therefore, we maintain our recommendation.
2.2 Financial Issues
2.2.1 Authorization Date
Observation
2.2.1.1 Paragraph 2.3.0 of the International Public Sector Accounting Standards (IPSAS) Cash
Basis of Accounting states that “An entity should disclose the date when the financial
statements were authorized for issue and who gave the authorization”.
2.2.1.2 The LBPWP Supplementary Grant Financial Statements for the fiscal period 2012/2013
have no disclosure in the accompanying notes on when the LBPWP Initial Grant
financial statements were authorized for issue.
Risk
2.2.1.3 The non-disclosure of the authorization date may result in users not knowing the cut-off
of events that were included in the compilation of the LBPWP Initial Grant financial
statements.
Recommendation
2.2.1.4 The authorization date should be disclosed in the notes to the LBPWP Supplementary
Grant financial statements so that the cut-off date of events that were used during the
compilation of the financial statements is known to the users.
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Management’s Response
2.2.1.5 The financial statements submitted to the Auditors were dully labeled “Labor Based
Public Work Project –Supplementary Grant for the year ended June 30, 2013. LBPWP:
Grant Nos. . This implies that the cut off period to which the financial statements relate
is very explicit and could not therefore be confusing to the readers of the LBPWP
Financial Statement for the period under audit. This reporting format is in line and
satisfactory to the donors reporting requirements.
Management’s 2nd Response (October 1, 2015)
2.2.1.6 Unlike profit oriented entities that seek Board‟s approval for the issuance of financial
statements on specified dates, the approval of the financial statement by the Project
Coordinator at the Project Implementing Unit (PIU) and the PFMU Unit Manager (
Project Financial Management Unit) with statement of the date to which the financial
statement relates is sufficient. This financial statement is further shared with the AfDB
Task Team Leader (TTL) for clearance. Your assertion applies to Public Sector Audit,
hence no board approval is required to issue the financial statements of the project
account.
Auditor General’s Position
2.2.1.7 The Authorization date on financial statements is intended to disclose events (both
favorable and unfavorable) occurring after the reporting period and the date when the
financial statements are authorized for issue. Subsequent events could be unknown
where there was no authorization date on the financial statements. In the absence of
an Authorization Date on the Financial Statements of the LBPWP as required by the
IPSAS Cash Basis of Accounting, we maintain our recommendation.
2.2.2 Presentation of Comparison of Budget and Actual Amounts
Observation
2.2.2.1 Paragraph 1.2.1C of the IPSAS-Cash Basis of Accounting requires the disclosure by way
of notes, an explanation of material differences between the budget for which the
LBPWP management are held publicly accountable and actual amounts, unless such
explanations are included in other public documents issued in conjunction with the
financial statements, and a cross reference to those documents are made in the notes.
2.2.2.2 It was observed during the audit that there was no Statement of Comparison of Budget
and Actual Amount prepared by the project.
Risk
2.2.2.3 Failure to disclose notes relating to Comparison of Budget and Actual Amounts and
reasons for significant variances, if (any), within the LBPWP Supplementary Grant
financial statements could indicate the existence of irregularities and lack of proper
budgetary control. The situation may also impede management‟s ability to make
informed financial decisions.
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Recommendation
2.2.2.4 The notes to the LBPWP Supplementary Grant financial statements should include
Statement of Budget and Actual Amounts and explanations for significant variances, if
(any), between the budget and actual amounts to assist users better understand the
reason for material departures from the approved budget. Compliance with this
requirement would ensure that PFMU Management is accountable for their performance
against and compliance with relevant approved budget.
Management’s Response
2.2.2.5 Chapter 6 (Financial Management) and section 6.5 (Project Financial Statements) of the
AfDB disbursement Handbook requires that the Project Financial Statements prepared
by Project Managements shall include:
Statement of Receipts and Expenditures
Statement of Special Accounts
Notes to the Financial Statements
2.2.2.6 With the provision of the above stated guideline, we confirm that the Financial
Statement submitted to the Audit Team are compliant with the required provisions.
(Please see copy of disbursement guideline attached- see 1.4 above)
Auditor General’s Position
2.2.2.7 The Project Terms of Reference requires the management of the PFMU to prepare
LBPWP financial statements using the IPSAS Cash Basis of Accounting. The IPSAS Cash
Basis of Accounting requires the preparation of the Statement of Cash Receipts and
Payments, Comparison of Budget and Actual Amount either as a separate additional
financial statement or as a budget column in the statement cash receipts and payments
and Accounting policies and explanatory notes. In the absence of disclosure by way of
notes a statement comparing budget and actual amount in the financial statements, we
maintain our recommendation.
2.2.3 Chart of Account Code
Observation
2.2.3.1 The PFMU Financial Procedure Manual section 8.5.2 states that “For the projects, the
PFMU shall design a „project-focused‟ chart of accounts that will facilitate:
Reporting on receipts and expenditure of Project funds;
Monitoring of project / program activities
Provide detail or summary financial management information reports to
several levels;
Compliance with external reporting requirements;
Reporting on categories of expenditure
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Budget reports”.
2.2.3.2 Furthermore, section 8.5.3 also states that “Most of the financial packages available
today have analytical tools for multiple reports from the same database of financial
data. Thus, the structure of the Chart of Accounts for the Projects will comprise two
main categories of classification of accounts: Analysis Codes and General Ledger codes.
Whilst the General Ledger codes will assist in classifying the financial transactions under
the main account types (assets, liabilities, revenue or expenditure), the analysis codes
will assist in classifying the data according to functions, activities or objectives”.
2.2.3.3 During the audit it was observed that the Project Focused chart of account codes did
not reflect the category of expenditure contained in the Project Agreement. We did not
find evidence that the payment voucher, general ledger and budget relating to the
period under audit contained the chart of account codes.
Risk
2.2.3.4 The failure by the Management at the PFMU to code transaction in the general ledger,
budget and payment vouchers may lead to improper classification of transaction,
inadequate records and budget reports.
Recommendation
2.2.3.5 The Senior Project Accountant should institute the use of Project Focused Chart of
Account as prescribed by section 5.3.2 and 5.3.3 of the Financial Procedure Manual
Management.
2.2.3.6 The Senior Project Accountant should ensure that the Chart of Account codes
developed for the LBPWP Supplementary Grant is distributed to the Assistant Project
Accountant and the Senior Assistant Internal Auditor assigned to the Project.
Management’s Response
2.2.3.7 PFMU currently manages over eighty projects for which LBPWP is a part. During the
Audit, a comprehensive Chart of Accounts presented in the TRIAL BALANCE and the
General Ledger were presented to the audit team. The Charts of Accounts which
contain expenditure code for each transaction form the basis of generating our reports.
Our reports have been consistent with the project grant agreement and acceptable to
the donors. It would never have been possible to generate these reports from the
system without Chart of Accounts (see Chart of Accounts attached which is Labor Based
Project focused with relevant analysis codes)
Auditor General’s Position
2.2.3.8 We received several documents including budget reports, general ledgers and payment
vouchers as well as payment request which contained no evidence of chart of account
codes. In the absence of classifying transactions using the chart of account code, we
maintain our recommendation.
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
16 Promoting Accountability of Public Resources
2.2.4 Financial ledger
Observation
2.2.4.1 Section 8.1.1(f) of the PFMU‟s Financial Procedure Manual in part states that “The PFMU
has installed Sun Financial Management Software to record the financial transactions of
the Projects / Programs. The Ledger accounting and fixed assets module have facilities
for maintaining cash transactions, creditors and debtors records, general ledger, and
fixed assets register. The software must be updated with the Projects‟ financial
transactions on daily basis to ensure that all Project financial transactions are promptly
recorded. Database of the financial transactions shall be maintained separately for each
Project. Thus, the accounting records at the PFMU should include:
(f) General Ledger in the software containing separate accounts for major
expenditure items under each of the categories in the Grant Agreements. A
Trial Balance report will be generated monthly”.
2.2.4.2 Annex 1 of the Protocol of Agreement provides that “The objective of the Project is to
improve capacities for the infrastructure maintenance and local development. The
Project comprises the following components:
Rehabilitation of Socio-Economic Infrastructure;
Capacity Development for Infrastructure Maintenance; and
Project Management”.
2.2.4.3 An examination of general ledgers accounts for the period under audit revealed that
categories of expenditure of the general ledger submitted by the PFMU did not match
categories of expenditure prescribed in the Grant Agreement. The general ledger used
in the preparation of the financial statements contained the names of individual and
vendor to whom expenditure were made.
Risk
2.2.4.4 The preparation of general ledger for the LBPWP financial transactions which did not
match major categories of expenditure under the Grant Agreement may lead to
improper disclosure of financial information. The situation may not provide assurance to
the stakeholders that the project objective is being met.
Recommendation
2.2.4.5 The PFMU Management should subscribe to the provision of section 8.1.1 (f) for the
preparation of general ledger accounts.
Management’s Response
2.2.4.6 The general ledgers submitted to the audit team truly reflects the categories of
expenditure as enshrined in the page 17 project grant agreement (Please see copy of
TRIAL BALANCE attached which contains).
Auditor General’s Position
2.2.4.7 We reviewed the trail balance and general ledgers submitted by the Management of
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
17 Promoting Accountability of Public Resources
PFMU and noted that it did not reflect the three major components of the LBPWP.
Therefore, we maintain our recommendation.
2.2.5 Annual Statement of Expenditure
Observation
2.2.5.1 Section 8.2.1 of the PFMU Financial Procedure Manual states that “at the end of every
month and quarter, the following statements and schedules will be prepared for each
Project / Program:
Cash Flow Statements or Summary of Sources and Uses of Funds
Uses of funds by Project component and activity within component
Funds Disbursement Status
Commitment Schedule
Designated Account Reconciliation Statement
Withdrawal Application Schedule”.
2.2.5.2 Additionally, section 8.2.2 of the Financial Procedure Manual states that “at the end of
the fiscal year, similar statement as shown for quarterly reports will be prepared. In
addition the following schedules and statements will be prepared for annual accounts:
Schedule of advances,
Schedule of cash and bank balances,
Schedule of funds received from IDA / AfDB / Education Pooled Fund,
Schedule of fixed assets; and
Statement of expenditure and financing”.
2.2.5.3 The audit team found no evidence that the PFMU Management prepared Annual
Statement of Expenditure for the fiscal period under audit. The Management at PFMU
and PIU at MPW in an interview stated that the reporting framework under the Labor
Based project did not require the preparation of Annual Statement of Expenditure.
Risk
2.2.5.4 Failure to prepare the Annual Statement of Expenditure for the period under audit may
not provide assurance that expenditure incurred were in line with the components
prescribed by the Project Agreement.
Recommendation
2.2.5.5 The management at the PFMU and PIU at the MPW should subscribe to sections 8.2.1
and 8.2.2 of the Financial Procedure Manual in the preparation of Annual Statement of
Expenditure.
Management’s Response
2.2.5.6 Chapter 6 (Financial Management) and section 6.5 (Project Financial Statements) of the
AfDB disbursement Handbook requires that the Project Financial Statements prepared
by Project Managements shall include:
Statement of Receipts and Expenditures
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
18 Promoting Accountability of Public Resources
Statement of Special Accounts
Notes to the Financial Statements
2.2.5.7 With the provision of the above stated guideline, we confirm that the Financial
Statements submitted to the Audit Team are compliant with the required provisions
(see attached –same document as 1.4 above).
Auditor General’s Position
2.2.5.8 The PFMU Financial Procedure Manual states that in addition to the above mentioned
statements the PFMU should also prepare Statement of Expenditure and Financing for
all projects including LBPWP. Furthermore, the engagement Term of Reference clearly
states that the PFMU is responsible for the preparation of the Statement of Expenditure
for the LBPWP. Therefore, we maintain our recommendation.
2.3 Internal Control Issues
2.3.1 Fixed Asset/Other Registers
Observation
2.3.1.1 Section 8.2.3 of the PFMU Financial Procedure Manual states that “at the implementing
units or agencies the following books shall be kept:
Petty Cash or Operating Funds books and vouchers;
Contracts Register which should be updated with contracts entered into,
consultants‟ certificates, and progress payments made by the PFMU.
Procurement and Order processing records tracking the stages of approval and
authorizations in procurement and entering into commitments.
Fixed Assets Register for the Implementing unit”.
2.3.1.2 Section 9.4.2 of the PFMU Financial Procedure Manual also stipulates that “for
maintenance of Fixed Assets Register
A FAR shall be maintained for recording all fixed assets procured or
constructed from each project / program fund or donated by any other body.
The register shall contain detailed information concerning each asset as
contained in the sample FAR.
The assets shall be code-numbered for proper identification as to categories
and location.
The assets register shall be designed to accommodate the additions and
disposals of asset entries and update.
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
19 Promoting Accountability of Public Resources
A summary of fixed assets shall be extracted from the FAR and form part of
the project management report and financial statements.
All movable fixed assets such as vehicles will carry the imprint of the project
name”.
2.3.1.3 Furthermore, section 9.4.3 of the Financial Procedure Manual stipulates that “for
Maintenance of Fixed Asset Register
The Assistant Project Accountant (APA) shall scrutinize the PV files and extract
details relating to the purchase or acquisition of assets.
The invoiced value of the fixed asset item shall be compared with the contract
documents to ensure that they are in accordance there with.
Cost associated with fixed assets shall be collated using a worksheet
Where joint costs are incurred, the APA shall apportion them to the specific
assets acquired. Such costs are: transit insurance, clearing agent cost etc.
The APA shall obtain the distribution or location list of the assets from the
store records.
He / she shall review the total cost of the assets and ensure that appropriate
entries are made in the Fixed Asset Register. The worksheet shall be
maintained in a separate file (Fixed Asset File)”.
2.3.1.4 Contrary to the above, an analysis of Fixed Asset Register revealed the followings:
There exist no evidence that the fixed assets procured under the two (2)
projects (Labor Based Public Works Project-Initial and Supplementary Grants)
were delineated.
There exist no evidence that extract of the Fixed Asset Register form part of
the financial statement of the projects.
There exist no evidence that the Fixed Asset Register had been reviewed by
the Project Accountant.
Verification exercise shows no evidence that assets amounting to US$
217,905.00 recorded in the FAR had Serial Numbers. See table below.
Fixed assets amounting to US$ 3,275.00 were not found during verification.
The verification exercise also revealed that assets procured under the project
were found to be distributed to staff, however, fixed asset amounting to US$
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
20 Promoting Accountability of Public Resources
2,800.00 were not coded. See Tables Below
Table V: Assets without serial number
NO. DATE DESCRIPTION Amount In US$ SERIAL NO.
1. 06/02/2014 2 Toshiba satellite P50- ABT3N22 laptop
intel i5 core processor 2,600.00
N/A
2. 06/02/2014 1 Toshiba NPR1520 i3 core processor 1,300.00 N/A
3. 06/02/2014 1 dell 20ostro desktop i5 core processor 1,050.00 N/A
4. 04/07/2013 1 Toyota Land Cruiser 51,291.00 N/A
5. 04/07/2013 1 Toyota Land Cruiser 51,291.00 N/A
6. 09/04/2014 1 Toyota Land Cruiser 51,291.00 N/A
7. 09/04/2014 1 Toyota Prado 57,282.00 N/A
8. 11/07/2013 2 Tiger Generator 500.00 N/A
9. 03/02/2014 1 generator ( KAMA 5KVA ) 1,300.00 N/A
Total 217,905
Table VI: Assets not found
NO. DATE DESCRIPTION Amount In US$
1. 11/07/2013 2 Tiger Generator 500.00
2. 11/07/2013 2 Dell Inspiron 15 R Laptop 1,800.00
3. 11/07/2013 2 Canon Printer 750.00
4. 31/10/2013 1 Camera 225.00
Total 3,275.00
Table VII: Assets not coded
NO. DATE DESCRIPTION Amount In US$ CODE
1. 20/06/2013 1 Lockable glass cabinet 525.00 N/A
2. 31/10/2013 1 Lenova Laptop 1,060.00 N/A
3. 31/10/2013 1 Camera 225.00 N/A
4. 06/02/2014 2 Ubiquiti Pickostation 240.00 N/A
5. 06/02/2014 3 miktrotik SXT 5 HN 750.00 N/A
Total 2,800.00
2.3.1.5 Section 4.5.11 of the appraisal report of the Labor Based Public Works Project provides
that ten (10) set of labor based equipment comprising of 10 trailers, 10 pedestrian
rollers, 10 tractors and 12 tow graders were delivered by ILO to the Ministry of Public
Works. The PIU at the Ministry of Public Works presented the audit team a list of 10
pedestrian rollers, 5 tractors and 5 trailers leased out to contractors, however, the audit
team could not obtain any evidence that said assets were recorded in the Fixed Asset
Register. See table below
TABLE VIII: Leased Equipment
Contractor Equipment
Description Serial No. QTY Contract No, Road & Location Duration Cost
Wonder
Incorporated
Roller
Compactor
Serial No.
1101612040373
1 MPW/ADB/ADF/LBPWP/RRLBM/LOT
1
( 2 Mths)
April 16,
N/A
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
21 Promoting Accountability of Public Resources
Contractor Equipment
Description Serial No. QTY Contract No, Road & Location Duration Cost
LBPWP 008 Maryland County, Boniken and
Happer Fishtown Road
2014 to
June 16,
2014
Salinco
Incorporated
Roller
Compactor
Agriculture
Tractor
Agriculture
trailer
Serial No.
1101612040373
LBPWP 007
Serial No
31202173
LBPWP 007
N/A
3 MPW/ADB/ADF/LBPWP/RRLBM/LOT
1B
( 2 mths
) April
16, 2014
to June
16, 2014
N/A
EADECON
Liberia
Incorporated
Roller
compactor
Serial No
1101612040379
LBPWP 007
1 MPW/ADB/ADF/LBPWP/RRLBM/LOT
1B
April 10,
2014 to
May 10
,2014
N/A
Ma Mary &
Son
Construction
Company
Roller
Compactor
Serial No
1101612040371
LBPWP 006
1 MPW/ADB/ADF/LBPWP/RRLBM/LOT
4B
April 10,
2014 to
May 10,
2014
N/A
WARNDEH
Inv estment
Corporation
Roller
compactor
Serial No
1101612040379
LBPWP 001
1 MPW/ADB/ADF/LBPWP/RRLBM/LOT
1A
April 10
,2014 to
June 10,
2014
N/A
Graceval
Construction
and
Associates
Incorporation
Roller
Compactor
Agriculture
Trailer
Agriculture
Tractor
Serial No
1101612040379
LBPWP 001
Serial No
31202173
LBPWP 001
3 MPW/ADB/ADF/LBPWP/RRLBM/LOT
2A
(2 mths )
April 10,
2014 to
June 10,
2014
N/A
Sustainable
Agriculture
Program for
Liberia
Roller
Compactor
Agriculture
Trailer
Agriculture
Tractor
Serial No
1101612040373
LBPWP 001
3 MPW/ADB/ADF/LBPWP/RRLBM/LOT
4A Geeken River Gee County
April
23,2014
to May
23, 2014
N/A
Liberia peace
&
Development
Initiative
Roller
Compactor
Agriculture
Trailer
Serial No
1101612040378
3 MPW/ADB/ADF/LBPWP/RRLBM/LOT
2A
April 23,
2014 to
May 23,
2014
N/A
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
22 Promoting Accountability of Public Resources
Contractor Equipment
Description Serial No. QTY Contract No, Road & Location Duration Cost
Agriculture
Tractor
St Umah
International
services
company
(SUISCO )
Roller
Compactor
Agriculture
trailer
Agriculture
Tractor
Serial No
1101612040379
LBPWP 004
3 MPW/ADB/ADF/LBPWP/RRLBM/LOT
3B
April 16,
2014 to
May 16,
2014
N/A
TECURD Roller
Compactor
1 N/A N/A N/A
Risk
2.3.1.6 Failure to properly maintain a Fixed Assets Register (FAR) may lead to the following:
Inconsistent procedures for fixed asset accounting, management, control and
accountability
No assurance that the PIU Management had adequately minimized risk to
asset through internal controls
No assurance for proper financial accounting and reporting in accordance with
the PFMU Financial Procedure Manual
Assets may be subservient to thief
2.3.1.7 Failure by the Assistant Project Accountant to review the accounting and maintenance
of the FAR may lead to:
The assets register may not be updated regularly.
Assets acquisition may not be recorded.
Fixed assets may be under or overstated.
Recommendation
2.3.1.8 The Head of the PFMU and the LBPWP Project Coordinator should ensure that the PFMU
Assistant Project Accountant (APA) and the responsible fixed assets clerk at the project
office adhere to the dictates of sections 8.2.3, 9.4.2 and 9.4.3 of the Financial
Procedure Manual in the accounting for fixed assets and the maintenance of the Fixed
Assets Register.
2.3.1.9 The PFMU Assistant Project Accountant and the responsible fixed assets clerk at the
project office must update the FAR to reflect the current balance of fixed assets of the
project.
2.3.1.10 The Senior Project Accountant should ensure that an extract of the fixed asset register
is attached to the annual financial statement of the project.
Management letter on the Labor Based Public Works Project (LBPWP) Supplementary Grant Financial Statement for the fiscal Period 2012/2013
23 Promoting Accountability of Public Resources
2.3.1.11 The APA should regularly review the FAR monthly or quarterly, which is more
convenient. The APA along with the fixed assets clerk should sign a hard copy of the
register printed on a ledger paper type.
2.3.1.12 The Senior Assistant Internal Auditor should investigate reason why assets recorded in
the Fixed Assets Register were not found.
Management’s Response
2.3.1.13 During the audit, copy of the Fixed Assets Register was submitted to the Audit Team.
(Please see copy attached again)
Management’s 2nd Response (October 1, 2015)
2.3.1.14 PFMU regularly carries out its review of Fixed Assets for each and every project as per
the Financial Procedures Manual. All Quarterly IFRs prepared for all Projects have Fixed
Assets per register. The Assets as mentioned not found are all still with the Project and
available for review. These Assets have already been turned over to the Ministry of
Public Works as agreed in the project document.
2.3.1.15 Also, PFMU will work with the Ministry of Public Works to ensure that all the assets
mentioned above are properly coded.
Auditor General’s Position
2.3.1.16 Verification exercise of assets shown by the PIU as being found and turn over to the
Ministry of Public Works on October 9, 2015 revealed that none of the assets were
found to be coded. Assets that are coded in the Fixed Assets Register but were not
physically verified not to contain codes provide no assurance the assets were actually
the property of the Labor Based Public Works Project.
2.3.1.17 The PFMU did not address other substantive issues such as the delineation of project
assets, no evidence of a review of the Fixed Asset Register by the project accountants,
etc. The issue we raised was not the lack of a Fixed Asset Register, but deficiencies
noted from the review of the fixed asset registers in line with the PFMU Financial
Procedure Manual; therefore, we maintain our recommendation.
APPRECIATION 2.3.1.18 We would like to express our appreciation for the courtesy accorded and assistance
rendered by the staff of the PIU at the MPW and PFMU during the audit.