Chapter 18 by hJqV00Q4

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									Chapter 18

Food, Agriculture & Livestock
Division
Audit Period

     Audit Year 2007-08

Auditable Expenditure

   Grant No.                   Particulars                        Rupees

   Current/ Non-Development Expenditure
      49      Food, Agriculture and Livestock Division           169,630,000
      50      Agriculture Research                                   700,000
      51      Other Expenditure of Food, Agriculture and         513,097,000
              Livestock Division
                                                                 683,427,000

   Development Expenditure
      144    Food, Agriculture and Livestock Division       11,952,109,000
      145    Agriculture Research                              433,393,000
                                                           12,385,502,000

               Total                                       13,068,929,000


Audit Formations

        Pakistan Agriculture Research Council
        Food, Agriculture and Livestock, Islamabad
        National Program me for improvement of Water resources in Pakistan
        Agri-business development and diversification project




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Audit Team

 S.No.           Name           Designation                 Role
   1.     Dr. Akmal Minallah    Director      Finalization of Audit report,
                                              Holding DAC meetings
   2.     Nazar Rauf Rathore    Dy. Director Supervision of audit activities,
                                              Planning of audit,
                                              Review of audit findings,
                                              Review of draft audit report
   3.     Muhammad Adnan        Audit         Technical support in planning,
                                Expert        execution & reporting
   4.     Naeem Akhtar          Assistant     Audit execution,
                                Audit Officer Preparation of AIRs & draft
                                              audit report
                                              Update audit permanent file
   5.     Muhammad Arshad       Senior Audit Audit execution,
                                Officer       Prepare audit working papers


Time Schedule

   From 28 November 2007 to 31 January 2008
   (For details refer page 309)




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I.     AUDIT OBJECTIVE AND SCOPE

A.     Audit Objective

       The overall objective of this audit is to review the management, financial
       and operating controls to appraise their adequacy and soundness. As we
       are specifically focusing upon expenditure being incurred from the grants
       received, it is necessary evaluate the internal controls over expenditure.
       The main objectives of the audit of the ministry of environment are:

       -   to attain reasonable assurance whether the financial statements are
           prepared in accordance with the identified financial reporting
           framework and the sum expanded has been applied in all material
           respect for the purposes authorized by the Parliament
       -   to check the system of internal control and compliance with the
           respective authorities
       -   to ensure proper classification with respect to account head, function
           and cost centre.
       -   to determine that payroll record is complete and accurate. To ensure
           that it is being updated and complies with all prescribed rates of
           Federal Govt.
       -   to determine if internal controls for recording and safeguarding of
           assets are adequate
       -   to provide certification for the foreign aided projects, if any
       -   to perform performance audit of the major education projects, so that
           efficiency, effectiveness and the impact of the project on the economy
           can be assessed.

B.     Audit Scope

       The auditor general is appointed under section 168 of the constitution of
       the Islamic republic of Pakistan, 1973 and section 169 defines the
       functions and powers of the auditor general as;

       -   The auditor general shall, in relation to-
       -   The accounts of the federation and of the provinces and
       -   The accounts of any authority or body established by the federation or
           a province
       -   Perform such functions and exercise such powers as may be
           determined by the parliament or by order of President.

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      Further the scope of the auditor general of Pakistan is defined in Section
      8 of the Auditor General’s Ordinance, 2001 which, empowers the
      Auditor General of Pakistan to audit:

         All expenditure from the Consolidated Funds of the Federation and of
          each Province;
         All transactions of the Federation and of the Provinces relating to
          Public Account;
         All trading, manufacturing, profit & loss accounts, balance sheets and
          other subsidiary accounts kept by order of the President or of the
          Governor of the province in any Federal or Provincial Department; and
         The accounts of any authority or body established by the Federation
          or a province, and in each case report on the expenditure,
          transactions or accounts so audited by him.

      Audit of Food, Agriculture and Livestock Division will be conducted in
      accordance with the requirements of OAGP Auditing Standards as
      enshrined in FAM. The scope of audit includes verification and analysis
      of current and development expenditure on test check basis and also
      includes performance audits as and when required. Compliance testing
      and substantive tests have to be performed as appropriate, but due to
      the extensive volume of transactions, more emphasis is laid on
      compliance testing. Brief description of areas to be covered is as follows:-

         Current expenditure to be verified on sampling basis to ensure the
          completeness, accuracy, relevance, genuineness and proper
          classification as well as compliance of grant formalities.
         Development expenditure has to be checked and verified on a test
          check basis keeping in view        the procedures for the purchases,
          the necessary formalities that are required to be fulfilled for the
          expenditure incurred and the related documentation maintained in
          support of the expenditure incurred.
         Compliance with approved accounting framework which is NAM.
         Compliance of the laws and regulations i.e. PC-1, PPRA rules,
          financial policies etc.
         Compliance audits / reviews of attached Authorities




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II.    SIGNIFICANCE AND UNDERSTANDING OF THE MINISTRY

A.     Significance of Food, Agriculture and Livestock sector in Pakistan

       Agriculture sector is the lifeline of Pakistan's economy. It contributes
       24% to the GDP, employs 48.4 percent of the labor force and contributes
       to 70% of the foreign exchange earnings through export of raw materials;
       semi processed and processed agricultural products.

       The agricultural growth in Pakistan since 1960s has taken place at a
       magnificent rate of 4.3% per annum. It is imperative to increase
       availability of water at the farm through development of water resources
       and its conservation. Pakistan has built up huge water reservoir capacity
       of 18 MAF to store water for release during lean period. An on farm water
       management was initiated to minimize water losses during delivery at the
       farm. Over the quarter century since the inception of this program, the
       demand for water has increased substantially both at the farm and for
       human / industrial consumption. The resultant shortage in supply of
       water has been further compounded by the drought. The Ministry of
       Food, Agriculture & Livestock is undertaking a massive on farm water
       management program on war footing to address the issue.

       It is seen that the productivity levels of crops in Pakistan are generally
       low. There are wide gaps in yields of crops at the farms of progressive
       and subsistent growers. The prospects for increase in area are limited.
       The Ministry of Food, Agriculture & Livestock is making strenuous efforts
       to raise productivity levels through increasing scientists - farmers
       contacts, improving out-reach capacity and focusing on electronic
       transfer of technology through manpower training and allocation of
       resources.

B.     Understanding of the Ministry of Food, Agriculture and Livestock

       The ministry is mainly responsible for policy formulation, economic
       coordination and planning in respect of food grain, Agricultural & Live
       Stock. Major function of the Division includes , procurement of food
       grains, fertilizer, import price stabilization of agriculture produce,
       international liaison, economic studies for framing agricultural policies,,
       fishing and fisheries beyond territorial waters, animal quarantine etc.
       Moreover, this Division is actively involved in inspection, grading analysis
       of food grains, activities relating to aid/assistance being received from

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      the donor agencies, collection and compilation of agriculture statistics,
      marketing intelligence and standardization of agricultural machinery.
      Agricultural activities also include the identification of under-developed
      areas and precautionary measures to remove the causes of under-
      development of different areas. This Division also administers major
      activities towards animal protection, veterinary drugs, and Live Stock
      insurance including the poultry and Live Stock products. This division
      has eight Attached departments, five Autonomous Bodies and one
      Corporation i.e. Pakistan Agriculture Storage and Corporation.

      Organizational Structure
      The organizational structure of the ministry is annexed as Annexure A to
      the chapter.

      Principal Address
      Ministry of Food, Agriculture and Livestock
      ‘B’ Block, Pak Secretariat, Islamabad
      Ph: 92-51-9201718,
      Fax: 92-51-9221246
      Website: www.mopw.gov.pk

C.    Status of the Entity and its Core Operations

a)    Status of the entity
      Ministry of Food, Agriculture and Livestock is strategically run by elected
      representatives of the public and administratively controlled by the
      bureaucracy.

      Being the primary concern sector for any government this sector is
      controlled by each provincial ministry at province level and by district
      governments at district level.

b)    Core Operational Activity

      The core operational activities of the ministry are,

      1.   Economically Co-ordination and planning in respect of food.

      2.   Watch over the food supplies (including storage) position in the
           country.


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       3.   Procurement of food grains, including sugar:-

            a) from abroad;

            b) for Federal requirement;

            c) for Inter-provincial supplies;

            d) for export and storage at ports.

       4.   Import and export control on food grains and foodstuffs.

       5.   Inspection, grading analyses of food grains and foodstuffs and
            maintenance of standards of quality for import and export.

            Note:- Inspection, handling, storage and shipment of rice for export
            is the concern of Commerce Division .

       6.   Preparation of basic plan for bulk allocation of food grains and
            foodstuffs.

       7.   Price stabilization by fixing procurement and issue prices including
            keeping a watch over the price of food grains and foodstuffs
            imported from abroad or required for export and those required for
            inter-Provincial supplies.

       8.   Collection of statistics regarding production, consumption, prices,
            imports and exports of food grains.

       9.   Food and Agricultural Organization of the United Nations in respect
            of food.

       10. Co-ordination of work relating to aid/assistance being received from
           aid-giving agencies in respect of food sector.

       11. Economic, Planning and policy-making in respect of agriculture
           *[forestry and wildlife].

       12. Agricultural Research Council; Agricultural commodities research.

       13. Food and agriculture organization of the United Nations in respect of
           agriculture.

       14. Co-ordination of work relating to aid/assistance being received from
           aid-giving agencies in respect of agriculture sector.


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      15. Plant protection:-

           a) standardization and import of pesticides;

           b) aerial spray;

           c) plant quarantine; and

           d) locust control in its international aspect and maintenance of
              locust warning organization.

      16. Economic studies for framing agriculture policy.

      17. Farm management research for planning, project formulating and
          evaluation.

      18. Seed testing and seed certification; crops forecast and estimation;
          crop insurance.

      19. Collection and complication of agriculture statistics.

      20. Marketing intelligence.

      21. Grading of agricultural commodities other than food grains, for
          exports.

      22. Agricultural commodity research (marketing research and laboratory
          research for laying down national grades).

      23. Soil survey, comprehensive inventory of the soil resource of the
          country and their proper utilization.

      24. Standardization and import of fertilizers for meeting Provincial
          requirements

      25. Introduction of special crops like jute, tea, olive etc.

      26. Standardization of agricultural machinery.

      27. Under-developed Areas:-

           a) Identification of Under-developed Areas.

           b) Identification of the fields in which an area is under developed.



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            c) Measures necessary to remove the causes of under-development
               in different areas.

       28. Administrative control of the PASSCO.

       29. Sugar Board.

       30. Socio-economic studies for framing agricultural research policies.

       31. Agricultural commodities research; Federal Agricultural Research
           Organizations (expecting Pakistan Central Cotton Committee and
           Soil Survey Department).

       32. Coordination of aid/assistance from international aid-giving
           agencies and FAO in respect of agricultural research, including
           manpower training for research.

       33. Research for the introduction of improved germ plasm, both of plant
           and animal origin

       34. Research coordination in respect of livestock production , livestock
           diseases and marine fisheries.

       35. Collection of statistics on agriculture research.

       36. High level manpower training for agricultural research..

       37. Inter-provincial coordination and coordination between the center
           and the provinces in respect of agricultural research, including
           training of high level agriculture scientist.

       38. National policies, planning and economic co-ordination in respect of-

            i) Live stock including dairy, poultry and fisheries;

            ii) Animal disease control.

       39. i) Co-ordination of foreign aid and technical assistance in the
           livestock sector and related fields;

             ii) Liaison with international agencies especially Food and
                 Agriculture Organization of the United Nations in the field of
                 livestock.

       40. Development and co-ordination of livestock and poultry complexes
           with bilateral assistance.

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      41. Statistics regarding livestock, poultry and fisheries.

      42. Price stabilization measures.

      43. Animal protection:
          i) Vigilance and measures for prevention of extension from one
              Province to another of infectious or contagious diseases affecting
              animals;

           ii) Animal quarantine and inspection.

      44. Veterinary drugs, vaccines and animal feed additives.

           i) Import and Export.

           ii)Procurement from abroad for Federal requirements and for inter-
              provincial supplies.

      45. Livestock, poultry and livestock products;

           i) Market intelligence.

           ii) Import and export.

           iii) Laying down national grades;

           iv) Project formulation and evaluation.

      46. Standardization of dairy, poultry and meat processing machinery.

      47. Livestock insurance.

      There is a full commitment at policy level about the importance of
      investing in Food, Agriculture and Livestock as a critical input for socio
      economic development.

      To translate this commitment into action a number of initiatives in
      public sector programs (new and ongoing) have been undertaken: the
      most notable include the National Program me for improvement of Water
      resources in Pakistan, Water Conservation and productivity
      enhancement through high efficiency irrigation system program, Agri
      business development and diversification project . These programs with
      current and future major interventions should help to improve general
      uplift of masses.

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       Investment in Food, Agriculture and Livestock stood at only 0.38% of the
       total federal development program. The government obtains foreign
       loan/aid also to invest in the Food, Agriculture and Livestock sector.
       Federal Ministry of Food, Agriculture and Livestock is the key
       functionary which plays a leading role in regulating aid flow in the Food,
       Agriculture and Livestock sector. The common identified objectives are:

       o Facilitation of Live stock
       o Food security and nutrition
       o Improvement of agriculture, forestry and irrigation system

       Being the priority agenda of the government a lot can be achieved in
       livestock, food and agriculture due to limitations in provision of facilities
       if the commitment from the bureaucracy is there.

D.     SWOT analysis
       Before considering the risk areas that are at present hindering the
       government in fully implementing the objectives in Food, Agriculture and
       Livestock sector, the strength/opportunities available for its foster
       growth and achieving objectives are discussed below;

       Strengths
        Full financial support from Federal Government
          Federal Government provides full financial support to the Food,
          Agriculture and Livestock support
        Vesting of Powers through Legislation

          Devolution of the power through Ministry of Food, Agriculture and
          Livestock at all levels of government, that is, federal, provincial and
          local government level.
        Availability of large infrastructure
          Large infrastructure in federal, provincial and local government is
          provided

       Weaknesses
       The main weaknesses of the system that are identified before starting the
       audit engagement activities through discussions with the key officials
       and initial system analysis are;
        Lack of Advanced training in research methodologies                    and
         instrumentation
        Lack of biotechnology, micro irrigation and fertigation


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       Lack of bio-fertilizer, bio-pesticide, pesticide residue and product
        development
       Lack of facilities for removal of field heat
       Inadequate specialized facilities for marketing of horticultural
        commodities
       Inadequate cold storage facilities
       Absence of cold chains
       Air cargo flight facilities:
         o Development of airports for landing of wide bodied cargo planes
         o One window handling facilities
         o Limited space and cold storage facilities at airports
       High transit time through sea
       Inadequate linkages with a number of potential importing countries
       Inadequate availability of reefer containers
       Lack of experienced Project Implementers
       Lack of vet-nary doctors/ agriculture scientist
       Lack of International standards laboratories/ research centers

      Threats
       Funds might not be utilized for the purposes to achieve the targets.
       Qualified staff leaves the organization
       Change of government may suspend the development projects
        undertaken by the present government.

      Opportunities
       Accrediting Export Quality
       Post Harvest Handling and Management
       Horticultural field focusing on demand based production systems
       Improving productivity through Integrated Pest Management and
        harvest/post harvest management practices
       Import substitution
       Use of Hybrid seed technology

E.    External Factors (PEST analysis):

      External factors that might affect the ministry’s performance may
      include;

      -   Technological factors
      -   Social factors
      -   Political factors
      -   Economic factors
      -   Climatic factors



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       Technological factors

       Can lead to burden the budget if the institutes and scholars are targeted
       in technology area which can no longer be in demand/use i.e.
       Information Technology, Science education

       Social factors

       Cultural issues can lead to gender bias in some areas resulting in non
       availability /non willingness for females in enrolment into programs/
       activities

       Political factors

        Change of government may abandon present programs
        Funding from the foreign donor may discontinue due to external
         pressures.

       Economic factors

        If the economic condition of Government detroit, Government may
         impose major cut on the Food, Agriculture and Livestock budget
         hence resulting in curtailment of Food, Agriculture and Livestock
         activities
        High rates of inflation can lead to high cost of Food, Agriculture and
         Livestock resulting in low activities

       Climatic disaster

        Natural disaster such as earth quake, flood
        Sudden change in weather patterns

F.     Intergovernmental Relationship:
       Functionally ministry consists of one main division along with various
       line departments/suboffices. The Ministry of Food, Agriculture and
       Livestock is responsible for matters concerning National Planning and
       Coordination in the field of Food, Agriculture and Livestock.

       Departments:
       The Departments attached/sub-ordinate with the ministry of Food,
       Agriculture and Livestock are;
          Economic, Trade and Investment Wing

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         Agricultural & Livestock Products Marketing and Grading Department
          (ALMA)
         Agricultural Policy Institute (API) Formerly (APCom)
         Animal Quarantine Department (AQD)
         Central Cotton Research Institute (CCRI)
         Department of Plant Protection (DPP)
         Federal Seed Certification and Registration Department (FSC&RD)
         Introduction of Medicinal Herbs and Spiceis as Crops (IMHSC)
         Livestock Wing (LW)
         Marine Fisheries Department (MFD)
         Pakistan Agriculture Research Council (PARC)
         Soil Survey of Pakistan (SSP)
         Pakistan Oilseed Development Board (PODB)
         Pakistan Central Cotton Committee (PCCC) etc

      Various programs are initiated by the government under each
      division/department with a sharper focus on poor and unprivileged
      segments of the society.

G.    Accounting System of the Ministry:
      Ministry of Food, Agriculture and Livestock is a centralized accounting
      entity, where, controller general of accounts is responsible for processing
      of its accounting transactions and maintaining the accounts. The sub
      offices of the controller general of accounts at province and districts
      maintain the respective accounts.

      Various development projects are undertaken by each line department.
      For the purpose of the accounting classification each division and line
      departments are classified under cost centers, (the functions), which are
      then further classified into various cost element (the objects).

      The major cost centers as per New Accounting Model are;

           Account        Cost centers
             Code
              042         Agriculture, food, irrigation, forestry and fishing

      For more specific accounting each department and projects to further
      detailed level can be classified as cost centre.


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       Each cost centre is further divided into cost elements, the major
       classification of which is detailed below;
            Account          Cost elements
              Code
               A01           Employee related expenses
               A02           Project pre-investment analysis
               A03           Operating expenses
               A04           Employees retirement benefits
               A05           Grants subsidies and write-off loans
               A06           Transfers
               A09           Physical assets
               A13           Repairs and maintenance

          Broadly the expenditures are classified as current or non-development
           expenditure and development expenditure. Separate budget are
           allocated for each type of expenditure.
          Gazette officers of at least BPS 16 and above hold the charge of the
           post   of          drawing    and   disbursing   officers in   each
           ministry/divisions/departments/development projects.
          The budget allocation are on account of
          Releases from the federal government
          Grant in aid
          The budget are transferred                 through   the   following   to   the
           ministries/departments;
          AGPR Counter
          PLA is maintained with federal treasury and
          Assignment account maintained with NBP
          Departmental accounts
          The budget of province is transferred to account 1 whereas the
           budgets of districts are then transferred to a/c IV.
          Foreign aided projects maintain departmental accounts where the
           expenses are incurred in the department from the government
           account and the proportionate share is reimbursed from the aid
           account.
          Ministry wise list of authorized signatory of the formations audited
           dated during the course of audit and annexed as annexure C.



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III.   RISK ASSESSMENT

A.     General Risk Assessment Procedures
       Our risk based approach during the audit would be to plan and
       document our risk assessment procedures performed so as to obtain an
       understanding of the entity and its environment. Our risk assessment
       procedures may include inquiries, observations and inspections, and
       analytical procedures. The major risk factors that would commonly be
       addressed to assess the risk of the entity are;

          The adequacy of internal controls and the control consciousness
           environment is in place;
          Participation by those charged with governance
          Management approach to taking and managing business risks
          Changes in operating environment
          Corporate restructuring
          Discussions with the management regarding any internal control
           weakness, frauds and irregularities identified earlier.
          Are changes in the design of internal controls documented and review
           by a competent authority;
          There is a clearly defined organization structure and the operating
           functions are performed independently so as to create segregation of
           duties;
          The role and authority of the internal audit function (if any), and
           review of internal auditor’s assessment of the corrective actions taken,
           and to consider the impact on the nature, extent and timing of our
           audit tests and procedures;
          The nature of transactions (for example, the number and Rupee
           volumes and the complexity involved);
          Assessment of non-routine transactions and its adequacy of its
           documentation and approvals;
          Understanding of the financial reporting process;
          The age of the system or applications used;
          The physical and logical security of information, equipment, and
           premises;
          Susceptibility of assets to theft and misappropriation;
          The adequacy of operating management oversight and monitoring;
          Previous regulatory and audit results and management’s
           responsiveness in addressing the issues raised;



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          Human resources, including the experience of management and staff,
           turnover, technical competence, management’s succession plan, and
           the degree of delegation; and
          Senior management oversight.

       The auditor must be able to identify high risk areas and the high risk
       areas may be identified from material weaknesses. Material weaknesses
       will be;

          Be evident at multiple agencies
          Affect a significant portion of the government’s total budget or other
           resources
          Stem from a deficiency that should be monitored and addressed
           through individual agency actions as well as through Office of
           Management and Budget initiatives
          Major non-compliance of applicable laws and regulations.

B.     Inherent Risk Factors

       1) Inherent risk factors associated with activities/programmes

              Complexity of programs;
              Complex, unusual or high value transactions;
              Activities involving the handling of large amounts of cash or high
               value attractive goods - embezzlement or theft;
              Activities of a nature traditionally considered to be particularly
               prone to fraud or corruption (e.g. public works and technical
               contracts, contracts for the delivery goods);
              Urgent operations (e.g. emergency aid) and operations not fully
               subject to the usual controls;
              Historical evidence of a high incidence of intentional irregularities;
              Eligibility criteria inconsistent with objectives (too wide, too
               restrictive, not relevant);
              Activities that are uninsurable and/or are subject to risks arising
               from political, financial, ecological (etc) instability;

       2) Inherent risk factors associated with the operating structure

              Management approach to taking, managing and mitigating
               business risk;
              Geographically dispersed organization, or organization operating in
               areas where communications are difficult;
              Unclear      division    of    responsibilities      within     the
               Division/Department;

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             Activities or projects involving numerous partners (coordination
              problems, weaknesses in management and communications
              structures);
             Particular points mentioned in internal and external audit reports,
              and in press reports etc.

      3) Inherent risk factors associated with the beneficiaries

             Operations where the conduct of beneficiaries is difficult to check,
              or where the ultimate beneficiaries may be different from the
              apparent recipient;
             Beneficiaries highly dependant on public funds;
             Activities which imply several levels of subcontracting, making the
              identification of eligible beneficiaries difficult;
             Historical evidence of a high incidence of intentional irregularities;
             Political or administrative pressure exerted by beneficiaries or
              participants in the activity;
             Imposition of unwanted responsibilities upon organizations,
              administrations or beneficiaries;

      4) Inherent risk factors associated with the economic or technical
         circumstances

             Abnormal trends and ratios;
             Results intangible or difficult to evaluate;
             Activities that are starting up or coming to an end, or are subject
              to rapid technological change;
             Unstable sources of supply and variable prices of inputs (raw
              materials, etc);
             Over-dependence on one supplier (e.g. supplier of equipment has
              exclusive maintenance contract, is sole supplier of parts and
              materials, software, etc);

      5) Inherent risk factors associated with the audited entity

             Lack of turnover of personnel and/or personnel not taking holidays
              in a sensitive department/area;
             Activities with which the audited entity has no or limited
              experience;
             Activities that are highly dependant upon a small number of key
              personnel;
             Insufficient staff, or staff and management under-qualified,
              inexperienced or poorly motivated;
             Peaks and troughs in work patterns and information flows;

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              Utilization of obsolete information technology systems;

       6) Inherent risk factors associated with the audited entity’s
          management policies and practices

              Badly defined or unrealistic objectives;
              Strong pressure upon management to produce results, achieve
               objectives, meet unrealistic deadlines, achieve high rates of
               budgetary utilization at the year-end;
              Short-term budgetary pressures (e.g. delay in undertaking
               necessary maintenance imposes greater costs later);
              Management, supervision and control functions poorly suited to
               the activity;
              Lack of management information system and/or cost accounting
               system;
              Unclear division of responsibilities within and between the various
               departments;

C.     Specific Audit Risks

          Proper utilization of development budget
          Violation of PPRA rules, 2004.
          Illegitimate payments
          Compliance with clauses of grant agreements
          Proper authorization and classification of expenses
          Incorrect mode of payment
          Incomplete record
          Misuse and mismanagement of funds
          Inadequate control over cash payments and bank payments

       The major areas that are considered material and need to be focused
       upon during the course of audit includes:

       •   Employee related expenses
       •   Operating expenses
       •   Grant in aids & write off of loans
       •   Repair and maintenance
       •   Physical assets
       •   Transfers

IV.    AUDIT APPROACH

       The audit approach would include a combination of financial audit and
       compliance audit. At the preliminary stage, the assessment of internal

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      control system would be performed to identify the weaknesses that would
      lead to the assessment of audit risk. Materiality level is basically
      determined at 2 percent of the budgeted amount, but nature of
      expenditure is also considered. The departments, offices and projects are
      selected on the basis of;


      -   High budget appropriation
      -   Grants subsidies and write offs involved
      -   Criticality of audit issues
      -   Sensitivity of core operations
      -   Government high priority areas that are threats for public
      -   Huge investment in the procurement
      -   Huge investments by the donors and the government
      -   Projects not audited in the previous year

      The selection of each DDO of each division for current expenditure and
      development expenditure is made on the basis of the level of materiality
      that is established by determining its nature and its amount. The DDOs
      selected have been mentioned individually and the areas to be focused
      upon are also mentioned.

      The audit approach for efficient and effective would encompass around
      understanding of the financial reporting and internal control system,
      checking compliance with applicable laws and regulations and
      performing compliance testing (test of control) and substantive testing as
      appropriate. The audit procedures may include any of the following, but
      are not exhaustive of the all the procedures as some of the procedures
      may be identified at the time of execution of the audit.
         Understanding the client internal control system and identifying
          internal control weaknesses and audit risks
         Issues highlighted in the previous audit reports that are still
          unresolved
         Compliance testing to ensure that applicable policies, rules and
          regulations and complied with.
         Compliance with grant agreement.
         Use of sampling to select items for compliance testing and substantive
          testing
         Vouching payments on a test basis and check the payments for
          accuracy, completeness, valuation and ownership
         Compliance of PC-1 document
         Checking compliance with PPRA rules for the procurements made
          during the year.

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          Comparison of actual expenditure with budgeted expenditure
          Prepare analytical procedures and Investigate where actual are more
           than budget appropriation.
          Investigate transfer payments to sub-offices and there utilizations.
          Performance audit procedures, if performance audit needs to be
           performed:
             o Identification of cost savings
             o Identification of services that can be reduced or eliminated
               Identification of programs or services that can be transferred to
               the private sector
             o Analysis of gaps or overlaps in programs or services and
               recommendations to correct gaps or overlaps
             o Feasibility of pooling information technology systems within the
               Department
             o Analysis of the roles and functions of the department, and
               recommendations to change or eliminate departmental roles or
               functions
             o Recommendations for statutory or regulatory changes that may
               be necessary for the department to properly carry out its
               functions
             o Analysis of departmental performance data and performance
               measures
             o Financial, economic and technical appraisal of projects
             o Identification of best practices.

       The understanding of the accounting and internal control system will
       enable the auditor to 1) identify types of potential material
       misstatements, 2) considers factors that affect the risk of material
       misstatements, and 3) design appropriate audit procedures. Therefore,
       the auditor should obtain an understanding of the accounting and
       internal control system to identify and understand:
          Major classes of transactions
          How such transactions are initiated
          Significant accounting records and supporting documents
          Accounting and financial reporting process, from the initiation of
           significant transactions and other events to their inclusion in the
           financial statements.

       The audit procedures would include a combination of compliance testing
       (tests of controls) and substantive procedures (test of detail). The
       objective of test of controls is to evaluate whether a control operates
       effectively, whereas the objective of tests of detail is to detect material
       misstatements.

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      The auditor is required to perform tests of control when the auditor’s risk
      assessment includes an expectation of the operating effectiveness of
      controls or when substantive procedure do not provide sufficient
      appropriate audit evidence. The auditor selects procedures to obtain
      sufficient appropriate evidence that the controls operated effectively
      throughout the period of reliance. The more the auditor relies on the
      operating effectiveness of controls in the assessment of risk, the greater
      is the risk of the auditor’s test of controls. In addition, as the rate of
      expected deviation from a control increases, the auditor increases the
      extent of testing of the control. The matters that may be considered in
      determining the extent of the auditor’s test of controls include the
      following:
         The frequency of performance of control by the entity during the
          period.
         The length of time during the audit period that the auditor is relying
          on the operating effectiveness of the control.
         The relevance and reliability of the audit evidence to be obtained in
          supporting that the control prevents, or detects and correct, material
          misstatements at the assertion level.
         The extent to which audit evidence is obtained from tests of other
          controls.
         The extent to which the auditor plans to rely on the operating
          effectiveness of the control in the assessment of risk.
         The expected deviation from the control.

      The following are the types of controls to test:
       Financial reporting controls (including certain safeguarding and
        budget controls) for each significant assertion in each significant
        cycle/accounting application,
       Compliance controls for each significant provision of laws and
        regulations, including budget controls for each relevant budget
        restriction, and
       Operations controls for each operations control (1) relied on in
        performing financial audit procedures or (2) selected for testing by the
        audit team. The auditor also should understand performance
        measures controls, but is not required to test them. However, the
        auditor may decide to test them

      Substantive procedures are performed in order to detect material
      misstatements and include tests of detail of transactions, account
      balances, and disclosures and substantive analytical procedures.
      Substantive procedures are generally applicable to large volume of
      transactions that tend to be predictable over time, which includes a
      combination of tests of detail and analytical procedures. The auditor

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       designs tests of details responsive to the assessed risks with the objective
       of obtaining sufficient appropriate audit evidence to achieve the planned
       level of assurance. In designing the tests of details, the extent of testing
       is ordinarily thought of in terms of the sample size, which is affected by
       the risk of material misstatement. However, the auditor may consider the
       use of selective sampling such as selecting large or unusual items from a
       population.

       In addition to the above mentioned audit procedures, analytical
       procedures may also be performed that would include analysis
       significant ratios and trend, consideration of relationships among
       elements of financial information and considering the relationship
       between financial information and non-financial information. The auditor
       will need to consider the testing of controls, over preparation of
       information used in applying analytical procedures, accuracy and
       reliability of information available.

       Types of audits to be performed:
           Financial audit
           Compliance audit
           Performance audit (if required)

       System documentation:
           Cash/bank payment and receipts system
           Procurement of assets and other items
           Payroll
           Grant receipt and related expenditure
           Transfers
           Delegation of powers

V.     BUDGET ALLOCATION

A.     Current Expenditure

       The total federal budget for current expenditure amounts to Rs.
       1,382,727,000. Grant wise detail is as follows.

                                                                  Budget allocation
           Grant No.                  Particulars                    for current
                                                                  expenditure (Rs.)
              49       Food, Agriculture and Livestock Division         169,630,000
              50       Agriculture Research                             700,000,000


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           51       Other Expenditure of Food, Agriculture            513,097,000
                    and Livestock Division
                    Total                                          1,382,727,000


      Function wise and object wise classification of expenditure under each
      grant is as follows;

      Grant No. 49: Food, Agriculture and Livestock Division (Rs.
      169,630,000)

                                                                      Revised
         Account
                       Particulars                                   Estimates
          Codes
                                                                      2006-07
                                                                     Pak Rupees
       1. Functional Classification
           042       Agriculture, Food, Irrigation, Forestry and
                     Fishing                                          169,630,000

       2. Object Classification
           A01       Employees Related Expenses                         95,430,000
           A03       Operating Expenses                                 70,070,000
           A05       Grants subsidies and Write-off Loans                1,000,000
           A06       Transfers                                             393,000
           A09       Physical Assets                                     1,195,000
           A13       Repairs and Maintenance                             1,542,000
                                                                      169,630,000

      Grant No. 50: Agriculture Research (Rs. 700,000,000)

                                                                      Revised
         Account
                       Particulars                                   Estimates
          Codes
                                                                      2006-07
                                                                     Pak Rupees
       1. Functional Classification
           042       Agriculture, Food, Irrigation, Forestry and      700,000,000
                     Fishing
       2. Object Classification
           A05       Grants, subsidies and Write-ff Loans             700,000,000



      Grant No. 50: Other Expenditure of Food, Agriculture and Livestock
      Division (Rs. 513,097,000)


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                                                                           Revised
          Account
                         Particulars                                      Estimates
           Codes
                                                                           2006-07
                                                                          Pak Rupees
        1. Functional Classification
            042       Agriculture, Food, Irrigation, Forestry and           513,097,000
                      Fishing
        2. Object Classification
            A01       Employees Related Expenses                             302,469,000
            A03       Operating Expenses                                     132,759,000
            A04       Employees Retirement Benefits                           10,350,000
            A05       Grants, subsidies and Write-ff Loans                    28,592,000
            A06       Transfers                                                  740,000
            A09       Physical Assets                                         26,669,000
            A13       Repairs and Maintenance                                 11,518,000
                                                                            513,097,000


       The offices / projects selected for the audit are as follows:


                                                                     Budget
          DDO           Name of the Offices/ Projects            appropriation
          Code                                                     for current
                                                                 expenditure in
                                                                  FY 2006-07
         ID1185     Pakistan      Agriculture         Research       700 Million
                    Council
         ID1189     Food, Agriculture       and   Livestock,         117 Million
                    Islamabad


       The sub offices carried out the audit of all the federal departments in the
       respective provinces with focus on the significant audit areas.


a)     Significant audit risk areas:


       We tried to integrate the approaches for financial and compliance audits
       and simultaneously planned to perform performance audit so that
       effective utilization of financial resources can be ensured. Further the


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      audit approach is more directed towards system based audit to address
      the system weaknesses.


      As discussed in the earlier section the expenditure are broadly classified
      in the current and development expenditure. We have focused more on
      development expenditure as huge investment has been made in
      development sector which if utilized efficiently will help the government
      in achieving their goals. The brief description of the areas to be covered
      but not limited to as follows:


      Significant audit areas for current expenditure:
      Current expenditure is recurring expenditure of the Ministry of Food,
      Agriculture and Livestock affairs departments listed above. For the
      purposes of the audit we have focused on the i) operating expenses and
      the ii) purchase of physical assets of the departments selected for the
      audit in particular and the rest will be audited in general.


      i) Risks involved in operating expenses:
          Illegitimate payments
          Improper classification of expenses in the heads of accounts
          Improper mode of payment
          Improper allocation of expenses


      Audit approach to address the risks involved in operating
      expenses:
      -   Illegitimate payments:
          The risk could affect the management assertion regarding RIGHTS
          and OBLIGATIONS.
          Document the system for the sanction of expenditure and identify any
          non compliance from general financial rules.
          The expenses are compared against the budget allocations so that
          excess especially in the utilities and general which includes
          advertisement and miscellaneous can be critically analyzed.
          Ensure that each payment is supported by the proper contract duly
          approved and authorized by the competent authority.
          Ensure that the payments are made against the schedule of
          authorized expenditure, and the applicable laws and regulation.
      -   Improper classification of the expenses in the heads of the
          account


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           The risk could effect the management               assertion   regarding
           CLASSIFICATION and PRESENTATION.
           Review the details of expenditure, select the sample from each major
           classification and check the classification according to the new
           accounting model.
       -   Improper mode of payment.
           The risk could effect the management assertion regarding EXISTENCE
           and OCCURRENCE
           Document the system recommended by the accounts manual and
           check the compliance in the departments/division.
           Verify on sample basis the expenditures from the bank statement.
           Obtain the list of expenditure paid in cash and obtain their
           justification.
       -   Improper Allocation Of Expenses
           The risk could effect the management assertion regarding VALUATION
           and EXISTENCE
           Ensure with focus on advertisement expenses and miscellaneous
           whether the expenditure should be classified as capital expenditure or
           revenue expenditure as detailed in the audit code and IPSAS.


       ii) Risks involved in the purchase of physical assets:

              Violation of PPRA rules
              In adequate measurement
              In complete records
              In adequate utilization of resources
              In adequate disclosure


       Approaches to address risks involved in purchase of assets:
       -   Violation of PPRA
           This risk will affect the assertion of compliance with regulation and
           inadequate disclosure of facts.
           Document the system to call tenders and compare it with the bench
           mark provided in the PPRA rules.
           Inquire non-compliances


       -   In adequate valuation
           This risk will affect the assertion of valuation

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          Check the useful life of the fixed asset and the depreciation rate
          applied with the market information for similar assets.
          Document the criteria for the recognition of the cost and compare it
          with international standards.


      -   Incomplete records
          This risk could affect the assertion of EXISTENCE
          Documents the system of recording the assets.
          Document the internal control applied on recording the assets.
          Check the items from records to ground and vice versa.

      -   Inadequate utilization of resources
          The risk will affect the assertion of Rights and Obligation.
          Ensure that the assets are maintained properly
          Ensure that assets are used for the purposes it is acquired.
          Ensure that assets are in the name of the project/department.
          Ensure that assets are insured or not.
          Ensure that warranty services are acquired when required during the
          warranty period.


      -   Inadequate disclosure
          This will affect the assertion of classification and presentation and
          disclosure.
          Select a sample and ensure that the items are properly disclosed in
          the correct account as per the classification of New accounting model.
          Ensure that the assets are disclosed in accordance with financial
          reporting manual, and IPSAS.

      General audit approach:
         Prepare analytical procedures and Investigate where actual are more
          than budget appropriation.
         Investigate transfer payments to sub-offices and there utilizations.
         Document the system of revenue recording, from source document till
          deposit in the bank account.
         Ensure that the procurement of the contractor as per PPRA RULES
         Circularize confirmation for loan amount to the local offices of the
          donor agencies and obtain reconciliations


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B.     Development Expenditure

       The total federal budget for development expenditure amounts to Rs.
       12,385,502,000. Grant wise detail is as follows.


                                                                    Budget allocation
        Grant No.                      Particulars                  for development
                                                                    expenditure (Rs.)
           144        Food, Agriculture and Livestock Division         11,952,109,000
           145        Agriculture Research                                433,393,000
                      Total                                          12,385,502,000

       Function wise and object wise classification of expenditure under each
       grant is as follows;

       Grant No. 144: Food, Agriculture and Livestock Division (Rs.
       11,952,109,000)

                                                                          Revised
          Account
                         Particulars                                    Estimates
           Codes
                                                                         2006-07
                                                                        Pak Rupees
        1. Functional Classification
            042       Agriculture, Food, Irrigation, Forestry and     11,952,109,000
                      Fishing
        2. Object Classification
            A01       Employees Related Expenses                          238,672,000
            A02       Project Pre-investment Analysis                         982,000
            A03       Operating Expenses                                  472,859,000
            A04       Employees Retirement Benefits                           692,000
            A05       Grants subsidies and Write-off Loans             10,954,982,000
            A06       Transfers                                             5,420,000
            A09       Physical Assets                                     229,415,000
            A12       Civil Works                                          33,048,000
            A13       Repairs and Maintenance                              16,039,000
                                                                      11,952,109,000

       Grant No. 145: Agriculture Research (Rs. 433,393,000)

                                                                          Revised
          Account
                         Particulars                                    Estimates
           Codes
                                                                         2006-07
                                                                        Pak Rupees

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       1. Functional Classification
           042       Agriculture, Food, Irrigation, Forestry and      433,393,000
                     Fishing

       2. Object Classification
           A05       Grants, subsidies and Write-ff Loans             433,393,000


      The development projects selected for audit during year under review
      includes;


                                                                     Budget
           DDO        Name of the Offices/ Projects               appropriation
                                                                for development
           Code                                                  expenditure in
                                                                   FY 2006-07
          ID2377      1National Program me for improvement         8,500 Million
                      of Water resources in Pakistan
          ID8073      Agri-business       development     and      697.8 Million
                      diversification project
       1Includes   77.6% employees’ related expenses


a)    Significant audit risk areas:
      The significant areas are the same as that of non-development
      expenditure; however certain additional procedure will be applied for the
      purposes of the audit, discussed below;


      Internal control assessment:
         Document and analyze the system of internal control in the light of
          internal control questionnaire provided in the FAM and
         Analyze the delegation of powers authorized by the ministry to the key
          officials and the powers actually exercised.


      Project objectives:
         Obtain PC-1 and check the efficiency of the project with respect to
          time and resources.
         Discuss the modes of viability/sustainability of the projects.


      Budget utilization:
         Compare the budget appropriation with actual utilization.

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            Investigate where budgets are not utilized fully along with its financial
             impact.
            Compare expenditure statement with budget allocation and ensure
             that expenditures are in line with appropriations only.




       Cash/bank balances:
            Confirm bank balances for loan account with the local offices of the
             donor and investigate differences and financial implications if any.
            Obtain reconciliation with
            Document the imprest system for cash handling and identify any
             irregularities.

VI.    ISSUES HIGHLIGHTED IN PREVIOUS YEARS

            Excess expenditure
            Non submission of adjustment accounts by DG Agriculture Extension
             NWFP
            Non disclosure of receipts in the budget estimates
            Long outstanding pension cases
            Unauthorized retention of receipts and expenditure incurred out of it
            Unauthorized retention of public funds
            Non maintenance of books of account and non reconciliation of
             receipts.
            Irregular expenditure on procurement of rejected instruments
            Irregular transfer of funds
            Loss due to defective planning in respect of utilization of Oil Palm
             Fresh Fruit Bunches
            Wasteful expenditure

VII.   TIME SCHEDULE

           Planning                                   10 days
           Execution – Fieldwork                      18 days
           Reporting                                   4 days
           Holding DAC Meeting                        28 days
           Total                                      56 days


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Particulars                             Duration Start Date     Finish Date
                                        56 days    28-Nov-07      31-Jan-08
Permanent File                          3 days      28-Nov-07      30-Nov-07
Planning File                           3 days       1-Dec-07       4-Dec-07
Execution                               18 days     5-Dec-07      25-Dec-07
Pakistan Agriculture Research Council   6 days       5-Dec-07      11-Dec-07
National Agriculture Research Council   6 days      12-Dec-07      18-Dec-07
Agri-business development and
diversification project                 6 days      19-Dec-07      25-Dec-07
Reporting                               4 days     26-Dec-07      29-Dec-07
Prepare AIR                             2 days      26-Dec-07      27-Dec-07
Send AIR to PAO                         2 days      28-Dec-07      29-Dec-07
DAC                                     28 days    31-Dec-07      31-Jan-08
Hold DAC meeting                        21 days     31-Dec-07      23-Jan-08
Sign Minutes of meeting                 1 day       24-Jan-08      24-Jan-08
Complete Working Papers                 2 days      25-Jan-08      26-Jan-08
Scan WP Evidence                        2 days      28-Jan-08      29-Jan-08
Finalize Audit Report                   2 days      30-Jan-08      31-Jan-08




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                                                                      Annexure A

                   Ministry of Food, Agriculture and Livestock

                                 Organization structure




      Addl. Secretary (Additional Secretary)
      JS (A&E) Joint Secretary (Administration & Establishment)
      JS (FOOD) Joint Secretary (Food)
      JS (P) Joint Secretary (Plan)
      DS (AI) Deputy Secretary (Agriculture Inputs)
      DS (FOOD) Deputy Secretary (Food)
      DS (CROPS) Deputy Secretary (Crops)
      DS (E) Deputy Secretary (Establishment)
      DS (FBC) Deputy Secretary (Finance, Budget and Coordination)
      DS (IC) Deputy Secretary (International Coordination)
      DS (L) Deputy Secretary (Livestock)


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      DS (P) Deputy Secretary (Plan)
      DA (P) Deputy Advisor (Plan)
      SO(LIV) Section Officer (Livestock)
      SO(FISH) Section Officer (Fish)
      SO(E-I) Section Officer (Establishment-I)
      SO(E-II) Section Officer (Establishment-II)
      SO(GA) Section Officer (General)
      SO(Council/Admin. Cord.) Section Officer (Council, Administration Coordination)
      SO(Crops) Section Officer (Crops)




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