Contents AUDITOR GENERAL'S REPORT TO THE MINISTRY OF ENVIRONMENT AND ENERGY ON THE MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT 2 Management's responsibility for the financial statements 2 Auditors' Responsibilities 2 Unqualified Opinion 3 Review of Project Progress 4 1. Part A: Regional Solid Waste Program 4 Other Matters 5 Recurring Audit Recommendations: 5 2. Post Training Records 5 3. Remuneration of PMU staff 5 4. Fixed asset register 7 STATEMENT OF RECEIPTS AND DISBURSEMENTS 9 STATEMENT OF FINANCIAL POSITION 10 STATEMENT OF CASH FLOWS 11 NOTES TO THE FINANCIAL STATEMENTS 12
AUDITOR GENERAL'S OFFICE MaI& Republic of Maldives AUDITOR GENERAL'S REPORT TO THE MINISTRY OF ENVIRONMENT AND ENERGY ON THE MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT We have audited the accompanying financial statements including the statement of financial position as at 31 December 2012, the statement receipt and disbursements for the year then ended, together with the accounting policies and notes to the financial statements, as set out on pages 12 to 19 of the Maldives Environmental Management Project financed under World Bank / International Development Association (IDA) Loan No 4427-MV (Credit) as of September 4th 2008 for the year then ended. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors' Responsibilities Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments; the auditor considers internal control relevant to the entity's preparation and fair presentation of the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the enti ernal control. An audit also includes evaluating the appropriateness of accounting 3rd Flo, aazee Building, Ameeru Ahmed Magu, Male, Maldives. Tel: +(960) 3323939, Fax: +(960) 3316430, e-mail: info audit.gov.mv 2
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our unqualified audit opinion. Unqualified Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Project as of 31 December 2012, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. In addition, we can provide assurance that; (a) The funds provided under the Credit have been utilized for the purposes for which they were provided; (b) The financial statements of the Special Account give a true and fair view of the financial position of the Special Account of Maldives Environmental Management Project as at the end of the year in accordance with International Financial Reporting Standards; and (c) The Financial Monitoring Reports submitted to the World Bank could be fairly relied upon to support the applications for withdrawals in accordance with the requirement specified in the Credit/ Financing Agreement; and adequate supporting documentation has been maintained to support claims to the IDA, for reimbursement of expenditures incurred and which expenditures are eligible for financing under the Loan/ Credit Agreement. ceraatx,f' 3rd Floor, Ghaazee Building, Ameeru Ahmed Magu, Male, Maldives. Tel: +(960) 3323939, Fax: +(960) 3316430, e-mail: info@audit.gov.mv 3
Review of Project Progress Without qualifying our opinion, we draw attention to the following management issues observed from our review of the project's progress. 1. Part A: Regional Solid Waste Program During FY 2012, the project has made progress in completing the technical designs and contract documents for the Regional Waste Management Facility (RWMF) and corresponding Waste Management System in the North region, in addition to the Environmental and Social Impact Assessment and environment management plans for Island Waste Management Centers (IWMC). However we still observed that the majority of the activities to be carried out under Part A of the Financing Agreement of the Project signed on September 2008, have not been completed to date. The below mentioned activities under Part A of the Financing Agreement should have been completed by December 2011 as per the project plan. However: (a) Construction of IWMCs on the 46 targeted islands in the North Region has not been commenced to date and is thus not operational; and (b) The Waste Transfer System to transport waste from IWMCs to RWMF has not been established. The non-completion of these project activities undermines the achievement of the main objective of the Project to enable that a solid waste management system be established and that inhabitants on Targeted Islands use solid waste management facilities, reducing the risk of contamination associated with accumulated wastes and sea dumping. Recommendation The PMU should take immediate action to implement the project activities so that the intended outcome is within the project budget and time allocations. 3,d Floor, Ghaazee Building, Ameeru Ahmed Magu, Male, Maldives. Tel: +(960) 3323939, Fax: +(960) 3316430, e-mail: info@audit.gov.mv 4
Other Matters Recurring Audit Recommendations: 2. Post Training Records We observed that the PMU has not acted with the audit recommendation to maintain the posttraining employment records of the candidates who had been awarded local and overseas training scholarships. PMU has not carried out a post review on the effectiveness of the training scholarships. As such the effectiveness of these investments in technical training and development has not been monitored by the PMU. Recommendation The project management should maintain the post-training records of those who had been awarded training scholarships and should also undertake a review of the effectiveness of the post qualification training. 3. Remuneration of PMU staff We observed that the PMU has not implemented the previous year recommendation with regard to the size and cost of the PMU. Stated below are the recommendations made in the audit report for FY 2011. i) When setting up projects, the size and cost of the PMU should always be commensurate with the size and complexity of the project being managed. ii) The Project Steering Committee as well as monitoring project deliverables should also ensure that any skill transfers (e.g. Project management skills) are completed, especially if such training is stipulated in the contracts of key staff. iii) The management should aim to develop the capacity of the departments within the Ministry (finance, procurement, administration and project management), to ensure that future projects are handled in-house using the expertise of the permanent civil service staff. The PMU for FY 2012 of the MEMP Project consisted of eight staff. PMU is headed by a full-time Project Manager, assisted by three full-time co-ordinators who work on the three separate components. The PMU has employed a full time subject matter specialist on environment, in addition to three other staff working on the communications, financial management and procurement activities. The monthly staff remuneration for the PMU during 2012 are summarised below: 30 Floor, Ghaazee Building, Ameeru Ahmed Magu, Male, Maldives. Tel: +(960) 3323939, Fax: +(960) 3316430, e-mail: info@audit.gov.mv 5
Table 1: Project Management Unit (PMU) Remuneration # Designation Additional MEMP MEMP payments Total Monthly Monthly from CCU Monthly Salary Salary Project Salary MVR Equiv. MVR MVR 1 Project Advisor - Full Time Foreign Consultant 4,750 73,245 73,245 2 Project Manager - Full Time Local Staff 2,822 43,315 15,420 58,735 Financial Management Officer - Full Time 3 2,536 38,935 15,420 54,335 Local Staff 4 Procurement Officer - Full Time Local Staff 2,536 38,935 15,420 54,335 5 Communications Officer - Full Local Staff 2,130 32,690 32,690 6 Solid Waste Management Component Coordinator - Full Time Local Staff 2,536 38,935 38,935 7 Solid Waste Management Component Assistant Coordinator - Full Time Local Staff 651 10,000 10,000 8 Technical Assistance Component Coordinator - Full Time Local Staff 2,536 38,935 38,935 Total 20,499 314,990 46,260 361,250 Based on our review of the Project Management Unit (PMU), we observed that the following issues were not acted upon as recommended in 2012: (a) The local staffs employed under the project are paid salaries in excess to comparative jobs across the public sector. Notably the project manager, financial management officer and procurement officer are being paid salaries higher than that paid to the State Financial Controller, and the other local staffs are being paid salaries comparative to a Deputy State Minister. (b) Based on the project scope and also since the main consultancies are undertaken by contracted out consultants, we find it unreasonable to justify the rationale of employing a separate co-ordinator for each separate component in addition to a full time project manager. Also the remuneration of the staff are not linked to performance and as such although the main project objectives have not been achieved the project continues to incur the expenses of the PMU and as of today, it is anticipated that the project will experience further delays. (c) The contracts of the local staff have remunerations denominated in United States Dollars () in contradiction to the monetary regulation issued by Maldives Monetary Authority (MMA) dated 1st March 1987 which states that "it is prohibited to use a currency other than Maldivian Rufiyaa for the payment of business conducted in the Maldives, remuneration for work or services, fee, rent or the like. In addition as a result of exchange rate devaluation of the Rufiyaa against the dollar fective from May 2011, the Government effectively makes an exchange rate loss as ult of having to pay the salaries in US Dollars equivalent. ad Floor, Ghaazee Building, Ameeru Ahmed Magu, Male, Maldives. Tel: +(960) 3323939, Fax: +(960) 3316430, e-mail: info@audit.gov.mv 6
(d) The real need of having a full time expensive expert as a project advisor is also highly questionable and does not reflect effective and efficient use of funds. (e) Based on the above points, in our view, the PMU structure is overly weighted in terms of staff numbers and remuneration, to undertake a project of this scale and scope. Recommendation We recommend that the management give the due consideration to recurring audit recommendation made in previous years regarding PMU's and capacity building of the relevant departments within the Ministry responsible for the various aspects of the project. 4. Fixed asset register We observed that the PMU did not implement the previous year's recommendation with regard to maintenance of the fixed asset register. For FY 2012 also we were unable to verify the existence of the assets since the asset register has not been maintained or updated as per the PFR (Public Finance Regulation) and the project operation manual. We further observed that no adjustments have been made to account for the value of the fixed assets stated in the balance sheet with regard to the underwater camera (model no. Sea Life CAM DC800) worth 544 lost in a field trip during FY 2011. Recommendation: All assets must be given an identifiable asset number and a physical verification of the assets must be taken at least once a year and discrepancies found must be followed up. In case of loss or disposal, the asset must be written off from the asset register. 27th August 2013 3rd Floor, Ghaazee adding, Ameeru Ahmed Magu, Male, Maldives. Tel: +(960) 3323939, Fax: +(960) 3316430, e-mail: info@audit.gov.mv 7
MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT FINANCIAL STATEMENT 2012 MINISTRY OF ENVIRONMENT AND ENERGY
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT STATEMENT OF RECEIPTS AND DISBURSEMENTS 31 December 2012 Grant Receipts Note 31.12.2012 31.12.2011 Funds Received-IDA 3 2,246,576 1,247,353 Less: Disbursements Regional Solid Waste Management Program 4 (202,977) (144,462) Capacity Building for Environmental Management 5 (486,414) (937,260) Regional Strategic Environmental Assessment 6 (212,368) (119,710) Project Management and Communications 7 (204,199) (244,228) Professional Charges Surplus / (Deficit) for the period 1,140,619 (198,307) The accounting policies and notes on pages 12 through 19 form an integral part of the financial statements. 27th August 2013 Male' 9
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT STATEMENT OF FINANCIAL POSITION 31 December 2012 ASSETS Note 31.12.2012 31.12.2011 Non-Current Assets Office Furniture & Equipment 18,849 18,849 Technical Equipment 133,771 133,771 Work-In-Progress 8 9,020 9,020 161,640 161,640 Current Assets Cash and Cash Equivalents 9 1,456,031 274,974 1,456,031 274,974 Total Assets 1,617,671 436,614 EQUITY AND LIABILITIES Accumulated Funds 1,575,424 434,724 1,575,424 434,724 Current Liabilities Other payables 10 42,247 1,890 42,247 1,890 Total equity and liabilities 1,617,671 436,614 Management of the Project is responsible for the preparation and presentation of these financial statements. Signed for and on behalf of the Project: Name of officer Signature ti45catit. VA;Gtfitb 1. ei ioti, _ MA kkeefivait (cit car The accounting policies and notes on pages 12 through 19 form an integral part of the financial statements. 27th August 2013 10
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT STATEMENT OF CASH FLOWS Year Ended 31 December 2011 Operating Cash Flows Note 31.12.2011 31.12.2011 Funds received - IDA 4 2,246,576 1,247,353 Less: Expenditures on the project Regional Solid Waste Management Program Capacity Building for Environmental Management Regional Strategic Environmental Assessment Project Management and Communications (199,791) (475,827) (198,661) (191,240) (144,462) (937,260) (119,710) (244,228) (1,065,519) (1,445,660) Cash and Cash Equivalents as at 1st January Cash and Cash Equivalents as at 31st December 274,974 473,281 1,456,031 274,974 The accounting policies and notes on pages 12 through 19 form an integral part of the financial statements. 27 th August 2013 Male'
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT NOTES TO THE FINANCIAL STATEMENTS Year Ended 31 December 2012 1. PROJECT INFORMATION 1.1 Project Objectives The main aim of the Project is to provide the republic of Maldives with the capacity to effectively manage environmental risks and threats to fragile coral reefs as well as marine habitats resulting from tourism development, increased solid waste disposal, fisheries and global climate change. According this Project has two development objectives: (a) that a Solid Waste Management system is established in the North Region (Noonu, Raa, Baa & Lhaviyani Atolls) and that inhabitants on Targeted Islands use solid waste management facilities, reducing the risk of contamination associated with accumulated wastes and sea dumping; and (b) to build human and technical capacity for environmental management so that the environmental dimension is integrated in the planning process using information and expertise developed in the Project. 1.2 Project Components The project is comprised of four components: Component 1: Regional Solid Waste Management (SWM) program for the North Central Region ( 5.96 million) The Project would support the establishment of a regional solid waste management program in the North Central Region. This component consists of six subcomponents. Sub-component 1.1: Technical Assistance for Feasibility Studies, Technical Designs, Environmental Impact Assessment Studies, Contract Documentation and Capacity Building. Sub-component 1.2: Community Consultation and the Development of Island Waste Management Plans Sub-component 1.3: Construction of Island Waste Management Centres in the North Region. Sub-component 1.4: Waste Transfer System to the Regional Waste Management Facility 12
Sub-component 1.5: Construction and Operation of the Regional Waste Management Facility Sub-component 1.6: Biodiversity Offsets to Compensate for Possible Impacts of the RWMF Component 2: Capacity building for environmental management: ( 3.55 million) The proposed Project is designed to at least partly fill the staffing gaps and capacity needs as they relate to the Project itself. Priority would, therefore, be given to developing: (i) a core of competent generalists and specialists in the MEE, other relevant ministries (Planning, Fisheries, Tourism, and Construction) and in the private sector (particularly NGOs and the tourism sector) to guide the environmental assessment and decision-making process; (ii) a cadre of service providers to carry out monitoring and field surveillance activities making full use of modern technology; and (iii) a network of private citizens and stakeholders (e.g. fishermen, hotel and dive operators, boat operators and others) with the training needed to serve as the "eyes" and "ears" of the Ministry and also provide inputs for monitoring activities in the Project. The emphasis would be on training existing government staff and others for whom there is a reasonable expectation that their skills could be utilized in the near or medium term. Training would take place in a number of modalities as follows: a) Community Training b) Specialized Training leading to a certificate for roles not requiring academic credentials c) Specialized Training leading to an academic award such as a diploma or certificate for roles requiring academic credential d) Undergraduate training e) Formal degree programs abroad (undergraduate and post-graduate) Component 3: Technical assistance for Strengthened Environmental Management and Monitoring and a Pilot Regional Strategic Environmental Assessment ( 2.48 million) A major focus of this component will be on addressing the issue of building climate resilience by improved management and stewardship of the country's coastal resources (marine and terrestrial). This component will explore the status of the bait fishery, the interactions between coral recovery (health) and fish stocks as well as provide inputs for the development of a bait-fishery management plan. The geographical scope of this component would be the North Central Region composed of Raa, Baa, Lhaviyani and Noonu atolls. The Project would support monitoring by communities and professional scientists. The data required for this component will be acquired from the community and by the use of a research vessel which will be appropriately equipped with necessary research equipment. 13
Four sub-components are outlined in this component: Sub-component 3.1: Erosion and the Terrestrial Environment Sub-component 3.2: Marine Environmental Monitoring and Coral Reefs Sub-component 3.3: Spatial Planning Sub-component 3.4: Integration of Findings: Reports and a Pilot Regional Strategic Environmental Assessment Component 4: Project management and communications ( 1.54 million) The PMU would include the following functions: overall project management, component management, liaison with other agencies and programs, financial management, procurement, monitoring and evaluation and project communications. The PMU team would include a communications specialist who will be responsible for all facets of project communications including raising awareness at the island and atoll levels, communication with authorities and decision makers, and communications with both the private sector and the general public. 1.3 Project Financing The International Development Association (IDA) has agreed to extend to the Government of Maldives (GoM), on the terms and conditions set forth or referred to in the Financing Agreement signed between IDA and GoM dated 4th September 2008, a Credit in an amount equivalent to Eight million Special Drawing Rights (SDR 8,000,000/-), (equivalent to approximately 13,881,200) to assist in financing the Project. The Maximum Commitment Charge Rate payable by the GoM on the Un-withdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per annum. The Service Charge payable by the GoM on the Withdrawn Credit Balance shall be equal to three-fourths of one percent (3/4 of 1%) per annum. The principal amount of the Credit shall be repaid in accordance with the repayment schedule of the Financing Agreement, commencing September 15, 2018 and ending on March 15, 2048. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The financial statements are prepared under the historical cost convention in accordance with the IFRS. No adjustments are made inflationary factors affecting these accounts. 2.2 Cash and cash equivalents Cash flow statement is prepared based on in-direct method. For the purpose of cash statement, cash and cash equivalents consist of cash and cash equivalents fined above. GENEais' 14
2.3 Revenue recognition Revenue is accounted for on a cash basis. Revenue is recognised to the extent of amount drawn by the Maldives Environment Management Project from the disbursement approved and any contributions made by the Maldives Environmental Project, on a cash basis. 2.4 Expenditure recognition Expenses are accounted for on a cash basis. Expenses are recognised in the income and expenditure statement on the basis of a direct association between the cost incurred and the specific project activity. 15
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT NOTES TO THE FINANCIAL STATEMENTS Year Ended 31December 2012 31.12.2012 3. DISBURSEMENTS 31.12.2011 IDA Credit 2,246,576 1,223,319 Govt. Contributions 24,034 2,246,576 1,247,353 4. REGIONAL SOLID WASTE MANAGEMENT PROGRAM Technical Assistance for Solid Waste Management 146,420 114,096 Island Waste Management Plan Development 22,667 - Coordination 33,890 30,365 202,977 144,462 5. CAPACITY BUILDING FOR ENVIRONMENTAL MANAGEMENT Waste Management Investment 30,604 In Country Training 152,246 345,929 Overseas Training 334,168 560,727 486,414 937,260 16
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT NOTES TO THE FINANCIAL STATEMENTS Year Ended 31 December 2012 31.12.2012 31.12.2011 6. REGIONAL STRATEGIC ENVIRONMENTAL ASSESSMENT General Technical Support 29,697 Spatial Technical Support 29,849 22,770 Geographic Information System (GIS) training 96,116 Equipment & Development 43,344 25,000 Community Bait Fishery Monitoring 2,011 10,971 National Coral reef monitoring 34,675 Linkage and internships 4,575 Marine Research Centre survey equipment Terrestrial Vegetation monitoring program 19,089 Coastline erosion 6,103 Research and survey equipment Sea Transportation 1,798 6,080 212,368 119,710 17
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT NOTES TO THE FINANCIAL STATEMENTS Year Ended 31 December 2012 31.12.2012 31.12.2011 7. PROJECT MANAGEMENT AND COMMUNICATIONS Salaries and Fees - Project Advisor & Project Manager 110,110 102,887 Salaries and Fees - Financial Management 30,236 30,912 Salaries and Fees Procurement 30,380 31,048 Salaries and Fees - Monitoring & Evaluation - 26,495 Salaries and Fees Communication 27,676 31,974 Internal & External Audit Fee 2,943 5,804 Solid Waste Management Facility - North Central Office Accommodation - - Travel Expenses 2,883 3,470 Operations and Maintenance - 1,146 Training 10,493 Exchange loss/gain (29) - 204,199 244,229 8. Work-In-Progress The amount stated as Work-In-Progress is the cost of designing a research vessel which is yet to be built. 9. CASH AND CASH EQUIVALENTS Cash at Bank 1,443,585 265,033 Cash in Hand 12,446 9,941 1,456,031 274,974 10. OTHER PAYABLES Accrued Salary 20,488 Other Payables 21,759 1,890 42,247 1,890 18
MINISTRY OF ENVIRONMENT AND ENERGY MALDIVES ENVIRONMENTAL MANAGEMENT PROJECT NOTES TO THE FINANCIAL STATEMENTS Year Ended 31 December 2012 11. PRIOR YEAR ADJUSTMENTS The amount stated as Prior Year Adjustment of Professional Charges is the difference between the fee charged in FY 2010 as professional charge to Ernst and Young as audit fee and the actual billed amount paid in FY2012. 31 December 2010 as previously reported 1,890 Adjustment Other Payables 1,809 81 12. AUDIT FEE The audit was conducted by the Auditor General Office and no fee was charged for the audit. 13. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE There have been no material events occurring after the balance sheet date that require adjustment or disclosure in the financial statements. :PA;-