Environment Division

Chapter 16: Environment Division

Chapter 16

Environment Division

Audit Period
Audit Year 2007-08
Auditable Expenditure
Grant No. / Particulars / Rupees
Current/ Non-Development Expenditure
33 / Environment Division / 184,629,000
34 / Forest / 66,119,000
35 / Zoological Survey Department / 10,374,000
261,122,000
Development Expenditure
139 / Environment Division / 1,517,745,000
Total / 1,778,867,000
Audit Formations

• Environment division, Main secretariat, Islamabad
• Pakistan forest Institute
• Establishment of Environment monitoring system in Pakistan
• Damage control through environment improvement of polluted Ravi river, near Lahore
• AJK poverty reduction through participatory water-shed development
• Poverty reduction through participatory water-shed development in Terbella catchment area

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 Expert / Technical support in planning, execution & reporting
4. / Ghulam Mehdi / Audit Officer / Audit execution,
Preparation of AIRs & draft audit report
Update audit permanent file
5. / Sakit Saleem / Assistant Audit Officer / Audit execution,
Prepare audit working papers
Time Schedule
From 22 October 2007 to 2 January 2008
(For details refer page 248)

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.

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 Environment 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

II.UNDERSTANDING OF THE MINISTRY

A.Background of the ministry

In pursuance of Cabinet Division’s notification number SRO.826 (1)/2002, the Ministry of Environment, Local Government and Rural Development was bifurcated and an independent Ministry of Environment was established on 22-04-2002.

Ministry of Environment is the focal point for National Policy, plans and programs regarding environmental planning, pollution and ecology, including physical planning and human settlements, urban water supply sewerage and drainage. The Division also deals with other countries and international organizations in the fields of Environment, housing, physical planning and Human Settlements.

Organizational Structure

The organizational structure of the Ministry is annexed as Annexure A to the chapter.

Principal Address

Ministry of Environment,

Enercon Building, Ataturk Avenue,

Sector G-5/2, Islamabad, Pakistan

B.Status of the Entity and its Core Operations

a)Status of the entity

Ministry of Environment 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 to,

1.Develop National policy, plans and program regarding:-

i)Environmental Planning, Pollution and Ecology;

ii)Housing, Physical planning and Human Settlements including urban water supply, sewerage and drainage.

2.Dealings and agreements with other countries and international organizations in the fields of Environment, Housing, Physical and Human Settlements.

3. Quaid-I-Azam Memorial Fund.

4. Economic Planning and Policy making in respect of Forestry and Wildlife.

5. Administrative control of:-

i) Pakistan Environmental Protection Agency (Pak-EPA)

ii) Pakistan Forest Institute (PFI).

iii) Zoological Survey Department (ZSD).

iv) Quaid-I-Azam Mazar Management Board (QMMB).

v) National Energy Conservation Center (ENERCON)

vi)Pakistan Environmental Planning and Architectural ConsultantsLimited(PEPAC)

vii)National Council for Conservation of Wildlife in Pakistan (NCCW).

6. Ministry of Environment is headed by a Federal Minister while the Federal Secretary holds the administrative charge. It comprises five wings namely Administration, Development, Environment, International Cooperation and Forestry. Each of the Wings is responsible for its respective functions. Moreover, the Ministry controls the specialized departments such as the Energy Conservation Center (ENERCON), Pakistan Forest Institute (PFI), National Council for Conservation of Wildlife (NCCW) and Zoological Survey Department (ZSD). The Ministry is responsible for implementation of National Environment Policy, planning and international environment coordination. A National Conservation Strategy Unit set up in the Ministry is responsible for coordination of the implementation of the country’s National Conservation Strategy. A UNDP funded NEAP Support Program me has been established in the Ministry with a view to strengthen its capacity in various operational areas.

7. In addition, the Pakistan Environmental Planning and Architectural Consultants Limited (PEPAC) was incorporated in 1974 to provide town planning and architectural consultancy services for projects initiated by the government, semi-government and autonomous entities. It is a limited Company and is managed by a Board of Directors.

8. In the Environment Sector, the key initiatives of the Ministry during the period under report include formulation of the National Environment Policy, National Clean Development Mechanism (CDM) Strategy, implementation of ongoing projects / programs and development of new projects including participation in major international forums.

There is a full commitment at policy level about the importance of investing in Environment 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 Establishment of Environment monitoring system in Pakistan, Damage control through environment improvement of polluted ravi river, near Lahore and Poverty reduction through participatory water-shed development in Terbella catchment area. These programs with current and future major interventions should help to improve the environment.

Investment in Environment stood at only 0.05% of the total federal development program. The government obtains foreign loan/aid also to invest in the Environment sector. Federal Ministry of Environment is the key functionary which plays a leading role in regulating aid flow in the Environment sector. The common identified objectives are:

• Strengthening of policy and legislative framework to address constraints in furthering environmental agenda
• Development of clean energy resources like wind energy
• Protection against greenhouse gases i.e CFCs

Being the priority agenda of the government a lot can be achieved in Environment due to its far-reaching impact on the society at large, if the commitment from the bureaucracy is there.

C.SWOT analysis

Before considering the risk areas that are at present hindering the government in fully implementing the objectives in Environment 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 Environment support

Vesting of Powers through Legislation

Devolution of the power through Ministry of Environment at all levels of government, that is, federal, provincial and local government level.

Availability of large infrastructure

Federal, provincial and local governments provide large infrastructure to the ministry

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;

Inefficient use of water cleaning and sewerage treatment plants

Use of old structure that mixes sewerage lines with drinking water

Lack of implementation of applicable laws i.e. unlawful sale of forest wood

Lack of trained staff

Threats

Global warming which is among the most pervasive threat to web of life

Funds might not be utilized for the purposes to achieve the targets.

Qualified staff may leaves the organization

Change of government may suspend the development projects undertaken by the present government.

Opportunities

Energy conservation and renewable technologies

Development of Simulation Models for Assessment of Climate Change and its Impacts on Water Resources and Food and Agricultural Production

Establishment of marine park

Development of Ozone protection culture by almost zero CFCs usage in deep freezer and ACs

Man-made forest

Collaboration with International Organizations for bringing home new technologies

Implementation of environment protection laws in true jist

D.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

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. Environment, Science education

Social factors:

Cultural issues can lead to gender bias in some areas resulting in non availability /non willingness for females/ families 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 Environment budget hence resulting in curtailment of Environment activities

High rates of inflation can lead to high cost of Environment resulting in low activities

Climatic disaster

Natural disaster such as earth quake, flood, light-striking, wind storms

Sudden change in weather patterns

E.Intergovernmental Relationship:

Functionally ministry consists of one main division along with various line departments/suboffices. The Ministry of Environment is responsible for matters concerning National Planning and Coordination in the field of Environment.

Departments:

The Departments attached /sub-ordinate with the ministry of Environment are;

National Conservation Strategy Resource Centre

National Council for Conservation of Wildlife (NCCW)

Pakistan Environmental Protection Agency (Pak EPA)

Pakistan Forest Institute(PFI) Peshawar.

Zoological Survey Department (ZSD)

National Energy Conservation Centre (ENERCON)

Ozone Cell

The Pakistan Wetlands Program me

Global Change Impact Studies Centre(GCISC)

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

F.Accounting System of the Ministry:

Ministry of Environment 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 code / Cost centers
062 / Community Development

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

Each cost centre is further divided into cost elements, the major classification of which is detailed below;

Account code / Cost elements
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 atleast BPS 16 and above hold the charge of the postof drawinganddisbursingofficers in eachministry/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 B.

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;
• 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