201January 24, 2018

Mr. Kamran AkbarTask Team LeaderEarthquake Housing Reconstruction ProjectThe World BankNepal Country OfficeDurbar Marg, Kathmandu, Nepal 2

Sub: 2016-17 Audited Project Accounts - Earthquake Housing Reconstruction Project (IDA Cr No. 5706 NEP)

Dear Mr. Kamran,

Please get attached the audit report and the audited project accounts for FY 2016/17 under the FinancingAgreement of August 14, 2015 entered into between the International Development Association and the

Government of Nepal for Earthquake Housing Reconstruction Project (Credit Number 5706 NEP) for yourinformation and necessary action.

We would like to express our sincere thanks for the cooperation the World Bank Group extended in the

reconstruction campaign after the 2015 earthquake disaster in Nepal. We assure you our best effort in

maintaining a sound financial management system and financial reporting.

Sincerely,

Yogesh ParajuliAccounts Officer

CC: Mr. Yogesh Bom MallaFinancial Management SpecialistWorld Bank

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NepalRef No. - 2074/75-2 20i6

January 23, 2018

INDEPENDENT AUDITOR'S REPORT

The SecretaryMinistry of FinanceSingh Durbar, Kathmandu

Report on the Financial Statements

We have audited the accompanying Project Financial Statements including Statement of Designated Account andStatement of Expenditure (SOEs) of the "National Reconstruction Authority" financed by IDA Credit No. 5706-NEP as at 15 July 2017 (31 Ashad, 2074) and for the year then ended and a summary of accounting policies andother explanatory notes.

Management's Responsibility for Financial Statements

Management is responsible for the preparation and fair presentation of the Financial Statements in accordancewith the Government of Nepal (GON) accounting policies and relevant practices. This responsibility includes:designing, implementing and maintaining internal control relevant to preparation and fair presentation offinancial statements that are free from material misstatement, whether due to fraud and error.

Auditor's Responsibility

Our responsibility is to express an opinion on these Project Financial Statements based on our audit. Weconducted our audit in accordance with the INTOSAI (International Organisation of Supreme Audit Institutions)Fundamental Auditing Principles. Those Principles require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessment of therisks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates madeby 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 auditopinion.

Opinion

Management letter highlighting areas for improving financial management is attached herewith.

In our opinion, the Project Financial Statements including Statement of Designated Account and SOEs, in allmaterial respects, give a true and fair view of the financial position of the "National Reconstruction Authority"as of 15 July 2017 (31 Ashad, 2074), and of the results of its operations and its cash flows for the year thenended in accordance with GON accounting policies.We also report that funds provided under have been utilizedfor intended purposes.

(Iswar Nepal)Deputy Auditor General

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National Reic Pst ti n AuthorityEarthquake 1-16.6 ."g %onstruction Project

IDA '15706 NEP

Distric%vw upe in d iture DetailsAudited Financial Report : Fiscal Year 2016/17

Budget Head: 3018013/4

uaget LineS. No. Particulars District Budget Line Code Amount Rs.

I NRA PMU 10,699,512.2011 Recurrent 8,811,112-23

1 1. 1 27 Kathmandu Programme Expenses 22522 8,811,112-231.2 Capital 1,888,399.97

1,2 1 27 Kathmardu Vehicles 29411 1,888,399-972 K40FALD CLPIU 4,785,864,013,12

2.1 Recurrent 4,785,864,013-12

Capital Grant to Other Persons 26423 1,774,000,ODO.00Programme Expenses 22522 9,938,746.69

2.1.1 22 Dolakha Tota 1 1,783,938,746-69

Capital Grant to Other Persons 2 6 423 1,310,9S0,000.00Programme Expenses 22522 6,748,875.51

2,1,2 25 Dhading Total 1,317,698,875.51

Capital Grant to Other Persons 26423 1,641,350,000.00P rogra ni rn e Expe nses 22522 8,510,283.00

2.13 26 Nuwakot Total 11649,860,285-002.1.4 29 Lalitpur (CLPIL Programme Expenses 22522 34,366,105.92

2.2 Capital

2.2.1

2.31 PAOFALD Grant 4,726,300,000-00

2.4 MOFALD Programme 59,564,013-123 MOUL)CLPIU 148,737,225-34

3A Recurrent 94,635,516-913.1.1 22 Dolakha Programme Lxpenses 22522 10,299,896.75

3.1.2 25 Dhading Programme Expenses 22522 11,462,696.003,1,3 26 Nuwakot Programme Expenses 22522 8,996,010.003.1.4 27 Kathmandu Programme Expenses 22522 63,876,914-16

3.2 Capital 54,101,708.433.2. 1 27 Kathmandu Building Construction 29221 0.00

3.2.2 27 Kathmardu Vehicle- 29411 34,528,900.C73.2.3 27 Kathmardu Machirery and Equipments 29511 13,399,766-003.2.4 27 -,-Kathmandu Capjta Research and Consultancy 29711 6,173,042.36

HousIrE Grantl 4,726,300,000-00Programme Expensesl 219,000,750-66

Total Expenditure 4,945,300,750-66

Yogesh Parajuli Bishnu Raj Dhakal

Account Officer Under Secretary (Accounts)

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".,.I Year 2016/17

Arriount PsS. No, P irticulars A.perNRA As per FCGO D fferenc-

1 R ijnbursable Amount upto Pi evirix Year 400, 34,281,00 400,734,291.002 Re-irnbwiable Expenditure dimrig 'Olb/17 4,945,?00,ISD bb 4,945,306,750 66

' ourre to be Changed to CON (FY 101S/154 Source to be Adjusted by MOFALD rLPJ(J within this FY 2016/175, Reimbursement during tbis Tr6muster61Re-imbursable Amount as cn November 15, 2016 5,346,035,031.66]_

Yogesh Parajuli Bishnu Raj DhakalUnder Secretary

Account Officer (Accounts)

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1212012017 banking-nrb-org,np/SCRIPTS/ledg rShowDel 3ils j"P

Nepal Rastra Bank

Banking Office, Thapathali

(Account Statement)

ClientCode: 1200501

Client Name - NATIONAL RECONSTRUCTION AUTHORITY

Alc No. 1200501 /001 M4.940

Alc Name: EARTHQUAKE 14OUSING RECON-PROJECT

Currency USD

Date Value Date Ref/Chq- Description DT/CT- FC Amount NPR Exch- Rate Balance

2016/07/16 2016/07/16 BALANCE b/d CR 20,000,000.00 20,000,000.00

2016/10/06 2016/10/06 6/25/073 IDA 570 6/25/073 IDA 570600012 CR 63,762,523,29 6,767,754 222,00 106.14 83,762,523,29

2017101/31 2017/01/31 TRANSFER ACCOUNT TO DR -3,696,12&77 -400,734,281.00 108.42 $0,066,394.52ACCOUNT CENTRAL

2017/04/25 2017/04/25 TRANSFER ACCOUNT TO DR -23,309,906,98 -2,396,259,438M 10180 56,756,48T54ACCOUNT CENTRAL

2017/06/18 2017/06/18 61RMT/128/073/74 TRANSFER ACCOUNTTO CR 42,517,585.45 4,370,382,608,41 102.79 99,274,072.99ACCOUNT

*This stateincat i for vicAving purpose only and can not be claimed ms authienneatcd statement.

http:libanking.nrb.org.npISCRIPTSI]edgerShowDetails.isp

National Reco i Authority

Earthquake Hous t ecd 4ction Project

IDA Credi SA06 Nep

Accounting Policies and Explanatory Notes to the Project Financial Statements

FY 2016/17

1. Project BackgroundThe objective of the project is to restore affected houses with multi-hazard resistant corehousing units in targeted areas and to enhance the governments ability to improve long-termdisaster resilience.The Project's direct beneficiaries are approximately 55,000 households in the targeted areasthat will receive grants and technical support to rebuild their houses incorporating multi-hazardresistant features. The Project will also inform operational modalities for the development ofthe government's overall housing reconstruction program, which would benefit all eligiblehousing reconstruction beneficiaries estimated to be approximately 490,000 households.The project covers three districts- Dolakha, Nuwakot and Dhading under the present financingagreement.

1.1 Project Components

Component 1: Housing Reconstruction- US$185 million

Component 2: Disaster Risk Management Systems - US$10 million

Component 3: Project Implementation Support - US$5 million

Component 4: Contingency Emergency Response - US$0 million

1.2 Project Financing: Lending Instrument

The lending instrument will be Investment Project Financing, and the implementation period willbe five years. IDA financing will be made available from the Crisis Response Window (CRW). Thecomponent and category wise financing are as below:

Project Components Total Cost IDA Financing Financing(US$ M) (US$ M)

Component 1: Improved housing 185.0 185.0 100%reconstructionComponent 2: Disaster risk management 10.0 10.0 100%systemsComponent 3: Project implementation 5.0 5.0 100%supportComponent 4: Contingency emergency 0.0 0.0response

Disbursement Categories

Project Components Total Cost (SOR) Financing

Goods, works, non-consulting services, consultants' 21,600,000 100%services, Incremental Operating Costs, and Workshops andTraining

Housing Grants 122,300,000 100%Contingency Emergency Response 0

2. Project Management Arrangement

National Reconstruction Authority (NRA) is the executing agency for the project. Theimplementing agencies are the Ministry of Federal Affairs and Local Development (MOFALD)and the Ministry of Urban Development (MOUD) through their Central Level ProjectImplementation Units (CLPIUs). There are individual District Level Project Implementation Units(DLPIUs) under each CLPIU in all the 3 project districts.

3. Accounting PoliciesThe project follows the prevailing accounting policies that the GON has followed. The basicaccounting policy is the cash based double entry accounting system. Accordingly, all the advanceamounts are treated as expenditure in the year of the advance.

4. Statement of ComplianceProject Financial Reports are prepared in accordance with IDA Financing Agreement and WorldBank Project Operational Manual.

5. Fund Flow MechanismMinistry of Finance issues authorization letter to NRA after the annual budget is approved. NRAissues authorization letter to the implanting CLPIUs and the CLPIUs also issue authorizationletter to the DLPIUs. Annual programs are submitted to NRA. The DLPIUs spend the budget asper approved annual program and report back. There are some operational expenditures to bespent by the NRA and CLPIUs as well.

The spending units receive the IDA reimbursable loan fund from the GON Treasury SingleAccount (TSA) system.

A Designated Account is opened up in Nepal Rashtra Bank in the name of NRA to get depositedthe loan amount and the spent amounts are reimbursed from that bank account normally ontrimester basis based upon the trimester financial reports.

NRA submits Withdrawal Application (WA) to the World Bank for re-imbursement.

6. Figures at a Glance

Amount Rs. Million

Fiscal Year

Particulars 2016/17Cumulative

2015/16 T1 T2 T3 Total to Date

Budget 4,319.76 4,548.97 4548.97 486084 13,958.78 18,278,54

Expenditure 400.73 2,396.26 92.14 2,454.86 4,943.26 5,343.99

Expenditure over Budget% 9.28% 52.68% 2.03% 50.50% 35.41% 29.24%

IDA Loan Amount Received 2,125.40 6,767.75 4,370.38 11,138.13 13,263.53

Housing Grant Provided 355.2 2,394.75 7.3 2,324.25 4,72630 5,081.50

First Installment 1,973 18,644 20,617

Dhading Second Installment 2,525 2,525

Third Installment

First Installment 2,039 17,173 19,212

Nuwakot Second Installment 5,218 5,218

Third Installment

First Installment 3,092 12,080 15,172

Dolakha Second Installment 7,800 7,800

Third Installment

First Installment 7,104 47,897 55,001Total No, of _____Second Installment 15,543 15,543Households

Third Installment

7. Reporting CurrencyThe reporting currency is Nepalese Rupees (NPR). The amount is presented in USD and SDRwherever necessary. The exchange difference due to foreign currency conversion is presented inthe financial reports.

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