Special Purpose Financial Statementsdocuments.worldbank.org/curated/en/184181540298881903/...* Identify and assess the risks of material misstatement of the special purpose financial

ECAPDEV Grant No. TFOA2706 for theMastara Reservoir Preparation Project in Armenia

IMPLEMENTED BY WATER SECTOR PROJECTS IMPLEMENTATION UNITSTATE INSTITUTION

Special Purpose Financial Statementsand

Independent Auditor's Report

For the period from October 12, 2016 to October 1, 2018

YEREVANOctober 2018

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TABLE OF CONTENTS

Page

INDEPENDENT AUDITOR'S REPORT 3-4

SPECIAL PURPOSE FINANCIAL STATEMENTSFor the period from October 12, 2016 to October 1, 2018:

Statement of cash receipts and payments 5

Statement of uses of funds by Project activity 6

Notes to the special purpose financial statements 7-12

INDEPENDENT AUDITOR'S REPORT

To the management of "Water Sector Projects Implementation Unit" State Institution

Report on Special Purpose Financial Statements

OpinionWe have audited the accompanying special purpose financial statements of the "ECAPDEV GrantNo. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia" ("Project") financed byGrant Agreement signed in August 29, 2016 between the Republic of Armenia and International Bankfor Reconstruction and Development and International Development Association ("GrantAgreement"), and implemented by the "Water Sector Projects Implementation Unit" StateInstitution (WSPIU), which comprise the statement of cash receipts and payments, the statement ofuses of funds by Project activity for the period from October 12, 2016 to October 1, 2018, and asummary of significant accounting policies and other explanatory notes.

In our opinion, the accompanying special purpose financial statements present fairly, in all materialrespects, the cash receipts and payments of the Project for the period from October 12, 2016 toOctober 1, 2018 in accordance with International Public Sector Accounting Standard: FinancialReporting Under the Cash Basis of Accounting, (IPSAS-Cash Basis) and the Financial ManagementManual for World Bank Financed Investment Operations ("WB Guidelines").

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued byInternational Auditing and Assurance Standards Board (IAASB) of the International Federation ofAccountants (IFAC). Our responsibilities under those standards are further described in theAuditor's Responsibilities for the Audit of the Financial Statements section of our report.We are independent of the Project and the WSPIU in accordance with the International EthicsStandards Board for Accountants' Code of Ethics for Professional Accountants (lESBA Code), and wehave fulfilled out other ethical requirements in accordance with IESBA Code. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter- Cash Basis of Accounting

We draw attention to Note 2 to the financial statements, which describes that financial statementsare prepared in accordance with cash basis framework, as a result, they may not be suitable foranother purposes. Our opinion is not modified in respect of this matter.

Emphasis of matters

Without qualifying our opinion we draw your attention to Note 9 of these special purpose financialstatements which disclosed that the Project was completed as at the reporting date.

Management's Responsibility for the Special Purpose Financial Statements

The management of WSPIU is responsible for the preparation and fair presentation of these specialpurpose financial statements in accordance with IPSAS-Cash Basis issued by the International PublicSector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC),and for such internal control as management determines is necessary to enable the preparation ofspecial purpose financial statements that are free from material misstatements, whether due tofraud or error.

Auditor's Responsibility for the Audit of the Special Purpose Financial Statements

Our objectives are to obtain reasonable assurance about whether the special purpose financialstatements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor's report that includes our opinion. Reasonable assurance is high level of assurance,but is not a guaranty that an audit conducted in accordance with ISAs will always detect a materialmisstatement when it exists. Misstatements arise from fraud and error and are considered materialif, individually or in the aggregate, they could reasonably be expected to influence the economicdecisions of users taken on the basis of these special purpose financial statements.As part of an audit in accordance with ISAs, we exercise professional judgement and maintainprofessional skepticism throughout the audit. We also:

* Identify and assess the risks of material misstatement of the special purpose financialstatements, whether due to fraud or error, design and perform audit procedures responsiveto those risks, and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error, as fraud may involve collusion, forgery,intentional omissions, misrepresentations, or the override of internal control.

* Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the internal control.

* Evaluate the overall presentation, structure and content of the special purpose financialstatements, including the disclosures, and whether the special purpose financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.

We communicate with management regarding, among other matters, the planned scope and timingof the audit and significant audit findings, including any significant deficiencies in internal controlthat we identify during our audit.

Report on Other Legal Requirements

To comply with the terms of the Grant Agreement, the WSPIU management shall insure that:

1. funds have been used in accordance with the conditions of the Grant Agreement, and WorldBank related guidelines, with due attention to economy and efficiency, and only for thepurposes for which the financing was provided;

2. supporting documents, records and accounts have been maintained to support claims forreimbursement of expenditures incurred. Expenditures included in the withdrawalapplications and reimbursed against are eligible for financing under the Grant Agreement;Interim Unaudited Financial Reports (IFRs) issued by WSPIU during the Reporting period arein agreement with the underlying books of accounts;

3. the Designated account used has been maintained in accordance with the provision of theGrant Agreement, and World Bank related guidelines.

4. services financed have been procured in accordance with the Grant Agreement and WorldBank related guidelines.

In our opinion, the Project management has complied with the above requirements during theperiod from 12 October 2016 to 1 October 2018.

2 October 2018"BDO Armenia" cjsc

Vahagn ahakyzt, CCA Opel Khachatryan, FCCA*cVaging Prtwer Engagement Partner

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ECAPDEV Grant t4o. TFOA2706 for theMostara Reservoir Preparation Project in Armenia

Notes to the special purpose financial statementsFor the period from October 12, 2016 to October 1, 2018

1. General information

1. 1. The Project

The Grant Agreement TFOA2706 was concluded on 29 August 2016 between the Republic ofArmenia and International Bank for Reconstruction and Development and InternationalDevelopment 4ssociation (World Bank), acting as administrator of grant funds under theMulti-Donor Europe and Central Asia Capacity Development Trust Fund (ECAPDEV TF),according to which World Bank provided a Grant to the Republic of Armenia in an amountnot exceed 670,000 USD.

The Grant is provided for the Mastara Reservoir Preparation Project (the Project).

The Project Effective Date is October 12, 2016.The Closing date for the expenditures to be financed by the Grant is set on 12 June 2018.The Grace period for submitting withdrawal application for expenditures incurred beforethe Closing date is four months following the Closing date: 12 October 2018.

1.2. The Project objectives

The objective of the Project is to improve readiness of the Eurasian Fund for Stabilizationand DeveLopment-financed Mastara Reservoir Project by supporting the relevant projectpreparation studies, and to enhance capacity of WSPIU to prepare and implement Project.

The Project consists of the following components:

Part 1. Feasibility study for construction of the Mastara Reservoir, and preparation ofpreliminary design and Project Documents;Part 2. Capacity building of the WSPIU;Part 3. Financial audit of the Grant.

1.3. The Project Budget and Financing

The Project is being financed by the following sources:- ECAPDEV Grant - 100% of all expenditures, exclusive of taxes,- The Government of the Republic of Armenia (Government of RA) expenditures

related taxes,

ECAPDEV Government TotalCategory Grant of the RA

USID USD USID

1. Consultants services including audit 640,000.00 111,976.69 751,976.69

2. Training, Seminars and workshops 30,000.00 - 30,000.00Total 670,000.00 111,976.69 781,976.69

1.4. Project Implementation

The Project is implemented by "Water Sector Projects Implementation Unit" StateInstitution (the WSPIU).

The WSPIU's address is: Vardanants blind alley 8, Yerevan 0010, Republic of Armenia.

7



2. Summary of significant accounting policies

2.1. Preparation and presentation of financial statements

The special purpose financial statements are prepared in accordance with theInternational Public Sector Accounting Standard: Financial Reporting Under the Cash Basisof Accounting (IPSAS-Cash Basis), issued by the International Public Sector AccountingStandards Board (IPSASB) within the International Federation of Accountants (IFAC) andFinancial Management Manual for World Bank Financed Investment Operations ("WBGuidelines").

The principal accounting policies applied in the preparation of these special purposefinancial statements are set out below. These policies have been consistently applied to allthe periods presented.

2.2. Cash basis of accounting

Project financing is recognised as a source of project funds when the cash is received.Project expenditures are recognised as a use of project funds when the payments aremade.

2.3. Reporting currency

The reporting currency of these special purpose financial statements is USD.The contribution of the Government of RA and expenditures made in local currency,Armenian Dram (AMD), are translated into USD based at the exchange rate defined by theCentral Bank of the Republic of Armenia (CBA) at the date of the transaction.The effect of exchange rate changes on cash held on local currency is reported as separateline item in the statement of cash receipts and payments.

The average exchange rate at currency market issued by the CBA as at 1 October 2018 is 1USD =483.28 AMD

2.4. Taxes

Taxes are paid in accordance with the tax regulations of the Republic of Armenia.



3. Summary of Summary Reports and SOEs

For the period from October 12, 2016 to October 1, 2018

Application Application (1) Consultants services (2) Training, Seminars TotalN value date including audit (USD) and workshops

2 17-Aug-2017 112,275.35 - 112,275.35

3 21-Dec-2017 166,234.37 - 166,234.37

4 12-Apr-2018 136,963.23 - 136,963.23

5 18-May-2018 57,932.63 4,706.55 62,639.18

6 28-Sep-2018 152,446.67 . 21,028.64 173,475.31

Total 625,852.25 25,735.19 651,587.44

4. Statement of Designated Account

Bank account number 900000903626Bank Central TreasuryBank location 4 Tigran Mets str., 1-st floor, Yerevan, 0010

Republic of ArmeniaCurrency USD

TFOA2706 Grant

For the period fromOctober 12, 2016 to

October 1, 2018

1. Opening balance2. Add: opening discrepancy

3. WB advance/replenishment 670,000.00

4. Less: Refund to WB from DA

5. Present outstanding amount advanced to DA 670,000.00

6. DA closing balance as at 01.10.2018 18,412.56

7. Add: Amount of eligible expenditures paid 651,587.44

8. Less: interest earned (if credited to DA)

9. Total advance accounted for 670,000.00

10. Closing discrepancy (5)-(9)



5. Statement of Financial Position

The Statement of Financial Position discloses assets, liabilities and net assets of theProject as at reporting date. It is prepared in accrual basis that is transactions arerecognized when they occur (and not only when cash is received or paid).

note 01.10.2018USD

ASSETS

Cash 6 20,275.68

Prepayments _

Total assets 20,275.68

LIABILITIESPayables _

Total liabilities -

NET ASSETSCumulative incomeTFOA2706 Grant 8.1 670,000.00

Government of RA 8.2 112,759.04782,759.04

Cumulative expenses

Project expenses (760,413.98)(760,413.98)

Foreign exchange gain/(loss) (2,069.38)

Total net assets 20,275.68

6. CashAccount Underlying 01.10.2018held at Currency USD

Designating account (TFOA2706Grant) Treasury USD 18,412.56

Project Account (GOA) Treasury AMD 1,863.12

Total 20,275.68

lui

ECAPDEV Grant No. TFOA2706 for theMostara Reservoir Preparation Project in Armenia


7. Project Expenditures

7.1 Project expenditures financing per funds

Reporting period CumulativeAs at 1 Oct 2018

Expenditure TFOA2706 Government Total TFOA2706 Government Total

category Grant of RA Grant of RA

USD USD USD USD USD USD

1. Consultantsservices 625,852.25 110,234.28 736,086.53 625,852.25 110,234.28 736,086.53

including audit2. Training,Seminars andworkshops 25,735.19 36.12 25,771.31 25,735.19 36.12 25,771.31

Total 651,587.44 110,270.40 761,857.84 651,587.44 110,270.40 761,857.84

7.2Project expenditure budget execution

CumulativeExpenditure category Expenditures

as at 1 Oct 2018 Total budget ExecutionUSD USD %

1. Consultants services including 736,086.53 751,976.69 98%audit .2. Training, Seminars and 25,771.31 30,000.00 86%workshops I

Total 761,857.84 781,976.69 97%

8. Financing

8.1 TFOA2706 GrantReporting Cumulative as at

period 1 Oct 2018USD USD

Advances/ (advance recovery) 18,412.56 18,412.56

SOE and Summary Report 651,587.44 651,587.44

Total 670,000.00 670,000.00

Total financing budget 670,000.00

Percentage of finance provided as at 1 Oct2018 100%



8.2 Government of RoA

Reporting Cumulative as atperiod 1 Oct 2018

USD USD

Financed 112,759.04 112,759.04

Total financing budget 111,976.69Percentage of finance provided as at 1 Oct2018 101%

9. Project completion

The Project was completed as at June 12, 2018 ("Closing Date"), and the transactions

were completed as at October 1, 2018 ("Reporting Date", "Grace period").

As at the date of signing these special purpose financial statements:

a. No expenses related to the Project were incurred after the Closing Date; the

payments made during the Grace period related to expenses incurred before the

Closing Date;b. No withdrawals from Grant TF0A2706 were made after Reporting date;

c. No expenditures related to the Project were submitted to the WB after the

Reporting date;d. There were no uncovered prepayments or payables outstanding to contractors

related to the Project;e. The cash balance outstanding as at Reporting date consists (Note 6):

- BaLance at designated account at the amount of USD 18,412.56, after payingfinal audit service to be refunded to WB;

- Balance at Project account (GOA co-financing) at the amount of USD 1,863.12,after paying final audit co-financing to be refunded to GOA;

f. We are not aware about any pending or existing litigations against the Project.


ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE PROJECT AND

DISBURSED BY THE WBFor the period from Oct 12, 2016 to Oct 1, 2018(Amounts are -shown in USD)

Expenditure Category Appl. Project WB Difference

Advance/(recovery) 1 200,000.00 200,000.00

5 (8,112.13)

6 (173,475.31)

200,000.00 18,412.56

1. Consultants' services including audit 2 112,275.35 112,275.35

3 166,234.37 166,234.37 -

4 136,963.23 136,963.23

5 57,932.63 57,932.63 -

6 152,446.67 152,446.67

625,852.25 625,852.25

2. Training, Seminars and Workshops 5 4,706.55 4,706.55

6 21,028.64 21,028.64

25,735.19 25,735.19

Total 851,587.44 670,000.00