Puntland State of Somalia Somali Urban Resilience Project Project Number: P163857 Grant Number: TFA8112 Auditor’s Report and Financial Report For the Period 01 January 2020 to 31 December 2020 Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS), 2017. Puntland State of Somalia Somali Urban Resilience Project Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 CONTENTS Page GLOSSARY OF ABBREVIATIONS ........................................................................................... 3 1. INTRODUCTION ........................................................................................................... 4 2. STATEMENT OF PROJECT MANAGEMENT’S RESPONSIBILITIES ......................... 7 3. INDEPENDENT AUDITOR’S REPORT ......................................................................... 8 4. STATEMENT OF RECEIPTS AND EXPENDITURE ................................................... 11 5. STATEMENT OF FINANCIAL POSITION ................................................................... 12 6. STATEMENT OF CASH FLOWS ................................................................................ 13 7. STATEMENT OF BUDGET COMPARISON WITH ACTUALS .................................... 14 8. NOTES TO THE FINANCIAL STATEMENT................................................................ 15 ANNEX I RECEIPTS PER ENTITY VERSUS THE CONFIRMATION ................................... 19 ANNEX II COMPARISON OF AUDITED AMOUNTS AND THE REPORTED AMOUNTS TO THE DONORS ........................................................................................................................ 19 ANNEX III COMPARISON BETWEEN REPORT AS THE BASIS FOR WITHDRAWALS AND RECEIPTS FROM THE WORLD BANK ................................................................................. 20 ANNEX IV LIST OF FIXED ASSETS ACQUIRED IN 2020 ..................................................... 21 2 Puntland State of Somalia Somali Urban Resilience Project Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 GLOSSARY OF ABBREVIATIONS EAFS : External Assistance Fiduciary Section : ISSAIs : International Standards of Supreme Audit Institutions IPSAS : International Public Sector Accounting Standards OAG : Office of Auditor General UNOP : United Nations Office for Project Services PIU : Project Implementation Unit SURP : Somali Urban Resilience project 3 Puntland State of Somalia Somali Urban Resilience Project Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 1. INTRODUCTION 1.1 Background The International Development Association, acting as the administration of the Somali Multiple Partner Fund signed a Grant agreement with Federal Government of Somalia on 31 August 2018 to Finance the cost of the Somali Urban Resilience Project (SURP I) to strengthen public service delivery capacity at the sub national level and support the reconstruction of key urban infrastructure in targeted areas in Mogadishu and Garowe Municipality. SURP built on the Somali Urban Investment Planning Project (SUIPP), which was implemented in Mogadishu, Garowe, Hargeisa, Kismayo and Baidoa. Subsequent to signing the Grant Agreement with Federal Government of Somalia for Puntland Component amount to US$2,500,000 which was expected to run for duration of 3 years 31 July 2018 to 30 September 2021. The project in Puntland is under supervision of the Garowe Municipality. The activities to be undertaken by the SURP I comprises carrying out construction of four (4) selected urban roads within Garowe Municipality, covering an estimated total of 4.4. kilometres including, facilitating the creation of maintenance committees at the village levels to supervise and mobilize the pertinent community for required road maintenance and repairs. Garowe Municipality will be implementing these activities with procurement and financial management support of the EAFS and in accordance with the Grant Agreement between the Puntland State of Somalia and International Development Association (acting as administrator of the Somalia and the Puntland State of Somalia and the implementation agreement between the Puntland State of Somali and Garowe Municipality. 1.2 Project General Information Registered Office Garowe Municipality, Puntland Designated Bank Account East Africa Bank 27 Juin, Djibouti Branch Djibouti Auditors Auditor General Office of the Auditor General Garowe, Puntland Fiduciary Management External Assistance Fiduciary Section (EAFS) Office of the Accountant General Garowe, Puntland 4 Puntland State of Somalia Somali Urban Resilience Project Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 1. INTRODUCTION (Continued) 1.2 Project General Information (Continued) Project Management Name Role Position Contact Information AG@mof.plstate.so Omar Salah Aden Accountant Genera Accountant General Faysal Abdullahi Director General Director General DG@MOF.plstate.so Warsame Mohamed Project Project Coordinator mgure.suipp@plstate.so Abdirahman Gure Coordination Finance Director of EAFS Said Ismail Said saedlpo@gmail.com Management Section Accountant-Officer- Mohamed Khalif Accountant Maxameddeeq77@gmail.com SURP Mohamed Katun Head of EAFS Accountant Kaatun777@gmail.com Shire Accounts Section Financial Financial Management Nuh Omar Muse Management Nmusa.suipp@plstate.so Specialist for SURP Specialist Project Abdinur Mohamed Procurement Procurement Abarre.suipp@plstate.so Barre Specialist Specialist for SURP 1.3 Summary of Overall Project Performance: i) Physical progress ▪ 4 Roads were completed being Jilab, Sagal, Sh. Abdisalam and Gen. Nur Salad , totaling 4.93kms. ii) Financial statement discussion and analysis ▪ The SURP I -Garowe Project has grants with donor commitment of $988,643 and the received amounts till December 31, 2020, was $930,321 ▪ This project TF0A8112 will be active until 30th September 2021 and balance of $58,322 is still undrawn as at 31st of December 2020. 1.4 Audit Objectives In line with the Grant Agreement and the Puntland Audit Law, the Office of the Auditor General was mandated to carry out external audit of the project for the period 01 January 2020 to 31 December 2020. The specific objectives of the audit were to enable the Auditor General to express an opinion as to whether; ▪ The Project funds received and expenditures incurred during the fiscal year were for the purpose intended; 5 Puntland State of Somalia Somali Urban Resilience Project Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 1. INTRODUCTION (Continued) 1.3 Audit Objectives (Continued) ▪ The Project books of accounts were kept based on the Generally Accepted Accounting Principles (GAAP) and the International Public Sector Accounting Standards (IPSAS) Cash Basis and the financial transactions therein reflect a true record of the transactions that took place during the period; ▪ Adequate Internal Control processes and systems were maintained by the implementing agencies during the period under the audit. 1.4 Audit Scope The audit report covers the statement of receipts and expenditure of Somali Urban Resilience Project I for the period 01 January 2020 to 31 December 2020. The audit also assessed SURP I internal controls structure relevant to the Project Agreement and the project financial management. 1.5 Audit Approach In order to cover the scope of the financial audit for the Somali Urban Resilience Project I for the period 01 January 2020 to 31 December 2020, we performed the audit in accordance with International Standards of Supreme Audit Institutions. The procedures involved, among others:- ▪ Tested transactions carried out during the period to ensure expenditure was supported, properly authorized and incurred for the Project. ▪ Reviewed the internal control structure and tested the controls in place to ensure that the Project funds and resources were utilized on Project activities and that goods, works and services financed by the Project funds were procured in accordance with relevant financing agreement and specific provisions of World Bank guidelines, as applicable. ▪ Reviewed the accounting system of the Project as implemented by EAFS to ensure that the Project funds and resources were utilized on budgeted activities and were fully accounted for; and all supporting documents, records and accounts have been kept in resp ect of all Project’s activities. ▪ Tested the Project’s compliance with the Grant Agreement terms, Project Implementation Manual and applicable laws and regulations. ▪ Conducted the audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs) and obtained from the implementing agency and fiduciary agency a written confirmation concerning representations made during the audit. ▪ Tested the year end cash balance and grant receipt by doing confirmations to bank and World Bank respectively. ▪ On a sample basis, conducted fixed assets verifications to assess if the Project’s asset records are well maintained. 6 Puntland State of Somalia Somali Urban Resilience Project Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 2. STATEMENT OF PROJECT MANAGEMENT’S RESPONSIBILITIES 7 DAWLADDA PUNTLAND PUNTLAND STATE EE SOOMAALIYA OF SOMALIA XAFIISKA GUDDOOMIYAHA HANTIDHAWRKA GUUD OFFICE OF THE AUDITOR GENERAL 3. INDEPENDENT AUDITOR’S REPORT REPORT OF THE OFFICE OF THE AUDITOR GENERAL TO THE PROJECT IMPLEMENTATION UNIT FOR THE WORLD BANK FUNDED SOMALI URBAN RESILIENCE PROJECT (SURP I) – PROJECT NO. P163857, GRANT NUMBER: TFA8112 Opinion We have audited the accompanying financial statements of Somali Urban Resilience Project I– Project No. P163857, Grant Number: TFA8112 set out on pages 11 to 18, which comprise the statement of financial position as at 31 December 2020, and the statement of receipts and expenditure, statement of cash flows, and statement of budget comparison with actuals for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying financial statements give a true and fair view of the financial position of Somali Urban Resilience Project I– Project No. P163857, Grant Number: TFA8112 as at 31 December 2020 and of its financial performance and cash flows for the year then ended in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with the Financing agreements. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The management for the project is responsible for the other information. The other information comprises project information and overall performance included in the report but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 8 3. INDEPENDENT AUDITOR’S REPORT (Continued) REPORT OF THE OFFICE OF THE AUDITOR GENERAL TO THE PROJECT IMPLEMENTATION UNIT FOR THE WORLD BANK FUNDED SOMALI URBAN RESILIENCE PROJECT (SURP I) – PROJECT NO. P163857, GRANT NUMBER: TFA8112 (Continued) Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Public Sector Accounting Standards (Cash Basis) and for such internal control as management determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project’s ability to continue sustaining services, disclosing, as applicable, matters related to sustainability of services and using the going concern basis of accounting unless the management either intend to terminate the Project, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken based on these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud 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 audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project’s ability to continue sustaining its services. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Project to cease sustaining its services. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 9 3. INDEPENDENT AUDITOR’S REPORT (Continued) 10 Puntland State of Somalia Somali Urban Resilience Project I Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 4. STATEMENT OF RECEIPTS AND EXPENDITURE 11 Puntland State of Somalia Somali Urban Resilience Project I Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 5. STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 Notes 2020 2019 US$ US$ Assets Cash and cash equivalents 8.6 161,122 49,017 Total Assets 161,122 49,017 Represented by Accumulated surplus brought forward 49,017 214,199 Surplus/(deficit) for the year 112,105 (165,182) Net Financial Position/ Fund Balance 161,122 49,017 12 6. STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JANUARY 2020 TO 31 DECEMBER 2020 2020 2029 Notes US$ US$ Cash flow from operating activities Receipts Grant Receipts 8.2 930,321 1,162,957 Total Receipts 930,321 1,162,957 Expenses Component 1: Training 8.3 11,386 17,693 Component 2: Operation Cost 8.4 236,262 353,386 Component 3: Works and Goods 8.5 570,567 957,060 Total expenses 818,216 1,328,139 Net cash flows from operating activities A 112,105 (165,182) Cash flows from Investing Activities Net cash flows from Investing Activities B - - Cash flow from Financing Activities - - Net cash flow from financing activities C - - Net increase/(decrease) in cash and cash A+B+C 112,105 (165,182) equivalents Cash and cash equivalents at beginning of period 49,017 214,199 Cash and cash equivalents at end of period 8.6 161,122 49,017 The accounting policies and notes set out on pages 15 to 18 form an integral part of the financial report. 13 7. STATEMENT OF BUDGET COMPARISON WITH ACTUALS FOR THE PERIOD 1 JANUARY 2020 TO 31 DECEMBER 2020 BUDGET PERCENTAGE BUDGET ACTUAL VARIANCE VARIANCE RECEIPTS US$ US$ US$ World Bank (Somalia Multi-Partner 988,643 930,321 58,322 6% Fund) TOTAL RECEIPTS 988,643 930,321 58,322 6% EXPENDITURE Component 1,2 & 3: Training, 988,643 818,216 170,427 17% Operation Cost & Works and Goods TOTAL EXPENDITURE 988,643 818,216 170,427 17% 14 8. NOTES TO THE FINANCIAL STATEMENT 8.1 Significant Accounting Policies a) General Information The Somali Urban Resilience Project (SURP I) has its offices/headquarters in Garowe, the capital of the Puntland State of Somalia. The principal address of the project is Garowe Municipality, Puntland. The principal activity of SURP I is to strengthen public service delivery capacity at the sub national level and support the reconstruction of key urban infrastructure in targeted areas. The relevant legislation governing the Somali Urban Resilience Project (SURP I) operations during the reporting period is the Public Financial Management Act, 2019, the Appropriation Act 2020 and financing agreement between the FGS and the Development Partner. b) Statement of Compliance and Basis of preparation of the accounts The Project financial report is prepared in accordance with the International Public Sector Accounting Standards (IPSAS), Cash Basis. The measurement basis applied is the cash basis, except where otherwise stated in the accounting policies below. The accounting policies adopted have been consistently used throughout. c) Foreign Currency Transactions The functional currency is the United States dollar and the reporting currency is also the United States dollar. Items included in the financial statements are measured in the currency of the primary economic environment in which the entity operates. d) Reporting Period The reporting period for these financial statements is the 2020 financial year of the Government, which runs from January 1, 2020 to December 31, 2020. e) Grant Receipt Receipts represent cash received by the Project during the period and comprise solely grants received from the World Bank under the Somalia Multi-Partner Fund (SMPF). These grant receipts have been recognized when received into the Projects Designated Account (DA) in line with IPSAS Cash Basis. f) Project Expenditure Expenditure represents outlays of cash made by the Project and/or the World Bank for and on behalf of the Project. The expenses comprise both operating and capital expenditure and are recognized in the books of account when paid out in line with IPSAS Cash Basis. g) Cash and cash equivalents Cash and cash equivalents comprise cash at bank. Bank account balances include amounts held at the commercial banks at the end of the financial year. 8. NOTES TO THE FINANCIAL STATEMENT (Continued) 8.1 Significant Accounting Policies (Continued) h) Budgets 15 The budget is developed on a comparable accounting basis (cash basis), the same accounts classification basis and for the same period as the financial statements. The Project’s budget was approved as required by the donor and participating partners. A high-level assessment of the Project’s actual performance against the comparable budget for the financial year/period under review has been included in under section 7 to these financial statements. i) Comparative Figures No comparative figures have been included in the financial report as required to ensure compliance with the Cash Basis IPSAS, 2017 as this is the first year of operation 8.2 Grant Receipt Amount Amount 2020 2019 US$ US$ Grant receipts (Somalia Multi-Partner Fund) 930,321 1,162,957 Total: Grant Receipt 930,321 1,162,957 The World Bank has disbursed US$ 930,321 to SURP I in the financial year 2020 8.3 Component 1: Training Amount Amount 2020 2019 US$ US$ Component1: Training 11,386 17,693 Total: Training 11,386 17,693 8.4 Component 2: Operation Cost Amount Amount 2020 2019 US$ US$ Component 2: Operation Cost 236,262 353,386 Total: 236,262 353,386 8.5 Component 3: Works and Goods Amount Amount 2020 2019 US$ US$ Component 3. Works and Goods 570,567 957,060 Total: 570,567 957,060 16 8. NOTES TO THE FINANCIAL STATEMENT (Continued) 8.6 Cash and cash equivalents Amount Amount Description 2020 2019 US$ US$ Designated Bank Account Number 110627 161,122 49,017 Total: Cash and cash equivalents 161,122 49,017 8.7 Reconciliation between Application for Withdrawals and Receipts from the World Bank Withdrawal Actual Date of Application Date of Application Receipt Difference Application Number Receipt US$ Amount US$ 11/02/2020 PLSURP18 128,118 25/02/2020 128,118 - 12/03/2020 PLSURP19 122,472 17/03/2020 122,472 - 04/02/2020 PLSURP17 245,918 01/03/2020 245,918 - 09/04/2020 PLSURP20 67,864 18/04/2020 67,864 - 04/05/2020 PLSURP21 157,151 09/05/2020 157,151 - 18/07/2020 PLSURP22 137,024 30/07/2020 137,024 - 28/07/2020 PLSURP23 71,774 08/08/2020 71,774 - Total 930,321 930,321 8.8 Undrawn External Assistance The undrawn grant facilities available to fund future operations under binding agreements and where the terms and conditions are to be met, consist of: 31 December 2019 31 December 2020 Amount Description of Grant Amount US$ US$ Somalia Multi-Partner Fund (MPF) 58,322 1,037,660 Total undrawn grant facilities 58,322 1,037,660 Undrawn grant facilities relate to an amount of US$ 58,322 to be disbursed by the World Bank under the Somalia Multi-Partner Fund (MPF) and is stipulated to strengthen public service delivery capacity of local Governments and increase access to urban infrastructure and services in selected areas. 17 8. NOTES TO THE FINANCIAL STATEMENT (Continued) 8.9 Designated Bank Account Balance The designated account balance as at 31 December 2020 is detailed below:- Designated Account Reconciliation Statement Grant Number TFA8112 Bank Name: East Africa Bank Branch Name: 27 Juin, Djibouti Bank Account Number : 110627 Part I Amount US$ 1. Cumulative receipts to end of current reporting period 2,441,677 2. Cumulative expenditures to end of current reporting period 2,280,555 3. Outstanding advances to be accounted (1-2) 161,122 Part II 4. Opening balance at beginning of reporting period (per Bank statement) 49,017 5. Add/Subtract: Cumulative adjustments, including interest earned and - recoveries 6. Grants received from the World Bank during current reporting period 930,321 7. Closing balance at end of current reporting (per Bank statement) 161,122 8. Outstanding amount of advances to be accounted for (4+5+6-7) 818,216 9. Total Expenditures reported for current reporting period, including this 818,216 10. Difference (if any) 9-8 - Remarks None 8.10 Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 8.11 Events after Reporting Date There are no subsequent events that have occurred after the reporting period which are either to be disclosed that could materially affect the financial report of the Project or curtails its activities in attaining its objectives. 8.12 Capital Expenditure During the reporting period 01 January2020 to 31 December 2020, the Project did not incur any capital expenditure. 18 Puntland State of Somalia Somali Urban Resilience Project I Project Number P163857, Grant Number TFA8112 Auditor’s Report and Financial Report For the Period 1 January 2020 to 31 December 2020 ANNEX I Receipts per entity versus the confirmation Receipts per Entity Amount Date Received Reference Description US$ 25/02/2020 RV/02/02/2020 Direct payment 128,118 17/03/2020 RV/07/03/2020 Direct Payment 122,472 01/03/2020 RV/09/03/2020 Reimbursement 245,918 18/04/2020 RV/03/04/2020 Reimbursement 67,864 09/05/2020 RV/02/05/2020 Direct Payment 157,151 30/07/2020 RV/04/07/2020 Reimbursement 137,024 08/08/2020 RV/01/8/2020 Direct Payment 71,774 Total Grant receipt as per entity 930,321 Receipts as per Donor Confirmation 1,102,568 Variance (This is direct payment to UNOPS hence not recorded in the SURP I (172,247) books of account ) ANNEX II Comparison of audited amounts and the reported amounts to the donors Amount Date Submitted to Period US$ World Bank January to March 2020 14 May 2020 313,389 April to June 2020 15 August 2020 294,175 July to September 2020 14 November 2020 170,488 October to December 2020 14 February 2020 40,388 Total Expenditure reported to World Bank 818,441 Expenditure reported in the trial balance 818,216 Variance 225 Explained Variance Travel Advance 225 19 Annex III Comparison between report as the basis for Withdrawals and Receipts from the World Bank Confirmed Withdrawal Actual Date of Application Application Date of Receipt Difference Application Number Receipt Amount Form US$ Amount US$ - 11/02/2020 PLSURP18 128,118 25/02/2020 128,118 - 12/03/2020 PLSURP19 122,472 17/03/2020 122,472 - 04/02/2020 PLSURP17 245,918 01/03/2020 245,918 - 09/04/2020 PLSURP20 67,864 18/04/2020 67,864 - 04/05/2020 PLSURP21 157,151 09/05/2020 157,151 - 18/07/2020 PLSURP22 137,024 30/07/2020 137,024 - 28/07/2020 PLSURP23 71,774 08/08/2020 71,774 Total 930,321 930,321 - 20 Annex IV List of fixed assets acquired in 2020 No assets were purchased for the project for the period 01 January 2020 to 31 December 2020. 21