Supreme Audit Office Government of Islamic Republic of Afghanistan INDEPENDENT AUDITORS' REPORT To The President of the Government of Islamic Republic of Afghanistan Report on the Financial Statements 1. We have audited the accompanying statements of Cash Receipts and Payments (the "Financial Statements") of the Higher Education Expansion System Improvement Project World Bank Project ID P146184, Grant Number TF 15577, (hereinafter referred to as the "Project") for the year ended 30 Qaws of Solar Year 1393 (21 December 2013 to 21 December 2014), and a summary of significant accounting policies and other explanatory notes. The Ministry of Finance's Responsibility for the Financial Statements 2. The Ministry of Finance (the "Ministry") is responsible for preparation and fair presentation of the Financial Statements in accordance with International Public Sector Accounting Standards "Financial Reporting under the Cash Basis of Accounting." This responsibility includes designing, of implementing and maintaining internal control relevant to the preparation and fair presentation the financial statements which 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. 3. The Ministry's policy is to prepare the accompanying financial statements on cash receipts and payments basis. On this basis, revenue is recognized when received rather than when earned, and expenses when paid rather than when incurred. Auditor's Responsibility 4. Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with the International Organisation of Supreme Audit Institutions (INTOSAI) standards. These standards require that we comply with ethical requirements and plan statements are free and perform the audit to obtain reasonable assurance on whether the financial of material misstatement. evidence 5. An audit involves performing procedures to obtain sufficient and appropriate audit on about the amounts and disclosures in the financial statements. The procedures selected depend misstatement of the the auditor's judgement, including the assessment of the risks of material financial statements, whether due to fraud or error. In making the risk assessments, internal controls relevant to the entity's preparation and presentation of financial statements are considered in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of internal controls. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements. 6. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our opinion. Opinion 7. In our opinion, the Financial Statements present fairly, in ail material respects, cash receipts and payments of the Higher Education Expansion System Improvement Project World Bank Project ID P146184, Grant Number TF015577, for the year ended 30 Qaws of Solar Year 1393 (21 December 2013 to 21 December 2014) in accordance with International Public Sector Accounting Standards "Financial Reporting under the Cash Basis of Accounting." Report on Compliance The Ministry of Finance's Responsibility for Compliance 8. Inaddition to the responsibility for the preparation and presentation of the financial statements described above, the Ministry of Finance is aiso responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the Grant Agreement No. TF015577, entered on 2nd day of October 2013 between the [slamic Republic of Afghanistan and the International Development Association acting as administrator of grant funds provided for the provision of USD four million nine hunhred thousand-/. (USD 4,900,000) funding to the Project. Auditor's Responsibility on Compliance 9. In addition to the responsibility to express an opinion on the financial statements described above, our responsibility includes expressing an opinion on whether the activities, financial transactions and information reflected in the financial statements are, in all material respects, in compliance with Financing Agreement. This responsibility includes performing procedures to obtain audit evidence about whether all cash payments and receipts are in compliance with the terms and conditions of Financing Agreement. Such procedures include the assessment of the risks of material non-compliance. Pa,e 2 of3 10. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance. Opinion on Compliance 11. In our opinion, in all material respects, the activities, financial transactions and information reflected in the financial statements are in compliance with the terms and conditions of Financing Agreements. Other Matters - Restriction on Use 12. As indicated above, the statements of cash receipts and payments are prepared in accordance with the International Public Sector Accounting Standard "Financial Reporting under the Cash Basis of Accounting" and may not suit another purpose. 13. This report including our opinion is intended solely for the information and use of the President of the Islamic Republic of Afghanistan and the International Development Association and should not be used for any other purpose. We do not accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come. Other Matters - Internal Control Deficiencies 14. During the audit of the financial statements, we noted certain weaknesses in internal controls and other operational matters which have been disclosed to the Ministry in the management letter relating to the audit of the Solar Year 1393. These, observations and recommendations, all of which have been discussed with the Ministry, are intended to improve _ ntrol or result in other operating efficiencies. Dr. Moh m harif Sharifl A G er fghanistan reme Audit Office April 2015 Kabul, Afghanistan Pa2e 3 of 3 Islamic Republic of Afghanistan Higher Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 Financial Statements for the year ended 3 0 th Qaws 1393 ( 2 1 st December, 2014) Higher Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30 QAWS 1393 (21 DECEMBER 2014) 1393 1392 Cumulative Receipts/ Payments Receipts/ To Date Payments made by Payments Controlled Third Controlled by entity Parties Total by entity USD USD USD USD USD RECEIPTS Initial Advance - 1,000.000 1,000,000 2,259,175 2.259,175 2,259,175 Replenishments - 328,911 328,911 328,911 Special Commitments TOTAL RECEIPTS 2,259,175 328,911 2,588,086 1,000,000 3,588,086 PAYMENTS Disbursement Category: Goods 221,285 328,911 550,196 - 550,196 Works 1,783,190 1,783, 190 571,353 2,354,543 Consultants' Services,Training & Workshop Incremental Operating Costs 135,182 135,182 24,339 159,521 200 200 25 225 Bank Charges 2,139,857 328,911 2,468,768 595,717 3,064,485 TOTAL PAYMENTS 119,318 . 19,318 404,283 523,601 tncrease/(Decrease)in Cash & Cash Equivalents Cash and Cash Equivaloents at the beginning of the year 404,283 404.283 - 119,318 - 119,318 404.283 increase/(Decrease) in Cash Cash and Cash Equivalents at the end of the year 523,601 - 523,601 404,283 The accompanying notes form an integral part of this financial statement M. Mustafa Mastoor Deputy Minister for Finance Ministry of Finance, Islamic Republic of Af anista Dated: April 25, 2015 Higher Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 QAWS 1393 (21 DECEMBER 2014) 1) LEGAL STATUS AND ACTIVITY a) The Higher Education Expansion and Systems Improvement Project to improve the conditions for teaching and learning in the universities and to complete activities under SHEP. b) The project is funded by a grant bearing reference number 15577 from the Afghanistan Reconstruction Trust Fund in the amount of US Dollars 4,900,000 which was signed in October, 2013 to facilitate preparation of the project. c) The significant terms and conditions that determine or affect the availability of the funding assistance are primarily the presentation of the eligible expenditures to donor within the period as per and in accordance with the financing agreement. d) These financial statements of the Project have been prepared in accordance with the requirements of the Grant Agreement signed between the Government of the Islamic Republic of Afghanistan and the International Development Association acting as an administrator for the Afghanistan Reconstruction Trust Fund. 2) SIGNIFICANT ACCOUNTING POLICIES a) Basis of Preparation The financial statements are prepared under the historical cost convention and in accordance with Cash Basis IPSAS - Financial Reporting under the Cash Basis of Accounting issued by International Federation of Accountants (ffAC). b) Payments Payments made from Special Account are recognised in the financial statements based on the date the cheque is issued and direct payments by World Bank are recognised on the date on which the withdrawal application for the payment is submitted to the World Bank. However, cheques or withdrawal applications that were ultimately rejected by the bank or the World Bank are reversed in the reporting period. c) Reporting Currency The reporting currency is US Dollars. Since US Dollars is the principal disbursement currency of the donor, the financial statements are not prepared in the Afghani which is the currency of Afghanistan. d) Currency translations Transactions in currencies other than the reporting currency are translated into US Dollar at the rate of exchange at which the transaction is actually executed. 3) NOTES TO ACCOUNTS a) Receipts These represent grants and aid received during the period. Higher Education Expansion and Systems Improvement Project World Bank Reference; Project ID P146184; Grant ID 15577 b) Initial Advance Initial advance represents the advance given by the World Bank into the designated account of the project. c) Bank Charges The Ministry of Finance has negotiated with Da Afghanistan Bank that bank charges will not be charged on the transactions in the US Dollar Special bank account of the grant. Bank Charges may be levied by intermediary banks on deposits into the Special Account and balances returned to the World Bank. d) Appendices The accompanying appendices from Al to A5 provide additional information and analysis and form an integral part of these notes, except as indicated otherwise. e) Others These Financial Statements are originally prepared in English and then translated into Dari. In the event of any inconsistency between the English and Dar! versions, the English version shall be considered to be correct. Higher Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 APPENDIX Al SUMMARY OF WITHDRAWAL APPLICATIONS FOR THE YEAR ENDED 30 QAWS 1393 (21 DECEMBER 2014) Description Application Number Amount Amount USD USD DA-A 10 285,895 SC-1 6 328,911 DA-A 9 154,752 DA-A 8 55,389 DA-A 7 317,659 DA-A 5 160,717 DA-A 4 409,036 DA-A 3 362,800 DA-A 2 511,927 Higher Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 APPENDIX A2 US Dollar SPECIAL ACCOUNT SUMMARY FOR THE YEAR ENDED 30 QAWS 1393 (21 DECEMBER 2014) Account No: 27507 Depository Bank: Da Afghanistan Bank (DAB) Address: Kabul USD 404,283 Opening Balance as per Bank Statement Add: 2,259,175 Replenishments Total Additions 2,259,175 Deduct: 2,139,657 Payment for Project Expenses 200 Bank Charges Total Deductions 2,139,857 Closing Balance as per B.S 30 QAWS 1393 (21 DECEMBER 2014) 523,601 Hi2her Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 APPENDIX A3 US DOLLAR SPECIAL ACCOUNT RECONCILIATION FOR THE YEAR ENDED 30 QAWS 1393 (21 DECEMBER 2014) Account No: 27507 Depository Bank: Da Afghanistan Bank (DAB) Address: Kabul USD Closing Balance as per bank statement - 30 QAWS 1393 (21 DECEMBER 2014) 523,601 Closing balance as per financial statements - 30 QAWS 1393 (21 DECEMBER 2014) 523,601 Higher Education Expansion and Systems Improvement Project World Bank Reference: Project ID P146184; Grant ID 15577 Appendix A4 STATEMENT OF ESTIMATED GRANT AMOUNT FOR THE YEAR ENDED 30 QAWS 1393 (21 DECEMBER 2014) (Memorandum Stalenent - not an integral part of the Financial Statements) 15577 Amount Incurrency of commitment Amount of Grant USD 4,900,000 Amount disbursed by World Bank untill the end of 13931 USD 3,588,086 Undisbursed Balance USD 1,311,914 In reporting currency Amount disbursed by World Bank untill the end of 13931 USD 3,588,086 Equivalent US Dollars for undisbursed amount USD 1,311,914 Total estimated amount of Grant Funds available USD 4,900,000 Cumulative Payments for expenditure as per the Statement of Cash Receipts & Payments USD 3,064,485 1. Actual amounts of total disbursement made by the World Bank since the beginning of the project as available from Client Connection.