ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia IMPLEMENTED BY WATER SECTOR PROJECTS IMPLEMENTATION UNIT STATE INSTITUTION Special Purpose Financial Statements and Independent Auditor's Report For the period from October 12, 2016 to October 1, 2018 YEREVAN October 2018 ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 3-4 SPECIAL PURPOSE FINANCIAL STATEMENTS For 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 Opinion We have audited the accompanying special purpose financial statements of the "ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia" ("Project") financed by Grant Agreement signed in August 29, 2016 between the Republic of Armenia and International Bank for Reconstruction and Development and International Development Association ("Grant Agreement"), and implemented by the "Water Sector Projects Implementation Unit" State Institution (WSPIU), which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activity for the period from October 12, 2016 to October 1, 2018, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying special purpose financial statements present fairly, in all material respects, the cash receipts and payments of the Project for the period from October 12, 2016 to October 1, 2018 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting, (IPSAS-Cash Basis) and the Financial Management Manual 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 by International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Our responsibilities under those standards are further described in the Auditor'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 Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (lESBA Code), and we have fulfilled out other ethical requirements in accordance with IESBA Code. We believe that the audit 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 statements are prepared in accordance with cash basis framework, as a result, they may not be suitable for another 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 financial statements 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 special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector 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 of special purpose financial statements that are free from material misstatements, whether due to fraud 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 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 high level of assurance, but is not a guaranty that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements arise from fraud and error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions 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 maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the special purpose 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 internal control. * Evaluate the overall presentation, structure and content of the special purpose financial statements, including the disclosures, and whether the special purpose financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that 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 World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 2. supporting documents, records and accounts have been maintained to support claims for reimbursement of expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Grant Agreement; Interim Unaudited Financial Reports (IFRs) issued by WSPIU during the Reporting period are in agreement with the underlying books of accounts; 3. the Designated account used has been maintained in accordance with the provision of the Grant Agreement, and World Bank related guidelines. 4. services financed have been procured in accordance with the Grant Agreement and World Bank related guidelines. 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The Project The Grant Agreement TFOA2706 was concluded on 29 August 2016 between the Republic of Armenia and International Bank for Reconstruction and Development and International Development 4ssociation (World Bank), acting as administrator of grant funds under the Multi-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 amount not 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 before the 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 Stabilization and DeveLopment-financed Mastara Reservoir Project by supporting the relevant project preparation 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 of preliminary 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 Total Category 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 - 30,000.00 Total 670,000.00 111,976.69 781,976.69 1.4. Project Implementation The Project is implemented by "Water Sector Projects Implementation Unit" State Institution (the WSPIU). The WSPIU's address is: Vardanants blind alley 8, Yerevan 0010, Republic of Armenia. 7 ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia Notes to the special purpose financial statements For the period from October 12, 2016 to October 1, 2018 2. Summary of significant accounting policies 2.1. Preparation and presentation of financial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (IPSAS-Cash Basis), issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC) and Financial Management Manual for World Bank Financed Investment Operations ("WB Guidelines"). The principal accounting policies applied in the preparation of these special purpose financial statements are set out below. These policies have been consistently applied to all the 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 are made. 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 the Central 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 separate line 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 1 USD =483.28 AMD 2.4. Taxes Taxes are paid in accordance with the tax regulations of the Republic of Armenia. ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia Notes to the special purpose financial statements For the period from October 12, 2016 to October 1, 2018 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 Total N 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 900000903626 Bank Central Treasury Bank location 4 Tigran Mets str., 1-st floor, Yerevan, 0010 Republic of Armenia Currency USD TFOA2706 Grant For the period from October 12, 2016 to October 1, 2018 1. Opening balance 2. 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) ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia Notes to the special purpose financial statements For the period from October 12, 2016 to October 1, 2018 5. Statement of Financial Position The Statement of Financial Position discloses assets, liabilities and net assets of the Project as at reporting date. It is prepared in accrual basis that is transactions are recognized when they occur (and not only when cash is received or paid). note 01.10.2018 USD ASSETS Cash 6 20,275.68 Prepayments _ Total assets 20,275.68 LIABILITIES Payables _ Total liabilities - NET ASSETS Cumulative income TFOA2706 Grant 8.1 670,000.00 Government of RA 8.2 112,759.04 782,759.04 Cumulative expenses Project expenses (760,413.98) (760,413.98) Foreign exchange gain/(loss) (2,069.38) Total net assets 20,275.68 6. Cash Account Underlying 01.10.2018 held at Currency USD Designating account (TFOA2706 Grant) Treasury USD 18,412.56 Project Account (GOA) Treasury AMD 1,863.12 Total 20,275.68 lui ECAPDEV Grant No. TFOA2706 for the Mostara Reservoir Preparation Project in Armenia Notes to the special purpose financial statements For the period from October 12, 2016 to October 1, 2018 7. Project Expenditures 7.1 Project expenditures financing per funds Reporting period Cumulative As 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. Consultants services 625,852.25 110,234.28 736,086.53 625,852.25 110,234.28 736,086.53 including audit 2. Training, Seminars and workshops 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 Cumulative Expenditure category Expenditures as at 1 Oct 2018 Total budget Execution USD 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 Grant Reporting Cumulative as at period 1 Oct 2018 USD 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 Oct 2018 100% ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia Notes to the special purpose financial statements For the period from October 12, 2016 to October 1, 2018 8.2 Government of RoA Reporting Cumulative as at period 1 Oct 2018 USD USD Financed 112,759.04 112,759.04 Total financing budget 111,976.69 Percentage of finance provided as at 1 Oct 2018 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 paying final 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. ECAPDEV Grant No. TFOA2706 for the Mastara Reservoir Preparation Project in Armenia ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE PROJECT AND DISBURSED BY THE WB For 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