Kokeb & Melkamu Audit Partnership Chartered Certified Accountants (UK) INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS OF FDRE MINISTRY OF PEACE PASTORAL COMMUNITY DEVELOPMENT PROJECT (PCDP Ill) Opinion We have audited the accompanying financial statements of PASTORAL COMMUNITY DEVELOPMENT PROJECT (PCDP 111) comprising the balance sheet as at 8th November 2019 and the Statement of Sources and Uses of Funds for the period covering July 8, 2018 up to November 8, 2019, and a summary of significant accounting policies and other explanatory information shown from pages 3 to 14. In our opinion, the financial statements present fairly, in all material respects, the financial position and balance of the Pastoral Community Development Project (PCDP Ill) Implemented by the FDRE Ministry of Peace, the Statement of Sources and Uses of Funds for period covering July 8, 2018 up to November 8, 2019 in accordance with the financial management policy of Ministry of Peace adopted for the Project. In addition, the Project was, in all material respects, in compliance with the Financing Agreements and Contracts. With respect to the statements of sources and uses of funds submitted during the period listed on page 4, in our opinion: (a) The statements, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals; (b) The funds transferred to communities is properly managed and accounted for the intended purpose. (c) The funds transferred to pastoralists research groups which are benefiting from the Project under sub component 2.3, were made as per the eligibility criteria outlined on the Rural Livelihoods Program (RLP) Manual. (d) The funds transferred to the Saving and Credit Cooperatives (SAACOs) which are benefiting from the Project under sub component 2.1, were made as per the eligibility criteria outlined on the Rural Livelihoods Program (RLP) Manual. (e) The proceeds of the Designated Fund have been used exclusively for eligible expenditures and provisions and covenants of the Financing Agreement and Separate Agreement have been substantially respected. 2 Basis for opinion We conducted our audit in accordance with the International Standards on Auditing applicable to the audit of financial statements. Furthermore, we have audited the Project's compliance with the provisions and covenants of the World Bank and International Fund for Agricultural Development Financing Agreements,i.e. IDA Credit No. 5335-ET and IFAD Loan No. 2000000426, respectively. 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 Organization in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accounts (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Ethiopia, and we have fulfilled our other 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. Management's Responsibility for the Financial Statements The management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting policies of the Project, and for such internal control as management determines is necessary to enable the preparation of a project report that is free from material misstatement, whether due to fraud or error. Auditor's Responsibility for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the project report as a whole is 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 on the basis of these financial statements. In addition, we are required to give special opinion on the fund management by the communities (Project Beneficiaries) The engagement partner on the audit resulting in this independent auditor's report is Ato Kokeb Moges. Kokeb & Melkamu Audit Parnership Addis Ababa Chartered Certified Accountants (UK) November 18, 2019 Authorized Auditors in Ethiopia P. 0. Box 33645 Addis Ababa, Ethiopia Telephone 251-11-616-69-56 E-mail: kokmelkwethionet.et moile Tel. 251-91-120-37-78/51-61-46. F-,x 25 --1)- 1-552-26-88 3 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP Ill) STATEMENT OF FINANCIAL POSITION AS AT NOVEMBER 8, 2019 Currency: ETB 2018 ASSETS CURRENT ASSETS Notes Cash at bank and on hand 3 680,397.00 2,324,890 Debtors and prepayments 4 - 35,336,553 Total Assets 680,397.00 37,661,443 CURRENT LIABILITIES Payables 5 - 98,484 REPRESENTED BY Restricted Fund 6 680,397.00 37,562,959 Total Liabilities and Fund 680,397.00 37,661,443 Since the above amount indicated under "Debtors and Prepayments", represented by Cash, Receivables and Payables at Implementing Entities as indicated under Note 4, Fund Balance Shown above can be represented from the IFR as follows Cash at bank and on hand 680,397 Debtors and prepayments Payables - Restricted Fund 680,397 4 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP III) STATEMENT OF SOURCES AND USES OF FUNDS FOR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8, 2019 Currency: ETB 2018 Notes SOURCES MAIN 7 IDA Credit 7.1 2,591,023 460,453,593 IFAD Credit 7.2 1,173,038,555 402,259,759 1,175,629,578 862,713,352 OTHER Gain on foreign currency exchange 6,443,117 156,035,922 Woreda Matching Fund 7.3 26,589,548 23,900,415 Local community contribution-in Cash 7.4 41,790,517 60,175,718 Local community contribution-in Kind 7.5 78,776,564 122,646,998 Matching Fund Region - 24,000,627 Miscellaneous 52,018 953,841 153,651,764 387,713,521 1,329,281,342 1,250,426,873 USES 8 Community Driven Service Provision 8.1 1,156,472,455 1,289,301,771 Rural Livelihood Program 8.2 39,582,188 160,273,057 Development Learning & Knowledge Management 8.3 10,154,852 10,368,805 Monitoring & Evaluation 8.4 159,954,405 142,126,952 1,366,163,899 1,602,070,586 EXCESS OF SOURCES OVER USES (36,882,558) (351,643,713) 7A 5 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP 111) STATEMENT OF DESIGNATED ACCOUNT- IDA FOR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8, 2019 IDA Credit Account number 100051300075 Depository Bank National Bank of Ethio Related Credit and Grant IDA Credit 53350 and Project ID No. P130276 Address Addis Ababa, Ethiopia Currency USD USD Birr Opening balance brought forward,8 July 2018 1,806 49,279 Add:-Transferred from World Bank-Credit 94,432 2,591,023 Reimbursement from advance payment 96,238 2,640,302 Less:- Transferred to Birr account, to Regions & Other expenditures 95,998 2,654,729 Bank charges 240 6,639 (96,238) (2,661,369) Add:- Gain on exchange _ 21,067 Ending balance,November 8, 2019 - (0.00) 6 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP III) STATEMENT OF DESIGNATED ACCOUNT- IFAD FOR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8. 2019 IFAD- Loan Account number 100051300076 Depository Bank National Bank of Ethiopia Related Credit and Grant IFAD LOAN No. 2000000426 and Project ID No. P130276 Address Addis Ababa, Ethiopia Currency USD USD Birr Opening balance brought forward,8 July 2018 23,296.49 635,682 Add:-Transferred from World Bank-Credit 42,206,198.03 1,173,038,555 Refunds 3,305.00 93,933 42,232,799.52 1,173,768,170 Less:- Transferred to Birr account, to regions & Other expenditures 42,144,512 1,177,726,572 Bank charges 88,287.24 2,463,648 42,232,800 (1,180,190,220) Add:- Gain on exchange - 6,422,050 Ending balance,November 8, 2019 - 7 MINISTRY OF PEACE PASTORAL COMMUNITY DEVELOPMENT PROJECT (PCDP III) FOR THE YEAR ENDED 8th NOVEMBER 2019 Currency: Ethiopian Birr 1. BACKGROUND The Federal Democratic Republic of Ethiopia (GoE) and the International Development Association (IDA) have signed a Financing Agreement (FA) on January 16/2014 for Pastoral Community Development Project Ill (PCDP 3). Under PCDP-ll, Ethiopia will invest US $210,200,000. Four budget sources are used for financing the project. Of the total amount IDA will contribute US$ 110,000,000 (52.33%) in terms of credit. In addition, the project will receive US $ 85,000,000 (40.44%) soft loan from IFAD, while the GoE and the beneficiary communities will contribute US $ 1,000,000 (0.47%) and US $14,200,000 (6.76%) respectively. (PCDP-3) is the final phase of a 15-year program that will be implemented from May, 2014 to July 7, 2019. PCDP-3 will follow the overall program approach of empowering communities and woreda governments to better manage local development among pastoralists and agro-pastoralists. It will promote a Community Demand Driven (CDD) process of development linked to a Community Investment Fund (CIF) and a Rural Livelihoods Program (RLP), the funding for which flows through local governments. By adopting a CDD approach, PCDP-3 aims to promote association among pastoralists, empower them to actively engage in local development (particularly the delivery of basic services and promotion of strengthened and diversified productive systems), and also promote self- monitoring and learning. This is in line with and upholds the GoE's decentralization policy that has pushed decision making authority for basic service delivery to lower levels of government and has sought effective participation of communities in planning and project implementation, In addition to promoting a CDD planning process linked, the project seeks to institutionalize this approach within the Woreda Government's regular planning and budget development processes. It also complements community based initiatives with support to policy dialogue and strategic thinking around pastoralist development issues. At the end of the 15-year period, the program would have supported significant increase in access to public services by pastoral and agro-pastoral communities and widespread ownership of local development initiatives by such communities. It would enable local governments and pastoral/agro pastoral communities to lead development work in close partnership. The project, during its two phases has developed significant experience and capacity to implement a CDD approach to local development. PCDP -3 takes the program to scale and is expected to reach all accessible pastoral and agro-pastoral woredas of Somali, Afar, Oromiya and the Southern Nations Nationalities and Peoples Region (SNNPR). Accordingly, PCDP-3 will support about 90 additional new woredas, which would bring the total number of beneficiary woredas about 113. PCDP-3 will scale up achievements of the past two phases geographically whilst also deepening and institutionalizing the CDD approach. It will help targeted communities to think through their development issues more comprehensively, proactively target the priorities of the most vulnerable sections of their societies, particularly in terms of improving livelihoods of the poorest households and those falling out of the traditional livestock-based livelihood systems, ensure inclusiveness in their consultation processes, promote accountability among their representatives, and promote self- monitoring and learning. It will also seek to integrate the CDD modality within the GoE's regular planning and budget development processes, and will include institution-building interventions to enhance the capacity of local government and community stakeholders to take over project activities. The development objective of phase-3 of the project is to.expand,access to community demand-driven social and economic services for pastoralists and agro-pastoratists of Ethiopian. PCDP-3 has four components 8 namely; (i) Community Driven Service Provision; (ii) Rural Livelihoods Program; (iii) Development Learning and Knowledge Management (DLKM) and (iv) Project Management and M&E. i. Community Driven Service Provision Component The project will support the Community Driven Service Provision that aims to expand access of pastoral communities to public services as prioritized by beneficiary communities and to institutionalize the CDD approach. It will strengthen decentralized and participatory planning procedures at the community/kebele and woreda levels by providing a community investment fund, building community based institutions and pertinent capacities at both the community and local government levels. ii. The Rural Livelihoods Program Component The component will assist pastoralist/agro-pastoralist households to improve their economic livelihood systems by promoting enhanced access to financial services (through the promotion of grassroots financial institutions) and supporting improved advisory services that will enable them to identify viable investment opportunities, technically support them to strengthen and/or diversify their production systems and encourage innovation. iii. Development Learning and Knowledge Management Component- This component comprises a set of interventions to complement community level development by focusing with policy dialogue, strategic thinking around pastoralist development issues and enhanced transparency and learning within the Project. iv. Project Management and M&E Component Although PCDP-3 implementation will be carried out through community institutions assisted by relevant government offices at the federal, regional and woreda levels, its implementation and oversight will be supported by project coordination units and MSTs. PCDP-3 will therefore cover the cost of federal and regional coordination units, MSTs and woreda level support staff. This component will also include regular review meetings for woreda leadership. M&E activities will include regular monitoring of implementation performance, independent process monitoring (including inter alia regular assessments of community level planning and review of the effectiveness and quality of capacity building efforts), outcome/impact evaluations at midterm and end of project, and annual thematic studies. The project is being handled by the Ministry of Peace, which now amalgamates the responsibility of the former Ministry of Federal and Pastoralist Development and Affairs. The Project was completed on November 8 2019. 2. ACCOUNTING POLICIES PCDP follows the government's accounting policy of modified cash basis of accounting system with double entry recording taking into account the decentralized accounting structure of the project. In preparation and presentation of the financial statement, the project uses the government accounting standard. Federal Project Coordination Unit (FPCU), Regional (RPCU) and Project Woredas will keep the original book of accounts for their own financial transactions and posts to the general ledger, Project woreda keeps all financial documents and prepare monthly financial statements using Peachtree accounting program and submit to RPCU; RPCU will prepare quarterly financial statement for its own financial transactions and woreda expenditures and submit to FPCU; FPCU prepares a consolidated financial report and submit to the World Bank and Ministry of Finance. 9 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP Ill) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8, 2019 Currency: ETB 2018 3. CASH AT BANK Designated Accounts-Federal level IDA Credit Account USD - 49,279 IFAD Credit Account USD - 635,682 Birr Account at Federal 680,397 1,639,929 680,397 2,324,890 4. DEBTORS AND PREPAYMENTS Advances to implementing partners (Note 4.1) - 35,272,569 Staff debtors - 63,984 - 35,336,553 5. PAYABLES Withholding tax payable - 8,239 Employees' Income tax payable - 67,977 VAT payable - 17,777 Pension & indeminity payables - 4,491.42 - 98,484 6. FUND BALANCE Balance as at 8th July,2018 37,562,959.12 389,206,672 Adjsutment (4.40) Excess of Sources Over Uses (36,882,558) (351,643,713) Balance as at November 8, 2019 680,397 37,562,959.12 7. SOURCE OF FUNDS Sources USD Rate ETB 7.1 IDA Credit 15-Aug-18 94,432.25 27.4379 2,591,022.63 94,432.25 2,591,022.63 10 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP 111) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8, 2019 Currency: ETB 7.2 IFAD Credit 8-Aug-18 45,121.87 27.4484 1,238,523.14 3-Sep-18 12,432,260.68 27.4907 341,771,548.68 13-Oct-18 1,430,760.00 27.6525 39,564,090.90 1-Nov-18 19,014,201.67 27.7422 527,495,785.57 15-Feb-19 8,348,184.00 28.2751 236,045,737.42 31-May-19 919,386.72 28.7739 26,454,341.54 31-May-19 591.29 28.7739 17,013.72 31-May-19 15,691.80 28.7739 451,514.28 42,206,198.03 1,173,038,555.25 42,300,630.28 1,175,629,577.88 7.3 MATCHING FUND This represents the value that the Woreda governments contributed in terms of cash deposited to bank during the year. It has been reflected in the financial statements based on quarterly reports submitted by the regional coordination units. 7.4 COMMUNITY CONTRIBUTION This represent woreda level community contribution in terms of cash deposited to bank and in kind which is reflected in the financial statements based on quarterly reports submitted by the regional coordination units. Community Contribution in Cash 41,790,517 60,175,718 Community Contribution in Kind 78,776,564 122,646,998 Total 120,567,081 182,822,717 14 DASTORAL COMMUNITY DEVELOPMENT PROJECT (PCDP Ill) LIST OF CURRENT FIXED ASSET ACQUISITION -OR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8, 2019 Arnount in Birr Description QTY Aon nBr NO Date Unit Price Total Price 1 31/10/18 Purchase of Laptop Computer 3 28,000.00 84,000.00 Purchase of External Hard Disk2TB 2 3,949.99 7,899.99 2 10/5/2019 With Bag I Digital Voice Recorder & Rechargeable 1 20,240.00 20,240.00 3 5/8/2018 Battery 2A& 3A Total 112,139.99 15 PASTORAL COMMUNITY DEVELOPMENT PROJECT(PCDP Ill) LIST OF ACCOUNTING ENTITIES COVERED IN THE AUDIT OF 2018/2019 FOR THE PERIOD COVERING JULY 8 2018 UP TO NOVEMBER 8, 2019 There are 49 accounting entities covered during the audit work These are, - Federal Pastoral Coordination Unit - Federal Cooperative Agency - RPCUs, MSTs and Woredas as follow RPCU MST Woreda Gursum MST Gursum woreda Araarso Baabili GolIjano Salahad woreda Mayumuluqa Fik MST Gorobaqaqsa Awbarre Wareda Awbarre MST Erer Hadhagala Gashaamo Somali K/dahar MST E1weyne Woreda Dhobaweyn Dh/bour MST Dhagahmadow wareda Sagag Wareda Dhubun Bareey woreda Dolo-bay Dheekasuf Mubarek Hudet Godey M5T Adaadle Awash Awash MST Amibera Dulecha Gela'alo 5)Erabti Afar 6) Megalla 7)Afdera Afdera MST B)Bidu Hadela'ela MST 9)Semurobi 1 0)Hadela'ela Liban Negelle MST G/dola D/mena H/Buluk Robe MST G/Dhamole OROMIA Teltele Yabello Woreda Yabello MST D/Dawa L/Hidha Miesso Girja Ginnir MST S/Boru 1. Malle SNNP 2. Salamago Jinka MST 3. Dasenech