Project Financial Statements and ndependent Auditor's Report State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 Independent auditor's report 3 Statement of cash receipts and payments 6 Statement of uses of funds by Project activities 7 Notes to the Project financial statements 8 GrantThornton 4pwbra faripbarib 4)Pr Independent auditor's u, p.bpJuwlj 0012 :1. + 374 10 260 964 report 4.+37410260961 Grant Thornton CJSC 8/1 Vagharshyan Str. 0012 Yerevan, Armenia T + 374 10 260 964 F + 374 10 260 961 To the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia, Qualified Opinion We have audited the accompanying project financial statements of the Armenia Disease Prevention and Control Project (the "Project"), financed by the International Development Association (acting as administrator of grant funds provided by the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Norway, under the Trust Fund for Health Results Innovation) HRITF Grant No TF014138, which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activities as of and for the year ended 31 December 2018, and a summary of significant accounting policies and other explanatory information. In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion section of our report, the project financial statements present fairly, in all material respects, the cash balance of the Disease Prevention and Control Project as of 31 December 2018 and the cash received and cash paid for the year then ended in accordance with the International Public Sector Accounting Standards ("IPSAS") Financial Reporting Under the Cash Basis of Accounting issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, the World Bank guidelines and the relevant points of HRITF Grant No TF014138. Basis for Qualified Opinion According to the order of the Minster of Health of the Republic of Armenia, hospitals providing screening services to the general public become eligible for receiving Performance - Based incentive remunerations, which are calculated based on a formula of indicators approved by the Ministry of Health of the Republic of Armenia. The detailed data in relation to the components and indicators of the formula have not been made available to us from State Health Agency due to the fact that for the second half of 2017 the records submitted to us were not automatic (instead, the records were maintained manually). Accordingly, we were unable to determine whether any adjustments to the item "Performance - Based Financing Scheme under Part 1 (a) of the Project" for the year ended 31 December 2018 were necessary. 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 the Audit of the Project Financial Statements section of our report. We are independent of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia (the "HPIU") in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (the "IESBA Code") together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Armenia, and we have fulfilled our other ethical responsibilities in accordance with those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a www.grantthornton.am GrantThornton basis for our opinion. Emphasis of Matters * We draw attention to note 2 to the project financial statements, which describes the basis of accounting. The project financial statements are prepared to assist the management of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia to meet the requirements of the financial reporting of the World Bank. As a result, the project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. * In addition, we draw attention to note 3 to the project financial statements, which describes that the closing date of the Project is 31 December 2019. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Project Financial Statements Management of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia (the "HPIU") is responsible for the preparation and fair presentation of the project financial statements in accordance with IPSAS Financial Reporting Under the Cash Basis of Accounting, the World Bank guidelines and the relevant points of HRITF Grant No TF014138, and for such internal control as management determines is necessary to enable the preparation of project financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audit of the Project Financial Statements Our objectives are to obtain reasonable assurance about whether the project 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 on the basis of these project financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the project 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 HPIU's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the project financial statements, including the disclosures, and whether the project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. www.grantthornton.am Grant Thornton We communicate with the management, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal c ntrol that we identify during our audit. Gagik Gyulbudaghyan Emil Vassilyan, FCCA Managing Partner - Engagement Partner 26 June 2019 www.grantthomton.am As of and for the year ended 31 December 2018 In US dollars Actual Planned Variance Year ended Year ended Year ended 31 As of 31 31 As of 31 31 As of 31 December December December December December December Life of 2018 2018 2018 2018 2018 2018 Project Cash balance as of 1 January 2018 80,193 Add: cash receipts IDA Fund (note 4) 468,086 1,520,817 Total cash receipts 468,086 1,520,817 Less: cash payments (1) Goods, consultants' services, Training and Workshops: and Operating Costs (note 6) 16,898 181,775 46,599 211,476 (29,701) (29,701) 243,000 (2) Performance-Based Financing Scheme under Part 1 (a) of the Project 351,381 1,159,042 289,774 1,097,435 61,607 61,607 1,557,000 Total cash payments 368,279 1,340,817 336,373 1,308,911 31,906 31,906 1,800,000 Cash balance as of 31 December 2018 180,000 The project financial statements were approved on 26 June 2019 by: Kristine SatrY Artur Stepanyan Acting r Financial manager This statement is to be read in conjunction with the notes to and forming part of the special purpose project financial statements set out on pages 8 to 14. Statement of uses of funds by Project activities As of and for the year ended 31 December 2018 In US dollars Actual Planned Variance Yearended As of 31 Yearended As of 31 Yearended As of 31 31 December December 31 December December 31 December December 2018 2018 2018 2018 2018 2018 Project life Part 1: Performance-Based Financing to Improve MCH Services and NCD Services in PHC Facilities 368,279 1,340,817 336,373 1,308,911 31,906 31,906 1,800,000 Al - Performance-based Payments for MCH and NCD: 351,380 1,156,183 289,774 1,094,577 61,606 61,606 1,557,000 a - Cost for lab and PAP smear tests implementation 281,955 790,146 218,574 726,765 63,381 63,381 957,793 b - Performance-based incentives for an agreed list of performance indicators 69,425 366,037 71,200 367,812 (1,775) (1,775) 599,207 A2 - Performance-based financing program implementation and capacity building 16,899 184,634 46,599 214,334 (29,700) (29,700) 243,000 Total 368,279 1,340,817 336,373 1,308,911 31,906 31,906 1,800,000 This statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 8 to 14. Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 7 Notes to the Project financial statements 1 Activity The HRITF Grant No TF014138 letter agreement of the Armenia Disease Prevention and Control Project (the "Project") was signed on 27 September 2013 between the Republic of Armenia and the International Development Association (the "IDA") acting as administrator of grant funds provided by the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Norway, under the Trust Fund for Health Results Innovation. During the period from 27 September 2013 to 31 December 2014 the Project did not have any financial proceeds. The total amount of the Grant was agreed to be 1,800,000 USD. The objective of the Project is to improve the prevention, early detection and management of selected diseases at the Primary Health Care (PHC) level using performance based financing. The Project consists of the following parts: Part 1: Performance - Based Financing to improve MCH Services in PHC Facilities (a) Implementation of the Performance-Based Financing Scheme for MCH, through: (i) the reimbursement for Eligible Screening Tests performed at Eligible PL1 C Facilities; and (ii) the provision of Performance-Based Incentives to Eligible PHC Facilities against their level of performance achieved, (b) Provision of: (i) Operating Costs to SHA for the carrying out the Performance- Based Financing Scheme for MCH; (ii) training and capacity building activities to key stakeholders on the implementation of the Performance-Based Financing Scheme for MCH; and (iii) provision of support for the carrying out of MCH health promotion activities, including national public information campaigns. In accordance with the HRITF Grant No TF014138 letter agreement dated 27 September 2013, the financing of the Project is implemented through the following categories: Percentage of Expenditures Amount of the to be financed Grant Allocated (inclusive of Category (In USD) Taxes) (1) Goods, consultants' services, Training and Workshops; and Operating Costs 243,000 100% (2) Performance-Based Financing Scheme under Pan 1 (a) of the 100% Project 1,557,000 1,800,000 The Grant is co-financed by the IDA under the Financing Agreement (Credit number 5222-AM) in an amount of SDR 22,800,000, which was signed on May 17, 2013, as well as by the Republic of Armenia. The financing of works, goods, consultants' services, training and operating expenses within the scope of the Project is implemented by 80% from loan sources and 20% from Government of Armenia sources, and the Armenia Disease Prevention and Control Project HRITF Grant NoTF014138 As of and for the year ended 31 December 2018 8 financing of non-consultants' services is implemented by 48% from loan sources, 13% from Government of Armenia sources and 39% from grant sources. Performance-Based Financing Scheme under Part 1 (a) of the Project is financed by 55% from loan sources and 45% from grant sources. The Project is implemented by the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia (the "HPIU"). The HPIU was established as a state agency by the Minister of Health of the Republic of Armenia decree number 22 dated 17 January 2000, on the basis of the Govemment of Armenia decision number N765. The legal address of HPIU is Komitas Street 49/4, 0051, Yerevan, Republic of Armenia. The average number of the HPIU staff in 2018 was 16 (2017: 16). 2 Significant accounting policies Statement of compliance The project financial statements are prepared in accordance with IPSAS Financial Reporting Under the Cash Basis of Accounting, the World Bank guidelines and the relevant points of the HRITF Grant No TF014138 letter agreement. Alternatively, the HPIU presents a statement of financial position of the Project as of the reporting date as an encouraged additional disclosure, as prescribed in the part 2 of IPSAS Financial Reporting Under the Cash Basis of Accounting (refer to note 9). Project financial statements The project financial statements include: a) The statement of cash receipts and payments of the Project for the year ended 31 December 2018, showing the World Bank and counterpart funds separately, and the statement of uses of funds by Project activities. b) Accounting policies and explanatory notes (including additional accounting policies and disclosures), covering * Summary of summary reports or SOEs used as the basis for the submission of withdrawal applications in the notes, as appropriate; * Statement of designated account in the notes, as appropriate; * Statement of financial position showing accumulated funds of the Project, bank balances, other assets of the Project, and liabilities, if any, as described in the note 9. Functional and presentation currency The national currency of the Republic of Armenia is Armenian dram. These project financial statements are presented in US dollars (presentation currency). In preparing the project financial statements, transactions in currencies other than US dollar are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on that date, which is 483.75 for US dollar 1 as of 31 December 2018 (31 December 2017: drams 484.10 for US dollar 1). Any exchange rate differences are recognized in the statement of the statement of cash receipts and payments and the accumulated figure of exchange rate difference is disclosed in the Statement of financial position under "Exchange rate difference" (refer to note 9). Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 9 For the presentation of the statement of financial position in the note 9 the balances of bank accounts, advances and accounts payable denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on reporting date. Expenses Expenses incurred in the framework of the Project are recognized on the cash basis of accounting, i.e. when the relevant cash is paid. The expenses are recognized in the statement of cash receipts and payments under the caption "cash payments". Additionally, the Project expenses are disclosed in the statement of uses of funds by Project activities. Project financing Financing received in the framework of the HRITF Grant No TF014138 letter agreement is recorded in the statement of cash receipts and payments as "cash receipts" and is recognized at each replenishment. In addition, the Project funds received are disclosed in the Statement of financial position (refer to note 9). The World Bank financing To finance eligible expenditures under the letter agreement, the World Bank disburses proceeds from the Credit account using one or more of the disbursement methods, which are stated below: a. Reimbursement The Bank may reimburse the borrower to finance eligible expenditures that the borrower has refinanced from its own resources. b. Advance The Bank may advance loan proceeds into a Designated account of the borrower to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date. c. Direct payments The Bank may make payments, at the borrower's request, directly to a third party for eligible expenditures. d. Special commitment The Bank may pay amounts to a third party for eligible expenditures under Special commitments entered into, in writing, at the borrower's request and on terms and conditions agreed between the Bank and the borrower. Planned annual expenses As of the end of the year "Planned Project Expenses" comprise the sum of the amount of "Actual Project Expenses" as of the end of the previous period and the annual budgeted expenses of the reporting year. 3. Closing date of the project According to the amendment of HRITF Grant No TF014138 letter agreement dated on 27 September 2013, the closing date of the Project was defined as 31 December 2019. Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 10 4. IDA Fund In US dollars Year ended As of 31 31 December December 2018 2018 SOE and other procedures 468,086 1,340,817 Designated account advance - 180,000 468,086 1,520,817 Under the method of "SOE procedures" of financing, the HPIU requests advance to and documentation of designated account accompanied by the statement of expenditure (SOE). Under the method of "Other procedures" of financing, the HPIU requests advance to and documentation of designated account accompanied by the records evidencing eligible expenditures for payments against contracts valued at more than the amounts in accordance with the Disbursement Letter and contracts that are subject to the World Bank's prior review. 5. SOE withdrawal schedule For the year ended 31 December 2018 In US dollars Category Application No. (1) Goods, consultants' services, Training and (2) Performance-Based Workshops; and Operating Financing Scheme under Costs Pan 1 (a) of the Project Total DPCPG-12 18,360 81,447 99,807 DPCPG-13 10,742 87,806 98,548 DPCPG-14 4,430 78,469 82,899 DPCPG-15 1,139 68,169 69,308 DPCPG-16 588 116,936 117,524 Total 35,259 432,827 468,086 6. Uses of funds by "(1) Goods, consultants' services, Training and Workshops; and Operating Costs" The statement of cash receipts and payments discloses the expenses in two categories, one of which is combined category, as depicted in the HRITF Grant No TF014138 letter agreement. However, for the convenience of certain users, the breakdown of the uses of funds is disclosed in the table below. In US dollars Year ended As of 31 31 December December 2018 2018 Goods - 66,707 Consultants' services 13,481 111,651 Operating costs 3,417 3,417 16,898 181,775 Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 11 7. Designated account statement As of and for the year ended 31 December 2018 In US dollars Opening balance as of 1 January 2018 80,193 Add: Cumulative unexplained discrepancy - Credit replenishment during the year 468,086 468,086 468,086 Less: Refund to the IDA from the designated account during the year - Present outstanding amount advanced to the designated account (1) 548,279 Closing balance as of 31 December 2018 180,000 Add: Amount of eligible expenditures paid during the year 368,279 Amount of ineligible expenditures paid during the year - 368,279 368,279 Less: Interest earned (if credited into the designated account) Total advance accounted for (2) 548,279 Discrepancy (1) - (2) to be explained - Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 12 8. Reconciliation between the amounts received by the HPIU and disbursed by the World Bank For the year ended 31 December 2018 In US dollars The World Category Appl. HPIU Bank Difference (1) Goods, consultants' services, Training and Workshops; and Operating Costs DPCPG-12 18,360 18,360 - DPCPG-13 10,742 10,742 - DPCPG-14 4,430 4,430 - DPCPG-15 1,139 1,139 - DPCPG-16 588 588 - 35,259 35,259 - (2) Performance-Based Financing Scheme under Pan 1 (a) of the Project DPCPG-12 81,447 81,447 - DPCPG-13 87,806 87,806 - DPCPG-14 78,469 78,469 - DPCPG-15 68,169 68,169 - DPCPG-16 116,936 116,936 - 432,827 432,827 - Total 468,086 468,086 - Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 13 9. Statement of financial position As described in the note 2, the policy of the HPIU is to prepare the project financial statements in accordance with IPSAS Financial Reporting Under the Cash Basis of Accounting. However, the HPIU also has presented a separate statement of financial position as a disclosure encouraged under IPSAS Financial Reporting Under the Cash Basis of Accounting. In US dollars As of 31 As of 31 December 2018 December 2017 Assets Current assets Balances in bank accounts Designated account 180,000 80,193 180,000 80,193 Non-current assets Project expenditures 1,380,811 1,061,161 1,380,811 1,061,161 Total assets 1,560,811 1,141,354 Funds and liabilities IDA Fund 1,520,817 1,052,731 Exchange rate difference 1,043 1,477 1,521,860 1,054,208 Current liabilities Accounts payable 38,951 87,146 38,951 87,146 Total net assets 1,560,811 1,141,354 Armenia Disease Prevention and Control Project HRITF Grant No TF014138 As of and for the year ended 31 December 2018 14