E-SOCIETY AND INNOVATION FOR COMPETITIVENESS PROJECT IBRD LOAN No. 7963-AM IMPLEMENTED BY FOREIGN FINANCING PROJECTS MANAGEMENT CENTER OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF ARMENIA SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the year ended 31 December 2014 YEREVAN June 2015 E-SOCIETY AND INNOVATION FOR COMPETITIVENESS PROJECT IBRD LOAN No. 7963-AM TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 3-4 SPECIAL PURPOSE FINANCIAL STATEMENTS For the year ended 31 December 2014: Statement of cash receipts and payments 5 Statement of uses of funds by Project activity 7 Notes to the special purpose financial statements 8-14 ANNEX I. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE FFPMC AND DISBURSED BY THE WORLD BANK 15 I E-society and Innovation Jbr Competitiveness Project Project Special Purpose Financial Statements SFor the year ended 31 December 2014 2 "UOU-UnF1it-TIS" U f1Q "SOS-AUDIT" LTD INDEPENDENT AUDITOR'S REPORT N 60 On the special purpose financial statements of E-society and innovation for Competitiveness Project for the year ended 31 December 2014 To the Management of the Foreign Financing Projects Management Center (FFPMC) We have audited the accompanying special purpose financial statements of "E-society and Innovation for Competitiveness Project" (the Project) financed by IBRD Loan No.7963-AM and implemented by the FFPMC, which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activity for the year ended 31 December 2014 and a summary of significant accounting policies and other explanatory notes. Management's Responsibility for the Special Purpose Financial Statements The management of FFPMC is responsible for the preparation and fair presentation of these special purpose financial statements in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis ofAccounting, (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), 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 Our responsibility is to express an opinion on these special purpose financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAASB) within the IFAC. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the special purpose financial statements are free from material misstatement. An audit involves performing procedures to obtain reasonable audit evidence about the amounts and disclosures in the special purpose financial statements. The procedures selected depend on the auditor's judgment including the assessment of the risk of material misstatement of the special purpose financial statements, whether due to fraud or error. In making those assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the special purpose financial statement 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 entity's internal control. An audit also includes the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the special purpose financial statements. 4pnnL np4wp PbqGbu UuwGub Uunghwgqw6 UDqal 3 19; p. bptiG 0037, U.Shqpw0jwG 38155; 9bn.' (+37410) 20 11 51; wgu' (+37410) 20 11 50; www.sosaudit.am; tt-Lbnun' Info@sosaudit.am An Associate of the Crowe Horwath Business Alliance 38155 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; www_sosaudiLam; E-mail: Info@sosauditam "SOS-AUDIT" LTD We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, I. the special purpose financial statements present fairly in all material respects the cash receipts and payments of the Project for the year ended 31 December 2014 in accordance with IPSAS-Cash Basis and World Bank related guidelines; 2. funds have been used in accordance with the conditions of the Loan Agreement No. 7963-AM dated 26 January 2011 between the International Bank for Reconstruction and Development (IBRD) and the Republic of Armenia, and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 3. 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 Loan Agreement No. 7963-AM dated 26 January 2011; 4. The Designated accounts used have been maintained in accordance with the provision of the Loan Agreement No. 7963-AM dated 26 January 2011, and World Bank related guidelines. "SOS-Audit" LLC 19 June 2015 [anve n Nazik Chitchyan Auditor UpnnL 9npiwp Ph|qGbu UUuGuwu Uungtug4tu 1 Uriud RR; p. bpLuG 0037, U.S qpuGjtuG 38/55; 9bn.' (+37410) 20 11 51; bwpu' (+37410) 20 11 50; www.sosaudit.am; tL-0nuLn' Info@sosaudiLam An Associate of the Crowe Horwath Business Alliance 38/55 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; www.sosaudit.am; E-mail: info@sosaudit-am I ri 04 kn o >cq r - - - - - - -i- - - d&e _ <'4 k m s0 - =4 89 8 '8 00 t- k1 o m 'qd CD 0,N a O IiiE 0 ci Q J t: 1å (. rz ~Ep'E Z3 - _ý3c - øn Z:0 4 U2 c> 1:3 : 0%JN %O00011C Ial i sì <'a NOe .' ' 49 f' <' '0 0 oa éf a O e D 33 ]4 L> C j .r- CN t f. <' ± el -CJ C CL 0 3 2 \ N t4 a.E L c 0 e. jc- o .-10 0 1 u,rdrr.- } …、……：‘…入 NOTES TO THE SPECL&L PURPOSE FINANCIAL STATEMEENTS E-sociely and innovationfor Competitiveness Project IBRD Loan No. 7963-AM For The year ended 31 December 2014 1. General Information LL Tl:e Project According to the Advance Agreement concluded between the Republic of Armenia and International Bank for Reconstruction and Development (IBRD) on 17 May 2010, IBRD provided the Republic of Armenia Project Preparation Advance P457-AM in an amount not to exceed 3,000,000 United States dollars (USD) for Preparation of E-society and Innovation for Competitiveness Project. The Loan Agreement for E-society and Innovation for Competitiveness Project IBRD 7963- AM was signed between the Republic of Armenia and International Bank for Reconstruction and Development on 26 January 2011 and became efFective on 18 May 2011. IBRD provided the Republic of Armenia Loan in an amount of 24,000,000 United States dollars (USD). The closing date of the Project is 30 June 2016. The Grace Period for submitting withdrawal applications for the expenditures incurred before the Closing date is four months following the Closing date. 1.2 Tite Project's objective The objective of the Project is to: (a) increase in number of households, businesses and public institutions with secure and affordable access to broadband, computers and e-services, (b) increase in size of knowledgp-and technology- i ntens ive sector and better access to markets, finance, skills and employment in the sector. The Project consists of the following components. E-Society Infrastructure Development, Fostering Enterprise Innovation, Project Management L3. Project Budget The Project is financed from the following sources: - International Bank for Reconstruction and Development (IBRD), - The Government of the Republic of Armenia (GoA). Taxes are covered through the Government of Armenia (GoA) cofinancing. E-socieo and Innovationfor Canipefitiveness Project Project Special Purpose Financial Statements For the year ended 31 December 201-1 8 Government of IBRD the RA Total* Category USD USD USD 1. Goods, works, consultants' services, training, operating costs 15,712,947.83 3,709,892.25 19,422,840.08 2. Sub-financing 7,800,000.00 500,000.00 8,300,000.00 3. Consultants' services and Training under Part B.3(a) (i) of the Project 372,000.00 200,000.00 572,000.00 4. Refund of the Preparation Advance 55,052.17 15,507.75 70,559.92 r 5. Front-end Fee 60,000.00 - 60,000.00 Total 24,000,000.00 4,425,400.00 28,425,400.00 (*) The budget is presented as reallocated on 10 November 2014. 1.4. Project Implementation The Project is implemented by E-Governance Infrastructure Implementation Unit CJSC (EGIIU), Enterprise Incubator Foundation (ElF) and Foreign Financing Projects Management Center (FFPMC). The address of the FFPMC is: 4 Tigran Mets str., 3-rd floor, Yerevan, Republic of Armenia. 2. Summary of significant accounting policies 2.L Preparation and presentation offinancial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard (IPSAS): Financial Reporting Under the Cash Basis of Accounting, issued by the International Public Sector Accounting Standards Board (IPSASB) of International Federation of Accountants (IFAC) and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations: RM 3 - Financial Reporting and Auditing (March 2010). The special purpose project financial statements consist of: - Statement of cash receipts and payments, - Statement of uses of funds by project activity, - Summary of significant accounting policies and other explanatory notes. 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. 22 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. E-society and innovation for Competitiveness Project Project Special Purpose Financial Statements For the year ended 31 December 2014 9 U 2.3. Reporting currency The reporting currency of these special purpose financial statements is United States dollars (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 31 December 2013 is I USD =405.64 AMD The average exchange rate at currency market issued by the CBA as at 31 December 2014 is I USD =474.97 AMD. S2.4. Taxes Taxes are paid in accordance with the tax regulations of the Republic of Armenia. 2.5. Budget Expenditure budget is created based on actual accumulated expenditures for the last period plus the updated procurement plans for the reporting period. 3. Summary of Summary Reports and SOEs The year ended 31 December 2014 Disbursement categories Goods, works, Sub- Consultants' Withdrawal Withdrawal consultants' financing services and Apliaio Apictin services, training under part trainings- part Total Application Applicationincremental A.3 .3 number value date operating costs I1 2(b) 3 ______ _____ USD USD USD USD 17DA 05-Mar-2014 437,235.42 173,224.97 - 610,460.39 18DA 29-Jul-2014 866,764.42 20,215.26 28,516.19 915,495.87 Total ________ 1,303,999.84 193,440.23 28,516.19 1,525,956.26 Fr-societ and Innovation]or Compewitioeness Project Project Special Purpoe Financial Statements For the year ended 31 December 2014 10 Lprti.cot 4. Statement of Designated Account Designated Account IBRD Loan No.7963-AM Currency USD USD Bank Central Treasury 4 Tigran Mets str., 2-rd floor, Yerevan, 0010 Location Republic of Armenia Account number 900000903071 (a) 900000929126(b) For the year ended 31.12.2014 (a) (b) Total I. Opening balance 389,539.61 - 389,539.61 Add: 2. Cumulative opening discrepancy . 3. IBRD Fund advance/replenishment 2,325,956.26 1,000,000.00 3,325,956.26 Less: 4. Refund to IBRD from DA 5. Present outstanding amount advanced to DA 2,715,495.87 1,000,000.00 3,715,495.87 6. DA closing balance 743,361.21 735,778.66 1,479,139.87 Add: 7. Amount of eligible expenditures paid 1,972,134.66 264,221.34 2,236,356.00 Less: 8. Interest earned (if credited into DA) . 9. Total advance accounted for 2,715,495.87 1,000,000.00 3,715,495.87 10. Discrepancy (5)-(9) I , E-sociey and Innovation for Competitivenress Project Project Special Purpose Financial Statements For theyear ended 31 December 2014 II 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 31.12.2014 31.12.2013 ASSETS USD USD Cash 6 1,503,883.66 561,507.03 Prepayments 59,586.78 18,624.21 Total assets 1,563,470.44 580,131.24 LIABILITIES Payables 119.99 368,640.05 Total liabilities 119.99 368,640.05 NET ASSETS Cumulative income 8 IBRD Loan No.7963-AM 11,452,653.08 8,126,696.82 Government of RoA 1,626,377.79 1,266,189.32 13,079,030.87 9,392,886.14 Cumulative expenses Project expenses (11,481,401.70) (9,167,191.21) (1 1,481,401.70 (9,167,191.21) Foreign exchange loss (34,278.72) (14,203.74) Total net assets 1,563,350.45 211,491.19 6. Cash Account Underlying 31.12.2014 31.12.2013 held at Currency USD USD Designated account (IBRD Loan No.7963-AM) Treasury USD 743,361.21 389,539.61 Second Designated account (IBRD Loan No.7963-AM)* Treasury USD 735,778.66 - Project account (Government of RoA) Treasury AMD 24,743.79 171,967.42 Total 1,503,883.66 561,507.03 Assigned for financing subcategory 2d "Sub-financing for Sub-projects under Part B.I(b) of the Project (Seed and Early Stage Venture Fund)" E-society and Innovation for Compeitiveness Project Project Special Purpose Financial Statements For the year ended 31 December 2014 12 7. Project Expenditures 7.1. Project expenditures financing per funds Expenditure IBRD Loan GoA Fund Total 7963-AM [!U7und USD USD USD Cmtvear aded 31.12.2014 1.Goods, works, consultants' services, train I g and perating costs 1, 3,0.29 476,760.67 2,400 6.88 2.Sub-inancing 3rien aiig e,2636.560 -83,2636.560 3.Consultants' services and Training under Part .3(a) W of te Project 28,516.19 6,368.15 34,884.34 4. Refund of the Preparation Advance 55021- 5577 0599 5. Front-end Fee Total , 2 1 5,915.6 4819,428.7 ve as at 31.12.2014 I.Goods, works, consultants' services, training and o6eratin costs ,508,066.69 1,536,460.19 8,044,526.88 2.Sub-financing anT3,263,697.56 - 38, 263,697.56 3.Consultants' services and Training under Part B.3(a) (i) of the Project 86,696.79 13,947.61 100644.40 4. Refund of the Preparation Advance 755,052.17 15507.75 70,559.92 5. Front-end Fee 60,000.00 6 00% 9,973,51321 1,5625,45 0 ,539,428 76 7 2. Project expenditure budget execution Cumulative Category Expenditures as at 31 Dec 2014 Ttlbde xcto I.-Goods, works, consultants' services, UDUD trainina and oerating costs8,044,526.88 19428084% 3.Consultants' seryices and Traini ng6,675 under000039 Part B.3(a) (i) of the Project 100,644.40 52000 8 4.Refun of th Preeaation dvance70,559.92 7,5.210 S5. Front-end Fee 60,000.00 6,0.010 Tota HII53E94H2S76 19,422,40.08 41% E-societ and Innovationifor competiwieness pm.ject Projectl Special Purpose Financiad Staiementsv For the year ended 31 Decembher 2014 '13 8. Financing 8.1. IBRD Loan No.7963-AM financing Reporting Cumulative year as at 31 Dec 2014 USD USD Advances/ (advance recovery) 1,800,000.00 2,800,000.00 SOE and Summary Report 1,525,956.26 8,592,332.30 Front-end fee 60,000.00 PPF charge - 320.78 Total 3,325,956.26 11,452,653.08 r Total financing budget 24,000,000.00 Percentage of finance provided as at 31 Dec 2014 48% r 8.2. Government of RoA Reporting Cumulative year as at 31 Dec 2014 USD USD Financed 360,188.47 1,626,377.79 Total financing budget 4,425,400.00 Percentage of finance provided as at 31 Dec 2014 37% 9. Project 2(d) subeategory (Venture Fund) In accordance with contract dated 12 October 2013 among the Republic of Armenia Government and some investors (together: "Shareholders"), the Shareholders agreed to invest in "Granatus Venture Fund 1" CJSC ("Venture Fund"). The Republic of Armenia makes share contributions in the equal amount of contributions made by other shareholders after getting conformation on share issuance and payments. World Bank shall reimburse contributions made by the Republic of Armenia when the Venture Fund invests in Information Technology (IT) entities. As at reporting date, the Government of the Republic of Armenia made 264,221.34 US dollars (equivalent of 109,060 million Armenian drams) contribution into the Venture Fund. As at 31.12.2014 the Venture Fund made 350,000 USD investments into the IT two entities. 10. Events after the reporting date The application 20DA at the total amount of 1,056,638.79 USD, that includes expenditures relating to the reporting period (from I July 2014 to 31 December 2014) was submitted to WB on 31 March 2015 and approved on 1 April 2015. E-socieny and Innovationfor Competiiveness Project Project Special Purpose Financial Statements For the year ended 31 Decenber 20/4 14 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE FFPMC AND DISBURSED BY THE WORLD BANK E-society and innovation for Competitiveness Project IBRD Loan No. 7963-AMI For the year ended 31 December 2014 in USD Expenditure Category Appi. FFPMC WB Difference Advance (recovery) DA2-1 600,000.00 600,000.00 DA2-2 400,000.00 400,000.00 . 19A 800,000.00 800,000.00 - 1,800,000.00 1,800,o00.00 I1.Goods, works, consultants' services, training 7DA 437,235.42 437,235.42 and incremental operating cost 18DA 866,764.42 866,764.42 1,303,999.84 1,303,999.84 2(b). Sub-financing under part A.3 17DA 173,224.97 173,224.97 - 18DA 20,215.26 20,215.26 - 193,440.23 193,440.23 3. Consultants' services and traininigs under 19D32,416.2319 32,516.19 part B.3 18DA 28,516.19 28,516.19 28,516.19 28,516.19 Total 3,325,956.26 3,325,956.26 E-society and Innovation fr Conpetitireness Project Project Specidal Purpose Financial Statements For the yar ended 31 December 2014 15