Annex A REPUBLIC OF THE PHILIPPINES COMMISSION ON AUDIT Office of the Auditor Department of Environment and Natural Resources Visayas Avenue, Quezon City INDEPENDENT AUDITOR'S REPORT The Honorable Secretary Department of Environment and Natural Resources Visayas Avenue, Quezon City Opinion We have audited the financial statements of the Risk Resiliency Sustainability Program (RRSP) funded by the International Bank for Reconstruction and Development (IBRD), which comprise the statement of financial position as at December 31, 2018, and the statement of financial performance, statement of cash flows, statement of changes in net assets/equity, statement of comparison of budget and actual amounts for the year then ended, and notes to financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the RRSP as at December 31, 2018, and its financial performance, cash flows, changes in net assets/equity, comparison of budget and actual amounts for the year then ended, and notes to financial statements, in accordance with the Philippine Public Sector Accounting Standards (PPSASs ). Basis for Opinion We conducted our audit in accordance with the International Standards of Supreme Audit Institutions (ISSAis). 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 Agency in accordance with the Revised Code of Conduct and Ethical Standards for Commission on Audit Officials and Employees (Code of Ethics) together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 1 Responsibilities of Management for the Financial Statements Management is responsible for the preparation of the financial statements in accordance with the PPSAS, and for such internal control as management determined is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the 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 ISSAI 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. Our audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's professional judgment, including the assessment of the risk of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the agency's preparation and fair presentation of the financial statements 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 agency's internal control. Our audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. COMMISSION ON AUDIT By: t~ CECILIA~ S E S Supervisor July 3, 2019 2 AnnexB .Republic of the Philippines Department of Environment an"d Natural Resources Visayas Avenue, Diliman, Quezon City Tel Nos. (632) 929-6626 to 29; 929-6252 929-6633 to 35; 929-7041 to 43 Website: http://www.denr.gov.ph / E-mail: web@denr.gov.ph STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Department of Environment and Natural Resources (DENR), Central Office is responsible for all information and representations contained in the accompanying Statement of Financial Position as at December 31, 2018 and the related Statement of Financial Perfonnance, Statement of Cash Flows, Statement of Compaiison of Budget and Actual Amounts, Statement of Changes in Net Assets/Equity and the Notes to Financial Statements for the year then ended under Fund 171 - Risk Resiliency and Sustainability Program (RRSP). The financial statements have been prepared in confom1ity with the Philippine Public Sector Accounting Standards and generally accepted state accounting principles, and reflect amounts that are based on the best estimates and infonned judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safebruarded against unauthorized use or disposition and liabilities are recognized. W I L ~BIEN Director ·sistan Secretary for Financial Financial and Management Service Management and Information Systems FEB 11 2019 FEB 11 2019 Date Signed Date Signed Annexe DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES DETAILED STATEMENT OF FINANCIAL POSITION RISK RESILIENCY AND SUSTAINABILITY PROGRAM (RRSP) AS OF DECEMBER 31, 2018 ASSETS Current Assets Cash and Cash Equivalents p 1,712,292.68 Cash in Bank-Local Currency 1,326.12 Cash in Bank-Local Currency, Current Account 4 1,326.12 Cash in Bank-Foreign Currency 1,710,966.56 Cash in Bank-Foreign Currency, Savings Account 4 1,710,966.56 Total Current Assets 1,712,292.68 Property, Plant and Equipment 623,619.81 Machinery and Equipment 623,619.81 Information and Communication Technology Equipment 5 616,995.88 Accumulated Depreciation-Information and Communication Technolof!V Equivment (24,773.39) Net Value 592,222.49 Technical and Scientific Equipment 5 32,500.00 Accumulated Depreciation-Technical and Scientific Equipment (1,102.68) Net Value 31,397.32 Total Non-Current Assets 623,619.81 TOTAL ASSETS 2,335,912.49 LIABILITIES Current Liabilities Financial Liabilities 6 327,027.82 Payables 327,027.82 Accounts Payable 6.1 327,027.82 Inter-Agency Payables 704.53 Due to BIR 7 704.53 Page 1 of2 Intra-Agency Payables 57,556.39 Due to Other Funds 8 57,556.39 Total Current Liabilities 385,288.74 TOTAL LIABILITIES 385,288.74 Total Assets less Total Liabilities 1,950,623.75 Net assets/Equity Equity Government Equity 1,950,623.75 Accumulated Surplus/(Deficit) 1,950,623.75 Total Net Assets/Equity p 1,950,623.75 Page 2 of2 AnncxD DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES DETAILED STATEMENT OF FINANCIAL PERFORMANCE RISK RESILIENCY AND SUSTAINABILITY PROGRAM (RRSP) FOR THE YEAR ENDED DECEMBER 31, 2018 Revenue Note Service and Business Income 9 Business Income Interest Income 1,268.41 Total Business Income 1,268.41 Total Revenue 1,268.41 Less: Current Operating Expenses Maintenance and Other Operating Expenses 10 Traveling Expenses 10.1 Traveling Expenses-Local 115,797.57 Total Traveling Expenses 115,797.57 Training and Scholarship Expenses 10.2 Training Expenses 357,000.00 Total Training and Scholarship Expenses 357,000.00 Other Maintenance and Operating Expenses 10.3 Representation Expenses 21 ,113.00 Total Other Maintenance and Operating Expenses 21,113.00 Total Maintenance and Other Operating Expenses 493,910.57 Financial Expenses 11 Financial Expenses Bank Charges 720.00 Total Financial Expenses 720.00 Total Financial Expenses 720.00 Non-Cash Expenses 12 Depreciation 12.1 Depreciation - Machinery and Equipment 25,876.07 Total Depreciation 25,876.07 Total Non-Cash Expenses 25,876.07 Page 1 of2 Total Current Operating Expenses 520,506.64 Deficit from Current Operations (519,238.23) Financial Assistance/Subsidy from NGAs, LGUs, GOCCs 13 Subsidy from National Government 3,119,340.00 Total Financial Assistance/Subsidy from NGAs, LGUs, GOCCs 3,119,340.00 Less: Financial Assistance/Subsidy to NGAs, LGUs, GOCCs, NGOs/ 13 Subsidy to Regional Offices/Staff Bureaus 696,950.00 Total Financial Assistance/Subsidy to NGAs, LGUs, GOCCs 696,950.00 Net Financial Assistance/Subsidy 2,422,390.00 Other Non-Operating Income 14 Gains 14.1 Gain on Foreign Exchange (FOREX) 48,048.12 Total Gains 48,048.12 Surplus for the Period p 129512199.89 Page 2 of2 AnnexE DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES STATEMENT OF CHANGES IN NET ASSETS/EQUITY RISK RESILIENCY AND SUSTAINABILITY PROGRAM (RRSP) FOR THE YEAR ENDED DECEMBER 31, 2018 Note 2018 Balance at January 1, 2018 P Add/(Deduct): Changes in Net Assets/Equity for 2018 Surplus for the period 1,951,199.89 Adjustment of net revenue recognized directly in net assets/equity (576.14) Balance at December 31, 2018 p 1,950,623.75 Net Cash Provided by Investing Activities (614,701.47) Increase in Cash and Cash Equivalents 1,664,244.56 Effects of Exchange Rate Changes on Cash and Cash Equivalents 48,048.12 Cash and Cash Equivalents, January 1, 2018 Cash and Cash Equivalents, December 31, 2018 P 1,712,292.68 Page 2 of2 AnnexF DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES DETAILED STATEMENT OF CASH FLOWS RISK RESILIENCY AND SUSTAINABILITY PROGRAM (RRSP) FOR THE YEAR ENDED DECEMBER 31, 2018 Note 2018 Cash Flows From Operating Activities Cash Inflows Receipt of Notice of Cash Allocation (NCA) P 3,119,340.00 Receipt of Working Fund for Foreign-Assisted Projects 3,119,340.00 Collection of Income/Revenues 1,268.41 Collection of Service and Business Income 1,268.41 Adjustments 576.14 Remittance to BTr (Debit to Cash-Treasury/Agency Deposit accounts) 576.14 Total Cash Inflows 3,121184.55 Cash Outflows Remittance to National Treasury (576.14) Remittance of current year's income/revenue (576.14) Payment of Operating Expenses (144,136.24) Payment of maintenance and other operating expenses (144,136.24) Release of Intra Agency Fund Transfers (696,950.00) Release of funds to Bureaus/R.Os/OUs for implementation of programs/projects (696,950.00) Adjustments (576.14) Closing of Cash - Treasury/Agency Deposits Regular and Special Account (576.14) Total Cash Outflows (842,238.52) Net Cash Provided by Operating Activities 2,278,946.03 Cash Flows Provided by Investing Activities Cash Outflows Purchase/Construction of Property, Plant and Equipment (614,701.47) Purchase of machinery and equipment (614,701.47) Total Cash Outflows (614,701.47) Page 1 of2 DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES AnnexG STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNT FUND 171 - RISK RESILIENCY AND SUSTAINABILITY PROGRAM (RRSP) FOR THE QUARTER ENDED DECEMBER 31, 2018 (in thousand pesos) Actual Amounts Difference Final Budgeted Amounts Particulars on Comparable Budget and Basis Actual Original I Final Notes RECEIPTS Tax Revenue Services and Business Income (1) Assistance and Subsidy Shares, Grants and Donations Gains Others Total Receipts (1) PAYMENTS Personnel Services Maintenance and Other Operating Expenses 2,369 2,369 144 2,225 Capital Outlay 750 750 649 101 Financial Expenses Others Remittance to National Treasury 1 (1) Total Payments 3,119 3,119 794 2,325 NET RECEIPTS/PAYMENTS (3,119) (3,119) (793) (2,326) Certified Correct: Verified the Actual Amounts: ~UBOS ~~~ DINA M. NILLOSAN CIC-Chief, Budget Division Department Chier Accountant ~ ~ AnnexH DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES NOTES TO FINANCIAL STATEMENTS RISK RESILIENCY AND SUSTAINABILITY PROGRAM (RRSP) FOR THE YEAR ENDED DECEMBER 31, 2018 1. General Information The Financial Statements of the Department of Environment and Natural Resources (DENR) were authorized for issue on February 11, 2019 as shown in the Statement of Management's Responsibility for Financial Statements, signed by Bresilda M. Gervacio, OIC, Assistant Secretary for Financial Management and Information System. The DENR was created by virtue of Executive Order No. 102, otherwise known as the Re-Organization Act of the Department of Environment, Energy and Natural Resources (DEENR) issued on June 10, 1987 by then President Corazon C. Aquino. It became operational pursuant to DENR Special Order No. 007 dated May 28, 1988. The Department shall be the primary government agency responsible for the conservation, management, development and proper use of the country's environment and natural resources, specifically forest and grazing lands, mineral resources including those in reservation and watershed areas, and lands of the public domain, as well as the licensing and regulation of all natural resources as may be provided for by law in order to ensure equitable sharing of the benefits derived there from for the welfare of the present and future generations of Filipinos. It envisions the Philippines as a country of lush forest, clear skies and waters, bountiful land; a strong and dynamic nation of empowered people living in dignity, at peace with each other and in harmony with nature. The Agency's registered office is located in Visayas Avenue, Diliman, Quezon City. 1.1 Project Background The DENR in collaboration with the World Bank submitted an Expression of Interest (EOI) in March 2015 to participate in the Pilot Program for Climate Resilience (PPCR) in its capacity as the focal point of the Government for the Climate Investment Funds (CIF). The PPCR enables to provide strategic value by addressing climate resilience in a holistic way, incorporating soft, hard and agro-ecological measures. The Philippines has a great potential to contribute to, and benefit from, lessons generated by the PPCR and its knowledge management activities. In addition, the PPCR can benefit from significant innovative and practical actions developed and implemented to promote climate change adaptation and climate resilience. In May 2015 during the PPCR sub-committee meeting, the Philippines was selected as a potential country to participate in the PPCR. With this, the country submitted a proposal Page 1 of 8 for a strategic program on climate resilience as an investment plan for climate resilience and adaption that foster a pipeline of transformational investments nurturing mainstreaming of climate change adaptation across government programs. In January 2016, the PPCR sub-committee approved a grant amounting to $1.5M for the Government to prepare a national program for climate resilience. The grant agreement between the Department of Finance (DOF) and the World Banlc for the implementation of the RRSP Project was signed on September 15, 2017.The Special Allotment Release Order (SARO) for the RRSP was received on June 28, 2018. The project will end on November 29, 2019. 1.2 Project Objective and Component The objective of this grant is to increase the capacity of the Government of the Philippines to prepare and enhance readiness for initiating the implementation of the Risk Resiliency and Sustainability Program. Together with Banlc-Executed support, the Recipient-Executed grant amounting to $150,000.00 (10% of $1.5M) is underpinned by technical assistance that aims to (i) increase awareness of the need for a national, inter-sectoral, convergence program and investments to respond to climate risks, (ii) improve data, analytical tools and guidance to integrate climate-risk considerations into policy planning and investments, (iii) develop an operational framework for a climate adaptation and resilience investment program. The Program's preparation process is Government-owned, has so far closely involved members of the CCAM-DRR Cluster, led by the DENR with close coordination and inclusion of oversight agencies such as the Department of Budget and Management (DBM), the National Economic Development Authority (NEDA), the Climate Change Commission (CCC), and the DOF. It also involved sector agencies such as the Department of Public Works and Highways (DPWH), Department of Agricultural (DA) and Department of the Interior and Local Governments (D1LG), LGUs, the private sector, civil society groups, Development Partners and communities affected by climate risks. The recipient-executed part of this TA includes two components: ( 1) Engagement capacity support - This component provided capacity support (incremental external staffing and operating costs) to the execution arrangements for the RRSP development (inter-agency technical working group to provide strategic direction and feedback and provide technical inputs). This was done through the Program Development Unit which provides day-to-day support. Moreover, this component provided logistical support, including some IT equipment, and other support for the organization of a series of facilitated inter-agency consultations and follow up meetings involving NGAs, LGUs, CSOs, NGOs, Private Sector, Academia, and development partners. Page 2 of 8 (2) Implementation readiness support - This component supported the Government to improve readiness to initiate the implementation of the RRSP and program roll-out. More specifically this covers technical support to key agencies and priority LGUs to communicate and reach out to key constituencies on operational and technical documents developed for RRSP implementation in early phase of the program and to support pre-appraisal of the roll-out plan for the first 18 months. 2. Statement of Compliance and Basis of Preparation of Financial Statements The financial statements have been prepared in accordance with and comply with the Philippine Public Sector Accounting Standards (PPSAS) issued by the Commission on Audit per COA Resolution No. 2014-003 dated January 24, 2014. The financial statements have been prepared on the basis of historical cost, unless stated otherwise. The Statement of Cash flows is prepared using the direct method. The financial statements are presented in Philippine Peso which is the functional and reporting currency of the Agency. 3. Summary of Significant Accounting Policies 3.1 Basis of Accounting The financial statements are prepared on an accrual basis in accordance with the PPSAS. 3.2 Cash and Cash Equivalents Cash and cash equivalents comprises of Cash in Bank - Local Currency, Current Account and Cash in Bank - Foreign Currency, Savings Account. 3.3 Property, Plant and Equipment Recognition An item is recognized as property, plant, and equipment (PPE) if it meets the characteristics and recognition criteria as a PPE. The characteristics ofPPE are as follows: • tangible items; • are held for use in the production or supply of goods or services, or for administrative purposes; and • are expected to be used during more than one reporting period Page 3 of 8 An item ofPPE is recognized as an asset if: • It is probable that future economic benefits or service potential associated with the item will flow to the entity; and • The cost or fair value of the item can be measured reliably. Measurement at Recognition An item recognized as property, plant, and equipment is measured at cost. The cost of the PPE is the cash price equivalent. Measurement After Recognition After recognition, all property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation Depreciation of an asset begins when it is available for use such as when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The depreciation is for one month if the PPE is available for use on or before the 15th of the month. However, if the PPE is available for use after the 15th of the month, depreciation is for the succeeding month. Depreciation Method and Estimated Useful Life The Straight Line Method of depreciation is used in depreciating the Property, Plant and Equipment with estimated useful lives ranging from five to ten years. The residual value is equivalent to at least five percent (5%) of the cost of the PPE. 3.4 Foreign Currency Transactions Transactions in foreign currencies were initially recognized by applying the spot exchange rate between the function currency and the foreign currency at the transaction. At the year-end reporting date, foreign currency monetary items were translated using the closing rate. Page 4 of 8 3.5 Budget Information A separate Statement of Comparison of Budget and Actual Amounts (SCBAA) was prepared since the budget and the financial statements were not prepared on comparable basis. The SCBAA was presented showing the original and final budget and the actual amounts on comparable basis to the budget. 4. Cash and Cash Equivalents Accounts 2018 Cash in Bank - Local Currency, Current Account 1,326.12 Cash in Bank- Foreign Currency, Savings Account 1,710,966.56 Total Cash and Cash Equivalent 1,712,292.68 The account Cash in Bank - Local Currency, Current Account (LCCA) consists mainly of cash in Peso Checking Account. Payments for eligible expenses from grant fund are made from this account. The account Cash in Bank - Foreign Currency, Savings Account (FCSA) contains the amount transferred by the Bangko Sentral ng Pilipinas (BSP) to DENR account at the Land Bank of the Philippines (LBP) representing the Notice of Cash Allocation (NCA) received from the Department of Budget and Management (DBM) to cover the replenishment of Working Fund/Grant Proceeds from the World Bank. 5. Property, Plant and Equipment Machinery and Particulars Equipment Carrying Amount, January 2018 p - Additions/ Acquisitions 649,495.88 Total 649,495.88 Depreciation (As per Statement ofFinancial Performance) (25,876.07) Carrying Amount, December 31, 2018 623.6] 2.81 (As per Statement of Financial Position) Gross Cost (Asset Account Balance per Statement of Financial Position) 649,495.88 Less : Accumulated Depreciation (25,876.07) Carrying Amount, December 31, 2018 (As per Statement of Financial Position) f'. 62~Mil 2.81 Page 5 of 8 6. Financial Liabilities 6.1 Payables Account 2018 Accounts Pa able P 327,027.82 The Accounts Payable account refers to the goods/services that have been delivered/rendered/completed and accepted but is still not paid. 7. Inter-Agency Payables Account 2018 \ I Due to BIR P 704.53 8. Intra-Agency Payables Account 2018 Due to Other Funds P 57,556.39 The Due to Other Funds account refers to the amount payable to Fund IO I General Fund due to the inadvertent charging of various expenses to the General Fund instead of Fund 171 RRSP. 9. Service and Business Income Account 2018 I I Interest Income P 1,268.41 The Interest Income account refers to the interest earned net of tax withheld by the Foreign Currency Savings Account maintained in Land Bank of the Philippines for the year 2018. 10. Maintenance and Other Operating Expenses Account 2018 Traveling Expenses P 115,797.57 Training and Scholarship Expenses 357,000.00 Other Maintenance and Operating Expenses 21,113 .00 Total Maintenance and Other Operating Expenses P 493,910.57 Page 6 of 8 10.1 Traveling Expenses Account 2018 Travelin P 115,797.57 The Traveling Expenses - Local account refers to the traveling expenses incurred by personnel who handle the RRSP when they travel to Regional Offices for various Project affairs. 10.2 Training and Scholarship Expenses Account 2018 Training Ex enses P 357,000.00 The Training Expenses account refers to the payment for the accommodation for the Integrity Management Program (IMP) Action Planning Workshop. 10.3 Other Maintenance and Operating Expenses Account 2018 Re resentation Ex nses P 21,113.00 The Representation Expenses account refers to the expenses incurred during official meetings/conferences and other official functions. 11. Financial Expenses Account 2018 I I Bank Charges P 720.0Q The account Bank Charges represents service fee for the bank to bank transaction incurred during the transfer of World Bank remittance from BSP to the account ofDENR at the LBP. 12. Non-Cash Expenses 12.1 Depreciation Account 2018 P 25,876.07 Page 7 of 8 13. Financial Assistance/Subsidy Account 2018 Financial Assistance/Subsidy from NGAs, LGUs, GOCCs Subsidy from National Government P 3,119,340.00 Total Financial Assistance/Subsidy from NGAs, LGUs, 3,119,340.00 GOCCs Less: Financial Assistance/Subsidy to NGAs, LGUs, GOCCs, NGOs/POs Subsidy to Resrional Offices/Staff Bureaus 696,950.00 Total Financial Assistance/Subsidy to NGAs, LGUs, 696,950.00 GOCCs Net Financial Assistance/Subsidy P 2,422,390.00 The Subsidy from National Government refers to the initial transfer of funds to the RRSP for the operations of the project. The Subsidy to Regional Offices/Staff Bureaus account refers to the funding checks issued to Region XIII for the budgetary requirements of the office for the continuous operation of the project. 14. Non-Operating Income, Gain or Loss 14.1 Non-Operating Income or Gain Account 2018 Gain on Forei Exchange (ForEx) P 48,048.12 Gain or loss on F'oreign Exchange resulted from transfer of cash from Dollar account to Peso account which are affected by the fluctuation of value of the Peso currency against the Dollar currency from the transfer result and the revaluation of the Foreign Currency Savings Account balance at year end. 15. Reconciliation of Net Cash Flows from Operating Activities to Surplus/ (Deficit) Particulars 2018 Surplus, December 31, 2018 P 1,951,199.89 Non-Cash Movement Depreciation 25,876.07 Gain on Foreign Exchange (48,048.12) Increase in Payables 350,494.33 Closing of Cash- Treasury/Agency Deposits (576.14) Net Cash Flows from Operatin2 Activities P 2,278,946.03 Page 8 of 8