Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM in East Jerusalem, West Bank and Gaza THE MINISTRY OF EDUCATION AND HIGHER EDUCATION Project Title ADDITIONAL FINANCING FOR THE TEACHER EDUCATION IMPROVEMENT PROJECT (TF0A1241) Funded by INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) Financial Statements and Independent Auditors' Report for the year ended December 31, 2016 Ramallah Al Masyoun Taj Mahal building No. 10 phone 970 2 297-5576 -Fax 970 2 297 5577 E-mail: info@suleimanco.com The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Table of Contents Page No. Independent Auditors’ Report 2-4 Statement of Balance Sheet 5 Statement of Sources and Uses of Funds 6 Designated Bank Account Statement – World Bank 7 Notes to the Project Financial Statements 8-12 1 Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM in East Jerusalem, West Bank and Gaza Independent Auditors’ Report To The Ministry of Education and Higher Education Ramallah Opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the balance sheet of “Additional Financing for the Teacher Education Improvement Project (TF0A1241)” (the “Project”) funded by the International Development Association (IDA) and implemented by the Ministry of Education and Higher Education (hereinafter “MoEHE”) as at December 31, 2016, and the related statement of sources and uses of funds, designated bank account statement for the year then ended in accordance with International Financial Reporting Standards (IFRSs). We have audited the financial statements of “Additional Financing for the Teacher Education Improvement Project (TF0A1241)” (the Project), which comprise the statement of balance sheet as at December 31, 2016, and the related statement of sources and uses of funds, designated bank account statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. Basis for Opinion 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 Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements that are relevant to our audit of the financial statements in areas under the jurisdiction of the Palestinian Authority, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Going Concern The Project’s financial statements have been prepared using the going concern basis of accounting. The use of this basis of accounting is appropriate unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. As part of our audit of the financial statements, we have concluded that management’s use of the going concern basis of accounting in the preparation of the Project’s financial statements is appropriate. Management has not identified a material uncertainty that may cast significant doubt on the Project’s ability to continue as a going concern, and accordingly none is disclosed in the financial statements. Based on our audit of the financial statements, we also have not identified such a material uncertainty. However, neither management nor the auditor can guarantee the Project’s ability to continue as a going concern. Other Matters Based on our review, in all material respects: 1. The Project expenditures reimbursed on basis of Statements of Expenditures (SOE) are eligible to the Grant Agreement and are reflected on the financial statements. 2. The Designated Bank Account has been used exclusively for payment of eligible expenditures as reflected in the financial statements. 2 Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM in East Jerusalem, West Bank and Gaza 3. The Project’s accounting system (books and records), established and maintained by the MOEHE to record the financial transactions of the Project, provides the basis for preparation of the Project’s financial statements; 4. Internal control over financial reposting involved in the preparation of replenishments, direct payments, payments through special commitments, and reimbursements can be relied upon to support the related withdrawals. 5. The Project was in all material respects in compliance with the laws, regulations, guidelines and provisions governed by the Grant Agreement. 6. Procurement Guidelines have been properly applied in accordance with the Project’s Grant Agreement. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. MoEHE is responsible for overseeing the Project’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements The objectives of our audit are to obtain reasonable assurance about whether the Project financial statements taken 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the 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. 2. 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 Project’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 3 Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM in East Jerusalem, West Bank and Gaza 4. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance 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, if any. Ismail Suleiman Certified Public Accountant License number 131/2000 Ramallah, May 1, 2017 4 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Statement of Balance Sheet (All amounts in USD) Note 2016 Assets Current assets Cash at bank and on hand 8 40,072 Total current assets 40,072 Total assets 40,072 Liabilities and fund balance Fund balance 8 40,072 Total liabilities and fund balance 40,072 The accompanying notes form an integral part of these financial statements. 5 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Statement of Sources and Uses of Funds (All amounts in USD) Cumulative to Note 2016 December 31, 2016 Fund balance – beginning of year - - Sources of fund Advance payment 3&7 300,000 300,000 Replenishments received 3&6 241,419 241,419 Total sources of fund 541,419 541,419 Uses of funds Category 1: goods, consultants’ services and training under the 4&6&7 project 500,346 500,346 Category 2: incremental operating 4&6&7 costs 1,001 1,001 Total uses of funds 501,347 501,347 Change in fund balance 40,072 40,072 Fund balance – end of year 8 40,072 40,072 The accompanying notes form an integral part of these financial statements. 6 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Designated Bank Account Statement Bank Account number 0471 / 0609800 / 001 / 3001 / 000 Depository bank Bank of Palestine Address Ramallah Related loan/ credit TF0A1241 Currency U.S. Dollar (USD) Note 2016 Balance – beginning of year - Receipts during the year 3 541,419 Total 541,419 Deduct Payments for project expenditures from designated bank account 5 428,682 Petty cash replenishment 1,000 Total 429,682 Balance – end of year 8 111,737 The accompanying notes form an integral part of these financial statements. 7 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Notes to the Project Financial Statements (All amounts in USD) 1. The Project and its Financing On November 13, 2015, the International Development Association (IDA), acting as administrator of the Trust Fund for Gaza and West Bank (World Bank), and the Palestinian Liberation Organization (PLO), for the benefit of Palestinian Authority, has signed Trust Fund Grant Agreement Number “TF0A1241” in the amount of USD 3,000,000 towards the cost of the Additional Financing for the Teacher Education Improvement Project – TEIP (the Project). The Project is to be implemented by the Ministry of Education and Higher Education (MoEHE) over the period from January 1, 2016 to June 30, 2019. The objective of the Project is to improve the competencies and skills of class teachers teaching grades one to four in West Bank and Gaza thereby contributing to enhancing student learning in primary schools. The Project consists of the following components: 1. Component 1: Strengthening School Based Practice of Preservice Education Programs; 2. Component 2: Upgrading Academic and Professional Teaching Qualification of under Qualified Class Teacher; and 3. Component 3: Project Management & Implementation Support. The following table sets forth the budget per each category of the project: Category Budget (USD) Category 1: Goods, Consultants’ Services and Training 2,910,000 Category 2: Incremental Operating Costs and Audit 90,000 3,000,000 2. Summary of Significant Accounting Policies The Project financial statements are prepared as per government applicable standards for Internationally funded projects. Significant accounting policies follow:  Basis of accounting The Project financial statements are prepared using the cash basis of accounting, which is a comprehensive basis of accounting other than International Financial Reporting Standards (IFRS). Under this basis of accounting, sources of funds are recognized when related cash is received from the World Bank and uses of funds are recognized when cash payments are made by MoEHE. 8 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Notes to the Project Financial Statements – continued (All amounts in USD) 2. Summary of Significant Accounting Policies – continued  Foreign currency The Project’s basic functional currency is the United States Dollar (USD). Transactions that are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Differences arising from the fluctuations in exchange rates were treated as exchange gains or losses in the statement of sources and uses of funds and designated bank account statement. 3. Sources of Funds Up to December 31, 2016, MoEHE received the following payments from the World Bank: Category 1: Category 2: Goods, Incremental Withdrawal Consultants Operating Application Date of Advance ’ and Costs and (WA) Number Fund Transfer Payment Training Audit Total 2016 March 16, 2016 300,000 - - 300,000 PLO TEIP 2 May 26, 2016 - 102,856 44 102,900 PLO TEIP 3 July 21, 2016 - 115,043 497 115,540 PLO TEIP 4 November 22, 2016 - 22,842 137 22,979 Amount received during the year 2016 300,000 240,741 678 541,419 9 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Notes to the Project Financial Statements – continued (All amounts in USD) 4. Uses of Funds This item represents the following: 2016 Project Components Component 2: Component 1: Upgrading Strengthening Academic and School Based Professional Component 3: Practice of Teaching Project Cumulative Preservice Qualification of Management & up to Education under Qualified Implementation December 31, Programs Class Teacher Support Total 2016 Category 1: Goods, Consultants’ and Training 182,789 316,471 1,086 500,346 500,346 Category 2: Incremental Operating Costs - - 1,001 1,001 1,001 182,789 316,471 2,087 501,347 501,347 5. Payments for Project Expenditures Below is reconciliation of the Project expenditures shown in the designated bank account statement with the Project expenditures shown in the statement of sources and uses of funds: 2016 Payments as reported in designated bank account statement 429,682 Add: Outstanding payments as of December 31, 2016 72,665 Less: Petty cash (1,000) Total uses of funds per statement of sources and uses of funds 501,347 10 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Notes to the Project Financial Statements – continued (All amounts in USD) 6. SOE Procedures (Payments from Designated Bank Account) Payments from designated bank account represent amounts disbursed by MoEHE under the Project for the following disbursement categories: Category 1: Category 2: Goods, Incremental Withdrawal Consultants Operating Application ’ and Costs and (WA) Payment Method Training Audit Total Number Cumulative amount up to December 31, 2015 - - - 2016 Payment from designated bank PLO TEIP 2 account 102,856 44 102,900 Payment from designated bank PLO TEIP 3 account 115,043 497 115,540 Payment from designated bank PLO TEIP 4 account 22,842 137 22,979 240,741 678 241,419 Total Client connection up to December 31, 2016 240,741 678 241,419 Add: Expenses recorded by MoEHE in year 2016 but not reported to IDA as of December 31, 2016: PLO TEIP 5 205,132 323 205,455 PLO TEIP 6 54,134 - 54,134 PLO TEIP 7 339 - 339 259,605 323 259,928 MoEHE records as of December 31, 2016 500,346 1,001 501,347 11 The Ministry of Education and Higher Education Additional Financing for the Teacher Education Improvement Project (TF0A1241) Funded by International Development Association Financial Statements For the year ended December 31, 2016 Notes to the Project Financial Statements – continued (All amounts in USD 7. Reconciliations Between World Bank Records (Client Connection) and MoEHE Records Cumulative up to December 31, 2016 Project account per the client connection Advance payment transferred to MoEHE 300,000 Category 1: Goods, Consultants’ and Training 240,741 Category 2: Incremental Operating Costs and Audits 678 541,419 Project accounts per MoEHE records Category 1: Goods, Consultants’ and Training 500,346 Category 2: Incremental Operating Costs and Audits 1,001 Cash at bank and on hand balance per MoEHE records as of December 31, 2016 (note 8) 40,072 541,419 8. Fund Balance – End of Year The fund balance at December 31, 2016 represents the following: USD Cash maintained in the USD designated bank account 111,737 Cash on hand 1,000 Deduct: Outstanding payments as at December 31, 2016* (72,665) Cash at bank and on hand balance as per MoEHE records as of December 31, 2016 40,072 *Represents payments of Project expenses processed and recorded in MoEHE accounting system in the year ended December 31, 2016 but cleared from the bank subsequent to December 31, 2016. 12