Republic of the Philippines COMMISSION ON AUDIT Commonwealth Ave., Quezon City ANNUAL AUDIT REPORT on the CARBON ASSET DEVELOPMENT FUND (A Project of Land Bank of the Philippines Funded by World Bank Grant) For the years ended December 31, 2020 and 2019 TABLE OF CONTENTS Page PART I AUDITED FINANCIAL STATEMENTS Independent Auditor’s Report 1 Statements of Financial Position 3 Statements of Comprehensive Income 4 Statements of Cash Flows 5 Notes to Financial Statements 6 PART I AUDITED FINANCIAL STATEMENTS Republic of the Philippines COMMISSION ON AUDIT Commonwealth Ave., Quezon City CORPORATE GOVERNMENT SECTOR CLUSTER I- BANKING AND CREDIT INDEPENDENT AUDITOR’S REPORT The Board of Directors Land Bank of the Philippines Malate, Manila Report on the Audit of the Financial Statements Opinion We have audited the accompanying financial statements of Carbon Asset Development Fund (CADF), a Project of the Land Bank of the Philippines (LBP) funded by World Bank Grant No. TF 019049, which comprise the statements of financial position as at December 31, 2020 and 2019, statements of comprehensive income, and statements of cash flows for the years then ended, and notes to financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the CADF as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended, in accordance with Philippine Financial Reporting Standards (PFRSs). Basis for Opinion We conducted our audits in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Our responsibilities under those standards are described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the LBP in accordance with the Revised Code of Conduct and Ethical Standards for Commission on Audit Officials and Employees together with the ethical requirements that are relevant to our audits of the financial statements in the Philippines, 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. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PFRSs, 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. Those charged with governance are responsible for overseeing the CADF’s financial reporting process. 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. As part of an audit in accordance with ISSAI, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • 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. • 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 LBP’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 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. COMMISSION ON AUDIT ROCHIE J. FELICES Supervising Auditor October 25, 2021 LAND BANK OF THE PHILIPPINES STATEMENTS OF FINANCIAL POSITION CARBON ASSET DEVELOPMENT FUND (A Project of the Land Bank of the Philippines Funded by World Bank Grant No. TF 019049) DECEMBER 31, 2020 and 2019 (In U.S. Dollar) Note 2020 2019 ASSETS Cash and Cash Equivalents 4 223,697 111,991 Equipment - net 5 5,533 6,527 Total Assets 229,230 118,518 LIABILITIES Accounts Payable 6 2,858 9,486 Total Liabilities 2,858 9,486 FUND BALANCE Fund Balance, beginning 109,032 154,031 Excess (Deficiency) of Revenues over Expenses 117,340 (44,999) Total Fund Balance 226,372 109,032 Total Liabilities and Fund Balance 229,230 118,518 3 LAND BANK OF THE PHILIPPINES STATEMENTS OF COMPREHENSIVE INCOME CARBON ASSET DEVELOPMENT FUND (A Project of the Land Bank of the Philippines Funded by World Bank Grant No. TF 019049) For the years ended DECEMBER 31, 2020 and 2019 (In U.S. Dollar) Note 2020 2019 INCOME Grants and Donations 136,966 - Interest income 101 172 137,067 172 EXPENSES Project Expenses 7 Consultancy Services 15,408 26,577 Training Expenses 724 1,172 Traveling Expenses 2,937 14,949 Postage, Cable and Telephone Expense 24 244 Stationary and Supplies 0 1,789 Depreciation Expense 1,379 867 20,472 45,598 Operating Expenses Bank Charges 10 - Withholding Taxes 15 26 25 26 Other Expenses Foreign exchange loss (gain) on revaluation 8 771 (453) 771 (453) Excess (Deficiency) of Income over Expenses 117,340 (44,999) 4 CARBON ASSET DEVELOPMENT FUND (A Project of the Land Bank of the Philippines Funded by World Bank Grant No. TF 019049) STATEMENTS OF CASH FLOWS For the years ended DECEMBER 31, 2020 AND 2019 (In U.S. Dollar) 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Cash Inflows Grants and Donations 136,966 - Interest Income 101 172 Total Cash Inflows 137,067 172 Cash Outflows Consultancy Services 21,796 24,337 Training Expenses 232 1,197 Traveling Expenses 3,778 14,607 Postage, Cable and Telephone Expense 16 329 Stationary and Supplies 4 117 Bank Charges 10 - Withholding Taxes 15 26 Total Cash Outflows 25,851 40,613 Net Cash Generated by (Used in) Operating Activities 111,216 (40,441) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Equipment (386) (6,824) Net Cash Used in Investing Activities (386) (6,824) Foreign Exchange Gain on Revaluation 875 543 NET DECREASE IN CASH AND CASH EQUIVALENTS 111,705 (46,722) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 111,991 158,713 CASH AND CASH EQUIVALENTS AT END OF YEAR 223,697 111,991 5 CARBON ASSET DEVELOPMENT FUND (A Project of the Land Bank of the Philippines and funded by the World Bank Grant No. TF 019049) NOTES TO FINANCIAL STATEMENTS December 31, 2020 and 2019 1. PROJECT INFORMATION The World Bank (WB), acting as trustee of grant funds provided by donors under the CADF of the Carbon Partnership Facility (CPF), extended to the Land Bank of the Philippines (LBP) a grant in the amount of USD 410,000. The grant shall be used to assist in financing the development of carbon assets for purchase by the CPF. The CADF Grant Agreement between the WB and LBP was signed on October 28, 2015. The carbon assets or Certified Emission Reductions will be generated from the LBP’s two Program of Activities (POAs) for Animal / Piggery Waste-to-Energy and Landfill Gas-to- Energy Projects that are covered by Emission Reduction Purchase Agreements between the WB and the LBP. The Project consists of four parts namely: Capacity Building and Technical Support; Marketing and Communication; Sub-Project Inclusion, Monitoring and Verification; and Project Management, which serve as the basis of CADF utilization. The categories of Eligible Expenditures that may be financed out of the Grant proceeds, and the allocations of the amounts to each category under Goods, Non-Consulting Services, Consultants’ Services, Training and Workshops, and Incremental Operating Costs were revised as follows: Amount of Allocation Revised Allocation Grant Expense Category (in USD) (in USD)* 1. Animal / Piggery Waste-to-Energy 221,007 285,573 Project 2. Landfill Gas-to-Energy Project 55,917 54,016 3. Project other than above cited 133,076 70,411 categories 410,000 410,000 *In a WB Memorandum dated June 20, 2019, the WB approved the reallocation of the proceeds of the grant for expense categories. Out of the USD 410,000 total grant, a USD 210,000.00 was initially transferred from WB to LBP on December 8, 2015 and an additional grant of USD 51,220.47 and USD 136,966.32 on July 3, 2017 and December 22, 2020. The CADF grant is covered by implementing guidelines based on the CADF Grant Agreement, and LBP Executive Order No. 066 Series of 2016 approved on May 20, 2016. An interim arrangement was established to access the fund via direct withdrawal by LBP Environment Planning Management Department (EPMD) from the USD Account prior to the effectivity of the Implementing Guidelines on the Utilization of Carbon Asset Development Fund under LBP EO No. 066, Series of 2016. 6 As stipulated in Section 3.06 (c) of the Standard Conditions of the Grant Agreement, the CADF grant shall expire by June 30, 2019. However, in a letter dated June 20, 2019, WB has approved the extension of the CADF grant closing date to April 30, 2021. 2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS 2.1. Statement of Compliance The financial statements have been prepared in compliance with the Philippine Financial Reporting Standards. 2.2. Basis of Preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to both years presented, otherwise as stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Accounting of Disbursements Starting June 2016, all approved Disbursement Orders (DOs) and Procurement Request Forms (PRFs) paid by LBP Administrative Accounting Department (AAD) were charged outright from the CADF Revolving Fund handled by the LBP Agrarian Accounting Department (AgAD). 3.2. Reporting Currency and Translation from PHP into USD The original currency of the CADF grant is in US Dollar. Most of the operating expenses were transacted in Philippine Peso currency. Transactions in PHP were translated to USD using the exchange rate at the date of booking. Year-end rates for the December 31, 2020 and December 31, 2019, were P48.023 and P50.635 to a dollar, respectively. All foreign exchange rates were based on the Philippine Dealing System (PDS) closing rates. 3.3. Revenue The primary source of revenue is the CADF grant. Its purpose is to spend on eligible activities as covered by its implementing guidelines. Interest income is the interest earned on the USD and PHP bank accounts. 3.4. Equipment Equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the equipment. The 7 residual value of 10% of acquisition cost is in accordance with LANDBANK Executive Order No. 059 series of 2006. 4. Cash and Cash Equivalents This account consists of: 2020 2019 In USD Cash in bank USD Savings Account 215,801 78,759 Revolving fund 7,896 33,232 223,697 111,991 The CADF revolving fund was set up on June 8, 2016 amounting to P2.0 million and maintained by the LBP AgAD. The revolving fund shall be used for payment of all allowable expenditures to support the implementation of CADF projects. 5. Equipment The composition of and movement of this account are as follows: As at December 31, 2020 In USD Cost At January 1 7,502 Additions 386 At December 31 7,888 Accumulated Depreciation At January 1 975 Depreciation for the year 1,380 At December 31 2,355 Net Book Value 5,533 As at December 31, 2019 In USD Cost At January 1 2,345 Additions 5,157 At December 31 7,502 Accumulated Depreciation At January 1 108 Depreciation for the year 867 At December 31 975 Net Book Value 6,527 8 6. Accounts Payable This account represents outstanding obligations on the basis of normal credit terms and do not bear interest: 2020 2019 Date Particular Peso Rate * USD Rate * USD Dec-19 Various unpaid Training and 24,869 48.023 518 Postage and Cable expenses Dec-18 Various unpaid Consultancy 367,938 50.635 7,267 Services, Training, Travelling and Telephone expenses incurred in CY 2019, related to the promotion of Carbon Finance Support Facility (CFSF). 11-Mar-15 Promotion of CFSF on Financing 37,364 48.023 778 50.635 738 and CDM Services for hog raisers in Malaybalay City, Bukidnon 8-Jun-15 Workshop on the Preparation of 75,000 48.023 1,562 50.635 1,481 CFSF Component Project Activity Design Document (CPA- DD) 505,171 2,858 9,486 7. Project Expenses This account represents expenses incurred in the attendance and conduct of CADF training activities and other supporting operations as follows: 2020 2019 Piggery Landfill Program Piggery Landfill Program Total Total level level level level level level In USD Consultancy 10,851 4,557 - 15,408 16,911 9,666 - 26,577 Services Training 203 11 510 724 615 26 531 1,172 Traveling 2,839 98 - 2,937 14,894 55 - 14,949 Telephone - - - - 244 - - 244 Postage and 24 24 Cable Office - - - - 861 6 922 1,789 Supplies Depreciation - - 1,379 1,379 - - 867 867 13,893 4,666 1,913 20,472 33,525 9,753 2,320 45,598 9 8. Foreign Exchange Gain/(Loss) This account represents foreign exchange gain/(loss) arising from revaluation recognized as follows: 2020 2019 In USD On Cash Components 876 543 On Accounts Payable (105) (90) 771 453 10