CENTRE FOR EDUCATION PROJECTS EDUCATION IMPROVEMENT PROJECT CREDIT No. 5387-AM LOAN No. 8342-AM SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT For the year ended 31 December 2018 CONTENTS Independent Auditors' Report 3 Summary of Project Sources and Uses of Funds 6 Summary of Uses of Funds by Project Activity 8 Statement of Financial Position 9 Statement of Designated Accounts 10 Summary of SOEs 12 Notes to the Special Purpose Financial Statements 14 41D-t32-(D )-rtupbpq OPP PHP Partners CJSC hpw4wptuww5t hwugh' , bpkwb,Ulbp Uwtn.1uWl 15W (374)10204090 Registration address: 15a Alck Manukyan, Yerevan Tel. 4npbnLbnLpjwb hwugh', bpLwb,U9nhgb 2, bpwq pbqbhu Itbtpni bLI-tinum generaltn php.am Activity address: 2 Adonts str., Yeraz Busines Centre, Ycrevan, Armenia E-mail INDEPENDENT AUDITORS' REPORT To the Director of Centre for Education Projects Opinion We have audited the accompanying special purpose financial statements of the Education Improvement Project (hereinafter EIP) implemented by the Center for Education Projects (hereinafter CFEP), which comprise Summary of Project Sources and Uses of Funds, Summary of Uses of Funds by Project Activities, Statements of Designated Accounts, Summary of Summary of Expenditures for the year ended 31 December 2018, and Statement of Financial Position as at 31 December 2018 and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying special purpose financial statements present fairly, in all material respects, the financial position of the Education Improvement Project as at December 31, 2018 and its financial performance and its cash flows for the years then ended in accordance with the accrual basis of accounting as described in Note 2(a). 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 Auditors Responsibilities for the Audit of the Special Purpose Financial Statements section of our report. We are independent of the CFEP in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and we have fulfilled our other ethical responsibilities m accordance with these requirements. We believe that the audit evidence we have obtained is sufficient appropriate to provide a basis for our opinion. Emphasis ofMatter Material Uncertainty Related to Going Concern of the CFEP We draw attention to Note 1(a) of the special purpose financial statements, which describes that the Government of the Republic of Armenia, in general, announced cessation of activities of project implementation units and integration of their activities within the structure of governing ministries. No any formal procedures are yet undertaken by the governing ministry of CFEP, Ministry of Education and Science of the Republic of Armenia on this matter. 3 Independent Auditors' Report Page 2 Emphasis of Adlatter - Restriction on Distribution or Use We draw attention to Note 2(a) of the special purpose financial statements, which describes the basis of accounting. The special purpose financial statements have been prepared for providing information to the Government of the Republic of Armenia, the International Development Association and the International Bank for Reconstruction and Development to assist them in evaluating the EIP's implementation. As a result, the special purpose financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the special purpose financial statements of the current period. These matters were addressed in the context of our audit of the special purpose financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The CFEP has provided grants to preschools in the scope of sub-component 1.1. Promoting School Readiness and equal opportunities at the start of General Education in the amount of USD 212,542 for the year ended December 31, 2018. The provision and subsequent spending of grants shall be performed in line with Operation Manual for Preschool Education Micro-Project Grants that provides criteria for eligibility of preschools, selection procedures, subsequent duties of grantees, reporting and monitoring procedures. Our audit procedures in this area included, among other: * Corroborating with management the process of grant provision and compliance to Operation Manual; * On samples basis, analysing conditions associated to the grant and discussing compliance of these conditions by the grantee; * On samples basis, comparing reports provided by the grantees to documentation supporting the expenditures; * On samples basis, reviewing the compliance of procurements performed out of provided grants to applicable procurement guidelines designated by World Bank. As result of our audit procedures, we concluded that provision of grants complied with eligibility criteria, procedures and requirements set forth in the Operation Manual. The CFEP has provided grants to Higher Education Institutions (hereinafter HEI) in the scope of component 2. Mainstreamning of the Competitive Innovation Fund (hereinafter CIF) for HEI into full implementation in the amount of USD 1,072,498 for the year ended December 31, 2018. The spending of grants shall be performed in line with Operation Manual for Mainstreamning the CIF for HEI into fill implementation under the EIP that provides duties of HEIs, reporting and monitoring procedures. Our audit procedures in this area included, among other: * Reconciling reports provided by the HEIs to documentation supporting the expenditures; * Reviewing the compliance of procurements performed out of provided grants to applicable procurement guidelines designated by World Bank. As result of our audit procedures, we concluded that spending of grants complied with procedures and requirements set forth in tile Operation Manual. In the scope of implementation of EIP's objectiles. CFEP has incurred procurement, for receipt of consulting services and works in the total amount of USD 2,397,964. The procurement shall be performed in line with applicable procurement guidelines designated by World Bank. Our audit procedures in this area included, among other: * Corroborating with management the process of procurement and compliance to applicable procurement guidelines designated by World Bank: * Analysing the procurement plan, conditions associated to each procurement, correspondence with the World Bank, method of procurement and discussing compliance of these conditions to applicable procurement guidelines designated by World Bank: * On sample basis, reviewing compliance of procurement packages to applicable procurement guidelines designated by World Bank; * On sample basis, reviewing the documentation supporting the procurement a, wvell as availability of deliverables designated by the procurement contracts. As result of our audit procedures, we concluded that procurements were performed in line with applicable procurement guidelines designated by World Bank. Responsibilities ofManagement and Those Charged iith Governance for the Special Purpose Financial Statements Management is responsible for the preparation and fair presentation of the special purpose financial statements in accordance with accrual basis of accounting as described in Note 2(a), and for such internal control as management determine is necessary to enable the preparation of the special purpose financial statements that are free from material misstatement whether due to fraud or error. In preparing the special purpose financial statements, management is responsible for assessing the EIP's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the CFEP or to cease operations of EIP, or has no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Special Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose 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 special purpose financial statements. Hovbannes Petrosyan Lilit Minasyan Director Head of Audit Services PHP Partners cjsc 23 May 2019 U � • О N � •ь+ 4, ё� й •й � `"' v � .� � С� О ё� " '� :. 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N у ГJ '� � � U С1 "г3 � N � р -р � � � � � � рр о � n. о �н tл i о�ии оwиии ° с� ии �U о о• � о ° о � а, U о UU�•� U� w Е-� USD 31 December 2018 31 December 2017 ASSETS Cash and cash equivalents Designated aCCOLInt for IDA ftinds 885,388 692,098 Desig nated accOL111t fOr IBRD funds 885,388 692,098 Government financina accOLInt - - 1,770,776 1,384,196 Cumulative Project Expewliture IDA financed cumulative expenditure 5,888,717 4,286,278 IBRD financed cumulative expenditure 5,888,717 4,286,278 Government financed cumulative expenditure 2,944,357 2,143,138 14,721,791 10,715,694 Prepayments 93,332 594,815 Front end fee 37,500 -7,500 Total assets 16,623,399 12,732,205 FUNDS Projectfinancin,, IDA financing 6,748,269 5,117,238 IBRD financing 6,785,770 5,154,739 Government financing 2,929,431 2,206,909 Penalties from contracts 14,396 4,783 Total funds 16,477,866 12,483,669 Payables 148,235 247,802 Foreign exchange difference 2,702 734 Total liabilities 16,623,399 12,732,205 USD 2018 2017 Opening balance 692,098 608,914 Advance/replenishment received from IDA during the reporting period 1,631,031 2,147,215 Present outstanding amount advanced to the designated account 2,323,129 2,756,129 Closing balance carried forward to next period 885,388 692,098 Amount of eligible expenditures paid during the reporting period 1,437,741 2,064,031 Total advance 2,323,129 2,756,129 10( � г� с� `л ^ о� и и^ оо ^ о о ��� �� и о� о и оо с� и Г- м� t� � о__ гС�, с�1 м t� оо и � о оо м м и м et �- LL . оо м оо t� �-- ^ G� О G� м^ Й � � М � [� М � 01 �' О д' И О � � �-с ►� г� � м г� cv й �1 м rt cv и с� � о ¢ ¢ �о� о � о N о W � Е-� Е-+ � О '� � м ��� о� � а �, �- � � � - с ��� г� м м и t� и оо � оо t� � о и w�� ^ О� О� О� оо 00 и� О� � О м О [ � � оо и� М �L? 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О и оо I� О� � �О 01 .--� ,- оо �О � оо и � � М И 00 N и V� д' [� �-- 00 О I� �' ,� О� �О М М � [^ � ,.--� М О�О и�--� 00 U ,� � �О М О� М [� О 01 М д' l� й � О � М и 01 О Q� гп � н н � � с� с� .- о 3 �.- .- с� м о � b G � а к W ч-. о с ш Е и � й _rn о г- N М м_ �_ и_ _и t� оо ° N N N N с д� а] сд а1 а1 �q р� д0. 0.�0 с0 о 1 1 1 1 1 1 1 1 1 1 1 � ¢ ¢ ¢ ¢ ¢ � ¢ ¢ ¢ ¢ ¢ ¢ � N � � о � � N � � � � � � � G I Background (a) Organization and operations The Centre for Education Projects (CFEP) State Institution was established in 2000 under tile structure of the RoA Ministry of Education and Science. The main objective of its operation is to implement projects in tile sector of education. Tile Government of Armenia has sioned the Financin- and Loan Aureenients with the World Bank (IDA 4:' =I Credit 5387 and I13RD Loan 8342) to Support the implementation of Education Improvement Project (Project). The Project Development Objectives are to improve school readiness of children entering primary education, improve physical conditions and the availability of educational resources in upper secondary schools, and support improved quality and relevance in higher education institutions in Armenia. The Project is implemented by the CFEP, which is responsible for the general administration, ongoing coordination, implementation, and monitoring of activities under the Project. Tile CFEP is also responsible for financial management, disbursernents, accounting and accountability of Project funds, as well as for ensuring safeguards compliance, procurement of all goods, works, and services, and monitoring of the grant projects. In particular, there are two grant projects under the Project: grants to institutions for the implementation of preschool micro projects and grants to higher education institutions for tile implementation of innovative projects (CIF). The Total Project cost is about USD 37,500 thousand, from which the amount of the World Bank financing is about USD 30,000 thousand consisting of two equal parts from International Development Association (IDA) and International Bank for Reconstruction and Development (113RD). Tile co- financing provided by RoA Government is in tile amount of about USD 7,500 thousand. The Project consists of three components: " Component I - Enhancing the Quality of General Secondary Education " Subcomponent 1.1 - Promoting School Readiness and Equal Opportunities at the Start of General Education; " Subcomponent 1.2 - Enrichment of tile Upper Secondary Schools; " Subcomponent 1.3 - Improving Data Collection and the Monitoring of tile education System Performance; " Subcomponent 1.4 -Supporting Further Improvement in the Quality of Education through Curriculum Revisions; " Component 2 - Mainstreaming of the Competitive Innovation Fund (CIF) for Higher Education Institutions into full implementation " Component 3 - Project Management, Monitoring and Evaluation Oil March 1, 2018 the Ministry of Finance of the Republic of Armenia requested 24 months project extension by official request. Tile request is ftilfilled by tile World Bank and Project closing date is extended frorn September 3 )0, 2019 until September 30, 202 1. Government of tile Republic of Armenia, in general, announced cessation of activities of project implementation units and integration of their activities within the structure of governing ministries. No any formal procedures are yet undertaken by the governing ministry of CFEP, Ministry of Education and Science of the Republic of Armenia on this matter. 2 Basis of preparation (a) Statement of compliance 14 Education Improvement Project Notes to the Special Purpose Financial Statements Jbr the year ended 31 December 2018 The special purpose financial statements are prepared in accordance with the accrual basis of accounting. Under this basis, the effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the special purpose financial statements of the periods to which they relate. The special purpose project financial statements consist of: - Summary of Project Sources and Uses of Funds, - Summary of Uses of Funds by Project Activity, - Statement of Financial Position, - Statement of Designated Accounts, - Summary of SOEs. (b) Reporting currency The reporting currency of special purpose financial statements is US dollar (USD). All financial information presented in USD has been rounded to the nearest USD. 3 Significant accounting policies (a) Foreign currency transactions In the scope of the Project, disbursements are made in USD on the designated accounts of the Project. Payment of eligible and accepted expenditures (goods, services and other) are made by the CFEP out of designated accounts. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the reporting currency at the exchange rate at the date that the fair value was determined. Non-monetary items denominated in a foreign currency and measured at historical cost are translated into the reporting currency using the exchange rate specified at the date of the transaction The outstanding balances of the project account are translated to USD based on the USD exchange rate defined by the Central Bank of the Republic of Armenia as at 31 December 2018 amounts to AMD 483.75. Project expenditures are presented in USD using the USD exchange rate defined by the Central Bank of the Republic of Armenia on the transaction date. -(b) Taxes All the applicable tax liabilities are calculated and paid in accordance to tax regulations of the Republic of Armenia.