The Federal Democratic Republic of Ethiopia Audit Services Corporation INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II We have audited the accompanying financial statements of Urban Local Government Development Project II (ULGDP II) financed under IDA Credit number 54350 ET of the Federal Democratic Republic of Ethiopia, Ministry of Finance, which comprise the balance sheet as at 7 July 2019, the statement of sources and uses of funds and the designated accounts statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Responsibility for the Financial Statements The Ministry of Finance is responsible for the preparation and fair presentation of these financial statements in accordance with the Ethiopian Government's Manual of the Federal Accounting System which is based on a modified cash basis of accounting and for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks 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 entity'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 entity's internal control. An 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. S251-011-5515222 Fax 251-011-5513083 E-mail: ASC@ethionet.com E 5720 251-011-5535012 251-011-5535015 251-011-5535016 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II (continued) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Urban Local Government Development Project II (ULGDP II) financed under IDA Credit number 54350 ET as at 7 July 2019 and of its sources and uses of funds for the year then ended in accordance with the Ethiopian Government's Manual of the Federal Accounting System which is based on a modified cash basis of accounting. Reports on other requirements As required by the World Bank guidelines we report that, to the extent we can assess:- - during the period IDA funds have been used in accordance with the conditions of the relevant financing agreements and only for the purposes for which the financing were provided; - counter-part funds have been provided and used in accordance with the financing agreement and only for the purposes for which the financing was provided; - goods, works and services financed have been provided in accordance with the relevant financing agreements and disbursement letters: - all necessary supporting documents, records and accounts have been maintained in respect of all Project's activities; - the funds disbursed covered expenditure that are eligible for financing under IDA Credit No. 54350 ET; - there was a clear linkage between the books of account and the financial statements; and - our examination revealed no major weaknesses or irregularities in the system of internal controls over financial expenditure other than those mentioned in the management letter. 6 January 2020 2 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II IDA CREDIT NUMBER 54350 ET BALANCE SHEET As AT 7 July 2019 2018 Notes Birr Birr CURRENT ASSETS Advances 3 288,015,066 511,308,491 Cash and bank balances 4 538,090,608 1,800,571,703 826,105,674 2,311,880,194 CURRENT LIABILITIES Accounts payable 5 309,808,302 582,932,397 NET ASSET 1,728,947,797 FINANCED BY ACCUMULATED FUND 6 1,728,947,797 The notes on pages 7 to 10 form an integral part of these financial statements. 3 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II IDA CREDIT NUMBER 54350 ET STATEMENT OF SOURCES AND USES OF FUNDS For the YEAR 7 JULY 2019 Cumulative From Year ended 8 July 2014 Year ended 7 July 2019 To 7 July 2019 7 July 2018 Note Birr Birr Birr SOURCES Credit from IDA - 7,613,151,622 777,610,774 Contribution from Regions and cities 818,232,044 4,803,192,477 1,236,645,411 Gain on foreign exchange 29,939,606 501,525,186 352,415,665 Refund for payment made from IDA before approval of Capital Investment Plan (CIP) - 13,403,553 - 848,171,650 12,931,272,838 2.366,671,850 USES Works 1,681,785,860 10,995,581,278 3,085,528,755 Consultancy services 20,953,823 150,407,087 50,777,229 Training 348,917,883 1,279,275,099 337,418,432 2,051,657,566 12,425,263,464 3,473,724,416 (DEFICIT)/EXCESS OF FINANCING OVER EXPENDITURE (1,203,485,916) 506,009,374 (1,107,052,566) PRIOR YEAR ADJUSTMENT 7 (9,164,509) 10,287,998 13,752,578 (1.212,650,4251 516,297,372 (1,093,2999 The notes on pages 7 to 10 form an integral part of these financial statements. 4 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT il USD DESIGNATED ACCOUNT STATEMENT For the year ended 7 JULY 2019 Account number 0100101300487 Depository bank National Bank of Ethiopia Address Addis Ababa, Ethiopia Related credit IDA Credit No.54350 ET Currency USD USD Birr Beginning balance - 7 July 2018 30,447,391.27 830,805,786.63 Less: Transfer to Birr account 28,600,000.00 804,431.510.00 1,847,391.27 26,374,276.63 Gain on foreign exchange -_27,083,499.81 Ending balance -7 July 2019 1-847,391.27 53 457.776.44 The notes on pages 7 to 10 form an integral part of these financial statements. 5 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II SCHEDULE OF MOVEMENTS IN THE BIRR ACCOUNT For the year ended 7 JULY 2019 Account number 0100101040661 Depository bank ational Bank of Ethiopia Address Addis Ababa,Ethiopia Related credit IDA Credit No. 54350 ET Currency Ethiopian Birr Birr Beginning balance-7 July 2018 1,853,329 Transfer from USD Designated Account 804,431,510 806,284,839 Less: Transfer to beneficiaries Oromia 189,880,680 Amhara 171,564,137 Southern Nations, Nationalities and peoples Regional State 134,221,994 Tigray 111,937,017 Ministry of Urban Development, Housing and Construction 92,106,548 Dire Dawa 37,770,452 Somali 24,184,416 Harari 17,516,383 Gambella 8,688,666 Benshangul Gumuz 7,181,495 Afar 5,344,385 800,396,173 Bank charge 2,011,079 802,407,252 Ending balance 7 July 2019 6 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II IDA CREDIT NUMBER 54350 ET NOTES TO THE FINANCIAL STATEMENTS 1. PROJECT INFORMATION The Project was established to implement IDA Credit No. 54350 ET made between the Government of the Federal Democratic Republic of Ethiopia and the International Development Association (IDA) on 6 May 2014. The main objective of the Project is to support improved performance in the planning, delivery and sustained provision of priority municipal services and infrastructure by urban local governments. The Ministry of Finance (MoF) is the administrator of the Credit while the Ministry of Urban Development and Construction (MUDC) is the executing agency for the Project. The closing date of the Project is 31 December 2019. 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted by the Project, which are consistent with those applied in the preceding year, are stated below:- a) Basis of preparation These financial statements have been prepared in accordance with the Ethiopian Government's Manual of the Federal Accounting System which is based on a modified cash basis of accounting. b) Currency These financial statements are presented in Birr. Transactions in foreign currency are translated into Birr at the approximate rate of exchange prevailing at the date of the transaction. Cash balances denominated in foreign currencies are translated into Birr at the exchange rates ruling at the balance sheet date. 7 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT 11 IDA CREDIT NUMBER 54350 ET NOTES TO THE FINANCIAL STATEMENTS (continued) 3 ADVANCES 2018 Birr Birr Advance payment to:- Contractors 89,061,226 273,826,634 Suppliers 91,519,734 117,320,345 Co-operatives 12,304,971 30,150,097 Purchase advance to staff 2,797,781 8,084,275 Other advances within government 77,886,705 70,813,767 Others 14,444,649 11,113,373 288.015-066 511,308 491 4 CASH AND BANK BALANCES 2,018 Birr Birr USD Designated account 53,457,777 830,805,787 Ethiopian Birr Designated Account 3,877,587 1,853,329 Ministry of Urban Development and Construction 84,088,908 135,757,785 Ministry of Finance 908,008 2,256,010 142,332,280 970,672,911 Other Birr Account 395,441,128 829,456,111 Cash on hand 317,200 442,681 538.090,608E 1.800,571,70 5 ACCOUNTS PAYABLE 2,018 Birr Birr Retentions 146,698,878 213,172,862 Contractors 74,626,695 212,566,879 Other payable within government 36,607,198 46,539,034 Taxes payable 16,303,911 16,996,976 Others 35,571,620 93,656,646 3098808.302 8 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II IDA CREDIT NUMBER 54350 ET NOTES TO THE FINANCIAL STATEMENTS (continued) 6 ACCUMULATED FUND Birr Balance at 7 July 2018 1,728,947,797 Prior year adjustment (9,164,510) 1,719,783,287 Deficit of financing over expenditure 1,203.485,915 Balance at 7 July 2019 516.297 7 PRIOR PERIOD ADJUSTEMENT 2018 Birr Birr Grace period payable in excess of actual expenditure 6,382,091 3,795,637 Adjustment for overstatement of expenditures (314,284) 5,487,504 Refund for retention payable that was paid from the Project on behalf of the regular budget 1,819,016 Refund for payment of purchase of motor vehicle 645,000 Others (15,233,316) 2,005,420 (9,165a509)2_578 8 DATE OF AUTHORIZATION Channel One Programs Coordinating Directorate Director of the Ministry authorized the issue of these financial statements on 6 January 2020. 9 MINISTRY OF FINANCE URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT II IDA CREDIT NUMBER 54350 ET RECONCILIATION OF SEMI ANNUAL REPORTS DURING THE YEAR ENDED 7 JULY 2019 WITH THE YEAR ENDE STATEMENT OF SOURCES AND USES OF FUNDS AND BALANCE SHEET Cumulative 1st Semi 2nd Semi 7 July 2014 to Annual Annual July 7,2019 SOURCES Birr Birr Birr Opening Balance 7 July 2018 1,728,947,797 Prior year adjustment (9,164,509) 1,719,783,288 Regional Contribution 251,870,493 103,346,901 355,217,394 ULGs Contribution 210,761,579 252,253,071 463,014,650 Gain on foreign exchange 22,097,178 7,842,428 29,939,606 Total Sources, current 484,729,250 363,442,400 848,171,650 Total sources inluding opening 2,567,954,938 USES Program expenditures 479,978,511 1,571,679,055 2,051,657,566 EXCESS OF SOURCES OVER EXPENDITURES Cash at bank 537,773,408 Cash on hand 317,200 Advances 288,015,065 Payables (309,808,301) 516,297,372 10