REPUBLIC OF VANUATU PUBLIC WORKS DEPARTMENT FINANCIAL STATEMENTS FOR THE VANUATU INFRASTRUCTURE RECONSTRUCTION AND IMPROVEMENT PROJECT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 PREPARED UNDER IPSAS: FINANCIAL STATEMENTS REPORTING UNDER THE CASH BASIS OF ACCOUNTING 1 TABLE OF CONTENTS Page Intro d u ctio n .......................................................................................................................... 3 - 4 A u d ito r's R e p o rt .................................................................................................................... 5 - 6 Statement of Cash Receipts and Payments ........................................................................... 7 Statement of Com parison of Budget and Actual .................................................................8 Statement of Accounting Policies and Notes to the Accounts .................................... 9-18 2 INTRODUCTION The Vanuatu Infrastructure Reconstruction and Improvement Project (VIRIP) is governed by the Financing Agreement signed on 2nd August 2016 between the Government of the Republic of Vanuatu "the Recipient" and the International Development Association (World Bank) "the Association." The Association agrees to extend to the Recipient, on terms and conditions set forth or referred to in the Agreement, a grant and credit (collectively, "Financing") in the following amounts to assist in financing the project described in Schedule 1 of the Agreement ("Project"); a. An amount equivalent to Seventeen million six hundred fifty thousand Special Drawing Rights (SDR 17,650,000), ("Grant"), and b. An amount equivalent to Seventeen million six hundred fifty thousand Special Drawing Rights (SDR 17,650,000), ("Credit"). Schedule 1 of the Agreement provides the objective of the project that is to reconstruct and/or improve the disaster and climate resilience of selected public sector assets in provinces impacted by Tropical Cyclone Pam, and to provide immediate and effective response to an Eligible Crisis or Emergency. The Project consists of the following parts; * Part 1: Roads Reconstruction and Improvement * Part 2: School Reconstruction and Improvement * Part 3: Public Building Reconstruction and Improvement * Part 4: Project Implementation and Technical Support * Part 5: Contingency Emergency Response Schedule 2 of the Agreement provides for the project execution which includes institutional arrangements (Project Implementation Committee, Ministry of Infrastructure and Public Utilities, Ministry of Education and Training and project Support Team) and the relevant implementation covenants of the project (Project Operations manual, annual work plans, safeguards, procurement, M&E, financial management and audit, withdrawals of the financing, etc.) The Project Code for VIRIP registered in the Government Financial Management System (Smart-Stream) is 17B978. The first and second tranche of the financing was received in February and June 2017 totalled VT.400 million (which consist of a Grant of VT.200 million and a Credit of VT.200 million). 3 In 2019, an additional grant of VT. 634.7 million and a Credit of VT. 445.1 million was received and deposited in the project number 17B978, held with the Department of Finance and Economic Management. This makes a Total Grant/Credit of VT. 1,767.2 million. It should be noted that the project was signed on 2nd August 2016, however the setting up of the VIRIP Office was established in April 2017 with only the Project Manager/Coordinator. Therefore, the costs incurred starts from April to December 2017. However, because of low capacity during the inception of the Office and absence of the tools and covenants of the project implementation, the main output was getting the covenants in place associated with some design/supervision of two road projects on Tanna and two culverts projects on Malekula that were approved by the World Bank. During the early stage of VIRIP operations, the main cost was attributed by Consultant costs under Part 4 (Project Implementation and Technical Support). The actual expenditure against the budget is low due to its infant stage. This report was put together by the Project Support Team (PST) with the assistance of the Finance Section of the Department of Public Works. %kU C TUjyt PMB 9057 < PORT V.A VANUATU TEL:2279033470 r 0 DIRECTOR GENRAL -) Harrison LUEN Director General Ministry of Infrastructure a bk es I? June 2020 4 law ParLners CIARTERLD ACCOUN TAN IS AND BUSINLSS ADVISERS Independent Auditors' Report to the members of Vanuatu Infrastructure Reconstruction and im provement Project The Auditor-General is the auditor of all public funds. The Auditor-General has appointed Law Partners as auditor pursuant to Section 24(1) of the Expenditure Review and Audit Act [CAP 241]. Audit Opinion We have audited the accompanying financial statements of the Vanuatu Infrastructure Reconstruction and Improvement Project for the year ended 31 December 2019 consisting of the statement of cash receipts and payments, statement of comparison of budget and actual amounts and accompanying notes set out on pages 7 to 18. In our opinion the financial statements present fairly in all material respects the cash receipts and payments and cash flow of the Project for the year ended 31 December 2018, in accordance with International Public Sector Accounting Standards - Financial Reporting under Cash Basis of Accounting and the project administration complies with relevant Vanuatu legislation and regulations. Basis for Opinion We have conducted our audit in accordance with International Standards on Auditing. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor's responsibilitiesfbr the audit of the Financial Report section of our report. We are independent of the company in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial statements in Vanuatu. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Responsibilities of members for the financial statements The members of the project are responsible for * the preparation and fair presentation of these financial statements and the information they contain, in accordance with International Public Sector Accounting Standards: Financial Reporting under Cash Basis of Accounting; * implementing necessary internal controls to enable the preparation of the financial statements that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and * assessing the project's ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to cease operations or have no realistic alternatives but to do so. TEL +678 2209 I maFlfdlawpartnersvanuatu.com PRINCIPALS LAW PARTNPRS HOUSE JONATHAN LAW PO BOX 212 w law partnersvanuatu.com VICKI JOE PORT VILA I VANUATU law partners Independent Auditors' Report to the members of the Vanuatu Infrastructure Reconstruction and Improvement Project (continued) Auditors' responsibilities for the audit of the financial statements Our objective is: * 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 International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. A further description of our responsibilities for the audit of the financial statements is located at the website https://www.ifac.org/system/files/publications/files/ISA-700- Revised_3.pdf This description forms part of our auditor's report. 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Reporting Entity The Financing Agreement recognise the Recipient's Representative as the Minister of Finance and Economic Management and the Ministry of Infrastructure and Public Utilities (MIPU) as the Executing Agency of VIRIP. The project is funded entirely by the International Development Association through the World Bank and implemented by the Department of Public Works, under MIPU. The total project in SDR is 17,650,000 (Credit) and SDR 17,650,000 (Grant) which is equivalent to VUV5,000,000,000 for the project timeframe of 5 Years. The Project Support Team (PST) in support by MIPU, Ministry of Education and the Project Implementation Committee (PIC) agreed with the World Bank the Selection Criteria under the Project Operational Manual on which a project can be selected. PST and MIPU have worked hard to have a robust system whereby due diligence assessment to accompanied the checks and balances before it expedites funds from the Project Funds under 1713978. The following have been agreed between the Government of Vanuatu and the World Bank; i. The Financing "Revenue" will be deposited in Designated Account with the Reserve Bank of Vanuatu and a Project CODE provided by DSPPAC and fund is managed by the Ministry of Finance and Economic Management through the Department of Treasury and Finance and using the Smart-stream finance system. ii. Procurement Rules, the Council of Ministers agreed in December 2017 that major project would have to utilise the World Bank Procurement Systems, however the PST and the MIPU would have to ensure that the Central Tender Board and the Legal Entities are informed of the rules and understanding prevail between the parties. iii. The Government Legislations and regulations must be observed by the PST and the MIPU in relation to purchases and other issues under VIRIP. iv. Interim unaudited Report will be provided on a Quarterly Basis and followed with a Semester Report in conjunction with the Public Finance and Economic Management (PFEM) Act would be provided to the World Bank. In 2017, Vt. 400 million was receipted for associated parts of the project, Vt.287.4 million was receipted in 2018 and Vt.1,079.8 million in 2019. 9 b. Authorisation Date The Financial Statements for VIRIP are for the year ended 31 December 2019, and were approved by the Harrison Luen, Director General, Ministry of Infrastructure and Public Utilities on /Z va . No other body has the power to amend these financial statements once they have been issued. c. Basis of Preparation The financial statements of VIRIP Accounts have been prepared in accordance with the requirements of the Public Finance and Economic Management Act (CAP 244) which includes the requirements to comply with the generally accepted accounting principles and practices. The financial statements comply with IPSAS Cash "Financial Reporting under the Cash Basis of Accounting" for the year starting 1st January 2019 to 31st December 2019. d. Presentation Currency The financial statements are presented in local currency VATU. e. Foreign Currency All drawdowns are made in Special Drawing Rights (SDR) and deposited in the Designated Account in US Dollar Account with the Reserve Bank of Vanuatu (RBV). The conversion from the USD to the VATU is made by the RBV. Transactions and payments for service contracts and works contracts are denominated in Foreign currency particularly US Dollar however for the purpose of this report, all are presented in local currency, VATU. The converted FX Rate is determined by the National Bank of Vanuatu where all foreign currency is transacted or transferred. f. Cash and Cash Equivalents The VIRIP Grants/Credit are released on tranches and based on needs of the VIRIP and more importantly the project procurement plan. The process of drawdowns will be done by the PST via the World Bank Client Connection and approval by the Ministry of Finance and Economic Management. Through the process, the World Bank will release the tranche via the RBV, Designated Account. The funds are managed through the Government Centralised smart-stream financial system. The Project Support Team (PST) and Public Works Department (PWD) Finance Section will ensure that suppliers, service contracts and work contracts are paid through the process of purchasing request form by the PST, followed with a local purchase order raised by the PWD Finance Section and signed off by the authorised personnel in the Department of Public Works. These transactions have been disclosed in a separate column in the "Statement of Cash Receipts and Payments." 10 g. Property, Plant and Equipment Purchase of fixed assets have been included in the Statement of Cash Receipts and Payments under the Incremental Operating Costs of the Project Implementation and Technical Support. The fixed assets include the photocopy machine and printer, shredder machine, cabinet boxes and safety box. At the moment, the PST hired two vehicles one from World Car Rentals and the other from Europ Car and this is shown under the Project Vehicle. Insurance and depreciation charged are included in the monthly hire fee. The third vehicle is hired from World Car Rentals for the Disaster Framework Technical Adviser (TA) on an intermittently basis. h. Budget The budget is prepared on a cash basis when cash is expected to be received and expedited. The classification of the budget is prepared on the common revenue sources and expenditures are classified on the nature of expenditures normally incurred by VIRIP and PST. Capital Expenditure is treated as part of the normal operational expenditure and mainly for major infrastructure like improvement of roads, schools and Public Buildings. The Original Budget is the budget indicated in the Financing Agreement and the Project Appraisal Document (PAD). The Final Budget will be determined bythe Exchange Rate and the SDR at any point in time when the drawdown is requested, approved and released to the Designated Account. The fiscal Year Budget is determined by the Tranches or revenue received and deposited in the Designated Account at the Reserve Bank. For example, in 2019 a grant budget of VT. 634.7 million was received and is distributed against the different Parts of VIRIP, Part 1: Roads, Part 2: Schools, Part 3: Public Buildings and Part 4: Project Implementation and Technical Support. The Closing balance as at 31st December 2019 fiscal year stood at Vt.220.9 million. The approved budget is developed on the same accounting basis, classification basis, and for the same year as the financial statements. i. Change in Accounting Policies There are no changes in the accounting policies during the financial year. 2. DONOR GRANT ASSISTANCE The main donor of VIRIP is the World Bank. This is shown in the "Recepts and Payments centrally controlled column in the Statement of Cash Receipts and Payments. The value of this payment is determined by the amount paid by the World Bank, SDR and US Dollar and then converted to the local currency VATU at a spot rate determined by the Reserve Bank of Vanuatu on the date of the transaction (as advised by the World Bank). 11 Tranche Grant (VT Tranche Credit (VT Total Grant/Credit million) million) (Financing VT. Million) Budget Available as at 31st December 2018 203.7 Withdrawals in 2019 634.7 445.1 1,079.8 Total Revenue / Budget 2018 634.7 445.1 1,284 3a, 3c: PROJECT IMPLEMENTATION AND TECHNICAL SUPPORT VIRIP structure has four permanent staff that includes the Project Manager/Coordinator, the Procurement Specialist, Safeguard specialist and the Project Accountant. All staff employed are contracted for VIRIP related activities is made by the Minister, Ministry of Infrastructure and Public Utilities. The permanent staff including the M&E and the Contracts Manager are paid from the Project Implementation or PST budget. There are other staff engaged on short term assignments including the Safeguard Officer, Asbestos Specialist and Land Registration Officer attached with the Department of Education and are paid by Part 1 (Roads) and Part 2 (Schools) respectively. R-epts/Pavinents Receipts/Payments I ReceintP-ayment. 2019 Actual (VT million) Restated 2018 Actual (VT Restated 2017 Actual _million) JVT million) TOTAL CASH PAYMENTS Project Support Team fPST) Personnel eapenses Lswr a-T e r (7-1-Maaur oodnao 28.0 27.5 2 lairs Haggarty Safeguard Specialist 25.7 23.6 19.3 Emile Leau Pracure-ent Specialist(S) - 34 Ian Gormilie Procurement Specialist 2 220 25 7 Ty Morrissey M & E Specialist _ 5.1 3-1 4.2 Paul Thompson Contracts Manager 26.3 5.3 Join Coi,vick Project Accountant 5.4 5.41. LiMoCrris Junior Accountant _ ___ 1.1 O___05 _______ Odile Sire Por ent Off-ier 26 1.3 Jennifer Cavill Graphic Desigoer 1.6 Phil Hu,nt Pavement Specialist 03 Accrued Cost for PST -11.8 10.7 Project implementation and Technlcal Support 118.6 80.6 59.6 Pete; Nigel Fisher Dsaasr Re yorp Framewor Specialist 0 1 12.4 Mark B.be National Team Coordinator, NORF 0.3 Technical Support and Capaclty Building 10.4 124 Total PoJict Imnpleme ntation Tehnical Support and Cepoty Building s9 93-0 sn.6 12 匯一一口下1丁口丁T下口丁下下日不下下阿丁啊丁。 潔州 鮮 4A,4AA, 4AAA: CAPITAL EXPENDITURE Total 2019 (VT million) Restated Tntal 2018 Restated Total 2017 (VT million) (VT million) Capital Expenditure Roads 473.6 2683 Physical Works 473.6 268.3 0.9 Capital Expenditure -Schools 178 8 - 4-4 PhVsical Works 178A 4.4 capital Expenditure -Public Buildings 117.8 Phycical Works _ 11TR_ - ,Total Capital Expenditures 770.2 2683 5.3 4B,4BB,4BBB: DESIGN AND SUPERVISION Total 2019 (VT million) !Restated Total 2018 Restated Total 2017 (VT (VT million) million) Capital Expenditure - Roads 85.2 23.7 Design and Supervision 85.2 23.7 - Capital Expenditure -Schools 31.7 3.2 3.8 Design and Supervision 31.7 3,2 3.8 Capital Expenditure -Public Buildings 33.5 13.2 Design and Supervision 33.5 13.2 - Total Capital Expenditures 150.40 40.1 3.8 5. CLOSING BALANCE Closing Cash Balance 2019 Year to Date (VT million) Restated 2018 Year Restated 2017 - Project to Date (VT million) to Date (VT million) Designated Account - RBV 220.9 203.7 329.4 Designated Account - MFEM counterpart ACCOUnt - GOV ash-4alance Closing C 220.9 203.7 329.4 N.te: ThTs do i,g Uan e is as at 3ht D-,. i. i 2G1 I The 2019 closing balance was Vt.220.9 million. 14 6. BUDGET As shown in the Table above, Column 2 shows the Grant Budget for 2019, and Column 3, shows the Budget for the Grant 2019 Fiscal Year by allocating the budget into Three Parts - Part 1 (Roads), Part 2 (Schools) and Part 4 (Project Implementation and Technical Support). Column 4 shows the Balance for Fiscal Year 2019. Grant - MFEM 634.7 634,7 Credit - MFEM 445.1 445.1 WB Funds 1,o7.8 1,079.1 Part 1: Roads Reconstruction and Improvement 524.3 524.3 562.0 37.7 1.1) Road Sector Assets 524.3 473.6 50.7 1.2) Design and Supervision as5.2 - 8s.2 1.3) Incremental Operating Cost 3.2 3.2 Part 2: Schools Reconstruction and Improvement 259.0 259.0 210.9 48.1 2.1) Schools /a 259.0 178.8 80.2 2.2) Design & Supervision - 31.7 31.7 2.3) Incremental Operating Cost 0.4 0, Part 3: Public Buildings Reconstruction and Improvement 160.0 160.0 151.8 8.2 3.1) Public Buildings /b 160.0 117.8 42.2 3.2) Design & Supervision - 33.5 33.5, 3.3) Incremental Operating Cost o Part 4: Project Implementation & Technical Support 136.4 136.4 137.9 - 1.5 4.1 Project Implementation 1364 137.9 15 4.1.1) Project Staff / c 112.6 118.6 6.0 4.1.2) Project Vehicles / d 3.1 3.1 - 4.1.3) Project Operating Cost / e 5.0 5.1 0.1 4.1.4) Annual Project Audits 0.7 0.7 - 4.1.5) Technical Support 15.o 10.4 4.6 Category 5: Contingency Emergency Response - Total 1'G79.7________ 1,079.7 ___L? ,052.6 17.1 a. REVENUE VARIANCE BETWEEN BUDGET AND ACTUAL The VIRIP budget is held at the Designated Account with the Reserve Bank of Vanuatu. In order to expedite funds for the purpose of project implementation, MIPU have to transfer the funds with the Assistance of the Department of Strategic Policy, Planning and Aid Coordination (DSPPAC) and with the provision of Development Code to be established with the Department of Treasury and Finance. The Grant (VT. 634.7 million) and Credit (VT.445.1 million) in 2019 have been received and deposited at the Designated Account at the RBV and later transferred to the Project Code 17B978 with the Department of Treasury and Finance. 15 When the other tranches are received, similar process will be followed. To date, the total Revenue (grant and credit) received was VT. 1,767.2 million, that is Vt.400 million was receipted in 2017, Vt.287.4 million was receipted in 2018 and VT. 1,079.8 million in 2019, respectively. It is important to note that there is no variance in the revenue budget because inflows (revenue) is positive relative to the Outflows (expenditures). b. EXPENDITURE VARIANCE BETWEEN BUDGET AND ACTUAL In 2019 the project has leaped forward in terms of implementation as reflected in the actual expenditures for the financial year stood at Vt. 1,062.6 million. This is a testimony for improved output of the project. It should be noted that duringthe period there was an overspent in the budget under Part 4 (Project Implementation and Technical Support) and Part 3 (Public Buildings) because the grant budget was allocated more to Part 1 (roads) and Part 2 (schools) due to works implementation. However, it is also important to note that even though the distribution of the budget by parts is more to works, however the overall 2019 budget was underspent. Moreover, there was no withdrawals for the month of October 2019 which was overlooked. However, there were withdrawals for; * November, received in December, 2019. * December, received in Quarter 1, 2020. The withdrawal application for expenditures made in October 2019 was lodged in January 2020. There are journals that were approved by the Director, Public Works Department for expenditures from VIRIP to Public Works Department (See Table below). These were expenditures incurred by VIRIP and journal back to Public Works Department for expenditures made for Loltong Road improvement, North Pentecost that reached Vt. 10,813,529. However, the Public Works Department have reimbursed VIRIP with an amount exceeding the expense to Vt. 11,791,445. Therefore, before the audit is done for 2019, expenditures have to be corrected so the expenditures made for Loltong Road improvement had to be journal back to Public Works Department. The total value of journal made on 23 March 2020 was Vt.11,791,445 as follows; * Vt.10,813,529 for expenditures made for Loltong Road improvement. * Vt.977,916 for over reimbursement to VIRIP by Public Works Department. In the previous two years, actual expenditures stood at Vt.413.1 million and Vt.70.5 million, respectively. 16 � � L. ',�� И � � .� г.. ®� .- � = -._ J[ с е, г.. ё � _ с F r; 7у r- - а У- i� ✓ � � с °� с г �� �, с п �о _ У . � , а � � � й � � _ Г ; Т � с? с+ г� с_ :а с .� � � L Ус i� У. �� Г. �:._ г._ - . ГуΡ 6'С - УС Г С+ г F � 4 � «� . [ � -, L �c /i \ g Ч ш W ш, ш w w W 4 w � w ш а С. W С. W С. F� С� С W L '11 0. Ш W � й л а�о vr� й й й г�А +�` . .� i.. У. . . . i, У.. У� г... � с� с `s� с � с. с ,л лу �t � � а7 i! Я � 71 � � .-. «. � � _ _ _ � � J r "fь�i б Н а` о 4 о о в oI о о О т l F� [� �' f� F� ,� !� � ь� � г r � r r ✓ ✓ � r з z ы � � � s 4 � д � � � Ю � � � � � И � U � и а � � п, г �г �г г п� -� п �. �G �. �G r п п 2 п; г 1Jч ttJ, G. fL !4 1J4 Ш cJL R � 14 14 � 0.J� i. L', � f�3+) � f,Ll �JL k 4 4 'L'�i `У J 4 .`1. Ч � -�i � 4 � `J G Ч Lн � i г л > i л r, �, r r, i� r, i i i г л л `r. � У"1 И {� И "'� И "'1 W i"� G И � Л U V �.� (� � г� � гi Й f�i Й п й Й R' <ь й . G С С У= г, Г, Г Г и Г, Л1 И И И Г1 R У S1 Т Г1 1 Г1 Т 1 •Г Гь -f Г, У С1 У г.1 . гУ V 1 -{ а � � �' в1 � � � � � r � � � р Q � � � С � k ц- ё � i' с+ С й -�,{ ' гi г'� г'i S S Э���. �. 'У 3 � � � � °J � Ys F. � �� % ! t -' i r r� л � �� � ГУ Cl и . � � .с�. � п � f С.Г, 4 у ! i� .Г'г ь, С `" .� гУ ri ь г^... Г 1 � 6 0�� г'У гrе # S У �i i 2 Q "' ч о 0 � н .� У�� [ А�. : � +� 4` � � и � н � � � � � � � "' � Э ПS ,о д Б о� а .б1 ,n ё � U� о й � �' ,о о ,� г � - � � .,. F.. с. « « с: а .. �.. г г i- � � � < Т Е - ! .г, ,. � � � � й� й и о а СУ о S Е ! : � Е Ё '� � � : � � U : 1Ij � � � С. F С. i С. С.� С� а ё. С W н 0.. С. с. J J 5. RELATED PARTIES There are no related party transactions as at 31 December 2019. The procurement tender is managed and supervised by the Procurement Specialist / VIRIP Team and the Project Implementing Committee (PIC). Furthermore, the World Bank will have to approve the Project Proposals (AP) with the associated assessment and documents before an activity is tendered openly. 6. IMPREST There is no imprest outstanding. 7. CREDITORS AND PAYABLES There are no outstanding payables as at 31 December 2019. 8. STATEMENT OF COMMITMENTS During the year ended 31 December 2019, VIRIP has signed contracts with service contractors and works contractors. These contracts were extended beyond the balance date as outlined below: Contractual Commitments (VT. million) Due not later than I year 920.2 Total 920.2 9. DEBTORS AND RECEIVABLES There are no outstanding debtors as at 31 December 2019. 18