AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENTS OF PUBLIC FINANCIAL MANAGEMENT REFORM AND PUBLIC SECTOR MODERNISATION PROJECT - MINISTRY OF FINANCE FOR THE YEAR ENDED 31 MARCH 2020 AUDITOR GENERAL P.O. BOX 502 MASERU 100 LESOTHO GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 Table of Contents 1. PRO JECT IN FO RM AT IO N .......1C ............................................... ..... . .................................................................... 2 2. STATEM ENT OF PROJECT M ANAGEM ENT RESPONSIBILITIES ....................................................................................... 6 3. REPORT OF THE INDEPENDENT AUDITORS ON THEPFM R .......................................................................................... 7 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 31 MARCH 2020............................................. 11 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 31ST MARCH 2020......................................................... 12 6. STATEM ENT OF CASH FLOW FOR THE PERIOD 31ST MARCH 2020 ............................................................................. 13 7. STATEMENT OF COMPARATIVE EXPENDITURE BUDGET AND ACTUAL AMOUNTS.................................................... 14 8, NOTES TO THE FINANCIAL STATEM ENTS.................................................................................................................... 15 9 . P EN D IN G B IL LS ................................... ......................................................................................................................... 2 2 711 III GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 1.PROJECT INFORMATION 1.1.Name and registered office Name: The project's official name is the Public Financial Management Reform Project and Public Sector Modernisation Project. Objective: The key objective of the project is to support the implementation of both civil service and public financial management reforms. Address: 3rd floor Finance House Government Complex Maseru Lesotho Contacts: Tsolo Maoeng (Mr.) Project Coordinator Monitoring & Evaluation, & Quality Control Tel: (+266) 28324748 /28328974 Fax: (+266) 22310281 - 1.2.Project information Project Start Date: The PSM project started date May 2016, PFMR project started in April 2014 Project End Date: The project end date is November 2021 Project Manager. Mr Tsolo Maoeng 1.3. Project Overview Department of the project The project is under the supervision of the Government of Lesotho, Ministry of Finance, Planning Unit. 2 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 Project background and The Public Financial Management (PFMR) Secretariat was set up within the Ministry of strategic goals Finance under the Planning Unit to support the coordination and reform across a wide range of the stakeholders/components and ensure that harmony amongst different components is maintained. Underpinning the reform priorities adopted by government in the Public Financial Management information, budget execution and financial accountability, the Government of Lesotho is supported by the African Development Bank (ADB), World Bank (WB), and European Union. To improve the quality and timeliness of public financial management, the EU drew the Reform Action Plan (PFMRAP) (2012- 2017/18) to implement the Public Financial Management Reforms across eight (8) Components with leaders nominated for each department and agency involved in the reform project. The PFMR Secretariat support these two key projects: A.Public Sector Modernisation Project (PSM) _ USD 10m This is a World Bank funded project which was approved in May 2016/17 and involves four components: i) Strategic Planning and Fiscal Management; ii) r7- Strengthening the Human Resources Management; iii) Improving Statistical Capacity and iv) Strategic Implementation Support. For purposes of these Financial Statements, the project is treated as component 9 following the order of the components 1-8 under the PFM Reform Project. B.The Public Financial Management Reform Project (PFM) The PFM Reform process is supported by three Development Partners as follows: I.The World Bank - USD 5.5m which covers: -Component 5 - Accounting and Fiscal Reporting fully compliant with the regulatory framework and accounting standards. The PFM World Bank support was concluded in June 2019. 2.The African Development Bank - USD 3.8m which covers: -Component 4 - The internal control Framework is strengthened to ensure operational efficiency and effectiveness. -Component 6 - Public Procurement aligns with International best practice in 3 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 efficiency and transparency, -Component 7 - External Audit and Parliamentary oversight and scrutiny activities are compliant with INTOSAI standards and best practices. -Component 8 - Governance and institutional Management of PFM Reforms improved to facilitate ownership, monitoring and evaluation of progress. 3.The European Union The support from EU was in the form of Financial and Technical Assistance managed by the EU, and covered the following components, EU support was concluded in June 2018: -Component 1- PFM Regulatory Framework updated to underpin PFM Reforms. -Component 2 - Transparency and effectiveness of policy orientation of the budget assured. -Component 3 - Cash flow forecasts a major determinant of internal debt and financial Investment. The support arrangement under this component involves direct funding of the IMF Technical Assistance by the EU. -Component 8 - Governance and institutional management of PFM Reforms improved to facilitate ownership, monitoring and evaluation of progress. Current situation that the The project was formed to support the coordination across a wide range of stakeholders project was formed to to ensure that harmony is maintained in the following areas: manage (i)Public Sector Modernisation Project (PSM); and (ii)The Public Financial Management Reform Project (PFM) Project duration The PSM project started on 25 May 2016 and is expected to be completed in November 2021. The PFM project was started in May 2014 and is expected to be completed in November 2021 1.4.Bankers The following are the bankers for the current financial year: 1. Central Bank of Lesotho 2. Standard Bank of Lesotho 3.First National Bank Lesotho 1.5. Auditors The project is audited by the Office of the Auditor General 4 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 1.6.Funding summary The Project is multi funded, below is the summary of key funders for both projects: *Public Sector Modernisation; and *Public Financial Management Reform The Public Financial Management Reform Secretariat (PFMRS) maintains accounts in respect of funding provided by donors: ADB, IDA and EU). Source of funds Donor Commitment Donor currency (i) Grant Grant from The African Development Bank US$ 3.8 Million Funds from The World Bank (IFMS) US$ 5,5 Million Funds from The World Bank (PSMP) US$ 10 Million Funds from The European Union Note 1 (ii) Counterpart funds Government of Lesotho Note 2 Note 1: The European Union support was in the form of Financial and Technical Assistance managed by the EU. Note 2: The Government of Lesotho commitment is in the form of Institutional Support including payment of project related salaries and related costs, and taxation to the government authorities. 5 7n GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Director for the Planning Unit in the Ministry of Finance and the Project Coordinator for the PFMR Secretariat are responsible for the preparation and presentation of the Project's financial statements, which give a true and fair view of the state of affairs of the Project for and as at the end of the financial year (period) ended on March 31, 2020. This responsibility includes: (i) maintaining adequate financial management arrangement and ensuring that these continue to be effective throughout the reporting period; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Project; (iii) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statement, and ensuring that they are free from material misstatements, whether due to error or fraud; (iv) safeguarding the assets of the Project; (v) selecting and applying appropriate accounting policies; and (vi) making accounting estimates that are reasonable in the circumstances. The Director for the Planning Unit in the Ministry of Finance and the Project Coordinator for the PFMR Secretariat accept responsibility for the Project's financial statements, which have been prepared on the Cash Basis Method of Financial Reporting, using appropriate accounting policies in accordance with International Public Sector Accounting Standards. The Director for the Planning Unit in the Ministry of Finance and the Project Coordinator for the PFMR Secretariat are of the opinion that the Project's financial statements give a true and fair view of the state of Project's transactions during the financial year/period ended 31" March, 2020 , and of the Project's financial position as at that date. Director for the Planning Unit in the Ministry of Finance and the Project Coordinator for the PFMR Secretariat further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project financial statements as well as the adequacy of the systems of internal financial control. Director for the Planning Unit in the Ministry of Finance and the Project Coordinator for the PFMR Secretariat confirm that the Project has complied fully with applicable Government Regulations and the terms of external financing covenants, and that Project funds received during the financial year/period under audit were used for the eligible purposes for which they were intended and were properly accounted for. Approval of the Project financial statements The Project financial statements were approved by the Director for the Planning Unit in the Ministry of Finance and the Project Coordin tor for the PFMR Secretariat on 2020 and signed by them. PROJE COORDINATOR (a.i) DIRECTOR-PLANNING UNIT MINISTRY OF FINANCE MINISTRY OF FINANCE 6 OFFIC OF THEt AUJD TOR - GENERAL P.O. BOX 502 IVASE 100 AUDIT REPORT ON THE FINANCIAL STATEMENTS OF PUBLIC FINANCIAL MANAGEMENT REFORM AND PUBLIC SECTOR MODERNISATION PROJECT - MINISTRY OF FINANCE FOR THE YEAR ENDED 31 MARCH 2020 Opinion JEO & Associates, under section 24 (1) of the Audit Act have audited the financial statements of Public Financial Management Reform and Public Sector Modernisation Project ("Project") set out on pages 11 to 27, which comprise the statement of Cash Receipts and Payments as at 31 March 2020, and other related statements for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In my opinion, the accompanying financial statements present fairly, in all material respects, the financial performance and cash flows of the Project for the year ended 31 March 2020, in accordance with International Public Sector Accounting Standards (IPSASs). Basis for Opinion I conducted my audit in accordance with International Standards on Auditing (ISA). My responsibilities under those standards are further described in the Auditor's Responsibilities for independent of the Organisation in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to audit of the financial statements in Lesotho, and I have fulfilled my other ethical responsibilities in accordance with these requirements and the IESBA Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Key Audit Matters Key audit matters are those matters that, in my professional judgment, were of most significance in my audit of the financial statements of the 4th floor* Finance House * High Court Road * Maseru Lesotho idephone (-266) 22323904/22314247* Fax (+266) 22310366 There were no key matters identified during the course of audit. 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 IPSASs, 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. In preparing the financial statements, management is responsible for assessing the Project'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 Project or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements My 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 audit report that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA 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 ISA, I exercise professional judgment and maintain professional skepticism throughout the audit. I 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 my 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 Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my audit report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my audit report. However, future events or conditions may cause the Project to cease to continue as a going concern. * 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. I 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 I identify during my audit. I also provide those charged with governance with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. r7 From the matters communicated with those charged with governance, I determine those matters that were of most significance in the audit of the iF7 financial statements of the current period and are therefore the key audit matters. I describe these matters in my audit report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. OFFIcE OF THE AUDITORGENEhXAL _______________________AUDITOR GENERAL] MONICA M. BESETSA (MS) 9EP 2020 ACTING AUDITOR-GENERAL P BOX PO. BOX 502 NASERU7 D, LsOTHO 00 LSOH 7 7 77 71, GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 4.STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 31 MARCH 2020 Note 2020 2019 Cumulative LSL LSL LSL RECEIPTS Transfer from Government of Lesotho 8.2 6 064 401 7 786 621 23 608 922 Proceeds from domestic and foreign grants 8.3 64 275 858 64 600 771 195 337 534 Miscellaneous receipts 8.4 51984 7146 59 130 Total receipts 70392243 72394538 219005586 7 PAYMENTS Compensation of employees 8.5 6 477 287 8 673 740 35 291 340 Purchase of goods 8.6 9 581048 13513831 35 345 153 Purchase of services 8.7 58145972 41302342 136 346 343 Payment for other operating costs 8.8 1794 798 1267 432 8 785 094 Payment for works 8.9 - 352 735 842 735 Transfers to funder 8.10 1 323 380 2067826 3 224 007 TOTAL PAYMENTS 77 322 484 67177906 219834672 7 Foreign gains/losses 8.11 1 765 659 398 724 INCREASE/(DECREASE) IN CASH (5 164 583) 5 615 357 Cash Balance at beginning of the year 10562543 4947186 Increase/(decrease) in cash during the year (5 164 583) 5 615 357 Cash at end of the year 8.12 5 397 96 10562543 The accounting policies and explanatory notes to these financial statements are an integral part of the financial statements. 71 r71 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 4.STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 31ST MARCH 2020 Note 2020 2019 LSL LSL Cash and cash equivalents b/fwd 10 562 543 4 947 186 Total Receipts 70392243 72394538 Total Payments (77 322 484) (67 177 906) Foreign Exchange Difference 1765 659 398 724 NET FINANCIAL POSITION 5 397 960 10562 543 Note 2020 2019 REPRESENTED BY: LSL LSL Bank Balances 8.12 5397960 10562543 TOTAL FINANCIAL ASSETS 5 397 960 10 562 543 71 12 GOVERNMENT OF LESOTHO 71 MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 6.STATEMENT OF CASHFLOW FOR THE PERIOD 31ST MARCH 2020 2020 2019 LSL LSL CASHFLOW FROM OPERATING ACTIVITIES Receipts for operating income Transfer from Government of Lesotho 6064401 7786621 Proceeds from domestic and foreign grants 64 275 858 64 600 771 Miscellaneous receipts 51984 7146 Payments for operating expenses Compensation of employees 6477287 8673740 Purchase of services 58145972 41302342 Payment for other operating costs 1794798 1267432 Payment for works - 352 735 Transfers to funder 1323380 2067826 Net cash flow from operating activities 2650807 18730464 CASHIFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 9581048 13513831 Net cash flows from Investing Activities 9581048 13513831 CASHFLOW FROM BORROWING ACTIVITIES Foreign gains/losses 1 765 659 398 724 Net cash flow from financing activities 1765659 398724 NET INCREASE IN CASH AND CASH EQUIVALENT (5 164 583) 5 615 357 Cash and cash equivalent at BEGINNING of the year 10562543 4947186 Cash and cash equivalent at END of the year 5 397 960 10 562 543 13 7 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 7.STATEMENT OF COMPARATIVE EXPENDITURE BUDGET AND ACTUAL AMOUNTS Budget per Component Approved Budget Actual Expenditure Budget Utilisation % of Utilisation Variance Variance to 7n Budget Component 4 3 647 584 2 172 227 (1475 357) -40% Component 5 32 128 948 26 288 584 (5 840 364) -18% Component 6 6 741720 3 972 789 (2 768 931) -41% Component 7 4 451 820 1463 996 (2 987 824) -67% Component 8 10 650 935 7 815 193 (2 835 742) -27% Component 9 39 243 988 34 286 315 (4 957 672) -13% Total 96 864 994 75 999 105 (20 865 890) -22% Transferred to funder 1323 380 1323 380 - 98 188 374 77 322 484 (20 865 890) -21% Ffl Cost per nature Approved Budget Actual Expenditure Budget Utilisation % of Utilisation Variance Variance to Budget Purchase of goods 17 957 558 9 581048 (8 376 510) -47% Purchase of services 68016980 58 145 972 (9871009) -15% Payment for other operating 2 221269 1794 798 (426 471) -19% costs Compensation of employees 8669 187 6477287 (2191900) -25% 96 864 994 75 999 105 (20 865 890) -22% Transferred to funder 1323380 1323380 98 188 374 77 322 484 (20 865 890) -21% Note: The period of the Approved Budget for all donors is from 1st April 2019 to 31st March 2020 and the budget is classified in accordance with the expenditure components and categories. The significant budget utilisation/performance differences in the last column are explained in Annexure 1. 14 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 8.NOTES TO THE FINANCIAL STATEMENTS The principal accounting policies adopted in the preparation of these financial statements are set out below: 8.1 Statement of compliance and basis of preparation The financial statements have been prepared in accordance with and comply with International Public Sector F" Accounting Standards (IPSAS) - Cash Basis. The standard provides that when an entity adopts cash basis IPSAS for the first time, the reporting entity is provided with a transitional provision of up to two years' period from the effective date of adoption, to adopt all its accounting policies. The Secretariat adopted the cash basis IPSAS on 1" April 2017, The financial statements are presented in Lesotho Loti, which is the functional and reporting currency of the Project and all values are rounded to the nearest one Maloti. In order to satisfy the reporting requirements of the donors some transaction may be reported in foreign currencies. The accounting policies adopted have been consistently applied to all of the years presented. The financial statements have been prepared on the cash basis following the Government's standard chart of accounts. The cash basis of accounting recognises transactions and events only when cash is received or paid out 7 by the Project. i. Recognition of income and expenses The Project recognises all income from the various sources when the event occurs and the related cash has actually been received by the Project. In addition, the Project recognises all expenses when the event occurs and the related cash has actually been paid out by the Project. ii. In-kind donations In-kind donations are contributions made to the Project in the form of actual goods and/or services rather than in money or cash terms. These donations may include vehicles, equipment or personnel services. Where the financial value of in-kind donations can be reliably determined, the Project includes such value in the statement of receipts and payments both as revenue and as an expense in equal and opposite amounts; otherwise, the donation is not recorded. 15 71 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 ill. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank. Bank account balances include amounts held at the Central Bank of Lesotho and at various commercial banks at the end of the financial year/period. For the purposes of these financial statements, cash and cash equivalents also include short term cash imprests and advances to authorised public officers and/or institutions which had not been surrendered or accounted for at the end of the financial year/period. iv. Banking arrangements The Accountant-General authorizes the opening and use of a Designated Account (as part of the GOL Development Fund), denominated in United States Dollars (US$) and Euro, at the Central Bank of Lesotho (CBL) to receive the funds from IDA and AD, respectively, Local project expenditures are paid from a designated commercial bank account. Foreign currency project expenditures are paid directly from the Designated Account at the CBL. Funds flow arrangements Upon effectiveness of the financing agreement and submission of a withdrawal application, the Bank disburses an initial amount not exceeding US$ 200,000 based on the work plan for three months. Subsequent disbursements are made on the basis of withdrawal applications and Statements of Expenditures. Other Project Disbursement methods Direct Payments a)The Direct Payment disbursement method, involves direct payments from the loan/grant account on behalf of the Project to the suppliers of goods and services that have a value above a set threshold; and b)The Reimbursement disbursement method, whereby the government/donor makes payments for eligible expenditures and submits withdrawal application for reimbursement. Third party payments A schedule of Direct payments/ Payments by Third Parties made under the different financing agencies has been provided as ANNEXURE 3 and have been denoted functional currency, classified in their respective components and categories. The amounts classified as direct payments have also been treated as receipts from the donors who made such payments. 16 n_ GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 V. Pending bills Pending bills consist of unpaid liabilities at the end of the financial year/period arising from contracted goods or services during the year/period or in past years/periods. As pending bills do not involve the payment of cash in the reporting period, they are simply disclosed as an Annex to the financial statements. When the pending bills are finally settled, such payments are included in the statement of receipts and payments in the year in which the payments are made. Vi. Budget The budget is developed on the same accounting basis (cash basis), the same accounts classification basis, and for the same period as the financial statements. The period of the approved budget for all donors is from 1st April 7 2019 to 31st March 2020 and the budget is classified in accordance with the expenditure components and categories. A high-level assessment of the Project's actual performance against the comparable budget for the financial year under review has been included in an annexure to these financial statements. 17 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 vii. Exchange rate differences The accounting records are maintained in the functional currency of the primary economic environment in which the Project operates, Lesotho Maloti. Transactions in foreign currencies during the year/period are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Any foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statements of receipts and payments. The rate used for conversion of Maloti to dollars or euros during the year, is that which was prevailing on the date when the dollar or euro amount was transferred from the Special Account at the Central Bank of Lesotho (CBL), to the Maloti account, and for reporting purposes that rate is used until that batch of funds is exhausted. Foreign Direct Payments/ Payments by Third parties on behalf of the project were translated using the spot exchange rate. i.e. the rate reported as value date by the donor. The Employee compensation payments made by The Government of Lesotho were translated at the rate ruling on the day the payment was made. In cases where the rate for 25th was not provided by the CBL, the rate closest to the 25th was used. The foreign denominated bank balances at year-end were translated at the closing rate provided by the Central Bank of Lesotho. The exchange rate as at 31/03/2020, (being the last working day in March 2020) was USD 1: LSL17.9989 and the closing rate for the Euro was EUR 1: LSL19.8016. Gains and losses on exchange are dealt with in the Cash Receipts and Payment Statement. viii. Comparative figures Where necessary comparative figures for the previous financial year/period have been amended or reconfigured to conform to the required changes in financial statement presentation. ix. Subsequent events There have been no events subsequent to the financial year/period end with a significant impact on the financial statements for the year ended March 31, 2020. 18 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 8.2 RECEIPTS FROM GOVERNMENT OF LESOTHO These represent counterpart funding and other receipts from government as follows: 2020 2019 Cumulative LSL LSL to-date Government of Lesotho - Ministry of Finance 2 835 433 4 963 800 17 557 133 Grants received as direct payment 3 228 969 2 822 821 6 051789 Total 6064401 7786621 23608922 8.3 PROCEEDS FROM DOMESTIC AND FOREIGN GRANTS During the 12 months to 31 March 2020 we received grants from donors as detailed in the table below: Amount Grants Received received in received in as direct Name of Donor donor currency cash payments* Total in LSL 2020 2019 Cumulative EUR/USD LSL LSL LSL LSL to-date Grants Received from Multilateral Donors Grant from The African Development Bank - - 8 322 669 8 322 669 10 761584 38 863 982 Funds from The World Bank (IFMS) 482 075 8457 592 14 966 491 23 424 082 25 529 413 61 656 064 Funds from The World Bank{PSMP) 2 217 582 32 529 107 - 32 529 107 28 309 774 89 587 193 Funds from The European Union - - 5230295 Total 64275858 64600771 195337534 * The direct payment grants represent payments for goods and services done directly by the donor on behalf of the project. 8.4 MISCELLANEOUS RECEIPTS 2020 2019 Cumulative LSL LSL LSL 311-106 Unused Funds - PSMP 1263 1263 311-109 Refunds/Reimbursables 518 518 311-110 Unused Funds - PFM - 5365 5365 311-111 Miscellaneous receipts 51984 - 51984 51984 7146 59130 19 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 8.5 COMPENSATION OF EMPLOYEES 2020 2019 Cumulative LSL LSL Employee compensation 6 477 287 8 673 740 35 291340 6477287 8673740 35291340 8.6 PURCHASE OF GOODS 7 2020 2019 Cumulative LSL LSL to-date Computer Equipment 4485 383 12 428 720 18 155 509 Office Equipment 5 095 665 480 944 10 142 158 Motor Vehicles - 604 166 7 047 486 9581048 13513831 35345153 8.7 PURCHASE OF SERVICES 2020 2019 Cumulative LSL LSL to date Consulting and related services 48 253 932 24 608 148 101851910 Software licensing related services - 9444 909 9 444 909 Training and related services 9892040 6689487 24093502 Other professional services, risk, and other - 559798 956 023 58 145 972 41 302 342 136 346 343 8.8 PAYMENT FOR OTHER OPERATING COSTS 2020 2019 Cumulative LSL LSL to-date Rental - Vehicles for hire and fuel - - 3377908 P a y m e n t o f o t h e r o p e r a t in g c o s t s 1 7 9 4 7 9 8 1 2 6 7 432 5 4 0 7 1 8 6 1794798 1267432 8785094 20 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 8.9 PAYMENT FOR WORKS 2020 2019 Cumulative LSL LSL to-date Demolish/Construction of Fire proofing wall - 490 000 Upgrade of cooling system and other costs 352 735 352 735 352735 842735 8.10 TRANSFER TO FUNDER During the 12 months period to 31 March 2020, we transferred funds to funding entities as shown below: 2020 2019 Cumulative to date LSL LSL LSL Transfers to the Funder - European Union 455 380 1 546 723 2 002 103 Transfers to the Funder -Government of Lesotho 700801 521103 1221904 Transfers to the Funder -World Bank 167 198 - 167 198 TOTAL 1323380 2067826 3224007 8.11 FOREIGN EXCHANGE GAIN/LOSSES 2020 2019 LSL LSL Exchange rate losses/gains (net) 1765 659 398 724 1765 659 398 724 21 7r GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 8.12 CASH AND CASH EQUIVALENTS 2020 2019 LSL LSL Bank Accounts Foreign Currency Accounts PFMRS Special Account (EUR) - ADB. A/C No.:100008-EUR-9405-02 1962 507 4 171 070 PFMRS Special Account (USD) - IDA. A/C No.:100008-USD-9405-12 - 227 746 PSMP Special Account(USD)-IDA A/C No.:100008-USD-9405-26 2370671 2695 176 Total Foreign Currency balances 4 333 178 7 093 992 Local Currency Accounts PFMRS Local Account (LSL) - ADB. A/C No.:0140075458301 176 770 1451966 PFMRS Local Account (LSL) - IDA. A/C No.:0140075458201 - 41 620 PFMRS Local Account Lesotho Govt. A/C No.:0140091509901 29 162 685 862 PSMP Local Account(LSL)-lDA A/C No.:62676074869 858 850 831360 EU Local Account(LSL)-IDA - A/C No: 62619724455 - 457 743 Total local currency balances 1064782 3468551 Total Bank Account Balances 5397960 10 562 543 The Foreign Currency Bank Accounts are translated at the following closing rates at year end: Exchange Rate :LSL/USD = 17,9989 (2019:14,5694) Exchange Rate :LSL/EUR = 19,8016 (2019:16,3641) 7_ 9. PENDING BILLS Unpresented payments - Annexure 2 2020 2019 LSL LSL Local 505 878 2 862 165 7"! USD Special Account 109472 - 22 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 ANNEXURE 1- VARIANCE EXPLANATIONS - COMPARATIVE BUDGET AND ACTUAL EXPENDITURE Budget per Component Approved Budget Actual Expenditure Budget Utilisation % of Utilisation Variance Variance to Budget Component4 3 647 584 2 172 227 (1475 357) -40% Component 5 32 128 948 26 288 584 (5 840 364) -18% Component 6 6741720 3 972 789 (2 768 931) -41% Component 7 4 451 820 1 463 996 (2 987 824) -67% Component 8 10650935 7815193 (2835 742) -27% Component 9 39 243 988 34 286 315 (4 957 672) -13% 96 864 994 75 999 105 (20 865 890) -22% Transferred to funder 1 323 380 1 323 380 Total 98 188 374 77 322 484 (20 865 890) -21% Cost per nature Approved Budget Actual Expenditure Budget Utilisation % of Utilisation Variance Variance to Budget Purchase of goods 17957558 9581048 (8376510) -47% Purchase of services 68 016 980 58 145 972 (9 871009) -15% Payment of other operating 2 221 269 1794 798 (426 471) -19% costs Compensation of employees 8 669 187 6 477 287 (2 191900) -25% 96864994 75999105 (20865890) -22% Transferred to funder 1 323 380 1 323 380 Total 98 188 374 77 322 484 (20 865 890) -21% BUDGET VARIANCES Major variances were mainly due to the following: (i) significant delays in the commencement of the entire project implementation process from inception which resulted in ambitious plans in later years in order to meet the targets; (ii) significant delays in execution of activity plans with most activities lagging behind schedule due to prioritization preferences of beneficiaries; (iii) postponement of other projects and planned study tours due to instability in the targeted countries which were later affected by travel restrictions towards the end of the financial year under review. 23 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT 7 ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 ANNEXURE 2 - DETAILS OF UNPRESENTED PAYMENTS Account Bank Account 2020 2019 Local Account LSL LSL AfDB 111-101 AfDB LSL-0140075458301 1597 PSM 111-106 IDA LSL-62676074869 26 066 GOL 111-108 GoL LSL-0140091509901 478 215 2 862 165 505878 2862165 Special Account USD PSM 111-107 IDA USD-100008-USD-9405-26 109 472 - 109 472 - 24 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 ANNEXURE 3 - SUMMARY OF DIRECT PAYMENTS 2020 2019 Government of Lesotho LSL LSL Component 8 Operating Costs . Employee Costs 3228969 2822821 Total 3228969 2822821 African Development Bank USD USD Component 4 Services 124819 16123 Component 6 Services 198044 177371 Component 7 Goods 36522 74944 Services 36593 - Component 8 Services 168 200 - Total 564178 26438 The World Bank USD USD Component 5 Goods 164300 - Services 878 117 1 273 458 Component 9 Goods - 508839 Total 1042417 1782297 25 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 ANNEXURE 4- SUMMARY OF SPECIAL ACCOUNT ACTIVITIES CURRENCY OF SPECIAL EURO USD USD ACCOUNT ADB PFMR PSMP 2020 2019 2020 2019 2020 2019 ADVANCE TO SPECIAL ACCOUNT AfDB Funds 347847 347847 IDA Funds-IFMIS 199995 199995 IDA Funds- PSMP 999995 999995 347847 347847 199995 199995 999995 999995 Add: REPLENISHMENTS(Cumulative) ADB 925641 925641 IDA-PFMR 1851268 1369193 IDA-PSMP 4 497388 2279807 Sub-total (b) 925641 925641 1851268 1369193 4 497388 2279807 TRANSFERS TO LOCAL CURRENCY ACCOUNTS 7 ADB 803 668 743 668 IDA-PFMR 994234 631222 IDA-PSMP 2091047 1552047 Sub-total (c) 803668 743668 994234 631222 2091047 1552047 Less: OTHER PAYMENTS Other payments 370 398 274827 1054634 920 473 3270826 1540493 Bank charges 314 102 2395 1861 3798 2273 Sub-total (d) 370 712 274 929 1057 029 922 334 3 274 624 1 542 766 Net Designated Account 99 109 254 892 - 15 632 131712 184989 26 GOVERNMENT OF LESOTHO MINISTRY OF FINANCE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 ANNEXURE 5-SUMMARY OF REFUNDS Account Bank Account 2020 2019 17 LSL LSL PSM 111-106 IDA LSL 72 184 72 184 - Summary of amounts receivable from suppliers that were inaccurately paid. 7 It r7 27 77