Report on the Br6ko District part of the Project Financial Statements of the FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Financed by: - IDA credit No. 5529 - BA For the year ended 31 December 2017 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina CONTENTS 1 Introduction 1 2 Independent Auditor's Report 4 3 Project financial statements for the year 2017 6 4 Notes to the project financial statements 8 APPENDICES A Designated account statement - IDA Credit No. 5529 - BA 9 B SoE Withdrawal Schedule of IDA Credit No. 5529 - BA 10 C Reconciliation between World Bank's disbursement statements in XDR and IDA Credit account in EUR according to the balance sheet as of 31 December 2017: SoE Withdrawal Schedule of IDA Credit No. 5529 - BA 11 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction 1.1 Objectives of the Project The Project objective of the Floods Emergency Recovery Project (the "Project") is to meet critical needs and restore functionality of infrastructure essential for public services and economic recovery in Floods Affected Areas. 1.2 Components and activities of the Project The Project is comprised of the following three components: Component 1: Emergency Disaster Recovery Goods The recent floods have created significant strains on the supply chains for a variety of goods crucially needed to ensure the continuity of public services and economic opportunities. For example, some coal mines have been flooded, resulting in a restriction of supply to the main thermal power plants. The flooded areas traditionally have been oriented towards agriculture and agribusiness, which were severely affected by the floods, resulting in fodder and forage shortages and an urgent need for seeds and fertilizers for reseeding. The Project will therefore finance, through the use of a positive list, the purchase of goods urgently needed during the recovery phase. The positive list will include logistical goods, reconstruction goods, emergency goods, energy and power sector goods as well as agricultural recovery goods, with an initial priority set of fuel and food, agricultural and emergency goods. The positive list will include: (i) Logistical goods: including water, land and air transport equipment, including spare parts; communications equipment. (ii) Reconstruction goods: including construction materials; construction equipment and industrial machinery (including trucks, dozers, excavators); prefabricated houses. (iii) Emergency goods: including emergency and medical supplies and equipment; food and water containers; chemicals and equipment for water purification and sanitation of land, buildings and other structures; basic food commodities; cleaning and hygienic supplies; mud and water pumping equipment; equipment and furniture for emergency shelters and accommodations; moisture removal equipment; emergency vehicles and supplies; waste management and disposal equipment. (iv) Energy and power sector goods: including petroleum and fuel products: power purchases power transmission and distribution equipment; mining equipment and pumps to remove water from mines, controls, monitoring and measurement equipment; emergency power generators; and other electrical equipment. (v) Agricultural recovery goods: including agricultural equipment and immovable productions systems such as greenhouses, milking parlors and auxiliary installations, sorting or packaging equipment; inputs (excluding pesticides); such as seedlings for perennial crops, orchards and wine yards as well as seeds and fertilizer for reseeding of fields; as well concentrated animal forage and fodder stocks that were destroyed by floods; livestock. (vi) Other Essential Goods: any other goods or commodities essential to the Recipient's recovery from flooding, as agreed in advance by the Association. 1 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction (continued) 1.2 Components and activities of the Project (continued) Component 2: Rehabilitation of Key Public Infrastructure This Component will support the rehabilitation of both local and regional public infrastructure on the basis of the RNA. The impact of the floods was concentrated on around 60 municipalities in the central, northwest and northeast parts of the country: in many of these, public services delivery was severely impacted. This Component will therefore finance the rehabilitation or reconstruction of high priority, public service delivery infrastructure in the worst affected areas This component is designed under a framework approach in which activities will be identified in a demand-driven manner, based on the on-going RNA. The project will put particular emphasis on Rural Development, Energy, Transport and Water and Sanitation activities but other public services (education, health) will be considered on a case-by-case basis. The Component will be divided in two Subcomponents that will follow somewhat different project cycles, depending on whether the infrastructure is local or regional. Sub-component 2.A: Regional Infrastructure Rehabilitation The main activities include rehabilitating or reconstructing high priority, regional-level public infrastructure through Sub-projects in Floods Affected Areas. Subcomponent 2.B: Local Infrastructure Rehabilitation. The main activities include rehabilitating or reconstructing high priority, local-level public service delivery infrastructure through Sub-projects in Floods Affected Areas. Component 3: Project Implementation Support and Capacity Building This component will finance the management of the Project and any support needed for the identification and implementation of sub-activities. The component will also provide technical assistance and capacity building on ensuring future improved disaster resilience.This Component includes two main Subcomponents: Subcomponent 3.A. The main activities include project implementation support through the provision of incremental operating costs of RS APCU and equipment for Project implementation. Subcomponent 3- B. The main activities include strengthening the institutional capacity of the Britko District to a proactive approach of risk management, through the provision of technical assistance and training. 2 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction (continued) 1.3 Financing of the Project: 1.3.1 IDA Credit No. 5529 - BA The State of Bosnia and Herzegovina ("B&H") is the borrower of the International Development Association (IDA) Credit No. 5529 - BA amounting to the equivalent of XDR 65,000,000 Under the terms of a subsidiary finance agreement between B&H and Brdko District funds of the equivalent of XDR 3,250,000 have been lent to Br6ko District. 1.3.2 Financing of the Project Categories of cost items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each category and the percentage of expenditure for cost items so to be financed in each category are as follows: Amount of the Credit allocated % of expenditure Item (in XDR) to be financed (5) Eligible Essential Goods and Commodities for part C.1 of the Project 1,300,000 100% (6) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs for Parts C.2 and C.3 of the Project 1,950,000 100% Subtotal 3,250,000 IDA Credit No. 5529 - BA became effective on 15 September 2014. Planned closing date is 31 December 2018. First Amendment to the Financing Agreement Amount of the Credit allocated % of expenditure Item (in XDR) to be financed (5) Eligible Essential Goods and Commodities for part C.1 of the Project 912,500 100% (6) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs for Parts C.2 and C.3 of the Project 2,337,500 100% Subtotal 3,250,000 3 BAKER TILLY RE OPINION Baker Tilly Re Opinion d,o,o. Grbavidka 4 71000 Sarajevo Bosna i Hercegovina T: +387 (0) 33 552 150 F: +387 (0) 33 552 152 2. Independent Auditor's Report inofbakertilyreopinion,ba www.baketillyreopinion.ba To the State of Bosnia and Herzegovina, Ministry of Finance and Treasury Attn. of Minister of Finance and Treasury H.E. Mr. Vjekoslav Bevanda Report on the Project Financial Statements Opinion We have audited the accompanying project financial statements of the Brtko District part of the Floods Emergency Recovery Project (the "Project"), which comprise of Summary of sources and uses of funds, Balance sheet, Designated account, Statement of loan and grant withdrawals as of and for the year ended 31 December 2017, and a summary of significant accounting policies and other explanatory notes for the year then ended, financed under IDA Credit No. 5529 - BA. In our opinion, the accompanying project financial statements present fairly, in all material aspects, the financial position of the Project as of 31 December 2017, and of the funds received and disbursed during the year then ended, in accordance with the cash basis of accounting based on International Public Sector Accounting Standard ("IPSAS"), as described in Note 4.1. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and "Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities" issued by FMSB. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Ministry of Finance and Treasury 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 ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Project Financial Statements The management of project coordination unit is responsible for the preparation of these project financial statements in accordance with the cash basis of accounting based on IPSAS, as described in Note 4.1., and for such internal control as management determines is necessary to enable the preparation of project 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 financial reporting process. Responsibilities for the Audit of Financial Statements Our objectives are to obtain reasonable assurance about whether the project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an JI 4200960550009 I PDV 200960009 I Ratween Bank d.d. 5H 1610000045270006 An independent member of Baker Tilty International 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 detected 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 ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's 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 project financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other requirements In addition, with respect to the Statement of Expenditure, adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditure incurred; and all expenditure included in withdrawal applications and reimbursed against are eligible for financing under the project. Signe on Oehalf of Baker Tilly Re Opinion d.o.o. Sarajevo Nihad F Izi6, Dirctor and Certified Auditor Ezita Ima/oid ertified Auditor Sarajevo, Bosnia and Herzegovina 20 June 2018 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in EUR, unless otherwise stated) 3. Project financial statements for the year 2017 3.1 Summary of sources and uses of funds under the IDA Credit No. 5529 - BA Actual Cumulative Cumulative Cumulative Cumulative Ref. 2017 2017 2016 budget variance FINANCING IDA Credit No. 5529-BA 3,681,302 Initial deposit - 500,000 500,000 Reimbursement - 1,082,492 1,082,492 SoE replenishments 378,261 484,509 106,248 TOTAL FINANCING 3.1 378,261 2,067,001 1,688,740 3,681,302 1,614,301 PROJECT EXPENDITURE By Category Eligible Essential Goods and Commodities for part C.1 of the Project - 1,082,492 1,082,492 1,033,596 (48,896) Goods, works noncosulting services,consultants' services,Training and Incremental Operating Costs for Part C.2. and C.3, of the Project 454,503 793,620 339,117 2,647,706 1,854,086 TOTAL EXPENDITURE 3.1 454,503 1,876,112 1,421,609 3,681,302 1,805,190 PROJECT EXPENDITURE By Component Emergency Disaster Recovery Goods - 1,082,492 1,082,492 1,033.596 (48,896) Rehabilitation of key Public Infrastructure 320,079 639,015 318,936 2,415,431 1,776,416 Project Implementation Support and Capacity Building 134,424 154,605 20,181 232,275 77,670 TOTAL EXPENDITURE 3.2 454,503 1,876,112 1,421,609 3,681,302 1,805,190 6 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in EUR, unless otherwise stated) 3. Project financial statements for the year 2017 (continued) 3.1 Balance sheet as of 31 December 2017 showing accumulated funds of the Project and bank balances concerning World Bank funding 31 December 31 December Ref. 2017 2016 ASSETS Project expenditure under IDA Credit No. 5529 3-1-1 1,876,112 1,421,609 1,876,112 1,421,609 Designated bank account - IDA Credit No. 5529 A 190,889 267,131 190,889 267,131 Total assets 2,067,001 1,688,740 LIABILITIES IDA Credit No. 5529 - BA C 2,067,001 1,688,740 Total liabilities 2,067,001 1,688,740 Signed and authorised by: Mr Stefan Mitrovid Andelka Kovbevic APCU Director Accountant Banja Luka, 20 June 2018 7 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in EUR, unless otherwise stated) 4. Notes to the project financial statements 4.1 Basis of preparation and accounting records These project financial statements have been prepared in accordance with the International Public Sector Accounting Standard: "Financial Reporting under the Cash Basis of Accounting" issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the accounting policies below, which have been consistently followed in all material respects and comply with the "Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities", issued by the Financial Management Sector Board. 4.2 Accounting policies The Project's fiscal year is 1 January to 31 December for the recording of all transactions. Cash basis of accounting All receipts and expenses under IDA Credit are recorded on actual receipt and payment basis of accounting as per approved categories. Project expenditure is stated at original cost on the balance sheet. Direct payments Direct payments concern the amounts paid directly from the Credit account of the World Bank. Statement of Expenditure (SoE) Statements of Expenditure are used to state the expenditure under IDA Credit during a certain period. These statements are sent to the World Bank's disbursement specialist who authorises the payment of the expenditure through the Designated account. Currency conversions The reporting currency is EUR. Sources and use of funds (payments to suppliers and contractors) in currencies other than EUR have been converted to EUR using the currency rate at the moment of the transaction. Bank balances, recorded on the balance sheet at year-end, have been converted at year-end rate. Designated account This is the total amount of the withdrawals from the Credit account for the Project. The Credit account is in XDR. Interest on Designated account Interest earned on the Designated account belongs to the Borrower. 8 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (ali amounts in EUR, unless otherwise stated) APPENDIX A DESIGNATED ACCOUNT STATEMENT Account owned by: Ministry of Finance and Treasury of Bosnia and Herzegovina Account No.: 5672410000518813 Depository Bank: Sberbank a.d. Banja Luka Address: Jevrejska 71, Banja Luka Related Credit: IDA Credit No. 5529 - BA Currency: EUR Ref. EUR Opening balance 1 January 2017 3.2 267,131 Add: World Bank replenishments B 378,261 378,261 Deduct Payments to suppliers - Expenditure under IDA Credit 454,503 454,503 Ending balance 31 December 2017 3.2 190,889 9 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in EUR, unless otherwise stated) APPENDIX B SoE Withdrawal Schedule of IDA Credit No. 5529 - BA Goods, works non-cosulting Eligible services, Essential consultants' Goods and services, training Commodities and incremental for part CA operating Costs of the for Parts C.2. and Total Total Initial deposit Project C.3. of the Project application replenished Previous period 500,000 1,082,492 339,117 1,421,609 1,688,740 Application 7* - - - - 232,869 Application 8 - 145,392 145,392 145,392 Application 9** - 103,987 103,987 - Application 10** - 205,124 205,124 - Total SoE applications - 454,503 454,503 378,261 Total 2017 - 454,503 454,503 378,261 As of 31 December 2017 500,000 1,082,492 793,620 1,876,112 2,067,001 * Application No. 7 was replenished in 2017, but expenses were made in 2016. * Applications No. 9 and No. 10 will be replenished in 2018, but expenses were made in 2017. 10 FLOODS EMERGENCY RECOVERY PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in EUR, unless otherwise stated) APPENDIX C Reconciliation between World Bank's disbursement statements in XDR and IDA Credit account in EUR according to the balance sheet; SoE Withdrawal Schedule of IDA Credit No. 5529 - BA Changes in Changes in IDA Credit Exchange IDA Credit (in XDR) rate used (in EUR) Original amount 3.250,000 1.132708 3,681,302 Disbursed in previous years 1,421,699 1,688,740 Withdrawal 07 182,419 1 276558 232,869 Withdrawal 08 120,381 1.207764 145,392 Total disbursed in 2017 302,800 378,261 Cumulative disbursements as of 31 December 2017 1,724,499 2,067,001 Calculated undisbursed balance as of 31 December 2017 1,525,501 1,614,301 Undisbursed balance as per World Bank Summary for December 2017 1,525,501 1.190460 1,816,048 Potential exchange rate gain 201,747 11