Local Governments Units Developments and Lending Fund Local Government and Services Improvement Program Co-Funded by the International Development Association and Implemented by Local Governments Units Developments and Lending Fund and The Ministry of Local Government Program Financial Statements For the Period from March 14, 2016 to December 31, 2017 Together with Independent Auditors’ Report Local Governments Units Developments and Lending Fund Local Government and Services Improvement Program Co-Funded by the International Development Association and Implemented by Local Governments Units Developments and Lending Fund and the Ministry of Local Government Balance Sheet As at December 31, 2017 Note USD Assets Current Assets Cash at Bank, maintained by MoLG within the PA’s Single Treasury Account 6 1,568,129 Total Current Assets 1,568,129 Total Assets 1,568,129 Liabilities and Fund Balance Fund Balance Fund balance 6 1,568,129 Total Liabilities and Fund Balance 1,568,129 The accompanying notes form an integral part of these financial statements 4 Local Governments Units Developments and Lending Fund Local Government and Services Improvement Project Co-Funded by the International Development Association and Implemented by Local Governments Units Developments and Lending Fund and the Ministry of Local Government Statement of Sources and Uses of Funds For the Period from March 14, 2016 to December 31, 2017 Note USD FUND BALANCE – BEGINNING OF PERIOD - SOURCES OF FUNDS Amount Received by MoLG - Disbursement Linked Indicators (DLI) payments 3 2,000,000 Total Sources of Funds 2,000,000 USES OF FUNDS Part 1: Annual Capital Grants for Delivery of Local Services 4 396,880 Part 3: Capacity Support for strengthening Local Governance Institutions 5 34,991 Total Uses of Funds 431,871 CHANGE IN FUND BALANCE 1,568,129 FUND BALANCE – END OF PERIOD 6 1,568,129 The accompanying notes form an integral part of these financial statements 5 Local Governments Units Developments and Lending Fund Local Government and Services Improvement Program Co-Funded by the International Development Association and Implemented by Local Governments Units Developments and Lending Fund and The Ministry of Local Government Notes to LGSIP Financial Statements For the Period from March 14, 2016 to December 31, 2017 (Currency: USD) 1. LGSIP and its Financing The Palestinian Liberation Organization (PLO), for the benefit of the Palestinian Authority (PA), and the International Development Association (the World Bank), acting as an administrator of the Trust Fund for Gaza and West Bank, signed a Trust Fund Grant Agreement number TF0A1039 dated March 14, 2016 (the Grant Agreement), whereby the World Bank made a grant, to the PA, in an amount equals to USD 5,000,000, to finance part of a program entitled "Local Governance and Services Improvement Program" (LGSIP, the Program). In accordance with the Grant Agreement, LGSIP is to be carried out jointly by Local Government Units Development and Lending Fund (LGUDLF) and the Ministry of Local Government (MoLG), (together the “Implementing Agencies”). The objective of the Program is to strengthen the local government financing system and improve local service delivery in Program Villages. The Program is a part of the PA’s public-sector reform program as outlined in the National Development Plan 2014-2016 and in the supplemental sector strategies developed by MoLG. The Program consists of the following parts: Part 1: Supporting local services delivery through provision of Annual Capital Investment Grants to eligible Village Councils (VCs) for carrying out activities identified in the Annual Capital Investment Plans (ACIPs). Part 2: Supporting community infrastructure development through the provision of Conditional Capital Investment Grants to eligible Joint Service Councils (JSCs) for carrying out projects identified in the ACIPs jointly developed by two or more VCs (Joint Projects). Part 3: Strengthening the capacity of VCs and JSCs to improve their local governance functions, service delivery, and prepare and implement ACIPs; and strengthening the capacity of relevant agencies at the central level, including, inter alia, MoLG and LGUDLF, to effectively implement the Program. The following table specifies each category of withdrawal of the proceeds of the Financing (including Disbursement Linked Indicators (DLI) as applicable) (“Category”), the Disbursement Linked Results (DLRs) for each Category (as applicable), and the allocation of the amounts of the Grant Agreement to each Category: - 6 Amount of the Category, including DLI as Financing Allocated applicable DLR as applicable (expressed in USD) DLI 1: Enabling steps to DLR 1.1: MoLG adopted standardized DLR 1.1: 1,000,000 strengthen local governance Governance Framework for joint local service adopted by MoLG. provision by more than one VC and adopted formula for Annual Capital Investment Grant allocation for VCs/JSCs. DLR 1.2: The MoLG issued Procurement DLR 1.2: 800,000 Instructions for LGUs to follow in procuring local services. DLI 2: Timely communication DLR 2.1: Communication of the ACIG allocation DLR 2.1: 800,000 to VCs of the formula-based to VCs by January 15 and transfer of ACIGs to Annual Capital Investment eligible VCs by January 31, in FY 17. Grant (ACIG) allocations and DLR 2.2: Communication of the ACIG allocation DLR 2.2: 800,000 timely transfer of ACIGs to eligible VCs. to VCs by January 15 and timely transfer of ACIGs to eligible VCs by January 31, in FY 18. DLI 3: Percentage of VCs DLR 3.1: 50% in FY 17. DLR 3.1: 1,000,000 meeting the Program eligibility criteria annually. DLI 7: Capacity building DLR 7.1: Five Year Capacity Development Plan DLR 7.1: 200,000 activities delivered by MoLG prepared in FY 16. based on their Annual Capacity Development Plan. DLR 7.2: Annual Capacity Development Plan DLR 7.2: 400,000 executed in FY 17. Total Amount 5,000,000 The closing date of the Grant Agreement is December 31, 2020. In addition to the above-mentioned World Bank Grant Agreement, the Program is to be co-funded (expected to be co-funded) from the following partners: Expected Granted Date of Financing Partner Currency Amount Amount Agreement Partnership for Infrastructure Development in the West Bank and Gaza Multi-Donor Trust Fund (PID- MDTF) USD - 13,000,000 March 14, 2017 KfW, Frankfurt am Main (KfW) EUR - 8,000,000 March, 6, 2017 Palestinian Authority (PA) USD 2,000,000 - - The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) EUR 700,000 - - The Belgian Development Agency (Enabel, formerly BTC) EUR 800,000 - - European Union (EU) EUR 7,400,000 - - The Swiss Federal Department of Foreign Affairs (FDFA/SDC) USD 3,000,000 - - This audit covered the amounts disbursed during the Audit Period from the World Bank Grant Agreement. 7 2. Summary of Significant Accounting Policies LGSIP financial statements are prepared under the historical cost convention. Significant accounting policies follow: - Basis of accounting - LGSIP financial statements are prepared using the cash basis of accounting, which is a comprehensive basis of accounting other than International Financial Reporting Standards (IFRSs). Sources of funds are recognized when cash is received and uses of funds are recognized when cash payments are made. - Foreign currency - LGSIP’s basic functional currency is the United States Dollar (USD). Transactions that are expressed or denominated in other currencies, mainly New Israeli Shekel (ILS), were translated to USD using the exchange rates in effect at the time of each transactions. Any differences arising from the fluctuations in exchange rates were treated as exchange gains or losses in the Statement of Sources and Uses of Funds. 3. Amount Received by MoLG – DLI Payments Amount received represents funds transferred form the World Bank to Ministry of Finance and Planning (MoFP) then channeled by MoFP to MoLG using the PA public disbursement mechanism and comprise: Withdrawal Application (WA) # Date of transfer Amount (USD) LGSIP -1 August 18, 2016 1,000,000 LGSIP -2 October 25, 2017 1,000,000 2,000,000 4. Part 1: Annual Capital Grants for Delivery of Local Services This part includes the advances transferred to large VCs as follows: - USD Liquidation of Advance the Advance Advance Village Councils (VCs) Payment during the Period Balance Kharbatha Al-Misbah 35,020 - 35,020 Qibya 32,935 - 32,935 Al-Ramadin 26,620 - 26,620 Handaza and Breidaa 35,600 - 35,600 Salem 32,460 31,950 510 Al Jib 26,175 25,600 575 Dar Salah 22,335 22,266 69 Shuqba 30,220 - 30,220 Saffa 25,550 - 25,550 Kafr Ni'ma 24,710 - 24,710 Khalet al-Maiyya 28,430 - 28,430 Al-Shawawreh 25,100 - 25,100 Beit Ur Al-Tahta 29,380 - 29,380 Beit Dajan 22,345 - 22,345 396,880 79,816 317,064 8 5. Part 3: Capacity Support for strengthening Local Governance Institutions This part comprises: USD Preparing development plans - Consultants 18,650 Workshops 16,341 34,991 6. Fund Balance - End of Period Fund balance, end of period represents the excess of received revenues over expenditures as of December 31, 2017, maintained by MoLG within the PA’s Single Treasury Account. 9