O GrantThornton Independent Auditor's Report and Grant Financial Statements State Agency "Center for Education Projects" Project Implementation Unit" of the Ministry of Education and Science of the Republic of Armenia Grant for the Preparation of the General Education Improvement Project Grant No. TF014539 As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Grant for the Preparation of the General Education Improvement Project Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Contents Page Independent auditor's report 1 Statement of financial position 3 Statement of the Grant sources and uses of funds 4 Statement of uses of funds by Grant activities 6 SOE withdrawal schedule 8 Designated account statement 9 Notes to the grant financial statements 11 Pag L1 L3 L4 II6 I8 I9 Noe otegatfnaca ttmns1 0 GrantThornton Independent auditor's report :1 , R bPb1LWb 0012 '4wTwP2JLub 8/1 9 +37410260964 I-+ 374 10260961 Grant Thornton CJSC 811 Vagharshyan Str, 0012 Yerevan, Armenia T + 374 10 260 964 F + 374 10 260 961 www grantthornton.am To the board of trustees of the State Agency "Center for Education Projects" Project Implementation Unit" of the Ministry of Education and Science of the Republic of Armenia We have audited the accompanying grant financial statements of the Grant for the Preparation of the General Education Improvement Project (the "Grant"), financed by the International Development Association (the "IDA") Grant No. TF014539, which comprise the statement of financial position as of December 31, 2013 and as of December 31, 2014, the statement of the Grant sources and uses of funds, the statement of uses of funds by Grant activities, the designated account statement as of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 and as of and for the year ended December 31, 2014, as well the statement of expenditures ("SOE") submitted to the World Bank for the period from July 4, 2013 to December 31, 2013 and for the year ended December 31, 2014 in support of the Grant No. TF014539 withdrawals, and a summary of significant accounting policies and other explanatory information. Managements Responsibility for the Grant Finanial Statements Management of the State Agency "Center for Education Projects" Project Implementation Unit" of the Ministry of Education and Science of the Republic of Armenia is responsible for the preparation and fair presentation of these grant financial statements in accordance with the accounting policies described in the note 2 to the grant financial statements, the World Bank guidelines, and the relevant points of the Grant No. TF014539 and for such internal control as management determines is necessary to enable the preparation of grant financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these grant financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the grant financial statements are free from material misstatement. UnLhm, :wpl4bp, Inphpfuim4nipnth Audit. Tax, Advisory Memr Onplaniht hmpbnAe2mh touid Member of Grant Thorntori n1smational Ltd 0 GrantThornton An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the grant financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the grant financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the grant financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the grant financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the grant financial statements give a true and fair view of the financial position of the Grant for the Preparation of the General Education Improvement Project as of December 31, 2013 and as of December 31, 2014, and of the funds received and expenses incurred for the period from July 4, 2013 to December 31, 2013 and for the year ended December 31, 2014, in accordance with the accounting policies described in the note 2, the World Bank guidelines, and the relevant points of the Grant No. TF014539. In addition, in our opinion, the SOEs submitted together with the internal controls and procedures involved in their preparation can be relied upon to support the applications for the Grant No. TF014539 withdrawals. Basis ofAccounting Without modifying our opinion, we draw attention to note 2 to the grant financial statements, which describes the basis of accounting. The grant financial statements are prepared to assist the management of the State Agency "Center for Education Projects" Project Implementation Unit" to meet the requirements of the financial reporting of the World Bank. As a result, the grant financial statements may not be suitable for another purpose. Emphasis of a Matter We draw attention to note 3 to the grant financial statements, which states that the closing date of the Grant for the Preparation of the General Education Improvement Project was defined as September 30, 2014. Our opinioftia no qualified in respect of this matter. January 27, 2015 Gagik Gyulbudaghyan Emil Vassilyan, FCCA Managing Partner Engagement Partner UnLqIM, lwplil;p, lunphprtuwnntpinhLb Audit, Tax, Advisory Opwubp f2np1pnU hUptbP1t2U1 wUrlut Member of Grant Thonton Intemationd Ltd Grant for the Preparation of the General Education improvement Project 3 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Statement of financial position In US dollars As of As of December 31, December 31, Note 2014 2013 Assets Non-current assets Accumulated Grant expenses 314,992 129,329 314,992 129,329 Current assets Bank balances 4 4,550 64,542 4,550 64,542 Total assets 319,542 193,871 Funds and liabilities Accumulated Grant financing 321,088 193,974 Exchange rate difference (1,546) (103) Total funds and liabilities 319,542 193,871 The grant financial statements were approved on January 27, 2015 by: Hasmik Ghazaryan Armine Khachatryan Director Financial director This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project 4 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Statement of the Grant sources and uses of funds As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 In US dollars IActual Planned Variance For the December For the December For the December period 31, 2013 period 31,.2013 period 31, 2013 Sources of funds Grant No.TF014539 (note 5) 142,159 142,159 Government co-financing 51,815 51,815 Total 193,974 193,974 Exchange rate difference (103) (103) Less: Uses of funds Goods, consultants' services, training and 12,2 19.9 2775 2770 (841 8,21 operatin costs (note 6) 129,329 129,329 217,750 217,750 88, 421 (88,421) Total 1939 1939 2770 2770 8,2 841 Net increase in workin capital 64,542 64,542 This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project 5 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Statement of the Grant sources and uses of funds As of and for the year ended December 31, 2014 In US dollars Actual Planned Variance As of As of As of For the December For the December For the December year 31,2014 year 31,2014 year 31,2014 Sources of funds Grant No.TF014539 (note 5) 114,005 256,164 Government co-financing 13,109 64,924 Total 127,114 321,088 Exchange rate difference (1,443) (1,546) Less: Uses of funds Goods, consultants' services, training and operating costs (note 6) 185,663 314,992 323,800 453,129 (138,137) (138,137) Total 185,663 314,992 323,800 453,129 (138,137) (138,137) Net increase in working capital (59,992) 4,550 The variance between planned and actual costs is explained by the fact that within the scope of the Grant some of the anticipated activities such as conducting study tours under the training category and assessing the needs of teachers for the integration of ICT into the teaching and learning process as well as changes made in the requirements of certain contracts were not implemented. This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project 6 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Statement of uses of funds by Grant activities As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 In US dollars Actual Aof Planned Aof VarianceAso IAs of Asof As of For the December For the December For the December period 31, 2013 period 31, 2013 Period 31, 2013 Part 1: Design of School Readiness for Pre- Primary Education and Secondary Education Improvement 70,060 70,060 99,384 99,384 (29,324) (29,324) Part 1l: Mainstreaming the Competitive 259 29,353 29,353 (10,094) (10,094) Innovation Fund 19,259 19, Part 11: Strengthening System Conditions for Accountability and Effective Teaching 19,904 19,904 24,000 24,000 (4,096) (4,096) Part IV: Project and Grant Specific Activities 20,106 20,106 65,013 65,013 (44,907) (44,907) LTotal 129,329 129,329 217,750 217,750 (88,421) (88,421) This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education improvement Project 7 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December31, 2013 As of and for the year ended December 31, 2014 Statement of uses of funds by Grant activities As of and for the year ended December 31, 2014 In US dollars Actual AofPlanned AofVariance Aso For the December For the December 31, For the December year 31,2014 year 2014 year 31,2014 Part 1: Design of School Readiness for Pre-Primary Education and Secondary Education Improvement 133,424 203,484 217,439 287,499 (84,015) (84,015) Part II: Mainstreaming the Competitive Innovation Fund 2,088 21,347 13,264 32,523 (11,176) (11,176) Part III: Strengthening System Conditions for Accountability and Effective Teaching 29,349 49,253 59,845 79,749 (30,496) (30,496) Part IV: Pro]ect and Grant Specific Activities 20,802 40,908 33,252 53,358 (12,450) (12,450) Total 185,663 314,992 323,800 453,129 (138,137) (138,137) This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project 8 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 SOE withdrawal schedule Grant No. TF014539 For the period from July 4, 2013 to December 31, 2013 In US dollars Category Application No. Goods, consultants' services, training and operating costs GDA 2 52,159 Total 52,159 Grant No. TF014539 For the year ended December 31, 2014 In US dollars Category Application No- Goods, consultants' services, training and operating costs GDA 3 45,072 CDA 4 66,753 GDA 5 46,383 GDA6 5,014 GDA 7 40,783 Total 204,005 These statements are to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Designated account statement Grant No. TF014539 As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 In US dollars Opening balance as of July 4, 2013 Add: Cumulative unexplained discrepancy Grant replenishment during the period 142,159 142,159 142,159 Less: Refund to the IDA from the designated account during the period Present outstanding amount advanced to the designated account (1) 142,159 Closing balance as of December 31, 2013 44,928 Add: Amount of eligible expenditures paid during the period 97,231 Service charges (if applicable) _ 97,231 97,231 Less: Interest earned (if credited into the designated account) Total advance accounted for (2) 142,159 Discrepancy (1) - (2) to be explained This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project 10 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Designated account statement Grant No. TF014539 As of and for the year ended December31, 2014 In US dollars Opening balance as of January 1, 2014 44,928 Add: Cumulative unexplained discrepancy Grant replenishment during the year 131,222 131,222 131,222 Less: Refund to the IDA from the designated account during the year (17,217) Present outstanding amount advanced to the designated account (1) 158,933 L Closing balance as of December 31, 2014 Add: Amount of eligible expenditures paid during the year 155,517 Transfer to Escrow account 3,416 Service charges (if applicable) _ 158,933 158,933 Less: Interest earned (if credited into the designated account) Total advance accounted for (2) 158,933 Discrepancy (1) - (2) to be explained This statement is to be read in conjunction with the notes to and forming part of the grant financial statements set out on pages 11 to 16. Grant for the Preparation of the General Education Improvement Project 11 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Notes to the grant financial statements 1 Activity The State Agency "Center for Education Projects" Project Implementation Unit" of the Ministry of Education and Science of the Republic of Armenia (the "PIU") has been established in January 19, 2000, in accordance with the decree N1 1-M of the Minister of Education and Science of the Republic of Armenia ("RA") dated January 19, 2000. The PIU implements the Grant for the Preparation of the General Education Improvement Project (the "Grant"), which is financed under the Grant No. TF014539 signed between the International Development Association (the "IDA") and the Government of the Republic of Armenia on July 4, 2013. The total amount of the grant was agreed to be US dollars 360,000. The objective of the Grant is to ensure the readiness of the General Education Improvement Project. The Grant consists of the following parts: Part I: Design of School Readiness for Pre-Primary Education and Secondary Education Improvement a. Provision of technical assistance for: (i) designing school readiness enhancement program; and (ii) assessing gaps in preschool coverage for vulnerable populations. b. Provision of technical assistance for: (i) conducting a needs assessment in secondary education to ensure basic functioning of schools and an environment conducive to learning, including an identification of infrastructure needs in priority schools; (ii) preparing prototype engineering designs for school rehabilitation; (iii) carrying out an assessment of policy measures to bring enhancement of quality in rural schools offering grades 10 to 12; (iv) conducting quantitative and qualitative assessments of the high school reforms; (v) designing Project components for strengthening rural education and improving the effectiveness of secondary education; (vi) carrying out a gender analysis of streaming and constraint to access different education tracks; and (vii) learning about new trends and innovations in enhancing the links between upper secondary education and labour markets. Part II: Mainstreaming the Competitive Innovation Fund Provision of technical assistance to: (i) assess the transparency and fairness of Competitive Innovation Fund's (CIF) grants allocation; (ii) design CIF's operating procedures. Grant for the Preparation of the General Education Improvement Project 12 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 Part III: Strengthening System Conditions for Accountability and Effective Teaching a. Provision of technical assistance to: (i) assess National Center of Education Technologies' (NACET) institutional capacity; (ii) develop an action plan to enhance NACET's institutional capacity; and (iii) prepare information communication technology guidelines for student online safety and security. b. Provision of technical assistance to: (i) assess teachers' professional development needs to promote effective teaching and ensure student learning in the Recipient's schools; and (ii) elaborate a strategy for enhancing teacher professional development. Part IV: Project and Grant Specific Activities a. Carrying out of a social and environmental assessment of the proposed Project. b. Preparation of the Project operational manual and development of the result framework for the Project. c. Carrying out of an audit of the activities financed by the Grant. In accordance with the Grant No. TF014539, the financing of the Project is implemented through the following category: Category Percentage of expenses Amount of the to be financed Grant allocated (exclusive of taxes) (in USD) Goods, consultants' services, training and operating costs 100 % 360,000 Total 360,000 The legal address of the PIU is S. Vratsyan 73, Yerevan, Armenia. The average number of the PIU's staff during the period from July 4, 2013 to December 31, 2014 was 31. Grant for the Preparation of the General Education Improvement Project 13 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 2 Significant accounting policies 2.1 Basis of preparation The grant financial statements were prepared in accordance with the accrual basis of accounting, as well as the World Bank guidelines and the relevant points of the Grant No. TF014539. Significant accounting policies are disclosed below. 2.2 Functional and presentation currency The national currency of the Republic of Armenia is Armenian dram. These grant financial statements are presented in US dollars (presentation currency). In preparing the grant financial statements, transactions in currencies other than US dollar are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on that date, which is 405.64 Armenian drams for 1 US dollar as of December 31, 2013 and 474.97 Armenian drams for 1 US dollar as of December 31, 2014. Any exchange rate differences are recognized in the statement of the Grant sources and uses of funds and the accumulated figure of exchange rate difference is disclosed in the Statement of financial position under "Funds". 2.3 Grant financing The financing received in the framework of the Grant No. TF014539 is recorded in the statement of financial position as "Accumulated Grant financing" and is recognized at each replenishment. In addition, the current period funds received are disclosed in the statement of Grant sources and uses of funds, showing the sources of funds. 2.4 Grant expenses The Grant expenses are recognized on the accrual basis of accounting. The accumulated Grant expenses are disclosed in the statement of financial position under non-current assets. In addition, current period expenses are disclosed in the statement of Grant sources and uses of funds and statement of uses of funds by Grant activities. Additionally, a further breakdown of expenses by categories is disclosed in the note 6. 2.5 The World Bank financing To finance eligible expenditures for the Grant No. TF014539, the World Bank disburses proceeds from the Grant account using one or more of the disbursement methods, which are stated below: a. Reimbursement The Bank may reimburse the borrower to finance eligible expenditures that the borrower has prefinanced from its own resources. b. Advance The Bank may advance grant proceeds into a designated account of the borrower to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date. Grant for the Preparation of the General Education Improvement Project 14 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 c. Direct payment The Bank may make payments, at the borrower's request, directly to a third party for eligible expenditures. d. Special commitment The Bank may pay amounts to a third party for eligible expenditures under special commitments entered into, in writing, at the borrower's request and on terms and conditions agreed between the Bank and the borrower. 2.6 Planned expenses As of the end of the period "Planned Expenses" comprise the sum of the amount of "Actual Expenses" as of the end of the previous period and the annual budget expenses of the reporting year. 3. Closing date of the Grant According to the letter on extension of closing date dated February 5, 2014, the Grant closing date was defined as September 30, 2014. 4. Bank balances In US dollars As of December As of December 31,2014 31,2013 Designated account - 44,928 Local account - 19,614 Escrow account 4,550 - 4,550 64,542 Escrow account was opened in the State Treasury of the Republic of Armenia for the payment of audit services. 5. Grant No. TF014539 In US dollars For the period For the year from July 4, 2013 ended to December 31, December 31, As of December 2013 2014 31,2014 SOE procedures 52,159 204,005 256,164 Designated account advance 90,000 - 90,000 Redemption of the designated account advance - (72,783) (72,783) Refund - (17,217) (17,217) 142,159 114,005 256,164 In accordance with the method of financing of "SOE procedures", the PIU should submit the advance request and the statement of expenditures (SOE) to the World Bank. Refunded amounts are the unused funds remaining in a designated account at the end of the Project. Grant for the Preparation of the General Education Improvement Project 15 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 The PIU reports regularly on the use of grant proceeds advanced to a designated account. This is disclosed as a redemption of the designated account advance. 6. Uses of funds by category descriptions The Statement of the Grant sources and uses of funds discloses the expenses in one combined category, as depicted in the Grant No. TF014539. However, for the convenience of certain users, the breakdown of the uses of funds is disclosed in the table below. In US dollars For the year For the period ended from July 4, 2013 to December 31, As of December December 31, 2013 2014 31,2014 Consultants' services 129,329 169,075 298,404 Training - 12,561 12,561 Operating costs - 4,027 4,027 129,329 185,663 314,992 Grant for the Preparation of the General Education Improvement Project 16 Grant financial statements As of December 31, 2013 and for the period from July 4, 2013 to December 31, 2013 As of and for the year ended December 31, 2014 7. Reconciliation between the amounts received by the PlU and disbursed by the World Bank Grant No. TF014539 For the period from July 4, 2013 to December 31, 2013 In US dollars Category Appi. PlU WB Difference Goods, consultants' services, training and operating costs 52,159 52,159 - GDA 2 52,159 52,159 - Designated account advance GDA -1 90,000 90,000 - 90,000 90,000 - Total 142,159 142,159 - Grant No. TF014539 For year ended December 31, 2014 In US dollars Category Appl. PIU WB Difference Goods, consultants' services, training and operating costs GDA 3 45,072 45,072 GDA 4 66,753 66,753 GDA 5 46,383 46,383 - GDA 6 5,014 5,014 - GDA 7 40,783 40,783 - 204,005 204,005 - Redemption of the designated account advance GDA 4 (15,000) (15,000) GDA 5 (15,000) (15,000) GDA 6 (2,000) (2,000) GDA 7 (40,783) (40,783) (72,783) (72,783) Refund (17,217) (17,217) - Total 114,005 114,005 - г ь г i г г i� � � i г г i i i i