“Higher Education Project” Grant No. D082-TJ, Credit No. 5702-TJ The project financial statements for the year ended December 31, 2018 and independent auditors’ report “HIGHER EDUCATION PROJECT” GRANT NO. D082-TJ, CREDIT NO. 5702-TJ TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 2 INDEPENDENT AUDITORS’ REPORT 3-4 THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 Summary of funds received and expenditures paid 5 Summary of expenditures paid by project components 6 Notes to the project financial statements 7-13 STATEMENT ОF MANAGEMENT,S RESPONSIBILITIES FOR ТНЕ PREPARATION AND APPROVAL ОF ТНЕ PROJECT FINANC|AL STATEMENTS FОR ТНЕ YEAR ENDED DEGEMBER 31, 2018 The following statement, which should Ье геаd iп conjunction with the independent auditors' responsibilities is made with а view to distinguish the respective responsibilities of management and those of the independent auditoгs in relation to the рrоjесt financial statements of the Ргоjесt "Нighеr Education Рrоjесt", Grапt No. D082-TJ, Credit No. 5702-TJ (the "Project"). Management is rеsропsiЬlе fоr the рrераrаtiоп of the рrоjесt financial statements that рrеsепt fаirlу, iп all mаtегiаl rеsресts, the summary of funds received and expenditures paid and the summаrу of expenditures paid ЬУ project components fоr the уеаr ended DесеmЬеr 31, 201В in ассоrdапсе with lпtеrпаtiопаl Public Sесtоr Accounting Stапdаrd "Fiпапсiаl Rерогtiпg Uпdеr the Cash Basis of Accounting" (the "lPSAS") issued Ьу the lnternational Public Accounting Standards Воаrd of the lпtеrпаtiопаl Fеdеrаtiоп of дссоuпtапts and the Wоrld Bank's Fiпапсiаl Management Sector Board's "Guidelines: Аппчаl Financial Rероrtiпg and Auditing fоr World Bank Financed Activities" (the "WB Guidelines"). ln рrераriпg the рrоjесt financial statements, management is геsропsiЬlе fог: . selecting suitable accounting policies and applying them consistently; . making judgments and estimates that аrе rеаsопаь|е and prudent; . stating whether lpsAs and wB Guidelines have Ьееп followed, subject to апу material dерагtчrеs disclosed and e;Kplained iп the project financial statements; and . рrерагiпg the рпэjесt financial statements оп а going сопсегп basis, unless it is iпаррrоргiаtе to рrеsumе that the Ргоjесt ,иrrill сопtiпче its activity fоr the fогеsееаЬlе future. Мапаgеmепt is also responsible fоr: . designing, implementing and maintaining effective and sound system of internal сопtгоl and fоr rечеаliпg risks in system of iпtеrпаl сопtrоl; о maintaining рrорlеr accounting гесоrds that disclose, with rеаsопаьlе ассчrасу at апу time, the financial position of the Project, and which enable them to епsuге that the project financial statements of the Project соmрlу with lPSAS and WB Guidelines; . comp|iance with laws and regulations of the Republic of Tajikistan, accounting system of the project and the rеquirеmепts of the Wоrld Bank; о taking such steps as аrе rеаsопаьlу avai|able to them to safeguard the assets of the Рrоjесt; and . detecting and preventing fraud апd оthеr irrеgulаritiеs. The project financial statements fоr the уеаr ended DесеmЬеr 31, 201В wеrе аррrочеd and аuthогizеd fоr issue оп Мау 10, 2019 Ьу the management of the Project. Nб Оп behalf of the Management: iN. Said Minister of Education and science Accountant the Republic of Tajikistan Мау 10,2019 Мау 10,2019 Dushanbe, Republic of Tajikistan Dushanbe, Republic of Tajikistan 65 Stefan cel Mare şi Sfânt Blvd 5th Floor, Office 507 2001 Chisinau Moldova T: +373 22 233003 F: +373 22 234044 info@bakertilly.md www.bakertilly.md INDEPENDENT AUDITORS’ REPORT To the management of the Project “Higher Education Project” under the Ministry of Education and Science of the Republic of Tajikistan and the State Committee on Investments and Government Property Management of the Republic of Tajikistan: Report on the project financial statements Opinion [1] We have audited the project financial statements of the Project “Higher Education Project” (the “Project”), which comprise the summary of funds received and expenditures paid and the summary of expenditures paid by project components for the year ended December 31, 2018, and a summary of significant accounting policies and other explanatory information (the “project financial statements”). [2] In our opinion, the accompanying project financial statements present fairly, in all material respects, the summary of funds received and expenditures paid and the summary of expenditures paid by project components of the Project for the year ended December 31, 2018 in accordance with International Public Sector Accounting Standard “Financial Reporting Under the Cash Basis of Accounting” (the “IPSAS”) issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, and the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”) Basis for opinion [3] We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the project financial statements section of our report. We are independent of the Project 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 our audit of the financial statements, and we have fulfilled our other 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. Emphasis of matter [4] Without qualifying our opinion, we draw attention to Note 2 to the project financial statements, which describes the basis of accounting. These project financial statements were prepared for complying with the appropriate World Bank Guidelines and Financing agreements requirements. Other matter [5] The project financial statements are prepared to assist the Project to comply with the requirements of the World Bank. As a result the project financial statements may not be suitable for another purpose. [6] We draw attention to Note 13 “Events after the reporting date” to the project financial statements which describes that the World Bank rated progress towards achievement of the Project development objective as moderately unsatisfactory during mission visit by the World Bank on January 7, 2019. ADVISORY  ASSURANCE  TAX ICS Baker Tilly Klitou & Partners SRL trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. 3 "H!GHER EDUcATloN PRoJEcT,, GRANT No. D082_TJ, cREDlT No.5702_TJ SUMMARY ОF FUNDS RECEIVED AND EXPENDITURES PAID FoR тнЕ YEAR ENDED DECEMBER 31, 2018 (,h US dollars) Notes Fоr the уеаr Fоr the year cumulative ended ended DесеmЬеr 31, DесеmЬеr 31, 201 8 2017 Орепiпg balance 709,466 464,265 Funds received lDA Grant No. D082-TJ 5 756,549 1,256,549 lDA Credit No. 5702-TJ 5 Total funds received 756,549 1,256,549 Project expenses Goods, works, non-consulting services, and consultants' seгvices, grants, training and iпсrеmепtаl operating costs 544,070 512,029 1,091,834 Total project expenses 544,070 ,1,091,834 512,029 Foreign exchange gain / (loss) бз2 681 1 ,313 Closing Ьаlапсе 4 _______lý9д?ý_ _____laщqg_ 166,028 On behalf of the Management: #Ф :il,'{trЫi; yaid 11,1. Minister of Education and science of the Republic of Tajikistan Мау 10,2019 Мау 10,2019 Dushanbe, Republic of Tajikistan Dushanbe, Republic of Tajikistan The notes оп pages 7-13 form an iпtеgrаl рагt of the project financial statements. The independent auditors' rерогt is оп pages 3_4, "HlGHER EDUcATloN PRoJEcT,, GRANT No. D082-TJ, cREDIT No.5702_TJ SUMMARY ОF EXPEND|TURES PAlD BY PROJECT COMPONENTS FoR тнЕ YEAR ENDED DECEMBER 31, 2018 (iп US dollars) Fоr the уеаr Fоr the уеаr cumulative ended ended DесеmЬеr 31, DесеmЬеr 31, 20,18 2017 Соmропепt 1. lnstitutional level improvements з21,411 439,002 764,089 Component 2. System level interventions 158,647 23,600 18з,904 Component 3. Project management, mопitоriпg and evaluation 64,012 49,427 143,841 544,070 512,029 1,091,834 Оп behalf of the Management: {# БАрои jN цБул вд аа пАрдохти ммлАЁJ(о Е: r'.C/ ыб .+// Amirov Minister of Education and science chief Accountant the Republic of Tajikistan Мау 10, 2019 Мау 10,2019 Dushanbe, Republic of Tajikistan Dushanbe, Republic of Tajikistan The notes оп pages 7-13 fоrm ап integral рагt of the project financial statements, The independent auditors' rерогt is оп pages 3-4. 6 “HIGHER EDUCATION PROJECT” GRANT NO. D082-TJ, CREDIT NO. 5702-TJ NOTES TO THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) 1. GENERAL INFORMATION According to the Financing Agreements between the Republic of Tajikistan and International Development Association (the “IDA”) signed on August 7, 2015, the IDA provided a Grant No. D082-TJ in the amount of 4,900,000 Special Drawing Rights and a Credit No. 5702-TJ in the amount of 6,000,000 Special Drawing Rights to the Republic of Tajikistan. The financing was provided for the Project “Higher Education Project” (the “Project”). Project purpose The objective of the Project is to develop mechanisms that improve and monitor the quality and labor- market relevance of higher education. The Project comprises the following components: Component I: Institutional level improvements; Component II: System level interventions; Component III: Project management, monitoring and evaluation. Component I: Institutional level improvements. Sub-component 1.1: Just-in-Time Grants to Re/Up Skill Workforce Provision of grants (Just-in-Time Grants) to Eligible Education Institutions to develop and deliver short- term programs or courses that align with the sectors, skills and competencies in immediate demand in the labor market, all in accordance with the Project Operation Manual (the “POM”). Sub-component 1.2: Competitive Grant Program for Universities Establishment and operation of a Competitive Grant Program through the provision of grants (Competitive Grants) to Eligible Education Institutions to develop and deliver short-term program or courses that align with the sectors, skills and competencies in immediate demand in the labor market, all in accordance with the POM. Component II: System level interventions. Sub-component 2.1: Quality Assurance Enhancements Capacity development for monitoring and improving quality of higher education through (a) implementing minimum standards for conducting and reporting on graduate tracer studies; (b) building capacity of the relevant Recipient’s authorities and higher education institutions for quality assurance consistent with the European Standards and Guidelines for Quality Assurance in the European Higher Education Area; and (c) developing, piloting, and approving new standards and guidelines for external and internal quality assurance at institutions of higher education. Sub-component 2.2: System-Wide Education Curriculum Reform Provision of support to the Recipient’s reform of state-defined curriculum at the university level by (a) conducting a detailed employer survey similar to the Skills Towards Employability and Productivity (the “STEP”) measurement survey; and (b) assisting with revising t he state-defined curriculum for no less than five clusters of academic specialties. Sub-component 2.3: Assessment of Higher Education Financing Carrying out of assessment of the Recipient’s approach to financing mechanisms for higher education. 7 Component III: Project management, monitoring and evaluation. Provision of support to the Ministry of Education and Science of the Republic of Tajikistan for Project coordination, communication, implementation, management, monitoring and evaluation through the provision of goods, consultants’ services, non-consulting services, Training, and Incremental Operating Costs, including Project audits. Project management The Project is implemented by the Ministry of Education and Science of the Republic of Tajikistan. The Financing Agreements were signed on August 7, 2015 and became effective on January 4, 2016. The closing date of the Project is October 31, 2021. 2. PRESENTATION OF THE PROJECT FINANCIAL STATEMENTS Basis of preparation These project financial statements have been prepared in accordance with the International Public Sector Accounting Standard (the “IPSAS”) “Financial Reporting under the Cash Basis of Accounting” issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply with the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”). Under the cash basis system income (or expenditure) is recognized when cash is received (or paid) irrespective of when goods or services are received or provided. The Project’s approved budget disclosed by categories of expenses is not publicly available and as such comparison of budget and actual amounts is not presented. These project financial statements consist of: • Summary of funds received and expenditures paid; • Summary of expenditures paid by project components; • Notes to the project financial statements, including short description of main statements of accounting policy and other descriptive notes. The reporting currency of these project financial statements is US dollars (the “USD”). 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash basis of accounting The project financial statements are prepared on a cash basis of accounting. The cash basis of accounting recognizes transactions and events only when cash (including cash equivalents) is received or paid by the Project. The project financial statements prepared under the cash basis provide information on the sources of funds, the purpose of uses of funds, and cash balances at the reporting date. The measurement focus in the project financial statements is balances of cash and changes therein. Foreign currency Operations in foreign currency initially are counted in functional currency by the official currency exchange rate settled by the National Bank of Tajikistan (the “NBT”) on a date of operation. Funds received are translated into US dollars at official exchange rate of Special Drawing Rights (the “SDR”) at the date of funds receipt. All payments made in local currency are translated into US dollars at the official exchange rate defined by NBT, at the date of transaction. 8 Monetary assets and liabilities expressed in foreign currency are converted to functional currency at official exchange rate on a date settled by the NBT. All foreign exchange differences resulted from maturity or recounting are included in the summary of funds received and expenditures paid. Non-monetary items are valued according to their historic cost in foreign currency, which are recalculated on rates of the initial operation date. Cash and cash equivalents Cash and cash equivalents include cash on hand and due from banks, which can be converted to the corresponding amount of cash in the short term. Balances of advances paid to employees at the end of the period are also part of closing cash position. Taxes Calculation and payment of personal income tax and social security contributions from income of local staff and consultants is made in accordance with the requirements and rates of the Tax Code of the Republic of Tajikistan and relevant legislation of the Republic of Tajikistan. Project expenses The expenses are recorded in the period when they were actually paid. Sources of funds The funds were provided by the World Bank to the Project by advance and reimbursement. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at December 31, 2018 and 2017 comprise: Source of financing Currency December 31, December 31, 2018 2017 Designated account Grant No. D082-TJ USD 165,833 709,245 Transit account Grant No. D082-TJ TJS 49 21 Cash on hands Grant No. D082-TJ TJS - 180 Advances to employees Grant No. D082-TJ TJS 146 20 166,028 709,466 5. FUNDS RECEIVED The funds received are presented by the following financing methods and sources of financing: For the year ended For the year ended Cumulative December 31, 2018 December 31, 2017 Grant No. Credit No. Grant No. Credit No. Grant No. Credit No. D082-TJ 5702-TJ D082-TJ 5702-TJ D082-TJ 5702-TJ Advances - - 300,000 - 800,000 - Reimbursement - - 456,549 - 456,549 - - - 756,549 - 1,256,549 - 9 6. PROJECT EXPENSES The Project expenses by components are presented in the summary of expenditures paid by project components. The Project expenses on major categories are presented in the summary of funds received and expenditures paid. Breakdown of the Project expenses by nature and by sources of financing is presented as follows: Grant No. D082-TJ For the year For the year Cumulative ended ended December 31, December 31, 2018 2017 Just-in-time grants 54,791 396,741 451,532 Competitive Grant Projects 246,718 - 246,718 Local consultants 75,551 69,046 158,818 International consultants 56,922 40,456 97,378 Goods 44,869 - 59,852 Accreditation quality of education 42,980 - 42,980 Stationery 4,365 - 9,754 Audit expenses 9,411 - 9,411 Business trip expenses 2,685 4,717 8,376 Trainings 2,630 - 2,630 Other expenses 3,148 1,069 4,385 544,070 512,029 1,091,834 7. FINANCIAL POSITION Financial position as at December 31, 2018 and 2017 comprises: December 31, December 31, 2018 2017 ASSETS AND EXPENDITURES Cash and cash equivalents 166,028 709,466 Cumulative project expenses 1,091,834 547,764 TOTAL ASSETS AND EXPENDITURES 1,257,862 1,257,230 FINANCING Funds received 1,256,549 1,256,549 Foreign exchange gain 1,313 681 TOTAL FINANCING 1,257,862 1,257,230 8. WITHDRAWAL APPLICATIONS There were no withdrawal applications for the year ended December 31, 2018. 10 9. STATEMENT OF DESIGNATED ACCOUNT Statement of designated account for the year ended December 31, 2018 comprise: Designated account Grant No. D082-TJ Bank CJSC “Spitamen Bank” Currency US Dollars Bank account 20206840680800000419 Bank’s location 4 Shamsi str., Dushanbe, 734064, Republic of Tajikistan Balance as at January 1, 2018 709,245 Total funds received - Expenses paid 87,660 Transfer between accounts 455,752 Balance as at December 31, 2018 165,833 10. UNDRAWN FUNDS As at December 31, 2018 undrawn funds are presented as follows: Grant Credit No. D082-TJ No. 5702-TJ in SDR in SDR Approved financing amount 4,900,000 6,000,000 Disbursed for the period from January 1, 2016 to December 31, 2018 904,594 - Undrawn financing amount 3,995,406 6,000,000 Financing received as at January 1, 2018 904,594 - Disbursed in 2018 - - Financing received as at December 31, 2018 904,594 - 11. COMMITMENTS In the normal course of activities, the Project concludes agreements with suppliers of goods and services in accordance with the established budget and procurement plan. Contract value of obligations valid as at December 31, 2018 was as follows: Counterparty Contract No. Currency Contract Paid up to Remaining value December 31, amount to be 2018 paid Institute of Business and Service №06/1 TJS 2,938,135 293,813 2,644,322 ETTSU of Commerce in Khujand №04/1 TJS 2,880,900 288,090 2,592,810 Tajik Technical University named after M. Osimi №02/2 TJS 2,662,551 266,256 2,396,295 Russian-Tajik Slavic University №08/1 TJS 2,566,072 256,607 2,309,465 Tajik State Medical University named after Abu Ali Ibn Sino №01/1 TJS 2,540,300 254,030 2,286,270 Tajik State University of Commerce №05/1 TJS 2,491,507 249,151 2,242,356 Tajik State University of Finance and Economy №07/1 TJS 2,293,111 229,311 2,063,800 11 Counterparty Contract No. Currency Contract Paid up to Remaining value December 31, amount to be 2018 paid State University of Dangara №09/1 TJS 2,257,394 225,793 2,031,601 Bokhtar State University named Nosiri Khusrav №03 TJS 1,252,328 125,232 1,127,096 Khorog State University named after M. Nazarshoev №10/2 TJS 400,150 40,015 360,135 Tajik State University of Commerce №13/2 TJS 352,580 35,258 317,322 Tajikistan Institute of Energy №11/2 TJS 342,216 34,222 307,994 Public organization “Peshsaf” CQS/2016-04 TJS 350,000 52,500 297,500 LLC “Punbachi” CQS/2016-01 TJS 278,594 28,000 250,594 Fund of Arkhimed CQS/2016-02 USD 286,534 42,980 243,554 Tajik Technical University named after M. Osimi №12/2 TJS 269,961 26,996 242,965 Islamic Institute of Tajikistan №1/17 TJS 223,155 - 223,155 Education center Dushanbe city №1/13 TJS 251,199 50,239 200,960 Center of Foreign Languages in Dushanbe №1/1 TJS 239,981 47,996 191,985 Engineering Pedagogical College in Dushanbe №1/11 TJS 237,000 47,390 189,610 Professionalism of Serve and Tourism in Dushanbe city №1/02 TJS 236,893 47,408 189,485 Institute of Economics and Trade in Tajik State University in Khujand №1/3 TJS 236,250 47,250 189,000 Russian-Tajik Slavic University №1/5 TJS 228,323 45,665 182,658 Educational Center of the society “Dusti” №1/20 TJS 225,594 45,119 180,475 State University of Dangara №1/18 TJS 224,907 44,981 179,926 LLC “Nuri Khirad” №1/08 TJS 222,608 44,522 178,086 Tajik Technical University №1/15 TJS 221,730 44,346 177,384 Polytechnic Institute of Tajik Technical University named after M. Osimi №1/4 TJS 209,602 41,922 167,680 Tajik Pedagogical University named after S. Ayni №1/19 TJS 193,067 38,613 154,454 Tajik Technological University №1/10 TJS 180,880 36,176 144,704 State institution of training center in Khuroson №1/16 TJS 163,495 32,699 130,796 Tajik Metallurgy Institute №1/07 TJS 142,500 28,500 114,000 Institute of Technology and Management in Kulob №1/21 TJS 132,130 26,426 105,704 Universety of “Tartu” CQS/2016-05 USD 95,538 9,660 85,878 Branch of the Tajik Technological University in Isfara №1/6 TJS 60,800 12,088 48,712 Olena Famiar IC/2016-04 USD 33,333 5,625 27,708 Matin Holmatov IC/2016-03 USD 47,140 25,000 22,140 Carine Arutunyan IC/2016-16 USD 31,107 11,394 19,713 12. LEGAL CASES There were no any legal cases related to the Project. 13. EVENTS AFTER THE REPORTING DATE During 2019 until the date of issue of these project financial statements the World Bank provided financing to the Project as follows: Financing source Value Date Financing method Application Amount Grant No. D082-TJ February 14, 2019 Reimbursement 4 633,972 The World Bank team conducted an implementation support mission for the Protect between January 7 - 11 2019, and noted that the overall project implementation is significantly behind schedule. The Project has been effective for two and a half years however it has disbursed only 8.4% of total the Project funds. 12 Key data and ratings of the project were assessed as follows: Project Ratings: Previos Current Project Development Objective Satisfactory Moderately Unsatisfactory Implementation progress Moderately Satisfactory Moderately Unsatisfactory Component 1 – 12.7 million Moderately Satisfactory Moderately Unsatisfactory Component 2 – 1.7 million Moderately Satisfactory Moderately Unsatisfactory Component 3 – 0.6 million Moderately Satisfactory Moderately Unsatisfactory Project Management Moderately Satisfactory Moderately Unsatisfactory Procurement Moderately Unsatisfactory Moderately Unsatisfactory As at the date of issue of the project financial statements no other significant events or transactions occurred, except for the events or transactions described above. 13