RSM Financial Statements and Independent Auditors' Report for Contract for Consultancy Services of Modernization of Public Financial Management Systems Project: (P151357) loan Number IBRD 86830-IQD Ministry of planning / the Republic of Iraq for the Year Ended Dec. 31, 2018 Table of Contents Content Page No. Independent Auditors' Report 2-4 Statement of Project Finance 5 Statement of Sources and Uses of Funds 6 Designated Bank Account Statement - World Bank 7 Notes to the Project Financial Statements 8-13 Annex 1: Results of Sub-Projects Spot Audits 14-15 1 RSM Ahmed Al-Juboorl & Co. LLP Correspondent of RSM International Al-Harthea-Kindy St. Kanary building P.O.BOX 55024 Baghdad - Iraq Mob. +964 7901 857 094 acc.firmoaljuboori.net wwwaaljuboori.net Independent Auditors' Report Opinion: We have audited the financial statements of "Modernization of Public Financial Management Systems Project: (P151357) - Ministry of planning, which comprise the statement of project finance as OF the Dec. 31, 2018, and the related statement of sources and uses of funds, designated bank account statement f from and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the project finance of "Modernization of Public Financial Management Systems the Project (P151357) the client has received a loan from the international bank for Reconstruction & Development (IBRD) toward the cost of the services and to apply a portion of the proceeds of this loan to eligible payments under this , and the related statement of sources and uses of funds, designated bank account statement for the year then ended in accordance with International public sector accounting standards (IPSAS). Basis for Opinion: 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 Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements that are relevant to our audit of the financial statements in areas under the jurisdiction of the Iraqi Authority, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Continuity: The financial statements of the project have been prepared using the basis of accounting continuity. The use of this accounting basis would be appropriate unless the management intended either to liquidate the project or stop the operations, or had no realistic alternative to doing so. As part of our audit of the financial statements, we have concluded that management's use of the basis for continuing accounting in the preparation of the financial statements of the project is appropriate. Management has not identified a material uncertainty that may cast significant doubt on the Project's ability to continue as a going concern, and accordingly none is disclosed in the financial statements. Based on our audit of the financial statements, we also have not identified such a material uncertainty. However, neither management nor the auditor can guarantee the Project's ability to continue as a going concern. THE POWER OF BEING UNDERSTOOD 0 European AUDIT TAX I CONSULTING 0 Business O Awards- RSM Other Matters: Based on our review, in all material respects: 1. The Project expenditures reimbursed on basis of Statements of Expenditures (SOE) are eligible to the Grant Agreement and are reflected on the financial statements. 2. The Designated Bank Account has been used exclusively for payment of eligible expenditures as reflected in the financial statements. 3. The Project's accounting system (Modernization of Public Financial Management Systems), Which is the client's request of the consultant to provide consultancy services as specified in the project to record transactions and prepare financial statements for the contract. 4. Internal control over financial reposting involved in the preparation of replenishments, direct payments, payments through special commitments, and reimbursements can be relied upon to support the related withdrawals. 5. The Project was in all material respects in compliance with the laws, regulations, guidelines and provisions governed by the Grant Agreement. 6. Procurement Guidelines have been properly applied in accordance with the Project's Grant Agreement. Responsibilities of Management and Those Charged with Governance for the Financial Statements: Management is responsible for the preparation and fair presentation of these financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, The mutual rights and obligations of the Client and the Consultant shall be as set forth in the Contract. a. The Consultant shall carry out the Services in accordance with the provisions of the Contract; and b. The Client shall make payments to the Consultant in accordance with the provisions of the Contract. Auditor's Responsibilities for the Audit of the Financial Statements: The objectives of our audit 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 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 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 ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. 3 RSM We Also: 1. 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 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. 2. 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. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. 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. 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. Ahmed aljuboori Ahmed AL - Juboori & C (Correspondent of RS cence 0 Baghdad - Iraq o 18April 2019 O 4 Modernization of Public Financial Management Systems Project: (PI51357) - loan Number IBRD 86830-IQD Statement of Project Finance (All amounts in USD) as of as of Dec 31, 2018 Dec 31, 2017 Assets Current assets Cash at bank 230,244 0 Total current assets 230,244 0 Total assets 230,244 0 Liabilities and fund balance Fund balance 230,244 0 Total iabilities and fund balance 230,244 0 The accompanying notes form an integral part of these financial statements. Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Statement of Sources and Uses of Funds (All amounts in USD) as of as of Dec 31, 2018 Dec 31, 2017 Fund balance - opening bank account 0 0 IBRD Designated Account 250,000 0 Total sources of fund 250,000 0 Uses of funds Less Payments by Project Category Goods 8,506 0 Consltant Services 7,259 0 Opearating Cost 3,991 0 Total uses of funds 19,756 0 0 Change in fund balance (230,244) 0 The accompanying notes form an integral part of these financial statements. 6 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Designated Bank Account Statement- World Bank (All amounts in USD) Bank Account number 0002-008249-001 LBank name TRADE BANK OF IRAQ Address AL- Hartheya BRANCH Related loan/ credit IBRD 86830 IQ Currency U.S. Dollar (USD) as of as of Dec 31, 2018 Dec 31, 2017 Balance - beginning of year 0 0 Amount advanced by World Bank (or Cofinancier 250,000 0 Total 250,000 0 Unclaimed Expenses (19,756) 0 Balance - End of year 230,244 0 * The accompanying notes form an integral part of these financial statements. 7 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Notes to the Project Financial Statements (All amounts in USD) 1. The Project and its Financing This CONTRACT (hereinafter called the "Contract") is made the 27 day of the month ofNovember, 2018, between, on the one hand, the Federal Ministry of Planning of the Republic of Iraq (hereinafter called the "Client") and, on the other hand, Al-Juboori & Co. (hereinafter called the "Consultant"). WHERE: A- The Client has requested the Consultant to provide certain consulting services as defined in this Contract hereinafter called the Services. B- the Consultant, having represented to the Client that it has the required professional skills, expertise and technical resources, has agreed to provide the Services on the terms and conditions set forth in this Contract. C- the Client has received a loan from the International Bank for Reconstruction and Development (IBRD) toward the cost of the Services and intends to apply a portion of the proceeds of this loan to eligible payments under this Contract, it being understood that (i) payments by the Bank will be made only at the request of the Client and upon approval by the Bank; (ii) such payments will be subject, in all respects, to the terms and conditions of the loan agreement, including prohibitions of withdrawal from the loan account for the purpose of any payment to persons or entities, or for any import of goods, if such payment or import, to the knowledge of the Bank, is prohibited by the decision of the United Nations Security council taken under Chapter VII of the Charter of the United Nations; and (iii) no party other than the Client shall derive any rights from the loan agreement or have any claim to the loan proceeds. The Project consists of the following components: Modernization of public financial management systems project (p 151357) Statement of Comparison between Actual and Budgeted Cash Payments by Component/Category For the Year Ended Dec. 31, 2018 Category Budget (USD) Goods 8,506 Consultant Services 7,259 Operating Cost 3,991 Total 19,756 8 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD 2. Summary of Significant Accounting Policies The Project financial statements are prepared as per government applicable standards for internationally funded projects. Significant accounting policies follow: * Basis of accounting The Project financial statements are prepared using the cash basis of accounting, which is a comprehensive basis of accounting other than International Financial Reporting Standards (IFRS). Under this basis of accounting, sources of funds are recognized when related cash is received from the World Bank and uses of funds are recognized When the World Bank pays in cash. 9 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Notes to the Project Financial Statements - (continued) 3. Sources of Funds Up to Dec 31, 2018, received the following payments from the World Bank for the Project purposes: Withdrawal Application (WA) Date of Advance Number Fund Transfer Payment Cumulative amount up to December 31, 2018 Commission purchase of a Apr number of instruments (1) 1,2018 12 12 Loan transfer commission / Apr 1125 1125 1, 2018 Settlement of the advance of the May /3112 3112 Procurement Committee 22, 2018 Settlement of the advance of the June Procurement Committee 5, 2018 Commission return instrument / Jul8 17, 2018 Oct Account fee 2 2 8, 2018 Commission disclosure for the December month of 2 6,2018 Payment of dues of Ras Al December 186 186 Baramah transfer commission 23, 2018 The amount of the transfer commission of the salary of december 30, 104 104 consultant Mohamed Ahmed 2018 Against fixed assets / December 30, 2018 Purchase Advance / Mazen deyaa 2110276 Apr __________ 4, 2018// Buy 2 cloning machines / 2110277 Apr 5494 subtracting Tamils 16, 2018 Advertising 2110278 Jun 420 420 27, 2018 Translation 2110280 Jul 236 236 26, 2018 Advertising 2110279 Jul 300 300 2018 '26 Provision for dispatch 2110282 Nov 1227 1227 22, 2018 Contract Translation Value 2110284 Nov 180 180 7, 2018 Sending a Courier 2110286 Nov 55 55 7, 2018 The salary of the consultant Sadiq 2110287 Nov Abdel Hamza 26, 2018 Pay phone calls 2110288 Non 32 32 27, 2018 Salary expenses of Mohammed Bank December Abdullah Ahmed consultant transfer 5,2018 6359 6359 Cumulative amount up to December 31, 2018 19,756 10 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Notes to the Project Financial Statements - (continued) (All amounts in USD) 4.Summary of Significant Accounting Policies * Foreign currency The Project's basic functional currency is the United States Dollar (USD). Transactions that are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Differences arising from the fluctuations in exchange rates were treated as exchange gains or losses in the statement of sources and uses of funds and designated bank account statement. 5. Reconciliations between World Bank Records (Client Connection) and Moesha Records as of Dec 31, 2018 Project account per the client connection opening bank account 0 IBRD Designated Account 250, 000 Total 250, 000 Less Payments by Project Category Goods (8,506) Consltant Services (7,259) Opearating Cost (3,991) Amount in Designated Account at: 230,244 31/12/2017 11 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Annex 1 Results of Sub-Projects Spot Audits Introduction The current fiscal crisis in Iraq exerts pressure to move ahead with Public Financial Management (PFM) reform to help strengthen fiscal sustainability. In the immediate term, the Government is seeking external financing to close the financing gap and has committed to a number of structural reforms to address inefficiencies and adjust the budget to a situation of permanently lower oil revenues. In this context, Iraq needs to contain expenditure growth, improve revenue generation, and therefore, undertake a credible, paced, and sustainable fiscal consolidation. The Federal Government also needs to undertake systematic reforms to develop a higher degree of efficiency in public spending through rigorous cash management and rationalization of capital investment. Implementing the current PFM reform program and the Government's longer-term vision will require flexibility and adaptability. Project Back2round The project development objective (PDO) is to improve financial information management and transparency, cash management, public investment management, and public procurement modernization at selected federal and governorate agencies. The activities of the proposed project (US$41.5 million) are fully aligned with the World Bank Group's strategic goals of ending extreme poverty and boosting shared prosperity in a sustainable manner, through better budget and Treasury management to support public service delivery. As strong PFM foundations are necessary to support the incremental and long-term rebuilding of the state institutions that were systematically weakened over the last 30 years, the project is also aligned with renewing the social contract pillar of the World Bank Group's Middle East and North Africa Regional Strategy. 12 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD Project Components The project components are summarized below: Table 1. Project Components COMPONENTS RESPONSIBILITY Component 1: Public Financial Management 1.1 IFMIS design and initial implementation Federal Ministry of Finance (MoF) 1.2 PFM capacity development Federal MoF 1.3 Internal audit modernization at the Federal MoF Federal MoF 1.4 PFM systems at the subnational level Federal MoF (coordinating with pilot governorates) 1.5 Project management and reform coordination Federal MoF Component 2: Public Investment Management and Public Procurement at the Federal Level 2.1 PIMS strengthening Federal Ministry of Planning (MoP) 2.2 Public procurement modernization Federal MoP 2.3 Project management and reform coordination Federal MoP Component 3: Public Investment Management and Public Procurement at the KRG Level 3.1 PIMS strengthening KRG Ministry of Planning (MoP) 3.2 Public procurement modernization KRG MoP 3.3 Project management and reform coordination KRG MoP The project components and activities have been chosen to ensure gradual and interlinked development of systems and capacity to enable better budget and fiscal management. For instance, by including both the Integrated Financial Management Information System (IFMIS) and Public Investment Management System (PIMS) reforms, a more integrated approach to capital and recurrent budgeting practices will be fostered, resulting in more useful Medium Term Expenditure Frameworks (MTEFs) and credible annual budgets. The interfaces between the IFMIS, the Integrated Bank of Projects (IBP), and the e-procurement single portal will also result in more accurate and efficient generation of data for budget management, as well as for transparency to citizens. Capacity in budget planning and execution must be strongly linked with project preparation and contract management skills. In turn, the investment in creating an Internal Audit (IA) function will establish the foundations for future risk-based assurance over the Government's implementation of budget, public investment, and procurement processes. The Project Management Teams (PMTs) of the Federal Ministry of Finance (MoF) and the Federal Ministry of Planning (MoP) are taking responsibility for implementing Component 1 and Component 2 of the Project, respectively. 13 Modernization of Public Financial Management Systems Project: (P151357) - loan Number LBRD 86830-IQD The Federal Ministry of Finance (MOF) is responsible for implementing Component 1- Public Financial Management (PFM) of the Project which includes carrying out of a comprehensive program of technical assistance and related support required for: (a) (i) The development and implementation of an IFMIS, including planning, project management, installation (including minor indoor renovations of MoF's existing data center and data recovery center, and establishing last-mile connections between enduser office buildings and the Borrower's central network backbone), configuration, technical support, and roll out in selected ministries and the targeted governorates; and (ii) provision of training to end-users and change management support to facilitate the transition to the IFMIS. (b) Capacity building for PFM to strengthen budget and financial management practices (including budget formulation and execution and financial accounting and reporting), through inter alia: (i) the development and implementation of a capacity development strategy; and (ii) the provision of training and change management support. (c) Strengthening the internal audit function within MoF, including through the carrying out of an audit risk assessment, the development of strategic audit plans, and the execution of audit engagements. (d) Strengthening of PFM systems in the targeted governorates, including through reinforcing accountability mechanisms; strengthening planning, budgeting, accounting, controls, reporting and procurement systems; and developing budget execution and monitoring systems. (e) The provision of support to MoF for project implementation and management, including procurement, financial management, and coordination. 14 Modernization of Public Financial Management Systems Project: (P151357) - loan Number IBRD 86830-IQD While the Federal Ministry of Planning (Mop) is responsible for implementing Component: 2- Public Investment Management and Public Procurement at the Federal Level which includes Carrying out of a comprehensive program of technical assistance and related support required for: (a) The modernization and strengthening of the PIM system at the federal level, including through: (i) the carrying out of a capacity needs assessment for MoP; (ii) PIM capacity building for MoP staff and relevant government stakeholders; (iii) updating and improving project appraisal methodologies and guidelines, including instructions, guidelines and templates; (iv) development of a framework for ex-post project evaluation; (v) strengthening the specialized PIM unit within MoP; (vi) development of an integrated bank of investment projects, to support investment planning and decision making, to track and monitor investments, and to serve as an investment project registry; (vii) updating and strengthening the Borrower's legal and regulatory framework for PIM; and (viii) developing a PIM/IDMS interface within the IFMIS developed under Component 1 of the Project. (b) The modernization and strengthening of public procurement at the federal level, including through: (i) the development of and roll out of standard bidding documents and framework agreements; (ii) the establishment of an electronic procurement portal; and (iii) capacity building and professionalization of the public sector procurement workforce. (c) The provision of support to MoP for project implementation and management, including procurement, financial management, and coordination. 15