The Federal Democratic Republic of Ethiopia Audit Services Corporation INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE II We have audited the accompanying financial statements of Urban Local Government Development Project II of the Federal Democratic Republic of Ethiopia, Ministry of Finance and Economic Development, financed under IDA Credit no. 54350 ET, which comprise the balance sheet as at 7 July 2015, and the statement of sources and uses of funds and the designated account statement for the year then ended and a summary of significant accounting policies and other explanatory information. Responsibility for the Financial Statements The Ministry of Finance and Economic Development is responsible for the preparation and fair presentation of these financial statements in accordance with the Ethiopian Government's Manual of the Federal Accounting System based on a modified cash basis of accounting and for such internal control as it determines is necessary to enable the preparation of 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 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 251-011-x25 1-011-5513083 E-mail: ASC Weth ionet.con K 5720 251-01 1-5535012 Opinion in our opinion the financial statements give a true and fair view of the financial position of Urban Local Government Development Project phase II of the Federal Democratic Republic of Ethiopia, Ministry of Finance and Economic Development, financed under IDA Credit no. 54350 ET as at 7 July 2015 and of its financial performance and its sources and uses of funds for the year then ended in accordance with the Ethiopian Government Manual of the Federal Accounting System based on a modified cash basis of accounting. Reports on other requirements As required by the World Bank guidelines we report that, to the extent we can assess:- - during the year IDA funds have been used in accordance with the conditions of the relevant financing agreements and only for the purposes for which the financing were provided; - counter-part funds have been provided and used in accordance with the financing agreement and only for the purposes for which the financing was provided; - goods, works and services financed have been provided in accordance with the relevant financing agreements and disbursement letters: - all necessary supporting documents, records and accounts have been maintained in respect of all Project's activities; - the funds disbursed covered expenditures that are eligible for financing under IDA Credit No. 54350 ET; - there was a clear linkage between the books of account and the financial statements; - our examination revealed no major weaknesses or irregularities in the systems of internal controls over financial expenditure other than those mentioned in the management letter; - designated accounts have been maintained in accordance with the provisions of the financing agreement and funds disbursed out of the said accounts were used only for the purpose intended in the financing agreement; and - with respect to IFR based withdrawal applications submitted during the year ended 7 July 2015 and listed on page 11, in our opinion; a) the applications, together with the procedures and internal controls involved in their preparation, can be relied upon to support the relevant withdrawals; b) adequate supporting documentation has been maintained to support claims to IDA for reimbursements of expenditures incurred; and c) which expenditures are eligible for financing under IDA Credit Number 54350 ET. rA 1 January 2016 2 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE II IDA CREDIT NUMBER 54350 ET BALANCE SHEET AS AT 7 JULY 2015 2015 Notes Birr ASSETS CURRENT ASSETS Advances 3 210,702,783 Cash and bank balances 4 2263,964,316 2,474,667,099 CURRENT LIABILITIES Accounts payable 5 254,838,979 NET ASSETS 2,21982.20 FINANCED BY ACCUMULATED FUND 6 2.219.820 The notes on pages 7 to 11 form an integral part of these financial statements. MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE 11 IDA CREDIT NUMBER 54350 ET STATEMENT OF SOURCE AND USES OF FUNDS FOR THE YEAR ENDED 7 JULY 2015 Year ended 7 July 2015 Birr FINANCING Credit from IDA 2,959,376,434 Contributions from Regions and Cities 696,416,752 Gain on foreign exchange 16,932,120 TOTAL FINANCING 3,672,725.306 PROJECT EXPENDITURE Works 1,323,691,827 Consultancy services 16,032,273 Training 113,173,086 TOTAL PROJECT EXPENDITURE 1.452,897.186 EXCESS OF FINANCING OVER EXPENDITURE 2,219,828,120 The notes on pages 7 to 11 form an integral part of these financial statements. 4 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE 11 IDA CREDIT NUMBER 54350 ET DESIGNATED ACCOUNT STATEMENT For year ended 7 July 2015 Account number 0100101300487 Depository bank National Bank of Ethiopia Address Addis Ababa, Ethiopia Related credit IDA Credit No. 54350 ET Currency USD Ethiopian USD Birr Beginning balance - 8 July 2014 Add: IDA Grant during the year 145,690,083.45 2,959.376,434.20 145,690,083.45 2,959,376,434.20 Less: Transfer to Birr account 63,227,000.00 1,278,740,010.60 82,463,083.45 1,680,636,423.60 Gain on foreign exchange - 16,932,119.68 Ending balance - 7 July 2015 82.46.083I45 1,697.568.543.28 The notes on pages 7 to 11 form an integral part of these financial statements. 5 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE 11 IDA CREDIT NUMBER 54350 ET DESIGNATED ACCOUNT STATEMENT For year ended 7 July 2015 Account number 0100101040661 Depository bank National Bank of Ethiopia Address Addis Ababa, Ethiopia Related credit IDA Credit No. 54350 ET Currency Ethiopian Birr Beginning balance - 8 July 2014 Transfer from USD Designated Account 1,278,740,011 Less: Transfer to beneficiaries Afar 2,480,325 Tigray 206,537,165 Amhara 289,506,337 Oromiya 298,362,131 Southern Nations, Nationalities and Peoples Regional State 221,237,199 Harari 37,361,307 Dire Dawa 84,762,566 Ministry of Urban Development, Housing and Construction 102,033,857 MoFED Finance 700,000 Benishangul gumuz 3,686,721 Gambela 5,542,887 Somale 12,415,917 Bank charges3,985 1.267,823,262 Ending balance -7 July 20159 The notes on pages 7 to 11 form an integral part of these financial statements. 6 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE 11 IDA CREDIT NUMBER 54350 ET NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 7 JULY 2015 1 PROJECT INFORMATION The credit agreement was signed between the Government of the Federal Democratic Republic of Ethiopia and the International Development Association (IDA) on 6 May 2014. Its main objective is to support improved performance in the planning, delivery and sustained provision of priority municipal services and infrastructure by forty four urban local governments. The Ministry of Finance and Economic Development (MoFED) is the administrator of the Credit while the Ministry of Urban Development and Construction (MUDC) is the executing agency for the Project. 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted by the Project are stated below:- a) Basis of preparation These financial statements have been prepared in accordance with the Ethiopian Government Manual,of the Federal Accounting System based on a modified cash basis of accounting. b) Currency These financial statements are presented in Birr. Transactions in foreign currency are translated into Birr at the approximate rate of exchange prevailing at the date of the transaction. Cash balances denominated in foreign currencies are translated into Birr at the exchange rate ruling at the balance sheet date. c) Recognition of financial assets and financial liabilities The Project recognizes a financial asset or a financial liability on its statement of financial position when, and only when, it becomes a party to the contractual provisions of the instrument. A financial asset is derecognized when, and only when, the control over the contractual rights is lost. A financial liability is derecognized when, and only when, it is extinguished. 7 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE 1 IDA CREDIT NUMBER 54350 ET NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 7 JULY 2015 3. ADVANCES Birr Advance payments to:- Contractors 141,023,118 Suppliers 34,941,684 Consultants 200,025 Cooperatives 8,119,118 Purchase advance to staff 7,219,867 Other advances within government 18,902,991 Others 295,980 210.702.78.3 4. CASH AND BANK BALANCES Birr USD designated Account 1,697,568,543 Ethiopian Birr Designated Account 10,916,749 Ministry of Urban Development and Construction 52,016,303 MoFED - Finance 479,455 Other Birr bank account 502,665,081 Cash on hand 318.185 2,263,964,316 5. ACCOUNTS PAYABLE Birr Retentions 50,952,601 Contractors 172,777,121 Other payable within government 14,256,075 Taxes payable 7,753,024 Others 9,100,158 8 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE 1I IDA CREDIT NUMBER 54350 ET NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 7 JULY 2015 6. ACCUMULATED FUND Birr Balance at 8 July 2014 Add: Excess of financing over expenditure 2,219,828,120 Balance at 7 July 2015 2,219,828,120 7. DATE OF AUTHORIZATION Channel One Programs Coordinating Office Head authorized the issue of these financial statements on 1 January 2016. 9 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT PHASE II IDA CREDIT NUMBER 54350 ET IFR BASED WITHDRAWAL SCHEDULE FOR APPLICATIONS Submitted during the YEAR ENDED 7 July 2015 Withdrawal application Equivalent in No. USD Birr ULGDP-II-01 63,227,935.34 1,265,785,329 ULGDP-1l- 02 82,462,148.11 1,693,591,105 145.690,083,45 10 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT URBAN LOCAL GOVERNMENT DEVELOPMENT PROJECT IDA CREDIT NUMBER 54350 ET RECONCILIATION OF SEMI ANNUAL REPORTS DURING THE YEAR ENDED 7 JULY 2015 (IFRS) WITH THE PERIOD END STATEMENT OF SOURCE AND USES OF FUNDS AND BALANCE SEET 1't Semi 2nd Semi Year End Annual Annual 7 July 2015 Birr Birr Birr SOURCES IDA Contribution 1,265,785,329 1,693,591,105 2,959,376,434 Regional Contribution - 317,483,942 317,483,942 ULGs Contribution - 378,932,810 378,932,810 Gain on foreign exchange - 16.932.120 TOTAL SOURCES 1.25785.329 7 3,672,725,306 EXPENDITURES Program expenditures ,1 1451,141-.875 1,452,897,186 EXCESS OF SOURCES OVER EXPENDITURES 2219828.120 Cash at bank 2,263,646,131 Cash on hand 318,185 Advances 210,702,783 Payables (254,838,979) Accumulated Fund 2 -219,828.120 11