SOCIAL PROTECTION ADMINISTRATION II PROJECT CREDIT NUMBER 5398-AM IMPLEMENTED BY FOREIGN FINANCING PROJECTS MANAGEMENT CENTER OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF ARMENIA Special Purpose Project Financial Statements and Independent Auditor's Report for the year ended 31 December 2018 YEREVAN March 2019 SOCIAL PROTECTION ADMINISTRATION II PROJECT CREDIT NUMBER 5398-AM TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 3-4 SPECIAL PURPOSE FINANCIAL STATEMENTS for the year ended 31 December 2018: Statement of cash receipts and payments 5 Statement of uses of funds by Project activity 6 Notes to the special purpose financial statements 7-13 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE PROJECT AND DISBURSED BY THE WORLD BANK 14 INDEPENDENT AUDITOR'S REPORT To the Management of the Foreign Financing Projects Management Center (FFPMC) Opinion We have audited the accompanying special purpose financial statements of the "Social Protection Administration II Project" (Project) financed by the IDA Credit No. 5398-AM dated 23 May 2014 (Credit Agreement) and implemented by the "Management of the Foreign Financing Projects Management Center" (FFPMC), which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activity for the year ended 31 December 2018, and a summary of significant accounting policies and other explanatory notes. In our opinion, the special purpose financial statements present fairly in all material respects the cash receipts and payments of the Project for the year ended 31 December 2018 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting, (IPSAS-Cash Basis). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). 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 and FFPMC in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled out other ethical requirements in accordance with 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- Cash Basis of Accounting We draw attention to Note 2 to the financial statements, which describes that financial statements are prepared in accordance with cash basis framework, as a result, they may not be suitable for another purposes. Our opinion is not modified in respect of this matter. Emphasis of Matter-Slow Progress of the Project implementation Without qualifying our opinion, we draw your attention to Note 7.2 of these special purpose financial statements disclosing slow progress of the Project implementation. Emphasis of Matter- Change in Project Implementing Agency Without qualifying our opinion, we draw your attention to Note 1.4 of these special purpose financial statements disclosing that change in project implementing agency from 31 March 2019. Management's Responsibility for the Special Purpose Financial Statements The management of FFPMC is responsible for the preparation and fair presentation of these special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC), and Financial Management Manual for World Bank Financed Investment Operations (WB Guidelines), and for such internal control as management determines is necessary to enable the preparation of special purpose financial statements that are free from material misstatements, whether due to fraud or error. Auditor's Responsibility for the Audit of the Special Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose 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 high level of assurance, but is not a guaranty that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements arise from fraud and 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 special purpose financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the special purpose 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. * 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 internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the special purpose financial statements, including the disclosures, and whether the special purpose financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with management 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. Report on Other Legal Requirements To comply with the terms of the Loan Agreement, the FFPMC management shall insure that: 1. funds have been used in accordance with the conditions of the Credit Agreement concluded between the International Development Association (IDA) and the Republic of Armenia, and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 2. supporting documents, records and accounts have been maintained to support expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Credit Agreement; Interim Unaudited Financial Statements (IFSs) issued by FFPMC during the Reporting year are in agreement with the underlying books of account; 3. The Designated account used have been maintained in accordance with the provision of the Credit Agreement, and World Bank related guidelines; 4. Works, Goods and Services financed have been procured in accordance with the Credit Agreement and World Bank related guidelines. In our opinion, the Project management has complied with the above requirements during the year ended 31 December 2018. 26 March 2019 "BDO Armenia" cjsc Vahag ahakya FCCA rrffine Voskanyan Ma ng Partner upttor � ® � � � � а � � $ н "° �с # и � и � й й ;N й м , n и � � �г . 7� N Й у � М N N С V Ф � � � й и � г°✓ ^ й �� N � �о � N N } м N N. � о О �О �О � � jN � � 7 р_ Ор � �"ч. �. 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The Project The Credit Agreement No. 5398-AM was concluded on 23 May 2014 between the Republic of Armenia and the International Development Association (IDA), according to which IDA provided a credit in an amount of 13,900,000 Special Drawing Rights (SDR). The Credit Agreement becomes effective on October 29, 2014. The payment currency of the Credit is United States dollars (USD). The credit is provided for the purpose of implementation of Social Protection Administration 11 Project (the Project). According the Financing Agreement, the Closing Date of the Project is set on 31 December 2018.1n 2018, the closing date of the Project is extended till November 30, 2020. The Grace Period for submitting withdrawal applications for the expenditures incurred before the Closing date is four months following the Closing date. 1.2. The Project objectives The objectives of the Project are to improve social protection service delivery and strengthen analytical and monitoring and evaluation functions of the agencies delivering social protection benefits and services. The Project consists of the following parts: Part 1. Rotting-out of integrated social protection service delivery, Part 11. Supporting the implementation of the recipient's new employment strategy, Part 111. Modernization of the pension system, Part IV. Strengthening MLSI's anatiticat capacity and monitoring and evaluation systems, Part V. Project management. 7 Social Protection Administration II Project IDA Credit No. 5398-AM Notes to the special purpose financial statements For the year ended 31 December 2018 1.3. The Project Budget and Financing The Project is being financed by the following sources: - IDA Credit No. 5398-AM - 100% exclusive of taxes, - The Government of the Republic of Armenia (Government of RoA) - taxes. IDA Credit No. 5398-AM Government Total of the RoA Category USD USD USD equivalent equivalent equivalent SDR (Original) (Updated*) (Updated) USD (1) Goods, works, non- consulting services, consultants' services, Training and Incremental Operating Costs under the Project except for activities under Part 11.2. of the Project 12,800,000 19,600,000 17,861,194 4,559,433 22,420,627 (2) Cash Grants and Consultant Services under Part 11.2. of the Project 1,100,000 1,600,000 1,533,510 369,691 1,903,201 Total 13,900,000 21,200,000 19,394,704 4,929,124 24,323,828 (*) Budget USD equivalent of SDR underlined loan is calculated based on cumulative funds received in USD, plus USD equivalent of undisbursed funds (if any) in SDR as at reporting date. SDR/USD rate at 31.12.2018 is set 1 SDR=1.3941 USD (in 31.12.2017: 1.42413). 1.4. Project Implementation The Project is implemented by Ministry of Labour and Social Issues (MLSI) of the Government of the Republic of Armenia (RoA) and Foreign Financing Projects Management Center State Institution (FFPMC). The address of the FFPMC is: Government House No.1, Republic Square, Yerevan 10, Republic of Armenia. The activities of FFPMC is suspended from 31 March 2018 in accordance with the Government of Decree No. 1427-N of December 13, 2018. Instead of FFPMC the Project will be implemented by the Ministry of Finance of the RoA through the structural subdivision. 8 Social Protection Administration II Project IDA Credit No. 5398-AM Notes to the special purpose financial statements For the year ended 31 December 2018 2. Summary of significant accounting policies 2.1. Preparation and presentation of financial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (IPSAS-Cash Basis), issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC), and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations (March 2010): RM 3 - Financial Reporting and Auditing. The special purpose project financial statements consist of: - Statement of cash receipts and payments, - Statement of uses of funds by project activity, - Summary of significant accounting policies and other explanatory notes. The principal accounting policies applied in the preparation of. these special purpose financial statements are set out below. These policies have been consistently applied to all the periods presented. 2.2 Cash basis of accounting Project financing is recognised as a source of project funds when the cash is r6ceived. Project expenditures are recognised as a use of project funds when the payments are made. 2.3 Reporting currency The reporting currency of these special purpose financial statements is United States dollar (USD). The contribution of the Government of RA and expenditures made in local currency, Armenian Dram (AMD), are translated into USD based at the exchange rate defined by the Central Bank of the Republic of Armenia (CBA) at the date of the transaction. The effect of exchange rate changes on cash held on local currency is reported as separate line item in the statement of cash receipts and payments. The average exchange rate at currency market issued by the CBA as at 31 December 2017 is 1 USD =484.10 AMD The average exchange rate at currency market issued by the CBA as at 31 December 2018 is 1 USD =483.75 AMD. 2.4. Taxes Taxes are paid in accordance with the tax regulations of the Republic of Armenia. 2.5. Budget Expenditure budget is created based on actual accumulated expenditures for the last period plus the updated procurement plans for the reporting period. Social Protection Administration II Project IDA Credit No. 5398-AM Notes to the special purpose financial statements For the year ended 31 December 2018 3. Summary of Summary Reports and SOEs For the year ended 31 December 2018 Payment categories Withdrawal Withdrawal No application 1. Goods, works, non- value date consulting services, consultants' services, Trainings and Incremental Operating costs under the Project except for activities under Part 11.2. of the Project USD 1ODA 31.01.2018 602,446.71 11DA 23.07.2018 594,801.42 12DA 20.09.2018 425,823.62 Total 1,623,071.75 4. Statement of Designated Account Bank account number 900000900382 Bank Central Treasury Bank location 1 Meliq-Adamyan str.Yerevan, Republic qf Armenia 0010 Currency USD IDA Credit No. 5398-AM Year ended 31 Dec 2018 1. Opening balance 97,553.29 2. Add: opening discrepancy - 3. IDA advance/replenishment 1,923,071.75 4. Less: Refund to IDA from DA - 5. Present outstanding amount advanced to DA 2,020,625.04 6. DA closing balance 510,145.99 7. Add: Amount of eligible expenditures paid 1,510,479.05 8. Less: interest earned (if credited to DA) - 9. Total advance accounted for 2,020,625.04 10. Closing discrepancy (5)-(9) 10.I Social Protection Administration II Project IDA Credit No. 5398-AM Notes to the special purpose financial statements For the year ended 31 December 2018 5. Statement of financial position The Statement of financial position discloses assets, liabilities and net assets of the Project as at reporting date. It is prepared in accrual basis that is transactions are recognized when they occur (and not only when cash is received or paid). note 31.12.2018 31.12.2017 USD USD ASSETS Cash 6 510,145.99 97,553.29 Prepayments 52,179.15 239,720.00 Total assets 562,325.14 337,273.29 LIABILITIES Payables 86,857.00 154,393.00 Total liabilities 86,857.00 154,393.00 NET ASSETS Cumulative income 8 IDA Credit No. 5398-AM 5,837,938.46 3,914,866.71 Government of RoA 1,118,267.44 801,161.07 6,956,205.90 4,716,027.78 Cumulative expenses Project expenses (6,492,924.20) (4,537,863.53) (6,492,924.20) (4,537,863.53) Foreign exchange gain/(loss) 12,186.44 4,716.04 Total net assets 475,468.14 182,880.29 6. Cash Account Underlying 31.12.2018 31.12.2017 held at Currency USD USD Designated account (IDA Credit No. 5398-AM) Treasury USD 510,145.99 97,553.29 Project account (Government of RoA) Treasury AMD - Total 510,145.99 97,553.29 11 � � и и N N а й N N � � � � � � .о .о и v N с � С �ёо Ё4� с й g � Е ,� � с� О Ем > � � 7 � и �р � � �- � � � ' � ni N � � � ^ � � йм N ^ и м М � �л" и , N � N ' � � О й О О � = N N о0 СО � �= r-i � °г° с м м ш�иЕ�Й_ 'г' й Ф 0 j о � �О } м О М м �7 о гg � ' и �, а` о� •� а й � t� •t � о• � ий й � и � � о � � с С � С `� ' а+ r � г�i Ф д � а v = .,.� и а и и О � С •� L � С � � С_ •и � 'С �j +-' а С со с с` � г` сгсос'� � � w� "� Sn � оп� � с+� и 47 С и г0 й и� � й с'Е о',ао�� � о 'с� �a�i д �'' о й�и S са` •Е о о � � � с °" ;, ° ш � °�� ' сqr ^ о��� �L � й �� � � Q �иг" � а� гсо о о с ,,,,, о ш р а��,?, ,� �i а✓ г t г�0 � р � 3 и i0 Х^�_ О� +� л �+ а -ир �� N а L b а� и.с •о Sй��sŭa`, � и у ,., а , ,� с � '^ ..� -о '� и О .� й� Z�i 1� 1� �й �а` oN � Н Social Protection Administration 11 Project IDA Credit No. 5398-AM Notes to the special purpose financial statements For the year ended 31 December 2018 7.2. Project expenditure budget execution Cumulative Category Expenditures as at 31 Dec 2018 Total budget Execution* USD USD % (1) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs under the Project except for activities under Part 11.2. of the Project 6,447,292.51 22,420,627 29% (2) Cash Grants and Consultant Services under Part 11.2. of the Project. 1,903,201 Total 6,447,292.51 24,323,828 27% (*) The Credit Agreement is concluded on 23 May 2014 and became effective on 29 October 2014. As at 31 December 2018 only 27% of the expenditure budget is implemented. The slow progress of the Project implementation is due to the difficulties in providing required Locations for integrated social protection centers (ISPCs). There are also some issues related to provided locations, that required additional resources: a) challenges with state registration of property rights has arisen with some buildings; b) At the design stage, it was found out that the majority of the allocated buildings were subject to strengthening. Given the circumstances, the closing date of the Project is extended tiU November 30, 2020. 8. Financing 8.1. IDA Credit No. 5398-AM Yearended Cumulative as 31 Dec 2018 at 31 Dec 2018 USD USD Advances/ (advance recovery) 300,000.00 1,000,000.00 SOE and Summary Report 1,623,071.75 4,837,938.46 Total 1,923,071.75 5,837,938.46 Total financing budget 19,394,704.00 Percentage of finance provided as at 31 Dec 2018 30% 8.2. Government of RoA Yearendid Cumulative as 31 Dec 2018 at 31 Dec 2018 USD USD Financed 317,106.37 1,118,267.44 Total 317,106.37 1,118,267.44 Total financing budget 4,929r,124.00 Percentage of finance provided as at 31 Dec 2018 23% 9. Events after the reporting date The Project expenditures for the reporting period at the total amount of USD 489,854.01 registered at the application # 13DA were submitted to WB on 31 January 2019 and approved on 6 February 2019. 13 Social Protection Administration II Project IDA Credit No. 5398-AM ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE PROJECT AND DISBURSED BY THE WORLD BANK For the year ended 31 December 2018 (Amounts are shown in US dollars) Expenditure Category Appl. Project WB Difference Advance 12DA 300,000.00 300,000.00 - 300,000.00 300,000.00 1. Goods, works, non-consulting services, 10DA 602,446.71 602,446.71 - consultants' services, Trainings and Incremental Operating costs under the 11DA 594,801.42 594,801.42 - Project except for activities under Part 11.2. 12DA 425,823.62 425,823.62 - of the Project 1,623,071.75 1,623,071.75 Total 1,923,071.75 1,923,071.75 14