THIRD VILLAGE INVESTMENT PROJECT IDA CREDIT NUMBER 5601-KG IDA GRANT NUMBER D041-KG IMPLEMENTED BY COMMUNITY DEVELOPMENT AND INVESTMENT AGENCY SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the period from 26 February 2016 to 31 December 2016 BISHKEK APRIL 2017 THIRD VILLAGE INVESTMENT PROJECT IDA CREDIT NUMBER 5601-KG IDA GRANT NUMBER D041-KG TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS 3 INDEPENDENT AUDITOR'S REPORT 4-5 SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 26 February 2016 to 31 December 2016: Statement of cash receipts and payments 6 Statement of expenditures per components 7 Notes to the special purpose financial statements 8-15 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE ARIS AND DISBURSED BY THE WORLD BANK 16 2 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM 26 FEBRUARY 2016 TO 31 DECEMBER 2016 The management of the Community Development and Investment Agency (hereinafter: ARIS) is responsible for the preparation of the special purpose financial statements of "Third Village Investment Project" (hereafter: the Project) financed by Financing Agreement IDA Credit Number 5601-KG and IDA Grant Number D041-KG that present fairly the Project's cash receipts and payments, and expenditures per components for the period from 26 February 2016 to 31 December 2016, 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 the Financial Management Manual for World Bank Financed Investment Operations (WB Guidelines). In preparing the special purpose financial statements, ARIS's management is responsible for: * Properly selecting and applying accounting policies; * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * Providing additional required disclosures for the period from 26 February 2016 to 31 December 2016. ARIS's Management is also responsible for: * Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Project; * Maintaining adequate accounting records that are sufficient to show and explain the Project's transactions, and which enable them to ensure that the special purpose financial statements of the Project comply with IPSAS - Cash Basis and the WB Guidelines; * Taking such steps that are reasonably available to them to safeguard the assets of the Project and to affirm that funds received have been used in accordance with the Financing Agreement IDA Credit Number 5601-KG and IDA Grant Number D041-KG dated 12 June 2015, and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; and * Preventing and detecting fraud and other errors. The special purpose financial statements for the period from 26 February 2016 to 31 December 2016 were authorized for issue on 3 April 2017 by the ARIS's Management. On behalf of the ARIS's M Arstan Muktarov Iahat Junushov Executive Director nancial Manager 3 "UOU-IJfPTfhS" UflQ1 "SOS-AUDIT" LTD INDEPENDENT AUDITOR'S REPORT To the management of the Community Development and Investment Agency Opinion We have audited the special purpose financial statements of "Third Village Investment Project" ("Project") financed by Financing Agreement IDA Credit Number 5601-KG and IDA Grant Number D041-KG dated 12 June 2015 ("Financing Agreement"), and implemented by Community Development and Investment Agency ("ARIS"), which comprise the statement of cash receipts and payments and the statement of expenditures per components for the period from 26 February 2016 to 31 December 2016, and notes to the special purpose financial statements, including a summary of significant accounting policies. In our opinion, I. the accompanying financial statements present fairly, in all material respects, the cash flows for the period from 26 February 2016 to 31 December 2016 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis ofAccounting, (IPSAS-Cash Basis); 2. funds have been used in accordance with the conditions of the Financing Agreement concluded between the International Development Association (IDA) and the Kyrgyz Republic, and WB Guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 3. supporting documents, records and accounts have been maintained to support claims for reimbursement of expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Financing Agreement; Interim Unaudited Financial Statements (lFSs) issued by ARIS during the reporting period are in agreement with the underlying books of account; 4. The Designated account used has been maintained in accordance with the provision of the Financing Agreement, and World Bank related guidelines; 5. Goods and Services financed have been procured in accordance with the Financing Agreement and World Bank related guidelines. 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 of the ARIS 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. 93; p.bp1tw 0037, U. Sqpwbjjwb 38/55; 9br2. (+37410) 20 11 51; www. sosaudit.am; LL-*nuLn info@sosaudit.am 38/55 A. Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; www. sosaudit,am; E-mail: info@sosaudit.am "1UOU-Ufl_%1f1S" U(II "SOS-AUDIT" LTD Responsibilities of the Management for the Financial Statements Management of the ARIS is responsible for the preparation and fair presentation of the special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector Accounting Standards Board (IPSASB) of the 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 misstatement, 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 judgement 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. S)-Audit' LLC AN 3 April 20 17 :;2 Gnel Khachatryan, FCCA ctWOS-AUDlIT" 1) Auditor T ; l.bpLtw0 0037, U. Sqptbjwb 38/55; 9br. (+37410) 20 11 51; www. sosaudit.am; tL-inun' info@sosauditam 38/55 A. Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; www. sosaudit.am; E-mail: info@sosaudit.am ý -0 OC \ a -- 00 00 8 - - a- - ooo >. eq'•f - -O o e *C 0N CD r- -~ oc 0,0 esen enD0CN C> CD o 00 rner 00e CY\f w 0 cS m .so E E -o e o o Z LL O .. ©J. 0os00 oo o - ., o 0E o e~ Q - sås~ a O - - en <~.a w o G. E oo 0ro .o rC.O wog a -u O oEe b - - 0/ L m [ r© 00Cfr 0ý =C> 00 cl 01 N 00 00 0 - r 4 - O N -- o e C> 0 0 C>01 > 00 ~00 0 n Rn en c- e cge ~ooen **2 II 1o a0 0 00 N C t-e 00 e 030 N N IfIfr 0 T- n>, C>o ~0C(Dt- io oz 0 P. i0a o , <". '-'ur|> .o o C '- So < Ca> > In cn<0 < W- - -;4 X UD L Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 1. General information 1.1. The Project The Financing Agreement IDA Credit Number 5601-KG and IDA Grant D041-KG was concluded on 12 June 2015 between the Kyrgyz Republic and the International Development Association (IDA), according to which IDA provided financing to the Kyrgyz Republic in the amount of 4,700,000 Special Drawing Rights (SDR) and 3,900,000 SDR, respectively. The Financing Agreement became effective on 26 February 2016. The financing was provided for the implementation of <> (the Project). The payment currency of both IDA Credit Number 5601-KG and IDA Grant D041-KG is United States dollars (USD). The Closing date of both IDA Credit Number 5601-KG and IDA Grant DO41-KG is set 30 November 2020. The Grace Period for submitting withdrawal application for expenditures incurred before the Closing date is four months following the Closing date: 31 March 2021. 1.2. The Project objectives The objective of this project is a) build local capacity for participatory development; and (b) improve access to quality community infrastructure services in targeted Project areas. The Project consists of the following parts: Part 1: Capacity Building Carrying out capacity building activities for local communities and local government institutional in participatory local governance and development planning, including: (a) mobilizing communities, conducting communities' needs and resources assessment and development Local Investment Plans; and (b) carrying out peer-to-peer learning and social cohesion activities in various communities, all through provision of goods, consultants' services, and Training. Part 2: Village Investments (a) Provision of: (i) Sub-Grants for implementing Sub-projects; and (ii) Small Grants for implementing Micro-projects, to eligible Ayil Okmotus. (b) If applicable, financing of Resettlement Compensation with financing proceeds as set forth in the table in Section IV of Schedule 2 to this Agreement. Part 3: Project Management Carrying out of Project management activities including Project audits, provision of Training to the Project Implementing Entity's staff on Project management, monitoring and evaluation, and the financing of Operating Costs. L 8 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 1.3. The Project Budget The Project is financed by: * IDA Credit Number 5601-KG * IDA Grant D041-KG, * Community contributions (in-cash) -not-less than 3.75% of the sub-grants and small grants provided to the beneficiary community; * Other income (including mainly tender fees and interest accrued on bank accounts). IDA Grant/Credit Expenditure Community Financing Category IDA Credit Number IDA Grant Number contribu- (inclusive of 5601-KG D041-KG tions Total taxes) USD USD USD USD SDR equivalent SDR equivalent equivalent equivalent (a) ___ (a)% (1) Goods, works, non- consulting services, consultants' services including under Sub- Grants and Small Grants, Training, Operating Costs under the Project, and Resettlement Compensation under Part 2(b) of the Project 4,700,000 6,318,351 3,900,000 5,286,153 273,100 11,877,604 100% Total 4,700,000 6,318,351 3,900,000 5,286,153 273,100 11,877,604 (a) The budget USD equivalents for IDA Credit Number 5601-KG and IDA Grant D041-KG, with underling currency of SDR, is calculated based on cumulative funds received in USD plus, if any, USD equivalent of undisbursed funds in SDR as at reporting date. SDR/USD rate as at 31.12.2016 is set at 1.34433. 1.4. Project Implementation The Project is implemented by Community Development and Investment Agency (ARIS). The ARIS was established on 15 October 2003 according to the Kyrgyz President's Decree for operating control over the Projects financed by the World Bank. ARIS is an independent legal entity, and it is registered in the legal organizational form envisaged by the legislation of the Kyrgyz Republic for non- for-profit organizations. Co-founders of ARIS are Administration of the President of the Kyrgyz Republic, association of legal entities "Association of local self-government bodies of villages and communities of the Kyrgyz Republic" and "Counterpart-Sheriktesh" public association. The work of ARIS is supervised by the Supervisory Board, which is the superior steering body of ARIS. The ARIS address is: 102 Bokonbayeva Street, Bishkek, the Kyrgyz Republic, 720040. 9 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 2. Summary of significant accounting policies 2.1. Preparation and presentation offinancial 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 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 received. 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 dollars (USD). The financing received and expenditures made in local currency, Kyrgyz Som (KGS), are translated into USD based at the exchange rate prevailing at the date of the transaction as issued by the CJSC "Kyrgyz Investment Credit Bank" ("KICB"). The exchange rate defined by the KICB is as follows: 31 December 2016: USD 1 = 69.00 KGS. 2.4. Taxes The taxes are paid in accordance with the tax regulation of the Kyrgyz Republic. 2.5. Budget Expenditure budget is created based on actual accumulated expenditures for the last period plus the updated procurement plans for the Reporting year. 10 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 3. Summary of Summary Reports and SOEs 3.1.IDA Credit Number 5601-KG During the reporting period, there were no Summary Reports or SOEs submitted to the WB by the ARIS related to IDA Credit Number 5601-KG. 3.2. IDA Grant Number H041-KG Disbursement categories Total Withdrawal Withdrawal (1) Goods, works, non-consulting services, application application consultants' services including under Sub- No value date Grants and Small Grants, Training, Operating Costs under the Project, and Resettlement Compensation under Part 2(b) of the Project 3 12.Dec.2016 371,731.25 371,731.25 Total 371,731.25 371,731.25 4. Statement of Designated Accounts Financing Agreement IDA Credit IDA Grant Number 5601-KG Number H041-KG Bank account number 1121289200002147 1121289200001137 Bank OJSC "Eurasian Savings Bank" Bank location 40/1 Ibraimov str., Bishkek, Kyrgyz Republic Account currency USD USD IDA Credit IDA Grant Number Number 5601-KG H041-KG Total For the period from 26 Feb 2016 to 31 Dec 2016 USD USD USD 1. Opening balance as at 26.02.2016 - 2. Add: opening discrepancy 3. IDA advance/replenishment - 1,371,731 1,371,731 4. Less: Refund to IDA from DA - - _ 5. Present outstanding amount advanced to DA - 1,371,731 1,371,731 6. DA closing balance as at 31.12.2016 - 801,804 801,804 7. Add: Amount of eligible expenditures paid - 569,927 569,927 8. Less: interest earned (if credited to DA) _ _ 9. Total advance accounted for - 1,371,731 1,371,731 10. Closing discrepancy (5)-(9) - 11 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 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 Dec 2016 USD ASSETS Cash 6 809,786 Prepayments (a) 211,664 Total assets 1,021,450 LIABILITIES Payables (b) 59,617 Total liabilities 59,617 NET ASSETS Cumulative income IDA Credit Number 5601-KG - IDA Grant D041-KG 1,371,731 Community contribution 61,560 Other income 14,794 1,448,085 Cumulative expenses Project expenses 486,162 Other expenditures (bank charges) 90 486,252 Total net assets 961,833 (a) Prepayments consist of advances for construction works up to 20% of the contract amount. (b) Payable consists of warranty amounts of 5% withhold from contractors' invoices for construction works. 6. Cash Underlying 31 Dec 2016 Currency USD IDA Credit Number 5601-KG Designated Account USD - IDA Grant D041-KG Designated Account USD 801,804 801,804 Other Interest account USD 6,329 Tender account KGS 1,653 7,982 809,786 (*) All accounts are held at OJSC "Eurasian Savings Bank" (Bishkek, Kyrgyz Republic). 12 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 7. Project Expenditures 7.1. Project expenditure financing per funds USD Reporting period from 26 Feb 2016 to 31 Dec 2016 IDA Credit Number IDA Grant Community Other Category 5601-KG D041-KG contribution income Total (1) Goods, works, non-consulting services, consultants' services including under Sub- Grants and Small Grants, Training, Operating Costs under the Project, and Resettlement Compensation under Part 2(b) of the Project - 569,927 61,560 6,722 638,209 Total - 569,927 61,560 6,722 638,209 USD Cumulative as at 31 Dec 2016 IDA Credit Number IDA Grant Community Other Category 5601-KG D041-KG contribution income Total (1) Goods, works, non-consulting services, consultants' services including under Sub- Grants and Small Grants, Training, Operating Costs under the Project, and Resettlement Compensation under Part 2(b) of the Project - 569,927 61,560 6,722 638,209 Total - 569,927 61,560 6,722 638,209 7.2. Project expenditure budget execution Cumulative Expenditures as at 31 Dec 2016 Total budget Execution Sub-Category USD USD % Goods - 237,105 - Works Consulting Services 22,701 2,420,521 1% Non-consulting Services Training - 878,013 - Sub-Grants 307,046 5,842,810 5% Small Grants 273,069 1,469,488 19% Operating costs 28,671 1,029,667 3% Resettlement Compensation Total 631,487 11,877,604 5% 13 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 8. Financing 8.1. IDA Credit Number 5601-KG Reporting Cumulative as period at 31 Dec 2016 USD USD Advance/ (advance recovery) Direct Payment - - SOE and Summary Report . . Special Commitment - . Total . . Total financing budget 6,318,351 Percentage of finance provided as at 31 Dec 2016 0% 8.2. IDA Grant Number D041-KG Reporting Cumulative as period at 31 Dec 2016 USD USD Advance/ (advance recovery) 1,000,000 1,000,000 Direct Payment - - SOE and Summary Report 371,731 371,731 Special Commitment . - Total 1,371,731 1,371,731 Total financing budget 5,286,153 Percentage of finance provided as at 31 Dec 2016 26% 8.3. Community Contribution Reporting Cumulative as year at 31 Dec 2016 USD USD In-cash 61,560 61,560 Total 61,560 61,560 Total financing budget 273,100 Percentage of finance provided as at 31 Dec 2016 23% 9. Other income Reporting Cumulative as period at 31 Dec 2016 USD USD Interest accrued 6,419 6,419 Tender fees 8,375 8,375 Total 14,794 14,794 14 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG Notes to the special purpose financial statements For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) 10. Event after reporting date 10.1. IDA Grant Number D041-KG The application N 4 in the total amount of 494,002 USD, that includes expenditures relating to the reporting period in the amount of 198,196 USD was submitted to WB on 13 February 2017 and was approved on 24 February 2017. 11. Litigations There are no pending litigations related to the Project as at reporting date and as at approval date of these financial statements. 15 Third Village Investment Project IDA Credit Number 5601-KG IDA Grant Number D041-KG ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE ARIS AND DISBURSED BY THE WORLD BANK For the period from 26 February 2016 to 31 December 2016 (Amounts are shown in US dollars) IDA Credit Number 5601-KG During the reporting period there were no withdrawal applications submitted by the ARIS to WB related to the IDA Credit Number 5601-KG. IDA Grant Number H041-KG Expenditure Category Appl. ARIS WB Difference Advance/(recovery) 1 500,000.00 500,000.00 - 2 500,000.00 500,000.00 - 1,000,000.00 1,000,000.00 (1) Goods, works, non-consulting services, 3 371,731.25 371,731.25 - consultants' services including under Sub-Grants and Small Grants, Training, Operating Costs under the Project, and Resettlement Compensation under Part 2(b) of the Project 371,731.25 371,731.25 Total 1,371,731.25 1,371,731.25 16