GrantThornton Independent Auditor's Report and Special Purpose Financial Information Environmental Services Project (P130492 and P128412) For the period from 1 January to 31 December 2017 Contents Page Independent Auditor's Report ii Statement of Sources and Uses of Funds 1 Statement of Withdrawal Applications 2 Notes to the Special Purpose Financial Information 3-9 Appendixes ill GrantThornton Grant Thornton Sh.p.k. Rr: Sami Frasher, Korn plesi TI.D, Sh k. B, %or 1, 10 000 Tirana, Albania T +355 422 74832 F +355 422 56 560 wwwgfrVirntonsa conIact@sgtcomn Independent Auditor's Report To the Management of the project "Environmental Services" and Ministry of Finance and Economy of the Republic of Albania Opinion We have audited the accompanying special purpose financial information comprising the statement of sources and uses of funds, statement of withdrawal applications, related notes and appendixes, of the "Environmental Services Project" (further referred to as the "Project"), implemented by the -Ministry of Environment financed under International Bank for Reconstruction and Development ('IBRDD Loan Agreement Number 8401-AL, Global Environmental Facility ('GE'") Grant No.TF017364, Swedish International Development Cooperation Agency '(SIDA') Grant No,TF18238 and Government of Albania Contributions for the period from 1 January to 31 December 2017. In our opinion, the special purpose financial information of the Project "Environmental Services" is prepared, in all material respects, in accordance with the cash receipts and disbursement basis of accounting as set out in note 2 to the special purpose financial information. 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 special purpose financial information section of our report. We are independent of the entity 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 special purpose financial information in Albania, and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for out opinion ik Emphasis of Matter- Basis of Accounting and Restriction on Distribution Without modifying our opinion, we draw attention to note 2 to the special purpose financial infornation, which describes the basis of ccounting. The special purpose financial information are prepared to assist the Project to comply with the financial reporting provisions of the financing agreements set out in the note I to the special purpose information. As a result, the special purpose financial information may not be suitable for another purpose. Out report is intended solely for the Project, the donors and the Government of Albania and should not be used by or distributed to parties other than the Project, the donors or the Government of Albania. Responsibilities of Management for the Special Purpose Financial Information LanagemRent is responsible for preparation and fair presentation of the special purpose financial information in accordance with the basis of accounting described in notes 2 and 3; this includes determining that the cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the special purpose financial information in the circumstances, and for such internal control as management determines is necessary to enable the preparation of a special purpose financial information that is free from material misstatement, whether due to fraud or error. Auditor's Responsibility for the Audit of the Special Purpose Financial Information Our objectives arc to obtain reasonable assurance about whether the special purpose financial information as a whole is 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. Mlisstatements 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 this special purpose financial information. 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 information, whether due to fraud or error, design and perfonn 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 entire's internal control. * Conclude on the appropriateness of management's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the special purpose financial information or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the entity to cease to continue as a going concern. * livaluate tle app)ropriateness of accounting policies used and the reasonab1eness of accounting estimates, if auv, and related disclosures made bv management. • Evaluat the overall presentation, structure and content of the special purpose financial information, including the disclosures, and whehcer the special ptrpse financial information represents le underlying transaetions and events in a imanner that achieves fair presenita,tioni. Wc commiunicate with those charged with goveriance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficieneies in internal control that wc identify during oLr audit. Grant Thornton sh.p.k. Tirana, Albania 29 May 2019 i il Statement of Sources and Uses of Funds For the period from For the period from Cumulative from Note 1 January to 1 January to 29 January 2015 to 31 December 2017 31 December 2916 31 December 2017 Sources of funds IBRO 3 23,367 431.673 855,040 GEF 3 104,543 150,470 355,013 SIDA 3 308,147 352,309 1,075,985 GoA contribution 4 120,688 116,204 272,781 Interest received 460 553 1.013 Total 557,205 1,051,209 2,559,832 Uses of funds Training &workshop 5 116,855 52,027 203,057 Consultancy services 6 621,819 250,606 963,996 Incremental operating costs 7 23,236 42,713 87,113 Goods 8 58,796 361,417 513,438 Staff salaries 9 57,132 58,242 160,740 VAT expenses 120,688 116,204 272,782 Total 998,526 881,209 2,201,126 Excess of receipts over disbursements (441,321) 170,000 358,707 Exchange rate differences 2,754 12,580 13,493 Cash on hand . Cash beginning of period 11 810,767 628,187 Cash end of period 11 372,200 810,767 372,200 The Statement of Sources and Uses of Funds is to be read in conjunction with the notes set out on pages 3 to 9 and foring an integral part of the special p urpose financial information. The special purpose financial information of Environmental Services Project were authorized for issue by the management of the Ministry of Environment on 07 February 2018 and signct on its behalf by: Erion IstreCi Project Coordinator Ainisty of Tourism and Envonment 4 A andn 1 � � � � t~ 7° 47 О О О 4 } 6 D � {'°°� Сё 7 � �7 7 � U 7 3 7 ;Л--�� U L4! Ш LCk Ш Ш iJ Ш iL1 Ш� U �� ` *i.� � � � � � L !О � 4 b.'� цА !`7 А � б �,�"�i � г i7 е�Гi� 4 ц�7 � т М СО tf � tC7 О CJ 1+7� g.. N д S3 С7 ��.} F � м г � г, ы � � М � 4 а N 4 4��'] � � ,. м п � м и М CD 7 Ф V ц7 � N� ц N Ф --1. � � � б � �,. 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S.7 � � � � Ф а , ;} А д .� - � � � t � z � � � � т т р (Ш7 СШ7 � с�а т �_ ш CU ,r.-, � ❑ - - � � а - гп t� ���-' '*�±--�} cs :3 `-{ J L V м w 1. General Information The objective of the Project is to support sustainable land management practices and increase communities' monetary arid non-morietary benefits, in targeted Project arca which arc mainly in erosion prone rural upland areas. The Project consists of the foUc,wing parm Part 1: St cn- Iicnlng Institutional Capacity to fmprovc Environmental Servic" fronjIntegi7ated Landscape Nfaiia cmcnt (a) Strengthening the Borrower's capacity for governance of forests and pastures including: (1) preparing a change dctection National Forest Inventory to provide information on hox forest cover arid volume have changed over an agreed intervening period-, (ii) developing a ten year roUing National Forest Inventory whereby plots sampled for forest cover and volume are examined on annual basis for a duration of ten years; (iii) supporting forest management planning in the state, managed production forests excluding the protected areas; iv) establishing the Albanian Forest Information System; (v) strengthening the capacity of the Regionat Forest Directorate to carry out its obligations including the independent monitoring of the forests; and (vi) Registering forests and pastures transferred by the centrd government to die communes. (b) Carrying out aCtiVitiCS to empower bencCciarits, including Local Government Units LGLJs), CH't"As and farmers, to practicc sustainable land and pasture management practices including: (i) implementing the Gender Action Plan to promote gender equity in. natural resource managcnicnt; 01) supporting LAGs to contribute to the rural development strategy, (iii) training l.GUs and CFPUAs on susminable use of forests, pastures and agricultural lands; and; (iv) Promoting rural income generation, through analvsis of values chains and preparation of short and mediurn-term forest products processing and marketing plans. Part 2. Planrtin! and Provision of Grants to Improve Land Management (a) Carrying out activities to prepare and implement C.MCP's. to improve land management, including- 0) developing guidelines for the preparation of CMCPs to promote integrated use of natural resources, (ii) preparing CMCPs for new communes-, and (iii) Upgrading existing CFPNfPs which wffl expire during the He of the Project into' CMCPs. (b) Providing Grants to eligibte Beneficiaries to carry out Subprojects. (c) Strengthening the capacity of staff for the Regional Forest Directorates, District Forest OfFice, ARDA and bodies involved in the agricultural and forests extension services as well as applicants to carry out their responsibilities under the Project. Part 3: Introducing Payment for Environmental Services Rstablishing financing mechanisms for reducing land degradation and supporting sustainable livelihoods including: (a) preparing technical studies for the development of carbon projects and estabhshing monitoring, reporting and verification systems to quantify carbon sequestered by Project activities; (1)) developing mechanisms for Pavinent for Watershed Services to ensure that those who benefit from environmental services pay thost who generate these services; and a model for hriking land use practices with thegeneration of ecosystem services; and (c) Piloting the Payment for Watershed Services mechanism in selected areas. IV Part 4 Supporting Proj ttmILmentation (a) Carrying out actiities for Project implementation, including supplying of office equipment, building staff capacity, and the implementation of the environmental safeguards. (b) Supplhing nd installing a Project monitoring information system to promote effective tracking of project activities; and carrying out surveys, conducting environmental audits and monitoring and evaluation. The Project became effcctive on 29 January 2015 and will be completed on 30 September 2019. The Project is financed from the following sources: IBRD 84010 AL According to the Loan Agreement dated 25 July 2014 between GoA and IBRD, the Project is entitled to a loan of 7,300,000 Euro. The table below sets forth the items to be financed out of the proceeds of the grant, the allocation of the amounts of the grant and the percentage of expenditures to be financed: Amount of the loan allocated Percentage of expenditures to be Category (expressed in EUR) financed (inclusive of Taxes) (1) Goods and non-consulting services under Part 1(a), 2(c) and Part 4 (a) of the Project 4,679,850 100% (2) Subprojects under Part 2(b) of the Project 2.601,900 100% Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section (3) Front-end Fee 18,250 2.07 (b) of the General Conditions Total Amount 7,300,000 GEF TF 17364 (P128412) According to the Grant Agreement dated 25 July 2014 between GoA and GEF, the Project is entitled to a grant of 2,880,000 U5- The table below sets forth the items to be financed out of the proceeds of the grant, the allocation of the amounts of the grant and the percentage of expenditures to be financed: Percentage of Expenditures Amount of the Grant to be Financed (inclusive Category Allocated (in USD) Taxes) Non consulting services, training, consultants services and Operating Costs under Parts I(a), 2(a) and Part 3(a) of the Project 2,880,000 100% Total Amount 2,880,000 4 SIDA TF 018238 According to the Grant Agreement dated 25 July 2014 between GoA and SIDA, the Project will receive a grant of 7,960,000 U$. The table below sets forth the iters to be financed out of the proceeds of the grant, the allocation of the amounts of the grant and the percentage of expenditures to be financed Percentage of Expenditures Amount of the Grant to be Financed (inclusive Category Allocated (in USD) Taxes) 1) Goods. Works, Consultants and Non-consulting services, Training, Operating Costs under Part 1, Part 2(a) and ( c), Part 3(a) and ( c) and Part4 of the Project 6,142,470 100% 2) Sub project under Part 2(b) of the Project 1,817,530 100% Total Amount 7,960,000 During 2016, the SIDA contribution was reduced due to losses in exchange rate and the initial Grant Agreement was amended on 21 12.2016 with DCM No.905. The table below reflects the changes in the amount of items to be financed. The decrease of funds does not affect significantly the project implementation activities, The procurement plan has been revised in order to update the sources of funding of various activities and to insure the successful accomplishment of initial objectives. Percentage of Expenditures Amount of the Grant to be Financed (inclusive Category Allocated (in USD) Taxes) 1) Goods, Works, Consultants and Non-consulting services, Training, Operating Costs under Part 1, Part 2(a) and ( c), Part 3(a) and ( c) and Part4 of the Project 5,640,000 100% 2) Sub project under Part 2(b) of the Project 1,670,000 100% Total Amount 7,310,000 The Grant will he used to finance up to 100% of expenditures consisting of goods, consultancy services, meetings and workshops and operating costs for the Project. In addition, the project management costs will be financed on 100%. As at 31 December 2017, Euro 436,057 has been disbursed from the Donors funds. GoA's contribution The Government of Albania is to finance project expenses relating to VAT. 5 2. Summary of significant accounting policies A summary of significant accounting policies underlying the preparation of the Project's financial statements is presented below. a) Basis of preparation The special purpose financial information has been prepared in accordance with the receipts and the Cash Basis of Accounting as further explained below under paragraph C 'Recognition of income and expenses'. The financial information includes the period forn 1 January to 31 December 2017. Cumulative information on cash receipts and disbursements from the Project's inception to date is presented in the Statement of Sources and uses of Funds for information purposes only. The financial statements are presented in Euro. The financial statements comprise the Statement of Sources and Uses of Funds, the Statements of Expenditures used as the basis for the submission of withdrawal applications and a summary of significant accounting policies and other explanatory notes. As supplementary schedules to the financial statements are presented the Statements of Special and Accounts and Single Treasury Account associated with the Project. b) Foreign currency transactions The Project has adopted the Euro as its reporting currency for consistency with the reporting needs of its main donor, the World Bank. Cash and bank balances in other currencies are converted into Euro at the year-end rate of exchange. Transactions in currencies other than Euro are converted to the reporting currency at the rate ruling at the date of the transaction. Foreign exchange differences are recognized in the Statement of Sources and Uses of Funds. As at 31 December 2017, 1 Euro was equivalent to 132.95 All C) Recognition of income and expenses Income is recognized when received rather than when earned and expenses are recognized when paid rather than when incurred. Accordingly, direct payments of the Project, which are made from the proceeds of the Project, are recognized as sources and uses of funds at the time the payment is made. d) Taxation The Project is exempt from income tax. The Project is liable for withholding tax and personnel income tax for its staff. The Project of liable for all VAT expenses incurred. 6 3 Donors funding Funds received from the Donor for the period from 1 January to 31 December 2017 were composed as follows: Period from 1 January to 31 Period from 1 January to 31 December 2017 December 2016 Replenishments 436,057 761,452 Direct Payment 173,000 Total 436,057 934,452 4. GoA contribution GoA contribution represents VAT expenditures for some contracts. Total funding from 1 January up to 31 December 2017 was ALL 16,045,465. 5. Training and Workshops The meetings and workshops for the period from 1 January to 31 December 2017 were composed as follows: Period from 1 January to 31 Period from 01 January to 31 December 2017 December 2016 Per diem and transport expenditures 63,811 20,945 Workshop 21,188 31,082 Study Tour 24,466 Other 7,390 Total 116,855 52,027 6. Consultancy services The consultancy services for the period from 1 january to 31 December, 2017 were composed as follows: Period from 1 January to 31 Period from 1 January to 31 December 2017 December 2016 Study of cost of land degradation in Albania - 17,325 M&E software 6,462 32,310 GAP implementation consultancy 27,269 86,032 Baseline survey consultancy - 29,067 ALFIS consultancy 48,957 38,693 Sediment measurement for UIza and Bovilla 29,906 9,904 ARDA software 4,970 37,275 NFI implementation Training 8,500 Development of Local Action Groups 88,725 OC of First Registration of Forests and Pastures 64,282 Scoping Study of the Potential for Carbon Payments 2,893 NFl Capacity Building 146,082 Development of Guidelines for the Preparation of Integrated FPMP 21,815 Hydrological Models and Bathymetric Measurements 42,576 First Registration of Forest and Postures 129,382 - Total 621,819 250,606 7. Incremental Operating costs Operating costs for the period from 1 January to 31 December 2017 were composed as follows: Period from 1 January to 31 Period from 1 January to 31 December 2017 December 2016 Office supplies 1,774 4,068 Bank charges 2.824 1,312 Operating cost components (equipment repair, car insurance and repair etc. 10.433 29,652 Health & Social insurance for staff 8,205 7,681 Total 23,236 42,713 8. Goods Goods for the period from I January to 31 December 2017 were composed as follows: Period from 1 January to 31 Period from 1 January to 31 December 2017 December 2016 IT Equipment I GNSS goods for IPRO offices - 61,417 CARS /GIS license for [PRO - 300,000 FM Software 58,796 - Total 58,796 361,417 8 9. Staff salaries Period from 1 January to 31 Period from 1 January to 31 December 2017 December 2016 Staff salaries 57,132 58,242 Total 57,132 58,242 10. Project expenditures by category Expenditures by sources of funds for the period from 1 January to 31 December 2017 were composed as follows: Period from 1 January to 31 Period from 1 January to 31 December 2017 December 2016 Goods 58.796 361,417 Training workshops 116,855 52,027 Consultancy services 621,819 250,606 Operating costs 23,236 42,713 Staff salaries 57,132 58,242 Total 877,838 765,005 11. Cash at banks Cash at banks as at 31 December 2017 was composed as follows: Period from Period from 1 January to 31 December 2017 1 January to 31 December 2016 LEK Equivalent in EUR LEK Equivalent in EUR GEF Credins Bank (ALL) 5,078,146 38,196 6,953,923 51,423 GEF Credins Bank( EUR) - 8,630 - 133.125 SIDA Credins Bank (ALL) 8,475,302 63,748 20,758,229 153,503 SIDA Credins Bank (EUR) - 42,466 - 91,607 IBRD Credins Bank (ALL) 24,496,947 184,257 24,476,755 181,001 IBRD Credins Bank (EUR) - 34,903 - 200108 Total 38,050,395 372,200 52,188,907 810,767 12.Subsequent events There are no other significant events that would require either ad ustments or additional disclosures in the special purpose financial information. 9 APPENDIXES Environmental services Project P130492 and P128412 Statements of Special Accounts and Project Accounts for the period from 1 January to 31 December 2017 (Supplementary schedules to the Special Purpose Financial Information) IV Appendix I Supplementary Schedule of Special Account Statement Donor GEF TF01736 SIDA TF 18238 IBRD 8401-AL Account No; 2117645E 2117632E 2117646E Depository Bank Bank of Albania Bank of Albania Bank of Albania Skenderbeg Sqaure, Skeriderbeg Sqaure, Skenderbeg Sqaure, Address No 1, Tirana, Albania No 1, Tirana, Albania No 1, Tirana, Albania Currency EUR EUR EUR 2017 2017 2017 Opening Balance at beginning of period - . Funds received: 104,543 308,147 23,368 Replenishment 104,543 308,147 23,368 Disbursements: Funds transferred to Credins Bank in EUR 104,543 208,147 23,368 Funds transferred to Credins Bank ALL account - 100,000 - TOTAL 104,543 308,147 23,368 Balance at end of the period . II Appendix 2 Supplementary Schedule of Project Account Statement IBRD SIDA GEF Account No: 704816 679781 704809 Depository Bank CREDINS BANK CREDINS BANK CREDINS BANK Str.Ismail Qemali, Str Ismail Qemali, Str-ismail Qemali, Address Tirana Tirana Albania Tirana Albania Currency EUR EUR EUR 2017 2017 2017 Opening Balance at beginning of period 381,110 245,110 184548 Funds received: Funds received from Special Account 23,368 308,147 104,543 Funds received from the other account 239 131 90 Total 23,607 308,278 104,633 Disbursements: Project expenditures 188809 446,139 242,891 Total 188,809 446,139 2 4 2 ,8 9 1 Loss from exchange rate 3,253 (1,035) 536 Balance at end of the period 219,161 106,214 46,826 Ill Appendix 3 Supplementary Schedule of Single Treasury Account Depository Bank: Treasury Account M280324 Address: Ministry of Finance and Economy Currency: ALL 2016 2017 Opening Balance at beginning of period . Funds received: Funds received from GoA 15,714,278 16,045,465 Total 15,714,278 16,045,465 Disbursement: Transferred to GoA 15,714,278 16,045,465 Total 15,714,278 16,045,465 Balance at end of the period . - IV