PKF MAK ALYANS LLC PKF Accountants & business advisors INTERNATIONAL DEVELOPMENT ASSOCIATION MODERNIZING HIGHER EDUCATION PROJECT MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN (EXECUTING AGENCY) IDA CREDIT No. 5804-UZ (SF) SPECIAL-PURPOSE IPSAS CASH BASIS FINANCIAL STATEMENTS AND STATEMENT OF EXPENDITURE FOR THE PERIOD FROM 09 AUGUST 2017 (PROJECT EFFECTIVENESS DATE) TO 31 DECEMBER 2018 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2018 3 INDEPENDENT AUDITORS' REPORT 4 INTERNATIONAL DEVELOPMENT ASSOCIATION SPECIAL- PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2018: Special-Purpose Statement of Cash Receipts and Payments 6 Special-Purpose Financial Position Statement 7 Special-Purpose Statement of Detailed Costs by Components 8-9 Special-Purpose Project Designated Account Statements 15-17 Notes to Special-Purpose Financial Statements 10-18 2 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS FOR PERIOD FROM 09 AUGUST 2017 TO 31 DECEMBER 2018 The Management of the Project Management Team is responsible for the preparation of the Special-Purpose Financial Statements (hereinafter - "Financial Statements") of the "Modernizing Higher Education Project" (hereinafter - "Project") implemented by the Project Management Team (hereinafter - "PMT") under the Ministry of Higher and Secondary Specialized Education of the Republic of Uzbekistan, funded by the International Development Association Credit (hereinafter -"IDA Credit") that present fairly the financial position of the Project for the period from 09 August 2017 (project effectiveness date) to 31 December 2018, and the funds received, and expenditures incurred for the period then ended, in compliance with International Public Sector Accounting Standards "Financial Reporting under the Cash Basis of Accounting" (hereinafter - "IPSAS-Cash Basis"). In preparing the Financial Statements, the management of the PMT is responsible for: * Selecting suitable accountina policies and applying them consistently: * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable, and understandable information; * Providing additional disclosures when compliance with the specific requirements in IPSAS-Cash Basis are insufficient to enable users to understand the impact of particular transactions, other events, and conditions on the Project's Special-Purpose Financial Statements; and * Making an assessment of the Project's ability to continue as a going concern. The Management of the Project 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 disclose with reasonable accuracy at any time the fund balance of the Project, and which enable them to ensure that the Financial Statements of the Project comply with specific requirements in IPSAS-Cash Basis; * Maintaining statutory accounting records in compliance with legislation of the Republic of Uzbekistan; * Taking such steps as are reasonably available to them to safeguard the assets of the Project; and * Preventing and detecting fraud and other irregularities. The Financial Statements of the Project for the period from 09 August 2017 to 31 December 2018 were authorized for issue by the Project's Management on March 27, 2019. On behalf of the P 1 ent: U. Begimkulov R. Mirzam kh dov Deputy Minister r.o Project Coordinator F,4imnl Maeva Financial Management Specialist PKF MAK ALYANS LLC PKF Accountants & INDEPENDENT AUDITOR'S REPORT business advisors To Management of Project Management Team Unit under Ministry of Higher and Specialized Secondary Education of the Republic of Uzbekistan Opinion We have audited the Special-Purpose Financial Statements (hereinafter - "Financial Statements") of "Modernizing Higher Education Project" (hereinafter - "Project") financed from Credit No. 5804-UZ of the International Development Association (hereinafter - "IDA") which comprise the special-purpose statement of cash receipt and payments for the period from 09 August 2017 (commencement of operations) to 31 December 2018, the Statement of Expenditure (hereinafter - "SOE"), the statement of Designated Account (hereinafter - "DA") and a summary of significant accounting policies and other explanatory notes. The Financial Statements have been prepared by management of the Project using the International Public Sector Accounting Standards "Financial Reporting under the Cash Basis of Accounting" (hereinafter - "IPSAS - Cash Basis"). In our opinion, 1. The accompanying Special-Purpose Cash Basis Financial Statements, in all material respects, give a true and fair view of the Financial Position of the Project as of 31 December 2018, as well as Statement of cash receipts and payments, Designated Accounts movements and the outstanding balances for the period then ended, and in all aspects comply with the conditions of the Financing Agreement and in accordance with International Public Sector Accounting Standard; II. Moreover, (a) with respect to the SOE for the period from 09 August 2017 (commencement of operations) to 31 December 2018 adequate supporting documents, records and accounts have been maintained to support claims to the IDA for reimbursements of expenditures incurred; and (b) the expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Agreements. Ill. The Project Designated Accounts Statement for the period ended 31 December 2018 give a true and fair view of the Financial Position of the DA of the Project and of the cash flow for the period then ended. Basis for Opinion We conducted our audit in accordance with the 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 International Ethics Standards Board for Accountants' Codeof-Ehics-for ProfeqFnlAenmntants UESRA nde) tnqethr with the ethbial rMgi iirpmnt that are relevant to our audit of the Financial Statements in the Republic of Uzbekistan and we have fulfilled our other responsibilities under these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Key Audit Matters There is no key audit matters to communicate. Responsibilities of Management and Those Charged with Governance for the Special-Purpose Financial Statements The Management of the PMT under the Ministry of Higher and Specialized Secondary Education of the Republic of Uzbekistan (MHSSE) is responsible for the preparation and fair presentation of these Financial Statements in accordance with the International Public Sector Accounting Standard ("IPSAS"), and for such internal control as management determines is necessary to enable the preparation of Financial Statements those are free from material misstatement, whether due to fraud or error. Tel: +99871 294-73-86 * Fax: +99871 294-73-85 * info@pkf.uz * www.pkf.uz * www.pkf.com PKF MAK ALYANS LLC - 22, Aviasozlar street- 1 passage * Tashkent, Uzbekistan * 100016 ISO 9001:2008 PKF MAK ALYANS LLC is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Cert. No: QMS-0074/A In preparing the Financial Statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. Auditor's Responsibility for the Audit of the Special-Purpose Financial Statements Our objectives 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. We also: * 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. * 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. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * 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 Project'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 financial statements 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 Project to cease to continue as a going concern. * 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- 2au-dit and Gnifant@1 audit findin;G, inclu1ding any GignificGNt d8ficioncio!c_ inin9r*8cnto that Wcedntf dbiiR our audit. Audit Organization "PKF MAK ALYANS LLC" Authorized audit license issued by the Ministry of Finance of the Republic of Uzbekistan under No.00531 dated 30 January 2008 22, Aviasozlar Street, 1St Passage Tashkent, 100016, Uzbekistan 27 March 2019 5 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars SPECIAL - PURPOSE STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR PERIOD ENDED DECEMBER 31, 2018 2017-2018 Cumulative Budget Actual Amount Variance% Opening Fund Balances_________________ IDA Credit - Cash in USD - - - IDA Credit - Cash in UZS (USD equivalent) - - Total - -_- Sources of Funds: Funds Received IDA Credit - Initial Advance Payment to Designated Account 100000 100000 100000 100 IDA Credit - Disbursements to Designated Account 42 100 000 2490 000 2 490 000 5.91 Uzbek Government - Tax and Customs Benefits 30 752 160 - - - Intermediary Bank commissions held - (40) (40) - TOTAL OF FUNDS RECEIVED 72 952 160 2 589 960 2 589 960 3.55% Uses of Funds: Expenditure Incurred by Component 1. Strengthening Higher Education Management (7 283 000) - - - 2. Improving the Learning Environment in HEls (54 612 500) (418 000) (418 000) 0.77 3. Improving the Relevance of Higher Education (6 625 340) (1 342 600) (1342 600) 20.26 4. Project Management, Monitoring and Evaluation (4431 320) (282 318) (282 318) 6.37 TOTAL EXPENDITURE INCURRED (72952160) (2 042 918) (2042918)1 2.80% Closing Fund Balances IDA Credit - Cash in USD - 547 042 547 042 IDA Credit - Cash in UZS (USD equivalent) - - Total - 547 042 547 042 0.75% Signed on behalf of the Project's Management on 27 March 2019 U. begiMKUlov R. Mi ama hmudov Deputy Minister Project Coordinator Financial Management Specialist Notes on pages 10 to 18 form an integral part of the Special-Purpose Cash Basis Financial Statements. 6 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars SPECIAL-PURPOSE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Items Note Periods 31.12.2018 31.12.2017 ASSETS Cash and cash equivalents 547 042 1947 228 Project expenditures 2042918 52742 TOTAL ASSETS 2589960 1999970 OWN FUNDS/FINANCING IDA Financing 2 589 960 1999970 Other Financing - TOTAL OWN FUNDS/FINANCING 2589960 1999970 Signed on behalf of the Project's Management on 27 March 2019 U. Begimkulov z V R. Mirzamakhmudov Deputy Ministe Project Coordinator Financial Management Specialist Notes on pages 10 to 18 form an integral part of the Special-Purpose Cash Basis Financial Statements. 7 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars SPECIAL-PURPOSE STATEMENT OF DETAILED COSTS BY COMPONENT FOR THE PERIOD ENDED DECEMBER 31, 2018 Component / Sub-Components Actual Budget Variance 2017 - 2018 Cumulative 2017-2018 | Cumulative 2017-2018 Cumulative IDA Credit__________________ 1. Strengthening Higher Education Management - - 4289000 4300000 - 4300 000 1.1. - Establishing the Higher Education Management - - 2000000 2000000 - 2000000 Information System (HEMIS) 1.1.1. - Purchase of the ICT equipment 1800000 1800000 - 1800000 1.1.2. - Training staff 200 000 200 000 - 200 000 1.2. - Improving the Quality Assurance System - - 2289 000 2 300 000 - 2 300 000 1.2.1. (a) - Purchase of the ICT equipment for supporting MHSSE and HEls for development and implementation 700 000 700 000 700 000 the automated system of monitoring and evaluation and controlling educational process 1.2.1. (b) - Technical assistance for internal QA (i) strategy, (ii) guidelines for self-assessment of HEls, (iii) training for 800 000 800 000 - 800 000 MHSSE, and (iv) training for university-based Quality Enhancement Cells (QECs) 1.2,2. (a) - Equipment for external QA for STC and training 300 000 300 000 - 300 000 1.2.2. (b) - Technical assistance for external QA for STC including: (i) assessment and development of external QA 489 000 500 000 - 500 000 strategy and training plan, (ii) development and delivery of trainings 2. Improving the Learning Environment in HEls 418 000 418 000 30 400 000 31 000 000 582 000 30 582 000 2.1. - Improving laboratories and associated academic 28 400 000 29000000 - 29 000 000 and research systems in priority areas - - 2.1.1. - Purchase of basic teaching Laboratories 17000000 17000000 - 17000000 2.12 - Purchase of Scientific and Research Laboratories 11400000 12000000 - 12000000 2.2. - Establishment of a national e-library for Uzb HEls 418 000 418 000 2 000 000 2 000 000 582 000 1 582 000 2.2.1. (a) - Purchase of ICT equipment for Establishment of a national e-library 800 000 800 000 - 800 000 2.2.1. (b) - Development of training materials on e-Library, Delivery of training to librarians, faculty and students 200000 200000 - 200000 2.2.2. - Subscription to digital and electronic library 418 000 418 000 1 000 000 1 000000 582 000 582 000 resources 3. Improving the Relevance of Higher Education 1 342 600 1 342 600 1 000 000 4 000 000 342 600 2 657 400 3.1. - Establishing a Competitive Academic Innovation ? 1?00 000 ? nnn n A nW0 Fund (AlF) 4. Project Management, Monitoring and Evaluation 282 318 282 318 1 570 000 2 900 000 837 682 2 617 682 4.1. - Project Implementation 266 564 266 564 902 000 1 880 000 585 436 1613436 4.1.1. - PMT salary (including international specialists) 203 940 203 940 620 000 1 314 000 416 060 1110060 4.1.2. - Operating expenses 40681 40681 189000 350000 148319 309319 4.1.3. - Office and IT equipment and furniture for PMT 20 172 20 172 37 000 37000 16 828 16 828 4.1.4. - Financial Audit - - 50000 172000 - 172000 4.1.5. - Software for Financial Management 1772 1 772 6000 7000 4228 5228 4.2. - Technical Assistance and Outreach 15753 15753 668000 1 020000 252247 1 004247 4.2.1. - Assessment of options to increase female enrollment & Technical assistance in the development and strengthening of mechanisms for citizen involvement, 15 753 15 753 268 000 620 000 252 247 604 247 consultation with stakeholders and gather feedback from beneficiaries 4.2.2. - Technical assistance for the design of research - - 400000 400000 - 400000 laboratories I TOTAL PROJECT EXPENDITURES 2042 918 2 042 918 37 259 000 42200000 1 077082 40157082 To be continued PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars Continuation Components/Sub-Components Actual Budget Variance 2017-2018 Cumulative 2017-2018 Cumulative 2017-2018 Cumulative Government of Uzbekistan funds 1. Tax and Customs Benefits - 30752160 - 30752160 1.1. Strengthening Higher Education Management - 2 983 000 - 2 983 000 1.2. Improving the Learning Environment in HEls - 23612500 - 23612500 1.3. Improving the Relevance of Higher Education - 2 625 340 - 2 625 340 1.4. Project Management, Monitoring and Evaluation - 1531320 - 1 531 320 TOTAL UZBEK GOVERNMENT CO-FINANCING - 30 752 160 30 752 160 oRT on behalf of the Project's Management on 27 March 2019 U. Begimkulov R. Mirzamak udov Deputy Minister Project Coordinator a7;cialst Notes on pages 10 to 18 form an integral part of the Special-Purpose Cash Basis Financial Statements. 9 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars 1 THE PROJECT AND ITS OPERATIONS On 11 April 2017, the Government of the Republic of Uzbekistan and the International Development Association (IDA) signed a financing agreement No.5804-UZ for implementation of the "Modernizing Higher Education Project" (Project). The total amount of financing is USD 42.2 Million. The purpose of the Project is to improve the system of training in Higher Educational Institutions (HEI's) of the Republic of Uzbekistan for further training of competitive highly qualified personnel. Financing of the Project is provided at the expense of credit funds of the World Bank, as well as contribution of the Republic of Uzbekistan. The Ministry of Higher and Secondary Specialized Education of Uzbekistan (MHSSE) is an Executing Agency and a Project Management Team is established to support the day-to-day management of the Project. The Project's effectiveness date is 09 August 2017. The Project has following four components: Component 1 - Strengthening Higher Education Management Sub-component 1.1. Establishing a Higher Education Management Information System (HEMIS) (USD 2.0 Million from IDA financing). This subcomponent will finance improvements in the management capabilities of MHSSE and HEls, including development of a HEMIS and capacity building for users of the HEMIS at HEls and MHSSE. The HEMIS will provide better guidance, support, and direction to HEls and help improve coordination for policy making and planning among the many actors responsible for the management of higher education. Development of the HEMIS will involve the acquisition of an appropriate hardware platform and technical assistance in the development of software. Users of the information systems at HEls and MHSSE will receive comprehensive training to ensure effective use of the HEMIS. Sub-component 1.2. Improving the Quality Assurance System (USD 2.3 Million from IDA financing). In order to help strengthen the quality assurance (QA) mechanisms in Uzbekistan, this subcomponent will support (a) strengthening of HEls to establish Quality Enhancement Cells (QEC) to take ownership of the self-assessment of the institution and its academic programs; (b) strengthening of the MHSSE to facilitate support of the HEls to establish QECs, review self-assessment reports, and review and improve the university ranking system; and (c) strengthening the STC to carry out the function of an independent external quality assurance agency. Component 2 - Improving the Learning Environment in HEls from IDA financing). This subcomponent will support (a) the establishment and upgrading of modern basic teaching laboratories and advanced scientific research laboratories in the HEls in priority areas of the economy; (b) the development and implementation of a modern curriculum optimizing the use of the equipment provided; and (c) training of faculty and staff for optimal use of the equipment. To improve the quality of teaching and academic research in Uzbekistan, the Project funding will support two types of laboratories: (a) basic teaching laboratories, and (b) advanced scientific research laboratories. Sub-component 2.2. Establishment of a national e-library for Uzbek HEls (USD 2.0 Million from IDA financing). This subcomponent will support the establishment of a national e-library (electronic library) in Uzbekistan to improve the learning and research environment at Uzbekistan's HEls. Component 3 - Improving the Relevance of Higher Education (USD 4.0 Million from IDA financing) This component will support the establishment of a competitive Academic Innovation Fund (AIF) to help improve the relevance of higher education to the labor market by selecting and financing the innovative projects to strengthen the institutional and material basis for improving university-industry links, teaching and learning practices and environment within HEls, including through the purchase of necessary teaching, learning and research material. PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars Component 4 - Project Management, Monitoring and Evaluation Sub-component 4.1. Project Implementation (USD 1.88 Million from IDA financing). This subcomponent will support incremental operating costs for the project, including a core team of consultants to coordinate the project, ensure fiduciary compliance, and monitor it. The project would also finance technical experts to support implementation, as needed, and studies and evaluations. Sub-component 4.2. Technical Assistance and Outreach (USD1.02 Million from IDA financing). The project will also support TA activities to build capacity within the MHSSE and project-supported HEls in areas including but not limited to (a) promotion of technical education; (b) identification of options for increasing access in higher education, particularly for females; (c) establishment of partnerships with industries and other HEls; (d) technical design of specialized laboratories; and (e) awareness raising regarding the country's laws relating to child and forced labor. 11 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars 2 SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These special-purpose Financial Statements have been prepared in accordance with the International Public Sector Accounting Standard (IPSAS) "Financial Reporting under the Cash Basis of Accounting" promulgated by the International Federation of Accountants (IFAC). Those standards require that cash receipts shall be effective when received and expenditures of funds shall be effective when they are paid rather than when incurred. The Financial Statements prepared under the cash basis provide readers with information about the sources of cash raised during the period, the purpose for which cash was used and the cash balances at the reporting date. The measurement focus in the financial statements is balances of cash and changes therein. The Project's special- purpose cash basis Financial Statements are prepared on the basis of cash receipts and disbursements which are a comprehensive basis of accounting. Cash and cash equivalents Cash and cash equivalents include cash on hand, cash at designated account at domestic bank and cash in transit. During FY 2017 - 2018 into USD Designated bank account of the Project was totally financed with the amount of the IDA Credit disbursements equaled to US Dollars 2 590 000 (including intermediary bank commissions withhold of US Dollars 40). Financing Financing for Designated account is recognized when funds are transferred from IDA Credit account to the Project Designated account opened in the Operational Department JSCB "Uzbek Industrial & Construction Bank" (OD UzICB) of the Republic of Uzbekistan. Project expenditure The Project's special-purpose cash basis Financial Statements are prepared based upon the accounting records of the PMT, which are maintained in both USD and UZS. The initial accounting records consist of summaries of disbursement documents and other payment vouchers. Accounting of PMT within the MHSSE is conducted in accordance with the applicable laws of the Republic of Uzbekistan with MIe spVC111c 1111leffiieIlitdtion ol UI Pi uject, Inci n apl ydIHY ig cashI method U. The policy management programs also include preparation of detailed of cost report on a cash basis in accordance with International Accounting Standards for the Public Sector. The accounting is carried out using the Excel spreadsheets. In accounting, the following articles are used: - Taking into account the actual costs; - Accounting of cash transactions; - Accounting of remuneration; - Settlements with debtors and creditors; - Reporting. The Financial Management of the Project is carried out by the following main points: 1) Analysis of the performance costs; 2) Analysis of cash expenses and for transfers; 3) Analysis of financial condition; 4) An analysis of budget execution. PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars An analytical account of the sums received by the Project of funding is separate from the breakdown of the total amount financed by components of expenditure. At the end of each month / quarter are counted up all the items of expenditure for the quarter and total year to-date, in order to identify the remainder and in a similar way to keep records of cash expenditure for transfers. Foreign currency translation (i) Functional and Presentation currencies The functional currency of the Project is the currency of the primary economic environment in which it operates. The Project's functional currency is Uzbek Soums ("UZS"), as the major portion of its transactions are in UZS. These special-purpose Financial Statements of the Program are also presented in the presentation currency of US Dollars ("USD") as this is convenient for the readers of the financial statements. (ii) Transactions and Balances The assets' additions and expenditure paid for in UZS were translated into USD using the following principles of transaction: * Monetary assets denominated in UZS have been translated into USD using the rate of exchange of the Central Bank of Uzbekistan ("CBU") on the date of conversion; * All income/expenditure earned/incurred in UZS denominated into USD were recorded as an exchange rate of CBU, effective at the date of conversion; * Gain/Loss resulting from the transaction of UZS into USD: Cash & cash equivalents outstanding as at reporting date are translated into USD at the official rate of the CBU effective at the reporting date. The official exchange rate set by the CBU and effective, as at 31 December 2018 was UZS 8,339.55 to USD 1 (as at December 31, 2017: UZS 8,120.07 to USD 1). At present, the UZS is not a convertible currency outside Uzbekistan. Bank Accounts of the Project During the period from August 09, 2017 to December 31, 2018, the PMT held at Uzbekistan's bank for USD Designated Account and UZS Current account for IDA Credit at named Operational Department JSCB "Uzbek Industrial & Construction Bank" (OD UzICB) of the Republic of Uzbekistan. The PIVIT operates the Designated Account in accordance with the provisions iaid down in the Financing Agreement. The USD represents revolving funds provided from the IDA Credit to facilitate prompt disbursement of funds, The funds are maintained at OD "UzICB". The USD Designated Account is used to cover the IDA Credit share of eligible expenditures in both local and foreign currencies. The eligible expenditures are reported to the IDA through Expenditure Reports/SOE. The USD Designated Account is replenished by the IDA Credit on the basis of request, prepared by the PMT for validation of USD Designated Account. The UZS Current Account was opened to convert the funds received into USD Designated Account for IDA Credit for payments to suppliers and withdrawal of cash (for salary purposes). Cash & cash equivalents outstanding as at reporting date are translated into USD at the official rate of the CBU effective at the reporting date. As at 31 December 2018, the official rate of CBU set at UZS 8,399.55 per USD1. The outstanding balances of the above accounts as at December 31, 2018 are disclosed in Note 6. 13 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars 3 Taxation The PMT, being the state non-commercial organization, is exempted from taxes and levies in line with the Tax Code of the Republic of Uzbekistan. Also the Decree of the President of the Republic of Uzbekistan No.PP-2848 dated 22 March 2017G states that the goods, works, services and computers, study literature, special equipment and inventory purchased with the lIA funds within the framework of the Project, are exempted from customs payments, VAT, mandatory contributions to the state funds-in-trust. The policy is also applied with respect to income tax payments of legal non-resident entities and payments of personal income tax of non-resident individuals on salary remuneration granted from IDA Credit. Such exemption is considered as a contribution of the Uzbek Government toward the implementation of the Project. In addition, the Grants received by educational institutions from IDA-funds-are-exempted-from-tax-payments.---- -- 4 SUBSEQUENT EVENTS There are no events after the end of the reporting period, which would require adjustment to or disclosure in these financial statements. 5 APPROVAL OF SPECIAL-PURPOSE FINANCIAL STATEMENTS The special-purpose financial statements were approved by the Management of the Project for issue on 27 March 2019. 14 MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars 6 Statements of Cash Balances of the Project 6.1. The Project had the following Cash Balances as at December 31, 2018 at OD JSCB "UzICB": Source of funds Currency Note Account Amount in USD IDA Credit Fund USD 7 Designated account 547 042 IDA Credit Fund UZS 8 Current account - Total 547 042 6.2. The Project had the following Cash Balances as at December 31, 2017 at OD JSCB "UzICB": Source of funds Currency Note Account Amount in USD IDA Credit Fund USD 7 Designated account 1 943737 IDA Credit Fund UZS 8 Current account 3 491 Total 1 947 228 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY EDUCATION SPECIALIZED OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars 7 Statement of USD Designated Account Account No. 20203 840 1001 0107 4001 Depository Bank: Operational Department of JSCB "Uzbek Industrial & Construction Bank" Address: Shahrisabz Street, 1, Tashkent, 100000 Related Credit No. 5804 -UZ (IDA) Currency: US Dollars (USD) 2018 2017 Opening Balance as at 01 January 1 943737 Cash Inflow: IDA Credit Advance payment - 100000 IDA Credit Disbursements 590 000 1 900 000 Return of surplus trip expenses 61 - Intermediary bank commissions held (10) (30) Cash Outflow: Transfer into UZS Current Account (Conversion) (156652) (56233) Advance payments (70%) of Academic Innovation Fund (AIF) Grants (1 342 600) - Subscription to e-library expense (ELSEVIER B.V.) (418 000) Financing other eligible expenditures (69 494) - Closing Balance as at 31 December 547 042 1 943 737 U. eo'kulR_ M;-- -mkh 0dV Deputy Minis Project Coord inator Financial Management Specialist 16 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars 8 Statement of UZS Current Account Account No. 20203 000 2001 0107 4001 Depository Bank: Operational Department of JSCB "Uzbek Industrial & Construction Bank" Address: Shahrisabz Street, 1, Tashkent, 100000 Related Credit No. 5804 -UZ (IDA) Currency: Uzbek Soums (UZS) USD Equivalent 2018 2017 Opening Balance as at 01 January 3491 Cash Inflow: Transfer from USD Designated Account 156652 56233 Returned amounts 367 - FX Gain 12 - Cash Outflow: Financing of eligible expenditures (160522) (52730) FX Loss - (12) Closing Balance as at 31 December 3491 U. Begimkulov -R. Mirzama hmudov Deputy Minister Project Coordinator Financial Management Specialist 17 PROJECT MANAGEMENT TEAM UNDER MINISTRY OF HIGHER & SECONDARY SPECIALIZED EDUCATION OF UZBEKISTAN MODERNIZING HIGHER EDUCATION PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS Special-Purpose Financial Statements under IPSAS-Cash Basis for the period ended 31 December 2018 Amounts are expressed in US Dollars STATEMENT OF EXPENSES (INCLUDING RECONCILIATION) FOR THE PERIOD ENDED 31 DECEMBER 2018 9 STATEMENT OF EXPENDITURE - IDA CREDIT No.5804 -UZB (SF) WDA Component 2 Component 4 Total Expenditure Disbursed from Designated account 4;7 418000 176417 594417 594417 Total 418000 176417 594417 594417 Note: PMT's operating expenses in amounting of USD 105 941 and expense for AIF Grants equaled to USD 1 342 600 were made during IV Quarter of 2018 and were not claimed by PMT as of 31 December 2018 yet. Reconciliation of financing made through Designated Account - IDA Credit No.5804 -UZ (SF) FY 201 7-2018 Expenditure made during reporting period 2 042 958 Less: Expenditure per SOE not reimbursed by IDA as at 31.12.2018 - Less: Intermediary bank commissions withheld (40) Total financing made through Designated Account 2042918 10 Advance & Disbursements to Designated account WDA 2018 2017 Total 1 - 100000 100000 2 - 1 000000 1 000000 3 - 900000 900000 7 590000 - 590 000 Total 590000 20000001 2590000 Note: The total intermediaty bank commissions withheld during the disbursements of IDA funds equaled to USD 40. 11 Breakdown of Eligible expenditure during the reporting period Items 2018 2017 Total Office equipment and furniture 190 20172 20 362 PMT Salary expenses 113096 22766 135862 Consulting services 84 197 - 84 197 Academic Innovation Fund (AIF) Grants 1 342 600 - 1 342 600 Subscription to digital & u-librrdy 418000 - 418 UUU Business trip expenses 1 521 - 1521 Single Social Payments (SSP-25%) 25 585 5 691 31 276 Computer software - 1772 1772 Office supplies 30 938 968 Operational expenses 5396 1 391 6787 Returned amounts (428) - (428) FX difference (12) 12 Total expenditure, net 1990176 52742 2042918 18