The Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361- KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development Financial Statements for the year ended December 31, 2017 and Independent Auditors' Report CONTENTS Independent auditors' report Financial statements Statement of receipts and disbursements of funds.................................................. 1 Statement of comparison of budget and actual amounts .......................................... 2 Statement of disbursements by component ........................................................ 3-4 Notes to the financial statements ..................................................................5-10 Ten.: -7 727 331 31 34 TOO "BDO Kazakhstan" DaBC: +7 727 331 31 35 yn. Fa6AyllMHHa, 6 JB D O info@bdokz.com AnmaTbl, Ka38XCTaH www.bdokz.com Al15H4E3 Tel: +7 727 331 31 34 BDO Kazakhstan LLP Fax: +7 727 331 31 35 6 Gabdultin Street info@bdokz.com Almaty, Kazakhstan www.bdokz.com A15H4E3 INDEPENDENT AUDITORS' REPORT To the Management of the Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development Opinion We have audited the financial statements of the Justice Sector Institutional Strengthening Project (hereinafter "the Project"), funded under Loan Agreement No. 8361 -KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development which comprise the statement of receipts and disbursements of funds for the year ended December 31, 2017, statement of comparison of budget and actual amounts for the year ended December 31, 2017, statement of disbursements by component for the year ended December 31, 2017, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying financial statements fairly present, in all material respects., the Project's receipts and disbursements for the year ended December 31, 2017 and the cash position as at December 31, 2017 in accordance with the International Public Sector Accounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accounting published by the International Federation of Accountants (IFAC), as well as in accordance with the requirements of the International Bank for Reconstruction and Development. Basis for Opinion We have performed our audit in accordance with the International Standards on Auditing. Our responsibilities under those standards are described in the section Auditor's Responsibility for the Audit of the Financial Statements herein. We are independent of the Project in accordance with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA Code) and with the ethical requirements that are relevant to our audit of the financial statements in Kazakhstan, and we have fulfilled our other ethical responsibilities in accordance with 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 opinion. Responsibility of the Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IPSAS Financial Reporting under the Cash Basis of Accounting published by the International Federation of Accountants (IFAC) and in accordance with the requirements of the International Bank for Reconstruction and Development, and for such internal control as management determines is necessary to enable preparation of the financial statements that are free from material misstatement, whether due to fraud or error. ToBapauAecTso c orpaHL4eHHOH OTBeTTBeHHOCTbIo "BDO Kazakhstan", 3aperwcTpiposaHHOe B COOTBeTCTBOLi C 3at8oHO aTelbCTBOM Pecny6imia Ka3aXcTaH, BaieTCr yLIacTH"RoM Me m)AyHapoAHoro o6beA1,1eH"1 BDO International L,mited, 6pHraHcKoro o6iecTaa c o-seTCTBeHHOCTho, orpaiiaHH oft 'apah-ei; ero yaCTHHKOB " jBABeTC1 8CTab 0 Me)AyHapoAHoA ceTH He3aBCciMbiX vMomnHMA BDO. BDO Kazakhstan, a limited liabit ty partnership, registered under the laws of the Republic of Kazakhstan, is a member of BDO International Limited, a UK tompany Imited by guarantee, and forms part of the international BDO network of independent member firms. INDEPENDENT AUDITORS' REPORT (continued) In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing as applicable, matters relating 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 alternatives but to do so. Those charged with governance are responsible for overseeing the Project financial reporting process. Auditor's Responsibility for the Audit of the Financial Statements Our objective is 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 International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the overall presentation 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 in the financial statements, whether due to fraud or errors; 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 the detection risk of material misstatement due to errors, as fraud can involve collusion, forgery, intentional omissions, misrepresentations of information, or override of internal controls; * Obtain understanding of the 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 appropriateness of disclosures prepared by management; * Evaluate the overall presentation of the financial statements, its structure and content, including disclosures, we also evaluate whether the financial statements present the underlying transactions and events so as to ensure their fair presentation. INDEPENDENT AUDITORS' REPORT (continued) We communicate with those charged with managing the Project regarding, among other matters, the planned scope and timing of the audit and significant audit finding, including any significant deficiencies in internal control that we identify during our audit. BDO Kazakhstan LLP State License for Auditing Activities No.15003448 issued by the Committee for Financial Control under the Ministry of Finance of the Republic of Kazakhstan onL- February 19, 2015 Director TaLgat Omarov May 28, 2018 Audir n Kuandykov AdditorQualification Certificate No. MO- 0000490, issued by the Qualification Commission for Certification of Auditors of the Republic of Kazakhstan on October 10, 2017 6 Gabdultin St. Almaty, Kazakhstan Ir � о о� г� оо v о� и�.о �о �.о .о ;ол ооо^м nn�tv�tм� и р о.- � м м.о и г� ао ао � с s а�о 0O^а�о м.�OомN.�о I.^о �O � ш �.+ � о� �� N и.о � ги ги ' Е N �-' n1 n1 v й � ��Гi' �Гi о ц- v �' �С Н о L го � U1 а� � L V � го i.+ � го у� И С С и 1� ', 7 �.+ � ia С � р N N � о� � а� ао �о �� о� о� v- ао ао ��� и оо оо о У �- '^ N�� .- .- гv t� � � .- о г, й an, Е о о� о о �.`°о�°о о; � го р` 0 �..+ и й .- .- N оо .- .- . и_ У L р w C:�t . `�- }' .[] и N 1] .у N N в-- N N,,,,',,. 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GENERAL PROVISIONS Kazakhstan Business Environment Project activities are carried out in Kazakhstan. Accordingly, the Project is exposed to risks specific to economic and financial markets of Kazakhstan, whose economy shows specific features of an emerging economy. The legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes which together with other legal and financial impediments contribute to the challenges faced by entities operating in Kazakhstan. Nature of Operations The Loan agreement No. 8361-KZ (the "Agreement") between the Government of the Republic of Kazakhstan (the "Government") and International Bank for Reconstruction and Development ("IBRD") was signed on April 29, 2014 and ratified on July 1, 2014 ("the Project start date"). Under the Agreement, IBRD issues a loan of 36,000,000 US dollars ("Loan") for the purpose of implementation the Justice Sector Institutional Strengthening Project ("Project"). The Government shalt repay each disbursed amount in semi-annual instatments payable on each 15 March and 15 September, the first instalment to be payable on the eleventh (11 th) payment date following the maturity fixing date for the disbursed amount, and the last instalment to be payable on the thirtieth (30th) payment date following the maturity fixing date for the disbursed amount. Each instalment except for the last one shall be equal to one twentieth (1 /20) of the disbursed amount. The last installment will be equal to the remaining outstanding amount of the disbursed amount. According to the approved budget for 2017, the receipts and disbursements for the Project from the proceeds from the IBRD loan and co-financing of external loan by the Government of the Republic of Kazakhstan are estimated to amount to 2,614,122 US dollars and 1,742,749 US dollars, respectively (2016: 2,141,654 US dollars and 1,427,768 US dollars, respectively). The objectives of the Project are as follows: (a) to strengthen the institutional capacities of Selected Agencies for effective implementation of selected taws; and (b) to improve the efficiency, transparency of, and access to selected public services in the justice sector. The project is implemented by the Ministry of Justice of the Republic of Kazakhstan, which acts as an Implementing Agency on behalf of the Government of the Republic of Kazakhstan. The Project consists of the following parts: Part A. Strengthening the Implementation of Key Elements of the Legal and Institutional Framework 1. Provision of consulting services and training to strengthen the institutional capacity of the Ministry of Justice and other Selected Agencies, whose competencies include carrying out government functions under the draft Commercial Code, the Administrative Offenses Code and the Pena[ Code, including, through but not limited to: Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) (a) carrying out regulatory and impact assessments; (b) workshops, training, organizing focus groups, and carrying out user surveys and other communications and outreach activities for broad consultations on the Codes; and (c) development of monitoring and evaluation systems for measuring the effectiveness of the Codes. 2. Provision of consulting services, trainings and goods to support Selected Agencies with the drafting of a new proposed Law on Self-regulated Professional Organizations, and associated regulations, including but not limited to: (a) organizing workshops and training for drafting regulatory documents; (b) carrying out regulatory and impact assessments; (c) organizing focus groups and carrying out user surveys and other communications and outreach activities for broad consultations on the drafting of the proposed law and regulations; and (d) development of monitoring and evaluation systems for measuring the effectiveness of the proposed law and regulations, once adopted. 3. Provision of consulting services, training and goods to the Ministry of Justice and other Selected Agencies for improvement of the Borrower's legislative drafting policies, processes and capacity, including: (a) coordination and consultation processes across the Borrower's relevant government agencies; (b) feedback mechanisms to assess the quality of legislative drafting; and (c) measures to improve the transparency and knowledge base for legislative drafting, including establishing and maintaining a legislative drafting web- based portal for the Ministry of Justice and other Selected Agencies of the Borrower. Part B. Improving the Service Quality and Responsiveness of the Ministry of Justice 1. Provision of consulting services, training and goods to the Ministry of Justice to strengthen its capacity, including but not limited to: (a) carrying out periodic institutional self-assessments; (b) carrying out annual public surveys to assess public trust in the Ministry of Justice and other justice institutions of the Borrower selected pursuant to criteria set forth in the Project Operations Manual; (c) development and implementation of a comprehensive performance monitoring framework and indicators and results collection and reporting; (d) development of a comprehensive communications strategy and capacity; (e) development and implementation of an operational roadmap for the Ministry of Justice; and (f) development of monitoring and evaluation systems. 2. Provision of consulting services, training and goods to the Ministry of Justice for improving: (a) the enforcement of judicial decisions of the Borrower's courts; (b) carrying out surveys and assessments of efficiency and transparency in the enforcement of judicial decisions; (c) development of monitoring and evaluation systems for benchmarking international good practices as compared to the Borrower's enforcement practices; (d) development and piloting of a medium term strategy of information systems investment and modernization; and (e) forensic capability. 3. Provision of consulting services, training and goods to the Borrower through, including but not limited to: (a) carrying out institutional assessments and diagnostics, and supporting implementation of the outcomes of said assessments and diagnostics; (b) supporting the adoption of performance indicators; 6 Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) (c) carrying out activities to improve data and information quality in real estate registration databases; and (d) supporting the accelerated conversion of paper-based registration records to electronic format. 4. Provision of consulting services and goods to the Ministry of Justice to improve access to legal aid through, inter aLia: (a) workshops and training on application of the Law on Free Legal Aid; (b) piloting innovative, participatory and more efficient ways to provide legal aid and development of required amendments and enabling regulations to the said Law; (c) development and operation of a web-based legal aid portal; (d) generation and publication of feedback from users, providers and other stakeholders; (e) analysis of service provision by lawyers and notaries; (f) a policy review and a fiscal impact assessment; and (g) analysis of gender issues in provision of and access to free legal aid and the preparation of a costed and sequenced strategy to address key legal aid-related gender issues, and support for implementing the strategy. 5. Provision of consulting services for Selected Agencies to develop: (a) a strategy to facilitate socio-economic re-integration of former offenders, including through employment opportunities; and (b) technical specifications for penitentiaries' information system to improve connectivity with the courts and Selected Agencies for more effective case processing. Part C. Strengthening Judicial Efficiency and Professionalism 1. Provision of consulting services, training and goods to the Supreme Court and Selected Courts in the following areas: (a) Support the Selected Courts, through the provision of consulting services, training and goods, to: (i) carry out analyses and diagnostics aimed to identify impediments that increase the non-adjudicative burden on judges; (ii) develop recommendations to remove such impediments and increase judges' efficiency; and (iii) carry out such recommendations in pilot courts. (b) Strengthen the Supreme Court's capacity to support and manage the judiciary through the provision of consulting services, training and goods for: (i) monitoring and evaluation of Lower courts performance; (ii) simplifying and streamlining court procedures; (iii) developing an action plan to expand access to information on court functioning for the public and litigants; (iv) facilitating specialization of courts and judges; (v) strengthening institutional capacity of the Supreme Court to carry out its administrative and management functions of the lower courts; (vi) strengthen the capacity of the Supreme Judicial Council to assess and strengthen judicial disciplinary processes; and (vii) fostering peer-based knowledge sharing amongst judges and other justice sector officials. 2.a) Support the improvement of the capacity of the Institute of Justice and Selected Agencies, through the provision of consulting services, training and goods for: (i) training judges and judicial staff; (ii) prepare and carry out institutional assessments, surveys, policy research, develop strategies and action plans; (iii) the design and delivery of sensitization training and workshops for judges and other justice stakeholders on social inclusion and gender issues and on other challenges affecting vulnerable groups. 7 Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) (b) Provision of technical support to: (i) The Institute of Justice for the preparation of a Medium Term Development Strategy and Action Plan, including a Training and Infrastructure Needs Assessment; (ii) The Institute of Justice and Selected Agencies for carrying out of pilot e-learning courses for judges and judicial staff; establishment of monitoring system to measure training impact; launch of appropriate staff development arrangements to benefit from global knowledge and international good practices; and strengthen the Institute's applied policy research capacity and focus (including in the areas of social inclusion, gender, socio- economic re-integration of former offenders, etc.). Part D. Project Implementation, Project and Scientific Activities Coordination 1. Provision of consulting services, training, goods and coverage of incremental operating costs to the Ministry of Justice in order to: implement, manage, coordinate, monitor and evaluate the Project, including hiring of the ISG. 2. Provision of Fellowship Grants for competitively selected Eligible Candidates from justice sector agencies to expose them to global knowledge and international good practices in reform design and implementation. 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS These financial statements have been prepared in accordance with International Public Sector Accounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accounting as published by the International Federation of Accountants, and in compliance with the requirements of the International Bank for Reconstruction and Development. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies described below have been consistently applied in the reporting periods presented in these financial statements. Cash Method of Accounting Cash method of accounting recognizes transactions and events only when cash is received or paid under the Project. Presentation Currency These financial statements are presented in US dollars (hereinafter "US dollars"). Transactions in Foreign Currencies Transactions in foreign currencies are translated to the presentation currency at the exchange rates prevailing at the transaction dates. Direct payments from the IBRD are translated into US dollars at the exchange rates established by the National Bank of the Republic of Kazakhstan as at the date of reconversion. Proceeds from the Government of the Republic of Kazakhstan are translated into US dollars at the exchange rates established by the National Bank of the Republic of Kazakhstan as at the date of payment. Exchange differences arising from translation of transactions denominated in other currencies into US dollars are reported as a net value from changes in exchange rates. Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) Expenditure Categories The Agreement specifies the main categories of expenditures financed by the Loan, the amount for each category, as well as the percentage of expenditures to be financed in each category. According to the Agreement, there are the following categories of expenditures: (1) Provision of consulting services, training, coverage of incremental operating costs for the Project (excluding Fellowship Grants under Part D.2. of the Project); (2) Fellowship Grants under Part D.2. of the Project. Cash Received According to the terms and conditions of the Agreement, the Government of the Republic of Kazakhstan shalL pay interest and the principal amount of the loan. Those payments are recorded on the accounts of the Government and not recognized in these financial statements. The date of payment of the last installment on the Loan by the Government is 15 March 2034. Allocation of Expenditures In the Statement of disbursements by component the expenditures are broken down based on matching the descriptions of works, as set forth in the Agreement, against those indicated in the primary documents. 4. CASH To carry out transactions under the Loan No. 8361 -KZ and to make payments to suppliers, the following accounts were opened at the Committee of Treasury of the Ministry of Finance of the Republic of Kazakhstan, the city of Astana: * No. 01.6201.000000000.ZO8361.001.2210001.2, in US dollars * No. KZ510702012210001001, in KZT Cash balances as at December 31, as well as the transactions of the account for the year ended December 31, 2017 are detailed below: US dollars 2017 2016 Balance at 1 January 01 16,414 RECEIPTS Replenishment of account 1,732,000 812,000 1,732,000 812,000 EXPENDITURES Expenses under the Project 1,731,958 796,523 Net foreign exchange loss (gains) - (937) 1,731,958 795,586 Balance at December 31 16,456 16,414 Including those denominated: In US dollars 13,880 16,414 In tenge 2,576 - 9 Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) 5. DIRECT PAYMENTS AND REPLENISHMENT OF THE ACCOUNT Direct payments under the Project are made by IBRD and the Government of the Republic of Kazakhstan to suppliers chosen in accordance with the terms of the Agreement. Direct payments to Suppliers and funds added by IBRD to the account under the Project for the year ended December 31, 2017 were made based on the following withdrawal applications: US dollars No. of withdrawal Date of Replenishment Direct application withdrawal of account payments Total 8 26.05.2017 - 300,000 300,000 9 15.06.2017 678,000 - 678,000 10 27.10.2017 155,000 - 155,000 11 06.12.2017 899,000 - 899,000 Total 1,732,000 300,000 2,032,000 Statement of Expenditures US dollars Actual expenditures by categories Total (1) Consultants' services, No. of Value amount Training, goods and (2) Fellowship Applic. date of the Incremental Operating Costs Grants under Total Applic. for the Project (excluding Part D.2. of Fellowship Grants under Part the Project D.2. of the Project) 8 26.05.17 300,000 - 9 15.06.17 678,000 533,631 - 533,631 10 27.10.17 155,000 403,098 - 403,098 11 06.12.17 899,000 - . Total 2,032,000 936,729 - 936,729 6. UNUSED PORTION OF THE LOAN As at December 31, 2017, the undrawn portion of the Loan from IBRD amounts to 32,821,857 US dollars (2016: 34,853,857 US dollars). 7. DATE OF ISSUE These financial statements have been approved for issue by Executive Secretary of the Ministry of Justice of the Republic of Kazakhstan and Deputy Director - Chief Accountant of the Ministry of Justice of the Republic of Kazakhstan May 28, 2018. 10 Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development Appendix No. 1 Reconciliation between the data provided by Project Management Unit and World Bank payments data US dollars Date of Application for As per PMU As per WB Variance withdrawal withdrawal 26.05.17 8 300,000 300,000 15.06.17 9 678,000 678,000 27.10.17 10 155,000 155,000 06.12.17 11 899,000 899,000 Total 2,032,000 2,032,000