U U U U W North East and Red River Delta Regions Health * System Support Project W (Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International * Development Association (IDA)) U Financial statements * 31 December 2016 U U U U U U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) CONTENTS Pages Report of the Project management 1-2 Independent auditors' report on the financial statements 3-4 Balance sheet 5 Statement of income, expenditure and fund balance 6 Cash flow statement 7 Statement of designated account 8-9 Statement of expenditures 10 Notes to the financial statements 11-25 Independent assurance report on compliance 26-27 Independent assurance report on effectiveness of internal control 28-29 Appendix 1: Management letter 1 -31 U U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) REPORT OF THE PROJECT MANAGEMENT The management of North East and Red River Delta Regions Health System Support Project (the "Project") presents this report and its financial statements as at 31 December 2016 and for the year then ended. THE PROJECT MANAGEMENT'S RESPONSIBILITY IN RESPECT OF THE FINANCIAL STATEMENTS The Project management is responsible for the financial statements as at 31 December 2016 and for the year then ended which gives a true and fair view of: the assets, liabilities and fund balance as at 31 December 2016; the receipt, expenditure and fund balance for the year ended 31 December 2016; the statement of cash flows of the Project for the year ended 31 December 2016; the balances of the designated account as at 31 December 2016 and the movements of this account for the year then ended; and the statements of expenditures (SOEs) for the year ended 31 December 2016. In preparing these financial statements, the Project management is required to: select suitable accounting policies and then apply them consistently in accordance with the International Public Sector Accounting Standards ("IPSAS"); the Financing Agreement No. IDA 5259- VN ("Financing Agreement") between the Government of the Socialist Republic of Vietnam and the International Development Association ("IDA"); the Project Operation Manual ("POM"); > state whether applicable accounting policies have been followed, subject to any material departures disclosed and explained in the financial statements; and > design and implement an effective internal control to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. The Project management is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy, the Project's assets, liabilities and fund balance; its receipt and expenditure and its cash flows for the reporting period and accounting books compliance with applicable accounting policies. They are also responsible for safeguarding the assets of the Project and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Project management confirms that they have complied with the above requirements in preparing the financial statements. U U U U U U U 1 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) REPORT OF THE PROJECT MANAGEMENT (continued) STATEMENT BY THE PROJECT MANAGEMENT The Project management does hereby state that, in its opinion: the accompanying financial statements give a true and fair view of the fund balance of the Project as at 31 December 2016, its receipt and expenditure and its cash flows for the year then ended, the balance of designated account as at 31 December 2016 and its movements for the year then ended and the statement of expenditures for the year ended 31 December 2016 in accordance with IPSAS, Financing Agreement and POM; the funds provided by IDA and the Government of Vietnam are utilised for the purposes defined in the Financing Agreement; the Project complies with the Financing Agreement, POM, and other applicable law and regulations; and the Project designs and implements an effective internal control to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error, as well as to ensure compliance with the Financing Agreement, POM, law and regulations applicable to the Project. For and on behalf of the Project management: Mr rh6 Tun&- Hanoi, Vietnam 15 June 2017 U2 U U U U U U H 2 W Ernst & Young Vietnam Limited Tel: + 84 4 3831 5100 8th Floor, CornerStone Building Fax: + 84 4 3831 5090 16 Phan Chu Trinh Street ey.com Building a better Hoan Kiem District working world Hanoi, S.R. of Vietnam Reference: 61199325/18714153 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS To: The Central Project Management Unit of North East and Red River Delta Regions Health System Support Project Opinion We have audited the financial statements of North East and Red River Delta Regions Health System Support Project ("the Project"), as set out on pages 5 to 25, which comprise the balance sheet as at 31 December 2016, the statement of receipt, expenditure and fund balance as at 31 December 2016 and for the year then ended, the statement of cash flows, the statement of designated account and the statement of expenditures for the year ended 31 December 2016, and the notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements of the Project are prepared, in all material respects, in accordance with the accounting policies as described in Note 3 to the financial statements and the Project Operation Manual ("POM"). 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 Financial Statements section of our report. We are independent of the Project 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 financial statements in Vietnam, 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. Accounting Policies We draw attention to Note 3 to the financial statements, which describes the accounting policies. Our opinion is not modified in respect of this matter. Responsibilities of the Central Project Management Unit to the Financial Statements The Central Project Management Unit is responsible for the preparation of these financial statements in accordance with the accounting policies as described in Note 3 to the financial statements and POM, and for such internal control as the Project management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. U U U U U U * EY Building a better working world Auditors' responsibilities for the Audit of the 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. U Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. We communicate with the Central Project Management Unit regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal ontrol that we identify during our audit. Ernst & Young Vietnam Limited Hanoi, Vietnam 15 June 2017 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) BALANCE SHEET as at 31 December 2016 Currency: VND INotes Ending balance Beginning balance (restated) ASSETS Cash 4 76,627,107,518 99,871,434,212 Advances to suppliers 5.1 73,981,200,215 7,435,038,000 Advances to Project implementation partners 5.2 12,166,174,895 9,739,868,239 Advances to Project's staffs 5.3 502,654,400 Other receivables 6 434,951,104 12,649,131 163,712,088,132 117,058,989,582 LIABILITIES AND FUND BALANCE Payables to suppliers 7.1 105,088,800,127 22,375,652,677 Payables to Project implementation partners 7.2 11,660,592,615 527,427,743 Payables to Project's staffs 7.3 318,536,424 127,495,095 Other payables 8 374,704,041 284,969,886 Fund balance 46,269,454,925 93,743,444,181 163,712,088,132 117,058,989,582 Ms Dang Thi Phuong Nga b uan Chief Accountant rojec ctor Hanoi, Vietnam 15 June 2017 5 U U5 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) STATEMENT OF RECEIPT, EXPENDITURE AND FUND BALANCE as at 31 December 2016 and for the year then ended Currency: VND For the period from For the year ended 17 October 2013 to Notes 31 December 2016 31 December 2016 RECEIPT Contribution from the International 4 Development Association 654,726,529,610 913,791,018,098 Contribution from the Government of 10 Vietnam 24,889,857,629 46,310,937,273 Bank interests 11 43,699,432 173,095,135 Other receipts 12 74,897,721 258,936,051 TOTAL RECEIPT 679,734,984,392 960,533,986,557 EXPENDITURE 13 Component 1: Strengthening the capacity of lower level hospitals to deliver quality services 665,318,374,154 772,603,326,593 Component II: Reducing the financial barriers to access health services for the economically vulnerable people 54,899,655,849 105,967,628,020 Component Ill: Project management, monitoring and evaluation 20,287,824,478 54,862,228,401 TOTAL EXPENDITURE 740,505,854,481 933,433,183,014 SURPLUS OF RECEIPT OVER EXPENDITURE (60,770,870,089) 27,100,803,543 Foreign exchange differences 13,296,880,833 19,168,651,382 FUND BALANCE AT THE BEGINNING OF THE YEAR/PERIOD 93,743,444,181 - FUND BALANCE AT THE END OF THE YEARIPERIOD 46,269,454,925 46,269,454,925 Ms Dang Thi Phuong Nga hame Tuan Chief Accountant Director Hanoi, Vietnam 15 June 2017 U U 6 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) STATEMENT OF CASH FLOWS as at 31 December 2016 and for the year then ended Currency: VND For the period from For the year ended 17 October 2013 to Notes 31 December 2016 31 December 2015 Surplus of receipt over expenditure during the year/period (60,770,870,089) 87,871,673,632 Increase in advances (69,475,123,271) (17,174,906,239) Increase in other receivables (422,301,973) (12,649,131) Increase in payables 94,127,087,806 23,315,545,401 Net cash flows from operating activities of the Project (36,541,207,527) 93,999,663,663 Net cash flows from investing activities of the Project Net cash flows from financing activities of the Project Net increase in cash (36,541,207,527) 93,999,663,663 Cash at beginning of the yeariperiod 99,871,434,212 Foreign exchange differences 13,296,880,833 5,871,770,549 Cash at end of the yearlperiod 4 76,627,107,518 99,871,434,212 Ms Dang Thi Phuong Nga .,ftuan Chief Accountant re ector Hanoi, Vietnam 15 June 2017 7 U U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) STATEMENT OF DESIGNATED ACCOUNT as at 31 December 2016 and for the year then ended RECONCILIATION OF DESIGNATED ACCOUNT Currency: USD As at 31 December 2016 Advance withdrawal 15,000,000 Balance of designated account as at 31 December 2016 2,503,529 Increase: Amount withdrawn and not yet claimed as at 31 December 2016 12,496,471 Total advance to designated account as at 31 December 2016 15,000,000 owN I AN y" TR ' 1 LNL TINt Ms Dang Thi Phuong Nga MLPharn uan Chief Accountant to ector Hanoi, Vietnam 15 June 2017 8 5L U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) STATEMENT OF DESIGNATED ACCOUNT (continued) as at 31 December 2016 and for the year then ended BALANCE AND MOVEMENTS OF DESIGNATED ACCOUNT Notes USD VND Equivalent Balance as at 1 January 2016 3,435,510 77,195,920,261 Increase: Amount deposited by the International Development Association 9 29,846,474 654,726,529,610 Foreign exchange differences - 13,295,213,128 Decrease: Amount withdrawn 30,778,455 689,741,950,371 Balance as at 31 December 2016 4 2,503,529 55,475,712,628 Balance as at 31 December 2016 as per bank statement 4 2,503,529 55,475,712,628 Ms Dang Thi Phuong Nga -Mr Ph Le Tuan S Chief Accountant Pr Director Hanoi, Vietnam 15 June 2017 U9 5N U . A M ■ 〕〕!旦!!一 . . North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Governmentt of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS as at 31 December 2016 and for the year then ended 1. PROJECT BACKGROUND On 1 August 2013, the Government of the Socialist Republic of Vietnam and the International Development Association ("IDA") signed the Financing Agreement ("Financing Agreement') for North East and Red River Delta Regions Health System Support Project ("the Project") with total credit facility of US$135 million and being effective since 17 October 2013. Fundings from the Vietnamese Government is approximately VND 105,18 billion; equivalent to USID 5 million; in which funding from the central government is approximately VNID 40 billion, and those from local government is approximately VIND 65 18 billion. The Project aims to assist the implementation of the national heaith strategy to promote access to necessary health services in provinces under the Project, which complies to the national strategies and policies on developing the health system, especially the elimination of overcrowding and the universal health coverage policy, by enhancing the capacity in delivering qualified health services and managing at provincial and district level, and by promoting access to these services, with priority to disadvantaged groups in the North East and Red River Delta Regions through: (i) Improve technical capacity and managing capacity in health services delivery system at provincial and district level to promote the quality of health services in five specialized departments: oncology, cardiology, obstetrics, pediatrics, and trauma; (ii) Expand the scope of health coverage for the near-poor; and (iii) Enhance the managing capacity, leadership, and technical transfer in health sector in provinces under the Project as well as the participating central hospitals, The Project will be implemented in 13 provinces in the Red River Delta and North East Regions, including Lang Son, Bac Giang, Thai Nguyen, Yen Bai, Tuyen Quang, Phu Tho, Hung Yen, Hai Duong, Thai Binh, Nam Dinh, Ha Nam, Ninh Binh, Hoa Binh and Thai Nguyen Central General Hospital ("BVDK TW"). The Project is implemented by the Ministry of Health of the Socialist Republic of Vietnam under a decentralized system consisting of 13 implementing Provincial Project Management Units ("PPMU"), Thai Nguyen Central General Hospital ("BVDK TW ) and Central Project Management Unit in Hanoi ("CPMU"). The project consists of 3 following components: (i) Component 1 - Strengthening the capacity of lower level hospitals to deliver quality services, including 2 sub-components: sub-component 1 A: Provincial sub-projects for the development of medical services and quality improvement; and su b-com ponent 1 B: National pol icy a nd central level techn ical support for red uci ng hospital overcrowding and quality. (ii) Component 2 - Reducing the financial barriers to access health services by the economically vulnerable people: includes 3 sub-components. sub-component 2A: Direct subsidies to support the purchase of health insurance by the near-poor; sub-component 2B: Coverage of catastrophic health care expenditure at lower level hospitals; and sub-component 2C: Support information, education and communication activities about health insurance. (iii) Component 3 - Project Management, monitoring and evaluation. 11 North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 2. BASIS OF PREPARATION The Project's financial statements, except for the statement of designated account, are expressed in Vietnam dong ("VND"). The statement of designated account is expressed in United States dollars ("USD"). The Project's financial statements are prepared in accordance with the International Public Sector Accounting Standards Board ("IPSAS"); the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association ("IDA"); and the Project Operation Manual ("POM"). The Project's financial statements include financial statements of CPMU, 13 PPMU and Thai Nguyen Central General Hospital. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant policies adopted in the preparation of the financial statements are set out below. Contribution from International Development Association ("DA") Contributions from IDA are recognized when funds are transferred to the Project's designated account which is managed by the CPM U, rather than when being committed or budgeted. Contribution from the Vietnamese Government Contributions from the Vietnamese Government are recognized when cash is deposited in the Project's accounts at the CPMU, 13 PPMU and Thai Nguyen Central General Hospital or is disbursed through the Project's accounts at the CPMU, 13 PPMU and Thai Nguyen Central V General Hospital, rather than when being committed or budgeted. Other income Other incomes include: Bank interests, which are recognised when cash is actually received after being net off with bank charges incurred during the period; and The proceeds from sale of biding documents which are recorded when actually received, after being net off with bidding costs incurred. Expenditures Except for advance to Project staffs and other receivables, expenditures are recognized as follows: i For the Project's expenditures financed by IDA, expenditures are recorded upon the approval of the Project management based on the accompanying documents. - For the Project's expenditures financed by the Government of Vietnam, expenditures are recorded when following criteria are satisfied: * activities and the certificate of work completion or equivalent documents are completed by the end of reporting year; U supporting documents are approved by the Project management during the year or within January of the following year; and a supporting documents are approved and paid by the State Treasury during the year or within January of the following year. 12 M U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign exchange differences Receipts in foreign currencies by CPMU are converted into VND using the monthly exchange rate declared by the Ministry of Finance in the month of the receipts. Expenditures in foreign currencies are converted into VND using the exchange rate ruling at the date of transaction at the buying exchange rate quoted by Lien Viet Post Joint Stock Commercial Bank. Monetary items which are denominated in foreign currencies, are translated into VND at the exchange rate quoted by State Bank at the reporting date. Foreign exchange differences are presented separately in the statement of receipt, expenditure and fund balance for the reporting year. Advances to implementing partners and project staffs Advances to implementing partners and project staffs to implement the Project's activities are carried as part of the fund balance until subsequent liquidation or clearance at approval of the Project management. Payables Payables are recognized as follows: For the Project's activities financed by IDA, payables are recorded upon the approval of the Project management based on accompanying documents. * ~For the Project's activities financed by the Government of Vietnam, payables are recorded when following criteria are satisfied: activities and the certificate of work completion or equivalent documents are completed by the end of reporting year; supporting documents are approved by the Project management during the year or within January of the following year; and * supporting documents are approved and paid by the State Treasury within January of the following year. Personal income tax awaiting for payment to the tax authority and contribution based on salary awaiting for payment to insurance department in the reporting date are presented as payables in the balance sheet. Fixed asset and machinery expenses Fixed asset and machinery expenses are charged as the Project's expenses upon finalization and approval of the Project management. List of assets are maintained for management and monitoring purpose. U U U U U U U 13 North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 4. CASH Currency: VND CPMU Ha Nam PPMU Yen Bai PPMU Phu The PPMU Tuyen Quang Thai Binh Ninh Binh Hung Yen PPMU PPMU PPMU PPMU Cash in banks 55,524,791,580 1,568,888,704 887,767,478 2,191,880,922 282,257,487 3,167,908,842 1,314,796,932 1,792,675,766 Designated accounts 55,475,712,628 - - - Bank accounts at provinces - 1,564,326,080 882,688,499 1,803,197,555 279,704,271 3,124,616,000 1,268,791,864 1,719,614,745 Interest bank accounts 2,672,819 4,562,624 5,078,979 60,590,394 1,962,454 18,354,864 11,132,847 8,064,121 Sales of bidding document accounts 46,250,627 - - 328,092,973 590,762 24,937,978 20,501,272 64,996900 Other accounts 155,506 - - - - - 14,370,949 - Cash on hand 61,302,785 15,787,010 6,300,000 3,581,000 29,318,757 12,277,000 19,242,000 TOTAL 55,586,094,365 1,584,675,714 894,067,478 2,195,461,922 311,576,244 3,180,185,842 1,334,038,932 1,792,675,766 Hoa Binh Nam Dinh Hai Duong Thai Nguyen BVDK TW Thai Bac Giang Lang Son Total PPMU PPMU PPMU PPMU Nguyen PPMU PPMU Cash in banks 42,486,817 193,618,853 1,996,652,007 405,234,290 3,237,018,507 2,293,297,845 1,498,035,302 76,397,311,332 Designated accounts -- - - - - - 55,475,712,628 Bank accounts at provinces 38,124,640 186,456,110 1,968,086,301 133,140,620 2,682,891,509 2,281,825,996 1,471,812,690 19,405276,880 Interest bank accounts 4,362,177 6,567,797 28,098,574 1,530,359 1,021,998 11,471,849 8,427,418 173,899,274 Sales of bidding document accounts - - 467,132 270,563,311 553,105,000 - 17,795,194 1,327,301,149 Other accounts - 594,946 - - - - - 15,121,401 Cash on hand 57,086,100 5,200,000 1,126,000 4,701,590 7,485,944 - 6,388,000 229,796,186 TOTAL 99,572,917 198,818,853 1,997,778,007 409,935,880 3,244,504,451 2,293,297,845 1,504,423,302 76,627,107,518 14 North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 5. ADVANCES 5.1 Advances to suppliers Currency; VND Ending balance Beginning balance CPMU 64,063,016,315 3,633,038,000 Yen Bai PPMU 1,048,000,000 740,000,000 Phu Tho PPMU 1,555,469,200 - Tuyen Quang PPMU 381,582,000 Thai Binh PPMU 64,386,000 Ninh Binh PPMI - 1,958,000,000 Hoa Binh PPMU 4,702,857,000 1,104,000,000 Nam Dinh PPMU 2,165,889,700 TOTAL 73,981,200,215 7,435,038,000 5.2 Advances to Project's implementation partners Currency: VND Ending balance Beginning balance CPMU 11,527,296,453 6,399,807,655 Ha Nam PPMU - 78,023,150 Yen Bai PPMU - 445,000,000 Phu Tho PPMU - 70,000,000 Tuyen Quang PPMU 78,414,928 250,000,000 * Thai Binh PPMU - 296,548,000 Ninh Binh PPMU - 160,000,000 Hung Yen PPMU 100,623,514 117,000,000 Hoa Binh PPMU - 542,841,500 Nam Dinh PPMU 184,500,000 52,000,000 Hai Duong PPMU - 414,517,900 Thai Nguyen PPMU - 245,377,534 Bac Giang PPMU - 96,936,000 Lang Son PPMU 275,340,000 571,816,500 TOTAL 12,166,174,895 9,739,868,239 U U U 15 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 5. ADVANCES (continue) 5.3 Advances to Project's staffs Currency: VND Ending balance Beginning balance CPMu 44,000,000 Ha Nam PPMI 32,088,000 Yen Bai PPMU 86,488,400 Phu The PPMU 128,078,000 Ninh Binh PPMU 160,000,000 Nam Dinh PPMU 52,000,000 TOTAL 502,654,400 6. OTHER RECEIVABLES Currency VND Ending balance Beginning balance CPMU - 12,649,131 Ha Nam PPMU 80,000,000 - Hoa Binh PPMU 35,410,000 Thai Nguyen PPMU 140,000,000 BVDK TW Thai Nguyen 40,742,100 Bac Giang PPMU 138,799,004 - TOTAL 434,951,104 12,649,131 U U U U U U U U U 16 IN North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 7. PAYABLES 7.1 Payables to suppliers Currency: VND Ending balance Beginning balance CPMU 27,935,165,998 1,351,810,500 Ha Nam PPMU 15,606,787,000 Yen Bai PPMU 10,170,285,000 - Phu The PPMU 61428,387,700 34,185,000 Tuyen Quang PPMU 13,789,520,800 90,710,000 Thai Binh PPMU - 2,958,237,600 Ninh Binh PPMU 5,928,515,000 250,960,000 Hung Yen PPMU 1,135,446,800 291,667,100 Hoa Binh PPMU 227,866,000 - Nam Dinh PPMU 299,912,600 1,747,310,620 Hai Duong PPMU 5,540,109,857 2,006,182,857 Thai Nguyen PPMU 4,286,710,000 BVDK TW Thai Nguyen 12,245,176,100 13,644,589,000 Lang Son PPMU 1,494,917,272 TOTAL 105,088,800,127 22,375,652,677 7.2 Payables to Project's implementation partners Currency: VND Ending balance Beginning balance m. Is f r CPMU - 211,240,743 Ha Nam PPMU 660,441,600 - Yen Bai PPMU 957,434,200 Tuyen Quang PPMU 461,531,000 Thai Binh PPMU 1,035,646,500 Ninh Binh PPMU 1,932,570,200 Hai Duong PPMU 2,507,451,300 316,187,000 Thai Nguyen PPMU 161,725,000 Lang Son PPMU 3,943,792,815 - TOTAL 11,660,592,615 527,427,743 U U U 17 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 7. PAYABLES (continued) 7.3 Payables to Project's staffs Currency: VND Ending balance Beginning balance U CPMU 194 195 Ninh Binh PPMU 32,607,790 - BVDK TW Thai Nguyen 285,928,440 127,494,900 TOTAL 318,536,424 127,495,095 8. OTHER PAYABLES Currency: VND Ending balance Beginning balance CPMU 12,975,494 71,331,386 Ha Nain PPMU - 11,000,000 Yen Bai PPMU 2,702,800 12,617,500 Phu Tho PPMLI 10,000,000 15,520,000 Tuyen Quang PPMU 4,188,682 124,086,000 Ninh Binh PPMU 163,788,885 30,260,000 Nam Dinh PPMU 594,946 - Hai Duong PPMU 52,070,000 7,372,000 Thai Nguyen PPMU 58,257,894 12,783,000 Lang Son PPMU 70,125,340 - TOTAL 374,704,041 284,969,886 U U U1 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 9. CONTRIBUTION FROM INTERNATIONAL DEVELOPMENT ASSOCIATION ("IDA") 9.1 Contribution from IDA according to Project reports USD Equivalent VND Accumulated to 31 December 2015 12,002,501 259,064,488,488 Increase: Withdrawal Application No. 10 2,249,314 49,237,476,674 Withdrawal Application No. 11 702,381 15,384,240,968 Withdrawal Application No. 12 1,800,200 39,377,568,894 Withdrawal Application No. 13 4,800,000 105,057,600,000 Withdrawal Application No. 14 1,970,232 43,122,475,907 Withdrawal Application No. 15 1,913,268 41,875,698,029 Withdrawal Application No. 16 1,953,463 42,755,437,021 Withdrawal Application No. 17 2,284,386 50,117,139,847 Withdrawal Application No. 18 3,067,977 67,308,356,179 Withdrawal Application No. 19 3,266,076 71,863,479,249 Withdrawal Application No. 20 3,870,696 85,166,934,869 Withdrawal Application No. 21 1,968,481 43,460,121,973 Total 29,846,474 654,726,529,610 Accumulated to 31 December 2016 41,848,975 913,791,018,098 9.2 Reconciliation of contribution from IDA USD Equivalent VND Contribution from IDA in designated account 29,846,474 654,726,529,610 10 Plus: Foreign exchange differences - 7,007,390,384 Total amounts contributed by IDA as per 29,846,474 661,733,919,994 Statement of Expenditures 29,846.474 661.733,919,994 U U U U U 19 U U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended U 10. CONTRIBUTION FROM THE VIETNAMESE GOVERNMENT Currency: VND For the year ended 31 Cumulative for the period December 2016 from 17 October 2013 to 31 December 2016 CPMU 12,775,398,711 18,775,046,711 Ha Nam PPMU 1,008,986,000 2,122,986,000 Yen Bai PPMU 1,959,999,800 2,318,999,800 Phu Tho PPMU 839,532,000 1,923,367,000 Tuyen Quang PPMU 426,165,640 922,161,968 Thai Binh PPMU 1,460,388,100 3,135,443,100 Ninh Binh PPMU 645,791,766 1,718,574,798 Hung Yen PPMU 1,463,882,800 2,511,842,400 Hoa Binh PPMU 970,896,243 1,976,855,537 Nam Dinh PPMU 931,000,000 1,331,000,000 Hai Duong PPMU 764,781,747 2,262,376,573 Bac Giang PPMU 612,105,300 1,366,749,600 Lang Son PPMU 488,855,910 1,237,330,910 Thai Nguyen PPMU 542,073,612 1,474,113,976 BVDK TW Thai Nguyen - 3,234,088,900 TOTAL 24,889,857,629 46,310,937,273 11. BANK INTERESTS Currency: VND For the year ended 31 Cumulative for the period December2016 from 17 October 2013 to 31 December 2016 CPMU (6,786,686) (102,347) Ha Nam PPMU 2,283,844 4,562,624 Yen Bai PPMI 89,872 5,078,978 Phu Tho PPMU 19,645,795 50,861,867 Tuyen Quang PPMU 983,595 2,057,091 Thai Binh PPMU 8,090,671 18,383,842 Ninh Binh PPMU 1,516,230 9,989,485 Hung Yen PPMU (658,898) 11,498,221 Hoa Binh PPMU 2,119,746 4,362,177 Nam Dinh PPMU 1,831,100 6,567,797 Hai Duong PPMU 2,342,497 29,322,223 Bac Giang PPMU 4,333,506 11,471,849 Lang Son PPMU 6,699,773 8,431,297 Thai Nguyen PPMU 1,506,044 3,237,670 BVDK TW Thai Nguyen (297,657) 7,372,361 TOTAL 43,699,432 173,095,135 20 U U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 11. BANK INTERESTS (continued) This is the interest income earned from the Project's bank accounts, after netting off with bank charges incurred during the period. 12. OTHER INCOME Currency: VND For the year ended 31 Cumulative for the period December 2016 from 17 October 2013 to 31 December 2016 CPMU 53,837,885 135,319,635 Ha Nam PPMU (6,081,000) 8,919,000 Yen Bai PPMU (10,700,000) 6,300,000 Thai Binh PPMU 10,909,000 24,909,000 Ninh Binh PPMU 23,026,836 61,026,836 Hung Yen PPMU (12,000,000) - Hoa Binh PPMU - 20,000 Nam Dinh PPMU 5,200,000 5,200,000 Hai Duong PPMU (1,200,000) (621,216) Bac Giang PPMU (9,653,000) Lang Son PPMU 11,000,000 17,800,000 BVDK TW Thai Nguyen 10,558,000 62,796 TOTAL 74,897,721 258,936,051 U * U U U U2 U North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 13. EXPENDITURES 13.1. Expenditures by categories and sources of funds Currency: VND For the year ended 31 December 2016 Cumulative for the period from 17 October 2013 to 31 December 2016 Counterpart fund Counterpart fund by the by the Government of Government of Financed by IDA Vietnam Total Financed by IDA Vietnam Total Component 1: Strengthening the capacity of lower level hospitals to deliver quality services 648,473,594,143 16,844,780,011 665,318,374,154 746,743,563,085 25,859,763,508 772,603,326,593 Component II: Reducing the financial barriers to access health services by the economically vulnerable people 54,899,655,849 - 54,899,655,849 105,967,628,020 - 105,967,628,020 Component Ill: Project management, monitoring and evaluation 12,240,766,860 8,047,057,618 20,287,824,478 34,409,074,636 20,453,153,765 54,862,228,401 TOTAL 715,614,016,852 24,891,837,629 740,505,854,481 887,120,265,741 46,312,917,273 933,433,183,014 22 *E E E E E E E E E EEaNEU M EE EE EgEE North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 13. EXPENDITURES (continued) 13.2. Actual expenditures and budget comparison by categories for reporting year] period Currency: VND For the year ended 31 December 2016 Project disbursement progress Over/Under) budget Accumlated Approved bud5 at (* expenditures for the Budget approved penod from 17 by the Ministry of October 2013 to 31 Progress Code Activities Expenditures Health Variance % December 2016 VND Equivalence US0 (%} Component 1: Strengthening the capacity of 1. Lower level hospitals to deliver quality services 665,318,374,154 762,132,591,049 (96,814,216,895) -13% 772,603,326,593 2,238,230,400,000 108,400,000 35% 1.A improving lower level medical services and quality 652,046,153,843 705,691.797,167 (53,845,643,324) -8% 754,808,219.438 2,027.870,400,000 98.400,000 37% Supporting medical equipment and repairing small IA 1 size infrastructure for technical transfer (CCGKT") 592,494,512,909 645,492,044,780 (52,997,531,871) -8% 668.229,585,263 1,743,884,400,000 82.900,000 38% Supporting in hospital management capacity I.A.2 enhancement 29,135,058.050 29,166,984,940 (31,926,890) 0% 31,057.578.890 94,662,000,000 4,500,000 33% L.A.3 Supporting in training for technical transfer 30.416,582.884 31,232,767,447 (816,184.563) -3% 55,521.055,285 189,324,000,000 9,000,000 29% National policy and central level technical support for reducing hospital overcrowding and quality I.B. improvement 13,272,220,311 66,240,793.882 (42,968,573.571) -76% 17,795,107,155 210,360,000.000 10,000.000 8% 1.8.1 Policy and technical support 2,916,821,600 5,622.536.044 (2,705,714,444) -48% 5.329,696.944 29.345,220.000 1,395,000 18% 1.B.2 Support equipment for national hospital 10,355,398,711 50.618.257,838 (40,262,859,127) -80% 12,465,410,211 181,014.780,000 8,605,000 7% Component I: Reducing the financial barriers to access health services by the economically U. vulnerable people 54,M99,65,849 55,077,168,227 (177,512,378) 0% 105,967,828,020 549,039,600,000 26,100,000 19% Direct subsidies to support the purchase of health IIA insurance by the near-poor 36,199.443.820 36,282,963,864 (53,520,044) 0% 70,157.135.895 435,445,200,000 20,700,000 16% Coverage of catastrophic health care expenditure in 11. central and provincial hospital 551.142,969 551,142,969 - 0% 715.975.435 37,864,800,000 1,800,000 2% Supporting in information. education and 11.C communication activities about health insurance 18,149,069,060 18,243,061,394 (93,992,334) -1% 35,094,516,690 75,729,600,000 3,600,000 46% Component IIt Project management monitoring ii and evaluation 20,287,824,478 55,487,047,140 (36,199,222,662) -63% 54,862,228,401 157,770,000,000 7,500,000 35% 111.1 Consultant selection 5,131,266,653 5,570,480,648 (439.213,995) -8% 13,641,417,244 27.451,980,000 1,305,000 50% Organizing conference, workshop, training, 111.2 monitoring planning 2,145,600,350 2,167,467,827 (21,867,477) -1% 7,549,924,890 27.501,204,240 1,307,340 27% 111.3 Survey, research - - 0% - 4,733.100,000 225,000 0% 111.4 Office equipment and vehicle purchase 2,597.290,000 2,845,197,926 (247.907,926) -9% 7,237,924,740 14,483,286,000 688,500 50% 111.5 Project operation expenses 10,413,667,475 44,903.900.739 (34,490,233,264)1 -77% 26,432,964,527 83,600,429,780 3,974,150 32% TOTAL 740,605,864,481 872,696,86,416 (132,490,951,935) -16/ 933,433,183,014 2,945,040,000,000 140,000,000 32% (*) The approved budget is the total fund of the Project (USD 140,000,000) converted into VND using the exchange rate of the Ministry of Finance at the date of signing the Agreement (1U)SD VND21 036). 23 ________________________________________________________ I .. ~- J *aEEEEEEEEEMM uEEEEEEEEEEEEEEagga North East and Red River Delta Regions Health System Support Project Under the Financing Agreement No. IDA 5259 - VN between the Government of the Socialist Republic of Vietnam and the International Development Association (IDA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at 31 December 2016 and for the year then ended 13. EXPENDITURES (continued) 13.3. Actual expenditure and budget comparison by PPMU for the reporting year!period Currency: VND For the year ended 31 December 2016 Budget appmved by Component I Component II Component ill Total Ministry of Health Overl(Under) CPMU 176,373,797,007 1,803,962,720 9,922,764,847 188,100,524,574 274,536,749,565 (86,436,224,991) Ha Narn PPMU 44,400,539,600 3,785,529,842 467,198,990 48,653,268,432 41,669,158,432 6,984,110,000 Yen Bai PPMU 33,741,624,300 1,521,314,800 1,145,130,800 36,408,069,900 41,807,889,300 (5,399,819,400) Phu Tho PPMU 27,490,040,400 9,957,476,233 793,980,000 38,241,496,633 44,220,041,433 (5,978,544,800) Tuyen Quang PPMU 28,210,143,000 2,055,138,680 524,528,715 30,789,810,395 33,068,971,395 (2,279,161,000) Thai Binh PPMU 57,937,624,500 1,497,666,900 1,320,144,100 60,755,435,500 68,222,385,500 (7,466,950,000) Ninh Binh PPMU 49,372,177,200 1,402,995,000 690,144,330 51,465,316,530 56,541,609,530 (5,076,293,000) Hung Yen PPMU 29,548,153,750 6,131,974,386 907,102,000 36,587,230,136 40,130,692,936 (3,543,462,800) Hoa Binh PPMU 48,685,653,200 1,870,674,120 386,500,243 50,942,827,563 56,558,748,269 (5,615,920,706) Nam Dinh PPMU 17,389,222,300 1,444,648,090 874,230,400 19,708,100,790 23,465,875,490 (3,757,774,700) Hai Duong PPMU 31,273,671,015 7,753,760,140 912,650,747 39,940,081,902 42,832,241,902 (2,892,160,000) Bac Giang PPMU 28,977,192,600 10,027,282,196 515,070,700 39,519,545,496 40,518,100,896 (998,555,400) Lang Son PPMU 14,533,926,832 3,515,898,990 899,318,110 18,949,143,932 21,829,411,570 (2,880,267,638) Thai Nguyen PPMU 37,425,305,000 2,131,333,752 778,932,098 40,335,570,850 40,786,928,350 (451,357,500) BVDK TW Thai Nguyen 39,959,303,450 - 150,128,398 40,109,431,848 46,508,001,848 (6,398,570,000) TOTAL 665,318,374,154 54,899,655,849 20,287,824,478 740,505,854,481 872,696,806,416 (132,190,951,935) 24 . .・ 4―、:、,―貧、、・、 . . FrrA & Y)uoo Victn8rTi Limited Tel + 84 4 3831 5100 )H , I - i)r, CornerStorle Building Fax: + 84 4 3831 5090 Ey 1 o 'han Chu Trinh Street ey.com Building a better Hudii Kiem District working world Hanoi, S.R, of Vietnam Reference: 61199325/18714153 INDEPENDENT ASSURANCE REPORT ON COMPLIANCE To: The Central Project Management Unit of the North East and Red River Delta Regions Health System Support Project We have examined the compliance of the management of North East and Red River Delta Regions Health System Support Project ("the Project') including the Central Project Management Unit ("CPMU"), Ha Nam Provincial Project Management Unit ("Ha Nam PPMU"), Yen Bai Provincial Project Management Unit ("Yen Bai PPMU"), Phu Tho Provincial Project Management Unit ("Phu Tho PPMU"), Tuyen Quang Provincial Project Management Unit ("Tuyen Quang PPMU"), Thai Binh Provincial Project Management Unit ("Thai Binh PPMU"), Ninh Binh Provincial Project Management Unit ("Ninh Binh PPMU"), Hung Yen Provincial Project Management Unit ("Hung Yen PPMU"), Hoa Binh Provincial Project Management Unit ("Hoa Binh PPMU"), Nam Dinh Provincial Project Management Unit ("Nam Dinh PPMU"), Hai Duong Provincial Project Management Unit ("Hai Duong PPMU"), Thai Nguyen Provincial Project Management Unit ("Thai Nguyen PPMU"), Bac Giang Provincial Project Management Unit ("Bac Giang PPMU"), Lang Son Provincial Project Management Unit ("Lang Son PPMU"), and Thai Nguyen Hospital Project Management Unit (collectively referred to as "the fourteen PPMUs") with the applicable laws, regulations, procurement procedures and other provisions of the Financing Agreement between the Government of the Socialist Republic of Vietnam and the International Development Association ("IDA") ("the Financing Agreement") during the year ended 31 December 2016. The Project management is responsible for the compliance with the Financing Agreement, the Project Operation Manual ("POM") and other laws and regulations applicable to the Project (collectively referred to as "the Project's regulations"). Auditors'responsibility Our responsibility is to express an opinion, based on our examination, on the compliance of the CPMU and the fourteen PPMUs with the Project's regulations that could have a direct and material financial effect to the financial statements of the Project for the year ended 31 December 2016. We conducted our examination in accordance with the principles of International Standard on Assurance Engagements 3000 - Assurance Engagements other than Audits or Reviews of Historical Financial Information ("ISAE 3000") insofar this standard could be usefully applied in this examination and in its specific compliance context. This standard requires that we comply with ethical requirements and that we plan and perform the examination to obtain reasonable assurance about whether the CPMU and the fourteen PPMUs comply with the Project's regulations that could have a direct and material financial effect to the financial statements. Our examination included obtaining a sufficient understanding of the Project and the Project's regulations; assessing the risk on non-compliance exists that could have a direct and material financial effect to the financial statements of the Project; testing and evaluating, on a sample basis, the compliance of the Project's management with the Project's regulations based on the assessed risk; and performing such other procedures as we considered necessary in the circumstances. We considered the following criteria in evaluating the compliance of the CPMU and the fourteen PPMUs with the Project's regulation& P the CPMU and the fourteen PPMUs' awareness of the Project's regulations; 0. the implementation of the Project's regulations by the CPMU and the fourteen PPMUs; 01 the significance to the financial statements where the CPMU and the fourteen PPMUS fail to comply with one requirement or several requirements in the Project's regulations, if any; and 0 that a weakness or a deficiency existed where the CPMU and the fourteen PPMUs fail to comply with one or several requirements in the Project's regulations that could have a direct and material financial effect to the financial statements. U EY Building a better working world U We believe that our examination provides a reasonable basis for our opinion. Opinion In our opinion, the CPMU and the fourteen PPMUs comply, in all material respects, with the Project's regulations that could have a direct and material financial effect to the financial statements of the Project for the year ended 31 December 2016 based on the evaluating criteria above. Other matters We draw attention to Appendix 1 - Management letter, in which we discussed certain departures from the Project's regulations which have no direct and material financial effect to the financial statements of the Project but may put the Project's objectives at risk. This examination involved a historic evaluation of the compliance of the CPMU and the fourteen PPMUs with the.Project's regulations at a specific point of time. Thus, this examination does not provide assuranceo, uture periods due to the risk of changes in the Project's regulations, or that the degree of complianTe*W w he Project's regulations may deteriorate. N Hano -Vinam 15 June 2017 NS' CII U 51 U U U U U Ernst & Young Vietnam Lmited Tel: 84 4 3831 5100 E-I,, Floor, CornerStoe Building Fax: 84 4 3831 5090 16 Phan Chu Trinh Street ey.com Building a better Hoan Kiem District working world Hanoi, S-. of Vietnam U Reference: 61199325/18714153 * INDEPENDENT ASSURANCE REPORT ON THE EFFECTIVENESS OF INTERNAL CONTROL To: The Central Project Management Unit of the North East and Red River Delta Regions Health System Support Project We have audited the design and operating effectiveness of the internal control of the North East and Red River Delta Regions Health System Support Project ("the Project") as operated by the management of the Central Project Management Unit ("CPMU"), Ha Nam Provincial Project Management Unit ("Ha Nam PPMU"), Yen Bai Provincial Project Management Unit ("Yen Bai PPMU"), Phu Tho Provincial Project Management Unit ("Phu Tho PPMU"), Tuyen Quang Provincial Project Management Unit ("Tuyen Quang PPMU"), Thai Binh Provincial Project Management Unit ("Thai Binh PPMU), Ninh Binh Provincial Project Management Unit ("Ninh Binh PPMU"), Hung Yen Provincial Project Management Unit ("Hung Yen PPMU"), Hoa Binh Provincial Project Management Unit ("Hoa Binh PPMU"), Nam Dinh Provincial Project Management Unit ("Nam Dinh PPMU"), Hai Duong Provincial Project Management Unit ("Hai Duong PPMU"), Thai Nguyen Provincial Project Management Unit ("Thai Nguyen PPMU"), Bac Giang Provincial Project Management Unit ("Bac Giang PPMU"), Lang Son Provincial Project Management Unit ("Lang Son PPMU"), and Thai Nguyen Hospital Project Management Unit (collectively referred to as "the fourteen PPMUs") which existed for the year ended 31 December 2016. The internal control was set up for the purpose of managing risks to the achievement of the Project's objectives, including the reasonable prevention and detection of errors, irregularities and fraud. The internal control is the responsibility of the CPMU and the fourteen PPMUs, Auditors' responsibility Our responsibility is to express an opinion, based on our audit, on the effectiveness of the internal control that could have a direct and material financial effect to the financial statements of the Project for ioT the year ended 31 December 2016. We conducted our audit in accordance with the principles of International Standard on Assurance Engagements 3000 - Assurance Engagements other than Audits or & Y Reviews of Historical Financial Information ("ISAE 3000") insofar this standard could be usefully applied [NA in this audit and in its specific compliance context. This standard requires that we comply with ethical requirements and that we plan and perform the audit to obtain reasonable assurance about whether the internal control for the Project is adequately designed for the purpose of the Project and was operating effectively during the period covered by the audit. Our audit included obtaining a sufficient understanding of the Project and the internal control for the Project; assessing the risk that a material weakness exists that could have a direct and material financial effect to the financial statements of the Project; testing and evaluating, on a sample basis, the design and operating effectiveness of internal control based on the assessed risk; and performing such other procedures as we considered necessary in the circumstances. We considered the following criteria in evaluating the effectiveness of the internal control: the requirement for design and implementation of the internal control in the Project Operation Manual ("POM"); * the appropriateness of the internal control for the Project's activities and objectives; the implementation of the internal control by the CPMU and the fourteen PPMUs to achieve its objective of prevention and detection of errors, irregularities and fraud that could have a direct and material financial effect to the financial statements of the Project; the significance to the financial statements where one control or several controls did not operate as designed, if any; and U . EY Building a better working world that a weakness or a deficiency existed where a control or several controls did not reasonably prevent or detect risks that could have an adverse impact on the objectives of those internal controls which are to provide reasonable assurance that the financial statements are prepared, in all material respects, in accordance with the adopted accounting policies and POM, that the funds are utilised for the purposes defined in the Financing Agreement between the Government of the Socialist Republic of Vietnam and the International Development Association ("the Financing Agreement") and that the Project complies with the Financing Agreement, POM and other applicable laws and regulations. We believe that our audit provides a reasonable basis for our opinion- Opinion In our opinion, the Project's internal control at the CPMU and the fourteen PPMUs which existed for the year ended 31 December 2016, in all material respects, was adequately designed for the purpose of the Project and operated in an effective manner, based on the evaluating criteria above. Other matters We draw attention to Appendix 1 - Management letter, in which we discussed certain findings from the internal control which have no direct and material financial effect to the financial statements of the Project but may put system objectives at risk. This audit involved a historic evaluation of internal control at a specific point of time, Thus, this audit does not provide assurance for future periods due to the risk that internal control may become inappropnate ecause of changes in conditions, or that the degree of compliance with policies or procedures ma eteriorate. Hanol, Vietnarn 15 June 2017 U U U U U U U U U