Central Finance and Contracting Unit Ministry of Finance and Economy of Albania Albania FSA - SECO TF for Strengthening Supervisory Capabilities (Grant No: TF 018931) Special purpose financial information for the year ended 31 December 2016 Contents Page Independent Auditor's Report i-i1 Statement of Sources and Uses of Funds Statement of Withdrawal Applications 2 Notes to the Special Purpose Financial Information 3-7 Appendices 1-III O GrantThornton Grant Thornton Sh.p.k. Rr: Sami Frasheri, Kornpleksi T.I.D, Shk. B, Roor 1, 10 000 Tirana, Albania T +355 4 22 74 832 F +355 4 22 56 560 ww.granthorntonal Independent Auditor's Report To Ministry of Finance and Economy of Republic of Albania and the Management of the Project "Albania FSA - SECO TF for Strengthening Supervisory Capabilities" Opinion the accompanying special purpose financial information comprising the Statement of Sources and Uses of Funds, the Statement of Withdrawal Applications and the related notes of the Project "Albania FSA - SECO TF for Strengthening Supervisory Capabilities" (further referred to as the "Project") implemented by the Central Financing and Contracting Unit in the Ministry of Finance and Economy and financed by the Multi-Donor Trust Fund 018931 ("MDTF 018931" or the "Trust Fund") from the International Bank for Reconstruction and Development ("IBRD" or the "World Bank"), for the period from 1 January to 31 December 2016. In our opinion, the accompanying Special Purpose Financial Information of the Project "Albania FSA - SECO TF for Strengthening Supervisory Capabilities" is prepared, in all material respects, in accordance with the cash receipts and disbursement basis of accounting as set out in notes 2 and 3 to the Special Purpose Financial Information. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of the Special Purpose Financial Information section of our report. We are independent of the entity in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the Special Purpose Financial Information in Albania, and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter- Basis of Accounting and Restriction on Distribution We draw attention to notes 2 and 3 to the Special Purpose Financial Information, which describe the basis of accounting. The Special Purpose Financial Information is prepared to provide information to Project's donors and lenders, and to Ministry of Finance and Economy of Republic of Albania and the management of the Project. As a result, the statement may not be suitable for another purpose. Our opinion is not modified in respect of this matter. Our report is intended solely for the information and use of the Project's management, the donors and lenders, and the Ministry of Finance and Economy of Republic of Albania and it should not be further distributed without our prior written consent. Responsibilities of Management and Those Charged with Governance for the financial statement Management is responsible for preparation and fair presentation of the Special Purpose Financial Information in accordance with the basis of accounting described in notes 2 and 3; this includes determining that the cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the Special Purpose Financial Information in the circumstances, and for such internal control as management determines is necessary to enable the preparation of a Special Purpose Financial Information that is free from material misstatement, whether due to fraud or error. Auditor's Responsibility for the Audit of the financial statement Our objectives are to obtain reasonable assurance about whether the Special Purpose Financial Information as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. 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 this Special Purpose Financial Information. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the Special Purpose Financial Information, whether due to fraud or error, design and 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 entity's internal control. * Conclude on the appropriateness of management's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the Special Purpose Financial Information or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report, ii However, future events or conditions may cause the entity to cease to continue as a going concern. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, and related disclosures made by management., * Evaluate the overall presentation, structure and content of the Special Purpose Financial Information, including the disclosures, and whether the Special Purpose Financial Information represents 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 audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Grant Thornton sh.p.k. Tirana, Albania 923007 17 November 2017 r LBIll Albania FSA - SECO TF for Strengthening Supervisory Capabilities For the period from 1 January to 31 December 2016 (amounts are expressed in USD unless otherwise stated) Statement of Sources and Uses of Funds Cumulative From Period from Period from 2 October to 1 January to 31 2 October to 31 December 2015 to Note December 2016 December2015 31 December 2016 Sources of funds: Multi - Donor Trust Fund: 018931 funding 4 350,000 - 350,000 Interest received 136 - 136 Total 350,136 - 350,136 Uses of funds: Consultancy services 5 (32,479) - (32,479) Incremental operating costs 6 (1,017) - (1,017) Total (33,496) - (33,496) Surplus of receipts over disbursements 316,640 - 316,640 Cash at the beginning of the period 8 - - Cash at the end of the period 8 316,640 - 316,640 The Statement of Sources and Uses of Funds is to be read in conjunction with the notes set out on pages 3 to 7 and form an integral part of the special purpose financial information. The special purpose financial information of Albania FSA - SECO TF for Strengthening Supervisory Capabilities project were authorized for issue by Central Finance and Contracting Unit 'CFCU' on 2 October 2017 and signed on its behalf by: 9anol irOrJana Ibrahimi eneral. Director Director/ Directorate for implementation Central Finance and Contracting Unit of World Bank and other donors projects Central Finance and Contracting Unit 1 CAK- rr CD C: 8 a 4J~ C 0 c n E a i ¾eø 8 8- &ø 8 e 55 6o E a u° C 80 Albania FSA- SECO TF for Strengthening Supervisory Capabilities For the period from 1 January to 31 December 2018 (amounts are expressed in USD unless otherwise stated) Notes to the Special Purpose Financial Information I General The Albania FSA - SECO TF for Strengthening Supervisory Capabilities (the "Project") implemented through the Central Finance and Contracting Unit (CFCU) within the Ministry of Finance of Albania was established with the objective to support AFSA in strengthening its capacities to regulate and supervise the Investment Funds sector and the corporate & municipal bonds issuance. The project supports specifically the intended objective "Restore fiscal sustainability and maintain financial stability" of the WB Country Partnership Framework, A stronger and better supervised investment funds sector will be a relevant contributor to the country's financial and economic stability. The project will finance the diagnostic reviews of the legal and regulatory framework in effect in Albania with regard to investments fund industry and corporate and municipal bonds issuance, and improving it to comply with the EU Directives and IOSCO principles. In addition, it will strengthen supervisory capacities for both areas through training and developing supervisory tools. SECO funding is expected to cover two specific areas: Area 1: Develop capacities of AFSA to supervise and regulate Investment Funds sector. Area 2: Develop capacities of AFSA to prepare for corporate bonds & municipal bonds issuance. The CFCU within the Ministry of Finance and Economy is responsible for the day-to-day Project management and coordination. The Project is financed by the Multi-Donor Trust Fund 018931 ("MDTF 018931" or the "Trust Fund") from the International Bank for Reconstruction and Development ("IBRD" or the "World Bank"). 3 Albania FSA- SECO TF for Strengthening Supervisory CapabIlIties For the period from I January to 31 December 2016 (amounts are expressed in USD unless otherwis6 tted) I General (continued) According to the Grant Agreement No.TF01 8931 dated 2 October 2015, between the Government of Albania ("GoA or the Recipient") and IBRD as the administrator of grant funds provided by the Government of the Swiss Confederation, represented by the Swiss State Secretariat for Economic Affairs (SECO) ("Donor"), GoA was entitled to receive an amount up to USD 1,583,720,81 to finance the Project's activities. According to the Addendum no.1 of the Grant Agreement No.TF018931 dated 06 July 2016, between the Government of Albania ("GoA or the Recipient") and IBRD as the administrator of grant funds provided by the Government of the Swiss Confederation, represented by the Swiss State Secretariat for Economic Affairs (SECO) ("Donor"), the project closing date was set on 31 March 2019. The table below sets forth the items to be financed out of the proceeds of the Trust Fund, the allocation of the amounts of the Trust Fund and the percentage of expenditures to be financed: Amount of the Grant allocated % of expenditures to be financed Categories (in USD) (Inclusive Taxes) Consultancy Services, Training and Workshops, Incremental Operating Costs 1,583,720.81 100% Total 1,583,720.81 100% As at 31 December 2016, USD 350,000 was disbursed from the Trust Fund. The Project covers three activities, namely Assessment of AFSA supervisory needs, Developing the supervision methodology for the investment funds sector, human resources and professional capacity; Review and drafting of legislation, and supervision methodology for IFs and bonds, Capacity building with regard to IFS and bonds. 2 Basis of preparation The special purpose financial information has been prepared in accordance with the accounting policies in note 3, under the Cash Basis of Accounting. The special purpose financial information is presented in USD. US Dollar is also functional currency of the Project being the currency in which funds are received and most of expenses are settled. The special purpose financial information comprise the Statement of Sources and Uses of Funds, the Statement of Withdrawal Applications (and related expenditure) used as the basis for the submission of withdrawal applications and a summary of significant accounting policies and other explanatory notes. As supplementary schedules to the special purpose financial information are presented the Statements of Special and Project's Accounts associated with the Project. Supplementary scheduled are not part of these special purpose financial information and are unaudited. 4 Albania FSA- SECO TF for Strengthening Supervisory Capabilities For the period from 1 January to 31 December 2016 (amounts are expressed in USD unless otherwise stated) 3 Summary of significant accounting policies A summary of significant accounting policies underlying the preparation of the Project's special purpose financial information is presented below. 3.1 Foreign currency transactions Funds are received in USD and expenses paid in USD, ALL or EUR. The Project has adopted the USD as its reporting currency for consistency with the reporting needs of its main donor, the World Bank. Cash and bank balances in other currencies are converted into USD at the year-end rate of exchange. Transactions in currencies other than USD are converted to the reporting currency at the rate ruling at the date of the transaction. As at 31 December 2016, 1 USD is equivalent to 128.17 ALL (31 December 2015, 1 USD is equivalent to 125.79 ALL). 3.2 Cash Cash comprises cash on hand, demand deposits and cash equivalents. Demand deposits and cash equivalents comprise balances with banks and investments in short term money market instruments. Amounts appropriated to the Entity are deposited in the Entity's bank account and are controlled by the Entity. Receipts from exchange transactions are deposited in trading fund accounts controlled by the Entity. They are transferred to revenue at each year end. 3.3 Recognition of income and expenses Income is recognized when received rather than when earned, and expenses are recognized when paid rather than when incurred. Accordingly, direct payments of the Project's expenses, which are made from the proceeds of the trust fund, are recognized as sources and uses of funds at the time the payment is made. The Statement of Withdrawal Applications presents only applications submitted during the year and only expenses settled through such applications. Expenses presented in the notes to the financial statements include all expenses settled during the year in spite of the supporting withdrawal application period. 3.4 Taxation The project is exempt from income tax. The Project is liable for withholding tax and is not exempt from Value Added Tax ("VAT") based on the Agreement. 5 Albania FSA - SECO TF for Strengthening Supervisory Capabilities For the period from 1 January to 31 December 2016 (amounts are expressed hi USD unless otherwise stated) 4 MDTF 018931 funding Period from Period from I January to 31 December 2016 2 October to 31 December 2015 Initial Deposit 350,000 - Total 350,000 The initial deposit represents finds disbursed to the Special Account based on the planned project expenditures at the Project's inception. 5 Consultancy services Consultants' services were as follows: Period from Period from 1 January to 31 December 2016 2 October to 31 December 2015 Assessment of IFs supervision, structure, staffing and training needs 32,479 - Total 32,479 6 Incremental operating costs Incremental operating costs were composed as follows: Period from Period from 1 January to 31 December 2016 2 October to 31 December 2015 Bank charges 288 Publication costs 612 - Postage fees 116 - Total 1,017 - 7 Expenditures category components Expenditures for the current and comparative period were financed by MDTF 018931 as follows: Period from Period from MDTF 013972 1 January to 31 December 2016 2 October to 31 December 2015 Consultancy services 32,479 - Incremental operating costs 1,017 Total 33,496 - 6 8 Cash on hand and at banks Period from Period from MDTF 018931 1 January to 31 December 2016 2 October to 31 December 2015 Cash on hand - - Cash at Banks: 316,640 Project Account - Credins 316,640 Total 316,640 9 Subsequent events There are no other significant events that would require either adjustments or additional disclosures in the special purpose financial information. 7 APPENDICES (unaudited) (MDTF 018931 - ALB) Albania FSA - SECO TF for Strengthening Supervisory Capabilities Statements of Special and Project's Accounts (Supplementary schedules to the Special purpose financial information) I Albanla FSA-S ECOTF for Strengthening Supervisory Capabilities For the period from I January to 31 December 2016 mounts ate expresd rn USD unloss otherwise stated) Appendix 1 Supplementary Schedule of Special Account Statement Donor MDTF 018931 Account No. 2117 659 U Depository Bank Bank of Albania Address Sheshi "'Skenderbej", No.1, Tirana Currency USD 2016 2015 Balance as at 01 January Funds received: Initial Deposit 360,000 Total funds received 350,000 Disbursements: Funds transferred to the Project Account in USD 350,000 Total disbursements 350,000 Balance as at 31 December II Albania FSA - SECO TF for Streogthening Supervisory Capabilities For the period from 1 January to 31 December 2016 (amounts ae expressed in USD unless othrwise statod) Appendix 2 Supplementary Schedule of Current Account Statement Donor MDTF 018931 AccountNo. 800331 Depository Bank Credins Bank Address Rr."Ismail Qemalil. Nr. 4, TiranO Currency USD 2016 2015 Balance as at 1 January Funds received: Transferred from the Special Account 350,000 Interest received 138. Total funds received 350,136 Disbursement: Project expenditures 33,208 Bank charges 288 Total disbursements 33,496 Balance as at 31 December 316,640 II