The Justice Sector Institutional Strengthening Project Funded 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, 2018 And Independent Auditors' Report CONTENTS Independent Auditors' Report Financial statements Statement of receipts and disbursements of funds.................................................. Statement of comparison of budget and actual amounts .......................................... 2 Statement of disbursements by component ........................................................ 3-4 Notes to the financial statements ..................................................................5-11 OTeA.: +7 727 331 31 , TOO "BDO Kazakhstan" B D OaC: +7 727 331 31 35 yn. ra6AynAma, info@bdokz.com AnMaTlb, KS3aXCTaH www.bdokz.com A15H4E3 Te: +7 727 331 31 31 BDO Kazakhstan LLP Fax, +7 727 331 31 35 6 Gabdullin Street @bdokz,com Almaty, Kazakhstan .bdokz.corn A15H4E3 INDEPENDENT AUDITORS' REPORT To Management of the Justice Sector Institutional Strengthening Project funded 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 accompanying 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, 2018, statement of comparison of budget and actual amounts for the year ended December 31, 2018, statement of disbursements by component for the year ended December 31, 2018, and a summary of significant accounting policies and other explanatory notes (hereinafter the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the Project's receipts and disbursements for the year ended December 31, 2018 and the cash position as at December 31, 2018 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 conducted our audit in accordance with International Standards on Auditing. 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 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. Management's Responsibilities for the Financial Statements Management of the Project is responsible for the preparation and fair presentation of these 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 INDEPENDENT AUDITORS' REPORT (continued) enable preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternatives but to do so. Those charged with governance are responsible for overseeing the Project financial reporting process. Auditor's 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 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 economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control; * Evaluate the appropriateness of accounting policies used, and the reasonableness of accounting estimates, and related disclosures made by management; * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. INDEPENDENT AUDITORS' REPORT (continued) * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those responsible for managing the Project 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. 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С f+ r с �.° Z а� ��, � Е + ,� ц� � ° и а � С оП �, С � . п � � _ v j L � G7 С � ° С � '�,°^� а � _�� � . �, О _ �.. а� 7" ~ � ° '�� .С С v ' � й С � �7;3s � � �_ �� � а и� Н й О I F°- Н � Е' м lt � iп Q w У ! Justice Sector Institutional Strengthening Project Funded 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 For the Year Ended December 31, 2018 1. 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 Loan Agreement No. 8361 -KZ (the "Agreement") between the Government of the Republic of Kazakhstan (the "Government") and the 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 provides a loan of 36,000,000 US dollars (the "Loan") for the purpose of implementation the Justice Sector Institutional Strengthening Project (the "Project"). The Government shall repay each disbursed amount in semi-annual instatments payable on each March 15 and September 15 in each year, 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 shalt be equal to one twentieth (11 /20) of the disbursed amount. The last installment will be equal to the remaining outstanding amount of the disbursed amount. Based on letters from the IBRD, ref. No. 17/154 and No. 18/154 dated May 18, 2018, the progress monitoring indicators have been revised, and the Loan has been partially cancelled in the amount of 9,000,000 US dollars from March 05, 2018. According to the letter from the IBRD dated August 8 2018, the closing date of the withdrawal period was postponed to June 30, 2020. Pursuant to the approved budget for 2018, the Project receipts and disbursements financed out of the proceeds of the IBRD Loan and co-financing of the external loan by the Government of Kazakhstan were estimated to amount to 6,159,024 US dollars and 4,109,732 US dollars, respectively (2017: 2,614,122 US dollars and 1,742,749 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 Repubtic 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: Justice Sector Institutional Strengthening Project Funded 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) Part A. Strengthening the Implementation of Key Elements of the Legal and Institutional Framework 1. Provision of consultants' 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 Penal Code, including, through but not limited to: (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 consultants' 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 consultants' 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 consultants' 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 consultants' 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. 6 Justice Sector Institutional Strengthening Project Funded 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) 3. Provision of consultants' 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; (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 consultants' 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 consultants' 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 consultants' services, training and goods to the Supreme Court and Selected Courts in the following areas: (a) Support the Selected Courts, through the provision of consultants' 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 consultants' 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 consultants' 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 7 Justice Sector Institutional Strengthening Project Funded 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) 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. 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 consultants' services, training, incremental operating costs for the Project (excluding Fellowship Grants under Part 0.2. of the Project); (2) Fellowship Grants under Part D.2. of the Project. Cash Received As per the terms 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 reported 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 Expenditures are allocated between the components in the statement of receipts and disbursements of funds and in the statement of disbursements by component based on the comparison of work description in the Agreement with the work description in source documents. 4. CASH To carry out transactions under Loan No. 8361-KZ, the following designated accounts were opened with the Committee of Treasury of the Ministry of Finance of the Republic of Kazakhstan, the city of Nur-Suttan, for making cash payments to suppliers: * No. 01.6201.000000000.Z08361.001.2210001.2, 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, 2018 are detailed below: US dollars 2018 2017 Balance at 1 January 01 16,456 16,414 RECEIPTS Replenishment of account 4,152,895 1,732,000 4,152,895 1,732,000 EXPENDITURES Project expenditures 4,156,231 1,731,958 Net foreign exchange loss (gains) 100 - 4,156,331 1,731,958 Balance at December 31 13,020 16,456 Including those denominated: In US dollars 13,020 13,880 In KZT - 2,576 I; Justice Sector Institutional Strengthening Project Funded 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 the IBRD and the Government of the Republic of Kazakhstan directly to suppliers chosen in accordance with the terms of the Agreement. Direct payments to Suppliers and replenishment of the designated account by the IBRD under the Project for the year ended December 31, 2018 were made based on the following withdrawal applications: US dollars No. of withdrawal Date of Replenishment Total application withdrawal of account 12 16.04.2018 - 770,000 770,000 13 20.06.2018 - 192,000 192,000 14 17.07.2018 - 265,000 265,000 15 28.08.2018 - 1,231,895 1,231,895 16 27.09.2018 - 90,000 90,000 18 07.11.2018 - 300,000 300,000 17 15.11.2018 278,690 - 278,690 19 12.12.2018 - 974,000 974,000 20 26.12.2018 825,000 - 825,000 21 26.12.2018 270,000 - 270,000 22 26.12.2018 622,432 - 622,432 23 28.12.2018 - 330,000 330,000 Total 1,996,122 4,152,895 6,149,017 Statement of Expenditures (SOE) US dollars Actual expenditures by categories (1) Consultants' services, No. of Total Training, and Incremental (2) Fellowship Applic. Value date amount of Operating Costs for the Grants under the Applic. Project (excluding Part D.2. of Total Fellowship Grants under the Project Part D.2. of the Project) 12* 16.04.2018 770,000 1,328,861 1,328,861 13 20.06.2018 192,000 - - 14 17.07.2018 265,000 - 15 28.08.2018 1,231,895 975,991 - 975,991 16 27.09.2018 90,000 483,744 483,744 18 07.11.2018 300,000 - 19 12.12.2018 974,000 1,094,619 1,094,619 23 28.12.2018 330,000 303,692 - 303,692 Total 4,152,895 4,186,907 - 4,186,907 ) Statement of actual expenditures 50E 5 includes information for 2017 10 Justice Sector Institutional Strengthening Project Funded 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) 6. UNUSED PORTION OF THE LOAN As at December 31, 2018, the unused portion of the IBRD Loan amounted to 17,672,840 US dollars (2017: 23,821,857 US dollars). 7. DATE OF ISSUE These financial statements have been approved for issue by the 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 on June 03, 2019. 11 Justice Sector Institutional Strengthening Project Funded 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 .ati f Application for appcation for withdrawal As per PMU As per WB Variance withdrawal 16.04.2018 12 770,000 770,000 V 20.06.2018 13 192,000 192,000 V- 17.07.2018 14 265,000 265,000 - 28.08.2018 15 1,231,895 1,231,895 V- 27.09.2018 16 90,000 90,00 - 07.11.2018 18 300,000 300,000 - 15.11.2018 17 278,690 278,690 - 12.12.2018 19 974,000 974,000 - 26.12.2018 20 825,000 825,000 - 26.12.2018 21 270,000 270,000 - 26.12.2018 22 622,432 622,432V' - 28.12.2018 23 330,000 330,000 - Total 6,149,017 6,149,017 s/ -