Report on the Consolidated Project Financial Statements of the DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Financed by: - IDA Credit No. 5444-BA For the year ended 31 December 2018 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina CONTENTS 1 Introduction 1 2 Independent Auditor's Report 2 3 Consolidated Project Financial Statements for the year 2018 4 4 Notes to the consolidated Project Financial Statements 8 APPENDICES A.1 Designated account statement - IDA Credit No.5444-BA (FB&H) 10 A.2 Designated account statement - IDA Credit No.5444-BA (RS) 11 A.3 Petty cash statement - IDA Credit No.5444-BA (FB&H) 12 A.4 Local bank account statement - Other income (FB&H) 13 B SoE Withdrawal Schedule of IDA Credit No.5444-BA for the year ended 31 December 2018 14 C Reconciliation between World Bank's disbursement statements in EUR and IDA Credit No.5444-BA account in EUR according to the consolidated balance sheet as of 31 December 2018; SoE Withdrawal Schedule of IDA Credit No.5444-BA 15 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction 1.1 Objectives of the Project The main objective of the Drina Flood Protection Project (the "Project") is to provide increased protection from flood events to agricultural and commercial interest and communities in the Project area. 1.2 Components and activities of the Project The Project is comprised of the following two components: Component 1: Flood Protection Works The main activities include strengthening flood protection on the Drina River in the Bijeljina area near the confluence with the Sava River. Component 2: Project Management and Institutional Strengthening The main activities include Project management support and institutional strengthening, through the provision of works, goods, consultant's services, Training and Incremental Operating Costs. 1.3 Financing of the Project 1.3.1 IDA Credit No. 5444-BA The State of Bosnia and Herzegovina ("B&H") is the borrower of the International Development Association (IDA) Credit No. 5444-BA amounting to the equivalent of XDR 15,600,000. Under the terms of a Subsidiary Finance Agreement between the State and the Federation of Bosnia and Herzegovina ("FBiH), funds of XDR 6,630,000 have been lent to the FBiH while under the terms of a subsidiary finance agreement between B&H and RS funds of the equivalent of XDR 8,970,000 have been lent to RS. Categories of cost items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each category and the percentage of expenditure for cost items so to be financed in each category are as follows: % of Amount of the epdu Item Credit allocated to be (in XDR) fiane financed (1) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs under Part B of the Project 6,630,000 100% (2) Goods, works, non-consulting services, consulting services, training and incremental operating costs for Part A of the Project 8,970,000 100% Subtotal 15,600,00 IDA Credit No. 5444 - BA became effective on 21 May 2015. Planned closing date is 31 December 2019. 1 bakertiLy Baker Tilly Re Opinion d.o.o. Grbavi6ka 4 71000 Sarajevo Bosna i Hercegovina T: +387 (0) 33 552 150 F: +387 (0) 33 552 152 Independent Auditor's Report info@bakertilly.ba www.bakertilly.ba To the State of Bosnia and Herzegovina, Ministry of Finance and Treasury Attn. of Minister of Finance and Treasury H.E. Mr. Vjekoslav Bevanda Report on the Consolidated Project Financial Statements Opinion We have audited the accompanying consolidated project financial statements of the Drina Flood Protection Project (the "Project"), which comprise of Summary of sources and uses of funds, Balance sheet, Designated account, local bank accounts and petty cash statements, Statements of credit withdrawals as of and for the year ended 31 December 2018, and a summary of significant accounting policies and other explanatory notes for the year then ended, financed under IDA Credit Agreement No. 5444-BA. In our opinion, the accompanying consolidated project financial statements present fairly, in all material aspects, the financial position of the Project as of 31 December 2018, and of the funds received and disbursed during the year then ended, in accordance with the cash basis of accounting based on International Public Sector Accounting Standard ("IPSAS"), as described in Note 4.1. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and "Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities" issued by FMSB. 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 Ministry of Finance and Treasury 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 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. Responsibilities of Management and Those Charged with Governance for the Consolidated Project Financial Statements The management of project implementation unit in FB&H and project coordination unit in RS are responsible for the preparation of separate project financial statements in accordance with the cash basis of accounting based on IPSAS, as described in Note 4.1., Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities, and for such internal control as management determines is necessary to enable the preparation of separate project financial statements that are free from material misstatement, whether due to fraud or error, In preparing the separate financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the financial reporting process. These consolidated financial statements are sum of separate project financial statements. JIB: 4200960550009 - PDV: 200960550009 - Raiffeisen Bank d.d. BiH: 1610000045270008 2 Baker Tilly Re Opinion d.o.o. trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Responsibilities for the Audit of Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated project 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 consolidated financial statements. 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 consolidated project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the consolidated project financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other requirements In addition, with respect to the Statement of Expenditure, adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditure incurred; and all expenditure included in withdrawal applications and reimbursed against are eligible for financing under the project. Signed n half f Baker Tilly Re Opinion d .g. arajevo Nihad F jzic, Dire tor and Certified Au maSinanovic, Certifie duditor BAKER TILLY Sarajevo, 30 May 2019 k OPIN ON d.oo. 3 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 3. Consolidated project financial statements for the year 2018 3.1 Summary of Sources and Uses of funds under IDA Credit 5444-BA and Other income Actual Cumulative Cumulative Cumulative Cumulative Ref. 2018 2018 2017 budget variance FINANCING IDA Credit 5444-BA 3.1.1 114,053 6,621,817 6,507,764 19,516,425 12,894,608 Other income 3.1.2 768,797 1,346,553 577,756 - (1,346,553) TOTAL FINANCING 3.2 882,850 7,968,370 7,085,520 19,516,425 11,548,055 PROJECT EXPENDITURE By Category Goods, works, non- consulting services, consultants' services, Training and Incremental Operating Costs for Part A of the Project 98,016 661,123 563,107 11,608,267 10,947,144 Goods, works, non- consulting services, consultants' services, Training and Incremental Operating Costs for Part B of the Project 66,993 4,065,187 3,998,194 7,908,158 3,842,971 TOTAL EXPENDITURE 3.2 165,009 4,726,310 4,561,301 19,516,425 14,790,115 PROJECT EXPENDITURE By Component I. Flood Protection Works and Support 63,580 4,559,302 4,495,722 18,662,071 14,102,769 II. Project Implementation Support 101,429 167,008 65,579 854,354 687,346 TOTAL EXPENDITURE 3.2 165,009 4,726,310 4,561,301 19,516,425 14,790,115 4 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 3. Consolidated project financial statements for the year 2018 (continued) 3.1.1 Summary of Sources and Uses of funds under the IDA Credit 5444-BA Actual Cumulative Cumulative Cumulative Cumulative Ref. 2018 2018 2017 budget variance FINANCING IDA Credit 5444-BA 19,516,425 Initial deposit - 2,000,000 2,000,000 SoE replenishments 114,054 4,621,733 4,507,679 Interest income -1 84 85 TOTAL FINANCING 3.1 114,053 6,621,817 6,507,764 19,516,425 12,894,608 PROJECT EXPENDITURE By Category Goods, works, non- consulting services, consultants' services, Training and Incremental Operating Costs for Part A of the Project 98,016 661,123 563,107 11,608,267 10,947,144 Goods, works, non- consulting services, consultants' services, Training and Incremental Operating Costs for Part B of the Project 66,981 4,065,157 3,998,176 7,908,158 3,843,001 TOTAL EXPENDITURE 3.2 164,997 4,726,280 4,561,283 19,516,425 14,790,145 5 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 3. Consolidated project financial statements for the year 2018 (continued) 3.1.2 Summary of sources and uses of funds under Other income (FB&H only) Actual Cumulative Cumulative Cumulative Cumulative Ref. 2018 2018 2017 budget variance FINANCING Return of VAT 1,506 578,980 577,474 - Sava river watershed Agency payment 766,938 766,938 - - Tender documentation sold - Other income account 353 635 282 - TOTAL FINANCING 3.1 768,797 1,346,553 577,756- (1,346,553) PROJECT EXPENDITURE By Category Goods, works, non- consulting services, consultants' services, Training and Incremental Operating Costs for Part B of the Project 12 30 18 -30L TOTAL EXPENDITURE 3.2 12 30 18 - (30) 6 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 3. Consolidated project financial statements for the year 2018 (continued) 3.2 Balance sheet as of 31 December 2018 showing accumulated funds of the Project and bank balances concerning World Bank funding 31 December 31 December Ref. 2018 2017 ASSETS Project expenditure under IDA Credit 3.1.1 4,726,280 4,561,283 Project expenditure under Other income 3.1.2 30 18 4,726,310 4,561,301 Designated account - IDA Credit 5444-BA (FB&H) A. 1 993,033 993,007 Designated account - IDA Credit 5444-BA (RS) A.2 901,984 953,015 Petty cash - IDA Credit 5444-BA (FB&H) A.3 520 459 Local bank account - Other income (FB&H) A.4 1,346,523 577,738 3,242,060 2,524,219 Total assets 7,968,370 7,085,520 LIABILITIES IDA Credit 5444-BA 3.1.1 6,621,817 6,507,764 Other income 3.1.2 1,346,553 577,756 Total liabilities 7,968,370 7,085,520 7 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 4. Notes to the consolidated project financial statements 4.1 Basis of preparation and accounting records These consolidated project financial statements have been prepared on the cash basis of accounting based on International Public Sector Accounting Standards: "Financial Reporting under the Cash Basis of Accounting", issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the accounting policies below, which have been consistently followed in all material respects and comply with the "Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities", issued by the Financial Management Sector Board. 4.2 Accounting policies The Project's fiscal year is 1 January 1 to 31 December for the recording of all transactions. Cash basis of accounting All receipts and expenses under IDA Credit are recorded on actual receipt and payment basis of accounting as per approved categories. Project expenditure is stated at original cost on the balance sheet. Direct payments Direct payments concern the amounts paid directly from the IDA Credit account of the World Bank. Statement of Expenditure (SoE) Statements of Expenditure are used to state the expenditure under IDA Credit during a certain period. These statements are sent to the World Bank's disbursement specialist who authorises the payment of the expenditure through the Designated account. Currency conversions The reporting currency is EUR. Sources and use of funds (payments to suppliers and contractors) in currencies other than EUR have been converted to EUR using the currency rate at the moment of the transaction. Bank balances, recorded on the consolidated balance sheet at year-end, have been converted at year-end rate. Designated account This is the total amount of the withdrawals from the IDA Credit account for the Project. IDA Credit account is in XDR. Local bank account This concerns bank account at local bank (other than Designated account) in local currency translated at the exchange rate at the date of the balance sheet. 8 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 4. Notes to the consolidated project financial statements (continued) 4.2 Accounting policies (continued) Other income Other income includes tender documentation sold and return of VAT. Interest on Designated account Interest earned on the Designated account belongs to the Borrower. Interest on local bank account Interest earned on the local bank account used for the other income is treated as additional source of financing of the Project. 9 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX A.1 DESIGNATED ACCOUNT STATEMENT Account owned by: Ministry of Finance and Treasury of Bosnia and Herzegovina Account No.: BA39 1994 9900 3150 4549 Depository Bank: Sparkasse bank d.d. BiH Address: Zmaja od Bosne 7, Sarajevo Related Credit: IDA Credit NO.5444-BA Currency: EUR Ref. EUR Opening balance 1 January 2018 3.2 993,007 Add: World Bank replenishments B 67,069 Interest 985 68,054 1,061,061 Deduct: Payments to suppliers - Expenditure under IDA Credit 67,042 Transfer of interest to the Ministry of Finance and Treasury of B&H 986 68,028 Ending balance 31 December 2018 3.2 993,033 10 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX A.2 DESIGNATED ACCOUNT STATEMENT Account owned by: Ministry of Finance and Treasury of Bosnia and Herzegovina Account No.: 5672410000610769 Depository Bank: Sberbank a.d. Banjaluka Address: Jevrejska 71, Banjaluka Related Credit: IDA Credit No. 5444-BA Currency: EUR Ref. EUR Opening balance 1 January 2018 3.2 953,015 Add: World Bank replenishments 46,985 46,985 Deduct: Payments to suppliers - Expenditure under IDA Credit 98,016 98,016 Ending balance 31 December 2018 3.2 901,984 11 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX A.3 PETTY CASH STATEMENT Address: PIU, Sarajevo Related Credit: IDA Credit 5444-BA Currency: BAM Ref. BAM EUR Opening balance 1 January 2018 3.2 899 459 Add: - - 899 459 Deduct: Payments to suppliers in 2017 - refund (200) (102) Payments to suppliers - Expenditure under IDA Credit 81 41 (119) (61) Ending balance 31 December 2018 3.2 1,018 520 12 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX A.4 LOCAL BANK ACCOUNT STATEMENT Account owned by: Federal Ministry of Agriculture, Water Management and Forestry Account No.: 1027080000004907 Depository Bank: Union banka d.d. Sarajevo Address: Dubrova6ka br. 6 Related Credit: Government contribution (Indirect Taxation Authority - VAT return; Sava River Watershed Agency - cofinancing of the Project in accordance with Contract No. 1051-12/17 dated 22 December 2017) Currency: BAM Ref. BAM EUR Opening balance 1 January 2018 3.2 1,129,956 577,738 Add: VAT return 2,946 1,506 Sava River Watershed Agency 1,500,000 766,938 Payment for tenders 691 353 1,503,637 768,797 2,633,593 1,346,535 Deduct: Payments to suppliers - Expenditure under Other income 23 12 23 12 Ending balance 31 December 2018 3.2 2,633,570 1,346,523 13 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX B SoE Withdrawal Schedule of IDA Credit No.5444-BA for the year ended 31 December 2018 Goods, works, Goods, works, non- non-consulting consulting services, services, consultants' consultants' services, Training services, Training and Incremental and Incremental Operating Costs Operating Costs for Initial for Part A of the Part B of the Total Total deposit Project Project application replenished Previous years 2,000,000 563,107 3,998,176 4,561,283 6,507,679 Application 04 (RS)* - - - - 46,985 Application 05 (RS)** - 98,016 - 98,016 - Application 12 (FB&H)*** - - - - 6,619 Application 13 (FB&H) - - 13,882 13,882 13,882 Application 14 (FB&H) - - 2,391 2,391 2,391 Application 15 (FB&H) - - 44,177 44,177 44,177 Application 16 (FB&H)**** - - 6,531 6,531 - Total 2018 - 98,016 66,981 164,997 114,054 As of 31 December 2018 2,000,00 661,123 4,065,157 4,726,280 6,621,733 * Application No. 4 was replenished in 2018, but expenses were made in 2017. ** Application No. 5 will be replenished in 2019 but expenses were made in 2018. *** Application No.12 was replenished in 2018, but expenses were made in 2017. **Application No. 16 was replenished in 2019, but expenses were made in 2018. 14 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Consolidated project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX C Reconciliation between World Bank's disbursement statements in XDR and IDA Credit Account in EUR according to the balance sheet as of 31 December 2018; SoE Withdrawal Schedule of IDA Credit No.5444-BA Changes in Exchange Changes in IDA Credit rate used IDA Credit (in XDR) (in EUR) Original amount 15,600,000 1.251053 19,516,425 Total disbursed in previous periods 5,165,828 6,507,679 Withdrawal 04 39,030 1.203819 46,985 Withdrawal 12 5,615 1.178797 6,619 Withdrawal 13 11,415 1.216132 13,882 Withdrawal 14 1,984 1.205158 2,391 Withdrawal 15 36,246 1.218800 44,177 Total disbursed in 2018 94,290 114,054 Cumulative disbursements as of 31 December 2018 5,260,118 6,621,733 Calculated undisbursed balance as of 31 December 2018 10,339,882 12,894,692 Undisbursed balance as per World Bank Summary for December 2018 10,339,882 12,579,450 Potential exchange rate loss (315,242) 15