The Federal Democratic Republic of Ethiopia Audit Services Corporation INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM (UIIDP-P4R) We have audited the accompanying financial statements of Urban Institutional and Infrastructure Development Program (UIIDP-P4R) financed IDA Credit Nos.6196-ET, SUF 6197-ET and Grant No.D277-ET and AFD 1703 1 U of the Federal Democratic Republic of Ethiopia, Ministry of Finance, which comprise the balance sheet as at 7 July 2019, the statement of sources and uses of funds and the designated accounts statement for the period from 3 July 2018 to 7 July 2019, and a summary of significant accounting policies and other explanatory information. Responsibility for the Financial Statements The Ministry of Finance is responsible for the preparation and fair presentation of these financial statements in accordance with the Ethiopian Government's Manual of the Federal Accounting System which is based on a modified cash basis of accounting and for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2 251-011-5515222 Fax 251-011-5513083 E-mail: ASC@ethionet.com 2 5720 251-011-5535012 251-011-5535015 251-011-5535016 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM (UIIDP-P4R) (continued) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Urban Institutional and Infrastructure Development Program (UIIDP-P4R) financed under IDA Credit Nos.6196-ET, SUF 6197-ET and Grant No.D277-ET and AFD 1703 1 U as at 7 July 2019 and of its sources and uses of funds for the period from 3 July 2018 to 7 July 2019 in accordance with the Ethiopian Government's Manual of the Federal Accounting System which is based on a modified cash basis of accounting. Reports on other requirements As required by the World Bank guidelines we report that, to the extent we can assess:- - during the period IDA funds have been used in accordance with the conditions of the relevant financing agreements and only for the purposes for which the financing were provided; - counter-part funds have been provided and used in accordance with the financing agreement and only for the purposes for which the financing was provided; - goods, works and services financed have been provided in accordance with the relevant financing agreements and disbursement letters: - all necessary supporting documents, records and accounts have been maintained in respect of all Project's activities; - the funds disbursed covered expenditure that are eligible for financing under IDA Credit Nos.6196-ET, SUF 6197-ET and Grant No.D277-ET and AFD 1703 1 U; - there was a clear linkage between the books of account and the financial statements; and - our examination revealed no major weaknesses or irregularities in the system of internal controls over financial expenditure other than those mentioned in the management letter; 6 January 2020 2 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM(UIIDP-P4R) IDA CREDIT NOs. 6196- ET, SUF 6197-ET, AND GRANT NO. D277-ET AND AFD 1073 01 U BALANCE SHEET AS AT 7 JULY 2019 Notes Birr CURRENT ASSETS Advances 3 185,754,301 Cash and bank balances 4 784,437,585 970,191,886 CURRENT LIABILITIES Accounts payable 5 365,006,356 NET ASSET 605,185,530 FINANCED BY FUND BALANCE 605,185,530 3 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM(UIIDP-P4R) IDA CREDIT NOs. 6196- ET, SUF 6197-ET, AND GRANT NO. D277-ET AND AFD 1073 01 U STATEMENT OF SOURCE AND USES OF FUNDS FOR THE PERIOD FROM 3 JULY 2018 To 7 JULY 2019 SOURCES Birr Credit from IDA 1,716,794,479 Contribution from Regions and cities 567,099,091 Gain on foreign exchange 52,150,082 2,336,043,652 USES Works 1,647,540,731 Consultancy services 13,007,471 Training 70,309,920 1,730,858,122 EXCESS OF FINANCING OVER EXPENDITURES 605,185,530 4 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM(UIIDP-P4R) IDA CREDIT NOs. 6196- ET, SUF 6197-ET, AND GRANT NO. D277-ET AND AFD 1073 01 U DESIGNATED ACCOUNT STATEMENT For the Period From 3 July 2018 To 7 July 2019 Account number 0100101300554 Depository bank National Bank of Ethiopia Address Addis Ababa, Ethiopia Related credit IDA Credit No.6196-ET,SUF6197 AND Grant No. D377-ET AND AFD 1073 01 U Currency USD USD BIRR Add: IDA Grant during the period 62,951,040.41 1,716,794,478.96 Less: Transfer to Birr account 62,940,000.00 1,768,625,086.00 11,040.41 (51,830,607.04) Gain on foreign exchange - 52,150,082.28 Ending balance -7 July 2019 11,040.41 312475.24 5 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM(UIIDP-P4R) IDA CREDIT NOs. 6196- ET, SUF 6197-ET, AND GRANT NO. D277-ET AND AFD 1073 01 U SCHEDULE OF MOVEMENTS IN THE BIRR ACCOUNT For the period From 3 July 2018 to 7 July 2019 Account number 0100101040692 Depository bank National Bank of Ethiopia Address Addis Ababa,Ethiopia Related credit IDA Credit No. 6196-ET, SUF 6197-ET,Grant No. D377-ET and AFD 1073 01 U Currency Ethiopian Birr Transfer from USD Designated Account 1,768,625,086 Less: Transfer to beneficiaries Oromia 461,405,665 Amhara 420,826,996 Southern Nations, Nationalities and peoples Regional State 313,535,107 Tigray 262,949,821 Ministry of Urban Development, Housing and Construction 58,244,026 Dire Dawa 104,309,361 Somali 60,758,162 Harari 41,378,266 Gambella 14,035,011 Benshangul Gumuz 15,223,910 Afar 10.491,014 1,763,157,339 Bank charge 4,421,563 1,767,578,902 Ending balance 7 July 2019 1,046,184 6 MINISTRY OF FINANCE URBAN INISTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM (UIIDP- P4R) IDA CREDIT NUMBERS 6196-ET, SUF 6197-ET AND GRANT NUMBER D277-ET AND AFD 1073 01 U NOTES TO THE FINANCIAL STATEMENTS 1. PROJECT INFORMATION The Urban Institutional and Infrastructure Development Program (UIIDP) is executed by Ministry of Urban Development and Construction (MUDCo), and financed by a financing agreement entered between the Government of the Federal Democratic Republic of Ethiopia and the International Development Association (IDA) and French Development Agency on 20 March 2018 and 21 June 2018 respectively, under IDA Credit No. 6196-ET, SUF 6197- ET, Grant No. D277-ET and AFD 1073 01 U with a Program-for-Results (P for R) financing instrument modality at the regional and ULG levels. The UIIDP will be implemented over a period of 5 years and four months (from March 2018 to July 2023), with four rounds of performance-based grant allocations: - EFY 2012 (2019/20), - EFY 2013 (2020/21), - EFY 2014 (2021/22), and - EFY 2015 (2022/23). Total UIIDP expenditures over this period are estimated at Ethiopian Birr (ETB) 23.5 billion (US$ 859.5 million), of which ETB 16.4 billion (US$ 600 million) - 70% - will be provided by the World Bank and ETB 296 million (US$10.8 million)'. -1%- will be provided by AFD and ETB 6.8 billion (US$248.7 million) - 29% - will be provided by regions and ULGs as matching fund contributions. Funding available under the UIIDP will depend on the performance of each city and RG assessed annually against verifiable results described in the POM. The UIIDP will provide Performance Grants (PGs) for investments in infrastructure and services and in capacity building for 117 urban local governments (ULGs) and capacity building in all nine Regional Governments (RGs), MUDCo and several Federal Ministries/Agencies. Cities and Regional States will contribute to UIIDP investments with their own funds. MoF is responsible for fund flow, disbursement, reporting and arranging program auditing for the Operation 7 MINISTRY OF FINANCE URBAN INISTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM (UIIDP- P4R) IDA CREDIT NUMBERS 6196-ET, SUF 6197-ET AND GRANT NUMBER D377-ET AND AFD 1073 01 U NOTES TO THE FINANCIAL STATEMENTS (continued) 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted by the Project are stated below:- a) Basis of preparation These financial statements have been prepared in accordance with the Ethiopian Governments Manual of the Federal Accounting System based on a modified cash basis of accounting. b) Currency These financial statements are presented in Birr. Transactions in foreign currency are translated into Birr at the approximate rate of exchange prevailing at the date of the transaction. Cash balances denominated in foreign currencies are translated into Birr at the exchange rates ruling at the date of balance sheet. 8 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM(UIIDP-P4R) IDA CREDIT NOs. 6196- ET, SUF 6197-ET, AND GRANT NO. D277-ET AND AFD 1073 01 U NOTES TO THE FINANCIAL STATEMENTS (continued) 3 ADVANCES Birr Advance payment to:- Contractors 137,083,857 Suppliers 11,474,318 Co-operatives 14,219,174 Purchase advance to staff 1,177,164 Other advances within government 16,014,679 Others 5,785,109 185,754,301 4 CASH AND BANK BALANCES Birr USD Designated account 319,475 Ethiopian Birr Designated Account 1,046,185 Ministry of Urban Development and Construction 58,243,332 Other Birr Account 724,574,067 Cash on hand 254,526 784,437,58 5 ACCOUNT PAYABLE Birr Retentions 51,645,271 Contractors 162,615,072 Other payable within government 113,539 Taxes payable 76,492,766 Others 74,139,708 365,006,356 6 DATE OF AUTHORIZATION Channel One Programs Coordinating Directorate Director of the Federal Democratic Republic of Ethiopia, Ministry of Finance authorized the issue of these financialstatements on 6 January 2020. 9 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM (UIIDP-P4R) IFR BASED WITHDRAWAL SCHEDULE FOR APPLICATIONS SUBMITTED DURING THE PERIOD FROM 3 JULY 2018 TO 7 JULY 2019 EQUIVALENT IN Withdrwal Application No. USD ETHIOPIAN BIRR UIIDP 001 62,951,404 1 478.96 10 MINISTRY OF FINANCE URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM (UIIDP- P for R) IDA CREDIT Nos. 6196-ET, SUF 6197-ET , Grant No. D277-ET And AFD 1073 01 U RECONCILIATION OF SEMI ANNUAL REPORTS DURING THE PERIOD FROM 3 JULY 2018 TO 7 JULY 2019 WITH THE PERIOD ENDED STATEMENT OF SOURCE AND USES OF FUND AND BALANCE SHEET Cumulative 1st Semi 2nd Semi 29 June 2018 to Annual Annual 7 July 2019 Birr Birr Birr SOURCE IDA Contribution 1,716,794,479 - 1,716,794,479 Regional Contribution 60,155,996 180,480,925 240,636,921 ULGs Contribution 35,585,515 290,876,655 326,462,170 Gain on foreign exchange 42,249,997 9,900,085 52,150,082 Total Sources 1,854,785,987 481,257,665 2,336,043,652 USES Program expenditures 18,649,750 1,712,208,372 1,730,858,122 EXCESS/(DEFICINCY) OF SOURCES OVER USES 1,836,136,237 (1,230,950,707 605,185,530 Cash at bank 784,183,059 Cash on hand 254,526 Advances 185,754,301 Payables (365,006,357 605,185,530 11