O GrantThornton Project's Financial Statements and Independent Auditor's Report Ministry of Education and Science of the Republic of Macedonia "Skills Development and Innovation Support Project" - International Bank for Reconstruction and Development Loan number 8332-MK For the period from 01 January 2016 to 31 December 2016 Ministry of Education and Science of the Republic of Macedonia "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Contents Page Management Responsibility 1 Independent Auditor's Report 2 Statement of Sources and Uses of Funds 4 Statement of Uses of Funds by Project Activity 6 Balance sheet 9 Statement of Breakdown of Loans and Grants-MoES 10 Statement of Breakdown of Loans and Grants-FITD 13 Statement of Withdrawals - Designated Account 20 Statement of Designated Account - EUR 21 Statement of Designated Account - EUR (Fund for Innovation and Technological Development) 22 Statement of Treasury Account (Mirror Designated Account) - MKD 23 Statement of Treasury Account (Mirror Designated Account) - MKD - FITD 24 Statement of Petty Cash in MKD 25 Statement of Petty Cash in EUR 26 Notes to Project's financial statements 27 Ministry of Education and Science of the Republic of Macedonia "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Management Responsibility The accompanying financial statements comprising the Statement of Sources and Uses of Funds, Statement of Uses of Funds by Project Activity, Balance sheet, Statement of Breakdown of Loans and Grants, Statement of Withdrawals (SOE's), Designated Account Statements and related disclosure Notes (further referred as to "Project's Financial Statements"), of the Ministry of Education and Science of the Republic of Macedonia ("the Ministry"), "Skills Development and Innovation Support Project" (further referred to as "the Project"), financed under International Bank for Reconstruction and Development Loan (IBRD) numbered 8332-MK ("Original loan") as at and for the period from 01 January 2016 to 31 December 2016 included on pages 4 to 31, are the responsibility of, and have been approved by the Project's management. The accompanying Project's financial statements have been compiled by the Project's management, for the purposes of reporting to the Ministry and the International Bank for Reconstruction and Development, in conformity with the related requirements of the World Bank's financial reporting guidelines and in compliance with the relevant provisions set out in the Loan Agreement numbered 8332-MK dated 7 February 2014. Project's management, in furtherance of the integrity and objectivity of the Project's financial statements, has developed and maintained an internal control structure, including the appropriate control environment, accounting systems and control procedures. Project's management believes that internal controls provide assurance that financial records are reliable and form a proper basis for the preparation of financial statements, and that assets are properly accounted for and safeguarded. There are, however, inherent limitations that should be recognized in considering the assurances provided by the internal control structure. The internal control process also includes management's communication to employees of policies, which govern ethical business conduct. Grant Thornton DOO Skopje, Independent Auditors, have been engaged to audit these Project's financial statements in accordance with the International Standards on Auditing. Their report is included on pages 2 and 3. 8 June 2017 Renata Deskoska Igor Krst ki Ja a Po vska Davitkovska Minister of Project Director Financial Manager irector of Education and Fund for Innovation Science and Technological Development O GrantThornton Independent Auditor's Report Grant Thornton 000 Sv. Kiril I Metodij 52b/1-20 1000 Skopje Macedonia T +389 2 3214 700 F +389 2 3214 710 To the Management of the Project www.grant-thornton.com.mk We have audited the accompanying financial statements of the Ministry of Education and Science of the Republic of Macedonia ("the Ministry"), "Skills Development and Innovation Support Project" (further referred to as "the Project"), financed under International Bank for Reconstruction and Development, Loan numbered 8332-MK comprising of the Statement of Sources and Uses of Funds, Balance sheet, Statement of Uses of Funds by Project Activity, Statement of Breakdown of Loans and Grants, Statement of Withdrawals, Designated Account Statements and related disclosure Notes (further referred as to "the Project's Financial Statements") as at and for the period from 01 January 2016 to 31 December 2016 and included on pages 4 to 31. Management's responsibility for the Project's financial statements These Project's financial statements are compiled for the purposes of reporting to the Ministry and the International Bank of Reconstruction and Development (IBRD) management, and are the responsibility of the management of the Project. The Projects' management is responsible for developing and maintaining such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Project's Management policy is to prepare the accompanying Project's financial statements on the cash receipts and disbursement basis in conformity with the related requirements of the World Bank's financial reporting guidelines and in compliance with the relevant provisions set out in the Loan Agreement numbered 8332-MK dated 7 February 2014. On this basis, cash receipts are recognized when received rather when earned and cash expenditures are recognized when paid rather than when incurred. Auditor's responsibility Our responsibility is to express an opinion on these Project's financial statements based on our audit. We conducted our audit in accordance with auditing standards accepted in the Republic of Macedonia'. 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. 1 International Standards on Auditing ("ISA issued by the International Auditing and Assurance Standards Board ("IAASB"), effective from 15 December 2009, translated and published in the "Official Gazette" of the Republic of Macedonia no. 79 from 2010. Chartmed Accountants MArhRr firm nf Grant Thnrnfnn InftminnAl I Id 0 GrantThornton 3 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 Project'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 Project'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. Opinion In our opinion, the financial statements of "Skills Development and Innovation Support Project", financed under International Bank for Reconstruction and Development, Loan numbered 8332- MK, present fairly, in all material respects, the Project's financial position as at 31 December 2016, and the movement on the Sources and Uses of Funds, Statement of Uses of Funds by Project Activity, Statement of Breakdown of Loans and Grants, Statement of Withdrawals and Designated Account Statements for the period from 01 January 2016 to 31 December 2016, in conformity with the related requirements of the World Bank's financial reporting guidelines and in compliance with the relevant provisions set out in the Loan Agreement numbered 8332-MK dated 7 February 2014. Skopje, 8 June 2017 Grant Thornton DO o Me;-)o Director 9 Certified Au tor Suzana Stavrik Suzana Stavrik Chaterd Accountants MwAf" of 04aThonamtomUndnt Ministry of Education and Science of the Republic of Macedonia 4 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Sources and Uses of Funds (Amounts in EUR) For the period from 01 January 2016 to 31 December 2016 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to date period to date period to date Sources of funds World bank DA-A 383,977 1,992,011 339,727 1,947,761 - World bank DA-B 600,000 1,000,000 600,000 1,000,000 - Interests Eamed - - - Front end fee - - 44,250 44,250 Total sources of funds 983,977 2,992,011 983,977 2,992,011 - Foreign exchange difference Exchange gains 89 150 - - 89 150 Exchange losses (15) (104) - - (15) (104) Foreign exchange differences, net 74 46 - - 74 46 Uses of funds Financed by WB Component 1: Improving Transparency in higher education 55,355 152,741 108,861 206,248 (53,506) (53,506) Component 2: Modernization of Secondary Technical Vocational Education and Training 405,728 609,938 606,745 810,955 (201,017) (201,017) Component 3: Improving the Innovative capacity of enterprises and collaboration with research organizations 31,392 103,338 32,912 104,858 (1,520) (1,520) Component 3: Sub-component 3.2: Pilot of Financial Instruments to be delivered by FITD 500,998 500,998 500,998 500,998 - Component 4: Project Management and Monitoring and Evaluation 260,070 577,181 276,637 593,748 (16,567) (16,567) Front and fee - 44,250 - 44,250 - Subtotal - Financed by WB 1,253,543 1,988,446 1,526,153 2,261,057 (272,610) (272,610) Financed by GoM Component 1: Improving Transparency in higher education Component 2: Modernization of Secondary Technical Vocational Education and Training Component 3: Improving the Innovative capacity of enterprises and collaboration with research organizations Component 4: Project Management and Monitoring and Evaluation Subtotal - Financed by the GoM Total uses of funds 1,253,543 1,988,446 1,526,153 2,261,057 (272,610) (272,610) Ministry of Education and Science of the Republic of Macedonia 6 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Uses of Funds by project activity (continued) (Amounts in EUR) For the period from 01 January 2016 to 31 December 2016 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to date period to date period to date Balance (269,492) 1,003,611 - - - - Bank balances, at beginning of the period 1,273,103 - Bank balances, at end of the neriod 1,003i611 1,003.611 - - - The Project's Financial Statements have been approved by the Ministry on 7 June 2017 and signed on its behalf by: Renata Deskoska Igor evski Ate dra a povska Davitkovska Minister of Project Director Financial Manager Decto of Education and nd for Innovation Science and Technological Development Chartemd Accountants Member fim of Grant Thonton Internallonal Ltd Ministry of Education and Science of the Republic of Macedonia 6 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Uses of Funds by Project Activity -MOES (Amounts in EUR) For the period from 01 January 2016 to 31 December 2016 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to date period to date period to date Project's expenditures by activity: Component 1: Improving Transparency of Higher Education Contract 1: Needs Assessment for Capacity Building of the Board for HEAEB 9,450 9,450 9,600 9,600 (150) (150) Contract 2 : Needs Assessment, Strategy and Policy Development for NTTO 97,387 - 97,387 - - Contract 3 : Administration and Communication Officer for HEAEB 7,701 7,701 7,700 7,700 1 Contract 4 : Web-Site Developer and ICT Support and Maintenance Consultant for HEAEB 2,737 2,737 2,700 2,700 37 37 Contract 5 : Quality Assurance and Evaluation Officer for HEAEB 2,737 2,737 2,700 2,700 37 37 Contract 6 : Design and Establishment of EMIS for Higher Education 9,569 9,569 10,000 10,000 (431) (431) Contract 7:Assessment of Funding Model Options and Preparation of Funding Model and Formula and Implementation Plan 23,161 23,161 76,161 76,161 (53,000) (53,000) Contract 8 Contract 9 Contract 10 Contract 11 Payments without contract Sub-total 55,355 152,742 108,861 206,248 (53,506) (53,506) Component 2: Modernization of Secondary Technical Vocational Education and Training Contract 1:Skills forecasting 29,314 78,400 29,313 78,399 1 1 Contract 2: Development and Design of the Concept for Secondary TVET 325,152 325,152 522,843 522,843 (197,691) (197,691) Contract 3: TA for new competency based curriculum and pertinent modules for innovation and entrepreneurship education insecondary education 123,120 123,120 Contract 4 :Preparation of program for provision of grants and support in development of implementation legal procedures 23,991 55,995 23,990 55,994 1 1 Contract 2 Contract 6 Contract 7 Payments without contract Transfers (Grants) for Secondary WET Schools-Business Sector Joint Projects 26,034 26,034 29,000 29,000 (2,966) (2,966) Training related to implementation of the grants program (preparation of applications) 1,237 1,237 1,599 1,599 (362) (362) Sub-total 405,728 609,938 606,745 810,955 (201,017) (201,017) Ministry of Education and Science of the Republic of Macedonia 7 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Uses of Funds by project activity (continued) (Amounts in EUR) For the period from 01 January 2016 to 31 December 2016 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to date period to date period to date Project's expenditures by activity: Component 3: Improving the Innovative capacity of enterprises and collaboration with research organizations Contract 1: Resident Advisor for Capacity Building of the FITD 11,082 43,459 21,000 53,377 (9,918) (9,918) Contract 2: Software for the Needs of the FITD 3,895 34,391 1,782 32,278 2,113 2,113 Contract 3: Equipment for the FITD - 4,928 4,928 Contract 4 Office chairs for FITD 1,970 1,970 2,500 2,500 (530) (530) Contract 5 : FITD Financial Management Assistant 6,616 6,616 2,830 2,830 3,786 3,786 Contract 6 : FITD Program Assistant 5,o0 5,801 2,600 2,800 3,201 3,201 Contract7 - - - - Payments without contract - - - - Capacity Building of the FITD/ Training / accommodation - study visit in Finland 2,028 6,173 2,200 6,345 (172) (172) Sub-total 31,392 103,338 32,912 104,858 (1,520) (1,520) component 4: Project Management and Monitoring and Evaluation Contract 1: Project Manager/Director 20,582 62,000 18,844 60,262 1,738 1,738 Contract 2: Procurement Specialist 17,543 52,742 16,050 51,249 1,493 1,493 Contract 3: Financial Specialist 13,322 39,028 12,210 37,916 1,112 1,112 Contract 4: Coordinator for business and innovations 12,238 39,443 11,126 38,331 1,112 1,112 Contract 5: Monitoring and Evaluation Specialist 12,522 29,136 11,327 27,941 1,195 1,195 Contract 6: Part-Time Environmental Consultant Contract no:002-15-1/4.1.8 3,400 5,808 6,400 8,808 (3,000) (3,000) Contract 7: Part-Time Environmental Consultant Contract no:002-15-2/4.1.8 3,600 6,008 6,600 9,008 (3,000) (3,000) Contract 7: Financial/Accounting Software and support and maintenance for the project duration 139 1,650 135 1,646 4 4 Contract 8: Equipment for the PMU 2,453 - 2,453 Contract 9: Hardware for the PMU - 15,628 - 15,628 - - Contract 10: Administrative Assistant 12,224 27,735 12,130 27,641 94 94 Contract 11: Procurement Assistant 12,002 26,378 12,000 26,376 2 2 Contract 12: Phones for the PMU - 5,672 - 5,672 - - Contract 13: Consulting services for logistical support in the organization of a conference dedicated to the needs and challenges in the area of higher education 21,999 26,331 27,895 32,227 (5,896) (5,896) Contract 14: Monitoring and Evaluation Assistant 9,601 10,110 8,800 9,309 801 801 Contract 15: Grants Officer 9,812 10,321 8,993 9,502 819 819 Contract 16: Development of Software for Skills Observatory 13,255 23,856 40,650 51,251 (27,395) (27,395) Contract 17: Technical Assistance for Policy Development and Initial Set-Up of the Skills Observatory - 42,920 - 42,920-- Contract 18: IT Specialist for the establishment of the Skills Observatory 3,000 12,247 3,000 12,247- Contract 19: IT Senior Administrator for the Skills Observatory 13,621 20,091 12,478 18,948 1,143 1,143 Contract 20: Skills Observatory Administrator 9,602 10,110 8,800 9,308 802 802 Contract 21: VET Coordinator 13,92 13,992 12,808 12,808 1,144 1,144 Contract 22: Data collection for conducting a tracer study for WET and HE employment outcomes of graduates 27,582 27,582 27,882 27,882 Ministry of Education and Science of the Republic of Macedonia 8 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Uses of Funds by project activity (continued) (Amounts in EUR) For the period from 01 January 2016 to 31 December 2016 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to date period to date period to date Project's expenditures by activity: Contract 23: Project Audit 5,340 5,340 5,340 5,340 - - Payments without contract Training / accommodation, per diem, and transport 4,638 8,191 470 4,023 4,168 4,168 Operating Cost for the PMU 18,681 49,101 11,884 42,304 6,797 6,797 Operating costs: Bank provision 445 1,272 454 1,281 (9) (9) Operating costs: Petty cash 970 2,076 661 1,767 309 309 Sub-total 260.070 577.181 276,637 593,748 (16.567) (16,667) Total 752.545 1.443.199 1,025,155 1,716.809 (272,610) (272,610) Ministry of Education and Science of the Republic of Macedonia 9 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Balance sheet In EUR 31 December 2016 31 December 2015 Assets Bank balances 1,003,611 1.273.103 Total assets 1,003,611 1,273,103 Funds and liabilities Funds Unspent funds 1,003,611 1,273,103 Fund balance 1,003.611 1,273,103 Total Fund and liabilities 1,003,811 1,273,103 C5 ~w ý =- -0 0. 0 4=E C4 :¡. c. 0 00 0 =E o o ? 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Cd> -c= o a - · *.c2 = cc S -. to .2 mer , 'u l Obo oM. t o 5' E LgoE f 5 me ø -e cflg . 8o Ministry of Education and Science of the Republic of Macedonia 20 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Withdrawals - Designated Account (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 Application # and date Total Total Requested Disbursed Difference Original Loan 8332-MK #5 Application /21.03.2016 383,977 383,977 #6 Application /25.04.2016* 600,000 600,000 983.977 983,977 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 Application # and date Total Total Requested Disbursed Difference Original Loan 8332-MK #1 Initial Application / 24.04.2014 1,000,000 1,000,000 #2 Application /7.08.2015 312,489 312,489 #3 Application / 31.07.2015 * 400,000 400,000 #4 Application / 14.12.2015 251,295 251,295 Total 1,963,784 1,963,784 * The funds from Application 6 are allocated to Fund for Innovation and Technological Development. This fund is responsible to build the institutional capacity to stimulate innovative activities and piloting financial instruments to support innovation and technological development in the enterprise sector. Ministry of Education and Science of the Republic of Macedonia 21 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Designated Account - EUR Account number MK 07 1007 0100 0146 543 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency EUR (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 At 1 January 2016 871,837 Add: Inflows Replenishment during the period 383,977 Interest received 1,255,814 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (755,295) Transfer to treasury account (Mirror designated account) - MKD for transfer to Petty Cash in EUR (3,317) 758,612) At 31 December 2016 497,202 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 At 7 February 2014 Add: Inflows Replenishment during the period 1,563,784 Interest received . 1,563,784 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (689,181) Transfer to treasury account (Mirror designated account) - MKD for transfer to Petty Cash in EUR (2,766) (691,947) At 31 December 2015 871,837 Ministry of Education and Science of the Republic of Macedonia 22 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Designated Account - EUR (Fund for Innovation and Technological Development) Account number MK 07 1007 0100 0147804 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency EUR (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 At 1 January 2016 400,000 Add: Inflows Replenishment during the period 600,000 Interest received - 1,000,000 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (500,999) (500,999) At 31 December 2016 499,001 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 At 7 February 2014 Add: Inflows Replenishment during the period 400,000 Interest received 400,000 Deduct: Outflows At 31 December 2015 400,000 Ministry of Education and Science of the Republic of Macedonia 23 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Treasury Account (Mirror Designated Account) - MKD Account number 160010032978651 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency Macedonian Denars ("MKD") (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 At 1 January 2016 1,068 Add: Inflows Transfer from designated account - EUR 755,295 Transferred funds from designated account - EUR for Petty cash in EUR 3,317 Foreign exchange gains 57 759,737 Deduct: Outflows Amount of eligible expenses paid during the period (747,546) Transfer to Petty Cash in MKD (1,614) Transfer to Petty Cash in EUR (3,317) Foreign exchange losses (15) (752,492) At 31 December 2016 7,245 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 At 7 February 2014 - Add: Inflows Transfer from designated account - EUR 689,181 Transferred funds from designated account - EUR for Petty cash in EUR 2,766 Foreign exchange gains 61 692,008 Deduct: Outflows Amount of eligible expenses paid during the period (686,789) Transfer to Petty Cash in MKD (1,296) Transfer to Petty Cash in EUR (2,766) Foreign exchange losses (89) (690,940) At 31 December 2015 1,068 Ministry of Education and Science of the Republic of Macedonia 24 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Treasury Account (Mirror Designated Account) - MKD (Fund for Innovation and Technological Development) Account number 40016201478616 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency Macedonian Denars ("MKD") (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 At 1 January 2016 . Add: Inflows Transfer from designated account - EUR 500,999 Transferred funds from designated account - EUR for Petty cash in EUR . Foreign exchange gains 32 501,031 Deduct: Outflows Amount of eligible expenses paid during the period (500,998) Transfer to Petty Cash in MKD Transfer to Petty Cash in EUR Foreign exchange losses (500,998) At 31 December 2016 33 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 At 7 February 2014 Add: Inflows Transfer from designated account - EUR Transferred funds from designated account - EUR for Petty cash in EUR Foreign exchange gains Deduct: Outflows Amount of eligible expenses paid during the period Transfer to Petty Cash in MKD Transfer to Petty Cash in EUR Foreign exchange losses At31 December2015 Ministry of Education and Science of the Republic of Macedonia 25 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Petty Cash in MKD Loan Number 8332-MK Currency Macedonian Denars ("MKD") (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 At I January 2016 191 Add: Inflows Transfer from Mirror Designated Account - MKD 1,614 Forex gains 1,614 Deduct: Outflows Amount of eligible expenses paid during the period (1,675) (1,675) At 31 December 2016 130 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 At 7 February 2014 - Add: Inflows Transfer from Mirror Designated Account - MKD 1,296 1,296 Deduct: Outflows Amount of eligible expenses paid during the period (1,105) (1,105) At 31 December 2015 191 Ministry of Education and Science of the Republic of Macedonia 26 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2016 to 31 December 2016 Statement of Petty Cash in EUR Loan Number 8332-MK Currency EUR (Amounts in EUR) For the period from 1 January 2016 to 31 December 2016 At 1 January 2016 7 Add: Inflows Transfer from Mirror Designated Account - EUR 3,317 3,317 Deduct: Outflows Amount of eligible expenses paid during the period (3,324) (3,324) At31 December2016 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2015 At 7 February 2014 . Add: Inflows Transfer from Mirror Designated Account - EUR 2,766 2,766 Deduct: Outflows Amount of eligible expenses paid during the period (2,759) (2,759) At 31 December 2015 7 Ministry of Education and Science of the Republic of Macedonia 27 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Notes to Project's financial statements 1 General On 7 February 2014, the Ministry of Education and Science of the Republic of Macedonia ("the Ministry" or "the Borrower"), entered into the Loan Agreement numbered 8332-MK with the International Bank for Reconstruction and Development ("IBRD") for financing the "Skills Development and Innovation Support Project" (further referred to as "the Project") in the amount of EUR 17,700,000. The objective of the Project is to improve transparency of resource allocation and promote accountability in higher education, enhance the relevance of secondary technical vocation education, and support the Borrower's innovation capacity. The Borrower has established the Project Management Unit ("PMU"), responsible for the day- to- day activities and for procurement, financial management, disbursement and monitoring and reporting for the entire Project. The following table underlines the categories of Eligible Expenditures that may be financed out of the proceeds of the Loan ("Category"), the allocation of the amounts of the Loan to each Category, and the percentage of expenditures to be financed for the Eligible Expenditures in each Category: Percentage of the Amount of the Loan allocated Expenditures to be (expressed in Euro) financed (inclusive of Category Revised original values taxes) 1.Goods,works,non-consulting services, consulting services, training and operating costs 7,847,000 100% 2.School grants 649,000 100% 3.Innovation grants and Innovation Sub-Loans 9,159,750 100% 4.Front and Fee 44,250 Total 17,700,000 According to the provisions of the Loan Agreement, the Borrower is liable to repay the principal amount of the Loan in semi-annual installments, payable each 1st February and 1 s August, commencing 1 February 2019 through 1 August 2031. The Borrower is liable to pay to IBRD a front- end fee equal to 1/4 of 1% (0.25%) of the Loan amount and interest for each interest period equal to LIBOR for the Loan Currency plus a Variable Spread. The Closing Date of the Project is 31 May 2019. The effectiveness Deadline is the date ninety days after the date of this Agreement. Ministry of Education and Science of the Republic of Macedonia 28 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK 2 Project Objectives, Activities and Institutional Arrangements Project Objectives and Activities The proposed Project would support the Government of Macedonia's (GOM) initiatives geared to: * increase graduates' competitiveness on a regional and international level; * increase labor market relevance of graduates' skills; * make innovation a source of productivity improvement, competitiveness, increased exportability of goods, and sustained economic growth; and * increase universities and private enterprises engagement in, and their benefit from, R&D efforts and technology adoption opportunities. The Project consists of four components: Component 1: Improving Transparency of Higher Education This component will have three main sets of activities, all targeted toward improving both the transparency and efficiency of the quality assurance and finance mechanisms in the higher education sector: (i) institutional strengthening and stronger quality assurance in higher education; (ii) reforming the higher education financing model; and (iii) establishing a centralized office to foster mission-oriented research and university-industry collaboration. Sub-component 1.1: Quality Assurance in Higher Education This sub-component builds upon Bank-supplied technical assistance in higher education quality assurance (2010-2012) and would finance activities targeted toward improving the quality assurance mechanisms in higher education, including: (i) providing training for improving the administrative capacity of the Higher Education Accreditation and Evaluation Board (HEAEB) and other key players in charge of managing quality assurance activities; (ii) funding of external evaluation by foreign experts of FYR Macedonia's higher education sector, and up; and (iii) upgrading of the education management and information system, including the development and implementation of the central data base. Sub-component 1-: Higher Education Financing Reforms This sub-component, utilizing technical assistance and information gleaned through a Bank-sponsored pilot of a potential new finance model, would support the design and implementation of a performance-based funding model to promote transparency and efficiency in the resource allocation mechanisms. It would include the following technical assistance activities: (i) assessment of funding model options to select the most appropriate model for the Macedonian context; (ii) design of the funding model, formula and implementation plan; (iii) identification of internal performance indicators and results framework for monitoring and evaluation; and (iv) rollout of the new finding model. This subcomponent would also finance communication campaigns, outreach and dissemination events to inform different groups of stakeholders about these reforms and generate support for them Sub-component 1.3: Development of a National Technology Transfer Office (NTI'O) This subcomponent would support the development of a central office to be the system-wide interface between the research community and the industry, and a national focal point for international cooperation. It would play a key role in the conversion of the results of research into competitive products and processes, and steer research towards industry needs. The NTTO is expected to have a mandate that is broader than a typical academic technology transfers office. The proposed NTTO, while performing typical tasks such as industry outreach, would additionally be a center for advising the industry in FYR Macedonia on Intellectual Property (IP) in-licensing and technology importation and integrating the innovation activities of Ministry of Education and Science of the Republic of Macedonia 29 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Project Objectives, Activities and Institutional Arrangements (continued) Macedonia with EU programs. Given the small country size, and low research activities, having a technology transfer office with a broader mandate makes sense as it leverages economies of scale and prevents duplication of efforts. The subcomponent would provide technical assistance for establishment and operationalization of the NITO and would also finance the salaries of experts and the purchase of patent and market intelligence databases. Componat 2: Modernization of Secondary Technical Vocational Education and Training This component would finance activities targeted toward building the foundation of a modern and efficient secondary TVET system that is characterized by delayed tracking of students into vocational pathway, increased relevance of the standards and curriculum for the labor market and improved mechanisms for school-industry collaboration. These changes are expected to lead to the transformation of the secondary TVET from the narrow occupational to a more general and broader technical education and eventually to result in greater labor market relevance and transferability of skills, and increased flexibility in secondary TVET provision. It consists of two sub-components. Sub-component 2.1: Ouality and labor market relevance of-TVET provision This subcomponent would contribute to the modernization of the secondary TVET system and its relevance for the labor market needs and improving the capacity of TVET secondary schools to deliver quality TVET. Specifically, this sub-component would finance: (i) technical assistance to support the development of an overarching model for the transformation of the secondary TVET provision; (ii) development of occupational standards, competency-based curriculum and programs; (ii) efficiency assessment of the secondary TVET school network and development of a proposal for restructuring the network; (iii) development of a training program for teachers and other staff, including identification of required skills, development of training materials and rollout of the program; and (iv) carrying out of a need analysis and acquisition of equipment for school-based practical training. Sub-component 2.2: Grants for school-industry collaboration This subcomponent would finance technical assistance activities aimed at: (i) designing and implementing a grant program to support TVET activities; and (ii) provision of School Grants to selected TVET schools to finance activities to improve the labor market relevance of the vocational education and training including involving industries into the practical training delivery. Component 3: Improving the Innovative Capacity of Enterprises and Collaboration with Research Organiations This component is focused on supporting the efforts of the FYR Macedonia Fund for Innovation and Technological Development (FITD) to build the institutional capacity to stimulate innovative activities, and piloting financial instruments to support innovation and technological development in the enterprise sector. It is organized around two sub-components. Sub-component 3.1: FITD capacity building This sub-component would finance activities required to build up institutional competence of the FITD, in particular, providing support for: (i) planning and designing the programs, strategy, operations and procedures; (ii) training of FITD staff; (iii) selection of the Investment Committee and peer reviewers; (iv) mentoring and training for FITD beneficiary enterprises; and (v) marketing and communications strategy. Ministry of Education and Science of the Republic of Macedonia 30 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK Project Objectives, Activities and Institutional Arrangements (continued) Sub-component 3.2: Pilot of Financial rnstruments to be delivered y FITD Once the FITD is established, it would provide specific funding instruments for each stage of companies' life cycle to foster innovation. These instruments will include: (i) an accelerator; (ii) proof of concept innovation mini grants, including but not limited to IP protection, and business plan preparation for initial capital mobilization; (iii) commercialization matching grants and loans; and (iv) sector specific grants in technology development and technology absorption projects for new or improved technologies, products and processes. It is anticipated that the pilot instruments will be introduced in a phased approach starting with the accelerator and proof of concept grants. Component 4: Project Management and Monitoring and Evaluation This component would finance the activities in two sub-components to: (i) ensure effective administration and implementation of the Bank-financed project; and (ii) develop and put in place an effective M&E system. Subcomponent 4.1: Project Management This sub-component would support the operation of a Project Management Unit (PMU) reporting to a Project Director and responsible for all the day-to-day project implementation activities, as well as procurement, disbursement and accounting functions. World Bank financing would be provided for consultants employed as part of the PMU, as well as for assistance and training to all project staff, project audits, office equipment and incremental operating costs. Subcomponent 4.2: Monitoring and Evaluation M&E are crucial elements of program design as they provide important feedback mechanisms for policy, effectiveness, and credibility of the programs. The Project would support the design and implementation of (i) tools to monitor the results framework for the Project; (ii) M&E studies/surveys to establish a baseline for project results indicators as well as their measures during project implementation and upon project; (iii) impact evaluation for selected innovation programs; and (iv) skills observatory. World Bank financing would be provided for technical assistance; services and training of the Ministry of Education and Science staff engaged in monitoring; and the design, implementation, and analysis of evaluation surveys. Institutional Arrangements The PMU shall be responsible for the day-to-day Project implementation and for procurement, financial management, disbursement and monitoring, and reporting for the entire Project. The Steering Committee shall be responsible for overall Project oversight and coordination. The Working Group shall be responsible for providing necessary technical expertise and support for efficient Project implementation. The Grant Approval Committee shall be responsible for evaluating and selecting proposals for School Subprojects. The Investment Review Committee shall be responsible for evaluating and selecting proposals for Innovation Subproject. Throughout the duration of the Project the Borrower shall: (i) maintain the PMU, the Steering Committee and the Working Group; and (ii) establish and maintain the Investment Review Committee and the Grant Approval Committee; all with staff, resources and terms of reference satisfactory to the Bank. The Borrower shall carry out the Project in accordance with the Project Operational Manual and shall not amend, suspend, abrogate, repeal or waive any provision of said Manual without the prior approval of the Bank. Ministry of Education and Science of the Republic of Macedonia 31 "Skills Development and Innovation Support Project" IBRD Loan number 8332-MK 3 Accounting policies Following are the principle accounting policies adopted in preparation of these financial statements. These accounting policies are consistently applied to all financial periods presented. Basis of preparation The accompanying financial statements have been prepared for the purposes of reporting to IBRD, on the activities of the Project related to the loan received for the completion of the Project's objectives, in accordance with the respective provisions set out in the Loan Agreement numbered 8332-MK signed between the IBRD and Ministry of Education and Science of the Republic of Macedonia. These financial statements are prepared on the cash receipts and disbursement basis and include all Project - related expenditures incurred, which are financed under the provisions set out in Loan Agreement numbered 8332-MK dated 7 February 2014. These instructions closely follow the World Bank's Disbursement Guidelines for Projects. The financial statements have been prepared for the period from 1 January 2016 through 31 December 2016. Currency translation All accounts are kept in Euro as this is the reporting currency of the Project. Transactions denominated in currencies other than Euro are translated using the buying foreign exchange rates of the National Bank of the Republic of Macedonia for international payment operations of the government bodies of Republic of Macedonia prevailing at the date of the transaction. O GrantThornton www*grant-thornton.com.mk