ADVISORY - AUDIT TAX ACCOUNTING MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT "PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT" PROJECT CODE: P152932 GRANT NUMBER: TFA1783 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Now, for tomorrow bakertilly MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 INDEX TO FINANCIAL STATEMENTS Page General Information 2 Project background 3-6 Project performance overview 7-10 Project Management Unit responsibility statement and approval of project financial statements 11-12 Independent auditor's report 13-15 Statement of cash receipts and payments 16 Statement of accumulated cash funds 17 Budget versus Actual Expenditure Analysis 18 Notes to the Financial Statements 19 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 GENERAL INFORMATION Project Name: Public Financial Management Enhancement Project Project Number: P152932 Project Objective: The objective of the project is to improve control, transparency and accountability, and oversight in the use of public resources in the Recipient's territory. The project will contribute to enhancing fiscal discipline, strategic allocation of resources, and service delivery efficiency, through strengthened systems, procedures, and targeted capacity building. Donor: World Bank Beneficiary: Government of Zimbabwe Project Steering Committee Members: Daniel Muchemwa (Ministry of Finance and Economic Development) Edwin Zvandasara (Ministry of Finance and Economic Development) Masauso Kaliati (Ministry of Finance and Economic Development) Sadwell Kanyoza (Ministry of Finance and Economic Development) Vongai Shiri (Office of Auditor General) Spears Mutsau (Office of Auditor General) Kennedy Chokuda (Parliament of Zimbabwe) Nesbert Samu (Parliament of Zimbabwe) Project Management Unit Members: Gift Madzonga (Program Manager) Linda Chiparausha (Program Assistant) David Munemo (Procurement Officer) Ratidzai Machawira (Monitoring & Evaluation Specialist) Bornface Chiyangwa (Budget and Finance Officer) Tatenda Nyakunu (Program Assistant) 2 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT BACKGROUND 1. Project Information a) Background Information The project development objective is to improve control, transparency and accountability, and oversight in the use of public resources in the Recipient's territory. The project will contribute to enhancing fiscal discipline, strategic allocation of resources, and service delivery efficiency, through strengthened systems, procedures, and targeted capacity building. b) Project Components Component 1: Financial Management and Accounting The activities to be financed include (a) rollout of the Business Planning and Consolidation module, to support budget compilation; (b) procurement of the hardware for the PFMS; (c) pilot rollout of the PFMS to urban councils; (d) implementation of SAP payroll integrated with the establishment registers and migration of data from the legacy system; (e) review of regulations and manuals; (f) service-level agreements for system maintenance; (g) support for the renovation of the IFMIS server room, data entry centers, and the IFMIS disaster recovery center; and (h) support for the Government's initiative to fully align the financial reporting system to international standards (cash basis IPSAS). The component will strengthen financial compliance with the budget, financial regulations, and procedures and hence improve fiscal discipline and controls. It will also improve the timeliness and comprehensiveness of financial reports for enhanced transparency and accountability. System infrastructure upgrade will enhance availability of the system for carrying out financial management operations across the country. The technical trainings will ensure enhanced sustainability of the system support in its operations. Component 2: Enhance Effectiveness of Internal Controls and Internal Audit The objective of this component is to strengthen internal oversight and controls by enhancing effectiveness of internal audit to ensure compliance with rules and regulations and contribute to effective service delivery. Outcomes will involve (a) strengthening the capacity of the treasury (Ministry of Finance and Economic Development) in playing a nodal role in internal audit function in the Government by upgrading the function to that of a central agency or unit (controller or director of internal audit) with the mandate to coordinate internal audit in the Government; (b) putting systems in place to ensure that audits are performed according to the new Internal Audit Manual; (c) supporting or conducting training needs analyses to identify gaps in general audit and technical skills related to specific ministries' internal audit; (d) developing competencies of staff through trainings in basic-, specialist-, and professional-level skills in specific types of auditing (including compliance audits, performance audits, and financial audits), with specific attention to equal opportunities in participation in training and in deployment of staff once trained; (e) enhancing the capabilities of internal auditors to audit by interrogating data from the IFMIS and other IT systems; (f) mainstreaming risk-based audit process in internal audit function; (g) leveraging technology in the audit organization through use of modern tools-including computer-assisted auditing tools; (h) enhancing professionalism in the internal audit function by acquisition of relevant professional certifications by auditors; and (i) supporting collaboration and knowledge Sharing in internal audit. 3 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT BACKGROUND Continued.... Component 3: Enhance Accountability through Strengthening of External Audit The objective of this component is to strengthen the Office of the Auditor General (OAG) to deliver high quality audit products, on its enhanced mandate (as provided for by the Constitution), which covers all Ministry District Agencies (MDAs) of Government, public entities, and rural and urban local authorities. This component will involve (a) supporting improved collaboration of the OAG with private sector auditing firms to conduct comprehensive audits for, and on behalf of, the OAG, which focus on service delivery and performance of the audit identity as well as financial and compliance aspects. This will require development of processes and checklists by the OAG and workshops to orientate the firms in public sector auditing and retraining of the audit staff in coordinating and supervising audits to be undertaken by private sector auditors; (b) encouraging use of customized Performance Audit Manual and Financial and Regularity Audit Manual through training and dissemination; (c) training and implementation of audit work flow automation, through the audit flow developed by the African Organization of Supreme Audit Institutions-Anglophone Countries (AFROSA-E); (d) supporting or conducting self- assessment on compliance with the use of International Standards for Supreme Audit Institutes (ISSAIs) using the iCAT tool of the International Organization of Supreme Audit Institutions (INTOSAI); (e) training in International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS), and specialized audits of local authorities; (f) enhancing skills in auditing the IFMIS (SAP- based) systems; (g) helping the OAG audit the IFMIS SAP integrity annually and contract appropriately for integrity testing of SAP every two years by a suitably expert external party; (h) piloting new audit practices in foreign missions; (i) developing and implementing risk management processes in the OAG; (jtraining in procurement audits, revenue audits, and the audit of extractive industries; (k) supporting efforts of the AG to enhance audit visibility and citizen partnership; (I) enabling the OAG staff to acquire professional skills and certifications; (m) supporting improved logistics and hardware acquisition; (n) acquiring and rolling out an audit report monitoring system and electronic records management system; (o) supporting the development of a strategic plan by the OAG; (p) facilitating networking and knowledge transfer with other supreme audit institutions(SAls); (q) facilitating stronger dialogue with stakeholders, including the Public Accounts Committee (PAC) accountancy professional bodies, the public, and donors; and (r) acquiring and using Computer Assisted Auditing Techniques (CAATs) for data extraction and analysis. In addition, the project will provide other technical and logistics support required for the OAG in performing its legal mandate. Component 4: Strengthening the Demand Side of Transparency and Accountability The objective of this component is to strengthen the demand side of transparency and accountability by enhancing the parliament's role in Public Financial Management, including increased collaboration with other demand-side actors. This component will focus on strengthening the parliaments role in Public Financial Management through oversight of the budget at the central and local levels of Government, in collaboration with other demand-side actors, by (a) providing training, study visits, attachments, participation to practitioner knowledge exchange events, and workshops to enhance the technical, procedural, and administrative capacity and coordinating arrangements of the Finance and Economic Development Committee (FEDC) and Public Accounts Committee (PAC); (b) financing extended sittings and technical support for the FEDC and 4 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT BACKGROUND Continued.... PAC to enable them to meet their respective terms of reference (ToR) and conduct their committee business and oversight functions; (c) providing training for portfolio committees on oversight of budget implementation or execution; (d) providing technical assistance (TA) to develop and customize toolkits to support committee business; (e) enabling the parliamentary secretariat to acquire professional certificates and provide Training of trainers (ToT) workshops for the secretariat to train new committee members; (f) setting up a Parliamentary Budget Office (PBO) to provide clerks with support, procedural guidance, and technical analysis to the parliament through strategic support, procurement of hardware, training, and participation in global practitioner network knowledge exchange events; (g) financing procurement of hardware and Internet connectivity to support the business of committees, secretariat training, and the Parliamentary Program Coordination Unit; and (h) supporting collaboration between the parliament, the media, and civil society to enhance transparency, accountability, and gender responsiveness across the budget process at the central Government and local levels, including training events, briefings, public consultations and hearings, and procurement of vehicles to facilitate travel. It will explore the scope for collaboration between the parliament and civil society on gender aspects of PFM. Component 5: Public Financial Management Enhancement Project (PFMEP) Management The objective of this component is to provide the administrative and operational structure for the seamless management and coordination of implementation of project activities by the various component managers. This structure will provide technical leadership in articulating, guiding, and monitoring the overall PFM reforms across the Government. The component will manage the agreed development program, provide expertise in procurement and financial management support to the implementing departments, and monitor objectives and performance against the indicators (including equal opportunities indicators). The existing Project Management Unit at the Ministry of Finance and Economic Development, currently comprising consultants and civil servants, will be responsible for the financial management of the overall trust fund program. Capacity building is required, both through staff training and through additional appointments, to support the main functions of the unit. Additional work to ensure that that there is gender balance in the training and in the project cycle as a whole will be financed from this component. The program will also work with the Support to Poverty Analysis and ZIMASSET M&E TA also ZIMREF- financed, to identify public finance indicators that are critical for gender-issues. In addition to the results framework, a Public Expenditure and Financial Accountability (PEFA) assessment will be conducted at the start of the project (early 2016) to set the baseline and the PEFA assessment will be repeated just before the closing date of the project to measure progress. The main activities will include the following: (a) Procurement of a full complement of professional staff required for the unit either through transfer from other units or through contract appointments; (b) Purchase of any office equipment urgently required and other expenses directly relating to the project; (c) Training in project management, procurement and/or financial management, and gender mainstreaming, as required; (d) Two PEFA assessments, a baseline assessment at the start and another before the closing date to measure progress; and (e) Annual auditing of the project. 5 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT BACKGROUND Continued.... c) Project costs and funding arrangements The project is being financed through the ZIMREF and will complement other donor projects that focus on instilling policy and institutional changes leading to improved PFMS. The choice of the financing instrument is premised on the recognition by the Bank and the Government that it will most appropriately respond to the Specific PFMS reform implementation needs of the Government, especially during the current non-accrual state of the country. The budget was initially envisaged to USD20 million but was later revised to USD10 million as detailed below: Component Initial Revised Budget budget WUU SDD 1. Financial Management and Accounting 6,800,000 51300,000 2. Enhance Effectiveness of Internal Controls and Internal Aujdit3,000 13400 3,200,000 1,340,000 3. Enhance Accountability through Strengthening External Audit 5,000,000 1,500,000 4. Strengthening the Demand Side of Transparency and Accountability 3,000,000 860,000 5. PFMEP Management 2,000,000 1,000,000 TOTAL20,000,000 10,000,000 6 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT PERFORMANCE OVERVIEW The Project Implementation rate stood at 44% as at 31 December 2018 and the detailed progress per component as outlined below. Component 1: Financial management and accounting During 2018 the following activities were undertaken under this component: There were twenty-two (22) activities implemented in Component 1. Most of the activities have been initiated and are under implementation, with several of them at an advanced stage of implementation. Major strides were made through the signing of contracts for PFMS expansion. These include the BI/BPC/Web Portal contract; pilot rollout of 6PFMS kiosks; PFMS interface with ZIMRA and DMFAS as well as rollout of IFMIS to capture donor funded projects and large statutory funds. There was also capacity building through SAP Certification, Grants Management Module training and PFMS end user training at the districts where pilot kiosks are located. The SAP Business Intelligence (BI) module is now fully installed and 12 out of 87 reports are being produced. These are Global Fund grant reports for the Ministry of Health. The Ministry's users and other stakeholders have expressed satisfaction with the reports being produced. A VPN connection was established between ZIMRA and PFMS. The technical team is working towards resolution of the connectivity challenges so that the interface can go live. The PFMS interface with ZIMRA is expected to improve financial information accessibility for efficient accounting and decision making on fiscal revenue mobilization and collection efforts. There are now seven (7) grants that are live in the PFMS after 3 more (Education Development Fund; Global Partnership for Education and; Trade Related Facility) went live in 2018. The Ministry of Health also began using the Grants Management module at District levels for the Global Fund after end users underwent training of PFMEP. Two (2) more grants configured in 2018 are awaiting internal processes within their line ministries, including budgets approval before they can go live. Six (6) pilot PFMS kiosks went live in Murewa, Rusape, Chiredzi, Kadoma, Esigodini and Gwanda. District users with profiles are now able to log onto the PFMS and enter transactions on the system. PFMEP supported the establishment of the kiosks through procurement of furniture, Cisco switches, refurbishment material, workstations UPS, IP phones and printers as well as setting up, including LAN connectivity and end user training. Eleven (11) Government officials successfully underwent technical certification in SAP, marking a 61% pass rate - with 10 in BPC and 1 in ABAP. The certified staff have been able to play key technical roles in the PFMS expansion programme. Three (3) members from the Accountant General's Financial Accounting and Reporting team (FAR) and 1 person from the PFMS unit were assigned to join the contractor, Twenty Third Century. 7 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT PERFORMANCE OVERVIEW Continued.... Systems (TTCS) BI development team. During the 3rd quarter, the team was able to demonstrate the first report. Also, in the development of the ZIMRA/PFMS interface, the ABAP GoZ officer and the ZIMRA Team worked closely with TTCS, adding their technical input and to allow continuity and sustainability. Total expenditure for the year was $1 597 492 marking a cumulative absorption rate of 38% for the Component. Component 2: Enhance effectiveness of internal controls and internal audit In Component 2, there was implementation progress in five (5) out of the 27 activities. These were professional certification of internal auditors, attendance at the IIA annual conference, procurement of ICT equipment, procurement of Computer Aided Audit Tools (CAATs) and development of the new Chart of Accounts. In May 2018, a dedicated team of two (2) Accountants (one at Principal level), supervised by the Deputy Accountant General were assigned to work on Internal Audit coordination at a national level until a new structure is set up to take over that function. This is an interim measure as MoFED awaits response from the Public Service Commission on a proposal to consider authorising the establishment of a central internal audit structure in the Treasury. The 2 officials have also been spearheading activities under Component 2. A National Steering Committee was appointed to have oversight of the IPSAS implementation. Membership comprises representation from the Office of the President and Cabinet, Permanent Secretaries from pilot ministries, including the Ministry of Local Government, Public Accountants and Auditors Board, Public Accounts committee and Academic. Project Implementation Team (PIT), comprising of representatives from the Ministry of Finance and Economic Development, Public Accountants and Auditors Board (PAAB) and Ministry of Local Government and Public Works as well as a task force from the Accountant General's Department were set up to lead the delivery of the IPSAS implementation straiegy and plan. Their role is to develop and monitor the implementation of an overall roadmap (that will inform sectoral roadmaps) to deliver the IPSAS Implementation Strategy & Plan. Total expenditure for the year was $278 544 marking a cumulative absorption rate of 27% for the Component. Component 3: Enhance accountability through strengthening of external audit There were 11 activities carried out under Component 3. These were mostly capacity building for auditors in areas including IT, audit of Public Debt, professional certification as well as Supreme Audit Institution (SAl) programmes. Office of the Auditor General (OAG) also procured CAATs in conjunction with Component 2. 8 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT PERFORMANCE OVERVIEW Continued.... The Auditor General submitted annual audit reports FY2017 for tabling in Parliament on the 26th of June. The audit reports were then tabled before Parliament on October 30, 2018. In addition to the audit reports on Appropriation Accounts, Local Authorities and State Enterprises and Parastatals, OAG produced a Follow up Audit Report. According to the follow up report, Ministries and Government departments made some reasonable progress in implementing recommendations made in the 2016 report. Out of 353 recommendations made, 69% had been implemented with 31% having been implemented in full by 28 February 2018. The Auditor General also submitted three (3) Performance Audit reports to Parliament. Two reports were tabled in 2018 and Parliament adjourned before tabling of the third report. Four reports sponsored under PFMEP were completed by December 2018 and are expected to be tabled in 2019. Total expenditure for the year was $412 256 marking a cumulative absorption rate of 63% for the Component. Component 4: Strengthening the demand s-de of transparency and accountability Most of the activities in Component 4 were carried out as planned. These were aimed at strengthening the role of the Parliament in budget formulation and enactment; strengthening the PBO; enhancing the Parliament's oversight of budget execution and strengthening Parliamentary logistics and interface with citizens to enhance stakeholder collaboration. The Public Accounts Committee (PAC) concluded analysis of audit reports FY 2016 in March 2018, eight months after the reports were tabled in Parliament in June 2017. PAC tabled three (3) reports before Parliament which are: (i) the Ministry of Health's 2015 Appropriation Accounts and the 2011 to 2014 Fund Accounts; (ii) the Examination of the Appropriation and Fund Accounts for the Ministry of Higher and Tertiary Education, Science and Technology Development and; (iii) the Examination of the Value for Money Report on Land Utilisation and Management of Estates by Agricultural and Rural Development Authority (ARDA). In the first report the Committee tabled 13 recommendations for implementation by the Ministry of Health. The second report had 12 recommendations for implementation by the Ministry of Higher Tertiary Education and the third report had 5 recommendations for implementation by the Executive. In 2018 the life of the 8th Parliament came to an end with the effecting of the 2018 harmonized elections. This brought forth the new life of the 9th Parliament which commenced with the swearing in of 350 MPs with (120 female) MPs and Senators on 5 September 2018 as per the Constitutional provisions of Section 128(1) of the Constitution of Zimbabwe Amendment No. 20 of 2013.The Finance and Economic Development Committee and the SDG Committee carried out public consultations for the 2019 National Budget. A total of seventeen (17) meetings were held in 10 provinces. 1285 Citizens (48% female) participated in the consultations. 9 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT PERFORMANCE OVERVIEW Continued... The Pre Budget-Seminar, Budget Presentation and Post Budget Seminar were also done in 2018. The Budget was presented to Parliament by the Minister of Finance on 22 November and a total of 56% recommendations from consultations were adopted. National budget processes led to the Finance Bill and the Appropriation Bill being passed from the National Assembly to the Senate at the close of 2018 before being sent for assent oy the President of Zimbabwe. Total expenditure for the year was $239 262 marking a cumulative absorption rate of 55% for the Component. Component 5 For C5, Project management salaries took up the highest amount of expenditure, followed by support for set up of the pilot kiosks, ICT equipment and furniture as well as office operating costs. The PFMEP missions held in 2018 mainly reviewed implementation, provided support to the project teams as well as following up on the FEFA Assessment. A midterm review mission was held in April and informed restructuring of the project. The project was restructured due to the reduced resource envelope that is now at USD10 million down from USD20 million. Component teams re-prioritised their activities considering adjusted cost ceilings and the Results Framework was adjusted to be consistent with the reduced resource envelope, to focus on key priorities, and to be closer aligned with the actual activities and improvements supported. Findings from the second Public Expenditure and Financial Accountability (PEFA) assessment also informed the restructuring. Total expenditure for the year was $447 738 marking a cumulative absorption rate of 56% for the Component. 10 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT MANAGEMENT UNIT RESPONSIBILITY STATEMENT AND APPROVAL OF FINANCIAL STATEMENTS The Project Management Unit (PMU) is responsible for the preparation and fair presentation of the annual project financial statements of the Public Financial Management Enhancement Project ("the Project"), comprising the statement of cash receipts and payments, statement of accumulated cash funds, statement of sources and application of funds and statement of expenditures and withdrawals for the period ended 31st December 2018, and the notes to the project financial statements, which include a summary of significant accounting policies and other explanatory information, in accordance with International Public Sector Accounting Standards ("I PSAS") cash basis accounting policies. The project management unit is required by the Public Finance Management Act ("PFMA") [Chapter 22:19] and the Bank's General Conditions to maintain sufficient accounting records and is responsible for the content and accuracy of related financial information included in this report. The project management unit is further responsible for ensuring that the project financial statements fairly present the state of affairs of the project as at the end of the project period and the results of its operations and cash flows for the period then ended, in conformity with IPSAS cash basis accounting policies. These project financial statements have been prepared in accordance with IPSAS cash basis accounting policies and are based upon appropriate accounting policies consistently applied. The Project Management Unit is responsible for the designing, implementing and maintaining of internal controls relevant to the preparation and fair presentation of these project financial statements to ensure that they are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The project management unit is of the opinion that the financial statements give a true and fair view of the state of the project financial position as at 31 December 2018. The project management unit further confirm the completeness of the accounting records maintained for the project which have been relied upon in preparing the financial statements as well as on the adequacy of the internal controls. The Project Management Unit also confirms that the project has materially complied with the terms and conditions of the grant agreement and applicable government regulations, and that the project funds received during the financial year were used with due care to economy, efficiency and for intended purposes and were properly accounted for. 11 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PROJECT MANAGEMENT UNIT RESPONSIBILITY STATEMENT AND APPROVAL OF FINANCIAL STATEMENTS Continued.... Approval of the annual project financial statements by the project management. The financial statements for the period ended 31 December 2018, as presented on pages 16 to 19 were approved by the project management unit and were signed, on their own behalf, by: Programme Manager Daniel Muchemwa Chairperson of Steering Committee Date I..0. OLDate..q IDat1 12 bakertilty Chartered Accountants (Zimbabwe) 8 Fletcher Road Mt Pleasant Harare Zimbabwe T: +263 4 369 730, 369 737, 301 598, 301 537 enquiries@bakertilly.co.zw www.bakertilly.co.zw Independent Auditor's Report To the Ministry of Finance and Economic Development Report on the Audit of the Financial Statements Opinion We have audited the financial statements of the Ministry of Finance and Economic Development, Project Management Unit - Public Financial Management Enhancement Project for the year ended 31 December 2018, which comprise the sta'9ment of receipts and payments, statement of accumulated cash funds, statement of sources and application funds and the budget versus actual analysis for the period ended 31 December 2018, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements of the project for the year ended 31 December 2018 are prepared, in all material respects, in accordance with the International Public-Sector Accounting Standards (IPSAS) cash basis accounting policies as set out on note 1. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of the financial statements section of our report. We are independent of Public financial management enhancement project in accorda-ce with the International Ethics Standards Board for Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of financial statements in Zimbabwe and we have fulfilled our other ethical responsibilities under these ethical requirements and IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter - Restriction on Use The financial statements have been prepared in accordance with the basis of accounting described in note 1 for the purposes of providing information to the Government of Zimbabwe and World Bank. Consequently, the financial statements and the related auditor's report may not be suitable for any other purpose. SJ3 ADVISORY * AUDIT * TAX * ACCOUNTING Baker Tilly Chartered Accountants 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. Responsibility of Management for the Financial Statements The Project Management Unit is responsible for the preparation and fair presentation of these financial statements in accordance with the International Public Sector Accounting Standards (IPSAS) as set out on note 1, for purposes of providing information to the Ministry of Finance and Economic Development and the World Bank. This responsibility inciudes designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; selection and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibilities for the Audit of the Financial Statements The objectives of our audit 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 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the planning and performance of 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 entity's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * 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 Project Management Unit members 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. We also provide the project management unit members with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Report on legal and other regulatory requirements As required by the Public Finance Management Act (Chapter 22:19) we report to you, based on our audit, that: a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. b. In our opinion proper books of accounts have been kept by the Project Management Unit, so far as appears from our examination of those books; and c. The Project's statement of cash receipts and payments and statement of accumulated cash funds agree with the books of accounts. 14 In our opinion, the financial statements have been drawn up to comply, in all material respects with the disclosure requirements of the relevant statutory requirements. Practising Member: Phibion Gwatidzo PAAB Practising Number: 0365 Baker Tilly Chartered Accountants (Zimbabwe) 8 Fletcher Road Mount Pleasant Harare Date: ........ 15 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT FINANCIAL STATEMENTS FOR YEAR ENDED 31 DECEMBER 2018 STATEMENTS OF RECEIPTS AND PAYMENTS AS AT 31 DECEMBER 2018 Receipts World Bank 193,414 1,222,327 3,256,433 4,672,174 Other Income 280 - 280 Total Receipts 193,694 1,222,327 3,256,433 4,672,454 Payments Services 188,670 1,207,326 2,975,292 4,371,288 Total Payments 188,670 1,207,326 2,975,292 4,371,288 Balance 5,024 15,001 281,141 301,166 16 MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT FINANCIAL STATEMENTS FOR YEAR ENDED 31 DECEMBER 2018 STATEMENT OF ACCUMULATED CASH FUNDS 2017 us (s Opening Special Account Balance 2017 5,024 Direct Payments 5 Special Account Disbursements 1,222,327 Expenditure (1,207,326) Closing Special Account Balance 2017 20,025 2018 Opening Special Account Balance 2018 20,025 Special Account Disbursements 3,256,433 Expenditure 2,975,292 Closing Special Account Balance 301,166 Represented By: iReserve Bank of Zimbabwe Designated Account 301,166 17 � _,< < ._.,_ _ _. 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J � �f г� а � v.- с `N в �' Uаг �"' с о� �-'''"Ш F-О а�� а � �� � т � � �, zU� и а, ;� ��с ш с�'i �; ❑ ш � с , й.г� и � � и о� ��, � � Q и ш � �� �� с Q� �' г .� � � � � с Q � � и _ � F V U ш 0 ����� U � и �� � Ш �' г� J г С7 :. с�а �� со са п, с� с �. J' г�? � о ii °ц� ш�а � о�.й� ° Ш О с> � ' Ш � с� � rг a L� т U �- Q cV � Q rэ � Q V�и N цi' H i MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT PUBLIC FINANCIAL MANAGEMENT ENHANCEMENT PROJECT (PFMEP) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies of the project, which have been consistently followed in all material respects, are set out below. 1.1 Basis of Accounting The Financial Statements are prepared in terms of the cash basis accounting principles. The principal accounting policies adopted in the preparation of these financial statements have been consistently followed in all material respects and comply with World Bank rules and regulations. 1.2 Going Concern Assumption The Project is expected to close on 30 June 2019 hence it can still be assessed as a going concern. 1.3 Donor Funded Income The income was donated under the Zimbabwe Reconstruction Fund (Zimref). This income is accounted for on a receipts basis and is not accrued. Expenditure is recognized as and when paid, 1.4 Expenditure Expenses are accounted for on a disbursement's basis of accounting. 1.5 Currencies The financial statements are expressed in US Dollars which is the entity's presentation and functional currency. 1.6 Disbursement and Funds flow arrangements Disbursement shall be predominantly through the Direct Payment method that is through the World Bank particularly so for technical assistance and equipment related expenditure. A separate USD Account has been opened with the Reserve Bank of Zimbabwe. This Account is meant for other expenditure for which the direct Payment method is unfeasible and covers mainly per diems for beneficiary institution staff going for training and miscellaneous training materials as may be applicable. 1.7 Taxation The project is exempt from taxation in terms of third schedule of the Income Tax Act [Chapter 23.06] 19