Report on the Project Financial Statements of the GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Financed by: - GEF Grant TF17727 For the year ended 31 December 2017 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina CONTENTS 1 Introduction 1 2 Independent Auditor's Report 3 3 Project Financial Statements for the year 2017 5 4 Notes to the Project Financial Statements 9 APPENDICES A l Designated account statement - 2017 - GEF Grant TF 17727 10 A.2 Designated sub-account statement - 2017 - GEF Grant TF 17727 11 A 3 Local bank account statement - 2017 - GEF Grant TF 17727 12 8.1 SoE Withdrawal Schedule of GEF Grant TF 17727 for the year ended 31 December 2017 13 C Reconciliation between World Bank's disbursement statements in USD and GEF Grant account in USD according to the balance sheet as of 31 December 2017; SoE Withdrawal Schedule of GEF Grant TF 17727 14 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction 1.1 Objective of the Project The Project's development and global environmental objectives are: (a) to reduce the discharge of pollutants with transboundary importance, particularly Nitrogen, in selected hot-spots of the eastern Adriatic Sea; and (b) to improve the capacity in the Republic of Croatia and Bosnia and Herzegovina to prepare pollution control projects in selected localities of Dalmatia and Herzegovina and to strengthen the capacity to monitor environmentally sensitive areas of the sea. 1.2 Components of the Project Component 1 - Demonstration investments to reduce nutrient discharges and improve water quality monitoring capacity (USD 2,05 million are GEF financing). This Component will finance: Design, supply, and installation of equipment for the reduction of nutrient discharges, including, inter alia, upgrading the leachate treatment plant in Mostar's landfill. The current disposal site in the landfill in Mostar is expected to be closed and replaced by a new one recently completed, which includes adequate lining and leachate collection, but no leachate treatment, thus offering an excellent opportunity to demonstrate the potential for leachate treatment. The new disposal site in the landfill will be operated by a newly created municipal company (J.P_ Deponija Mostar, do.o.). Component 2 - Technical Assistance (USD 0,20 million are GEF financing): This Component will finance consultant services for the preparation of proposals for funding by the EU, including all related analysis required by the EC, such as a Strategic Environmental Assessment of the overall program for leachate treatment; and the assessment of relative sources of nutrients to derive policy recommendations. Such TA is intended to reinforce the potential for replication of the demonstration investments and contribute to the launching of the overall regional Program for the Adriatic. These consultant services will be grouped in the following three activities: Consultant services to prepare preliminary designs and project documentation, including preparation of tender documentation to access European Union ("EU") funds, for investments in leachate and wastewater treatment and management to comply with EU requirements in selected locations in Herzegovina and Neum. The Government of BiH confirmed that Trebinje and Gacko in Eastern Herzegovina, Lise Livno, Glamoc and Posusje in Western Herzegovina, and Neum, on the Adriatic coast, would be eligible for this Project preparation facility, upon confirmation of availability of base documentation and compliance with requirements defined in the ESMF. Component 3 - Project Management and Dissemination (USD 0-19 million are GEF Financing): This component will finance for BiH PMT incremental operating costs incurred by the PMT on account of Project implementation, management, monitoring and supervision (as such expenditures are set forth in the PMT annual budget), including office supplies, office equipment maintenance, communications, evaluation and dissemination of technical solutions, Project results and lessons learned (through publications, web-supported instruments and workshops), travel and per diem, translation, audit reports, bank fees, vehicle operation and maintenance and salaries of the PMT staff (but excluding salaries of civil servants of the Recipient). 1 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction (continued) 1.3 Financing of the Project The Project is financed by GEF Grant TF 17727 in the amount of USD 2,440,000. Withdrawal of the Proceeds of the Grant for BiH Amount of the Grant Percentage of Expenditures Category Allocated (expressed in to be Financed USD) (inclusive of Taxes) (1) Goods, works, non- consulting services, and consultants' services under the Project in BiH 2,250,000 100% (2) Incremental Operating Costs (including_audit) 190,000 100% TOTAL AMOUNT 2,440,000 2 BAKER TILLY RE OPINION Baker Tilly Re Opinion d.o.o. Grbavitka 4 71000 Sarajevo Bosna i Hercegovina T: +387 (0) 33 552 150 F: +387 (0) 33 552 152 info@bakertillyreopinion.ba www.bakertillyreopinion.ba Independent Auditor's Report To the State of Bosnia and Herzegovina, Ministry of Finance and Treasury Attn. of Minister of Finance and Treasury H.E. Mr. Vjekoslav Bevanda Report on the Project Financial Statements Opinion We have audited the accompanying project financial statements of the Preparation for Adriatic Sea Environment Pollution Control Project (the "Project"), which comprise of Summary of sources and uses of funds, Balance sheet, Designated account statements, local bank account, Statements of Grant withdrawals as of and for the year ended 31 December 2017, and a summary of significant accounting policies and other explanatory notes for the year then ended, financed under GEF Grant TF 17727- In our opinion, the accompanying project financial statements present fairly, in all material aspects, the financial position of the Project as of 31 December 2017, and of the funds received and disbursed during the year then ended, in accordance with the cash basis of accounting based on International Public Sector Accounting Standard ("IPSAS"), as described in Note 4.1. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and "Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities" issued by FMSB. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Ministry of Finance and Treasury in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Project Financial Statements The management of project implementation unit is responsible for the preparation of these project financial statements in accordance with the cash basis of accounting based on IPSAS, as described in Note 4.1., Guidelines: Annual Financial Reporting and Auditing for World Bank- Financed Activities, and for such internal control as management determines is necessary to enable the preparation of project financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations or has no realistic alternative but to do so. 3 JIB 42009W55000S I PDV 0090550009 I Raffeisw Bank d.d. BH 1610O045270006 An independent member of Baker Tilly International Those charged with governance are responsible for overseeing the financial reporting process. Responsibilities for the Audit of Financial Statements Our objectives are to obtain reasonable assurance about whether the project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detected 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 scepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the project financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other requirements In addition, with respect to the Statement of Expenditure, adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditure incurred; and all expenditure included in withdrawal applications and reimbursed against are eligible for financing under the project. Signed o b alf f Baker Tilly Re Opinicnct-d.-S4ra evo Nihad Fe ic, Direc r and Certified AudOtor Ema Sinanovi6, Certified Auditor Sarajevo, 20 June 2018 4 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in IJSD, unless otherwise stated) 3. Project financial statements for the year 2017 3.1 Summary of sources and uses of funds under the GEF Grant TF 17727 and Other income Actual Cumulative Cumulative Cumulative Cumulative Ref. 2017 2017 2016 budget variance FINANCING GEF Grant TF 17727 3.1.1 36,859 256,311 219,452 2,440,000 2,183,689 Other income 3.1-2 4,886 4,886 - - (4,886) TOTAL FINANCING 3-2 41,745 261,197 219,452 2,440,000 2,178,803 PROJECT EXPENDITURE By Category (1) Goods, works, non- consulting services, and consultants' services under the Project in BiH 27,661 61,972 34,311 2,250,000 2,188,028 (2) Incremental Operating Costs (including audit) 20,223 42,223 22,000 190,000 147,777 TOTAL EXPENDITURE 3.2 47,884 104,195 56,311 2,440,000 2,335,805 PROJECT EXPENDITURE By Component (1) Demonstration investments to reduce nutrient discharges and improve water quality monitoring capacity - 34,311 34,311 2,050,000 2,015,689 (2) Technical Assistance 27,661 27,661 - 200,000 172,339 (3) Project Management and Dissemination 20,223 42,223 22,000 190,000 147,777 TOTAL EXPENDITURE 3.2 47,884 104,195 56,311 2,440,000 2,335,805 5 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) 3. Project financial statements for the year 2017 (continued) 3.1.1 Summary of sources and uses of funds under the GEF Grant agreement TF 17727 Actual Cumulative Cumulative Cumulative Cumulative Ref. 2017 2017 2016 budget variance FINANCING GEF Grant TF 17727 2,440,000 Initial deposit - 200,000 200,000 SoE replenishments 36,859 44,256 7,397 Direct payments - 12,055 12,055 TOTAL FINANCING 3.1 36,859 256,311 219,452 2,440,000 2,183,689 PROJECT EXPENDITURE By Category (1) Goods, works, non- consulting services, and consultants' services under the Project in BiH 27,661 61,972 34,311 2,250,000 2,188,028 (2) Incremental Operating Costs (including audit) 20,221 42,221 22,000 190,000 147,779 TOTAL EXPENDITURE 3.2 47,882 104,193 56,311 2,440,000 2,335,807 6 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) 3. Project financial statements for the year 2017 (continued) 3.1.2 Summary of sources and uses of funds under Other income Actual Cumulative Cumulative Cumulative Ref. 2017 2017 budget variance FINANCING VAT returns 4,886 4,886 - (4,886) Interest - TOTAL FINANCING 3.1 4,886 4,886 - (4,886) PROJECT EXPENDITURE By Category (1) Goods, works, non- consulting services, and consultants' services under the Project in BiH - - -- (2) Incremental Operating Costs (including audit) 2 2 - (2) TOTAL EXPENDITURE 3.2 2 2 - (2) 7 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) 3. Project financial statements for the year 2017 (continued) 3.2 Balance sheet as of 31 December 2017 showing accumulated funds of the Project and bank balances concerning World Bank funding 31 December 31 December Ref. 2017 2016 ASSETS Project expenditure under GEF Grant TF 17727 3.1.1 104,193 56,311 Project expenditure under Other income 3.1.2 2 - 104.195 56,311 Designated account - GEF Grant TF 17727 A,1 152,118 163,141 Designated sub-account - GEF Grant TF 17727 A.2 - - Local bank account - Other income A.3 4.889 - 157,007 163,141 Exchange rate difference (5) - Total assets 261,197 219,452 LIABILITIES GEF Grant TF 17727 C 256,311 219,452 Other income 4.886 - 3.1 261,197 219,452 Total liabilities 261,197 219,452 Signed and authorised by: Jovnka Aleksid Dijana/bangubid Project Coordinator Financial Officer Sarajevo, 20 June 2018 8 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) 4. Notes to the project financial statements 4.1 Basis of preparation and accounting records These project financial statements have been prepared in accordance with the International Public Sector Accounting Standard: "Financial Reporting under the Cash Basis of Accounting" issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the accounting policies below, which have been consistently followed in all material respects and comply with the "Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities", issued by the Financial Management Sector Board. 4.2 Accounting policies The Project's fiscal year is January 1 to December 31 for the recording of all transactions. Cash basis of accounting All receipts and expenses under GEF Grant are recorded on actual receipt and payment basis of accounting as per approved categories. Project expenditure is stated at original cost on the balance sheet. Direct payments Direct payments concern the amounts paid directly from the Grant account of the World Bank. Statement of Expenditure (SoE) Statements of Expenditure are used to state the expenditure under GEF Grant during a certain period. These statements are sent to the World Bank's disbursement department who authorises the payment of the expenditure through the Designated accounts. Currency conversions The reporting currency is USD. Sources and use of funds (payments to suppliers and contractors) in currencies other than USD have been converted to USD using the currency rate at the moment of the transaction. Bank balances, recorded on the balance sheet at year-end, have been converted at year-end rate. Designated accounts This is the total amount of the withdrawals from the Grant account for the Project. The Grant account is in USD Interest on Designated account Interest earned on the Designated account belongs to the Borrower. 9 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USO, unless otherwise stated) APPENDIX A.1 DESIGNATED ACCOUNT STATEMENT Account owned by: Ministry of Finance and Treasury of Bosnia and Herzegovina Account No.: BA 391994990031597960 Depository Bank: Sparkasse Bank d.d. BiH Address: Zmaja ad Bosne 7, Sarajevo Related Credit: GEF Grant TF 17727 Currency: USD Ref. USD Opening balance 1 January 2017 163,141 Add: World Bank's replenishments B 36,859 36,859 Deduct: Payments to suppliers - Expenditure under GEF Grant TF 17727 74 Transfer to Designated sub-account - GEF Grant TF 17727 A.2 47,808 47,882 Ending balance 31 December 2017 3.2 152,118 10 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) APPENDIX A.2 DESIGNATED SUB-ACCOUNT STATEMENT Account owned by: Ministry of Finance and Treasury of Bosnia and Herzegovina Account No.: 1994990031597960 Depository Bank: Sparkasse Bank d.d. BiH Address: Zmaja od Bosne 7, Sarajevo Related Credit: GEF Grant TF 17727 Currency: BAM Ref. BAM USD Opening balance 1 January 2017 Add: Transfer from Designated account - GEF Grant TF 17727 A.1 79,785 47,808 79,785 ___747,808 Deduct: Payments to suppliers - Expenditure under GEF Grant TF 17727 79,785 47,808 79,785 47,808 Ending balance 31 December 2017 3.2 -- 11 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) APPENDIX A.3 LOCAL BANK ACCOUNT STATEMENT Account owned by: Ministry of Foreign Trade and Economic Relations of B&H Account No.: 3387302205068988 Depository Bank: UniCredit Bank d.d. Address: Kardinala Stepinca b-b., Mostar Related Credit: Other income Currency: BAM Ref. BAM USD Opening balance 1 January 2017 3.2 - - Add: VAT returns 7,977 4,886 Interest - - 7,977 4,886 Deduct: Payments to suppliers - Expenditure under Other income 4 2 Exchange rate gain (5) 4 (3) Ending balance 31 December 2017 3.2 7,973 4,889 12 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) APPENDIX B SoE Withdrawal Schedule of GEF Grant TIF 17727 for the year ended 31 December 2017 Goods, works, non- Incremental consulting Operating Initial services, and Costs Total deposit consultants' application disbursed services (udino under the Project in BiH Previous periods 200,000 34,311 22,000 56,311 219,452 Application 4* - - - 36,859 Application 5" - - - 27,661 20,221 47,882 - Total SoE applications - 27,661 20,221 47,882 36,859 Total 2017 - 27,661 20,221 47,882 36,859 Cumulative 2017 200,000 61,972 42,221 104,193 256,311 * Application No.4 was replenished in 2017, but expenses were made in 2016. Application No.5 was replenished in 2018, but expenses were made in 2017. 13 GEF ADRIATIC SEA ENVIRONMENTAL POLLUTION CONTROL PROJECT (1) of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2017 (all amounts in USD, unless otherwise stated) APPENDIX C Reconciliation between World Bank's disbursement statements in USD and GEF Grant account in USD according to the balance sheet as of 31 December 2017; SoE Withdrawal Schedule of GEF Grant TF 17727 Changes in GEF Grant (in USD) Original amount 2,440,000 Disbursed in previous years 219,452 Withdrawal 4 36,859 Total disbursed in 2017 36,859 Cumulative disbursements 255,311 Calculated undisbursed balance as of 31 December 2017 2,183,689 Undisbursed balance as per World Bank Summary for December 2017 2,183,689 14