Supreme Audit Office Government of Islamic Republic of Afghanistan AUDIT REPORT To The President of the Government of Islamic Republic of Afghanistan. Report on the Financial Statements 1. We have audited the accompanying statements of Cash Receipts and Payments (the "Financial Statements") of the Second Education Quality Improvement Project (EQUIP-11), bearing World Bank Project ID number P106259, comprising Grant Agreement numbers H- 3540 and TF-93962 (hereinafter referred to as the "Project") for the year ended 30 Qaws of Solar Year 1394 (21 December 2014 to 21 December 2015), and a summary of significant accounting policies and other explanatory notes. The Ministry of Finance's Responsibility for the Financial Statements 2. The Ministry of Finance (the "Ministry") is responsible for preparation and fair presentation of the Financial Statements in accordance with International Public Sector Accounting Standard "Financial Reporting under the Cash Basis of Accounting." This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that is 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. 3. The Ministry's policy is to prepare the accompanying financial statements on cash receipts and payments basis. On this basis revenue is recognized when received rather than when earned, and expenses when paid rather than when incurred. Auditor's Responsibility 4. Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with the international Organisation of Supreme Audit Institutions (INTOSAI) standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance on whether the financial statements are free of material misstatement. P"age I of 3 amounts and 5. An audit involves performing procedures to obtain audit evidence about the depend on the auditor's disclosures in the financial statements. The procedures selected material misstatement of the financial judgement, including the assessment of the risks of assessments, internal statements, whether due to fraud or error. In making those risk statements is control relevant to the entity's preparation and presentation of financial considered in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of internal c An audit also includes evaluating the appropriateness of accounting policie reasonableness of accounting estimates made by management, as well as v I presentation of the financial statements. a ro 6. We believe that the audit evidence we have obtained is sufficient an provide a basis for our opinion. Opinion 7. In our opinion, the financial statements present fairly, in all material respects, bearing receipts and payments of the Second Education Quality Improvement Program, 1394 (22 World Bank Project ID number P106259, for the year ended 30 Qaws of Solar Year Public Sector December 2014 to 21 December 2015), in accordance with International Accounting Standard "Financial Reporting under the Cash Basis of Accounting". Report on Compliance The Ministry of Finance's Responsibility for Compliance presentation of the financial 8. In addition to the responsibility for the preparation and for ensuring that the statements described above, the Ministry of Finance is also responsible the financial statements are in activities, financial transactions and information reflected in referred to as the "Financing compliance with the following grant agreements (hereinafter Agreements"): entered into between the Grant Agreement Number H-3540-AF, dated 10 March 2010, Association, for the Islamic Republic of Afghanistan and the International Development Special Drawing Rights (SDR provision of eighteen million nine hundred thousand 18,900,000) funding to the Project; and Number TF-93962-AF, - Afghanistan Reconstruction Trust Fund (ARTF) Grant Agreement of Afghanistan and the dated 14 April 2009, entered into between the Islamic Republic International Development Association, for the provision of two hundred and eighty three million United States Dollars (USD 283,000,000) funding to the Project; Auditor's Responsibility on Compliance on the financial statements 9. In addition to the responsibility to express an opinion whether the activities, described above, our responsibility includes expressing an opinion on financial statements are, in all financial transactions and information reflected in the This responsibility includes material respects, in compliance with Financing Agreement. about whether all cash payments and performing procedures to obtain audit evidence Page 2 of 3 receipts are in compliance with the terms and conditions of Financing Agreement. Such procedures include the assessment of the risks of material non-compliance. to 10. We believe that the audit evidence we have obtained is sufficient and appropriate provide a basis for our opinion on compliance. Opinion on Compliance 11. In our opinion, in all material respects, the activities, financial transactions and and information reflected in the financial statements are in compliance with the terms conditions of Financing Agreements. Other Matters - Restriction on Use in 12. As indicated above, the statements of cash receipts and payments are prepared accordance with the International Public Sector Accounting Standard "Financial Reporting under the Cash Basis of Accounting" and may not suit another purpose. of the 13. This report including our opinion is intended solely for the information and use President of the Islamic Republic of Afghanistan and the International Development or assume Association and should not be used for any other purpose. We do not accept whom this report is shown or responsibility for any other purpose or to any other person to into whose hands it may come. Other Matters - Internal Control Deficiencies in internal 14. During the audit of the financial statements, we noted certain weaknesses in the controls and other operational matters which have been disclosed to the Ministry weaknesses, Management Letter relating to the audit of the Fiscal Year 1394. These observations and recommendations, all of which have been discussed with the Ministry, are intended to improve internal control or result in other operating efficiencies. Dr. Mohammad Sharif Sharifi u General Afghanistan N If uRq Audit Office Ka ul, Afghanistan June 2016 Page 3 of 3 Second Education Quality Improvement Program & 93962 World Bank Reference: Project ID P106259; Grant 11 H3540 APPENDIX A2 US Dollar SPECIAL ACCOUNT SUMMARY FOR THE YEAR ENDED 30 QAWS 1394 (21 DECEMBER 2015) Da Afghanistan Bank (DAB) Depository Bank: Kabul Address: A/C 271249 A/C 27313 14,111 18,291,446 Opening Balance as per Bank Statement Add: World Bank Replenishments 37439,214 Credits against refunds deposited into other accounts in last year 3,414,897 12,405 40,854,111 Total Additions Deduct: 42,959,213 Payment for Project Expenditure 1,262,708 Refund pertaining to this grant not deposited into this account Bank Charges 44,222,071 Total Deductions 14,111 14,923,486 Closing Balance as per B.S 30 QAWS 1394 (21 DECEMBER 2015) AO- N Second Education Quality Improvement Program World Bank Reference: Project ID P106259; Grant ID H3540 & 93962 APPENDIX A3 US Dollar SPECIAL ACCOUNT RECONCILIATION FOR THE YEAR ENDED 30 QAWS 1394 (21 DECEMBER 2015) Da Afghanistan Bank (DAB) Depository Bank: Kabul Address: USD (21 DECEMBER 2015) Closing Balance as per bank statement - 30 QAWS 1394 14,111 N/C 27249 14,937,597 14,923,486 A/C 27313 Add: 1,292,296 Refund pertaining to this grant deposited in other accounts 16,229,893 1394 (21 DECEMBER 2015) Closing balance as per financial statements - 30 QAWS . II is L Second Education Quality Improvement Program World Bank Reference: Project ID P106259; Grant ID H3540 & 93962 APPENDIX A4 COMPONENT-WISE DISBURSEMENTS FOR THE YEAR ENDED 30 QAWS 1394 (21 DECEMBER 2015) 1393 Actual 1394 Actual Cumulative to Date Components USD USD USD 14,755,210 27,759,873 118,536,503 School Grants 121,158,212 32342,296 4,098,373 Teacher and Principal Training and Education 20,914,995 11,810,074 96,548,401 Project Management, Monitoring and Evaluation Bank Charges 200 150 4,625 68,012,701 43,668,470 336,247,741 TOTAL PAYMENTS Second Education Quality Improvement Program World Bank Reference: Project ID P106259; Grant ID H3540 & 93962 Appendix AS STATEMENT OF ESTIMATED GRANT AMOUNT FOR THE YEAR ENDED 30 QAWS 1394 (24 DECEMBER 2015) (Memorandum Statement - not an ontegralparlof the FeanclStatements) Amount H354 93962 Total In currency of commitment Amount of Grant XDR 18900,000 USD 408000,000 XDR 1839,951 USD 321,911.853 Amount disbursed by World Bank untill the end of 1394 Cancelled Amount XDR 503,049 USID Undtsbursed Balance XDR - USD 86088147 288692UC 319153 SC 5QS,4 In reporting currency2US 28,16 USD 321,911,853 SD 350.768 USD Amount disbursed by World Bank untill the end of 1394' USC 729.42u USC 729.420 USCD - Cancelled Amount USD - USD 86,088,147 USD 86,088,147 Equivalent US Dollars for undisbursed amounts USD 29,586,412 USD 408,000,000 USD 437,586,412 Total estimated amount of Grant Funds available & Payments USD 334,535,72 Cumulative payments for Expenditure as per the Statement of Cash Receipts the beginning of the project as available from Client Connection in XCRs 1 Actual amounts of total disbursement made by the World Bank since the beginning of the project as available from Client Connection in U 2 Actual amounts of total disbursement made by the World Bank since Dollars- the currenct of commitment of the grant is XDR (in t 1 Tho amount of equivalent US Dollars for undisbursed balance of the grant where XDR which is the rate published by the World Bank as calculated at the exchange rate of 1.38 USD per urrency of commitment) has been last day of the financial year. S lililli Islamic Republic of Afghanistan Second Education Quality Improvement Project & 93962 World Bank Reference: Project ID P106259; Grant ID H3540 Financial Statements for the year ended 3 0 th Qaws 1394 ( 2 1st December, 2015) Second Education Oualitv Improvement Program & 93962 World Bank Reference: Project ID P1106259; Grant ID H3540 STATEMENT OF CASH RECEIPTS AND PAYMENTS RJHE YEAR ENDED 30 QAWS 4394 (21 DECEMBER 2015) 1394 1393 Cumulative Receipts/ Payments Controlled by Payments by entity Third Parties Total Total " USD USD USD USD USD RECEIPTS C Initial Advance 722,000,000 37,439,214 52.491,437 255,250,348 plenishmients 37,439,214 F,rpayments 157,051 157,051 26,289,402 73,518,498 Dif(ect Paiyments12 'taxes collected/tranfserred (Net)12 157,051 37,596,265 7-8-,780,839 350,768,975 37,439,214 TOTAL RECEIPTS -- 8-,022,000 ,000 PAYMENTS Disb1ursement Category: Godsnorks, Consultants' Services, School 336,243,116 43,511,269 157,051 43,668,320 68,012,501 Gat.Training and Incremental Operating Costs 150 200 4,625 150 Banik Charges 157,051 43,668,470 68,012,701 35,247,741 43,511419 TOTAL PAYMENTS 10,76138 14,521,234 E SOF RECEIPTS OVER P M S6_5(,072,205) 432,582 793,323 1,710,338 432,582 (1,C79)____ Taminat, (net) Exchange- gainl(Ioss) 6,229,893 Cash & Cash Equivalents 5,639,623 inreisem(Decrease) in Cash and Cash Equivalents at the beginning of 10,308,054 21,869,516 - 21,869,516 the year (5,639,623) - (5,639,623) 11,561.461 IncreaseiCoecrease) in Cash & Cash Equivalents 21,869,516 16,229,893 16,229,893 Casj,h and Cash Equivalents at the end of the year - statement. The accompanying notes form an integral part of this financial M. Mustafa Mastoor Deputy Minister for Finance Ministry of Finance. Islamic Republic of Afghanis June 13, 2016 ID ted: Second Education Quality Improvement Project World Bank Reference: Project ID PJ06259; Grant ID H3540 & 93962 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 QAWS 1394 (21 DECEMBER 2015) 1) LEGAL STATUS AND ACTIVITY set up to assist th t $ a) The Second Education Quality improvement Project was access to- a ycatio, Republic of Afghanistan (the recipient) in increasing equitable especially for girls. b) The project consists of the following parts: i) School grants; A&/ ii) Teacher and Principal Training and Education iii) Project Management, Monitoring and Evaluation number H3540 from the International c) The project is funded by a grant bearing reference by Development Association in the amount of Special Drawing Rights (SOR) 18,900,000 and bearing reference number 93962 another grant from the Afghanistan Reconstruction Trust Fund initially in the amount of USD 35,000,000 which was later increased to USD 283,000,000. affect the availability of the funding assistance d) The significant terms and conditions that determine or within the period as per and in are primarily the presentation of eligible expenditures to donor accordance with the financing agreement. accordance with the requirements of the e) These financial statements have been prepared in the Islamic Republic of Development Grant Agreements signed between the Government of Afghanistan and the International Development Association. 2) SIGNIFICANT ACCOUNTING POLICIES a) Basis of Preparation and in accordance with The financial statements are prepared under the historical cost convention issued by International Cash Basis IPSAS - Financial Reporting under the Cash Basis of Accounting Federation of Accountants (IFAC). b) Receipts collected but not transferred These represent grants and aid received during the period and taxes into the government's revenue account, c) Payments financial statements based on the date Payments made from Special Account are recognised in the on the date on which the the cheque is issued and direct payments by World Bank are recognised Bank. However, cheques or withdrawal application for the payment is submitted to the World the World Bank are reversed in withdrawal applications that were ultimately rejected by the bank or the reporting period. d) Currency translations translated into US Dollar at the rate Transactions in currencies other than the reporting currency are of exchange at which the transaction is actually executed. Second Education Quality Improvement Project World Bank Reference: Project ID P106259; Grant ID H3540 & 93962 3) NOTES TO THE FINANCIAL STATEMENTS a) Initial Advance account(s) of the Initial advance represents the advance given by the World Bank into special project. b) Reporting Currency currency of the The reporting currency is US Dollars. Since US Dollars is the principal disbursement which is the currency of Afghanistan. donor, the financial statements are not prepared in the Afghani c) Taminat The amount of Taminat reported in the Financial Statements represents net flow arising from period. deduction/repayment of security deposit (retention money) during the reporting d) Payments made by third parties These represent payments directly made by the World Bank, on basis of requests submitted by the of the claims, liabilities Ministry of Finance in form of a withdrawal application, towards settlement and contractual obligations against contracts and agreements for eligible expenditures of the project or payments by the as per the financing agreement. These payments do not constitute cash receipts Third Party" column in the statement of Cash entity and as such are disclosed in the "Payments by Receipts and Payments. e) Bank Charges bank charges will not be The Ministry of Finance has negotiated with Da Afghanistan Bank that grant. Bank Charges may charged on the transactions in the US Dollar Special bank account of the returned to the be levied by intermediary banks on deposits into the Special Account and balances World Bank. f) Appendices part The accompanying appendices provide additional information and analysis and form an integral of these notes, except as indicated otherwise. g) Others translated into Dari. In the These Financial Statements are originally prepared in English and then version shall be event of any inconsistency between the English and Dari versions, the English considered to be correct.