“Health Service Improvement Project” Grant # TF10618 Special Purpose Project Financial Statements for the period from February 3, 2012 to December 31, 2014 and grace period from January 1, 2015 to April 30, 2015 and independent auditors’ report “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS 2 FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 INDEPENDENT AUDITORS’ REPORT 3-4 SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015: Statement of financial position 5 Statement of cash proceeds and disbursements 6 Statement of uses of funds by project components 7 Statement of applications 8 Statement of special account 9 Notes to the special purpose project financial statements 10-14 STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 The following statement, which should be read in conjunction with the independent auditors’ responsibilities stated in the independent auditors’ report set out on pages 3-4, is made with a view to distinguish the respective responsibilities of management and those of the independent auditors in relation to the special purpose project financial statements of “Health Service Improvement Project”, Grant # TF10618 (the “Project”). Management is responsible for the preparation of the special purpose project financial statements that present fairly, in all material respects, the financial position, cash proceeds and disbursements, uses of funds by project components, special account of the Project for the period from February 3, 2012 to December 31, 2014 and grace period from January 1, 2015 to April 30, 2015 in accordance with International Public Sector Accounting Standard “Financial Reporting Under the Cash Basis of Accounting” (the “IPSAS”) issued by the International Public Accounting Standards Board of the International Federation of Accountants and the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”). In preparing the special purpose project financial statements, management is responsible for:  selecting suitable accounting policies and applying them consistently;  making judgments and estimates that are reasonable and prudent;  stating whether IPSAS and WB Guidelines have been followed, subject to any material departures disclosed and explained in the special purpose project financial statements; and  preparing the special purpose project financial statements on a going concern basis, unless it is inappropriate to presume that the Project will continue its activity for the foreseeable future. Management is also responsible for:  designing, implementing and maintaining effective and sound system of internal control and for revealing risks in system of internal control;  maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Project, and which enable them to ensure that the special purpose project financial statements of the Project comply with IPSAS and WB Guidelines;  compliance with laws and regulations of the Republic of Tajikistan, accounting system of the Project and the requirements of the World Bank;  taking such steps as are reasonably available to them to safeguard the assets of the Project; and  detecting and preventing fraud and other irregularities. The special purpose project financial statements for the period from February 3, 2012 to December 31, 2014 and grace period from January 1, 2015 to April 30, 2015 were approved and authorized for issue on October 2, 2015 by the management of the Project. 2 “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2015 AND GRACE PERIOD AS AT APRIL 30, 2015 (in US Dollars) Notes April 30, December 31, 2015 2014 ASSETS Cash and cash equivalents - - Cumulative project expenditures 4 850,576 850,576 TOTAL ASSETS 850,576 850,576 CUMULATIVE FINANCING Grants received 5 850,000 850,000 Other income 6 576 576 TOTAL FINANCING 850,576 850,576 5 “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 STATEMENT OF CASH PROCEEDS AND DISBURSEMENTS FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 (in US Dollars) Notes Grace period Cumulative For the period Cumulative ended ended April 30, December 31, 2015 2014 Opening balance - - - - Funding sources Grant TF10618 5 - 850,000 850,000 850,000 Other income 6 - 576 576 576 Total financing - 850,576 850,576 850,576 Project expenses Goods, Consultants’ services, Training and Incremental Operating Costs 4 - 820,582 820,582 820,582 RBF under Part 1(h) of the Project 4 - 29,994 29,994 29,994 Total project expenses - 850,576 850,576 850,576 Closing balance - - - - 6 “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 STATEMENT OF FUNDS BY PROJECT COMPONENTS FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 (in US Dollars) Grace period Cumulative For the period Cumulative ended ended April 30, December 31, 2015 2014 Component A. Review and analyze existing health financing and management system at the national and local levels - 607,418 607,418 607,418 A1.Consultants’services - 299,263 299,263 299,263 A2.Training - 79,974 79,974 79,974 A3.Goods - 228,180 228,180 228,180 Component B. Project activities - 213,164 213,164 213,164 B1.Goods - 38,323 38,323 38,323 B2.Consultants'services - 83,511 83,511 83,511 B3.OperatingCosts - 80,898 80,898 80,898 Audit - 10,433 10,433 10,433 Component C. RBF under Part 1(h) of the Project - 29,994 29,994 29,994 - 850,576 850,576 850,576 7 “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 STATEMENT OF APPLICATIONS FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 (in US Dollars) Sources of financing Application Advances Direct Total: payments GRANT # TF10618 1 100,000 - 100,000 2 96,807 - 96,807 3 - 35,571 35,571 4 58,458 - 58,458 5 - 59,285 59,285 6 - 39,700 39,700 7 76,367 - 76,367 8 - 94,855 94,855 9 96,451 - 96,451 10 - 152,729 152,729 11 - 16,970 16,970 12 11,063 - 11,063 13 11,744 - 11,744 14 - - - 450,890 399,110 850,000 8 “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 STATEMENT OF SPECIAL ACCOUNT FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 (in US Dollars) Special account Grant # TF10618 Currency US Dollars Bank account 20206840400000008601 Bank OJSC Tojiksodirotbank Bank’s location 47 Behzod Street, Dushanbe, 734013 Tajikistan Description Notes US Dollars Balance as at February 3, 2012 - Advances received 5 450,890 Direct payments 5 399,110 Other income 6 576 Total funds received to a special account 850,576 The amount of eligible expenditures paid 4 850,576 Balance as at December 31, 2014 - Advances received - Direct payments - Other income - Total funds received to a special account during the reporting period - The amount of eligible expenditures paid during the reporting period - Balance as at April 30, 2015 - 9 “HEALTH SERVICE IMPROVEMENT PROJECT” GRANT # TF10618 NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 3, 2012 TO DECEMBER 31, 2014 AND GRACE PERIOD FROM JANUARY 1, 2015 TO APRIL 30, 2015 (in US Dollars) 1. GENERAL INFORMATION According to the Agreement between the Republic of Tajikistan and International Development Association (the “IDA”) dated February 3, 2012, the IDA provided a Grant # TF10618 in the amount of 400,000 US dollars to the Republic of Tajikistan. On June 10, 2013 was made amendment to the Grant Agreement and increased funding for 450,000 US dollars. The total amount of allocated funds for implementation of the Project amounted 850,000 US dollars. The Grant was provided to assist the Recipient in preparation and testing of the Health- Based Financing Project. Project purpose The objective of the Project is to: (a) support the pre-piloting of the project that will contribute to the improvement of the coverage and quality of basic the Primary Health Care (the “PHC”) services (particularly maternal and child health) in rural health facilities in Tajikistan; and (b) strengthen the institution capacity of Tajikistan’s health system of effectively deliver the services. Provision of goods, consultants’ services, training and incremental operating costs for the carrying out of the Project preparation activities, including the following: a) Designing activities for the Health Resulted – Based Financing Project; b) Preparing performing – based contract for Eligible PHC Facilities for the Result Based Financing (the “RBF”), and reviewing and analyzes existing health financing and management system at the national and local levels as well as reviewing the efficacy of the legal and regulatory framework for the health sector and developing sound regulatory instruments to strengthen said framework; c) Carrying out an assessment of existing health information and reporting systems, and designing a system to monitor and collect information on: (1) Project activities and results; (2) amounts of performing –based payments received by Eligible PHC Facilities; and (3) the use of said amounts by said facilities; d) Carrying out an assessment of the supply side requirement for the implementation of RBF at Eligible PHC Facilities, covering also stakeholders analyses, assessment of the quality of PHC services, and identifying bottlenecks to the supply side for the utilization of PHC services; e) Developing a Result – Based Financing Manual for the Health Resulted – Based Financing Project, and setting forth there in, inter aria, institutional arrangements, fiduciary, monitoring and evaluation, contractual arrangements, the description of RBF instruments and RBF procedures; f) Strengthening the capacity of the rayon (district) and oblast (regional) administration and MOH in the administration of RBF in the Recipient’s health sector; g) Employing the coordinator and key staff of the RBF Coordinator Group as well as setting up the operation of the RBF Coordination Group; h) In Spitamen district in Sogd region, provision of RBF to Eligible PHC Facilities in project district for carrying out of specific pre-agreed maternal, child health and primary health care services. i) Provision of training to health services providers, recipient health staff, health center committees and other persons involved in the implementation, oversight or evaluation of result based financing scheme in the project district; 10 j) Institutional strengthening of the project implementing entity to facilities its implementation of the project through the provision of training, workshops, staff, office supplies and a vehicle, and financing of operating costs. Project management The Ministry of Health is the authorized body responsible for the preparation and implementation of the Project. The Minister of Health is the Project Director responsible for overall project management to ensure that project resources are used as budgeted and that project development objectives will be achieved. Duration of the Project is from February 3, 2012 to December 31, 2014 and grace period to April 30, 2015. 2. PRESENTATION OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS Basis of preparation These special purpose project financial statements have been prepared in accordance with the International Public Sector Accounting Standard (the “IPSAS”) “Financial Reporting under the Cash Basis of Accounting” issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply with the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”). Under the cash basis system income (or expenditure) is recognized when cash is received (or paid) irrespective of when goods or services are received. The Project’s approved budget disclosed by categories of expenses is not publicly available and as such comparison of budget and actual amounts is not presented. These special purpose project financial statements consist of:  Statement of cash proceeds and disbursements;  Statement of uses of funds by project components;  Statement of applications;  Statement of special account;  Notes to the special purpose project financial statements, including short description of main statements of accounting policy and other descriptive notes. The reporting currency of these special purpose project financial statements is US Dollars (the “USD”). 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash basis of accounting Special purpose project financial statements are prepared on a cash basis of accounting. The cash basis of accounting recognizes transactions and events only when cash (including cash equivalents) is received or paid by the entity. Special purpose project financial statements prepared under the cash basis provide readers with information about the sources of cash raised during the period, the purposes for which cash was used and the cash balances at the reporting date. The measurement focus in the special purpose project financial statements is balances of cash and changes therein. 11 Foreign currency Operations in foreign currency initially are counted in functional currency by the official currency exchange rate settled by the National Bank of Tajikistan (the “NBT”) on a date of operation. Funds received are translated into USD at official exchange rate of Special Drawing Rights (the “SDR”) at the date of funds receipt. All payments made in local currency are translated into USD at the official exchange rate defined by National Bank of Tajikistan, at the date of transaction. Monetary assets and liabilities expressed in foreign currency are converted to functional currency at official exchange rate on a date settled by the NBT. All foreign exchange differences resulted from maturity or recounting are included in statement of cash proceeds and disbursements. Non-monetary items are valued according to their historic cost in foreign currency, which are recalculated on rates of the initial operation date. In preparation of the special purpose project financial statements the following exchange rate of NBT in regard to Tajik somoni was used: April 30, December 31, 2015 2014 Tajik somoni to USD 6.2580 5.3079 Cash and cash equivalents Cash and cash equivalents include cash on hand and due from banks, which can be converted to the corresponding amount of cash in the short term. Taxes Calculation and payment of personal income tax and social security contributions from income of local staff and consultants is made in accordance with the requirements and rates of the Tax Code of the Republic of Tajikistan. Project expenses The expenses are recorded in the period when they were actually paid. Sources of funds The funds were provided by the World Bank to the Project by replenishment of special account or through direct payment to the end supplier of goods and/or services. 12 4. CUMULATIVE PROJECT EXPENDITURES Project expenditures by components are presented in the statement of funds by project components. Project expenditures on major categories are presented in the statement of cash proceeds and disbursements. Breakdown of project expenses is presented as follows: For the grace For the period period from from January 1, February 3, 2015 to 2012 to April 30, December 31, 2015 2014 Goods - 266,503 Consulting services - 237,239 Payroll and related taxes - 159,646 Training - 79,202 RBF under Part1 (h) of the Project - 29,994 Transportation - 20,594 Business trip expenses - 16,093 Stationery - 12,415 Internet services - 11,973 Audit - 10,433 Advertising - 4,302 Bank services - 1,234 Other - 948 - 850,576 5. GRANTS RECEIVED The financing was presented by the following reimbursement methods: Financing method /sources of financing: For the grace For the period period from from January 1, February 3, 2015 to 2012 to April 30, December 31, 2015 2014 Advances - 450,890 Direct payments - 399,110 - 850,000 6. OTHER INCOME Other income represents interest income accrued by the serving bank on the outstanding balance of cash on special account and commission fees for participation in the tenders. 13 7. COMMITMENTS In the normal course of activities, the Project concludes agreements with suppliers of goods and services in accordance with the established budget and procurement plan. As at April 30, 2015 the Project had no commitments. 8. GOING CONCERN The period of duration of the Project was completed on December 31, 2014 and grace period to April 30, 2015. 9. LEGAL CASES There were no any legal claims related to the Project. 10. EVENTS AFTER THE REPORTING DATE There were no any events after the reporting date. 14