MINISTRY OF RURAL DEVELOPMENT Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credft No. 6014-KH Financial Statements for the period from 6 July 2017 to 31 December 2018 and Report of the Independent Auditors Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Contents Page 1. Statement by the Project management 1 2. Report of the independent auditors 2 3. Statement of financial position 5 4. Statement of sources of funds and expenditure 6 5. Statement of designated accounts 7 6. Notes to the financial statements 8 KINGDOM OF CAMBODIA NATION RELIGION KING MINISTRY OF RURAL DEVELOPMENT CAMBODIA SOUTHEAST ASIA DISASTER RISK MANAGEMENT PROJECT No. (4A CSADRMP/MRD Phnom Penh,.I a.gY.....U ..............2019 Statement by the Project management We do hereby state that in our opinion: (a) The accompanying financial statements, which comprise the statement of financial position as at 31 December 2018, the statement of sources of funds and expenditure, and the statement of designated accounts for the period from 6 July 2017 to 31 December 2018 and notes as set out on pages 5 to 16 of the Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") or ("the Project'), financed under the Financing Agreement Number 6014-KH funded by the International Development Association ("IDA"), and the Royal Government of Cambodia ("RGC") represented by the Ministry of Economy and Finance ("MEF"), and implemented by the Ministry of Rural Development ("MRD" or "Executing Agency") are prepared, in all material respects, in accordance with the basis of accounting and the accounting policies described in Note 2 to the financial statements. (b) The disbursements shown in the financial statements were implemented according to the Financing Agreement and the Project was in compliance with all the covenants of the Financing Agreement for the period from 6 July 2017 to 31 December 2018. Signed on behalf of the project management, H.E. Suos Kong Project Coordinator Ministry of Rural Development Phnom Penh, Kin2dom of Cambodia Date: Taut q IVA KPMG Cambodia Ltd 4th Floor, Delano Center No. 144, Street 169, Sangkat Veal Vong Khan 7 Makara, Phnom Penh Kingdom of Cambodia +855 23 216 899 | kpmg.com.kh Report of the independent auditors To the Ministry of Economy and Finance Opinion We have audited the financial statements of the Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM" or "the Project"), financed under the Financing Agreement Number 6014-KH funded by the International Development Association ("IDA"), and the Royal Government of Cambodia ("RGC"), represented by the Ministry of Economy and Finance ("MEF"), and implemented by the Ministry of Rural Development ("MRD" or "Executing Agency") which comprise the statement of financial position as at 31 December 2018, the statement of sources of funds and expenditure and the statement of designated accounts for the period from 6 July 2017 to 31 December 2018 and notes comprising significant accounting policies and other explanatory information as set out on pages 5 to 16 (hereafter referred to as "the financial statement"). In our opinion, the accompanying financial statements are prepared, in all material respects, in accordance with the basis of accounting and the accounting policies as described in Note 2 to the financial statements. Basis for Opinion We conducted our audit in accordance with Cambodian International Standards on Auditing ("CISAs"). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements that are relevant to our audit of the financial statements in Cambodia, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG Cambodia Ltd, a Cambodian limited liability company and a memder firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ('KPMG International"), a Swiss entity. 2 Document classification: KPMG Confidential. Emphasis of Matter - Basis of Accounting and Restriction on Use We draw attention to Note 2 to the financial statements, which describes the basis of accounting and the accounting policies adopted by the Project. The financial statements are prepared for the information of and use by the management of the Project, the Ministry of Economy and Finance, and the International Development Association. As a result, the financial statements may not be suitable for another purpose. Our audit report is intended solely forthe management of the Project, the Ministry of Economy and Finance, and the International Development Association, and should not be used by other parties. The restriction on use does not limit the disclosure or distribution of our report if such disclosure or distribution is required by laws and regulations. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Govemance for the Financial Statements Management is responsible for the preparation of the financial statements in accordance with the basis of accounting and the accounting policies described in Note 2 to the financial statements, and for such internal control as management determines is necessary to enable the preparation of the financial statements that is free from material misstatements, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Executing Agency'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 cease operations or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditors' Responsibility for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 CISAs 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 this financial statements. As part of an audit in accordance with CISAs, we exercise professional judgment and maintain professional skepticism throughout 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. 3 * 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 Executing Agency's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' 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 auditors' report. However, future events or conditions may cause the Executing Agency to cease to continue as a going concern. 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. For KPMG Cambodi Phnom Penh, Kingdom of Cambodia 28 June 2019 4 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credft No. 6014-KH Statement of financial position as at 31 December 2018 As at 31 December 2018 Note US$ Current assets Cash and bank balances 3 167,187 Advances (petty cash balance at PlUs) 4 2,890 Total assets 170,077 Represented by: Fund balance at end of the period 170,077 The accompanying notes form an integral part of these financial statements. 5 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Statement of sources of funds and expenditure for the period from 6 July 2017 to 31 December 2018 Perod from 6 July 2017 to 31 December 2018 IDA RGC Total Note US$ US$ US$ Receipts 5 International Development Association ("IDA") 1,387,645 - 1,387,645 Counterpart fund - 87,660 87,660 1,387,645 87,660 1,475,305 Expenditure by categories Consultant services 7 431,143 - 431,143 Training costs 8 40,537 - 40,537 Operating costs 9 109,611 87,660 197,271 Non-expendable equipment 10 636,277 - 636,277 1,217,568 87,660 1,305,228 Excess of sources of funds over expenditure/ Fund balance at end of the period 170,077 - 170,077 Expenditure by components 6 Resilient rural corridors 271,100 - 271,100 Project management 946,468 87,660 1,034,128 Total expenditure 1,217,568 87,660 1,305,228 The accompanying notes form an integral part of these financial statements. 6 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Statement of designated accounts for the period from 6 July 2017 to 31 December 2018 Period from 6 July 2017 to 31 December 2018 Note US$ Receipts 5 International Development Association ("IDA") 808,406 808,406 Expenditures by categories Consultant services 160,043 Training costs 8 40,537 Operating costs 9 109,611 Non-expendable equipment 328,138 638,329 Excess of sources of funds over expenditure/ Fund balance at end of the period 170,077 Represented by: Cash and bank balances 3 167,187 Advances 4 2,890 170,077 The accompanying notes form an integral part of these financial statements. 7 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credft No. 6014-KH Note to the financial statements for the period from 6 July 2017 to 31 December 2018 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. Background and activities The Cambodia Southeast Asia Disaster Risk management Project ("CSADRM" or "the Project") was established under the International Development Association ("IDA") with the Financing Agreement Number 6014-KH between the Royal Government of Cambodia ("RGC") represented by the Ministry of Economy and Finance ("MEF). The IDA, acting as administrator of CSADRM agreed to provide a loan amounting to Special Drawing Rights ("SDR") 44,200,000 (equivalent to US$60,000,000). The effective date of the Project was 6 July 2017 and the Project is expected to be completed by 31 March 2022. The Ministry of Rural Development ("MRD") is the Executing Agency ("EA") or the Project Management Unit ("PMU") responsible for the overall management of the Project, with the following Implementing Agencies ("lAs") or Project Implementation Units ("PlUs"), namely Steung Treng, Kratie, Kampong Cham, Thong Khmum, Siem Reap, and Kandal ("the Participating Provinces"). The following table specifies the categories of eligible expenditures that may be financed out of the proceeds of the loans funded by IDA, the allocations of the amounts of the Financing to each category, and the percentage of expenditures to be financed for eligible expenditures in each category: Category Amount of the Percentage of expenditure to financing allocated be financed (inclusive of No. Item (expressed in SDR) taxes) 1 Goods, work, non-consulting 44,200,000 100% of the Financing's agreed services, consultants' services, share of the cost specified in the training and operating costs approved annual operational under Part I and Part 3 of the Plan ("AOP") for each fiscal Project year ("FY') 2 Emergency expenditures - 100% of the Financing's agreed under Part 4 of the project share of the cost specified in the approved annual operational plan ("AOP") for each fiscal year ("FY') Total 44,200,000 8 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Note to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 2. Significant accounting policies (a) Basis of accounting The financial statements, which are expressed in the United States Dollars ("US$"), have been prepared in accordance with a modified cash basis of accounting. This is a basis of accounting that is designed to meet the requirements of the Project; it is not designed to produce financial statements that are compatible with International Financial Reporting Standards. Under this basis of accounting, income is recognised when funds are received in cash and expenditure is recognised when payments are made rather than when it is incurred, except for the advanced payments that are initially recognised as a receivable and only recognised as expenditure when they have been liquidated by supporting invoices. The financial statements present sources and uses of funds and the related financial information in relation to the IDA fund withdrawals and disbursements from the Project's designated accounts together with the corresponding counterpart funds as specified under the Financing Agreement No. 6014-KH. (b) Statement of designated accounts The statement of designated accounts is prepared in accordance with the financing agreement and is purely used to receive and disburse for expenditure funded by IDA financing proceeds. (c) Non-expendable equipment The cost of non-expendable equipment is charged to the statement of sources of funds and expenditures upon acquisition. For control and management purposes, a memorandum account for non-expendable equipment is maintained by way of a non-expendable equipment listing. (d) Foreign currency transactions The Project executes transactions and maintains its accounting records primarily in the US$. Transactions in currencies other than US$ are converted into US$ at the rates of exchange prevailing on the transaction dates. Fund balances in currencies other than US$ are translated into US$ at the open market exchange rates at the reporting date. All foreign exchange differences are recognised in the statements of sources of funds and expenditures and designated accounts. 9 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Note to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 3. Cash and bank balances As at 31 December2018 IDA* RGC Total US$ US$ US$ Cash at bank 166,730 - 166,730 Cash on hand 457 - 457 167,187 - 167,187 (*) It represents the designated account for IDA Credit 6014-KH monitored by the Ministry of Rural and Development. Cash at bank comprises bank accounts used for designated account fund and the government counterpart fund maintained in a current account with the National Bank of Cambodia, bear no interest and earmarked specifically for the use of the Project. 4. Advances (petty cash balance at PlUs) As at 31 December 2018 IDA RGC Total US$ US$ US$ Kampong Cham 773 - 773 Steung Treng 761 - 761 Kandal 725 - 725 Kratie 291 - 291 Thboung Khmum 205 - 205 Siem Reap 135 - 135 2,890 - 2,890 The initial petty cash advance has been maintained by each PlUs at the maximum amount of US$1,000. 10 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Note to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 5. Receipts Period from 6 July 2017 to 31 December 2018 IDA RGC Total Note US$ US$ US$ Fund receipts (a) 808,406 87,660 896,066 Direct payments (b) 579,239 - 579,239 1,387,645 87,660 1,475,305 (a) The receipts from IDA Credit 6014-KH were paid into the imprest account held by the Ministry of Rural Development at the National Bank of Cambodia. The contribution from Royal Government of Cambodia was paid into Govemment Counterpart Fund's account held by the Ministry of Economy and Finance at the National Bank of Cambodia. (b) Direct payments represent payment made directly by IDA on behalf of the Project for the purchase of non-expendable equipment and payments to the international consultants during the period. 6. Expenditures by components Period 6 July 2017 to 31 December 2018 IDA RGC Total US$ US$ US$ 1. Resilient rural corridors A. Investment costs a. International consulting firms 271,100 - 271,100 2. Project management A. Investment costs a- Goods 636,277 - 636,277 b- Individual consultants and audit firn 160,042 - 160,042 B- Recurrent costs a- Training and study tours 40,538 - 40,538 b- Operating costs 109,611 87,660 197,271 946,468 87,660 1,034,128 1,217,568 87,660 1,305,228 11 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Note to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 7. Consultant services Period from 6 July 2017 to 31 December 2018 Note: IDA RGC Total US$ US$ US$ International consultants Corporate (i) 271,100 - 271,100 Individual (ii) 26,908 - 26,908 National consultants 133,135 - 133,135 431,143 - 431,143 (i) This represent the contract signed between the Ministry of Rural Development and the Korean Consultants International Co., Ltd. on 28 September 2018 with the total contract value of US$3,090,540 inclusive of local taxes and indirect taxes. (ii) This represent the contract signed between the Ministry of Rural Development and the International Procurement Expert on 27 November 2017 which is effective from 1 December 2017 to 30 November 2020 with the total contract value of US$181,661 inclusive of consultant's costs and profits as well as any tax obligation of US$17,741. 8. Training costs Period from 6 July 2017 to 31 December 2018 IDA RGC Total US$ US$ US$ Local training 34,573 - 34,573 Overseas training 5,964 - 5,964 40,537 - 40,537 12 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Note to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 9. Operating costs Period from 6 July 2017 to 31 December 2018 IDA RGC Total US$ US$ US$ Government staff (*) - 87,660 87,660 Contractual staff 22,776 - 22,776 Perdiem in the country 13,538 - 13,538 Accommodations 11,980 - 11,980 Oil and lubricants 11,657 - 11,657 Repairs and maintenance 9,078 - 9,078 Transportation cost 7,264 - 7,264 Office supplies 6,741 - 6,741 Vehicle and motorcycle insurance 5,220 - 5,220 Other office supplies 5,173 - 5,173 Communication expenses 4,508 - 4,508 Advertisement expenses 3,645 - 3,645 Other expenses 8,031 - 8,031 109,611 87,660 197,271 (*) The government staff are staff who were appointed by the Ministry of Rural Development with the approval from the Ministry of Economy and Finance to work for the Project, which were fully funded by the Government Counterpart Fund. 10. Non-expendable equipment Period from 6 July 2017 to 31 December 2018 IDA RGC Total US$ US$ US$ Vehicles 290,306 - 290,306 Office equipment 146,775 - 146,775 Survey equipment 145,950 - 145,950 Office furniture 40,446 - 40,446 Accounting software 12,800 - 12,800 636,277 - 636,277 13 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Note to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 11. Designated accounts and withdrawal applications 11.1 Statement of designated accounts Period from 6 July 2017 to 31 December 2018 US$ International Development Association ("IDA") Balance as at beginning of the period - Add: Total funds received from IDA 808,406 Less: Total funds withdrawn for expenditures during the period (638,329) Balance as at end of the period 170,077 14 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Notes to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 11. Designated accounts and withdrawal application (continued) 11.2 Summary of withdrawal applications Non-expendable Withdrawal Advances N uipent Consultant services Training costs Operating costs Total application number Date equipment US$ US$ US$ US$ US$ US$ DA Fund Designated accounts Initial advance 23-Aug-17 520,000 - 520,000 Additional advance 5-Jun-18 33,511 - - - - 33,511 Replenishment(*) 1-Jan-18 - 110,142 35,210 20,656 14,201 180,209 Replenishment 5-Jun-18 - 59,246 25,578 9,089 24,168 118,081 Replenishment 26-Jul8 - 12,800 42,805 2,321 14,751 72,677 Replenishment 15-Nov-18 - - 29,882 7,156 27,099 64,137 Subtotal 553,511 182,188 133,475 39,222 80,219 988,615 Directpayments __2"R_18 127,480 127_480 Direct payment 24-Apr-18 - 127,480- - 127,480 Direct payment 22-Jun-18 - 180,659 - - - 180,659 Direct payment 26-No-18 - - 271,100 - - 271,100 Subtotal - 308,139 271,100 - - 579,239 Total 553,511 490,327 404,575 39,222 80,219 1,567,854 (*) This represents the withdrawal application with an amount of US$180,209 which were not replenished to the Project. 15 Ministry of Rural Development Cambodia Southeast Asia Disaster Risk Management Project ("CSADRM") Credit No. 6014-KH Notes to the financial statements (continued) for the period from 6 July 2017 to 31 December 2018 12. Commitments As at 31 December 2018, the Project has the following commitments: As at 31 December2018 US$ Contracted, but not yet paid International consultants 2,976,544 National consultants 250,300 3,226,844 13. Comparative figures There are no comparative figures as this is the first set of financial statements prepared since the commencement of the Project. 16