Local Government Units Development and Lending Fund Integrated Cities and Urban Development Project (Grant No. TF 0A2846) Funded by the International Development Association Financial Statements For the Year Ended December 31, 2018 Together With Independent Auditors’ Report Local Government Units Development and Lending Fund Integrated Cities and Urban Development Project Funded by the International Development Association Statement of Activities For the Year Ended December 31, 2018 (Currency: USD) Note 2018 2017 Changes in unrestricted net assets: Revenues Released from restricted net assets 6 647,610 168,554 Interest income 5,785 8,989 Currency variance gain / (loss) 19 (20) Total unrestricted revenues 653,414 177,523 Expenses Project’s expenses 7 647,610 168,554 Transfer of interest revenue accumulated balance to LGUDLF general fund 11,235 - Total Expenses 658,845 168,554 Net change in unrestricted net assets (5,431) 8,969 Changes in restricted net assets: Net assets released from restriction 6 (647,610) (168,554) Net change in restricted net assets (647,610) (168,554) Change in net assets (653,041) (159,585) Net assets, beginning of year 4,829,279 4,988,864 Net assets, end of year 4,176,238 4,829,279 The accompanying notes form an integral part of these financial statements 5 Local Government Units Development and Lending Fund Integrated Cities and Urban Development Project Funded by the International Development Association Cash Flows Statement For the Year Ended December 31, 2018 (Currency: USD) 2018 2017 Cash Flow from Operating Activities Change in net assets (653,041) (159,585) Adjustments to reconcile change in net assets to net cash flow from operating activities: Decrease in pledges receivable 421,125 520,000 Increase (decrease) in due to contractors 198,610 (29) Increase in due to LGUDLF – management fees 22,907 18,093 Increase in due to others – mobile costs 1,194 - Net cash flow (used in) provided by operating activities (9,205) 378,479 Net change in cash on hand and at bank (9,205) 378,479 Cash on hand and at bank, beginning of year 378,479 - Cash on hand and at bank, end of year 369,274 378,479 The accompanying notes form an integral part of these financial statements 6 Local Government Units Development and Lending Fund Integrated Cities and Urban Development Project Funded by the International Development Association Designated Bank Account Statement For the Year Ended December 31, 2018 IBAN number PS23TNBC000000000001003435357 Account number 1003435357 Depository bank The National Bank Address Ramallah Currency USD Note 2018 2017 Balance, beginning of year 378,005 - Add: Receipts during the year 5 421,125 520,000 Interest income 5,785 8,989 Currency variance gain /(loss) 19 (20) 426,929 528,969 Deduct: Payments during the year* 423,871 150,964 Transfer of interest revenue accumulated balance to LGUDLF general fund 11,235 - Bank charges (refunded by the bank subsequently) 18 - 435,124 150,964 Balance, end of year 369,810 378,005 * Reconciliation of expenses presented in the Designated Bank Account Statement with expenses presented in the Statement of Activities: 2018 2017 Expenses per the Statement of Activities 647,610 168,554 Change on due to contractors during the year (198,610) 29 Change on due to LGUDLF (22,907) (18,093) Change on due to others – mobile costs (1,194) - Outstanding payments (2,757) - Movement on petty cash box 689 474 Subsequent refund of employees’ advances 1,040 - Expenses per Designated Bank Account Statement 423,871 150,964 The accompanying notes form an integral part of these financial statements 7 Local Government Units Development and Lending Fund Integrated Cities and Urban Development Project Funded by the International Development Association Notes to the Financial Statements For the Year Ended December 31, 2018 (Currency: USD) 1. LGUDLF and its Activities The Local Government Units Development and Lending Fund (LGUDLF) had been established under the name of the Municipal Development and Lending Fund (MDLF) according to Cabinet Decree No. 05/13/12 dated August 2007. As of November 10, 2016, Decree by Law No. 25 has been issued which changed the name of MDLF to the Local Government Units Development and Lending Fund (LGUDLF). LGUDLF is a semi- governmental juridical independent organization aiming at accelerating Palestine’s drive toward self-sustained, decentralized, prosperous and creditworthy local government units. The main objective of LGUDLF is to encourage the flow of financial resources to Local Government Units (LGU). According to Decree by Law No. 25 dated November 10, 2016, LGUDLF shall undertake the following missions: - • Management of funds received through support from the Palestinian National Authority (PNA) or provided by donor countries or any other sources in compliance with the terms and conditions specified in LGUDLF's internal bylaws. • Assist local authorities develop their capacities in compliance with the bases of modern management practices to help them provide better services to the public. • Guide assistance from donor countries and provide modern fiscal services to support and develop the services offered to local authorities and to improve their credit abilities. • Encourage local authorities to adopt developmental projects to expand their geographic jurisdiction so as to serve their developmental plans. • Facilitate and provide loans to local authorities and follow up the expenditures thereof from their revenues. LGUDLF is structured to ensure an efficient, transparent, and professional institution capable of fulfilling its mission and objectives. LGUDLF comprises of Board of Directors, executive departments, and other advisory committees. 2. ICUD and its Financing On October 13, 2016, an agreement (the Agreement) was signed between the International Development Association (IDA), as Administrator of the Trust Fund for Gaza and West Bank, and the Local Government Units Development and Lending Fund (LGUDLF), in connection with the Trust Fund Grant Agreement of same date signed between the Palestine Liberation Organization (for the benefit of the Palestinian Authority) and IDA, to extend a grant in an amount of USD 5,000,000 to assist in financing a project entitled “Integrated Cities and Urban Development project (ICUD)”. The objective of ICUD is to enhance the capacity of Participating Urban Areas to plan for sustainable urban growth. 8 The table below describes the budget categories of ICUD: Activity Budget in USD Category 1: Goods, non-consulting services, consultants’ services, and Training and workshops 4,550,000 Category 2: LGUDLF Management Fee and Incremental Operating Cost 450,000 5,000,000 The Project implementation period is 4 years from 2017 to 2020. The closing date of the Agreement is June 30, 2021. 3. Summary of Significant Accounting Policies The financial statements have been prepared under the historical cost convention, the significant accounting policies follow: a. General Net assets, revenues, expenses, and gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as unrestricted and restricted. Unrestricted net assets are those whose use by LGUDLF is not subject to donor-imposed stipulations. Restricted net assets are those whose use by LGUDLF has been limited by donors’ specific time period or purpose. b. Restricted Net Assets Unconditional promises to give cash, with no donor-imposed restriction on use, are recognized as revenues at the date promises to give are made. Unconditional promises to give cash, with donor-imposed restriction on use, are recorded as restricted net assets at the date promises to give are made, and recognized as revenues when the related costs are incurred. Unconditional promises with donor-imposed restriction are promises that depend only on passage of time and certain performance requested by the promising donors. Conditional promises to give and indications of intention to give are recorded at the fair market value at the date contribution is received by LGUDLF. c. Pledges Receivable Pledges receivable are stated at the original amount of the signed agreement less the amount received, uncollectable amount (if any) and currency variances resulting from the fact that original agreements with the donors may be in currencies other than USD. d. Revenue Recognition Donations and contributions are recorded as pledges receivable and restricted net assets upon signing of the agreement with the donor. During the yearly close out process, the amount of expenses incurred is recognized as revenue under net assets released from restrictions and the restricted net assets account is reduced thereof. e. Accruals and Other Current Liabilities Accruals and other current liabilities are recognized for the amounts to be paid in the future for goods and services received, whether a bill is received from the supplier or not. f. Expenses Expenses are recorded by LGUDLF when incurred in accordance with the accrual basis of accounting, regardless of the date of actual payment. 9 g. Foreign Currencies LGUDLF’s basic functional currency is the U.S. Dollar (USD). Transactions which are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Assets and liabilities which are denominated in other currencies are translated to USD using exchange rates prevailing at the date of the statement of financial position. Gains and losses arising from the translation are reflected in the statement of activities. 4. Cash on hand and at Bank Cash on hand and at bank comprises: - 2018 2017 Petty cash 1,163 474 Cash maintained in the Designated Bank Account (a) 368,111 378,005 369,274 378,479 (a) Reconciliation of bank balance per designated bank account statement and the statement of financial position follows: USD Cash at bank as at December 31, 2018 (as per designated bank account statement) 369,810 Add: Subsequent refund of employees’ advances 1,040 Bank charges (refunded by the bank subsequently) 18 Less: Outstanding payments (2,757) Cash at bank as at December 31, 2018 (as per the statement of financial position) 368,111 5. Pledges Receivable Pledges receivable as of December 31, 2018 and movement thereon during the Year follow: USD Amount Balance, Addition Received Beginning of During the During the Balance, Year Year Year End of Year Pledges receivable 4,480,000 - (421,125) 4,058,875 6. Restricted Net Assets Restricted net assets as of December 31, 2018 and movement thereon during the year follow: USD Balance, Additions Net Assets Beginning of (Grants and Released from Balance, Year Donations) Restriction End of Year Restricted net assets 4,820,310 - (647,610) 4,172,700 10 7. Project’s Expenses Project’s expenses and comparison with budget follow: USD Actual Cumulative up to December Remaining Budget 2018 2017 31, 2018 Budget Category 1: Goods, non-consulting services, consultants’ services, and Training and workshops 4,550,000 594,498 124,864 730,460 3,819,540 Category 2: LGUDLF Management Fee and Incremental Operating Cost 450,000 53,112 43,690 96,840 353,160 5,000,000 647,610 168,554 827,300 4,172,700 11