Independent Auditor's Report and Project Financial Statements

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Independent Auditor's Report and Project Financial Statements State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia Disease Prevention and Control Project Credit number 5222-AM As of and for the year ended December 31, 2016 Public Disclosure Authorized

2 As of and for the year ended December 31, 2016 Contents Page Independent auditors report I Statement of cash receipts and payments 4 Statement of uses of funds by Project activities 5 Notes to the project financial statements 6

3 O GrantThornton Independent auditor's report 4pmisp Onptbpnls eq 41, J!. tbphnual LurWP2JLuJ 8)1 L, * Grant Thorton CJSC 8/1 Vagharshyan sr Yerevan. Armenia T F To the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia, Opinion We have audited the accompanying project financial statements of the Disease Prevention and Control Project (the "Project"), financed by the International Development Association Credit number 5222-AM, which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activities as of and for the year ended December 31, 2016, and a summary of significant accounting policies and other explanatory information. In our opinion, the project financial statements present fairly, in all material respects, the cash balance of the Disease Prevention and Control Project as of December 31, 2016 and the cash received and cash paid for the year then ended in accordance with the International Public Sector Accounting Standards ("IPSAS") Financial Reporting Under the Cash Basis ofaccunting issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, the World Bank guidelines and the relevant points of Credit number 5222-AM. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing CISAs"). Our responsibilities under those standards are further described in the Auditor's Responsibi&ties for the Amdit ofthe Pjea Financial Statements section of our report. We are independent of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia (the "HPIU") in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (the "IESBA Code") together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Armenia, and we have fulfilled our other ethical responsibilities in accordance with those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. UMJntn. 4tupighp, lunphpnipmpnd Aaft Tm, AAhWm 4wUp nprlb Member of hra NOtWlmAM Lt hbuput2ith uliamwd

4 0 GrantThornton Emphasis ofmatters * We draw attention to note 2 to the project financial statements, which describes the basis of accounting. The project financial statements are prepared to assist the management of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia to meet the requirements of the financial reporting of the World Bank. As a result, the project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. * We draw attention to note 10 to the project financial statements, which states that the management of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia considered expenditures of US dollar 3,494 made by the medical facilities as ineligible. This amount was revealed in the result of examinations performed in the medical facilities selected on a sampling basis, and there is a risk that this amount may increase in the future. These project financial statements are not adjusted to reflect this uncertainty. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Pmject Finanial Statements Management of the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia (the "HPIU") is responsible for the preparation and fair presentation of the project financial statements in accordance with IPSAS FinanialReportin Under the Cash Basis ofarvmntins, the World Bank guidelines and the relevant points of Credit number 5222-AM, 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. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audt of the 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 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 these project financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism 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 detectingamaterial_misstatement retidng_ft ftfradshighex-.-.. UanuV, iptlibp, Lmphprpmuunimib Audt T". Ad"wry Mutsd Gral Rwnlo OftWnaiont

5 0 GrantThornton 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 HPIU's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the project financial statements, including the disclosures, and whether the project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the management, 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. Gagik Gyulbudaghyan Managing Partner Emil Vassilyan, FC Engagement Partner June 27, 2017 Unutnst!upillp, kephpmrnp asndh AdtTu AIsory QPmUp lanptbpnts biptplhtutp muran Sortw of ackt Tifnr k nalnw LN

6 As of and for the year ended December 31, Statement of cash receipts and payments As of and for the year ended December 31, 2016 In US dollars Actual Planned Variance PAD Asof Asof Asof December December December For the year 31, 2016 For the year For the year 31, 2016 Project life Cash balance as of January 1, 2016 (as calculated) 1,328,215 Cash balance as of January 1, 2016 (actual) 1,324,721 Difference-ineligible expenses (note 10) 3,494 Add: cash receipts IDA Fund (note 4) 10,041,034 17,840,139 Government co-financing 2, ,091,843 Total cash receipts 12, ,982 Exchange rate difference 1,273 (2,298) Less: cash payments (1) Goods, works, non-consulting services, Operating Costs, Training and consultants' services for the Project, Including audits (note 6) ,010 20,450,784 9, ,388,717 3,062,067 3,062,067 41,327,621 (2) Performance-Based Financing Scheme under Part 1 (a) of the Project 417, , , , , ,937,903 Total cash payments 13,025,173 21,063,072 9,822, ,202,618 3,202,618 43, Cash balance as of December 31, 2016 (as calculated) 866,612 Cash balance as of December 31, 2016 (actual) 863,118 Difference-ineligible expenses (note 10) 3,494 The project financial state ved on June 27, 2017 by: Arayik Bahyan Director AdurStepanyan Financial manager TIs statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 6 toi4.

7 As of and for the year ended December 31, 2016 Statement of uses of funds by Project actvities As of and for the year ended December 31, 2016 In US dollars Actual Planned Variance PAD As of As of As of December December December For the year 31, 2016 For the year 31, 2016 For the year 31, 2016 Project life Part 1: Performance-Based Financing to Improve MCH Services and NCD Services In PHC Facilities 701,357 1,434, ,859 1,337,643 96,498 96,498 2,640,524 Al - Performance-based Payments for MCH and NCD: , , ,937,903 a - Cost for lab and PAP smear tests implementation 210, , ,797 (12,915) (12,915) 1,197,107 b - Performance-based incentives for an agreed list of performance Indicators A2 - Performance-based financing 206, , , , , ,796 program implementation and capacity building 284, , , ,906 (44,053) (44,053) 702,621 Part 2: Improving Efficiency and Quality of Selected Hospitals 12,058,751 18,603,992 8,919,008 15,464,249 3,139,743 3,139,743 38,900,800 B1- Modernization of Lori Marz Hospital Network ,788, ,307,000 B2 - Modernization of "Center of Hematology named after Professor Yeolyan" CJSC 9,783,206 13, ,628,100 10,192,785 3,155,106 3,155,106 13,023,000 B3 - Modernization Cancer Treatment Services in Armenia 166, , , ,817 (583,021) (583,021) 12,440, Hospital Quality Improvement 2,108,566 3,168,598 1,540,908 2,600, , , ,800 Part 3: Project Management 265,065 1,024, ,688 1,058,562 (33,623) (33,623) 1,724,200 Total 13,025,173 21,063,072 9,822,555 17,860,454 3, ,202, ,524 This statement is to be read in conjunction with the notes to and forming part of the projcct financial statements set out on pages 6 to 14.

8 As of and for the year ended December 31, Notes to the project financial statements I Activity The Financing Agreement (Credit number 5222-AM) of the Disease Prevention and Control Project (the "Project") was signed on May 17,2013 between the Republic of Armenia and the International Development Association (the "IDA"). The total amount of the Loan was agreed to be 221,800,000 SDR. The amendment of the agreement was signed on March 4, The objective of the Project is to improve: (a) MCH services and the prevention, early detection, and management of selected NCD at the PHC level; and (b) the efficiency and quality of selected hospitals in the Recipient's territory. The Project consists of the following parts: Part 1: Performance-based financing to improve MCH services and NCD services in PHC facilities, (a) Implementation of the Performance-Based Financing Scheme, through: (a) the reimbursement for Eligible Screening Tests performed at Eligible PHC Facilities; and (b) the provision of Performance-Based Incentives to Eligible PHC Facilities against their level of performance achieved. (b) Provision of: (a) Operating Costs to SHA for the carrying out the Performance-Based Financing Scheme; (b) training and capacity building activities to key stakeholders on the implementation of the Performance- Based Financing Scheme; (c) essential equipment for screening programs in PHC facilities; and (d) provision of support for the carrying out of health promotion activities, including a national public information campaign focused on promotion of healthy lifestyles, aimed at increasing population's awareness on major risks associated with NCDs. Part 2: Improving efficiency and quality of selected hospitals, (a) Provision of support for the modernization of the Lori Maz Hospital Network, through, inter alia: (a) the design and carrying out of civil works and provision of medical and waste management equipment for the upgrading and refurbishing of the Vanadzor medical center; (b) the carrying out of training activities aimed at improving the management system of the Vanadzor medical center, as well as improving professional skills and competencies of medical staff; and (c) the financing of angiographs at the Gyumri hospital and Nork-Marash specialized cardiology and cardiac surgery center. (b) Improvement of the quality of specialized in-patient and out-patient hematological services offered by the center of hematology "Professor Yeolyan", through, interalia: (a) the preparation of the designs needed for the reconstruction of the center of hematology and the creation of a bone marrow transplant center; (b) the carrying out of the necessary civil works for the renovation and reconstruction of the center; (c) the provision of the necessary medical equipment, furniture and supplies; (d) the provision of training to clinical staff and hospital administration; and (e) the development and implementation of treatment

9 As of and for the year ended December 31, (c) Provision of support for the establishment of a new oncology center aimed at providing integrated oncology services to the Recipient's population, through, inter alia; (a) the provision of technical assistance for the design of the oncology center; (b) the carrying out of civil works for the construction of a radiation therapy facility; (c) provision of the necessary diagnostics and treatment equipment; and (d) the development of clinical protocols and treatment standards for the oncology center. (d) Provision of support for the improvement of hospital quality, through, inter alia: (a) the development of a comprehensive cancer registry system; provision of training to hospital personnel on epidemiology and statistics; and the necessary IT equipment to the statistical department of the oncology center referred to in (c) above; (b) the provision of technical assistance to NIH for the development of clinical guidelines and standards for all hospitals in the Recipient's territory; and (c) the scaling up of the Quality Improvement Program in all Marzes, through, inter alia, the provision of: (a) training for: (A) hospital staff in clinical guidelines and standards; (B) managers and hospital quality control committees in quality management mechanisms and tools; and (C) hospital managers in budget management; and (b) technical assistance to hospitals to implement the Quality Improvement Program tools and mechanisms. Part 3: Project management. Provision of support to the Ministry of Health for the technical and administrative management of the Project, including the financing of the necessary Operating Costs and audits. In accordance with the amendment to the Financing Agreement (Credit number 5222-AM), financing of the Project is implemented through the following categories: Percentage of Expenditures to Amount of the be financed Credit Allocated (inclusive of Category (In SDR) Taxes) (1) Goods, works, non-consulting services, Operating Costs, Training and consultants' services for the Project, including audits ,000 80% (2) Performance-Based Financing Scheme under Part 1 (a) of the Project 2.136, % 22,800,000 The Project is co-financed by the Republic of Armenia, as well as by the IDA under the HRITF Grant No TF letter agreement in an amount of USD 1,800,000, which was signed on September 27, 2013, for the financing of Part I of the Project. The financing of works, goods, consultants' services, training and operating expenses within the scope of the Project is implemented by 80% from loan sources and 20% from Government of Armenia (the "GoA') sources, and the financing of non-con sultants' services is implemented by 48% from loan sources, 13% from GoA sources and 39% from grant sources. Performance-Based Financing Scheme under Part 1 (a) of the Project is financed by 55% from loan sources and 45% from grant sources.

10 As of and for the year ended December 31, The Project is implemented by the State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia (the "HPIU"). The HPIU was established as a state agency by the Minister of Health of the Republic of Armenia decree number 22 dated January 17, 2000, on the basis of the Government of Armenia decision number N765. The legal address of HPIU is Komitas Street 49/4, 0051, Yerevan, Republic of Armenia. The average number of the HPIU staff in 2016 was 19 (2015:19). 2 Significant accounting policies Statement of compliance The project financial statements are prepared in accordance with IPSAS Financial Reporting Underthe Cash Basis ofaccountin& the World Bank guidelines and the relevant points of the Financing Agreement (Credit number 5222-AM). Alternatively, the HPIU presents a statement of financial position of the Project as of the reporting date as an encouraged additional disclosure, as prescribed in the part 2 of IPSAS FinancialReporting Under the Cash Bauis ofacaunting (refer to note 9). Project financial statements The project financial statements include: a) The statement of cash receipts and payments of the Project for the year ended December 31, 2016, showing the World Bank and counterpart funds separately, and the statement of uses of funds by Project activities. b) Accounting policies and explanatory notes (including additional accounting policies and disclosures), covering * Summary of summary reports or SOEs used as the basis for the submission of withdrawal applications in the notes, as appropriate; a Statement of designated account in the notes, as appropriate; * Statement of financial position showing accumulated funds of the Project, bank balances, other assets of the Project, and liabilities, if any, as described in the note 9.

11 As of and for the year ended December 31, Functional and presentation currency 7 The national currency of the Republic of Armenia is Armenian dram. These project financial statements are presented in US dollars (presentation currency). In preparing the project financial statements, transactions in currencies other than US dollar are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on that date, which is for US dollar I as of December 31, 2016 (December 31, 2015: drams for US dollar 1). Any exchange rate differences are recognized in the statement of the statement of cash receipts and payments and the accumulated figure of exchange rate difference is disclosed in the Statement of financial position under "Exchange rate difference". For the presentation of the statement of financial position in the note 9 the balances of bank accounts, advances and accounts payable denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on reporting date. Expenses Expenses incurred in the framework of the Project are recognized on the cash basis of accounting, i.e. when the relevant cash is paid. The expenses are recognized in the statement of cash receipts and payments under the caption "cash payments". Additionally, the Project expenses are disclosed in the statement of uses of funds by Project activities. Project financing Financing received in the framework of the Financing Agreement (Credit number 5222-AM) is recorded in the statement of cash receipts and payments as "cash receipts" and is recognized at each replenishment. In addition, the Project funds received are disclosed in the Statement of financial position (refer to note 9). The World Bank financing To finance eligible expenditures under the Financing Agreement, the World Bank disburses proceeds from the Credit account using one or more of the disbursement methods, which are stated below a. Reimbursement The Bank may reimburse the borrower to finance eligible expenditures that the borrower has prefinanced from its own resources. b. Advance The Bank may advance loan proceeds into a Designated account of the borrower to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date. c. Direct payments The Bank may make payments, at the borrower's request, directly to a third party for eligible expenditures.

12 As of and for the year ended December 31, d. Special commitment The Bank may pay amounts to a third party for eligible expenditures under Special commitments entered into, in writing, at the borrower's request and on terms and conditions agreed between the Bank and the borrower. Planned annual expenses As of the end of the year "Planned Project Expenses" comprise the sum of the amount of "Actual Project Expenses" as of the end of the previous period and the annual budgeted expenses of the reporting year. 3 Closing date of the project According to the Financing Agreement (Credit number 5222-AM) dated on May 17, 2013, the closing date of the Project was defined as December 31, IDA Fund In US dollars As of For the year ended December 31, December 31, SOE and other procedures 10, ,340,139 Designated account advance ,034 17,840,139 Under the method of "SOE procedures" of financing, the HPIU requests advance to and documentation of designated account accompanied by the statement of expenditure (SOE). Under the method of "Other procedures" of financing, the HPIU requests advance to and documentation of designated account accompanied by the records evidencing eligible expenditures for payments against contracts valued at more than the amounts in accordance with the Disbursement Letter and contracts that are subject to the World Bank's prior review.

13 As of and for the year ended December 31, SOE withdrawal schedule For the year ended December 31, 2016 In US dollars Category Application No. (1) Goods, works, nonconsulting services, Operating Costs, Training and (2) Performance-Based Consultants' services for the Financing Scheme under Part Project, including audits 1(a) of the Project Total NCDP ,879 57, ,445 NCDP , , ,441 NCDP-14 43,717 35,422 79,139 NCDP ,108 NCDP-16 45, ,862 NCDP-17 9, ,164 NCDP-18 5,129-5,129 NCDP-19 52,655 52,655 NCDP-20 30,006 56,742 86,748 Total 872, ,207,691 6 Uses of funds by "(1) Goods, works, non-consulting services, Operating Costs, Training and consultants' services for the Project, Including audits" category descriptions The statement of cash receipts and payments discloses the expenses in two categories, one of which is combined category, as depicted in the Financing Agreement (Credit number 5222-AM). However, for the convenience of certain users, the breakdown of the uses of funds is disclosed in the table below. In US dollars For the year ended December 31, As of December 31, Works 2,952,429 5,450,666 Goods 8, ,832,116 Consultants' services ,216,221 Trainings 34, ,021 Operating costs ,760 12,608,010 20,450,784

14 As of and for the year ended December 31, Designated account statement As of and for the year ended December 31, 2016 In US dollars Opening balance as of January 1, ,721 Add: Cumulative unexplained discrepancy Credit replenishment during the year 10,041,034 10,041,034 10,041,034 Less: Refund to the IDA from the designated account during the year - Present outstanding amount advanced to the designated account (1) 11,365,755 Closing balance as of December 31, ,118 Add: Amount of eligible expenditures paid during the year 10, Amount of ineligible expenditures paid during the year - 10,502, ,637 Less: Interest earned (if credited into the designated account) Total advance accounted for (2) Discrepancy (1) - (2) to be explained

15 As of and for the year ended December 31, Reconciliation between the amounts received by the HPlU and disbursed by the World Bank For the year ended December 31, 2016 In US dollars The World Category Appl. HPIU Bank (1) Goods, works, nonconsulting Difference services, Operating Costs, Training and Consultants' services for the Project, including audits NCDP-12 1,117, ,713 - NCDP , ,100 - NCDP-14 1,140,789 1,140,789 - NCDP , ,718 - NCDP-16 1,377,673 1,377,673 NCDP , ,477 NCDP-18 1, ,102,635 NCDP-19 1,335,365 1,335,365 NCDP ,036,346-9,705,816 9,705,816 - (2) Performance-Based Financing Scheme under Part 1(a) of the Project NCDP-12 57,566 57,566 NCDP , ,411 NCDP-14 35,422 35,422 NCDP-16 17,532 17,532 NCDP-17 67,545 67,545 NCDP-20 56,742 56, , ,218 - Tota 10,041,034 10,041,034 -

16 As of and for the year ended December 31, Statement of financial position As described in the note 2, the policy of the HPIU is to prepare the project financial statements in accordance with IPSAS Financial Reporting Under the Cash Basis ofaaunting. However, the HPIU also has presented a separate statement of financial position as a disclosure encouraged under IPSAS Finandal Reponin,g Under the Cash Basis ofacaunting. US dollars Assets As of December As of December Current assets Balances in bank accounts Designated account 863,118 1,324,721 Advances and prepayments 733, ,141 Non-current assets 1,596,330 2,051,862 Project expenditures 20,362,907 7,465,773 20,362,907 7,465,773 Total assets 21,959, ,635 Funds and liabilities IDA Fund 17,840,139 7,799,105 Government co-financing 4,091,843 1,570,580 Other 2, Exchange rate difference (38.927) (62,345) 21,895,932 9,307,411 Current liabiliues Accounts payable 63, , Total net assets ,237 9,517, Ineligible expenses The difference between the calculated and actual cash balances is due to the expenses on the screening tests, which were considered as ineligible by the HPIU management and as subject to reduction from the financing budgeted for the next year. As a result of the examinations performed in the medical facilities selected on a sampling basis, it was revealed that there are ineligible expenses of US dollar 3,494 as of December 31, 2016, which have been deducted from the expense amount of Part 1(a) of the Project included in the statement of cash receipts and payments. The expenses on the screening tests performed by the medical facilities amount to US dollar 615,782 as of December 31, However, the HPIU management considered that US dollar 3,494 of this amount is ineligible. The ineligible expenses are due to the violations of the requirements for conducting the screening tests, absence of related documentation, etc. Accordingly, the amount of the expenses in "Part 1(a) of the Project Performance-based Financing Scheme" makes L'S dollar 612,288.