Public Disclosure Authorized. Public Disclosure Authorized

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1 Public Disclosure Authorized Public Disclosure Authorized VNG INTERNATIONAL ETHIOPIA PROMOTION OF BASIC SERVICES SOCIAL ACCOUNTABILITY PROJECT (ESAP2) AUDIT REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 Public Disclosure Authorized Public Disclosure Authorized

2 Table of Contents Statement of the Management Agency's responsibility Report of the independent auditor to Management Agency Financial Statements Statement of income and expenditure Statement of financial position...5 Notes to the financial statements Appendix I - A summary of the activity in the Project Designated Bank Account Appendix II - A listing of withdrawal applications Appendix III -Summary of the World Bank Designated account by category...14 Appendix IV - A list of material assets acquired or procured to date with project funds Appendix V - Income and expenditure summaries for SAIPs

3 Statement of the Management Agency's responsibility The Management Agency (MA) accept responsibility for the preparation and fair presentation of these financial statements, of Ethiopia Promotion of Basic Services Social Accountability Project Phase 2 (ESAP2) for the year ended 31 December The MA accepts responsibility for the financial statements, and is of the opinion that the financial statements have been prepared using appropriate accounting policies in conformity with the Terms and Conditions of the ESAP2 Grant Agreement, ESAP2 accounting policies as detailed in ESAP Financial Management Manual and generally accepted accounting practices. The MA further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Peter Knip Director, VNG International

4 Report of the independent auditor to Management Agency on the audit of the Ethiopia Promotion of Basic Services Social Accountability Project (ESAP2) Certification of the Financial Statements We have audited the accompanying financial statements of the Ethiopia Promotion of Basic Services Social Accountability Project Phase 2 (ESAP2) as set out on pages 4 to 11 of this report. These financial statements comprise the statement of income and expenditure for the year ended 31 December 2015, the statement of financial position as at 31 December 2015, a summary of significant accounting policies and other explanatory notes. Management Agency responsibilities The Management Agency (MA) is responsible for the preparation and fair presentation of these financial statements in accordance with the Terms and Conditions of the ESAP2 Grant Agreement and accounting policies set out in Note 2 of this report, this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an independent opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the preparation of the project's financial statements 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 organization's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, made by project management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements of the Ethiopia Promotion of Basic Services Social Accountability Project Phase 2 (ESAP2), presents fairly, in all material respects the financial position as at 31 December 2015 and the results of operations for the year then ended, in accordance with the accounting policies set out in Note 2 of this report, and the Terms and Conditions of the ESAP2 Grant Agreement. 2

5 Basis of accounting and restriction on distribution and use Without modifying our opinion, we draw attention to the accounting policies of the ESAP2 financial statements as set out in Note 2 of this report, which describe the basis of accounting. These financial statements have been prepared for purposes of providing information to the MA, the Government of Ethiopia and the World Bank. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the MA, the Government of Ethiopia and the World Bank and should not be distributed to or used by other parties. The engagement partner responsible for the audit resulting in this independent auditor's report is CPA Edwin Kagwl - P/1986 Kago Kagwi & Associates 2016 Certified Public Accountants Applewood Office Park Nairobi, Kenya 3

6 Statement of income and expenditure Income Notes Por the period ended 31 December 2015 Amount in USD Opening balance 3 3,374, Funds received from the World Bank 4 6,529, Total income 9,904, Expenditure Goods 5 (a) 19, Consultants' Services 5 (b) 636, Management and Coordination Services Fee 5 (c) 1,730, Training & Workshops 5 (d) 178, Grants for Sub-Projects 5 (e) 4,461, Total expenditure 7,026, Surplus of income over expenditure 2,373,

7 Statement of financial position Assets Notes As at 31 December 2015 Amount in USD Current assets Bank balances 6 1,277, Prepayments 7 1,908, Receivables 8 3, Total assets 3,189, Reserves 9 2,878, Current Liabilities Accounts payable , Total current liabilities and reserves 3,189, The financial statements above and the accompanying notes on pages 4 to 11 were approved by Management Agency on op-p! and signed on its behalf by: Peter Knip Director, VNG International 5

8 Notes to the financial statements 1. Project background General overview The Promotion of Basic Services (PBS) II Sub-Program Part C2- Social Accountability Program (SAP), here after referred to as 'the Project', strives to strengthen and deepen social accountability (SA) initiatives and mechanisms which were initiated under PBS 1. The objectives are to work further towards enhancement of transparency around public budgeting and monitoring procedures (planning, budget preparation, expenditures and audits, performance monitoring), and to enhance and scale up activities to engage civil society (citizens and citizen representative groups) on basic services planning, budgeting, implementation, and monitoring to ensure that public basic services delivery reflect citizens' needs and preferences. The overall budget envelope for the Project is currently USD 29 million. The funds, coming from a Multi-Donor Trust-Fund, will be allocated for implementation of several components, including (a) the Services of the Management Agency; (b) grants to Social Accountability Implementing Partners (SAIPs) for implementation of the social accountability program at woreda level; (c) training and capacity building activities; and (d) surveys, monitoring, evaluation, and financial audits. Project implementation arrangements A consortium led by VNG International (represented in Ethiopia by its branch office "VNG INTERNATIONAL B.V. Plc.") will act for the period specified in the grant agreement, as the Management Agent (MA) of Government of Ethiopia's PBS II Sub Program C2 -Social Accountability Project (the project). As such, the MA is responsible for administering such grant funds for the furtherance of the activities to be carried out in respect of the project. There are 48 Social Accountability Implementing Partners (SAIPs) involved in the project implementation for the period covered by the financial audit, 1 January 2015 to 31 December Project financing The overall budget envelope for the Project is currently USD 29 million. 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. a) Basis of preparation The financial statements have been prepared in accordance with the requirements of the ESAP2 accounting policies as detailed in ESAP Financial Management Manual and the Terms and Conditions of the ESAP2 Grant Agreement. The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. 6

9 E5AP2 Audit Report and Financial Statements Notes to the financial statements (Continued) b) Income recognition Income represents funds received from Multi-Donor Trust-Fund managed by the Word Bank. Income is recognized when the funds are received in the VNG International, in The Netherlands bank account. c) Foreign currency translation Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in United States Dollars ("USD") which is the Project's functional currency. Transactions Foreign currency transactions are translated into the functional currency of the MA using the actual exchange rates prevailing at the dates of the transactions for the income and using the average exchange rates of USD for the expenditure items. d) Expenditure recognition Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in funds. Expenses are recognized when incurred rather than paid. In the IFR, expenses are translated from Ethiopian Birr to USD at a quarterly average rate benchmarked by the National Bank of Ethiopia monthly rates. e) Prepaid expenses Prepaid expenses are amounts that are paid in advance to a supplier or creditor for services provided. Prepayments are recognized when the MA pays for goods or services in advance. They are classified as assets, because the entity will receive economic benefits from the amount of expenses paid in advance. f) Accruals Accruals are monies put aside to fund certain activities before the creation or collection of the underlying documents such as invoices, purchase orders, among others and before those committed funds are paid out. Accruals are recognized when the entity issues contracts or purchase orders for the supply of goods or services. 7

10 Notes to the financial statements (Continued) 3. Opening balance The opening balance of USD 3, was the balance reported as the closing balance in the financial year 2014 audit report. 4. Income During the Financial Year ended 31 December 2015, the following funds were received by VNG International, in The Netherlands, from the World Bank as indicated the table below: 28/12/2015 WA#54 763, /12/2015 WA#55 52, /12/2015 WA#53 593, /10/2015 WA#52 50, /08/2015 WA#51 673, /07/2015 WA#50 681, /07/2015 WA#49 61, /06/2015 WA#48 571, /06/2015 WA#47 478, /05/2015 WA#46 253, /05/2015 WA#45 123, /04/2015 WA#44 545, /04/2015 WA#43 17, /04/2015 WA#42 469, /03/2015 WA#41 569, /02/2015 WA#40 31, /02/2015 WA#39 591, Total 6,529, The amount received agrees with the with the amount request by the MA. Detailed WA that have been is provided as Appendix I to this report. 8

11 Notes to the financial statements (Continued) 5. Expenditure The table below outlines the expenditure (by MA headquarters, MA Branch office and SAIPs) during the period 1 January to 31 December 2015: 5 (a) Goods 1.1 Office equipment, vehicles, web tools, goods, supplies 4, Printed training and visibility materials 15, Total 19, (b) Consultants' Services 2.1 Consultants' Services Capacity Building 84, Consultants' Services M&E 319, Consultants' Services General Operations 232, , (c) Management and Coordination Services Fee 1,730,044.97] 5 (d) Training & Workshops 4.1 Travel costs in Ethiopia 30, Logistics for events, workshops etc. 82, Reimbursable costs participants trainings and workshops 65, , (e) Grants for Sub-Projects 4,461, (As detailed in Appendix V) 9

12 Notes to the financial statements (Continued) 6. Cash and bank balances Details Amount in USD The amount represents the closing bank balance at the VNG International, in 1,277, the Netherlands, as at 31 December Prepayments Prepayments represent the amounts disbursed to SAIPs, as detailed in Appendix V, that had not been accounted for as at 31 December 2015 as presented in the table below: 1 SOS Sahel 33, NEWA 13, ILU 26, PICDO 20, HUNDEE 101, PDN 52, NSAC 28, Hope for Children 44, EOC - DICAC 57, Action for Development 55, Tigray Youth Association 49, PADET 24, Migbare Senay 16, WCAT 44, Guraghe Development Association 15, Oromia Development Association 60, Amhara Development Association 53, Women Association of Tigray 8, AFSR- Action for Self-Reliance 48, Redeem the Generation 46, Save Lives 9, Mums for Mums 33, KMG 22, Women Support Association 44, UEWCA- Union of Ethiopian Women's 81, JeCCDO 60, AA Women's Association 49, OWDA 45, Love in Action 3, VECOD 5, Action Professional Association for the People 59, Ethiopian Interfaith for Development and Dialogue 23,

13 33 Adigrat Diocesan Catholic Church Secretariat 44, Concern for Integrated Development 41, Mekdim Ethiopia National Association 40, Research Centre for Development and Education 44, Cheshire Foundation - Action for Inclusion 55, Relief Society of Tigre 66, Addis Development Vision 49, Rift Valley Children and Women Development Organization 32, Siiqqee Women's Development Association 40, Action for Environmental Public Advocacy 55, Ethiopian Women's Lawyers Association 47, Integrated Development Association 30, Mih Lewetatoch Yebeqo Adraaut Mehaber 35, AMUDAEAS 26, Green Initiative Ethiopia Development Association 48 Yezelalem Minch Children and Community Development 37, Ethiopia Catholic Church Social and Development Commission 20, Grand Total 1,908, Receivables The receivables amount is represented by: * i Advance Housing allowance Rolf Hunik (2013) 1, Advance GIEDA (ending balance) 2, Advance to Mums for Mums Total 3, Reserves The reserves amount is represented by: Item Amount in USD Surplus of income over expenditure for period ended 31 December ,878, Payables The payable amount is made up of mainly quarter No. 12 expenditure incurred by the Branch Office and was paid in quarter No. 13. Item Amount in USID Total per the payable listings as at 31 December ,

14 Appendix I - A summary of activity in the Project Designated Account Amount in USD Opening balance as at 1 January ,374, Funds received from the World Bank during the year 6,529, Total funds available for use 9,904, Expenditure Goods 19, Consultants' Services 636, Management and Coordination Services Fee 1,730, Training & Workshops 178, Grants for Sub-Projects 4,461, Total expenditure 7,026, Closing balance as at 31 December ,878, The closing balance consists of cash& bank balances of USD 1,277,444.29, balances with SAIPs of USD 1,908, and a net liability of USD 307, We reviewed the activities of the Designated Bank Account No. NL98ABNA held at ABN AMRO Bank associated with the project and confirmed that: * Advance deposits were received from the World Bank. * Replenishments substantiated by Withdrawal Applications. * No interest that has been earned on the account. * Withdrawals related to project expenditures. 12

15 Appendix II - A listing of withdrawal applications During the course of our financial audit, we verified all Statements of Expenditures (SOEs) used as a basis for the submission of withdrawal applications to the World Bank. We applied such tests and auditing procedures as considered necessary under the circumstances. Below is a schedule listing individual SOE withdrawal applications by specific reference number and USD amount paid to VNG International bank account number NL98ABNA : 0055 WA , , /12/15 28/12/15 28/12/ WA , , /12/15 28/12/15 28/12/ WA , , /11/15 2/12/15 2/12/ WA , , /9/15 7/10/15 7/10/ WA , , /7/15 5/8/15 5/8/ WA , , /7/15 16/7/15 16/7/ WA , , /7/15 16/7/15 16/7/ WA , , /6/15 26/6/15 26/6/ WA , , /6/15 9/6/15 9/6/ WA , , /5/15 15/5/15 15/5/ WA , , /5/15 15/5/15 15/5/ WA , , /4/15 27/4/15 27/4/ WA , , /3/15 7/4/15 7/4/ WA , , /3/15 7/4/15 7/4/ WA , , /2/15 4/3/15 4/3/ WA , , /2/15 11/2/15 11/2/ WA , , /2/15 11/2/15 11/2/15 Total 6,529, ,529,

16 Appendix III - Summary of the World Bank Designated account by category The summary below presents status of the designated account at the World Bank, extracted from the 'Client Connection' system. The analysis provided the disbursed amount which tallies with the amount received by that MA. 1 Goods 493, , , Consultant Services 2,700, ,001, , Management and Coordination Fees 7,955, ,719, ,235, Training and Workshops (inc media) 1,161, , , Grants for Sub-projects 16,722, ,391, ,331, DA-A Designated Account ,380, ,380, Totals 29,032, ,575, ,457, Note: The amount presented as allocated is higher than the amount allocated in the grant amendment number 4 as the client connection overview was made on 26 May The increased amount is due to amendment number 5 of the grant agreement which increased the grant amount by USD 4,020,283 (from USD 25,012,616 to USD 29,032,899) on 12 April

17 Appendix IV - A list of material assets acquired or procured to date with project funds Assets procured by the MA are recorded in an asset register called 'inventory tracker'. The tracker provides a listing of all assets procured since the project inception as well as details to distinguish a particular asset. Below is the listing of assets procured during the period starting 1 January and ending 31 December 2015: CANON EOS 700D CAMERA 3, , Media market Sony ICD-PX440-4GB Voice Recorder , Netconn Engineering Sony ICD-PX440-4GB Voice Recorder , Netconn Engineering LTE Device with sim card , Ethio Telecom Toshiba Satellite 1, , HQ/Netherland Total 5, ,

18 Appendix V - Income and expenditure summaries for SAIPs No. Oraizto Adane 201 Cuuatv Exedtruuaie Ottni 1 SOS Sahel 64, , , , , NEWA 72, , , , , ILU 76, , , , , PICDO 17, , , , , HUNDEE 103, , , , , PDN 35, , , , , NSAC 40, , , , , Hope for Children 88, , , , , EOC - DICAC 89, , , , , Action for Development 133, , , , , Tigray Youth Association 67, , , , , PADET 54, , , , , Migbare Senay 85, , , , , WCAT 68, , , , , Guraghe Development Association 24, , , , , Oromia Development Association 61, , , , , Amhara Development Association 99, , , , , Women Association of Tigray 43, , , , , AFSR- Action for Self-Reliance 102, , , , , Redeem the Generation 81, , , , , Save Lives 26, , , , , Mums for Mums 71, , , , , KMG 61, , , , , Women Support Association 91, , , , , UEWCA- Union of Ethiopian Women 99, , , , , JeCCDO 74, , , , ,

27 AA Women's Association 63,848.34 295,956.72 44,899.82 246,882.98 49,073.74 28 OWDA 46,515.09 282,157.11 55,589.56 236,224.42 45,932.69 29 Love in Action 23,725.62 292,051.16 101,054.59 288,663.

19 27 AA Women's Association 63, , , , , OWDA 46, , , , , Love in Action 23, , , , , VECOD 46, , , , , Action Professional Association for the People 51, , , , , Ethiopian Interfaith for Development and Dialogue 86, , , , , Adigrat Diocesan Catholic Church Secretariat 96, , , , , Concern for Integrated Development 70, , , , , Mekdim Ethiopia National Association 66, , , , , Research Center for Development and Education 59, , , , , Cheshire Foundation - Action for Inclusion 95, , , , , Relief Society of Tigre 67, , , , , Addis Development Vision 76, , , , , Rift Valley Children and Women Development Organization 65, , , , , Siiqqee Women's Development Association 71, , , , , Action for Environmental Public Advocacy 85, , , , , Ethiopian Women's Lawyers Association 75, , , , , Integrated Development Association 61, , , , , Mih Lewetatoch Yebeqo Adraaut Mehaber 61, , , , , AMUDAEAS 75, , , , , Green Initiative Ethiopia Development Association 16, , , , Yezelalem Minch Children and Community Development 61, , , , , Ethiopia Catholic Church Social and Development Commission 95, , , , , Grand Total 3,321, ,343, ,461, ,435, ,908,

20 Appendix VI - Cumulative statement of income and expenditure income Cumulative as at 31 December 2015 in USD Funds received from the World Bank 23,575, Total income 23,575, Expenditure Goods 435, Consultants' Services 2,088, Management and Coordination Services Fee 6,088, Training & Workshops 649, Grants for Sub-Projects 11,435, Total expenditure 20,697, Surplus of income over expenditure 2,878,

The Federal Democratic Republic of Ethiopia Audit Services Corporation

Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized M-1-1 9"CaDo MA"?AM-+ Wc 67i) The Federal Democratic Republic of Ethiopia Audit Services