FOR THE YEAR ENDED 31 DECEMBER 2015

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN REPORT OF INDEPENDENT AUDITORS AND COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 Public Disclosure Authorized Public Disclosure Authorized

2 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE TABLE OF CONTENTS Statement Management Responsibilities Report Independent Auditors Combined Balance Sheet Combined Statement Sources and Uses Funds Page Notes to the Combined Special Purpose Financial Statements 1220

3 STATEMENT OF MANAGEMENT RESPONSIBILITIES Management has prepared and is responsible for the combined special purpose financial statements and related notes the Social Fund for the Development Internally Displaced People ("SFDI"). They have been prepared in accordance with the basis accounting described in Note 2 the accompanying combined special purpose financial statements. SFDf maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorisation and properly recorded, and that accounting records may be relied upon for the preparation financial statements and other financial information. The system contains selfmonitoring mechanisms that aliow management to be reasonably confident that controls, as well as the SFDI's administrative procedures and internal reporting requirements operate effectively. There are inherent limitations in the effectiveness any system internal control, including the possibility human error or the circumvention or overriding controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statements preparation. Sabir Ahmadov General Manager, SF Lala Shikhaliyeva Chief Accountant, SFDI 28 June 2016 Baku, Azerbaijan 3

4 MOORE STEPHENS Moore Stephens Azerbaijan Limited 13, Zeynalabdin Taghiyev Street Baku AZ1005, Azerbaijan /48/ REPORT OF INDEPENDENT AUDITORS To the Supervisory Board the Social Fund for the Development internally Displaced People Azerbaijan: 1. We have audited the accompanying combined special purpose financial statements the Social Fund for the Development Internally Displaced People Azerbaijan ("SFDI") which comprise the combined balance sheet at 31 December 2015, and the related combined statement sources and uses funds for the year then ended, and a summary significant accounting policies and other explanatory notes (collectively referred to as the "combined special purpose financial statements"). We have also audited SFDI's compliance with the requirements and conditions the World Bank's Guidelines, Credit Agreements and laws and regulations the Republic Azerbaijan. Management's responsibility for the financial statements 2. Management is responsible for the preparation and fair presentation these special purpose financial statements in accordance with the International Public Sector Accounting Standard ("IPSAS") "Financial Reporting under the Cash Basis Accounting" issued by the International Public Sector Accounting Standards Board ("IPSASB") the International Federation Accountants ("IFAC") and the "Guidelines: Annual Financial Reporting and Audit for World Bank Financed Activities" as described in Note 2 the special purpose financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors'responsibility 3. Our responsibility is to express an opinion on these combined special purpose financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing ("ISA") with special reference to ISA 800 "The independent Auditors' Report on Special Purpose Audit Engagements" and to relevant World Bank Guidelines, Credit Agreements and laws and regulations the Republic Azerbaijan applicable to the audit financial statements and to compliance auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the special purpose financial statements are free from material misstatement and about whether SFDI has complied with relevant guidelines, agreements, laws and regulations. 4

5 MOORE STEPHENS 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and about whether SFDI has complied with relevant guidelines, agreements, laws and regulations. The procedures selected depend on the auditors' judgment, including the assessment the risks material misstatement the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to SFDI's preparation and fair presentation the combined special purpose financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose expressing an opinion on the effectiveness the SFDI's internal control. An audit also includes evaluating the appropriateness accounting policies used and the reasonableness accounting estimates made by management, as well as evaluating the overall presentation the financial statements. 5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 6. In our opinion: a) the accompanying combined special purpose financial statements present fairly, in all material respects, the financial position SFDI referred to above at 31 December 2015 and its sources and uses funds for the year then ended in accordance with the basis accounting described in Note 2 to the accompanying combined special purpose financial statements; and b) SFDI was, in all material respects, in compliance with the requirements and conditions the World Bank Guidelines, Development Credit Agreement and laws and regulations the Republic Azerbaijan during the year ended 31 December June

6 COMBINED BALANCE SHEET AS AT 31 DECEMBER 2015 (Expressed in US dollars) ASSETS AND CUMULATIVE 2015 EXPENDITURE 2014 Cash and bank World Bank Project Bank account Government Azerbaijan Project Bank account 4 Community 10 Project Bank account 75,979 Microcredit (interest) 28,102 International Development 116,967 Association 122,519 ("IDA") Special Account International Bank for Reconstruction and Development ("IBRD") Special Account 28,715 93,681 Cash and bank 221,665 State Oil Fund 244,312 the AzerbaUan Republic ("SOFAZ") Project Bank accounts Bank accounts operated 1,577 through the Treasury 2,963 the Finance Ministry Petty cash Cash and bank State Oil Company Azerbaian Republic (SOCAR") Project Bank account Bank accounts operated through the Treasury the Ministry Finance Cash and bank Islamic Development Bank ("IDB) Project Bank accounts Cash and bank Microcredits Bank accounts 131, , , ,820 9,764 19,396 9,764 19, , ,199 Cash and bank Tender 130, ,199 Bank accounts Cash and bank Japan Social Development Fund ("JSDF") Project Bank account Cash and bank the Government Azerbaijan ('GoA") Bank accounts operated through the Treasury the Ministry Finance Total Assets 11,992 19,484 11,992 19,484 5,379 28,222 5,379 26, , ,433 Cumulative Project expenditure World Bank Cumulative Project 105,449,628 expenditure SOFAZ 79,747,890* Cumulative 2,212,089,302 Project expenditure 2,063,625,304 SOCAR Cumulative Project expenditure 9,444,872 IDB 9,444,872 Cumulative Project 13,321,101 expenditure Microcredits 13,321,101 Cumulative Project expenditure 3,783,852 Tender 3,675,916 Cumulative Project expenditure 213,025 JSDF 182,149 Cumulative Project 1,943,224 expenditure GoA 1,943, ,366,784 97,390,171 Total Cumulative Project Expenditure 2,454,611,768 2,269,330,627 TOTAL ASSETS AND CUMULATIVE EXPENDITURE 2,455,124,974 2,270,067,060 *The expenditure on works and goods amounting USD 16,296 expensed in the year ended 31 December 2009 out Government share under IDA 4034AZ agreement was omitted from cumulative project expenditure by an error. The amount front end fee USD 125,000 has been included in the cumulative expenditure the Project. The notes set out on pages 1220 form an integral part these financial statements 6

7 COMBINED BALANCE SHEET (CONTINUED) AS AT 31 DECEMBER 2015 (Expressed in US dollars) SOURCES OF FUNDS Cumulative sources funds World Bank 106,058,022 79,967,814 Cumulative Cumulative sources sources funds funds SOCAR SOFAZ Cuultie o fnd ouce SOAR9,481,941 2,213,434,590 Cumulative sources funds IDB 2,063,615,728 13,320,587 9,481,941 13,320,587 Cumulative sources funds Microcredits 4,137,306 3,978,542 Cumulative sources funds Tender 235, ,031 Cumulative sources funds JSDF 1,943,224 1,943,224 Cumulative sources funds GoA 108,404,932 97,428,052 Total sources funds 2,457,015,624 2,269,936,919 Accumulated foreign exchange difference World Bank (386,729) 24,388 Accumulated foreign exchange difference SOFAZ Accumulated foreign exchange difference SOCAR (2,725) 2363 Accumulated foreign exchange difference IDB (73 (13 Accumulated foreign exchange difference Microcredits 513 Accumulated foreign exchange difference Tender02 Accumulated foreign exchange difference JSDF ( Accumulated foreign exchange difference GoA Total accumulated foreign exchange difference (1,890,650) 130,141 TOTAL SOURCES OF FUNDS 2,455,124,974 2,20,067,060 Sabir Ahmadov General Manager, SFD1 The notes set out on pa Lala Shikhaliyeva C _ Chief Accountant, SFDI s 1220 form an integral part these financial statements 7

8 COMBINED STATEMENT OF SOURCES AND USES OF FUNDS (Expressed in US dollars) OPENING BALANCES World Bank Project Bank accounts International Bank Azerbaijan ("IBAR") Republic IDA Special account IBAR 150, ,229 93,681 81, , ,118 SOFAZ Project Bank accounts IBAR Treasury accounts IBAR 2,963 2,963 Petty cash 223,856 83, SOCAR 226,820 86,383 Project Bank account Kapital Bank Bank accounts operated through the Treasury the Ministry Finance 1DB Project Bank accounts Kapital Bank Microcredits Project Bank accounts IBAR Project Bank accounts Kapital Bank Tender Project Bank account IBAR 19,396 19,389 19,396 19, , ,414 29,157 17, , ,505 19,484 4,229 JSDF 19,484 4,229 Project Bank account ]BAR GoA Bank accounts operated through the Treasury the Ministry Finance 28,222 19,667 28,222 19,667 TOTAL OPENING BALANCES LESS: 736, ,271 ACCUMULATED OPENING FOREIGN EXCHANGE DIFFERENCE World Bank SOFAZ SOCAR IDS Microcredits Tender JSDF GoA 24,388 24, , ,772 (17,673) (17,700) (104,427) (104,437) (9,659) (9,659) Total accumulated opening foreign exchange difference 130, ,868 The notes set out on pages 1220 form an integral part these financial statements

9 COMBINED STATEMENT OF SOURCES AND USES OF FUNDS (CONTINUED) (Expressed in US dollars) ADD: FUNDS RECEIVED BY SOURCES World Bank IDA funds IBRD funds Government funds Community funds Microcredits (interest) SOFAZ SOCAR 1DB Government funds IDB funds Microcredits Tender JSDF GoA Cumulative 26,344,394 17,804,681 15,214,177 43,371,942 7,804,892 11,124,364 34,130, , ,567 1,808,167 87, , ,681 26,090,208 26,748, ,058, ,818, ,494,489 2,213,434, ,818, ,494,489 2,213,434,590 9,481,941 9,481,941 3,936,617 9,383,970 13,320, , ,413 4,137, , ,413 4,137,306 33,991 36, ,022 33,991 36, ,022 1,943,224 1,943,224 10,976,880 14,114, ,404,932 10,976,880 14,114, ,404,932 TOTAL FUNDS RECEIVED 187,078, ,770,533 2,457,015,624 LESS: EXPENDITURE World Bank Works and goods Housing 8,050,011 Renovation 4,598,904 50,139,904 Youth 12,176,849 Support 14,594,856 29,206,029 Income 2,058,021 Generating Activities 3,322,022 6,455,218 Consultant 1,430,009 services and 2,112,616 training 4,335,046 Operating 1,070,465 costs 938,195 4,538,793 Microcredit 916,383 financed by 1,083,930 WB8096 6,363,579 Front end fee 192,234 4,286, ,000 SOFAZ 25,701,738 26,842, ,449,628 Engineering structures Public 49,244,578 service objects 100,358, ,851,138 Private 18,372,281 houses 36,308, ,411,816 Other 66,399, ,692,486 1,273,431,293 14,447,930 9,994,269 79,395,055 SOCAR 148,463, ,353,677 2,212,089,302 Construction Office 9,061,778 Project 107,997 Other 249,638 25,459 9,444,872 The notes set out on pages 1220 form an integral part these financial statements 9

10 COMBINED STATEMENT OF SOURCES AND USES OF FUNDS (CONTINUED) (Expressed in US dollars) IDB Cumulative Civil Works Consultants' services 12,900,762 Project 244,724 Salaries and fice 148,076 _ 27,539 13,321,101 Microcredits Microcredits 83, ,050 Salaries and fice 3,493,160 24,530 35, , , ,729 3,783,852 Tender JSDF GoA 30,876 21, ,025 30,876 21, ,025 1,943,224 1,943,224 10,976,593 14,106, ,366,764 10,976,593 14,106, ,366,764 TOTAL EXPENDITURE 185,281, ,640,644 2,454,611,768 ADD: ACCUMULATED CLOSING FOREIGN EXCHANGE DIFFERENCE World Bank (386,729) SOFAZ 24,388 (386,729) (1,211,725) 236,397 SOCAR (1,211,725) (27,305) (17,673) IDB (27,305) 513 Microcredits (222,610) (104,427) Tender (222,610) (10005) JSDF 602 (10,005) GoA Total accumulated closing foreign exchange difference (32,789) (,659% 32,789L (1,890,650) 130,141 (1,890,650) The notes set out on pages 1220 form an integral part these financial statements 10

11 COMBINED STATEMENT OF SOURCES AND USES OF FUNDS (CONTINUED) (Expressed in US dollars) CLOSING BALANCES World Bank Project Bank accounts IBAR IDA Special account 1BAR 192, ,631 IBRD Special account IBAR 28,715 93,681 SOFAZ 221, ,312 Project Bank accounts IBAR Bank 1,577 accounts operated 2,963 through the Treasury 131,984 Petty cash 223, SOCAR 133, ,820 Project Bank account Kapital Bank Bank accounts operated through the Treasury 9,764 19,396 IDB 9,764 19,396 Project Bank accounts Kapital Bank Microcredits Project Bank accounts IBAR 112,235 Project Bank 169,042 accounts Kapital Bank 18,609 29,157 Tender 130, ,199 Project Bank accounts IBAR 11,992 19,484 JSDF 11,992 19,484 Project Bank account IBAR GoA Bank account operated through the Treasury 5,379 28,222 5,379 28,222 TOTAL CLOSING BALANCES 513, ,433 Sabir Ahmadov General Manager, SF I Lala Shikhaliyeva Chief Accountant, SFDI The notes set out on pages 1220 form an integral part these financial statements 11

12 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND The separatist action in Upper Garabagh together with external aggression resulted in about 900,000 Internally Displaced People ("IDP") and refugees living in the Republic Azerbaijan. Facing the declining international support for humanitarian assistance and unrealistic prospects for early peace settlement that would permit the return IDP's to their former homes, the Government Azerbaijan ("the Government") has decided to take steps that would reduce dependence IDP on humanitarian aid and at the same time improve their living conditions and living standards. This involved the development a system realistic arrangements and the organisation new possibilities for the destitute families in an adequate socioeconomic situation with provision conditions for selflife support based on attraction donors by the Government. For the achievement these goals the Government has started the construction new "compact" settlements with the required infrastructure and repatriation to these settlements IDP's living in the worst conditions. The strategy the Government was ficially sanctioned by issuance the Presidential Decree # September 1998 and confirmed with the international organisations in a Memorandum Understanding signed by the Government Azerbaijan and UNDP, UNHCR and the World Bank on 23 February Subsequently, the Government has issued a number orders for the realisation the new strategy. Objectives the state strategy were detailed by the Decree # July 2004 President Azerbaijan. The accepted strategy targets transition from humanitarian assistance to the development programmes. However, this problem cannot be solved in a conventional way within a short time and consequently innovative and realistic methods are required. To address these issues the Government Azerbaijan has decided to set up the Social Fund for the Development IDP's ("SFDI") with the assistance the World Bank and other donors by Presidential Decree on 6 December SFDI is an integral part the Government Azerbaijan's strategy to improve the living conditions idp's. It is a social development agency that manages funds allocated for needs IDP's in a sustainable manner. SFDI is an autonomous organisation reporting to a Supervisory Board which is headed by the Chairman the Azerbaijan Republic's Committee for Refugees and IDP's and consists the representatives various state agencies such as the Deputy Minister Finance and representatives from various international agencies. SFDI has an independent financial and management system and is a nonprit organisation. The legal address SFDI is 57 Tbilisi Avenue, Baku, Azerbaijan, the actual address is 65 Fuzuli Street, Baku, Azerbaijan. According to its Charter SFDI has two key objectives: i. raising the living standards IDP's by providing required social funding and for economic the rehabilitation infrastructure; smallscale ii. implementation actions ensuring creation new work the places, population increasing and providing the employment opportunities rate for incomegenerating various community activities microprojects through the financing and the implementation micrinance programmes. SFDI finances the programmes in two main directions: Community Micro Projects (CMP) CMPs address community needs rather than individual needs. CMPs subdivide into (i) infrastructure and (ii) services (noninfrastructure) microprojects. Infrastructure microprojects (IMP) include rehabilitation/construction various infrastructures. Service microprojects (SMP) consist cleaning garbage, waste disposal or support to cultural centres or community activities. Micro Finance Programmes (MFP) MFPs are income generating programmes for the assistance to the poor IDP's directed to overcome poverty, improve their living standards, increase their income and provide assistance in employment generation in their microenterprises through participation financial intermediaries. 12

13 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND (CONTINUED) The main sources finance for SFDI activities are described below: World Bank To finance this Project, in August 1998 the World Bank (cr.31090az) approved a USD for a 20 "Pilot million Reconstruction equivalent IDA Project". credit The credit from was different complemented sources such by the as World the United Bank Nations financing Development High Commissioner Programme for Refugees ("UNOP"), ("UNHCR") the United and Nations the European contribution Union ("EU") USD and 9.5 supported million. The by a purpose Government the Programme social infrastructure was to help in Azerbaijan the war ravaged rebuild regions economic and and allow origin. as many IDP as possible to return to their places To address the needs and help improve the living conditions IDP from other regions, the World Bank agreed in June 1999 to provide a USD 10 million equivalent "Supplemental Credit" to the "Pilot Reconstruction Project" (Cr.31091AZ). The Supplemental Credit was to finance the Programme microprojects with social and economic objectives and to provide microcredits to enhance the economic opportunities IDP. The "Pilot Reconstruction Project" closed on 30 June On 3 June 2005, the World Bank and the Government signed the Project Agreement and the Development Credit Agreement "ldp Economic Development Support Project" ('IDPEDS") with credit number 4034AZ whereby IDA agreed to lend to the Government an amount in various currencies equivalent to SDR 7.5 million (seven million five hundred thousand Special Drawing Rights) or USD 11.5 million. This is a "repeater project" that replicates part the "Pilot Reconstruction Project" (Cr /31091AZ), and its objective, like that its predecessor is to help improve the living conditions IDP's and enhance their economic opportunities and prospects for social integration. On 15 May 2008, IDA and the Government signed the Project Agreement and the Additional Financing Agreement (credit number 4395AZ) for the purpose providing additional financing for the activities related to the Original Project IDP Economic Development Support Project. IDA agreed to extend a credit SDR 9.6 million (USD 15.5 million). The credit agreement 4395AZ provides that the Project is financed by the proceeds received from IDA in the following proportions: Category Amount credit allocated Percentage Expenditure to be (SDR) Financed (1) Works and Goods (%) 8,250,000 (2) Consultants' services 72% including audit (3) Training 575,000 75% (4) 10,000 Operating Costs 75% 765,000 (5) Unallocated 75% 9,600,000 On 16November 2011, IBRD and the Government signed the Project Agreement and the Financing Agreement (credit number 8096AZ) for the purpose providing financing for activities related to the IDP Living Standards and Livelihoods Project. IBRD agreed to extend a credit for an amount equivalent to USD 50 million. The closing date is 30 June

14 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND (CONTINUED) The Project consists the following parts: PartA: MicroProjects Provision works, goods and services for: (1) community mobilization and outreach for microproject proposal development; (2) repair or rehabilitation basic infrastructure (e.g. water supply, power supply, access roads, drainage systems); and (3) repair or rehabilitation social infrastructure such as schools and community centres. Part B: Housing Renovation Provision works, goods and services for the rehabilitation and full scale repair about 95 IDP collective accommodation centers including improvement common space areas (bathrooms, corridors, kitchens, etc.), enhancement structural features (such as sewerage, roing and water systems) as well as improvement conditions in individual apartments such as replacement windows, doors, and electricity to improve the overall living conditions including safety and efficiency. Part C: Livelihood Support 1. Provision vocational training and financial and technical support for small business development to ldp youth. 2. Provision : (a) technical support and mobilization in selected communities leading to the establishment about 200 selfhelp groups and formulation by such selfhelp groups proposals for income generating activities; and (b) Small Grants to eligible selfhelp groups with approved proposals for income generating activities to set up small businesses and microenterprises. 3. Financing Microcredits for IDPs through eligible credit unions. Part D: Proiect Management and Capacity Building Provision goods, consultants' services and Training for the proper management, implementation, supervision and monitoring and evaluation the Project and capacity building the Project Implementing Entity. The following table specifies the categories Eligible Expenditures that may be financed out the proceeds the credit agreement 8096AZ ("Category"), the allocation the amounts the Loan to each Category, and the percentage expenditures to be financed for Eligible Expenditures in each Category: Amount the Loan Percentages Category Allocated Expenditures to be (expressed in USD) financed 1) Goods, works, nonconsulting services, and consultants' services including audit, Small Grants, MicroCredits 49,875,000 Training and Operating Costs for the 75% Project 2) Frontend fee 125,000 3) Interest Rate Cap or Interest Rate Collar premium USD) 50,000,000 Effective from 2008 the funding international financial and customs institutions duties. is This subject is applicable to the Value to Added the both Tax financings ("VAT") 8096AZ. received under credit agreement 4395 AZ and 14

15 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2018 (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND (CONTINUED) Japan Social Development Fund ("JSDF") On 13 August 2007 IDA, as administrator grant funds provided by Japan Government under the Japan Social Development Fund Grant for IDP Youth Support Project provided the grant in an amount not exceeding USD 1,945,800 (JSDF Grant No. TRO90489). The objective the funding is to enhance the social inclusion, and promote economic opportunities for young IDP. The Funding consists the following parts: Component A: Community Grants for Youth in New Settlements Component B: IDP Youth Skills and Business development Component C: Partnerships between Municipal/IDP Schools in Major Urban Settlements to increase Social Inclusion among Students Component D: Management, Monitoring and Evaluation The allocation the amounts the Grant to each category and the percentage expenditure to be financed for eligible expenditure in each category is as follows: Amount AmountExpenditure grant Percentage Category allocated to be Fianed (USD) Financed (1) Works (2) Goods 80, % 222,200 (3) Services including 100% audits 317,800 (4) Operational 100% costs 135,800 (5) Small grants 100% 1,190, % 1,945,800 State Oil Fund Azerbaijan ("SOFAZ") The implementation the works on raising the IDP living communities standards and has rehabilitation been carried out social through infrastructure the Programme Decrees: since 2002 based on the following Presidential 1. Decree # September 2001 "Accommodation Fuzuli living IDP's in from temporary the occupied camps" regions Agdam and 2. Decree #700 l3 May 2002 "Improvement in the Bilasuvar the living region" standards IDP's living in temporary camps 3. Decree # 80 4 February 2004 "Improvement temporary living standards camps and and railway employment carriages in IDP's Barda living and in 4. Decree Agcabadi #298 l regions" July 2004 "State Programme refugees on the and improvement employment promotion" living conditions ldp and In the frameworks Decrees #577 and #700 the State Refugees Committee (the "Committee") has been appointed as the state agency responsible for the supervision the construction buildings in 500 districts in the Agdam region, 800 districts in the Fuzuli region and 19 districts in the Bilasuvar region. To finance the works under each the Decrees the State Oil Fund transferred Azerbaijani old manats ("AZM") 84 billion and AZM 192 billion to the bank account the Committee respectively. The detailed work plan was issued by the Resolution the Cabinet Ministers #171 on 27 September SFDI was selected to act as the main Executor under the Decree. The contractors were selected by a bidding Committee which included the Programme Director and representatives the Ministry Finance and other State Agencies. All payments to the contractors were made through Project bank accounts. The completed construction works were accepted by a special State Committee comprising the representatives SFDI, the Cabinet Ministers, the State Refugees Committee and other State agencies. For the execution Presidential Decrees #80 and #298 the State Oil Fund has elected to process all payments to contractors through the bank accounts the State Treasury regulated by the Ministry Finance. The construction buildings under the Decree started in 2004 and continued through The bidding and final acceptance procedures remained similar to those followed at the time the execution previous Decrees. 15

16 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND (CONTINUED) On 9 October 2007 Ministry Finance issued Resolution # 303 to improve living conditions IDP's in different districts Baku, Absheron, Qabalaand Goy Gol (ex. Xanlar) regions by construction new buildings and repair existing ones. State Oil Company Azerbaijan ("SOCAR") Following the Resolution the Cabinet Ministers Azerbaijan # 197s dated 18 July 2005, the State Oil Company financed the renovation 77 dormitories for the accommodation IDP's located in Baku. At the inception these works in 2005 SFD1 acted as the main Executor and received funds via the State Refugees Committee. Subsequently and throughout2007, the Programme bank account in Kapital Bank was used for processing all the settlements under this source funding. On 10 June 2008, the Cabinet Ministers Azerbaijan issued resolution # 211 where the State Oil Company finances the renovation 130 dormitories for the accommodation IDP's located in Baku. Islamic Development Bank ("IDB") The construction social infrastructure facilities for IDP's is financed through a Loan Agreement signed between the Government Azerbaijan and the corresponding Islamic Development to 8 Dhu alqi'dah Bank ("IDB") 1426H. on 10 December 2005 The main objective the financing arrangement to was the to construction improve the living the standards education and ldp's health by contributing settlements systems for as IDP's well in as the the Bilasuvar drinking region. water supply Education in new through construction infrastructure 5 for schools all schooling and provision levels was basic provided arrangement also furniture aims and at laboratory the construction equipment. 5 The medical financing settlements and units provision to provide modern health medical facilities equipment for the which new ldp's. The drinking facilitates water quality supply diagnosis system health comprises conditions network. boring wells, water storage and a distribution The overall scope the financing arrangement includes civil works for schools, health facilities and water supply network, procurement and installation the latest medical equipment, furniture, consultancy services, financial auditing and a Project Management Unit. The total cost was estimated at US$ million. The Fund financing was for an amount not exceeding Islamic dinars (ID) 7 million (approximately equivalent to USD million). 16

17 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND (CONTINUED) Islamic Development Bank ("IDB") (Continued) According to the terms the Loan Agreement between the Government and the Islamic Development Bank, the Programme is financed by proceeds in the following proportions for relevant programme components (in millions US dollars): A. Civil works, furniture & equipment i. Education facilities School type A (198 students) School type 8 (150 students) Ni. Health facilities Hospital (25 beds) Health clinics Health centres iii. Drinking water supply SubTotal (A) B. SITE DEVELOPMENT C. CONSULTANCY SERVICIES Detailed design & tender document Design review & supervision D. FINANCIAL AUDITING IDB IDB% GOA GOA% Total , , E. PROJECT IMPLEMENTATION UNIT Furniture, fice expenses Salaries & fice equipment Familiarisation visits EA & startup workshop SubTotal F.CONTINGENCIES (10%) GRANT TOTAL The Government Azerbaijan ("GoA") % % In the frameworks Presidential Decree # 298 dated 1 July 2004 and the resolution the Cabinet Ministers Azerbaijan # 44s dated 6 February 2008, Appendix # 1, SFDI was granted additional funds for the remaining construction works at the SFDI administrative building AZN 1 million (USD 1.2 million). Presidential Decree #298 dated 1 July 2004 and the resolution the Cabinet Ministers #211s dated 10 June 2008 SFDI was appointed as the state agency responsible for urgent repair 130 hostels in Baku, Sumgait and other cities and regions; construction a sports complex in the Fuzuli region and construction an administrative building for the Executive Government Jabrail region. A resolution the Cabinet Ministers Azerbaijan #356s dated 3 October 2008 appointed SFDI an Executor the construction 58 buildings in Baku (Sabunchu region and Azadlig metro station). For the construction these buildings the Government granted AZN 2 million (USD 2.5 million). Presidential Decree #2707 dated 6 March 2008 and the resolution the Cabinet Ministers Azerbaijan #325s dated 4 December 2009 appointed SFDI as the state agency responsible for construction a 5storey building in Goranboy city. 17

18 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 1. BACKGROUND (CONTINUED) Presidential Decree # 37 dated 10 December 2008 and the resolution the Cabinet Ministers Azerbaijan # 22 dated 2 February 2009granted SFD1 AZN 0.5 million for the remaining construction works at the SFDi administrative building, equivalent to USD 0.6 million; AZN 3 million for the construction complex in Fizu1i region, (USD 37 million) and; AZN 1 million for the construction works at the administrative building the Executive Government in Jabrail region, (USD 1.3 million). NOTE 2. ACCOUNTING POLICIES Basis Accounting These combined special purpose financial statements are prepared in accordance with the international Public Sector Accounting Standard ("IPSAS") Financial Reporting under the Cash Basis Accounting issued by the International Public Sector Accounting Standards Board ("IPSASB"), an independent standardsetting body within the International Federation Accountants ("IFAC") and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply with the World Bank's Guidelines. These combined special purpose financial statements have been prepared under the historical cost convention. Programme financing is recognised as a source funds when the cash is received. Programme expenditure is recognised as a use funds when payment is made. Transactions in foreign currency The Project is domiciled in the Republic Azerbaijan where the local currency is the Azerbaijani manat ("AZN"). Because the majority the Project's transactions are funded and expended in United States dollars and in accordance with the requirements the World Bank, these special purpose financial statements are presented in United States dollars ("US dollar", "USD" or "US$"), which is the reporting currency the Project. Transactions in other currencies are treated as transactions in foreign currencies. Cash receipts and payments arising from transactions in a foreign currency are recorded in the Project's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date receipt and payment. Cash balances held in a foreign currency are reported using the closing rate, which is the spot exchange rate at the reporting date, Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash receipts and payments. However, the effect exchange rate changes on cash held in a foreign currency is reported in the statement sources and uses funds and other statements in order to reconcile cash at the beginning and the end the period. These amounts are presented separately from cash receipts and payments and include the differences, if any, had those cash receipts and payments and balances been reported at endperiod exchange rates. At 31 December 2015 the ficial AZN/USD exchange rates set by the Central Bank Azerbaijan ("CBAR") were and comparative 31 December 2014 were as NOTE 3. METHODS OF WITHDRAWAL The methods withdrawal for each component are as follows: World Bank component (a) IBRD account Certain disbursements were made directly to third parties following the submission an Withdrawal, Application with for the relevant supporting documents. (b) Special account Available amounts were drawn down within the limits determined by the relevant loan direct agreements payment for the eligible expenditure for subprojects from the Special Account. (c) Statement expenditure (SOE) Under the SOE method, the IDPEDS Project forwards to the Bank an application for payments reimbursement already made using an Application for Withdrawal, with SOE forms as the only documentation. (d) Programme account IDPEDS project maintains a separate account where the Government further funds are accumulated. disbursed The to funds subcontractors are based on its share the expenditure incurred. 18

19 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 3. METHODS OF WITHDRAWAL (CONTINUED) SOFAZ component (a) Programme accounts The SOFAZ funds extended through the State Refugees Committee are accumulated on bank the accounts Programme in AZN. The funds are further disbursed to contractors based on the results further the construction bids and work performed. (b) Bank accounts operated through the Treasury the Ministry Finance These accounts are used to accumulate funds provided by SOFAZ for financing the Programme Disbursements activities. from the Treasury accounts are initiated by SOFAZ with the Programme intermediary acting between as an SOFAZ and the contractors. SOCAR component (a) Programme accounts The Programme bank account is used to accumulate the funds provided by SOCAR rehabilitation for financing dormitories. the (b) Bank accounts operated through the Treasury the Ministry Finance These accounts are used to accumulate funds provided by SOCAR for financing Disbursements the Programme activities. from the Treasury accounts are initiated by SOCAR with the Programme intermediary acting between as an SOCAR and the contractors. Islamic Development Bank component (a) Programme bank account in USD Available amounts are drawn from this account for payment the portion expenses accordance financed with by the IDB terms in the Loan Agreement. (b) Programme bank account in AZN The Programme maintains a separate account where the Government funds are accumulated. further disbursed The funds to subcontractors are based on the share to be financed by the Government the terms in accordance the Loan Agreement. with Microcredits and tender components The Programme maintains several accounts in AZN for these Programme components. The accounts are used for the accumulation funds reimbursed by the microcredit institutions in the form repayment principal and interest amounts previously issued loans. The accumulated funds are then repeatedly extended by the Programme to the loan institutions for further lending to IDP communities. A separate bank account is maintained by the Programme to accumulate tender fees received from the bid participants. The Government Azerbaijan component This component uses bank accounts operated through the Treasury the Ministry Finance, which are used to accumulate funds provided by the Government Azerbaijan for financing the Programme activities Disbursements from the Treasury accounts are initiated by SFDI. 19

20 NOTES TO THE COMBINED SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED) (Amounts are expressed in US dollars unless otherwise indicated) NOTE 4. EXPENSES BY SOURCE OF FINANCE World Bank component: For the year ended 31 December 2015: Source Works & Consultants' Operating Housing Youth Income finance goods services and oti Microcredit Housin Yot Generating Total fiac trainin casts Renovation Support Atvte IBRD 8096 AZ 5,114, , ,935 8,659,654 1,555,107 1,115,510 17,869,647 Government 2,743, , ,170 3,436, , ,499 7,560,386 Community 191, , ,705 % Mcr Total 8,050,011 1,070, ,383 12,176, ,08,021 1,430,009 25,701,738 For the year ended 31 December 2014: Source Works Consultants' & services and Operating finance servcesandmicocrditgenerating Microcredit Housing Youth Icm goods training income costs Renovation Total IBRD 8096 Support Activities AZ 2,498, , ,213 Government 1,965,053 7,811, ,001 1,886, ,410 1,605,617 15,202,385 Community 135,169 6,629,456 1,435, ,853 11,158,935 % Mar 153, , ,057 Total 4,598, ,197 1,083, , ,380 14,594,856 3,322,022 2,112,616 26,842,757 The other Project components are financed by a single source as specified in the combined statement sources and uses funds on pages 811. NOTE 5. LIABILITIES ACCRUED AS AT THE YEAR END The standard terms contacts signed by SFDI for undertaking construction works or purchasing equipment under the Works & Goods category the World Bank Credit Agreement are such that 5% the total contract fee is paid to a supplier subsequent to the expiration a three month period provided that no deficiencies were revealed in connection with the works done or goods supplied. As a result, the Programme's total amount outstanding as payable to suppliers under World Bank Component at 31 December 2015 was USD1,140,902 (2014: USD 5,628,788). The same structure is applied to the SOFAZ component and the total outstanding at 31 December 2015 was USD 27,685,778 (2014: USD 35,094,171). NOTE 6. OPERATING ENVIRONMENT SFDI's principal activities are within the Azerbaijan Republic Laws and regulations affecting organisations operating in Azerbaijan are subject to rapid changes and SFDI's assets and operations could be at risk due to negative changes in the political and economic environment. 20