REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE AUDIT OF FINANCIAL STATEMENTS OF SAGCOT -SIP (CREDIT NO ) FOR THE YEAR ENDED 30TH JUNE, 2017

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized ) THE UNITED REPUBLIC OF TAfl2~~~~ NATIONAL AUDIT OF REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE AUDIT OF FINANCIAL STATEMENTS OF SAGCOT -SIP (CREDIT NO. 5776) FOR THE YEAR ENDED 3TH JUNE, 217 ' Public Disclosure Authorized Controller and Auditor General, National Audit Office, 16 Samora Machel Avenue, P.O. Box 98, Tel: 255 (22) /8, Fax: 255 (22) ocag@nao.go.tz Website: DAR ES SALAAM, TANZANIA. January, 218 AR/ SAGCOT-SIP/216/217

2 TABLE OF CONTENTS 1. GENERAL INFORMATION Mandate Vision, Mission and Core Values Audit objective Audit Scope Audit Methodology AUDIT REPORT ON THE FINANCIAL STATEMENTS... 3 V Office of the Controller and Auditor AR/ SAGCOT-SIP/216/217

3 DEFINITION OF TERMS AND ABBREVIATIONS (i) Definition of Terms Financial statements comprise of the following: (a) (b) (c) (d) (e) Statement of Financial Position; Statement of Financial Performance; Cash Flow Statement; Statement of Comparison of Budget and Actual Amounts; and Notes, Comprising a Summary of Significant Accounting Policies and Other Explanatory Notes. Supplementary information means: additional information to the financial statements comprising of the following: (ii) Abbreviations PPA Public Procurement Act of 211 Reg. SAGCOT CTF SAGCOT-SIP Sect. SIP USD Regulation SAGCOT Catalytic Trust Fund Southern Agricultural Growth Corridor of Tanzania-Investment Project Section SAGCOT Investment Project United States Dollar Vl Office of the Controller and Auditor AR/ SAGCOT-SIP/216/217

4 1. GENERAL INFORMATION Mandate The statutory duties and responsibilities of the Controller and Auditor General are given under Article 143 of the Constitution of the URT of 1977 (revised 25) and in Sect. 1 (1) of the Public Audit Act No.11 of Vision, Mission and Core Values Vision To be a highly regarded Institution that excels in Public Sector Auditing Mission To provide high quality audit services that improves public sector performance, accountability and transparency in the management of public resources. Core Values In providing quality services, NAO is guided by the following Core Values:./ Objectivity: We are an impartial organization, offering services to our clients in an objective and unbiased manner;./ Excellence: We are professionals providing the highest quality audit services based on best practices;./ Integrity: We observe and maintain the highest standards of ethical behaviour and the rule of law;./ People focus: We focus on our stakeholders' needs by building a culture of good customer care and having competent and motivated work force;./ Innovation: We are a creative organization that constantly promotes a culture of developing and accepting new ideas from inside and outside the organization and./ Best resource utilisation: We are an organisation that values and uses public resources entrusted to it in an efficient, economic and effective manner. We do this by: Contributing to better stewardship of public funds by ensuring that our clients are accountable for the resources entrusted to them; Helping to improve the quality of public services by supporting innovation on the use of public resources; Providing technical advice to our clients on operational gaps in their operating systems; Systematically involve our clients in the audit process and audit cycles; and Providing audit staff with appropriate training, adequate working tools and facilities that promote their independence. This audit report is intended to be used by Government Authorities. However, upon receipt of the report by the Speaker and once tabled in Parliament, it becomes a public record and its distribution may not be limited. Office of the Controller and Auditor General AR/ SAGCO-SIP/216/217

5 1.3. Audit objective To obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error and are prepared in accordance with an applicable financial reporting framework; and whether laws and regulations have been complied with Audit Scope The audit was carried out in accordance with the, the International Standards of Supreme Audit Institutions (ISSAls) and other audit procedures as were deemed appropriate under the circumstances. This covered the evaluation of the effectiveness of the financial accounting system and internal control over various activities of the SAGCOT SIP. The audit was conducted on a sample basis; therefore the findings are confined to the extent that records, documents and information requested for the purpose of the audit were made available to me. Audit findings and recommendations arising from the examination of the accounting records, appraisal of the activities as well as evaluation of the Internal Control System which requires management's attention and actions, are set out in the management letter issued separately to the SAGCOT SIP. As an auditor, I am not required to specifically search for fraud and therefore, my audit cannot be relied upon to disclose all such matters. However my audit was planned in such a way that I would have reasonable expectations of detecting material errors and misstatement in the financial statements resulting from irregularities including fraud. The responsibility for detection, prevention of irregularities and the maintenance of an effective and adequate system of internal control rests with the management of the SAG COT SIP Audit Methodology My audit approach included tests of the accounting records and other procedures in order to satisfy the audit objectives. My audit procedures included the following: Planning the audit to identify and assess risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity's internal controls. Obtain sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks. Form an opinion on the financial statements based on conclusions drawn from the audit evidence obtained. Follow up on the implementation of the previous year's audit findings and recommendations to ensure that proper action has been taken in respect of all matters raised. 2 Office of the Controller and Auditor AR/ SAGCOT-SIP/216/217

6 2. INDEPENDENT REPORT OF THE CONTROLLER AND AUDITOR GENERAL Permanent Secretary, Policy, Coordination and Parliament, P.O. Box 98, 448 DODOMA. REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE SAGCOT SIP FOR THE YEAR ENDED 3TH JUNE, 217 Opinion I have audited the accompanying Financial Statements of SAGCOT-SIP, which comprise the statement of financial position as at 3th June, 217 and the Statement of Financial Performance, the Statement of Changes in net assets/ equity the cash flow statement and the statement of comparison of budget and actual amounts for the year then ended, as well as the notes to the financial statements, including a summary of significant accounting policies. In my opinion, the accompanying financial statements of the SAGCOT-SIP present fairly in all material respects, the financial position of the project as at 3th June, 217, and its financial performance and its cash flows for the year then ended in accordance with International Public Sector Accounting Standards (IPSASs) Accrual basis of accounting and in the manner required by the Public Finance Act, 21 revised 24. Basis for Opinion I conducted my audit in accordance with International Standards of Supreme Audit Institutions (ISSAls). My responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the financial statements section of my report. I am independent of SAGCOT-SIP in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to my audit of the financial statements in Tanzania, and I have fulfilled my other ethical responsibilities in accordance with these requirements and the IESBA Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Information Other than the Financial Statements and Auditor's Report Thereon Management is responsible for the other information. The other information comprises of the Director's Report and the Declaration by the Head of Finance but does not include the financial statements and our auditor's report thereon. My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon. In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Office of the Controller and Auditor General AR/ SAGCOT-SIP/216/217 3

7 financial statements or my knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work I have performed on the other information that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard. Key Audit Matters Key audit matters are those matters that, in my professional judgment, were of most significance in my audit of the financial statements of the current period. These matters were addressed in the context of my audit of the financial statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Opinion section I have determined the matters described below to be the key audit matters to be communicated in my report. I have determined that there are no key audit matters to communicate in my report. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IPSASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the entity's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the entity's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements My objectives are to obtain reasonable assurance about whether the 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 my 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. Misst atements 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 financial statements. In addition, Sect. 1 (2 ) of the PAA No.11 of 28 requires me to satisfy myself that, the accounts have been prepared in accordance with the appropriate accounting standards. Office of the Controller and Auditor General AR/ SAGCOT-SIP/ 216/ 217 4

8 Further, Sect. 48(3) of the Public Procurement Act No. 7 of 211 requires me to state in my annual audit report whether or not the audited entity has complied with the provisions of the Law and its Regulations. Report on Other Legal and Regulatory Requirements Compliance with the Public Procurement Act, 211 In view of my responsibility on the procurement legislation and taking into consideration the procurement transactions and processes I have reviewed as part of this audit, I state that, SAGCOT-SIP procurement transactions and processes have generally complied with the requirements of the Public Procurement Act No. 7 of 211 and its underlying Regulations of 213. Controller a Auditor General, 26th January, 218 National Audit Office of Tanzania, P.O. Box 98, 1111 Dar es Salaam, Tanzania. Tel: 255 (22) /8, Fax: 255 (22) , ocag@nao.go.tz Copy to: The Chief Secretary, State House, P.O. Box 912, 1 Barack Obama Road, 114 DAR ES SALAAM. Permanent Secretary and Paymaster General, Ministry of Finance, P.O. Box 9111, DAR ES SALAAM. The Permanent Secretary, Prime Minister's Office, P.O. Box 321, DAR ES SALAAM. Office of the Controller and Auditor General AR/ SAGCOT-SIP/ 216/ 217 5

9 The Permanent Secretary, Ministry of Agriculture, Livestock and Fisheries, P.O. Box9192, DAR ES SALAAM. Resident Representative, World Bank, P.O. Box 254, DAR ES SALAAM. Of fice of the Controller and Auditor General AR/ SAGCOT-SIP/ 2 16/ 217 6

10 ,r_.,,..._.,. ',t.;;... 't',,......,,. '" /,... PRIME MINISTER'S OFFICE 1., SOUTHERN AGRICULTURAL GROWTH CORRIDOR OF TANZANIA INVESTMENT PROJECT (SIP) (CREDIT NO. 5776) FINANCIAL STATEMENTS FOR THE YEAR ENDED 3TH JUNE 217 SEPTEMBER, 217

11 REPORT AND FINANCIAL STATEMENTS OF SOUTHERN AGRICULTURAL GROWTH CORRIDOR OFT ANZANIA INVESTMENT PROJECT IDA CREDIT No FOR THE YEAR ENDED ON 3th JUNE, 217 TABLE OF CONTENT I GENERAL INFORMATION SUMMA RY OF ACHIEVEMENT DUR.ING THE YEA R 216/ CHALLENGES AND REMEDI AL ACTIQNS FUNDS TRANSFE R.RE D TO SAGCOT INVESTMENT PROJECT DU RING THE YEA R 2 16/ STATEMENT OF MANAGEMENT R.ES PONS IBI LITIES FOR THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3TH JUNE STATEMENT OF DECLATION OF THE HEAD OF FINANCE O THE FI ANCJAL STATEME TS FOR THE YEAR ENDED 3TH JUNE IO 7 STATEMENT OF FINANCIAL PERFORMANCE FO R THE YEAR ENDED 3TH JUNE STATEMENT OF FINANC IA L POSITION AS AT 3TH JUN E STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 3 JUNE IO STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 3TH JUNE I I STAEMENT OF COMPA Rl SON BETWEEN BUDGET AND ACTUAL AMOUNTS FOR TH E YEAR ENDED O 3TH JU E NOTES TO THE FI ANCIAL STATEMENTS FOR THE YEAR ENDED 3TH JUNE,

12 REPORT OF THE OF SOUTHERN AGRICULTURAL GROWTH CORRIDOR OF TANZANIA INVESTMENT PROJECT IDA CREDIT No FOR THE YEAR ENDED ON 3 1 h JUNE, GENERAL INFORMATION PRINCIPAL PLACE OF BUSINESS T ACAIDS BUILDING 1ST FLOOR, SOKOINE DRIVE /LUTHULI STREET P.O.BOX 321 DAR ES SALAAM BANKERS Bank of Tanzania P.O.BOX 2939 DAR ES SALAAM NATIONAL MICROFINANCE BANK, Bank House Branch P.O.BOX 931, DAR ES SAMAAM info@nmbtz.com AUDITORS The Controller and Auditor General National Audit Office of Tanzania (NAOT) Samora A venue/ohio Street, P.O.BOX 98 DAR ES SALAAM ocag@nao.go.tz 3

13 MANAGEMENT REPORT AND FINANCIAL STATEMENTS OF THE SOUTHERN AGRICULTURAL GROWTH CORRIDOR OF TANZANIA INVESTMENT PROJECT FOR THE YEAR ENDED ON 3TH JUNE Introduction The Government has initiated a Southern Agricultural Growth Corridor of Tanzania (SAGCOT) which is a public - private partnership aimed at increasing agribusiness investment with the objectives to increase smallholder incomes and create new jobs along agribusiness value chains in Tanzania's southern corridor. The partnership is a centerpiece of Tanzania's Kilimo Kwanza strategy for pursuing food security, poverty, reduction, rapid economic growth and reduced vulnerability to climate change. Implementation of this initiative is facilitated mainly through three entities i.e Tanzania Investment Centre (TIC), SAGCOT Centre Limited (SCL), SAGCOT Catalytic Trust Fund (CTF) under the coordination of Project Coordination Unit (PCU). The Project implementation became effective on 26th August 216 and expected closing period August 31st 221. The project is an IPF and will be implemented over the period of 5 years under three components namely: Component!: Strengthening of SAGCOT Support Institutions. This component is strengthening the capacity of SAGCOT Support Institutions in order to pursue their functions of information and data provision, support of investment planning and guidance, government private sector intermediation, enhance business enabling environment and investment promotion. The component is supporting two institutions: SAGCOT Centre Ltd and Tanzania Investment Centre. Component 2: Strengthening Smallholder-Business linkages. The objective of this component is to link smallholder farmers in agricultural value chains so as to: increase the number of smallholders linked to agribusinesses in successful commercial partnerships; and Increase the revenues derived by smallholders and rural communities from these partnerships through agricultural productivity growth, income and employment. Component 3: Project Management, Monitoring and Evaluation. This component ensures coordination between implementation agencies at all levels and with other IDA financed projects. 2 SUMMARY OF ACHIEVEMENT DURING THE YEAR 216/ Strengthening of SAGCOT Support Institutions SAGCOT Centre The SAGCOT Initiative's first quarter in 217 was marked by a number of events, activities and milestones that mainly focused on the SAGCOT Annual Forum. The latter was themed 4

14 "Unleashing Agricultural Opportunities". The objectives for the forum was to expose participants to investment opportunities and strategies for implementation in the SAGCOT; to jointly discuss bottlenecks to investment in agriculture in the Ihemi Cluster; to highlight possible policy concerns; and to identify solutions and agree on next steps. It was attended by over 5 participants over 2 days (learning journey and the main event). The event exposed a lot of untapped agricultural opportunities, still very much available, not only in the Ihemi Cluster, but in the Corridor as a whole such as mechanization farming for tomato, potato and soya value chains; the event also exposed unmet demand for soya supply and to the animal feeds industry, lead sector players for potato processing, funding (affordable agri-finance) and crop insurance gaps for smallholder farmer and SMEs and in developing industry and market standards among many others. SCL's Policy Department had a bilateral meeting with the President's Office Regional Authorities and Local Governments (PO RALG) in Dodoma, Tanzania and agreed to formalize a strategic policy partnership between PO RALG and SCL. SCL had representation at the Annual Forest Dialogue Steering Committee Meeting in the USA February, 217. The Committee expressed interest in following up with SCL's dialogue and Partners to give a stronger voice to pastoralist issues. SCL also launched the Ihemi Cluster Field Office on 7th March 217, an event that was graced by the Regional Commissioner of Iringa: Mrs Amina Masenza. Lastly during this Period the SAGCOT was assessed through the Funders Review and the Centre obtained an "A" Rating due the progress it had made in 216. This Annual Review was conducted jointly by SCL's main Funders during the year, whereby SCL' s key documents and its financial and management systems were assessed. Funders also sought feedback from investors, government officials, and civil society organizations. As part of the review exercise, the Funders spoke to SCL's partners in the Ihemi cluster (Iringa and jombe). SCL held the Cluster Review Meeting attended by 12 participants in Njombe. During the event, Partners in the Ihemi Cluster appraised the 216 Ihemi Compact Review Agreement. This led to the signing of the 217 tripa1iite agreement between the Public (Regional Governments) and The Private Sector Actors in the Cluster. SCL continued facilitating inclusive value chain development and commissioned a study (tomato value chain analysis) to aid advancement of the sub sector. In addition, partners were assisted to commit to action through Strategic Partnerships and this led to the development of 4 draft Terms of Reference and objectives for the same. SCL facilitated the second Ihemi Cluster, Land Use Dialogue Meeting tackling competing land use approaches in the corridor. It was agreed that a participatory and integrated approach be developed to reconcile the different perspectives and interests at stake and increase land productivity in the region in the pursuit of sustainable landscapes and economic growth by August 217. Through the Green Reference Group (GRG) the Centre developed and pre-tested Green Growth Verification Tools to assist Partners self-assess their environmental and social safeguards to aid compliance to sustainable and green growth. SCL also commissioned the 5

15 services of Agrilnsight to design an online platform that visualizes the agricultural landscape of the Ihemi cluster as well as allow for Partners (investors, planners, agribusinesses, LGAs, farmers) of the platform to make better and more effective investment decisions. S SCL signed one Strategic Policy MoU with Sokoine University of Agriculture (SUA) to support policy research. In addition the Centre's 2 policy studies were commissioned: one on local inclusivity and the other on bulk fertiliser procurement Tanzania Investment Centre 1. Tanzania Investment Centre has continued to call, promote and facilitate potential investors coming into the country to invest in the corridor. 11. TIC has continued to monitor and evaluate investment in the corridor and in the whole country. 2.2 Strengthening Smallholder-Busin ess linkages SAGCOT Catalyst Trust The Project Development Objective is to increase the adoption of new technologies and marketing practices by smallholder farmers through expanding and creating partnerships between smallholder farmers and agribusinesses in the Southern Corridor of Tanzania. 1. SAGCOT Catalyst Trust Fund (CTF) under the Project Coordination Unit (PCU) has recruited 6 Staff under World Bank financing 11. Expression of Interests (EOis) for Fund Manager were evaluated and six companies have been shortlisted iii. Request for Proposal has been submitted to the World Bank for no objection 1v. CTF has started to develop ToR for online submission of concept note for the applicants of the matching grant. 2.3 Project Management, Monitoring and Evalu ation Project Coordination Unit (PCU) PCU has continued coordinating all the Project Components to contribute to achieving project results. The following milestone has been achieved: 1. PCU has continued to coordinate Financial Management activities on behalf of all three IAs 11. PMO has appointed a ew SAGCOT Investment Project (SIP) Coordinator designated for coordination of all Project Activities. 6

16 111. PCU has coordinated preparation and submission of 3!As Annual Project Work plans and Budget 217/218. The AWP and Budget were submitted to World Bank. IV. PCU coordinated at least 5 SIP meetings to discuss progress on implementation of project activities. v. PCU participated in the inauguration of SAGCOT act1v1t1es workshop which was conducted in Mbeya. In this meeting Mbalali Cluster was formed. Mbeya Regional Commissioner and Songwe Regional Commissioner welcomed and accepted formation of Mbalali Cluster. v1. PCU Sensitized the Procurement Management Unit (PMU) and Ministerial Tender Board (MTB) at PMO about the SIP Project and it closely works with the PMU and the MTB. v11. PCU coordinated preparation of Annual Training Plan. v111. PCU Prepared Quarterly Financial Report and submitted it to World Bank 3 CHALLENGES AND REMEDIAL ACTIONS Despite notable achievements, SIP project still faces a number of challenges including the following: 1. Processes and procedures for recruiting Procurement Specialist at PCU has delayed procurement activities such as goods and services at component level 11. Uncertainty in the enabling environment arising from lack of consistent and structured tracking of policies such as on tax, inputs; e.g. the issue of bulk fertiliser procurement, land and water among other constraints in the enabling environment 111. Limited incentives for investors to industrialise within the clusters due to the lack of clear policy IV. Limited information about export markets and industry standards that can drive production, processing and marketing in some value chains iv. Poor infrastructure in key production locations within the clusters in terms of feeder roads, electricity supply to factories and processing plants. Remedial Action Single Source was objected for procuring Procurement Specialist. The option for competition using Invitation for CV s took long as per the Procurement Act requirements. The evaluation of CVs for PCU Procurement Specialist has been carried out. The report is to be sent to WB for No objection 7

17 4 FUNDS TRANSFERRED TO SAGCOT INVESTMENT PROJECT DURING THE YEAR 216/17 Since its inception SAGCOT Investment project under credit no. Q787 and Q928 and 5776TA has been disbursed a total of USD 7,76,. out of this amount USD 3,36, was disbursed during preparation of project (i.e SAGCOT PPA Q787 and Q928). After effectiveness date 26th August 216 a total amount of USD 4,4,. was disbursed to support implementation of SAGCOT Investment Project. The actual expenditure during the year 216/17 was USD 132, out of planned fund of USD 4,4, which representing overall ratio of 3%. 8

18 5 STATEMENT OF MANAGEMENT RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3m JUNE 217 It is Management's responsibility to prepare financial statements which give a true and fair view of the state of affairs of the project showing the results of the operations of the project at the end of each financial year. The management responsibility at any time, is to ensure that proper accounting records disclose with reasonable accuracy the financial position of the project. Further, the management is responsible for safeguarding the assets of the project, ensuring the project' s compliance with all regulatory and legal requirements; and consequently taking reasonable steps for the prevention and detection of fraud, error and other irregularities. The management accept responsibility for the annual financial statements of SAGCOT Investment Project, which have been prepared using appropriate accounting policies and standards supported by reasonable and prudent judgments and estimates, in conformity with International Public Sector Accounting Standards for the year ending June 217. The Management is of the opinion that the financial statements give a true and fair view of the state of financial affairs of the Project and its financial performance. The Management accept responsibility for the maintenance of accounting records as well as adequate systems of internal financial control which may be relied upon in the preparation of financial statements. No matter has come to the attention of the Management to indicate that the project will not remain a going concern for at least the next twelve months from the date of this statement. C:3~AN NT SEC.Kc'' /<, Accounting Officer /IR.IME. MINISTERS Off :CI:. Date: -~'<\.~\~\\_"\A_\ i' 9

19 6 STATEMENT OF DECLATION OF THE HEAD OF FINANCE ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3m JUNE 217 The National Board of Accountants and Auditors (NBAA) According to the power conferred under the Auditors and Accountants (Registration) ACT No. 33 of 1972, as amended by Act No.2 of 1995, requires financial statements to be accompanied with the statement of declaration issued by the Head of Finance/ Accounting responsible for the preparation of financial statement of the entity concerned. It is the duty of professional accountant to assist the Management to discharge the responsibility of preparing the financial statement of the project showing true and fair view position of the project in accordance with the International Public Sector Accounting Standards (IPSAS) and the requirements Financing Agreement/Development Credit Agreement. Full legal responsibility for financial statements rests with the management. I Veronica Amos being the Head of Finance of The Southern Agricultural Growth Corridor of Tanzania Investment Project hereby acknowledge my responsibility of ensuring that financial statements for the year ended 3Qth June 217 have been prepared in compliance with the International Public Sector Accounting Standards and the Financing Agreement/Development Credit Agreement. I thus confirm that the financial statements give true and fair view position of the Private Sector Competitiveness Project as on that date and that they have been prepared based on the ::::::: i~~i~:~,~~... NBAA Membership No.. f.(p.auj.... /3..r..f Date:. Sept.filib.e/:!..,217 1

20 7 STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 3TH JUNE 217 Revenue from non-exchange transactions Grants revenue Amortisation of capital grants Notes USD 132,867 14, , USD 335,91 8, ,857 Revenue from transactions Foreign currency gain/(loss) Other income exchange exchange Total revenue 147, ,857 Expenses Depreciation Salaries and staff benefits Operating expenses ,284 75,225 57, ,151 8,947 17, , ,858 Surplus/( deficit) for the year Note 4-9 forms an integral part of these financial statements ~.,:,._. r 1,t.\.Kc<>l'' \ "\ \1 j1jo\i ==> ~~l'j(l~t,1~~1s1e.p-s Off l~ ACCOUNTING OFFICEJt>~\b\e, M. DATE 11

21 8 STATEMENT OF FINANCIAL POSITION AS AT 3TH JUNE 217 ASSETS CURRENT ASSETS Cash and Cash Equivalents Other receivables NON CURRENT ASSETS Property, Plant and equipment Notes /17 USD 4,283,84 4,283,84 48,19 48,19 215/16 USD 16,78 16,78 58,153 58,153 TOT AL ASSETS 4,332,3 74,861 LIABILITIES CURRENT LIABILITIES Deferred income grant Other payables NON-CURRENT LIABILITIES Capital Grants ,283, ,283,84 48,19 16,78 16,78 58,153 TOT AL LIABILITIES 4,332,3 74,861 NET ASSETS NET ASSETS Accumulated Surplus... ~::-:U.:-... WtET,.J<l... ~~.\~.\.~~.!.... ACCOUNTING OFFICE~ E.RMAN NT ~ S OfflCI PRIME. MlhllST DATE 12

22 9 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 3 JUNE 217 ACCUMULATED SURPLUS USD TOTAL USO AtOl July216 Surplus/( deficit) for the year At 3 June 217 AtOl July215 Surplus/( deficit) for the year At 3 June

23 1 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 3TH JUNE 217 Cash Flows from Operating Activities Note 216/17 USD 215/16 USD Receipts Grants received Other income 4,4, 4,4, 1, 1, Payments Payments Employees & Service Providers (128,546) (3 35,9 1) Cash flows used in operating activities 4,271,454 (235,91) Cash Flows from Investing Activities Acquisition of property, Plant and equipment Cash flows used in investing activities (4,321) (4,321) Cash Flows from Financing Activities Decrease in cash and cash equivalent 4,267,133 (235,91) Cash and cash equivalent at 1 July 16,78 252,6 18 Cash and Cash Equivalent at 3 June 8 4,283,84 16,78 Note 1-8 form integral part of these financial statements ~A,... PE;:AME.NT SECRETARY NISTE.R'S OfflCI ACCOUNTING OFFICEfJUMf. M, -... \~.!~.}.~\~.... DATE 14

24 11 STAEMENT OF COMPARISON BETWEEN BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED ON 3TH JUNE 217 Budget Item Original Final Budget Actual Variance Budget Budget (USD) (USD) (USD) (USD) Utilization in% Component 1: Strengthening SAGCOT Support 1,4, 1,4, Institutions Component 2 Strengthening smallholder business 2,5, 2,5, linkages 64,717 Component 3: Project Management, Monitoring and 5, 5, Evaluation 68,15 1,4, % 2,435,283 3% 431,85 14% Grand Total 4,4, 4,4, 132, ,267,133 3% 15

25 12 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3TH JUNE, 217 NOTE 1: PRINCIPAL ACCOUNTING POLICIES (i) (ii) (iii) (iv) Basis of Preparation These financial statements of SAGCOT Investment Project includes all sub Programme's covered in the Development Credit Agreement number 5766 TA between Government of Tanzania and International Development Association (IDA) The financial statements have been prepared in accordance with International Public Sector Accounting Standards accrual basis. Expenditure Recognition Expenditures for the supply of goods and services are generally recognized at the time of payment. However, invoices not paid at the end of the year for services offered and goods supplied are accrued and included in the list of creditors. Foreign Currency Translation All amounts are in USD. All transactions denominated in local and other foreign currencies are translated into United States Dollars at the approximate exchange rate ruling at the date of settlement/transaction basing on the Bank of Tanzania US$ exchange rates. The resulting differences from conversion and translation are disclosed in the statement of financial performance as reconciling item. Property, Plant and Equipment Property, Plant and equipment are stated at cost less depreciation and impairments. Depreciation is provided so as to allocate the cost of assets on a straight-line basis over the expected useful lives of the assets concern. The principal rates used for this purpose are: O/o Motor Vehicles 2 Office Equipment 12.5 Software 4 Furniture & Fittings 12.5 Computer Equipment The assets' residual values and useful lives and methods of depreciation of property and equipment are reviewed and adjusted if appropriate, at each reporting date.gains and Losses on disposal of assets are determined and included in the results for the year. (v) Reporting Currency As per Development Credit Agreement the reporting currency is USD. These financial statements are therefore presented on the basis of USD currency. 16

26 (vi) Employee's benefits a) Retirement benefit obligation The project employees are members of Government Employee Provident Fund GEPF. The scheme will bear all pension obligations. Both employer and employees contribute the statutory fee to the pension funds and the amounts are charged to the statement of financial performance when due. b) Other entitlements The estimated monetary liability fo r employees' accrued annual leave entitlement at the reporting date is recognized as an expense accrual. The Project also accrues and pays gratuity of 25% of basic salary to its employees who employed in contract terms. Termination benefits are also payable when employment is terminated before the normal retirement/contract expiry date or whenever an employee accepts voluntary redundancy in exchange for these benefits. (vii) Cash and cash equiva lent Cash and cash equivalents are carried in the statement of financial position at face value. For the purpose of cash flow statements cash and cash equivalents, comprise cash in hand and cash at bank. (viii) Financial Risk Management The project activities expose it to a variety of financial risks mainly currency risk. The project's overall risk management Programme focuses on the identification and management of risks and seeks to minimize potential adverse effects on its financial performance. The disclosures below summarize the way the Fund manages key risks. (ix) Foreign Currency Risk Foreign currency risk arises when future commercial transactions or recognized assets and liabilities are denominated in a currency that is not the entity's functional currency. The project transacts both in United States Dollar and Tanzanian Shillings. The foreign exchange exposures are reviewed and contro lled by the project on a regular basis. (x) Revenue recognition Revenue from non-exchange transactions Grants Grants are not recognized until there is reasonable assurance that the project will comply with the conditions attaching to them and the grants will be received. Grants whose 17

27 primary condition is that the project should purchase, construct or otherwise acquire noncurrent assets are recognized as deferred income in the statement of financial position and transferred to statement of financial performance on a systematic and rational basis over the useful lives of the related assets. Other grants are recognized as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the project with no future related costs are recognized in the statement of financial performance in the period in which they become receivable. Revenue from exchange transaction Fees The project recognizes revenues from fees when the event occurs and the asset recognition criteria are met. To the extent that there is a related condition attached that would give rise to a liability to repay the amount, deferred income is recognized instead of revenue. Other non-exchange revenues are recognized when it is probable that the future economic benefits or service potential associated with the asset will flow to the entity and the fair value of the asset can be measured reliably. Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. NOTE 2: SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the project's financial statement requires management to make judgments, estimates and assumptions that affect the reported an1ounts of revenues, expenses, assets and Liabilities and the disclosure of contingent liabilities, at the reporting date. Uncertainty about these assumptions and estimates could require a material adjustment to carrying amount of the asset or liability affected in the future periods. Judgments In the process of applying the project's accounting policies, no significant judgments were made by management. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: 18

28 Asset useful lives The useful lives of items of property, plant and equipment are estimated annually and are in line with the rate at which they are depreciated. During the year under review the management reviewed useful lives for property, plant and equipment. The useful lives are disclosed in ote 1 to these financial statements. Impairment of non-financial assets The project assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. If indicators exist, an impairment test is done and any identified impairment loss is recognized in the financial statements. There is no impairment of non-financial assets during the year. NOTE 3: ST AND ARDS ISSUED BUT NOT YET EFFECTIVE IPSAS 33 - First-time Adoption of Accrual Basis International Public Sector Accounting Standards: IPSAS 34 - Separate Financial Statements IPSAS 35 - Consolidated Financial Statements IPSAS 36 - Investments in Associates and Joint Ventures IPSAS 37 - Joint Arrangements IPSAS 38 - Disclosure of Interests in Other Entities. All the above standards are effective for accounting period beginning on or after O 1 January 217. IPSAS 39 - Employee Benefits with effect from 1 51 January 2 18 The standards have no impact in the financial statements of the SAGCOT investment Project. NOTE4:GRANTSREVENUE 216/17 215/16 USD USD Recurrent grants Note 1 132, ,91 Amortisation of capital grant Note 13 14,284 8, , ,857 NOTES: SALARIES AND STAFF BENEFITS Gratuities 3,497 1,8 I Leave passage 1, Consultancy fees 7,

29 75,225 17,687 NOTE6: OPERA TING EXPENSES Advertisement & Publicity Conference facilities Consultancy fee Diesel Communication Internet and Connection Freight & Clearing Charges Ground Travel(Bus, Railway, Taxi, Etc) Motor Vehicle Motor Vehicle insurance Premium Office consumables Computers and Accessories Other Operating Cost Per Diem-Domestic Per Diem-Foreign Printing and Photocopying Costs Service and repair(vehicles) Staff Training Costs Transport cost Travel Ticket- Foreign 33,917 5,4 1, ,321 6,117 4,7 1,175 57,643 1,19 4,432 72,422 4, ,132 67,99 1,363 3,232 1,439 16,1 8,75 1,5 1,489 14,65 22, ,224 NOTE 8:CASH AND CASH EQUIVALENTS BOT - USD Account 216/17 USD 4,283,84 4, /16 USD 16,78 16,78 2

30 NOTE 9: PROPERTY, PLANT AND EQUIPMENT Cost As at 1 July 21 6 Additions At 3 June 217 Motor Vehicle USD 67,99 4,321 71,42 Accumulated depreciation As at 1 July 2 17 Charge for the year At 3 June 217 8,947 14,284 23,231 Carrying amount At 3 June 217 At 3 June ,19 58,153 21

31 NOTE 1: RECURRENT GRANTS Balance at 1 July Receipts during the year Government of Tanzania World Bank Grants available Grants utilised during the year Closing balance - Deferred income as at 3 June NOTE /17 USD 16,78 4,4, 4,416,78 132,867 4,283,84 215/16 USD 252,6 18 1, 352, ,9 1 16,78 NOTE 11 :DIFFERED INCOME GRANT Cash and bank balance Accounts Payables 4,283,84 (694) 4,283,146 16,78 16,78 NOTE 12: OTHER PAYABLES Accounts payable NOTE 13: ACCOUNTS RECEIVABLE Staff debtors As at 3 June NOTE 14: RELATED PARTY TRANSACTIONS AND DISCLOSURES The ent ity regards a related party as a person or an entity with the ability to exert control individually or jointly, or to exercise significant influence over the entity, or vice versa. Members of key management are regarded as related parties and comprise the Project Coordinator, Financial Management Specialist and Procurement Specialist. 15 KEY MANAGEMENT PERSONNEL REMUNERATIONS There were no short term benefits (i.e. consultancy fees, gratuity and social security contributions) which were paid to Key management USD USO

32 Consultancy fee Leave passage Gratuity Total 16 TAXATION The PSCP Project is subject to income tax laws of Tanzania under the lncome Tax Act, 24 except where tax exem ptions has been sought and granted by the Tanzania Revenue Authority (TRA). 17 CONTINGENT LIABILITIES As at 3th June, 217, there were no contingent liabilities requiring discl osure in these finan cial statements. 18 EVENTS AFTER THE REPORTING PERIOD There are no material events, adjusting or non-adj usting, which have occurred between the reporting date and the date when financial statements are authorized for issue. 19 COMPARATIVE FIGURES Where necessary, comparati ves figures have been adjusted to conform to chan ges in presentation in the current year. 2 RA TE OF EXCHANGE FOR BALANCE SHEET ITEMS All Assets and liabilities in the Balance Sheet, denominated in loca l currency have been converted at the exchange rate of I USD =2, TZS, a rate ruling at the reporting balance sheet date. The resulting differences from conversion and tran slation have been disclosed in the financial statement of the statement of receipts and payments. 23