19 APR 2017 RECEIVED Public Disclosure Authorized Ministry of Industry and Commerce (TDF-2) Financial Statements and Independent Auditors' Report Year ended 30 September 2016 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized loss Member Firm of KPMG International
(TDF-2) Financial Statements and Independent Auditors' Report Year ended 30 September 2016
Contents Page Project information 1 Statement of management's responsibilities 2 Independent Auditors' Report 3-4 Statement of cash receipts and payments 5 Statement of designated bank account 6 Notes to the financial statements 7-14 Budget and actual payments (Appendix) 15-17
Project information Project Second Trade Development Facility (TDF-2) Funding agencies International Development Association ("IDA") and Multi - Donor Trust Fund ("MDTF") Duration 1 April 2013 to 31 March 2017 Implementing agency ("NIU") ("DPC") Ministry of Industry and Commerce ("MoIC") Project director Phouvieng Phongsa (Deputy Director General Director of NIU) Registered Office Ministry of Industry and Commerce Phonexay Road, P.O. Box 4107 Vientiane Capital, Lao PDR Auditors KPMG Lao Co., Ltd.
f, >@ ' talanfclpmen Foreign Aid Division " " " Natto nal IImpIe me ntalion Unil - - - ---jl--------------i-l-- -I[.----I.J...... Statement of management's responsibilities It is the responsibility of management to prepare financial statements of Second Trade Development Facility Project ("TDF-2" or "the Project") for the year ended 30 September 2016, which are prepared in all material respect in accordance with the accounting policies as described in Note 2 to the financial statements, In preparing these financial statements, management is required to: * Select suitable accounting policies and apply them consistently; * Make judgments and estimates that are reasonable and prudent; * Maintain financial records and prepare the financial statements based on the accounting policies as described in Note 2 to the financial statements; and * Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Project will continue its operations. Project Management of is responsible for keeping proper accounting records, which disclose with reasonable accuracy, at any time, the financial position and performance of the Project. Members of project management have a general responsibility for taking such steps as are reasonably available to them to safeguard the assets of the Project and to prevent and detect fraud and other irregularities. Project Management confirms that the Project has complied with the above requirements in preparing the financial statements. On behalf of the management Mr. Phouvieng Phongsa Sodavanh Souvannaphoum Deputy Director General NIU Manager Director of MU Ministry of Industry and Commerce Ministry of Industry and Commerce Date: 2 APR 201? Date: r2 APR 2017 2
KPMG Lao Co.,Ltd.?QIC) morn th Floor, 37 K.P. Tower iqu 3-4, 37 Fim wm9c3 3 rd 4 23 Singha Road, Ban Phonexay, %uli 23 4mg, 9ultullq, Saysettha District, P.O. Box 6978 CloJel ocr%, 6 J.2i. 6978, Vientiane Capital, Lao PDR lbnoioop, 1t.ft.I 0i0 Tel +856 (21) 454240-7 in : +856 (21) 454240-7 Independent Auditors' Report To the Project Management, We have audited the accompanying financial statements of Second Trade Development Facility Project ("TDF-2" or "the Project"), which comprise the statement of cash receipts and payments and the statement of designated bank account for the year ended 30 September 2016, and notes, comprising summary of significant accounting policies and other explanatory information. The financial statements have been prepared by management based on the accounting policies as described in Note 2 to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements in accordance with the accounting policies as described in Note 2 to the financial statements, 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. Auditors' responsibility Our responsibility is to express an opinion on these 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 the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our 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, we consider internal control relevant to the Project's preparation of the 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 Project's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by 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. KPMG Lao Co Ltd a Company licensed under the Foreign Investment Law of Lao PDR, is a member of KPMG Internat[onal, a Swiss cooperative 3
Opinion In our opinion, the financial statements of the Project for the year ended 30 September 2016 are prepared, in all material respects, in accordance with the accounting policies as described in Note 2 to the financial statements. Emphasis ofmatter - Basis ofaccounting and Restriction on Use Without modifying our opinion, we draw attention to Note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared to provide information to the Project management of to report to the donors. As a result, the financial statements may not be suitable for other purpose. Our report is intended solely for the Project management and the donors and should not be used by parties other than the Project management and the donors. KPMG LA KPMG Lao Co c.io Vientiane Capital, a@po Date: 1 2 APR 2017 KPMG Lao Co., Ltd a Company licensed under tie Foreign Investment Law of Lao PDR, is a member of KPMG InternationaI, a Swiss cooperative 4
Statement of cash receipts and payments 2016 2015 Note Receipts 3 2,743,974 3,408,333 Payments Consultants' Services 4 2,192,634 2,219,079 Goods 5 52,181 42,897 Incremental operating costs 6 145,933 182,562 Training and workshops 7 378,701 567,874 Matching grants BI Business Assistance Unit 8 393,085 127,100 Total payments 3,162,534 3,139,512 Movement in fund balance for the year (418,560) 268,821 Fund balance at the beginning of the period 3 914,413 645,592 Fund balance at the end of the period 495,853 914,413 Represented by: Cash on hand and cash at bank 9 125,227 92,995 Advances 10 370,626 821,418 495,853 914,413 The accompanying notesform an integral part of these financial statements Mr. Phouvieng Phongsa Sodavanh Souvannaphoum Deputy Director General NIU Manager Director of NIU Ministry of Industry and Commerce Ministry of Industry and Commerce Date: J 2 APR 2017 Date: 1 2 APR 2017 5
Statement of designed bank account 2016 2015 Note Receipts 3 2,743,974 3,408,333 Payments Payments made out of Projects' accounts (3,162,534) (3,139,512) Decrease/(Increase) in advance 450,792 (382,070) Decrease of cash at Projects' accounts 29,011 130,190 Decrease/(Increase) in cash in hand 573 (749) Total (2,682,158) (3,392,141) Excess of receipts over payments 61,816 16,192 Fund balance at the beginning of the period 57,888 41,696 Fund balance at the end of the period 119,704 57,888 Represented by: Cash at designate bank account 9 119,704 57,888 The accompanying notes form an integral part of these financial statements Mr. Phouvieng Phongsa Sodavanh Souvannaphoum Deputy Director General NIU Manager Director of NIU Ministry of Industry and Commerce Ministry of Industry and Commerce Date: 12 APR 2017 Date: 1 2 APR 2017 6
Notes to the financial statements These notes form an integral part of, and should be read in conjunction with, the accompanying financial statements. 1. Principal activities The Second Trade Development Facility ("TDF-2" or "the Project") is supported by a multi-donor trust fund ("MDTF") financed by Australia, the European Union, Germany, Ireland and by the International Development Association ("IDA") of the World Bank under Contract No. H8190; it is focusing on improving trade and private sector development in the Lao PDR. The World Bank administers the grant (Grant Contract No. TF14189 dated 28 March 2013), which is implemented by the Ministry of Industry and Commerce ("MoIC") of the Lao PDR. The aim of TDF-2 is to support Lao Government objective to achieve high rates of economic growth that translate into meaningful poverty reduction, as outlined in the 7 th National Socio Economic Development plan ("NSEDP"). Its development objective is to support the implementation of the Government's trade and integration priorities outlined in the 2012 Diagnostic Trade Integration Study ("DTIS") Roadmap, and in particular to contribute to improved competitiveness and diversification, focusing outside the natural resource sectors. TDF-2 builds upon the results achieved under TDF-1, which focused on: * Trade facilitation reforms for non-customs agencies, successfully laying the foundation for a Lao National single Window; * Core support to World Trade Organisation ("WTO") accession negotiation, including technical capacity development for negotiations, legal reform with a priority on sanitary and phytosanitary measures, and accession impact evaluation; * Broader support to trade related research; and * Sector investments in competitive sectors. The operation of TDF-2 is informed primarily by the Government's 2012 DTIS Update, as well as by related analytical work undertaken by the World Bank and development partners, including the 2010 Lao development Report (a County Economic Memorandum), the 2011 Lao Investment Climate Assessment and a series of trade-related analytical products prepared under the trade Development facility MDTF (Diversification/product Space paper, Gender and trade Work Program, Export Survival Study, ATIGA Tariff Reform Impact Study, Agribusiness Work program, and the trade and transport Facilitation Assessment). TDF-2 thus forms the core element of a second phase Lao trade program, which also includes a complementary IDA Customs and Trade Facilitation project, grants from the Japan Social Development Fund, Trade Facilitation Facility, Gender Action plan and a large trade-related analytical program. The proposed operation is, in turn, closely aligned with the broader aid -for-trade program in the Lao PDR and related projects. The main activities of the Project in the period are set out in the comparison of budget and actual expenditure. As at 30 September 2016, the Project had 40 individual consultants (2015:35). 7
Notes to the financial statements 2. Summary of significant accounting policies The following significant accounting policies have been adopted by the Project in the preparation of these financial statements: a) Basis of financial statements preparation The financial statements of the Project, which are expressed in United States Dollars (""), have been prepared in accordance with the modified cash basis of accounting. The accounting policies have been applied consistently throughout the period. b) Fixed assets All purchases of fixed assets are recorded as payments in the statement of cash receipts and payments upon acquisition. The Project maintains a Fixed Assets Register ("FAR") for control purposes. c) Cash Cash comprises cash on hand and balances with banks. d) Foreign exchange The Project maintains its accounting records in in accordance with the financial agreement. All cash is held in. Transactions in currencies other than during the period have been translated into at rates approximating those ruling at the transaction dates. All exchange differences are recorded in the statement of cash receipts and payments. e) Accounting reporting period The financial accounting year of the Government of the Lao PDR starts on 1 October and ends on 30 September. f) TDF categories of payments 1) Consultant Services These consist of payment to national and international consultants (individuals or firms). 2) Goods Good consist of payments to office equipment and furniture, and computers and software. 3) Incremental operating Costs These cover reasonable payments directly related to the project made by an Implementing Agencies ("IA's"). They include consumable materials and supplies, communications (postage, telephone and internet), media and printing service, Translation and interpretations services, office space rental and utilities, maintenance of office equipment, operation and maintenance, fuel costs, bank charges required for the Project, administrative support staff, and project staff travel, lodging and per diems. They exclude salaries (including bonuses, fees and honoraria or equivalent payments) of civil servants. 8
Notes to the financial statements 2. Summary of significant accounting policies, (continued) f) TDF categories of payments (continued) 4) Training and Workshop Training and Workshop consists of Training, Workshop, Trainers travel and accommodation. 5) Matching grants - Business Assistance Unit This is a 50 % grant payment to support individual firms in building their skills and experience as to become fully internationally competitive. The key activities include: 1. Direct consulting services, advising individual firms on business growth plans; 2. Matching grants to assist individual firms financially in purchasing specialized business development services in support of growth plans; and 3. Rigorous impact evaluation of services provided. g) Receipt recognition Fund receipt from funding agencies and administered by IDA is recognised as receipt when cash is credited to the Project's designated account. The IDA may make direct payments, at the Project's request, directly to a third party for eligible expenditures. h) Payments recognition Payments incurred in the frame work of the Grant Agreement are recognised on the cash basis of accounting, i.e. when the payments are made. (j) Advances Advances, for activities such as workshops, conferences, monitoring trips, are reimbursable to the Project until expensed by the Implementing Agencies ("IA"). Advances are recognized as expenditure after the advance has been liquidated and the expenses reports are approved. Advances are requested by IA from the Project through formal advance request forms. 9
Notes to the financial statements 3. Receipts 2016 2015 Direct Payment World Bank TDF-TF 93,614 734,221 World Bank TDF-IDA 40,120 314,671 133,734 1,048,892 Grant Fund World Bank TDF-TF 1,827,168 1,651,609 World Bank TDF-IDA 783,072 707,832 2,610,240 2,359,441 Total 2,743,974 3,408,333 4. Consultants' Services 2016 2015 Component A - Trade Facilitation, Trade Policy and Regulations Al - Trade facilitation support 243,836 309,474 A2 - Non Tariff measures review and rationalization 139,147 23,122 A3 - Trade in services 110,256 294,833 A4 - Trade in goods 225,284 224,502 718,523 851,931 Component B - Diversification and Competitiveness BI - Business Assistance Unit ("BAU") 341,688 445,410 B2 - Labor standards and manufacturing productivity 621,497 268,607 963,185 714,017 Component C- Mainstreaming Aid-for-Trade Cl -, and trade and private sector, development working group 290,524 379,365 C2 - DTIS action matrix/roadmap challenge facility 140,892 204,086 C3 - Research and policy analysis 79,510 69,680 510,926 653,131 Total 2,192,634 2,219,079 10
Notes to the financial statements 5. Goods 2016 2015 Component A - Trade Facilitation, Trade Policy and Regulations Al - Trade facilitation support - 6,138 A2 -Non-tariff measures review and rationalization 1,632 2,226 A3 - Trade in services - 2,660 A4 - Trade in goods - 2,146 1,632 13,170 Component B - Diversification and Competitiveness BI - Business Assistance Unit ("BAU") - 5,259 B2 - Labor standards and manufacturing productivity - 2,966 -_ 8,225 Component C- Mainstreaming Aid-for-Trade Cl -, and trade and private sector development working group 2,049 18,011 C2 - DTIS action matrix/roadmap challenge facility 48,500 620 C3 - Research and policy analysis - 2,871 50,549 21,502 Total 52,181 42,897 11
Notes to the financial statements 6. Incremental Operating Costs 2016 2015 Component A - Trade Facilitation, Trade Policy and Regulations Al - Trade facilitation support 42,124 41,357 A2 - Non-tariff measures review and rationalization 4,841 3,436 A3 - Trade in services 5,056 - A4 - Trade in goods 19,813 25,540 71,834 70,333 Component B - Diversification and Competitiveness BI - Business Assistance Unit ("BAU") - 5,320 B2 - Labor standards and manufacturing productivity 7,527 43,754 7,527 49,074 Component C- Mainstreaming Aid-for-Trade Cl -, and trade and private sector development working group 37,415 49,087 C2 - DTIS action matrix/roadmap challenge facility 17,653 2,108 C3 - Research and policy analysis 11,504 11,960 66,572 63,155 Total 145,933 182,562 12
Notes to the financial statements 7. Training and workshops 2016 2015 Component A - Trade Facilitation, Trade Policy and Regulations Al - Trade facilitation support 81,919 86,777 A2 - Non-tariff measures review and rationalization 26,514 33,267 A3 - Trade in services 16,991 40,961 A4 - Trade in goods 44,071 49,905 169,495 210,910 Component B - Diversification and Competitiveness BI - Business Assistance Unit ("BAU") 271 7,914 B2 - Labor standards and manufacturing productivity - 20,657 271 28,571 Component C- Mainstreaming Aid-for-Trade Cl -, and trade and private sector development working group 69,903 77,823 C2 - DTIS action matrix/roadmap challenge facility 62,507 94,000 C3 - Research and policy analysis 76,525 156,570 208,935 328,393 Total 378,701 567,874 8. Matching grants Bl Business Assistance Unit 2016 2015 Component B - Diversification and Competitiveness BI - Business Assistance Unit ("BAU") 393,085 127,100 Total 393,085 92,995 9. Cash on hand and cash at bank 2016 2015 Cash at designate bank account 119,704 57,888 Cash at Projects' accounts 5,194 34,205 Cash on hand 329 902 Total 125,227 92,995 13
Notes to the financial statements 10. Advances 2016 2015 International Labour Organization ("ILO") 145,579 645,930 Food and Agriculture Organization ("FAO") 210,830 159,330 Trade facilitation support 6,777 13,162 Trade in services 4,806 2,111 Non-tariff measures review - 885 NIU 157 - Department of ICT 332 Lao Business Forum (LBF) 2,145 Total 370,626 821,418 14
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Comparison of budget and actual payments (Appendix) Analysis of variances between budget and actual payments (Not audited) Most activities were under spent during the year-end 30 September 2016. Component A- Trade Facilitation, Trade Policy and Regulations Overall, there had been number of activities implemented during reporting period for component A. However, only $961,485 has been disbursed over the reporting period which it is considered as slow. The table above shown, there were variances between actual and budget of $264,296 at the end September 2016. The variances were also caused by few outstanding supplier invoices that were not due in the reporting period and they will be settled in the next reporting period. Plus, there has been slow in implementation of some activities which postponed into the next period. Component B - Diversification and Competitiveness During reporting period, actual expenditure of $1,364,067 has been recorded against the component B that inclusive of BAF Matching Grants. Thus, the accumulative disbursement to the end of the year was equivalent to 68% of the total budget. According to the table above, as of 30 September 2016, the actual cumulative expenditure was $2,785,439 which variance of $181,047 and variance of ($253,337) for the year. This negative variance caused by the speed up in payment process to few BAF clients in order to meet with the project time line. Moreover, most of activities under this component has been accelerated such as factory standard activities that implemented by the Ministry of Labour conjunction with ILO and Garment Service Centre. Furthermore, some of outstanding invoices from the previous period was also settle within the year. Thus, the variance for the year was indicated a negative. Component C - Mainstreaming Aid for Trade For the period, October 2015 to September 2016, total expenditure for component C was $836,982 which equivalent to 50% of year budget. Over the period, there was number of activities implemented within the subcomponent Cl: NIU, C2: CF and C3: Research facilities. However, there was variance of $847,792 for the year. The variance caused by some delays in few activities during the last semester of the year and delay in some of the research activities. Moreover, some outstanding invoices for the period was settled in the following year. However, the activities are planned to be implemented in next year. Overall, if we consider the actual cumulative to the end of September 2016 the component has been disburse $3 million which equivalent to 72% of the total allocated budget for the component. 17