The Ministry of Agriculture and Fisheries The Sustainable Agriculture Productivity Improvement Project (SAPIP) GAFSP Grant Number TF0A2869 Annual Project Financial Statements for the Year Ended 31 December 2018 THE MINISTRY OF AGRICULTURE AND FISHERIES SUSTAINABLE AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (SAPIP) GAFSP NO. TF0A2869 Recipient & Employing Authority: The Ministry Of Finance (Democratic Republic of Timor-Leste) Implementing agency: The Ministry of Agriculture and Fisheries GAFSP Grant number: TF0A2869 Auditors: Merit Partners TABLE OF CONTENTS Page Statement of Approval 3 4-5 Statement of Cash Receipts and Cash Payments 6 Notes to the Financial Statements 7 - 11 2 Independent auditor’s report to the Ministry of Agriculture and Fisheries – Sustainable Agriculture Productivity Improvement Project Report on the Audit of the Financial Report Opinion We have audited the accompanying financial report of the Sustainable Agriculture Productivity Improvement Project (“the Project”), which comprises the Statement of Cash Receipts and Cash Payments for the year ended 31 December 2018, a summary of significant accounting policies, other accompanying notes, and the Ministry of Agriculture and Fisheries - Project Management Unit’s (“MDIR-PMU”) Statement of Approval. In our opinion the financial report of the Sustainable Agriculture Productivity Improvement Project presents fairly in all material respects the financial transactions for the period ended 31 December 2018, and; a. is in accordance with the requirements under the World Bank (“W B”) administered Grant Number TF0A2869 dated 16 November 2016; b. the financial report is prepared in accordance with the basis of accounting as disclosed in Note 1; and c. complies with the World Bank Disbursement Guidelines for Investment Project Financing. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Project in accordance with the independence requirements of the International Federation of Accountants (“IFAC”) Code of Ethics for Professional Accountants. We have also fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Program Management Unit for the Financial Report The Program Management Unit of the Project is responsible for the preparation and fair presentation of the financial report in accordance with the financial reporting requirements under the World Bank (“WB”) administered Global Agriculture and Food Security Program Trust Fund Grant No. TF0A2869, dated 16 November 2016 (“Grant Agreement”), and for such internal control as the Program Management Unit determines is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. The Program Management Unit is responsible for overseeing the Project’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the Financial Report is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken based on the financial report. As part of an audit in accordance with the International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the Project’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Merit Partners Matthew Kennon Director Darwin 28 June 2019 THE MINISTRY OF AGRICULTURE AND FISHERIES SUSTAINABLE AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (SAPIP) GAFSP NO. TF0A2869 STATEMENT OF CASH RECEIPTS AND CASH PAYMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (Amounts in US Dollar) Cumulative 2017 2018 Total $ $ $ CASH RECEIPTS Grants - Designated account 2,000,000 862,827 2,862,827 Direct payments 0 238,800 238,800 2,000,000 1,101,627 3,101,627 CASH DISBURSEMENTS Consulting services 82,463 316,598 399,061 Goods 34,026 242,135 276,161 Operating costs 53,611 527,907 581,518 170,100 1,086,640 1,256,740 EXCESS OF CASH RECEIPTS OVER DISBURSEMENTS 1,829,900 14,987 1,844,887 CASH AT BEGINNING OF PERIOD 0 1,829,900 0 CASH AT END OF PERIOD 1,829,900 1,844,887 1,884,887 The Statement Should be Read in Conjunction with the Accompanying Notes. 6 THE MINISTRY OF AGRICULTURE AND FISHERIES SUSTAINABLE AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (SAPIP) GAFSP NO. TF0A2869 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Project Description The Government of Timor-Leste, through the has received funding through a Grant from the Global Agriculture and Food Security World Bank, towards the cost of the Sustainable Agriculture Productivity Improvement Project ( ). The Project will be financed by World Bank administered grants. The objective of the Project is to increase the productivity and marketed production of smallholder agriculture in selected geographical locations in Timor-Leste. The Project consists of the following parts: Component 1: Integrated Watershed Agriculture Development Planning Carrying out a program of activities designed to improve agriculture development planning within targeted watershed, such activities include: a. Forming and maintaining of new Watershed Management Councils, and strengthening b. Preparation of watershed agricultural development plans aimed at increasing the productivity and marketability of agricultural produce at the municipal level, and where such plans already exist, updating such plans based on community consultations; and c. Preparation of sustainable community agriculture development plans aimed at increasing the productivity and marketability of agricultural produce at the community level, and where such plans already exist, carrying out verification and additional consultations with rural communities as required. Component 2: Smallholder Organization, Advisory Support and Training Groups, to improve farm productivity and marketability, including: a. b. Providing guidance, support and capacity building to ensure the sustainability and effectiveness of c. Facilitation of farmer-to-farmer learning through farmer field schools, demonstrations, and additional training activities; and d. marketing, financial management, internal organization, environmental management, community participation and governance, nutrition awareness, and food safety. Component 3: Carrying out a program of activities de of sustainable community agriculture development plans through the provision of targeted on- farm investments; including: 7 a. Rapid roll out of post-harvest storage and processing technology and equipment Groups, including hire and maintenance of the Independent Verifier; b. Development and delivery of production, storage, and processing facilities, equipment and plans developed under Part 1 of the Project; and c. Provision of sub- development plans Component 4: Strengthening of the Ministry of Agriculture and Fisheries Institutional Capacity a. Carrying out a program of activities designed to enhance the institutional capacity of the MAF, i. Providing analytical support for policy reforms ii. Adaptive research iii. Improved management strategy and institutional governance b. Carrying out a program of activities designed to support MAF in the development of a monitoring and evaluation system, including a results-based financing monitoring and evaluation system. Component 5: Project Management and Monitoring Carrying out a program of activities designed to strengthen the capacity of the MAF for implementation, coordination, financial and procurement management, reporting, audit of the Project including establishment, operationalization and strengthening of an integrated Project Management Unit. Component 6: Contingency for Disaster Risk Response Carrying out a program of activities designed to provide rapid response to disaster, emergency or catastrophic events, as needed. The Ministry established the Project Manag to support the implementation of the Project. 8 THE MINISTRY OF AGRICULTURE AND FISHERIES SUSTAINABLE AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (SAPIP) GAFSP NO. TF0A2869 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont. a. Project Description cont. The Grant Agreement was signed on 16 November 2016. The trust fund will close on 31 August 2022 and the unspent funds will be transferred to the World Bank after close date. b. Basis of Accounting The financial report is for the MAF project for Sustainable Agriculture Productivity Improvement Project a project established in Timor-Leste and financed through the World Bank administered grant funding. funded through World Bank administered grant funding. The financial report is for the period 1 January to 31 December 2018 and has been prepared in accordance with the applicable World Bank grant terms and conditions. The financial report is prepared on a cash basis of disbursements made by the World Bank in respect of the Project. On this basis, Project expenditures are recognized when disbursements are paid rather than when incurred. Reporting Currency The financial report is presented in US dollars, which is the Project functional currency. Foreign Currencies Transactions involving foreign currencies have been recorded in United States dollars (US$) using the rates of exchange ruling on the date of transactions. Receipts Grant payments to the designated account are recognised as receipts when received. Direct payments made by the World Bank are recognised as receipts when notification of payment is received. Payments Payments comprise of eligible expenditure incurred to deliver the project as defined by the Grant Agreement. The following specific accounting policies have been adopted in the preparation of this report. 9 THE MINISTRY OF AGRICULTURE AND FISHERIES SUSTAINABLE AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (SAPIP) GAFSP NO. TF0A2869 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont. c. Payment Protocol Project expenditures are paid using the Designated Account and Direct Payment methods, following World Bank Disbursement Guidelines for Investment Project Financing the WB . The Designated Account method is payment made for eligible expenditures paid through an account maintained by MAF PMU on behalf of the Project. The designated account is replenished in accordance with the provisions set out in section 5 of the WB Guidelines. The Direct Payment method is payment made for eligible expenditures through direct transfers of d. Cash Cash, held at Designated Account and Petty Cash, are stated at their nominal amount in United States dollar (US$). e. Fixed Assets All items of property, plant and equipment are expensed in the statement of cash receipts and payments in the year of acquisition. Property, plant and equipment are procured as per project requirements and in accordance with the World Bank property, plant and equipment procured under the grant will become the property of the Government of Timor- Leste after the Project is completed. MAF PMU maintains a fixed assets register. f. Commitment Eligible expenditures incurred but not paid are recorded separately from the accounting records, and are not recorded in the statement of cash receipts and payments. g. Taxation Withholding tax receipts owed to Timor-Leste Revenue Services are withheld from the amount at the following rates: Payments to non-residents 10% h. Foreign currencies Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. 10 THE MINISTRY OF AGRICULTURE AND FISHERIES SUSTAINABLE AGRICULTURE PRODUCTIVITY IMPROVEMENT PROJECT (SAPIP) GAFSP NO. TF0A2869 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 NOTE 2: DESIGNATED ACCOUNT Pursuant to terms and conditions set out for the grant agreement (see Note 2), the Project expenditures for eligible expenditures were made pursuant to WB Guidelines. Eligible expenditures are paid through direct payment from World Bank or reimbursement through the designated account. The designated account is replenished in accordance with the provisions set out in section 5 of the WB Guidelines. At 31 December 2018, this account consisted of: Designated Account $1,884,887 $1,884,887 11