GOJ/IBRD LOAN CONTRACT NO. 8406 - JM STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT (SPSTP) FINANCIAL STATEMENTS FOR THE PERIOD APRIL 1, 2017 - MARCH 31, 2018 GOJ/IBRD LOAN CONTRACT NO. 8406 - JM STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT (SPSTP) FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 TABLE OF CONTENTS Page Number Independent Auditor's Report 1-5 Financial Statements Statement of Sources and Uses of Funds 6 Statement of Cumulative Investments 7 Designated Account Reconciliation Statements 8 Statement of Disbursement Linked Indicators Achieved 9 Notes to Financial Statements 10 - 20 AUDITOR GENERAL'S DEPARTMENT Sov a oi~ 40 KNUTSFORD BOULEVARD P.O. BOX 455 KINGSTON 5 JAMAICA Tel. No.: 926-8309/926-5963/926-5846 Fax Number: 968-4690 audeen@auditoraeneral.gov.im. September 26, 2018 INDEPENDENT AUDITOR'S REPORT To the Principal Finance Officer Ministry of Finance and the Public Service GOI/IBRD LOAN AGREEMENT No. 8406-IM Strategic Public Sector Transformation Project Period April 1. 2017 - March 31. 2018 Opinion I have audited the accompanying Financial Statements of the Strategic Public Sector Transformation Project (SPSTP), set out on pages 6 to 20, which comprise the Statement of Sources and Uses of Funds as at March 31, 2018, Statement of Cumulative Investments, Designated Account Reconciliation Statement, the Statement of Disbursement Linked Indicators Achieved for the year then ended, and a summary of significant accounting policies and other explanatory notes. In my opinion, the appended Statements 1-2 and Supplementary Financial Information reflect a fair representation of the transactions of the Project for the period under review and the transactions conformed to the terms of the Loan Agreement and complied with the International Public Sector Accounting Standards (IPSAS) Cash Basis. Basis for Opinion The audit of the Project was conducted in accordance with: * Article 11 Section 2.07 (b) of the Standard Conditions for Loan between the Government of Jamaica (GOJ) and the International Bank for Reconstruction and Development (IBRD) dated September 3, 2014. * International Standards of Supreme Audit Institutions (ISSAls). My responsibilities under ISSAls are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of this report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) and we have fulfilled our other ethical responsibilities in 1 accordance with the IESBA Code. I believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for my opinion. 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. I have determined that there are no key audit matters to communicate in this report. Management's Responsibility for the Financial Statements The executing agency, Ministry of Finance and the Public Service, is responsible for the preparation and fair presentation of these financial statements, in accordance with International Public Sector Accounting Standards (IPSAS) Cash Basis. This responsibility includes: designing, implementing and maintaining internal controls, relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether, due to fraud or error; selecting and applying appropriate accounting policies that are reasonable in the circumstances. The Ministry of Finance and the Public Service is also required to present audited financial statements to the IBRD. The attached financial statements and supplementary financial information which are described hereunder were submitted to me by the Project Implementing Unit (PIU) in accordance with Article II Section 2.07 (b) of the aforementioned General Conditions of the Loan Agreement to reflect the transactions of the Project from its inception in October 2014 to the close of the financial year at March 31, 2018. Statement 1 Statement of Sources and Uses of Funds Statement 2 Statement of Cumulative Investments Designated Account Reconciliation Statement of Disbursement Linked Indicators Achieved Notes to the Financial Statements In preparing the financial statements, management is responsible for assessing the Project'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 there are plans to liquidate the Project or to cease operations, or has no realistic alternative but to do so. Auditor's Responsibility for the audit of the Financial Statements My responsibility is to express an opinion on these Financial Statements based on my audit. I conducted my audit in accordance with the auditing standards issued by the International Organization of Supreme Audit Institutions (INTOSAI). Those standards require that I comply with ethical requirements and plan and perform the audit 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 ISSAls 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 on the basis of these financial statements. As part of an audit in accordance with ISSAIs, we exercise professional judgment and maintain professional scepticism throughout the audit. I also: * Identify and assess the risks of material misstatement of the financial statements, 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 my 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 the purpose of 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. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. The conclusions are based on the audit evidence obtained up to the date of my auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that presents a true and fair view. I have communicated with the IBRD regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that was identified during the audit. REPORT ON ADDITIONAL REQUIREMENTS OF LOAN AGREEMENT NO 8406-IM. COMPLIANCE WITH APPLICABLE LAWS, REGULATIONS AND FINANCIAL CLAUSES OF THE LOAN CONTRACT During the period under review, I examined compliance by the Project Implementing Unit of the Executing Agency with the applicable laws and regulations related to the Programme's financial activities and with the accounting/financial/ management clauses of the Loan Agreement No. 8406- JM. There was general compliance with the following schedules of the Loan Agreement. Article III - Section 3.01: Article V of the General Conditions Article III - Section 3.02: Schedule 2 Project Execution Section I Implementation Arrangements Section II Project Monitoring, Reporting and Evaluation Section III Procurement Section IV Withdrawal of Loan Proceeds OPINION - GENERAL In my opinion, the Project Implementing Unit maintained an adequate accounting system based on separate and clearly identifiable accounts which enabled the recording, monitoring and reporting of the operations and costs under the project in accordance with satisfactory accounting/financial/management practices and standards as required by Article II Section 2.07 (b) of the Standard Conditions for Loan Agreement. AUDIT OF THE SPECIAL BANK ACCOUNT I have examined the appended Designated Account Reconciliation Statement, reflecting the movement in the Designated Bank Account for the financial year ended March 31, 2018. The Designated BankAccount for the IBRD Loan bearing account number 810150 is maintained in United States Dollars in the name of the Ministry of Finance/ Strategic Public Sector Transformation Project Loan Agreement No. 8406-JM. My examination was made in accordance with the standards of the International Organisation of Supreme Audit Institutions (INTOSAI) and accordingly included such tests of the accounting records and other procedures I considered necessary. OPINION - SPECIAL BANK ACCOUNTS In my opinion, the Designated Account Reconciliation Statement reflect the total amount advanced to the Designated Account at March 31, 2018 as reconciled to the outstanding (undocumented) amount advanced to the account as at March 31, 2018 in conformity with IPSAS Cash Basis and IBRD guidelines. Auditor General of Jamaica Date AUDITOR GENERAL'S DEPARTMENT 40 KNUTSFORD BOULEVARD P.O. BOX 455 KINGSTON 5 JAMAICA Tel. No.: 926-8309/926-5963/926-5846 Fax Number: 968-4690 Email: audgen@auditorgeneral.gov.jm September 26, 2018 GOJ/IBRD LOAN AGREEMENT No. 8406-JM Strategic Public Sector Transformation Project Period April 1, 2017 - March 31, 2018 AUDIT OF STATEMENTS OF EXPENDITURE (SOE) PROCEDURES In the course of the audit of the Strategic Public Sector Transformation Project (SPSTP) for the year ended March 31, 2018, I examined the following statements of expenditure submitted to the IBRD during the financial year and period under review in support of applications for reimbursement of funds from the Loan Account in accordance with the Loan Agreement: Disbursement Value Date Disbursement Amount Request DateNumbr US$ Advance October 12, 2017 October 16, 2017 14 3,000,000 Reimbursement January 31, 2018 February 2, 2018 16 600,000 Total Disbursements 3,600,000 The examination was done in accordance with the generally accepted auditing standards and procedures prescribed by INTOSAI and accordingly, included such tests as the verification of the internal control systems and of the accounting records, tests of the origin and eligibility of expenditures, certification and procurement procedures for services, filing of support documents and such other auditing procedures as I considered necessary in the circumstances. Opinion In my opinion, the statements of expenditure and the annexes submitted in support of them, together with the internal controls procedures used in their preparation can be relied upon to support the applications for reimbursement in conforming to the requirements of the Loan Agreement. Auditor General of Jamaica Date 6 GOVERNMENT OF JAMAICA IBRD LOAN #8406-JM Strategic Public Sector Transformation Project Sources and Uses of Funds - Amounts in US$ FOR THE FINANCIAL YEAR ENDED MARCH 31, 2018 (LOAN RESOURCES) Current Period Current Year End Cumulative Previous Year End Cumulative April 1, 2017 to March 31, 2018 (IBRD LOAN) October 27, 2014- March 31, 2018 (IBRD October 27, 2014 - March 31, 2017 (IBRD LOAN) and to June 30, 2017 (DFID Grant) LOAN) and June 30, 2017 (DIFo Grant) Note RECEIPTS Actual Actual Actual Source of Financing IBRD DFID TOTAL IBRD DFID TOTAL IBRD DFID TOTAL Government World Bank & DFID: Designated Account 4a 3,000,000 - 3,000,000 7,546,322 1,522,315 9,068,637 4,546,322 1,522,315 6,068,637 Direct Payment - - - 714,951 - 714,951 714,951 - 714,951 Reimbursement 4b 600,000 600,000 600,000 - 600,000 - - - Retroactive Financing - - - . Front End Fees - - - 87,500 - 87,500 87,500 - 87,500 Interest Earned On Account 5b (317) (58) (375) - 1,471 1,471 317 1,529 1,646 Total Receipts (A) 5 3,599,683 (58) 3,599,625 8,948,773 1,523,786 10,472.559 5,349,090 1,523,844 6,872,934 LESS EXPENDITURES Uses of Funds by Components: 1. Strengthening the Public Investment Management System (PIMS) 465,422 - 465,422 1,054,540 426,548 1,481,088 589,118 426,548 1,015,666 2. Strengthening the Budget Preparation Process and Results-Based Budgeting 41,700 - 41,700 231,775 1,097,238 1,329,013 190,075 1,097,238 1,287,313 3. Adaptive Public Sector Approaches tp Promote Fiscal Sustainabilty 1,552,781 - 1,552,781 2,954,920 - 2,954,920 1,402,139 - 1,402,139 4. Modernization of the Accountant Generals Department (EEP/DLis) 600,000 - 600,000 600,000 - 600,000 - - 5. Fostering Industrial Growth and Trade Facilitation Technical Assistance to B5J 891,563 - 891,563 2,284,938 - 2,284,938 1,393,375 - 1,393,375 6.Project Management 195,833 - 195,833 639,610 - 639,610 443,777 - 443,777 Front End Fees - - - 87,500 - 87,500 87,500 - 87,500 Total Expenditures (B) 6 3,747,299 - 3,747,299 7,853,283 1,523,786 9,377,069 4,105,984 1,523,786 5,629,770 RECEIPTS LESS EXPENDITURES Net Change in Cash (A - B) (147,616) (58) (147,674) 1,095,490 - 1,095,490 1,243,106 58 1,243,164 Foreign Exchange Adjustment - . - BANK BALANCES Opening Cash Balances Designated Account 1,243,106 58 1,243,164 - - Project Account - - Total Opening Balance 1,243,106 58 1,243,164 - - - Closing Cash Balances Designated Account 1,095,490 - 1,095,490 1,095,490 - 1,095,490 1,243,106 58 1,243,164 Project Account - - - . Total Closing Balance 7 1,095,490 - 1,095,490 1,095,490 - 1,095,490 1,243,106 58 1,243,164 Approved for issue on behalf of the Strategic Public Sector Transformation Project on J Gf . / 1and signed on its behalf by: mans- Prject Coordinator, SPSTP Mrs. Sheila Wong - Principal Finance Ofil y FPS The accompanying notes on pages 6 - 20 form an integral part of the financial Statements 7 GOVERNMENT OF JAMAICA IBRD LOAN #8406-JM Strategic Public Sector Transformation Project Statement of Cumulative Investments - Amounts in US$ FOR THE FINANCIAL YEAR ENDED MARCH 31, 2018 (LOAN RESOURCES) Current Period Current Year End Cumulative Previous Year End Cumulative Categories April 1, 2017 to March 31, 2018 (IBRD October 27, 2014 - March 31, 2018 (IBRD October 27, 2014 - March 31, 2017 (IBRD LOAN) LOAN) and to June 30, 2017 (DFID Grant) LOAN) and to June 30, 2017 (DFID Grant) Actual Actual Actual IBRD DFID TOTAL IBRD DFID TOTAL IBRD DFID TOTAL EXPENDITURES BY CATEGORY 1. Goods, Consultants' Services, Training and Operating Cost 3,147,299 - 3,147,299 7,165,783 1,523,786 8,689,569 4,018,484 1,523,786 5,542,270 2. Front End Fees - - - 87,500 - 87,500 87,500 - 87,500 3. Interest Rate Cap or Interest Rate Collar premium - - - 4. Payment for EEP under Part 4 of the Project 600,000 600,000 - 600,000 Exchange Gain/(Loss) - - - - - - - - Total 3,747,299 - 3,747,299 7,853,283 1,523,786 9,377,069 4,105,984 1,523,786 5,629,770 Approved r issue on behalf of the Strategic Public Sector Transformation Project on z5& S__ _ _ _ _ cwo and signed on its behalf by: ns-1rojectCoordinator, SPSTP Mrs. Sheila Wong - Principal Financ 0 icer, MoFPS The accompanying notes on pages 6 -20 form an integral part of the financial Statements 8 GOVERNMENT OF JAMAICA IBRD LOAN #8406-JM Strategic Public Sector Transformation Project Designated Account Reconciliation - Amounts in US$ Financial Year Ended March 31, 2018 DESIGNATED ACCOUNT RECONCILIATION STATEMENT Note LOAN/CREDIT/PPF/COFINANCIER NUMBER Strategic Public Sector Transformation Project - IBRD Loan # 8406-JM ACCOUNT NUMBER 810150 WITH (BANK) Bank of Jamaica US$ 1 TOTAL ADVANCED BY WORLD BANK (OR COFINANCIER) 7,546,322 2 LESS: TOTAL AMOUNT DOCUMENTED BY WORLD BANK 5,008,635 3 PRESENT OUTSTANDING AMOUNT ADVANCED TO THE DESIGNATED ACCOUNT (1 - 2) 2,537,687 4 BALANCE OF DESIGNATED ACCOUNT PER ATTACHED BANK STATEMENT AS OF DATE 31/03/2018 1,095,490 7 5 PLUS: TOTAL AMOUNT CLAIMED IN THIS APPLICATION NO. 18 1,442,197 8 6 PLUS: TOTAL AMOUNT WITHDRAWN AND NOT YET CLAIMED- REASON: 7 PLUS: AMOUNTS CLAIMED IN PREVIOUS APPLICATIONS NOT YET CREDITED AT DATE OF BANK STATEMENTS - SUBTOTAL OF PREVIOUS APPLICATIONS NOT YET CREDITED 8 LESS: INTEREST EARNED 9 TOTAL ADVANCE ACCOUNTED FOR (NO. 4 THROUGH NO. 9) 2,537,687 10 DIFFERENCE (3 - 9) - 11 EXPLANATION OF ANY DIFFERENCE SHOWN IN LINE 10 Notes: Approved .Vissue on behalf of the Strategic Public Sector Transformation Project on 9 L and signed on its behalf by: Mir. t it..mn-FroIect Coordinator, SPSTP Mrs. Sheila Wong - Principal Financ er, MoFPS The accompanying notes on pages 6 - 20 form an integral part of the financial Statements 9 GOVERNMENT OF JAMAICA IBRD LOAN #8406-JM Strategic Public Sector Transformation Project Statement of Disbursement Linked Indicators (DLI) Achieved - Amounts in US$ FOR THE FINANCIAL YEAR ENDED MARCH 31, 2018 (LOAN RESOURCES) Description of DLI DLI Amount US$ Date Achieved Note DLI 1- At least one additional Financial and Accounting Reports is produced totalizing 6/18 600,000 7-Dec-17 4b Total 600,000 Approved for issu on behalf of the Strategic Public Sector Transformation Project on ';?"Y' and signed on its behalf by: Mr. or, SPSTPMrs heila Wong - Principal Finarte icer, MoFPS The accompanying notes on pages 6 - 20 form an integral part of the financial Statements 10 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) 1. IDENTIFICATION On September 3, 2014, the Government of Jamaica (GOJ) and the International Bank for Reconstruction and Development (IBRD) signed loan agreement number 8406JM for US$35,000,000, which became effective on October 27, 2014 and has an end date of January 31, 2020. Loan Agreement Amendment No. 1 was signed by the Government of Jamaica on August 4, 2017 at which point Component No. 4 was revised to read 'Modernizing of the Accountant General's Department'. This component replaces the previous Component No. 4 'Strengthening Property Tax Compliance and Administration'. With this change, Disbursement Link Indicators (DLIs) were introduced as a modality of financing under the Project, via the Eligible Expenditure Program (EEP). An amount of US$6,000,000 has been earmarked for this Component. This Loan Agreement Amendment No. 1 also officially removed Component 5b, 'Provision of technical assistance to Jamaica Custom Agency (JCA)', under the Fostering Industrial Growth and Trade Facilitation umbrella from the Project. However, there was the inclusion of capacity building activities to improve the National Compliance and Regulatory Agency (NCRA) service orientation, with the specific aim being the reduction of barriers to trade and the building of a national culture of quality. Resources of this agreement are to fund the activities of the Strategic Public Sector Transformation Project, which is being implemented by the Ministry of Finance and the Public Service, through the Project Implementation Unit. The loan is repayable in equal semi-annual installments commencing February 2020 and ending August 2043. Interest for the IBRD loan is at a rate equal to the Reference Rate for the loan currency plus the Fixed Spread and is guided by section 3.02(e) of the General Conditions of the Agreement. Project objectives The Project Development Objective (PDO) is to strengthen public resource management and support selected public sector institutions in facilitating a more enabling environment for private sector growth. 11 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) PROJECT COMPONENTS The Strategic Public Sector Transformation Project consists of six (6) parts: Part 1: Strengthening the Public Investment Management System (a) Design and implementation of a Public Investment Management System ("PIMS") through: (i) the development of an information technology platform which will provide information of public investment across the public investment cycle and link said information to the Borrower's budget and financial systems; (ii) the migration of the Borrower's web-based database to the PIMS information system; and (iii) the carrying out of capacity building activities to improve the Borrower's public investment and analytical capacity for implementation of the PIMS. (b) Design and implementation of a public investment management training program for public sector employees through: (i) the design of the public investment management training modules; (ii) training on public investment preparation; (iii) training for project management; and (iv) training on public investment monitoring. (c) Reviewing legislation and carrying out dissemination activities to integrate the PIMS with the Borrower's administrative systems, including: (i) the Borrower's procurement system; and (ii) the Borrower's human resources system. (d) Strengthening the monitoring of public investment through citizen participation, including the carrying out of: (i) external audits of projects; and (ii) public investment performance surveys. (e) (i) Designing a fund for the funding of pre-investment financial and economic analysis and post-investment evaluations of the Borrower's public investments; and (ii) carrying out: (A) pre-investment financial and economic analysis of the Borrower's proposed public investments to identify priority public investments based on the Borrower's long- term development agenda; and (B) post-investment evaluations of the effectiveness of the Borrower's completed public investments. (f) Provision of technical assistance for the implementation of the Public Financial Management Action Plan. 12 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) Part 2: Strengthening the Budget Preparation Process and Results-Based Budgeting (a) Updating the Borrower's budget manual to include: (i) guidelines to align annual and medium-term budgeting; (ii) procedures for budget preparation and execution; and (iii) guidelines on the new budget preparation cycle. (b) Institutionalizing baseline forward estimates in the Borrower's budget preparation process. (c) Developing and implementing procedures to: (i) achieve better resource allocation through greater aligning of policy, planning and budgeting in MDAs; (ii) incorporate procurement planning into the planning process and linking procurement plans to the budget process; (iii) set medium-term expenditure ceilings for MDAs; (iv) improve alignment of recurrent budgets with public investment expenditures; and (v) carry out a review of human resources required by the Borrower's budget office. (d) Provision of training on results-based budgeting to the Borrower's staff, selected pursuant to the criteria set forth in the Operational Manual. (e) Carrying out a review of the staffing levels in select MDAs to obtain accurate employee numbers and compensation costs for on-going budget preparation and execution. (f) Establishment of a participatory budgeting process through the carrying out of thematic meetings including citizens, NGO's, universities and business representatives. Part 3: Adaptive Public Sector Approaches to Promote Fiscal Sustainability (a) Supporting the Borrower's change management process to implement public sector reforms on the public investment management system, the budget preparation process and results-based budgeting, property tax compliance and administration, and industrial growth and trade facilitation, all through the carrying out of activities selected following the procedures and criteria set forth in the Operational Manual, including: (i) the carrying out of a consultation process within the Borrower's public sector to assess the status of implementation of public sector reforms; (ii) the improvement of the Borrower's communication and feedback mechanisms to strengthen the interrelationships within the Borrower's public sector; 13 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) Part 3: Adaptive Public Sector Approaches to Promote Fiscal Sustainability cont'd (iii) the identification and implementation of activities to support the sustainability of public sector reforms; and (iv) (A) the identification and assessment of activities to address challenges in the implementation of public sector reforms; and (B) based on said assessment, the design and implementation of a strategy to carry out said activities. (b) Provision of technical assistance to the Borrower to address public sector reform implementation gaps through the carrying out of activities selected following the procedure and criteria set forth in the Operational Manual, including: (i) the carrying out of an analysis of the Borrower's governance and accountability framework; (ii) the provision of support to assist the Borrower in achieving its public sector reforms related to the Project including change management, as set forth in the Operational Manual; and (iii) the carrying out of an analysis of the Borrower's trade facilitation capacity and mechanism to streamline said process to enhance its efficiency and effectiveness. Part 4: Modernizing of the Accountant General's Department Provision of financing of payments under the Eligibly Expenditure Program (EEP) in support of modernizing the Accountant General's Department, in accordance with the provisions set forth in Section IV of Schedule 2 to this Agreement, including: (a) developing a conceptual model of the treasury single account, clarifying its scope, coverage and main operational processes; (b) reforming the organizational structure of Accountant General's Department; (c) improving the central treasury management system's general ledger capabilities to provide the required level of controls and information, and (d) training to build the treasury's capacity in cash forecasting and management. 14 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) Part 5: Fostering Industrial Growth and Trade Facilitation Provision of technical assistance to BSJ through: (a) the carrying out of a review of BSJ's testing and certification procedures to ensure compliance with the Borrower's international and regional trade agreements and standards, including the WTO TBT and the CROSQ standards; and (b) the carrying out of capacity building activities to improve BSJ's service orientation; and (c) Capacity building activities to improve NCRA's service orientation with the specific aim of reducing barriers to trade and activities to build a national culture of quality. Part 6: Project Management Provision of support on Project management to: (a) carry out Project audits; (b) comply with the financial management and procurement obligations under the Project; (c) monitor and evaluate Project activities; (d) provide training and the acquisition of goods required thereof and finance Operating Costs. 15 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) MANAGEMENT REPORT The Annual Report is submitted by the management for the Strategic Public Sector Transformation Project (SPSTP) for the financial year ended March 31, 2018. AUDITING OF THE PROJECT The Project is currently audited by the Auditor General's Department. The Auditors, Auditor General's Department, 40 Knutsford Boulevard, Kingston 5, Jamaica. 1. The Budget This is the amount allocated based on the Government of Jamaica Estimates of Expenditures. 2. Categories of Expenditures The Project was originally designed with one category covering Goods, Consultants' Services, Training and Operating Costs with an allocated amount of US$34,912,500. One hundred percent of eligible expenditures falling within this category are financeable by the IBRD loan. In addition to the changes included to Loan Agreement Amendment No. 1, dated August 4, 2017, the Project added another eligible category. The revised allocations are as follows: Category Allocation (US$) Goods, Consultants' Services, Training and Operating Costs 28,912,500 Payment of EEP under Part 4 of the Project 6,000,000 Total 34,912,500 One hundred percent of eligible expenditures falling within these categories are financeable by the IBRD loan. 16 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) 2. Categories of Expenditures cont'd The parts of Components 1 and 2 that were previously eligible under the DFID grant which ended in June 2017 are now eligible for financing under the IBRD loan. These changes were reflected under Loan Agreement Amendment No. 1. In addition to this category, an amount of US$87,500 is allocated for Front-end Fee. Except where otherwise stated, these financial statements are presented in United States Dollars (US$) and includes only cash receipts and payments of the Strategic Public Sector Transformation Project. The Project has a Designated Special Account for the Loan resources, which is maintained at the Bank of Jamaica. 3. Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied during the financial year ended March 31, 2018. I) Basis of Preparation The Project Implementing Unit (PIU) uses the cash basis of accounting to account for the project's transactions. Under this basis, income is recognized when funds are received rather than when requested and expenses are recognized when payment is made rather than when obligations are incurred. Since the main objective of these financial statements is to disclose the sources and uses of funds, it is not necessary to present information adjusted for inflation. II) Recording of Transactions Transactions are recorded in dual currency. As the loan is denominated in US dollars, for preparation of the financial statements, US dollar is used. Expenditures in local currency are translated into US dollars, by applying the Central bank rate on the day of the expenditure. The Guidelines and Terms of Reference stipulate that the project financial statements should include separate identification of revenues and expenditures from the bank. 17 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) 3. Significant Accounting Policies (cont'd) III) Fluctuation rate and fees All fees and charges for un-disbursed loan funds, as well as losses due to exchange rate fluctuations are not considered eligible project costs and are absorbed by the Government of Jamaica. Bank charges are defined in the 'Operating Expenditures" of the project and are an approved expenditure to the loan once deemed reasonable. IV) Equipment and other fixed assets Equipment and other fixed assets procured with project resources are recorded at their acquisition cost at the date of purchase. Depreciation is not charged on these assets and is also not reflected in these financial statements. V) Exchange Rate for the period Foreign exchange gains or losses arise as a result of the fluctuations of the Jamaican Dollar against United States Dollar. There were no foreign exchange gains or losses as the Project only maintains a United States Currency bank account. The Special Account for the IBRD Loan is maintained at the Central Bank, bearing account number 810150. 4. Disbursement methods a) Advance This represents the total advances issued by the IBRD for the year ended March 31, 2018. Disbursement Request Value Date Disbursement Amount Date Number US$ October 12, 2017 October 16, 2017 14 3,000,000 Total 3,000,000 b) Reimbursement Disbursement Request Value Date Disbursement Amount Date Number US$ January 31, 2018 February 2, 2018 16 600,000 Total 600,000 18 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) 4. Disbursement methods cont'd b) Reimbursement cont'd This represents total reimbursement paid by the IBRD, in respect of EEP/DLI for Component No. 4 for the year ended March 31, 2018. The undisbursed balance of the IBRD loan as at March 31, 2018 is US$26,051,227. This includes US$5,400,000 earmarked for the Disbursement Linked Indicators under the Eligible Expenditure Program (EEP) - Component No. 4 of the Loan Agreement. 5. Source of Funds a) IBRD The amount of US$3,600,000 (cumulatively US$8,948,773 inclusive of front-end fee of US$87,500 charged by the Bank and a Direct Payment of US$714,951) was received from the IBRD for the period under review. The current period comprises an advance of US$3,000,000 and a reimbursement of US$600,000. b) Interest Earned on Account Interest of US$317 earned on the IBRD Special Account Number 810150 in the month of December 2016, which remained in the bank account as at March 31, 2017, was debited to the account in June 2017. Interest of US$58 earned in June 2017 on DFID Grant Special Account 810290 that remained in the bank account as at June 30, 2017 (Close of the Project), was debited to the Ministry of Finance and the Public Service Account Number 0000810126 within the current financial year and the bank account closed. 6. Use of Loan Funding Total loan funds invested during the period amount to US$3,747,299 (cumulatively US$7,853,283 inclusive of a Direct Payment of US$714,951). The current period comprises US$600,000 that relates to Disbursement Linked Indicators Achieved. 19 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) 7. Cash availability as at March 31, 2018 The cash available as at March 31, 2018 as expressed in United States dollars is: Bank Accounts As at Total Cash Available US$ Special Account 1 (Account # 810150) March 31, 2018 1,095,490 Total Closing Balance 1,095,490 This represents the cash balance at the end of the period for the Special Bank Account Number 810150. This Special Account is operated by the Bank of Jamaica for the disbursement of advances from the loan funds. Funds disbursed by the IBRD for the Project is directly transferred to this account. 8. Expenditures pending Justification The information below represents the SOEs pending submission to the IBRD to document expenditure incurred from special account no. 810150 during the period of the audit. Form e2380 - Application Documented Expenditure Number (US$) 18 1,442,197 TOTAL 1,442,197 9. Refund of DFID Grant Amount erroneously paid from Loan The amount of US$5,932 eligible under the DFID Grant that was erroneously funded by the IBRD loan funds in the previous financial year was refunded in April 2017. 20 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2018 (IBRD LOAN #8406-JM) 10. Non-Current Assets The total non-current assets at March 31, 2018 were US$1,660,760. See details in tables below. a) Property, Plant and Equipment Furniture and Office Computer Equipment Equipment Equipment TOTAL US$ US$ US$ US$ Cumulative balance as at March 31, 2017 15,063 227,184 131,466 373,713 April 1, 2017 - March 31, 2018 23,985 1,055,548 20,659 1,100,192 Cumulative as at March 31,2018 39,048 1,282,732 152,125 1,473,905 b) Intangible Assets Computer Software TOTAL US$ US$ Cumulative balance as at March 31, 2017 124,175 124,175 April 1, 2017 - March 31, 2018 62,680 62,680 Cumulative Balance at March 31, 2018 186,855 186,855