Smart decisions. Lasting value. Strategic Public Sector Transformation Project Financial Statement for the period April 1, 2018 – March 31, 2019 GOJ/IBRD LOAN CONTRACT NO. 8406 – JM STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT (SPSTP) FINANCIAL STATEMENTS FOR THE PERIOD APRIL 1, 2018 – MARCH 31, 2019 GOJ/IBRD LOAN CONTRACT NO. 8406 – JM STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT (SPSTP) FINANCIAL STATEMENTS FINANCIAL YEAR ENDED MARCH 31, 2019 TABLE OF CONTENTS Page Independent Auditor’s Report 1-6 Financial Statements Statement of Sources and Uses of Funds 7 Statement of Cumulative Investments 8 Designated Account Reconciliation Statements 9 Statement of Disbursement Linked Indicators Achieved 10 Notes to Financial Statements 11-19 P a g e | 11 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) 1. IDENTIFICATION On September 3, 2014 the Government of Jamaica (GOJ) and the International Bank for Reconstruction and Development (World Bank) signed loan agreement number 8406JM for US$35,000,000, which became effective on October 27, 2014 and has an end date of December 31, 2021. Loan Agreement amendment #1 was signed by the Government of Jamaica on August 4, 2017 at which point Component 4 under the loan was revised to read ‘Modernizing of the Account ant General’s Department’. This component replaces the previous Component 4 'Strengthening Property Tax Compliance and Administration'. With this change, Disbursement Link Indicators (DLIs) was introduced as a modality of financing under the Project, via the Eligible Expenditure Program (EEP). An amount of US$6M has been earmarked for this Component. This loan agreement amendment # 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. Under this Component 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 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 Word Bank 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. 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. P a g e | 12 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) PROJECT COMPONENTS Part 1: Strengthening the Public Investment Management System (Cont’) (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. 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. P a g e | 13 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) PROJECT COMPONENTS Part 2: Strengthening the Budget Preparation Process and Results-Based Budgeting (Cont’d) (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; (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. P a g e | 14 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) PROJECT COMPONENTS (CONT’D) 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 AGD, 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 AGD; (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. 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. (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: (i) carry out Project audits; (ii) comply with the financial management and procurement obligations under the Project; (iii) monitor and evaluate Project activities; (iv) provide training and the acquisition of goods required thereof and finance Operating Costs. MANAGEMENT REPORT The Annual Report is submitted by management for the Strategic Public Sector Transformation Project (SPSTP) as follows:  for the period April 1, 2018 to year ended March 31, 2019, for the IBRD Loan P a g e | 15 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) AUDITING OF THE PROJECT The Project is currently audited by the Crowe Horwath Jamaica Limited The Auditors, Crowe Horwath Jamaica Limited 47-49 Trinidad Terrace, Kingston 5, Jamaica This is the first year that Crowe Horwath Ja. Ltd has undertaken the audit. The previous audited to date were executed by ‘The Auditor General’s Department’. 1. The Budget This is the amount allocated based on the GoJ 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$34,912,500. One hundred percent of eligible expenditures falling within this category are financeable by the World Bank loan. th Subsequent to loan agreement amendment No. 1, dated 4 August 2017, the Project now has an additional eligible category. The revised allocations are as follows: Category Allocation (US$) 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 2. Categories of Expenditures (Cont’d) One hundred percent of eligible expenditures falling within these categories are financeable by the World Bank loan. 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 World Bank loan. These changes were reflected under the loan 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 separate Designated Special Accounts for the Loan and the Grant resources which are maintained at the Bank of Jamaica. P a g e | 16 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) 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 to during the eighteen-month period. 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. 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 World Bank Loan is maintained at the Central Bank, bearing account numbers 810150. P a g e | 17 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) 4. Disbursement methods a. Advance Disbursement Request Value Date Disbursement World Bank Amount Date Number US$ July 12, 2018 July 24, 2018 19 2,000,000.00 December 6, 2018 December 18, 2018 22 661,762.72 February 12, 2019 February 20, 2019 23B 1,060,000.00 Total 3,721,762.72 This represents the total advances issued by the IBRD for the period ending March 31, 2019. b. Reimbursement Disbursement Request Value Date Disbursement World Bank Amount Date Number US$ December 6, 2018 December 18, 2018 21A 2,400,000.00 Total 2,400,000.00 This represents total reimbursement payment made by the IBRD, in respect of EEP/DLI for Component # 4 for the period ending March 31, 2019. The undisbursed balance of the World Bank loan as at March 31, 2019 is US$19,929,464.71. This includes $3,000,000 earmarked for the Disbursement Linked Indicators under the Eligible Expenditure Program (EEP) – Component 4 of the loan Agreement. 5. Source of Funds World Bank The amount of USD 6,121,762.72 was received from the World Bank for the period under review. This includes an advance of USD 3,721,762.72 and a reimbursement of USD 2,400,000. Cumulatively, USD 15,070,535 has been received from the World Bank, this amount is inclusive of front-end fee (USD 87,500.00) charged by the Bank and USD 714,951 for Direct Payment within financial year ending March 2017 and USD 3,000,000 for reimbursement associated with disbursement linked indicators under Component 4. 6. Use of Loan Funding Total loan funds invested during the period amounts to USD 6,892,245 (cumulatively USD 14,745,528). USD 3,000,000 of the cumulative amount relates to Disbursement Linked Indicators and USD 714,951 relates to expenditures associated with Direct Payment from a previous financial year. P a g e | 18 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) 7. Cash availability as at March 31, 2019 (IBRD LOAN) The cash available as at March 31, 2019 for the IBRD Loan as expressed in US dollars is: Bank Accounts As at Total Cash Available (US$) Special Account 1 (Account # 810150) March 31, 2019 325,007 Total Closing Balances 325,007 This represents the cash balances at the end of the period for the Special Bank Account Number (IBRD Loan) 810150. This Special Account is operated by the Bank of Jamaica for the disbursement of advances from the loan funds. Funds disbursed by the World Bank for the Project is directly transferred to this account. 8. Expenditures pending Justification The information below represents the SOEs pending submission to the World Bank to document expenditure incurred from special account #810150 during the period of the audit: Form e2380 - Application Number Documented Expenditure (US$) 25 1,321,114.12 TOTAL 1,321,114.12 9. Non-Current Assets The total non-current assets at March 31, 2019 were USD 2,460,603. See details in tables below. (a) Property, Plant and Equipment Furniture and Specialized Computer TOTAL Office Equipment Equipment Equipment US$ US$ US$ US$ Cumulative balance as 39,048 1,282,732 152,126 1,473,906 at March 31, 2018 Prior Year’s Adjustments 133,744 (132,880) 7,711 8,575 April 1, 2018 - March 31, 2019 60,195 623,013 39,457 722,665 Cumulative as at March 31,2019 232,987 1,772,865 199,294 2,205,146 P a g e | 19 STRATEGIC PUBLIC SECTOR TRANSFORMATION PROJECT IBRD LOAN #8406-JM NOTES TO THE FINANCIAL STATEMENTS TWELVE-MONTHS ENDING MARCH 31, 2019 (IBRD LOAN #8406-JM) 9. Non-Current Assets (Cont’d) (b) Intangible Assets Computer Software TOTAL US$ US$ Cumulative balance as at March 31, 2018 186,855 186,855 Prior Year’s Adjustments 59,118 59,118 April 1, 2018 - March 31, 2019 9,485 9,485 Cumulative Balance at March 31, 2019 255,458 255,458