78002 M IN ISTRY OF ENVIRONMENTAL AND NATURE PROTECTION: 2U N ATURA 2000 INTEGRATION PROJECT Management B.oard's report as at 31 December 2012 together with Independent Auditor's report Contents Page Independent Auditor's Report 2 Sources and Uses of Funds 4 Bank Reconciliation Statement 5 Uses of Funds by Project Activity 6 Summary of Summary Reports (SOBs) 7 Notes 9 I Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project llllllllllllllllllllllllllllll'" . . !10 fE Ernst & Younv d.o.o. Radnlfka cesta 50, 10 000 Zagreb Hrvatska • Croatia 018: 58960122779 Tel: +385 1 5800 BOO Fax: +38515800 888 www.ey.com/hr Banka /Bank: Erste &Stelermllrklsche Bank d.d. Rafun I Account: 2402006-1100280716 Independent Auditor's Report IBAN:HR3324020061100280716 SWIFT: ESBCHR22 To the Management of the Ministry of Environmental and Nature Protection We have audited the accompanying financial statements, which comprise Project Sources and Uses of Funds, Bank Reconciliation Statement, Uses of Funds by Project Activity and Summary of Summary Reports (SOEs) of the Ministry of Environmental and Nature Protection, EU Natura 2000 Integration Project, as at 31 December 2012, and a summary of significant accounting policies and other explanatory information. The financial statements have been prepared by Project Implementation Unit (PIU) of the Ministry of Environmental and Nature Protection, EU Natura 2000 Integration Project, based on the financial reporting provisions specified in Annex A of the Contract for Consulting Services for the Annual Financial Audits of the EU Natura 2000 Integration Project No. MOC/CS/LCS/11/01 between Ministry of Environmental and Nature Protection and Ernst&Young d.o.o. ("the Contract") and Nature Protection Investment Project PPA no. IBRD P4SOO-HR-Project Operational Manual from December 2009 and EU Natura 2000 integration Project Loan no. IBRD 80210 HR Project Operational Manual from May 2012. Management's Responsibility for the Financial Statements Management Is responsible for the preparation of these financial statements In accordance with the financial reporting provisions of Annex A of the Contract for Consulting Services for the Annual Financial Audits of the EU Natura 2000 Integration Project No. MOC/CS/LCS/11/01 between Ministry of Environmental and Nature Protection and Ernst&Young d.o.o. ("the Contract") and Nature Protection Investment Project PPA no. IBRD P4500-HR-Project Operational Manual from December 2009 and EU Natura 2000 Integration Project Loan no. IBRD 80210 HR Project Operational Manual from May 2012 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. Auditor's 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 the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity'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 entity'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. A member firm of Ernst & Young Global Limited 2 MjerOdavan sud: Trgovafkl •ud u Zagrebu; Uplsan dionlfkl kapital 20.000,00 kuna; ~lanovi Uprave: D~nes Zolt~n Szab6, Slaven Durokovif, teljko faber, Zvonlmir Madunlt Applicable court: Commercial court In Zagreb; Registered share capital is 20.000.00 HRK; Members of the Board: ~nos Zolt~ Szab6, Slaven Durokovit, teljko faber, Zvonimir Mad unit llllllllllllllllllllllllilflllll'' '..=YJ Independent Auditor's Report (continued) Opinion In our opinion, the financial statements of the Ministry of Environmental and Nature Protection, EU Natura 2000 Integration Project for the year ended 31 December 2012 are prepared, In all material respects, in accordance with the financial reporting provisions of Annex A of the Contract for Consulting Services for the Annual Financial Audits of the EU Natura 2000 Integration Project No. MOC/CS/LCS/11/01 between Ministry of Environmental and Nature Protection and Ernst&Young d.o.o. ("the Contract") and Nature Protection Investment Project PPA no. IBRD P4500-HR-Project Operational Manual from December 2009 and EU Natura 2000 Integration Project Loan no. IBRD 80210 HR Project Operational Manual from May 2012. Basts of Accounting and Restriction on Distribution and Use Without modifying our opinion, we draw attention to Note 2 to the financial statements, which describe the basts of accounting. The financial statements are prepared to assist Ministry of Environmental and Nature Protection, EU Natura 2000 Integration Project to comply with the financial reporting provisions of the contract referred to above. As a result, the financial statements may not be suitable for another purpose. Our report Is Intended solely for Ministry of Environmental and Nature Protection, EU Natura 2000 Integration Project and The World Bank and should not be distributed to or used by parties other than the Ministry of Environmental and Nature Protection, EU Natura 2000 Integration Project or The World Bank. Ernst & Young d.o.o., agreb Republic of Croatia Zagreb, 15 May 2013 3 Ministry of Environmental and Nature Protection- EU Natura 2000 Integration Project Sources and Uses of Funds From 1 January 2012 to 31 December 2012 Loan lBRD 80210 8R (up to 31 December 1011) Loaa lBRD 80210 8R (lOU) (Amounts iD EUR) (Amounts in EUR) Cumulative to 3 1 December I January 2012 to Jl 1 AprB lOU to 30 I July lOU to 30 I October lO 12 to 31 Cumulative to 31 lO ll March lOU June 2012 September lOU December lOU December lOU Opening casb balance Designated Account 0.00 444,524.05 1,185,638.96 1,340,311.63 1,857,249.81 0.00 Total C!IJJ'n.ing balance 0.00 444.524.05 ~185.638.96 1.340.311.63 1.857,249.81 444.524.05 Add funds received Government funds 0.00 0.00 0.00 0.00 0.00 0.00 ffiRDfunds 1,496,553.17 1,215,779.62 1,008,133.00 1,240,970.92 344,513.58 3,809,397.12 Total funds received 1,496,553.17 1,215,779.62 1,008,133.00 1,240,970.92 344,513.58 3,809,397.12 Total funds available 1,496.553.17 1,660.,303.67 2.193, 771.96 l.S81,l8l..SS 2.201,763.39 4.253.,921.17 Uses of funds G, W, CS, TR, IOC 654,148.06 474,664.71 853,46033 724,032.74 372,461.85 2,424,619.63 PPF Expenditure (page 6) 345,881.061 0.00 0.00 0.00 0.00 0.00 Front end fee 52,000,00 0,00 0.00 0.00 0.00 0.00 Total uses of funds l ,05l,029.ll'z 474,664.71 853.460.33 724,032.74 37l,461.85 2,424,619.63 Closing casb balance Designated Account 444,524.05 1,185,638.96 1,340,311.63 1,857,249.81 1,829,301.54 1,829,301.54 Total closing balance 444,524.05 1,185,638.96 1,340,311.63 . 1.857,249.81 .1,829,301.54 .. 1,829,301.54 Total amount ofPPF expenditure ofUSD 491,135.75 was converted to EUR by the World Bank on May 19, 2011 usmg Exchange Rate 1.4396 which equals BUR 341,161.26. The remammg EUR 4, 719.80 included in the amount of BUR 345,881.06 relates to refinancing ofPPF charges made on May 19, 2011. 2 Total amount of funds received includes PPF Expenditure ofEUR345,881.06 as well as front-end-fee ofEUR 52,000.00. Valentina Futaf, Financial specialist 4 Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Ministry of Environmental and Nature Protection- EU Natura 2000 Integration Project Bank Reconciliation Statement From 1 January 2012 to 31 December 2012 Loan IBRD 80210 BR (up to31 Loan mRD 80210 HR (2012) December 2011) (Amounts in EUR) (Amounts in EUR) 1 January lOU 1 Aprill012 1 JuJy 2012 to 1 October 2012 CumoJative to to31 March to 30June 30 September to 31 December 31 December CumoJative to 31 2012 2012 2012 2012 2012 December 2011 Designated account opening balance 444,524.05 1,185,638.96 1,340,311.63 1,857,249.81 0.00 0.002 Plus: Advance during the quarter 1,215,779.62 1,008,133.00 1,240,970.92 344,513.58 3,809,397.12 1,098,672.11 Interest eamed1 0.00 0.00 0.00 0.00 0.00 0.00 Less: Refund to DA 0.00 0.00 0.00 0.00 0.00 0.00 Amout of eligible expenditures paid during the period 474,664.71 853,460.33 724,032.74 372,461.85 2,424,619.63 654,148.06 Closin2 BaJance 1,185,638.96 1,340,311.63 1,857,249.81 1,829,301.54 1,829,301.54 444,524.05 1 Interest is calculated and paid to a separate Interest and Fee Account that is not considered to be part of the Designated Account ofEU Natura 2000 integration Project Balance of Interest and Fee Account was EUR 3,702.00 as at 31 December2012 (31 December2011: EUR 1,510.00). 2 Closing balance of the Designated Account ofPPF was nil at 31 March 2011. Valentina Futa~. Financial specialist 5 Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Ministry of Environmental and Nature Protection- EU Natura 2000 Integration Project Uses of Funds by Project Activity From 1 January 2012 to 31 December 2012 Loan lBRD 80210 HR (np to 3 1 Loan lBRD 80210 HR (2012) December lOll) (~onnumEtni) (_Amounts m Etnl) I January 1 April lOU I July lOU to I October lO 12 2012 to 3 1 to 30Jnne 30 September to 31 December Cumulative to 31 Cumulative to 3 1 Marcb lOU 2012 2012 2012 December lOll December lOll 1, Ecological Network Investments 1,1 Protected Area-Driven Investments (works) 438,920.47 774,338.37 477,422.51 319,420.52 2,010,101.87 410,846.62 1,2 Equipment (goods) 0.00 0.00 0.00 0.00 0.00 99,879.44 Total 438,920.47 774,338.37 477,422..51 319,420.52 2,01 0,1 01.87 510,726.06 2, Ecological Network Data Systems 2,1 Biodiversity Inventory and Monitoring 0.00 14,593.33 106,45426 0.00 121,047.59 5,848.49 2,2 INSPIRE Harmonization 0.00 0.00 0.00 0.00 0.00 0.00 Total 0.00 14.593.33 106,454.26 0.00 121,047.59 5,848.49 3, Ecological Network Capacity Building 3,1 Inter-Sectoral Cooperation & Pilot 0.00 0.00 84,110.00 0.00 84,110.00 0.00 Programs 3,2 Training & Public Outreach 4,055.90 15,16829 27,277.62 6,79628 53,298.09 2,642.81 3,3 Project Management and Operating Costs 31,688.34 49,360.34 28,768.35 46,245.05 156,062.08 134,930.70 Total 35,744.24 64,528.63 140,155.97 53,041.33 293,470.17 137,573.51 Total Project E_!ll_eoditnre 474,664.71 853,460.33 724,032.74 372,461.85 2,424,6 19.63 654,1 48.061 1 During Project Preparation phase no specification of Expenditures by Project Activity was reqnired. Total amount ofPPF expenditure was BUR 345,881.06 (page 4) Valentina Futa~. Financial specialist 6 Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Summary of Summary Reports (SOEs) From 1 January 2012 to 31 December 2012 World Bank Summary Amouutpaid withdrawal Approval Sheet Amount to Designated application date /SOE1 Type documented Account Loan 80210 HR amounts in EUR 1 prior review 30,587.45 4 13-Jan-2012 2 SOB 185,192.17 1,215,779.62 1 prior review 30,987.80 5 10-May-20 12 2 SOB 424,279.42 455,267.22 I prior review 30,623.72 6 23-May-2012 2 SOB 522,242.06 552,865.78 1 prior review 34,308.05 7 2-Aug-2012 2 SOB 625,380.32 659,688.37 1 . prior review 116,525.15 8 26-Sep-2012 2 SOB 464,757.40 581,282.55 I prior review 45,295.80 9 28-Dec-20I2 2 SOB 299,217.78 344,513.58 1 prior review 284,232.22 10 I8-Apr-20I3 2 SOB 251,547.70 535,779.92 Totals (EUR} 3,345,177.043 4,345,177.043 Advances received on designated account as of31 December 2012 1,000,000.00 1 Summary SOB sheets consist of individual expenditures by category as the basis for withdrawals. 2 Designated account opening balance as of 1 January 2012 amounted to BUR 444,524.05.Total amount paid to Designated account for the period ftom 1 January 2012 till3I December 2012 amounts to BUR 3,809,397.12. Designated account balance as of 31 December 20I2 amounted to BUR I,829,301.54 after payment of EUR 2,424,6I9.63 ofBligible expenditures ftom the Designated Account 7 Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Summary of Summary Reports (SOEs) (continued) From 1 January 2012 to 31 December 2012 3 Expenditure on seven WB applications in 2012 and 2013 (until the issues of audit ort enditure related to 2013 as stated in WB A lication no. 10 enditure related to 2012 Valentina Futae, Financial specialist 8 Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project Notes to Financial Statements From 1 January 2012 to 31 December 2012 1. General The Republic of Croatia has received a loan from the International Bank for Reconstruction and Development (IBRD) to implement the Croatia EU Natura 2000 Integration Project (NIP). The project is implemented by the Ministry ofEnvironmental and Nature Protection ofthe Republic of Croatia. The World Bank Project Preparation Advance (PPA) was approved to the Republic of Croatia in the amount not exceeding USD 500,000. The Croatian Government signed the PPA Agreement on March 5, 2009. Refinancing date for the PPA and start of the five year project (loan financing) was 19 May 2011. The body in charge of implementing the Project preparation was the Ministry of Culture, Nature Protection Directorate where the Project Preparation Unit (PPU) was set up, and consisted of a coordinator, procurement specialist and financial management specialist. The PPU was managed by the PPA Manager who was also the Director of Nature Protection Directorate. The PPU became the Project Implementation Unit (PIU) upon ratification of the Loan on 18 May 2011. As of 22 December 2011, according to Decision of the Government of Republic of Croatia, EU Natura 2000 Integration Project became an integral part of the Ministry of Environmental and Nature Protection. Republic of Croatia signed a Loan agreement with the international Bank for reconstruction and Development on 22 February 2011. The Loan amount is BUR 20,8 million. The Project consists of the following parts: Ecological Network Investments, Ecological Network Data Systems and Ecological Network Capacity Building. At the end of 2012, PIU and support staff consisted of the following Consultants: coordinator, procurement specialist, financial management specialist, civil engineer/safeguard coordinator, EU projects and training specialist, economist and monitoring & evaluation specialist and project assistant. NIP overall project objective is to support Park and County Public Institutions to implement Natura 2000 objectives in investment programs; strengthen capacity for Ell-compliant reporting and biodiversity monitoring; and introduce programs that involve a wider group of stakeholders in Natura 2000 network management. 2. Accounting policies Financial reports which comprise of Sources and Uses of Funds, Bank Reconciliation Statement, Uses of Funds by Project Activity and Summary of Summary Reports (SOBs) are prepared on the cash receipts and disbursements basis of accounting as prescribed in the Nature Protection Investment Project PPA no. IDRD P4500-HR Project Operational Manual from December 2009 and EU Natura 2000 Integration Project Loan no. IDRD 80210 HR. Project Operational Manual from May 2012. Project financing is recognized as a source of Project funds when the cash is received. Project expenditure is recognized as a use of Project funds when payment is made, irrespective of when goods or services are accrued. 9 Ministry of Environmental and Nature Protection - EU Natura 2000 Integration Project