POVERTYREDUCfiON FUND PROJECf II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA pwc 76375 STAT)!:MENT OF RECEIPTS, DISBURSEMENTS AND Ft]ND :BALANCE FORTHE PERIOD FROM :u OCTOBER 2011 (COlV(MENCEMEN'f DATE) TO 30 SEPTEMBER 2012 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No.H685-LA CONTENTS Page Statement by Project management 1 Independent auditor's report 2 Statement of receipts and disbmsements 4 Statement of fund balance 5 Notes to the financial statements 6 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No,H685-LA STATEMENT BY PROJECT MANAGEMENT On 14 July 2012, the International Development Association ("IDA") and the Government of the Lao People's Democratic Republic ("GoL") signed Grant Agreement number H685-LA to provide a grant of SDR15,8oo,ooo (equivalent to USD2s,ooo,ooo) for the purpose of financing the Poverty Reduction Fund II ("the Project"). The GoL shall cany out the Project through the Poverty Reduction Fund ("PRF" or "Project Implementing Entity") under the Subsidiaty Grant Agreement signed by the GoL and PRF on 2 August 2011, in which PRF commits to the objective of the Project and undertakes to carry out such objective. The objective of the Project is to improve access to and utilisation of basic infrastructure and services for the Project's targeted poor communities in a sustainable manner through inclusive community and local development processes. The Project has been managed by the Project management (executive director). Project activities mainly cover 284 groups of villages ("Kum Ban") in Lao PDR to supp01t local community development in poor areas. The implementation of the Project was approved by the IDA on 11 October 2011. The Project acth~ties consist of the following components: Component 1: Community Development Sub-grants Component 2: Local and Community Development Capacity Building and Learning Component 3: Project Management The Project maintains its records and prepares its financial statements under the cash receipts and disbursements basis of accounting. Any direct payments made by IDA for Project expenditure are recorded by the Project at the time they take place. The following components of the financial statements summarise the Project's financial position and petformance for the period from11 October 2011 (commencement date) to 30 September 2012: • Statement of receipts and disbursements • Statement of fund balance • Notes to the financial statements As the responsible officials, we hereby state that the financial statements for the period from 11 October 2011 (commencement date) to 30 September 2012, to the best of our knowledge and belief: • have been prepared in accordance with the IDA's requirements, and • have been prepared, in all material respects, in accordance with the basis of accounting set out in Note 2 of the financial statements. We also hereby state that the statement of cash receipts and disbursements only includes costs which are eligible under Grant Agreement No. H68s-LA and adequate supporting documentation has been maintained for these costs . . . ,M:i': Bg~;;tkouang Souvannaphanh Mrs. Boualy Sayavong Executive Director Head of Finance and Administration Dh~sion Date: 26 March 2013 Date: 26 March 2013 pwc INDEPENDENT AUDITOR'S REPORT To the Government of Lao PDR, the Management of the Project and the International Development Association on the financial statements of the Poverty Reduction Fund Project II under Grant Agreement No.H685- LA. We have audited the financial statements of the Poverty Reduction Fund Project II ("the Project") funded by the Intemational Development Association ("IDA'') under Grant Agreement No. H685-LA, which comprise the statement of receipts and disbursements for the period from 11 October 2011 (commencement date) to 30 September 2012, the statement of fund balance as at 30 September 2012 and other explanat01y information. The financial statements have been prepared by the management of the Project in accordance with the accounting policies described in Note 2 to the financial statements. Management's responsibility jo1· the financial statements Management is responsible for the preparation of these financial statements in accordance with the accounting policies described in Note 2 to the financial statements and for such internal control as management determines is necessmy 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 the accompanying financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply \lith ethical requirements and plan and pe1form the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves pelforming procedmes to obtain audit evidence about the amounts and disclosures in the financial statements. The procedmes 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 Project's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the pmpose 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, if any, 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. Opinion In our opinion, the financial statements of the Project for the period from 11 October 2011 (commencement date) to 30 September 2012 are prepared, in all material respects, in accordance with the accounting policies described in Note 2 to the financial statements. r····· ....................................... ., .... ,....... ,.............. ,..,,., .. ,.................................................. ,. ..... ,............. ,.................... ,.,,.,. .... ,.. ,.. ,........ ,,.,,,,,,,,.,.,., i PricewaterlwuseCoopers(Lao) Co,.Ltd. Units 1-3,4'' Floor, ANZ CommercialBuilding,33 LaneXmzg Avenue, PO Box 7003, Telelphone: + Bs6 21222718-9,Faxsimile: + Bs6 21222723, www.pwc.com/la pwc INDEPENDENT AUDITOR'S REPORT (continued) Basis of accounting 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 assist the Project's management to compl)~ng with the financial reporting requirements of the Project. As a result, the financial statements may not be suitable for other purposes. Other matters This rep01t is intended for the information of the Project, the IDA and Government of Lao PDR, and for no other purpose. However, upon release by the IDA, this rep01t will be a matter of public record and its distribution will not be limited. We do not, in gh~ng this opinion, accept or assume responsibility for any other purpose or to any other person to whom this rep01t is shown or into whose hands it may come, except where expressly agreed by our prior consent in writing. By Paiboon Tu.nkoo'".j Partner Vientiane, Lao PDR Date: 26 March 2013 r···············································································································································································•••n•••········································· PricewaterhouseCoopers (Lao) Co,. Ltd. Units 1-3,4'" Floor, ANZ Commercia/Building, 33 Lane Xang Avenue, PO Box 7003, Telelphone : + 8s6 21 222718-g, Faxsimile: + 856 21 222723, www.pwc.comjla POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No, H685-LA STATEMENT OF RECEIPTS AND DISBURESMETNS FOR THE PERIOD FROM 11 OCTOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 From 11 October 2011 (commencement date) to 30 September 2012 Notes USD Receipts Grant Agreement Number IDA 685- LA - Fund received 3 4,613,600 Total receipts 4,613,600 Disbursements by component Component 1: Community Development Sub-Grants Component 2: Local and Community Development Capacity Building and Leaming 1,027,673 Component 3: Project Management 1,642,489 Total disbursements 4 Sm·plus of receipts over disbursements Mr. Bounkouang Souvannaphanh Mrs. Boualy Sayavong Executive Director Head of Finance and Administration Division Date: 26 March 2013 Date: 26 March 2013 The accompanying notes on pages 6 to 13 form an integral pmt of the financial statements Auditor's report- page 2 and 3 4 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA STATEMENT OF FUND BALANCE FOR THE PERIOD FROM 11 OCTOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 As at 30 September 2012 Notes USD Opening fund balance Surplus Closing fund balance Represented by: Cash on hand and cash at banks 5 1,462,425 Advances 6 226,605 Mr. Bounkouang Souvannaphanh Mrs. Boualy Sayavong Executive Director Head of Finance and Administration DMsion Date: 26 March 2013 Date: 26 March 2013 The accompanying notes on pages 6 to 13 form an integral patt of the financial statements Auditor's report - page 2 and 3 5 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No, H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCTOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 1, General information On 14 July 2012, the International Development Association ("IDA") and the Government of the Lao People's Democratic Republic ("GoL") signed Grant Agreement number H685-LA to provide a grant of SDR15,8oo,ooo (equivalent to USD25,ooo,ooo) for the purpose of financing the Poverty Reduction Fund II ("the Project"). The GoL shall cany out the Project through the Poverty Reduction Fund ("PRF" or "Project Implementing Entity'') under the Subsidiary Grant Agreement signed by the GoL and the PRF on 2 August 2011, in which the PRF commits to the objective of the Project and undertakes to cany out such objective. The objective of the Project is to improve access to and utilisation of basic infrastructure and services for the Project's targeted poor communities in a sustainable manner through inclusive community and local development processes. The Project has been managed by Project management (executive director). Project activities mainly cover 284 groups of villages ("Kum Ban") in Lao PDR to suppmt local community development in poor areas. The implementation of the Project was approved by the IDA on11 October 2011. As of 30 September 2012, the Project had 230 full-time staff and an international advisor. The Project acth~ties consist of the following components: Component 1: Community Development Sub-grants 1. Suppmt Kum Bans in planning community and local development activities. 2. Cany out community development sub-projects in villages through the provision of community development sub-grants made available by the Project to Kum Ban committees to finance such sub- projects in accordance with the provisions of the sub-grant agreements. Component 2: Local and Community Development Capacity Building and Learning 1. Strengthen the capacity of Kum Bans and villages to, inter alia, (a) assess their needs, (b) plan community development sub-projects, and (c) implement and supervise community development sub-projects. 2. Strengthen the GOL's institutional capacity at the provincial and district levels to, inter alia, improve the quality of service delivery; promote participatmy planning, accountability and transparency mechanisms; and, facilitate dialogue between provinces, districts and communities and between various sector ministries with other entities supporting rural development. 3. Strengthen, at the central level, (a) the National Committee for Rural Development and Poverty Eradication (NLCRDPE)'s institutional capacity, and (b) the PRF's coordination with line ministries and other entities suppmting rural development. 4· Undertake project monitoring and evaluation acth~ties. Component 3: Project Management 1. Suppmt Project implementation. 6 POVERTY REDUCfiON FUND PROJECf II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCfOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 1. General information (continued) These three components are implemented in Vientiane, Huaphan, Savannakhet, Xiengkhuang, Saravan, Louangnamtha, Sekong, Attapeu, Phongsaly, Oudomxay and Louangprabang. The Project's address is Poverty Reduction Fund, Souphanouvong Road, Vientiane, Lao People's Democratic Republic. The Project's financial statements were authmised for issue by the Project management on 26 March 2013. 2, Significant accounting policies a, Basis of preparation The financial statements are expressed in United Stated dollars ("USD"), and have been prepared under the historical cost convention and the cash basis of accounting, except for advances. Under the cash basis of accounting, transactions are recorded when cash is paid or received by the Project. Advances are included in the statement of fund balance and presented as 'advances outstanding' in the statement of fund balance until the advance is cleared by its owner and recorded as a payment. The normal accounting period for the Project is from 1 October to 30 September each year. The first financial statements were prepared from the effective date of the Project, 11 October 2011, to 30 September 2012. b. Cash receipts Cash receipts represent cash received from the IDA, and are recognised when they are actually received rather than when earned or, in the case of direct payments by the IDA, when the Project receives a notification of payment advice regarding the payment from the IDA. c. Cash disbm·sements Cash disbursement represent all cash expenses of the Project for the activities funded by the IDA, paid in line with the Project's objectives and approved budgets. They are recorded when disbursed, except for advances, which are recognised as expenses after they are cleared and evidence of payment is received by the Project. d. Disbursements of sub-grants Sub-grants are made available by the Project from the proceeds of the financing to Kum Bans located in the Project's targeted provinces to finance the canying out of sub-projects under components 1 and 2, in accordance with the pr0\1sions ofthe sub-grant agreement. The disbursement of sub-grants made to Kum Bans by the Project are recognised as expenditure on the date money is transferred to the Kum Bans. 7 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCTOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 2. Significant accounting policies (continued) e. Fixed assets The cost of fixed assets is charged to expenditure at the time the disbursements are made. Fixed assets purchased are charged to the categ01y to which they relate. The Project maintains fixed asset registers at each location, which include vehicles, office equipment and furniture, for control purposes only. f. Advances Advances represent amounts paid in advance to the Project employees for the purpose of travel to provinces, districts or overseas or for meetings, workshops or conferences. Advance payments for Project activities are credited to cash and debited to the advance account at the time the advance is pro1~ded to the recipient of the advance. The expenses related to the advanced amount 11~ll only be recorded to the related expenditure categ01y line on the date of liquidation, and any excess amount will be debited to the cash account upon receipt by the Project. Outstanding advances are included in the statement of fund balance and presented as advances. f. Foreign currency The measurement and presentation currency of the Project is USD. Transactions ansmg in currencies other than USD are translated to USD using the rate prevailing at the transaction dates. Cash balances in currencies other than USD are translated into USD using the rate at the period end. All foreign exchange differences arising are included in the statement of receipts and disbursements. The exchange rate prevailing as at 30 September 2012 was USD1:LAK7,986. g. Designated account replenishments The designated account replenishments represent cash received by the Project under grant agreement number H685-LA. The designated account is replenished by the IDA in accordance with the Statement of Expenditure ("SOE") and the Withdrawal Application form, which are prepared by the Project and approved by the National Treasmy, Ministly of Finance, Lao PDR. The replenishments are made to the designated account at the Bank of Lao PDR ("BoL") and are used exclusively to cover the IDA's share of eligible expenses under grant agreement number H68s-LA. 8 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCTOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 3· Designated bank account replenishments Application Date of number application Particulars USD No.oo1* 14 November 2011 DA-A IDAH685-LA 2,5oo,ooo No.oo2 27 March 2012 DA-A IDAH685-LA 431,807 No.003 17May2012 DA-A IDAH685-LA 821,580 No.004 24 May 2012 DA-A IDAH685-LA 293,181 No.oo5 18 June 2012 DA-A IDAH685-LA 317,417 No.oo6 7 August 2012 DA-A IDA H685-LA 249,615 Total replenishments of designated account no, ooooo100928o0127 4,613,600 Withdrawal applications ("WIA") for the Project are submitted to the IDA by the Project management through the Ministry of Finance. * W1A No.o01 represent an advance amount from the IDA to the Project for the initial implementation activities of the Project. 4· Summary of disbursements For the period from 11 October 2011 (commencement date) to 30 September 2012 (USD) Component 1: Community Development Sub-Grants • Equipment sub-project • Infrastructure sub-project • Kum Bans training 254,408 Sub-total expenditure of component 1 Component 2: Local and Commtmity Development Capacity Building and Learning • Other consultants 52,895 • Sub-grant monitoring 197,338 • Capacity building 777.440 Sub-total expenditure of component 2 Component 3: Project Management • Local staff salaries • International advisors • External audit • Goods and equipment 256,881 • Works 20,956 • Incremental operating cost 20,726 Sub-total expenditure of component 3 Total disbursement 9 POVERTY REDUCfiON FUND PROJECf II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCfOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 4· Summary of disbursements (continued) Component 1: Community Development Sub-Grants - The main acth~ty of this component is the provision of training to residents of 284 selected Kum Bans in 11 targeted provinces. Training sessions mainly relate to community development planning and coordination among the team. Those training sessions are eligible Project acth~ties. Component 2: Local and Community Development Capacity Building and Learning- The disbursements for this component are mainly related to sub-grant monitoring and evaluation of training at the sub-grant level. In addition, the disbursements also related to capacity building, such as construction of school buildings, spillways and bridges at the sub-grant level. Component 3: Project Management - The disbursements are mainly local staff salaries and an intemational advisor who work under the Project in all prm~nces. As of 30 September 2012, the Project had 230 local staff and intemational advisors who work for the Project. 5· Cash on hand and at banks Asat30 September 2012 USD Cashon hand Cash on hand at Pro,~nces 1,178 Cash on hand at Vientiane office 1,910 Total cash on hand 3,088 Cash at banks Operating accounts PRF II -Vientiane operating accounts PRF II - Province operating accounts Total operating accounts 792,347 Designated account- BoL (Note 7) 666,990 Total cash at banks Total cash on hand and cash at banks The cash on hand mainly consists of the indh~dual petty cash balances maintained at each location for small payments made by the Project. Cash at bank represents cash deposited in current accounts at local banks, \vith no interest. Operating accounts are bank accounts opened at loeal banks at each location of the Project (11 bank accounts in the targeted prm~nces) to manage funds received from the designated account. Operating accounts are normally current accounts with no interest. 10 POVERTY REDUCTION FUND PROJECT II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCTOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 5· Cash on hand and at banks (continued) The details of the designated account are as follows: Designated account Account No.: ooooo100928oo127 Account Name: Poverty Reduction Fund Project H 685-LA Depositmy Bank: Bank of Lao PDR Type of account : Current account Interest rate : Nil Address: Yonet Road P.O. Box 2925 Vientiane, Lao PDR Related credit : IDA Grant Agreement No. H685-LA Currency: USD 6. Advances As at 30 Advances by province September 2012 USD Vientiane 62,146 HuaPhan 35,343 Savannakheth 35,504 Salavan 10,019 Luang Namtha 12,804 Luang Prabang 2,469 Attapeu 25,312 Xiengkhouang 15,773 Sekong 24,776 Oudomxay 2,459 Total advances 226,605 Advances as at 30 September 2012 were mainly advances to the Project's staff to petform work for Kum Bans and village training. Training sessions mainly related to the design and materials used for constmction and rural development plan training. All such advances were cleared in October and November 2012. II POVERTY REDUCfiON FUND PROJECf II FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCfOBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 7· Statement of designated account As at 30 September 2012 USD Opening balance Add: Designated account replenishments (Note 3) 4,613,600 Less: Total disbursements for the period 11 October 2011 (commencement date) to 30 September 2012 (Note 4) (2,924,570) Less: Advances (Note 6) (226,605) Less: Replenishments to operating accounts (Note 5) (792,347) Less: Cash on hand (Note 5) (3,088) Closing balance 666,990 Reconciliation of designated account As at 30 September 2012 USD (USD) Amount advanced to the Project by the IDA 2,500,000 Less: Total amount recovered by the IDA Total advanced to the Project by the IDA 2,500,000 Designated account balance as at 30 September 2012 666,990 Vientiane operating bank accounts (Note 5) 712,036 Amounts withdrawn by the Project but not yet replenished by the IDA* 1,120,974 Total advanced to the Project by the IDA 2,500,000 *This amount was replenished through withdrawal applications (W/A) 7 and 8. The replenishment amounts for such W/A were received in October and November 2012. 12 POVERTY REDUCI'ION FUND PROJECI' II FUNDED BY INTERNATIONAL DEVELOPMENT ASSOCIATION UNDER GRANT AGREEMENT No. H685-LA NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 11 OCI'OBER 2011 (COMMENCEMENT DATE) TO 30 SEPTEMBER 2012 8. Commitments The details of commitments as at 30 September 2012 are as follows: Asat30 Septembet• 2012 Total USD Sub-grants contractors* Total * This mainly represents committed contracts for local contractors, which are all expected to be completed within three to six months after the repmting date. The committed balance includes contracts for ch~l works such as the construction of school buildings, spillways and bridges. These contracts are eligible acth~ties under Finance Agreement number H68s-LA. 13