FOREIGN FINANCING PROJECTS MANAGEMENT CENTRE TRADE PROMOTION AND QUALITY INFRASTRUCTURE PROJECT LOAN No. 8390-AM SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT For the year ended 31 December 2018 CONTENTS Independent Auditors' Report 3 Statement of Project Sources and Uses of Funds 6 Statement of Uses of Funds by Project Activity 8 Notes to the Special Purpose Financial Statements 9 PHP Partners CJSC hpw4wpww4tuLb hwugh' << bpkwb,Ulbp UubntlLwb 15w <'bnm Rcgistration address: 15a Alck Manukyan, Ycrc.an Tel. 4fnpibhnLLUJw hwugb << bpktwb,Uqnbgn 2, bpwq pjiqbbu lbUnpnib tll*nuuin prcr&a php.am Activity address. 2 Adonts str., Ycraz Business Centre, Yerevan, Armenia E-mail INDEPENDENT AUDITORS' REPORT To the Director of Foreign Financing Projects Management Centre We have audited the accompanying special purpose financial statements of the Trade Promotion and Quality Infrastructure Project (hereinafter the TPQIP), implemented by Foreign Financing Projects Management Center State Institution (hereinafter the FFPMC), which comprise Statement of Project Sources and Uses of Funds, Statement of Uses of Funds by Project Activity, Reconciliation Statement of Withdrawal Applications, Statement of Designated Account and Government Co-financed Account for the year ended 31 December 2018, and Statement of Financial Position as at 31 December 2018 and a summary of significant accounting policies and other explanatory notes. In our opinion, the special purpose financial statements present fairly in all material respects the project sources and uses of funds, uses of funds by project activity and its cash flows for the year ended 31 December 2018 in accordance with the cash basis of accounting in line with International Public Sector Accounting Standard (IPSAS): Financial Reporting under the Cash Basis of Accounting and Financing Agreement between the Republic of Armenia and International Bank for Reconstruction and Development dated 6 August, 2014 (Loan #8390-AM). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Special Purpose Financial Statements section of our report. We are independent of the FFPMC 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 m accordance with these requirements. We believe that the audit evidence we have obtained is sufficient appropriate to provide a basis for our opinion. Emphasis ofMatter Material Uncertainty Related to Going Concern of the TPQIP We draw attention to Note 1(b) in the special purpose financial statements, which indicates that the Ministry of Economic Development and Investments, who is responsible for the entire project and has the overall project coordination role, did not initiate activities to be implemented in the scope of Part B: Promoting Investment and Exports and Part C: Modernizing the National Quality Infrastructure in the volume provided by the Project Operational Manual. Lack of such activities indicate that a material uncertainty exists that may cast significant doubt on the TPQIP's ability to continue as a going concern. Our opinion is not modified in respect of this matter. 3 Independent Auditors' Report Page 2 Emphasis of Aatter Cessation ofActivities ofthe FFPMC We draw attention to Note 1(a) to the special purpose financial statements, which describes that according to the Republic of Armenia Government Decree #1427-N dated 13 December 2018, the activities of the FFPMC will be implemented by the Project Implementation Department of the Ministry of Finance of the Republic of Armenia through auxiliary professional structural subdivision. Our opinion is not modified in respect of this matter. Emphasis ofMatter - Restriction on Distribution or Use We draw attention to Note 2(a) to the special purpose financial statements, which describes the basis of accounting. The special purpose financial statements have been prepared for providing information to the Government of the Republic of Armenia and the International Development Association to assist them in evaluating the TPQIP's implementation. As a result, the special purpose financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. Key A udit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the special purpose financial statements of the current period. These matters were addressed in the context of our audit of the special purpose financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern of the TPQIP and Cessation of Activities of the FFPMC sections, we have determined the matters described below to be key audit matters to be communicated in our report. -Results Based Financing (RBF) In the scope of implementation of TPQIP's objectives, PHP Audit CJSC was selected as an independent auditor for validation of the actual level of Eligible Expenditure Programs (EEPs) in the scope of agreed upon procedures. Validation of the actual EEPs covered in these special purpose financial statements is for the year ended 31 December 2017. The validated amount by the auditor is USD 3,060,731. Our audit procedures in this area included: * reconciling report on validation of the actual level of Eligible Expenditure Programs in the scope of agreed upon procedures to the payment made to the Government of the Republic of Armenia; * reviewing the application of the withdrawal for any discrepancies. As result of our audit procedures, we concluded that the World Bank accepted evidence submitted in the fulfillment of DLIs and approved payment for the total amount of USD 2,000,000 as defined by the loan agreement schedule and authorized payment of USD 2,000,000 based on withdrawal application. No any discrepancies were noted. -Procurements In the scope of implementation of TPQIP's objectives, the procurements incurred for receipt of consulting services, works and supply of goods amounted to USD 7,427. The procurements shall be performed in line with applicable procurement guidelines designated by World Bank. Our audit procedures in this area included, among otlier: * Corroborating with management the process of procurement and compliance to applicable procurement guidelines designated by World Bank: * Analysing the procurement plan, conditions associated to each procurement, correspondence with the World Bank, method of procurement and discussing compliance of these conditions to applicable procurement guidelines designated b\ World Bank; * On sample basis, reviewing compliance of procurement packages to applicable procurement guidelines designated by World Bank: * On sample basis, reviewing the documentation supporting the procurement as well as axailability of deliverables designated by the procurement contracts. As result of our audit procedures, we concluded that procurements were performed in line with applicable procurement guidelines designated by World Bank. Responsibilities ofManagement and Those Chargcd with Governance for the Special Purpose Financial Statements Management is responsible for the preparation and fair presentation of the special purpose financial statements in accordance with cash basis of accounting as described in Note 2(a), and for such internal control as management determine is necessary to enable the preparation of the special purpose financial statements that are free from material misstatement whether due to fraud or error. In preparing the special purpose financial statements, management is responsible for assessing the TPQIP'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 management either intends to liquidate the FFPMC or to cease operations of TPQIP, or has no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Special Pu-pose Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose 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 our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs 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 special purpose financial statements. 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'cj 'cj ё � 'cj ,а и рО l .` � ~ сС � �' сС Q ? � � � С �'С С ` С С а� � I�' Oi„ 4✓ ,� tь: �.N, 'v 4.. � w l�., ц � О С �' О С О � С i �I Са � С �.~�'.. О G 7� � ? i и � �•� � У'� ��. .'`. � �� ; с ��� Гг � й � C�i � � � � С � О � �. С � 0 04 С � ,р .�, � С � � С Ci • � С С � ¢:` >°� ч-=-. 4' i� г� ��� 4, о� ч., w � � Q ..' у �' 'го с � ''' V 'i С, � � ГJ н у � �' 'с. С СС •� С°'l � О � С У�`,' О � � 4r � О L � о О i i О а �У W ё С7 U �L W С7 U 4 :�: С7 U 4, � С7 U rS. Е-� Trade Proinotion and Quality Inji-astructure Project Notes to the Special Purpose Financial Statenients .fbl- the year ended 31 DeCeMber 2018 1 Background (a) Organisation and operations The Foreign Financing Projects Management Centre (FFPMC) State Institution was established by RoA Minister of Econorny Decree No. 37, dated 29 March 2000. Within the scope of its operation tile FFPMC is guided by local legal acts and Loan and Grant Agreements, signed between tile Government of Armenia and the International Bank for Reconstruction and Development (World Bank). The main objective of operation of FFPMC is to implement projects oil the account of loan and Cy -nenia by tile World Bank. .'rant proceeds allocated to the Republic of An Nevertheless, according to the Republic of Armenia Government Decree #I 427-N dated 13 December 2018, tile activities of the FFPMC will be implemented by tile Project Implementation Department of the Ministry of Finance of the Republic of Armenia through auxiliary professional structural subdivision. Currently, FFPMC undergoes a process of liquidation and transfer of its functions to the Project Implementation Department of tile Ministry of Finance of the Republic of Armenia. According to the financing agreement concluded between tile International Bank for Reconstruction and Development and Republic of Armenia dated 6 August 2014 (Loan Agreement) a loan in all arnount equivalent to fifty million United States Dollars ($50,000,000) was extended for the implernentation of Trade Promotion and Quality Infrastructure Project to finance procurement of goods, consultants' services and incremental operating expenses. The Project Management Unit is formed within the Ministry of Econornic Development and Investments of tile Republic of Armenia. Tax consequences arising from tile procured goods, consultants' services and incurred operating expenses are paid form tile proceeds of the co-financing received from tile Government of the Republic of Armenia. Total arnount of Government co-financing approximates to USD 9,500,000. The Project's objective is to strengthen the Borrower's capacity to provide export promotion, investment attraction and quality management services to firms. Tile Project consists of tile following components: " Part A: Improving tile Effectiveness of the Trade Promotion and Quality System Tile objective of this Component is to prornote reforms aimed at improving tile trade promotion and quality infrastructure systern. " Part B: Promoting Investment and Exports Tile objective of this component is to strengthen the capacity of local exporters to compete in foreign markets, facilitate cluster development, and attract efficiency seeking FDI (Foreign Direct Investment). " Part C: Modernizing tile National Quality Infrastructure The objective of this component is to modernize metrological, accreditation and standards services in order to provide relevant quality assurance services to industry. " Part D: Project Management and Monitoring and Evaluation The objective of this component is to finance project implementation and monitoring. Closing date of the Project is 30 June 2020. (b) TPQIP's going concern Ill tile scope of TPQIP tile Ministry of Econornic Development and Investments, who is responsible for the entire project and has the overall project coordination role, did not initiate activities to be implemented in the scope of Part B: Promoting Investment and Exports and Part C: Modernizing tile National Quality Infrastructure in the volurne provided by tile Project Operational Manual. 9 Trade Promotion and Quality Infrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2018 Accordingly, the going concern of the TPQIP is highly dependent on the ability and willingness of Ministry of Economic Development and Investments to initiate abovementioned activities. (c) Results Based Financing (RBF) In the scope of Part A "Improving the Effectiveness of the Trade Promotion and Quality System" of the Project, the World Bank has made Results Based Financing subject to validation by independent auditor. This RBF component disburses loan funds to the Government of Armenia (GoA) for agreed-upon actions, outputs and outcomes ("Disbursement-Linked Indicators" or DLIs) that result in improvements to the trade promotion and quality system. The GoA receives disbursements based on established amounts allocated to the achieved DLls to the extent there are sufficient Eligible Expenditure Programs (EEPs) incurred by the Government. The Project Management Unit reports the achievement of the DLIs by providing documentation of the achievement of the given DLI and the EEPs. 2 Basis of preparation (a) Statement of compliance The special purpose financial statements are prepared in accordance with the cash basis of accounting in line with the International Public Sector Accounting Standard (IPSAS): Financial Reporting under the Cash Basis of the Accounting. The special purpose project financial statements consist of: - Project Sources and Uses of Funds, - Uses of Funds by Project Activity, - Statement of Financial Position, - Statement of Designated Accounts, - Statement of Project Account. Cash basis of accounting recognizes transactions and other events only when cash is received or paid. (b) Reporting currency The reporting currency of special purpose financial statements is US dollar (USD). All financial information presented in USD has been rounded to the nearest USD. 3 Significant accounting policies (a) Foreign currency transactions In the scope of the Project IBRD makes disbursements in USD on the designated account 900000900408 for the project. Payment of eligible and accepted expenditires (goods, services and other) should be made by the FFPMC out of designated account, or FFPMC will submit withdrawal applications to the Bank for payments to contractors, suppliers and consultants directly from loan account. FFPMC converts the amounts received and transfers to contractors, suppliers and consultants. The outstanding balances of the project account are translated to USD based on the USD exchange rate defined by the Central Bank of the Republic of Armenia as at 31 December 2018 equaling to AMD 483.75. 10 Trade Promotion and Quality Infrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2018 (b) Taxes All the applicable tax liabilities are calculated and paid in accordance to tax regulations of the Republic of Armenia. (c) Funds for the Project Funds for the Project are received from the International Bank for Reconstruction and Development and from Government of Armenia. 11 Trade Promotion and Quality Infrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2018 4 Reconciliation statement of withdrawal applications 2018 Withdrawal Amount Amount Paid Application Application Type Requested by by World Difference Reference FFPMC Bank USD USD USD Reimbursement/ Results Based EEP-DA 5 Financing 2,000,000 2,000,000 - 2,000,000 2,000,000 - 2017 Withdrawal Amount Amount Paid Application Application Type Requested by by World Difference Reference FFPMC Bank USD USD USD Reimbursement/ Results Based EEP-DA 4 Financing 2,000,000 2,000,000 - 2,000,000 2,000,000 - Trade Promotion and Quality Infrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2018 5 Statement of Designated Account and Government Co-financed Account USD 2018 2017 Opening balance 335,777 381,703 Add. Advance/replenishment received from World Bank during the current period - - Present outstanding amount advanced to the designated account 335,777 381,703 Closing balance carried fonvard to next period 321,371 335,777 Add: Amount of eligible expenditures paid during the current period 14,406 45,926 Total advance 335,777 381,703 USD 2018 2017 Opening balance - 482 Add. Government co-financing during the current period 4,206 19,617 Less: Foreing exchange difference (4) (2) Present outstanding amount advanced to project account 4,202 20,097 Closing balance carried fonvard to next period - - Add: Amount of eligible expenditures paid during the current period 4,202 20,097 Total advance 4,202 20,097 13 6 Statement of Financial Position USD ASSETS Current assets Cash and cash equivalents Government co-financing account for credit Designated Account for credit (World Bank financing) 321,371 335,777 Total current assets 321,371 335,777 Non-current assets unulative Project Expenditure Government co-financed cumulative expenditure 65,141 60,939 Credit financed cumulative expenditure 7,803,629 5,789,223 Total non-current assets 7,868,770 5,850,162 Total assets 8,190,141 6,185,939 FUNDS Project financing Government co-financing account for credit 64,953 60,747 Designated Account for credit (World Bank financing) 8,125,000 6,125,000 Total funds 8,189,953 6,185,747 Foreign exchange differences Government co-financing account for credit 188 192 Designated Account for credit (World Bank financing) . _ Total foreign exchange differences 188 192 Total net assets and liabilities 8,190,141 6,185,939 1 1