Project's Financial Statements and Independent Auditor's Report Ministry of Education and Science of the Republic of Macedonia "Skills Development and Innovation Support Project" - International Bank for Reconstruction and Development Loan number 8332-MK For the period from 01 January 2017 to 31 December 2017 Ministry of Education and Science of the Republic of Macedonia “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Contents Page Management Responsibility 1 Independent Auditor’s Report 2 Statement of Sources and Uses of Funds 4 Statement of Uses of Funds by Project Activity-MoES 6 Balance sheet 9 Statement of Breakdown of Loans and Grants-MoES 10 Statement of Breakdown of Loans and Grants-FITD 13 Statement of Withdrawals – Designated Account 20 Statement of Designated Account – EUR 21 Statement of Designated Account – EUR (Fund for Innovation and Technological Development) 22 Statement of Treasury Account (Mirror Designated Account) – MKD 23 Statement of Treasury Account (Mirror Designated Account) – MKD (FITD) 24 Statement of Petty Cash in MKD 25 Statement of Petty Cash in EUR 26 Notes to Project’s financial statements 27 Independent Auditor’s Report Grant Thornton DOO Sv. Kiril I Metodij 52b/1-20 1000 Skopje Macedonia T +389 2 3214 700 F +389 2 3214 710 E Contact@mk.gt.com To the Management of the Project www.grantthornton.mk We have audited the accompanying financial statements of the Ministry of Education and Science of the Republic of Macedonia (“the Ministry”), “Skills Development and Innovation Support Project” (further referred to as “the Project”), financed under International Bank for Reconstruction and Development, Loan numbered 8332-MK, comprising the Statement of Sources and Uses of Funds, Balance sheet, Statement of Uses of Funds by Project Activity, Statement of Breakdown of Loans and Grants, Statement of Withdrawals, Designated Account Statements and related disclosure Notes (further referred as to “the Project’s Financial Statements”) as at and for the period from 01 January 2017 to 31 December 2017 and included on pages 4 to 31. Management’s responsibility for the Project’s financial statements These Project’s financial statements are compiled for the purposes of reporting to the Ministry and the International Bank of Reconstruction and Development management, and are the responsibility of the management of the Project. The Projects’ management is responsible for developing and maintaining such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Project’s Management policy is to prepare the accompanying Project’s financial statements on the cash receipts and disbursement basis in conformity with the related requirements of the World Bank’s financial reporting guidelines and in compliance with the relevant provisions set out in the Loan Agreement numbered 8332-MK dated 7 February 2014. On this basis, cash receipts are recognized when received rather when earned and cash expenditures are recognized when paid rather than when incurred. Auditor’s responsibility Our responsibility is to express an opinion on these Project’s financial statements based on our audit. We conducted our audit in accordance with auditing standards accepted in the Republic of Macedonia1. 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. 1 International Standards on Auditing (“ISA“) issued by the International Auditing and Assurance Standards Board (“IAASB”), effective from 15 December 2009, translated and published in the “Official Gazette” of the Republic of Macedonia no. 79 from 2010. Chartered Accountants Member firm of Grant Thornton International Ltd Ministry of Education and Science of the Republic of Macedonia 4 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Sources and Uses of Funds (Amounts in EUR) For the period from 01 January 2017 to 31 December 2017 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to date period to date period to date Sources of funds World bank DA-A 990,148 2,982,159 990,148 2,982,159 - - World bank DA-B 698,494 1,698,494 698,494 1,698,494 - - Interests Earned - - - - - - Total sources of funds 1,688,642 4,680,653 1,688,642 4,680,653 - - Transferred funds from users for eligible expenses paid during 2016 (returned funds)1 17,802 17,802 - - (17,802) (17,802) 17,802 17,802 - - (17,802) (17,802) Foreign exchange difference Exchange gains 162 312 162 312 - - Exchange losses (185) (289) (185) (289) - - Foreign exchange differences, net (23) 23 (23) 23 - - Uses of funds Financed by WB Component 1: Improving Transparency in higher education 186,408 339,149 198,314 351,055 (11,906) (11,906) Component 2: Modernization of Secondary Technical Vocational Education and Training 382,040 991,978 546,736 1,156,672 (164,696) (164,694) Component 3: Improving the Innovative capacity of enterprises and collaboration with research organizations 130,971 234,309 128,760 232,098 2,211 2,211 Component 3: Sub-component 3.2: Pilot of Financial Instruments to be delivered by FITD 259,035 760,033 198,752 699,750 60,283 60,283 Component 4: Project Management and Monitoring and Evaluation 308,937 886,118 360,644 937,825 (51,707) (51,707) Front and fee - 44,250 - 44,250 - - Subtotal - Financed by WB 1,267,391 3,255,837 1,433,206 3,421,650 (165,815) (165,813) Financed by GoM Component 1: Improving Transparency in higher education - - - - - - Component 2: Modernization of Secondary Technical Vocational Education and Training - - - - - - Component 3: Improving the Innovative capacity of enterprises and collaboration with research organizations - - - - - - Component 4: Project Management and Monitoring and Evaluation - - - - - - Subtotal - Financed by the GoM - - - - - - Total uses of funds 1,267,391 3,255,837 1,433,206 3,421,650 (165,815) (165,813) 1 The amount of 17,802 euro is returned funds from the co-financed grants of the financial instruments of the FITD for funds that are transferred to the user for eligible expenditures paid during 2016. Ministry of Education and Science of the Republic of Macedonia 6 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Uses of Funds by Project Activity -MoES (Amounts in EUR) For the period from 01 January 2017 to 31 December 2017 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to Date period to Date period to Date Component 1: Improving Transparency of Higher Education Contract 1: External Evaluation of Universities 50,925 50,925 50,925 50,925 - - Contract 2: Needs Assessment for Capacity Building of the Board for HEAEB 5,158 14,608 5,158 14,608 - - Contract 3: Needs Assesment, Strategy and Policy Development for NTTO - 97,386 - 97,387 - (1) Contract 4: Administration and Communication Officer for HEAEB 10,995 18,697 11,000 18,701 (5) (4) Contract 5: Web-Site Developer and ICT Support and Maintenance Consultant for HEAEB 10,996 13,733 11,000 13,737 (4) (4) Contract 6: Quality Assurance and Evaluation Officer for HEAEB 10,995 13,732 11,000 13,737 (5) (5) Contract 7: Design and Establishment of EMIS for Higher Education 26,972 36,541 34,000 43,569 (7,028) (7,028) Contract 8:Assessment of Funding Model Options and Preparation of Funding Model and Formula and Implementation Plan 70,367 93,527 75,231 98,391 (4,864) (4,864) Contract 9 - - - - - - Contract 10 - - - - - - Contract 11 - - - - - - Contract 12 - - - - - - Payments without contract - - - - - - Sub-total 186,408 339,149 198,314 351,055 (11,906) (11,906) Component 2: Modernization of Secondary Technical Vocational Education and Training - - - - - - Contract 1: Skills forecasting - 78,400 - 78,399 - 1 Contract 2: Development and Design of the Concept for Secondary TVET 314,844 639,995 462,536 787,688 (147,692) (147,693) Contract 3: TA for new competency based curriculum and pertinent modules for innovation and entrepreneurship education in secondary education - 123,120 - 123,120 - - Contract 4: Preparation of program for provision of grants and support in development of implementation legal procedures - 55,995 - 55,994 - 1 Contract 5 - - - - - - Contract 6 - - - - - - Contract 7 - - - - - - Payments without contract - - - - - - Transfers (Grants) for Secondary TVET Schools-Business Sector Joint Projects 67,196 93,231 84,200 110,234 (17,004) (17,003) Training related to implementation of the grants program (preparation of applications) - 1,237 - 1,237 - - Sub-total 382,040 991,978 546,736 1,156,672 (164,696) (164,694) ` Ministry of Education and Science of the Republic of Macedonia 7 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Uses of Funds by project activity (continued) (Amounts in EUR) For the period from 01 January 2017 to 31 December 2017 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to Date period to Date period to Date Component 3: Improving the Innovative capacity of enterprises and collaboration with research organizations - - - - - - Contract 1: Resident Advisor for Capacity Building of the FITD 42,034 85,493 36,000 79,459 6,034 6,034 Contract 2: Software for the Needs of the FITD 2,476 36,867 1,440 35,831 1,036 1,036 Contract 3: Equipment for the FITD - 4,928 - 4,928 - - Contract 4: Technical assistance/capacity building for grants beneficiaries 66,146 66,146 75,030 75,030 (8,884) (8,884) Contract 5: Office chairs for FITD - 1,970 - 1,970 - - Contract 6: FITD Financial Management Assistant 10,391 17,007 8,490 15,106 1,901 1,901 Contract 7: FITD Program Assistant 8,796 14,597 7,800 13,601 996 996 Contract 8 - - - - - - Payments without contract - - - - - - Capacity Building of the FITD/ Training / Barcelona, Spain 679 6,852 - 6,173 679 679 Capacity Building of the FITD/ Training / Barcelona, Spain / Petty Cash 449 449 - - 449 449 Sub-component 3.2. Pilot of Financial Instruments (FITD) 259,035 760,033 198,752 699,750 60,283 60,283 Sub-total 390,006 994,342 327,512 931,848 62,494 62,494 Component 4: Project Management and Monitoring and Evaluation - - - - - - Contract 1: Project Manager/Director 18,915 80,915 20,680 82,680 (1,765) (1,765) Contract 2: Procurement Specialist 16,097 68,839 17,520 70,262 (1,423) (1,423) Contract 3: Financial Specialist 12,205 51,232 13,320 52,347 (1,115) (1,115) Contract 4: Coordinator for business and innovations 12,205 51,648 13,320 52,763 (1,115) (1,115) Contract 4: Coordinator for business and innovations: Petty chash telephone charges 53 53 - - 53 53 Contract 5: Monitoring and Evaluation Specialist 12,535 41,671 13,572 42,708 (1,037) (1,037) Contract 6: Part-Time Environmental Consultant Contract no:002-15-1/4.1.8 6,596 12,404 5,796 11,604 800 800 Contract 7: Part-Time Environmental Consultant Contract no:002-15-2/4.1.8 7,593 13,601 6,594 12,602 999 999 Contract 7: Financial/Accounting Software and support and maintenance for the project duration 277 1,928 540 2,190 (263) (262) Contract 8: Equipment for the PMU 1,204 3,657 1,200 3,653 4 4 Contract 9: Hardware for the PMU - 15,628 - 15,628 - - Contract 10: Administrative Assistant 11,197 38,932 12,000 39,735 (803) (803) Contract 11: Procurement Assistant 11,143 37,521 12,000 38,378 (857) (857) Contract 12: Phones for the PMU - 5,672 - 5,672 - - Contract 13: Consulting services for logistical support in the organization of a conference dedicated to the needs and challenges in the area of higher education 438 26,768 - 26,331 438 437 Contract 14: Monitoring and Evaluation Assistant 8,796 18,906 9,600 19,710 (804) (804) Contract 15: Grants Officer 9,044 19,366 9,900 20,221 (856) (855) Contract 16: Performance Audit for Secondary TVET grants 27,024 27,024 27,024 27,024 - - Contract 17: Operational Audit for Secondary TVET grants 5,389 5,389 - - 5,389 5,389 Contract 18: Evaluation specialist for the Grant Program for Enhancing the collaboration between schools and buisness community 25,400 25,400 25,400 25,400 - - Contract 19: Development of Software for Skills Observatory 44,912 68,769 56,650 80,506 (11,738) (11,737) Contract 20: Technical Assistance for Policy Development and Initial Set-Up of the Skills Observatory - 42,920 - 42,920 - - Contract 21: IT Specialist for the establishment of the Skills Observatory 1,998 14,245 1,998 14,245 - - ` Ministry of Education and Science of the Republic of Macedonia 8 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Uses of Funds by project activity (continued) (Amounts in EUR) For the period from 01 January 2017 to 31 December 2017 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative period to Date period to Date period to Date Contract 22: IT Senior Administrator for the Skills Observatory 12,454 32,545 13,640 33,731 (1,186) (1,186) Contract 23: Skills Observatory Administrator 3,995 14,105 4,800 14,911 (805) (806) Contract 24: VET Coordinator 12,403 26,355 13,520 27,472 (1,117) (1,117) Contract 25: Data collection for conducting a tracer study for TVET and HE employment outcomes of graduates - 27,582 40,000 67,582 (40,000) (40,000) Contract 26: Evaluation Specialist for Tracer Study for TVET and HE employment outcomes of graduates 16,328 16,328 16,328 16,328 - - Contract 27: Project Audit 4,709 10,050 5,000 10,340 (291) (290) Contract 28: Higher Education Coordinator 2,484 2,483 2,400 2,400 84 83 Contract 29: Assistant Coordinator for Higher Education 2,382 2,381 2,300 2,300 82 81 Payments without contract - - - - - - Training / accomodation, per diem, and transport / Melbourne 1,149 1,149 - - 1,149 1,149 Training / accomodation, per diem, and transport / Petty Cash 2,373 10,564 1,742 9,933 631 631 Operating Cost for the PMU 15,651 64,752 12,000 61,101 3,651 3,651 Operating costs: Bank provision 1,380 2,652 1,200 2,472 180 180 Operating costs: Petty chash 608 2,684 600 2,676 8 8 Sub-total 308,937 886,118 360,644 937,825 (51,707) (51,707) Front end fee - 44,250 - 44,250 - - Total: 1,267,391 3,255,837 1,433,206 3,421,650 (166,815) (165,813) ` Ministry of Education and Science of the Republic of Macedonia 9 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Balance sheet In EUR 31 December 2017 31 December 2016 Assets Bank balances 1,442,641 1,003,611 Total assets 1,442,641 1,003,611 Funds and liabilities Funds Unspent funds 1,442,641 1,003,611 Fund balance 1,442,641 1,003,611 Total Fund and liabilities 1,442,641 1,003,611 ` Ministry of Education and Science of the Republic of Macedonia 10 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Breakdown of Loans and Grants-MoES (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Paid sub- Payment requests Sub-Loan/grant No. / WB Sub-Loan/grant loan/Grant Remaining Outstanding processed (number of approved date amount amount balance payments transactions) Sub-component 2.2. Grants for school-business collaboration (MoES) Transfers (Grants) for Secondary TVET Schools- Business Sector Joint Projects ASUC Boro Petrushevski, Skopje 24-518/2 18,600 18,453 147 - 3 Grant 1 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - SOZSU Gjorce Petrov, Kavadarci 24-521/2 19,612 19,573 39 - 3 Grant 2 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - SSOU Mosha Pijade, Tetovo 24-519/2 9,770 9,770 - - 3 Grant 3 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - ` Ministry of Education and Science of the Republic of Macedonia 11 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Paid sub- Payment requests Sub-Loan/grant No. / WB Sub-Loan/grant loan/Grant Remaining Outstanding processed (number of approved date amount amount balance payments transactions) DUCOR Partenija Zografski, Skopje 01-460/2 9,651 9,632 19 - 3 Grant 4 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - SOU Gjorce Petrov, Kriva Palanka 24-555/2 9,751 7,668 2,083 - 2 Grant 5 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - SOU Goce Delcev, Valandovo 24-556/2 9,787 9,761 26 - 3 Grant 6 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - SOU Orde Copela, Prilep 24-538/2 4,864 4,377 487 - 2 Grant 7 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - SOZU Kuzman Shapkarev, Bitola 24-537/2 4,712 4,702 10 - 3 Grant 8 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - ` Ministry of Education and Science of the Republic of Macedonia 12 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Paid sub- Payment requests Sub-Loan/grant No. / WB Sub-Loan/grant loan/Grant Remaining Outstanding processed (number of approved date amount amount balance payments transactions) OSU Aco Ruskoski, Berovo 24-561/2 4,901 4,892 9 - 3 Grant 9 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - OSU Riste Risteski Ricko, Prilep 24-557/2 4,902 4,403 499 - 2 Grant 10 Contract 1 - - - - - Contract 2 - - - - - Contract 3 - - - - - Remaining funds - - - - - Total 96,550 93,231 3,319 - 27 ` Ministry of Education and Science of the Republic of Macedonia 13 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Breakdown of Loans and Grants-FITD (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Remaining Loan/gra balance of Payment nt No. / loan amount requests WB Sub-Loan/Grant amount processed approved Loan amount/ Co-financing Paid by State Outstanding (number of date amount budget Paid Sub-Loan/Grant amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount Sub-component 3.2. Pilot of Financial Instruments (FITD) First Call of Financial Instruments Daris Inzenjering 09-388/1 28,653 5,066 - - 9,915 18,738 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Vapour Apps 09-387/1 29,400 6,100 - - 12,991 16,409 - - Sub-Loan/Grant 1 - - - - - - - - - Remaining funds - - - - - - - - - Codewell Unlimited DOO 09-405/1 28,748 5,252 - 783 12,064 16,684 - - Sub-Loan/Grant 1 - - - - - - - - - Remaining funds - - - - - - - - - ` Ministry of Education and Science of the Republic of Macedonia 14 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Remaining Loan/gra balance of Payment nt No. / loan amount requests WB Sub-Loan/Grant amount processed approved Loan amount/ Co-financing Paid by State Outstanding (number of date amount budget Paid Sub-Loan/Grant amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount EBIZNIS DOOEL Kocani 09-389/1 29,750 5,250 - - 13,798 15,952 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Marjanovik Education 09-380/1 30,000 5,295 - 3,265 14,343 15,657 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - PRAJM APPS DOO Skopje 09-378/1 29,537 5,213 - 2,102 19,814 9,723 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - DTK Smart-tec 09-382/1 26,219 4,627 - - 6,185 20,034 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - IDEKS SISTEMI SKOPJE 09-386/1 29,990 10,000 - 2,425 13,306 16,684 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Clicon Technologies 09-381/1 30,000 6,000 - - 12,316 17,684 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - ` Ministry of Education and Science of the Republic of Macedonia 15 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Remaining Loan/gra balance of Payment nt No. / loan amount requests WB Sub-Loan/Grant amount processed approved Loan amount/ Co-financing Paid by State Outstanding (number of date amount budget Paid Sub-Loan/Grant amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount Marsi electrosystems DOOEL Ohrid 09-390/1 21,509 3,915 - - 6,751 14,758 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - STSS – Smart Traffic Safety Systems DOOEL 09-379/1 30,000 5,500 - 3,301 15,807 14,193 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Knowledge Center 09-377/1 29,373 5,184 - - 13,421 15,952 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - DPTU Has Inzenering LTD 09-384/1 25,000 5,000 - 2,882 12,802 12,198 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Esenso doo Skopje 09-385/1 29,750 - - - - 29,750 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Choco Aviators 09-391/1 29,750 15,192 - 3,586 3,586 26,164 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - ` Ministry of Education and Science of the Republic of Macedonia 16 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Remaining Loan/gra balance of Payment nt No. / loan amount requests WB Sub-Loan/Grant amount processed approved Loan amount/ Co-financing Paid by State Outstanding (number of date amount budget Paid Sub-Loan/Grant amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount Kamaj Media DOOEL Bitola 09-383/1 30,000 - - - - 30,000 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Sub-Total (first call) - 457,679 87,594 - 18,344 167,099 290,580 - - Second call of Financial Instruments Maksolution Net DOOEL 09-671/1 29,207 5,983 6,150 1,203 15,786 13,421 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Mobidonia DOOEL 09-675/1 19,880 3,900 4,640 489 10,989 8,891 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Tag Timing DOOEL 09-673/1 28,119 9,000 8,455 1,191 15,730 12,389 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Modular Art 09-672/1 30,000 5,295 7,464 1,678 17,634 12,366 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Fabula Tabula 09-09/1 30,000 6,160 - 6,840 23,011 6,989 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - ` Ministry of Education and Science of the Republic of Macedonia 17 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Remaining Loan/gra balance of Payment nt No. / loan amount requests WB Sub-Loan/Grant amount processed approved Loan amount/ Co-financing Paid by State Outstanding (number of date amount budget Paid Sub-Loan/Grant amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount Vortechs Media DOO 09-669/1 21,089 3,722 6,180 1,680 12,696 8,393 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Alimentos DOO 09-676/1 29,428 19,962 5,863 238 15,402 14,026 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Gordian Systems DOO 09-27/1 29,970 6,000 - 1,035 22,056 7,914 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Interaktiv Gejming 09-670/1 30,000 6,000 6,250 7,502 13,045 16,955 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Ice technology Natasha DOOEL 09-674/1 29,104 16,016 - 1,845 24,805 4,299 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - - Remaining funds - - - - - - - - - Inovation DOOEL 09-680/1 78,820 33,780 - 38,086 73,186 5,634 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - ` Ministry of Education and Science of the Republic of Macedonia 18 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Remaining Loan/gra balance of Payment nt No. / loan amount requests WB Sub-Loan/Grant amount processed approved Loan amount/ Co-financing Paid by State Outstanding (number of date amount budget Paid Sub-Loan/Grant amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount Ni tekna DOOEL 09-681/1 100,000 56,000 9,200 54,434 69,934 30,066 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - Metalotehnika DOO 09-682/1 60,000 25,714 - - 34,171 25,829 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - Geosond DOO 09-679/1 53,032 22,728 - 6,161 49,190 3,842 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - Akron DOO 09-678/1 100,000 50,188 - 43,309 80,081 19,919 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - Bio Inzenjering DOO 09-677/1 99,904 42,816 20,231 19,737 42,153 57,751 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - ` Ministry of Education and Science of the Republic of Macedonia 19 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of breakdown of Loans and Grants (continued) (Amounts in EUR) Cumulative for the period from 01 January 2017 through 31 December 2017 Sub- Loan/gra Payment nt No. / requests WB Sub-Loan/Grant amount Remaining processed approved Loan amount/ Co-financing Paid by State balance of Outstanding (number of date amount budget Paid Sub-Loan/Grant amount loan amount payments transactions) Loan Co-financing Current period Cumulative amount amount amount Farma Biakva DOO 09-683/1 99,761 45,630 - - 17,802 81,959 - - Co-financed Grants and Conditional Loans for Commercialization of Innovations - - - - - - - - - Remaining funds - - - - - - - - - Sub-Total (Second call) - 868,314 358,894 74,433 185,428 537,671 330,643 - - Third Call of Financial Instruments DTK Smart-tec 09-47 29,971 5,289 7,506 16,006 16,006 13,965 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - Remaining funds - - - - - - - - - Vision Dynamix DOO 09-46 29,550 5,400 13,590 9,092 9,092 20,458 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - Remaining funds - - - - - - - - - Resin DOO 09-45 30,000 5,300 8,330 19,872 19,872 10,128 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - Remaining funds - - - - - - - - - Webgliders DOO 09-48 30,000 5,295 9,983 10,293 10,293 19,706 - - Co-financed Grants for Newly Established Enterprises “Start-up” and “Spin-off” - - - - - - - - Remaining funds - - - - - - - - - Sub-Total (Third call) 119,521 21,284 39,409 55,263 55,263 64,258 - - Total 1,445,514 467,772 113,842 259,035 760,033 685,481 - - ` Ministry of Education and Science of the Republic of Macedonia 20 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Withdrawals – Designated Account (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 Application # and date Total Total Requested Disbursed Difference Original Loan 8332-MK #7 Application / 20.01.2017 248,877 248,877 - #8 Application / 15.02.2017 370,901 370,901 - #9 Application / 30.05.2017* 370,370 370,270 (100) #10 Application / 15.11.2017** 698,494 698,494 - 1,688,642 1,688,542 (100) *The Ministry, from Application 9 received 370,270 EUR which is less than requested funds for the bank fee in amount of 100 EUR. **The funds from Application 10 аrе allocated to Fund for Innovation and Technological Development. This fund is responsible to build the institutional capacity to stimulate innovative activities and piloting financial instruments to support innovation and technological development in the enterprise sector (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 Application # and date Total Total Requested Disbursed Difference Original Loan 8332-MK #1 Initial Application / 24.04.2014 1,000,000 1,000,000 - #2 Application / 7.08.2015 312,489 312,489 - #3 Application / 31.07.2015 * 400,000 400,000 - #4 Application / 14.12.2015 251,295 251,295 - #5 Application / 21.03.2016 383,977 383,977 #6 Application / 25.04.2016* 600,000 600,000 Total 2,947,761 2,947,761 - * The funds from Application 3 and Application 6 аrе allocated to Fund for Innovation and Technological Development. This fund is responsible to build the institutional capacity to stimulate innovative activities and piloting financial instruments to support innovation and technological development in the enterprise sector. ` Ministry of Education and Science of the Republic of Macedonia 21 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Designated Account – EUR (Ministry of Education and Science) Account number MK 07 1007 0100 0146 543 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency EUR (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 At 1 January 2017 497,202 Add: Inflows Replenishment during the period* 990,048 Interest received - 990,048 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (1,002,908) Transfer to treasury account (Mirror designated account) - MKD for transfer to Petty Cash in EUR (2,420) (1,005,328) At 31 December 2017 481,922 *The Ministry has received fewer funds from the IBRD for the amount of bank fee of 100 EUR. (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 At 7 February 2014 - Add: Inflows Replenishment during the period 1,947,761 Interest received - 1,947,761 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (1,444,476) Transfer to treasury account (Mirror designated account) - MKD for transfer to Petty Cash in EUR (6,083) (1,450,559) At 31 December 2016 497,202 ` Ministry of Education and Science of the Republic of Macedonia 22 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Designated Account – EUR (Fund for Innovation and Technological Development) Account number MK 07 1007 0100 0147804 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency EUR (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 At 1 January 2017 499,001 Add: Inflows Replenishment during the period 698,494 Interest received - 698,494 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (241,153) (241,153) At 31 December 2017 956,342 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 At 7 February 2014 - Add: Inflows Replenishment during the period 1,000,000 Interest received - 1,000,000 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (500,999) (500,999) At 31 December 2016 499,001 ` Ministry of Education and Science of the Republic of Macedonia 23 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Treasury Account (Mirror Designated Account) – MKD (Ministry of Education and Science) Account number 160010032978651 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency Macedonian Denars (“MKD”) (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 At 1 January 2017 7,245 Add: Inflows Transfer from designated account – EUR 1,002,908 Transferred funds from designated account – EUR for Petty cash in EUR 2,420 Returned unused funds from school SOU Gorce Petrov Kriva Palanka 1,101 Foreign exchange gains 76 1,006,505 Deduct: Outflows Amount of eligible expenses paid during the period (1,005,122) Transfer to Petty Cash in MKD (1,075) Transfer to Petty Cash in EUR (2,420) Transferred funds to SOU Gorce Petrov Kriva Palanka (1,101) Foreign exchange losses (145) (1,009,863) At 31 December 2017 3,887 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 At 7 February 2014 - Add: Inflows Transfer from designated account – EUR 1,444,476 Transferred funds from designated account – EUR for Petty cash in EUR 6,083 Foreign exchange gains 118 1,450,677 Deduct: Outflows Amount of eligible expenses paid during the period (1,434,335) Transfer to Petty Cash in MKD (2,910) Transfer to Petty Cash in EUR (6,083) Foreign exchange losses (104) (1,443,432) At 31 December 2016 7,245 ` Ministry of Education and Science of the Republic of Macedonia 24 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Treasury Account (Mirror Designated Account) – MKD (Fund for Innovation and Technological Development) Account number 40016201478616 Depository Bank National Bank of the Republic of Macedonia Address Complex of Banks, 1000 Skopje, Republic of Macedonia Loan Number 8332-MK Currency Macedonian Denars (“MKD”) (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 At 1 January 2017 33 Add: Inflows Transfer from designated account – EUR 241,153 Transferred funds from users for eligible expenses paid during the period 8,999 Transferred funds from users for eligible expenses paid during 2016 17,802 Foreign exchange gains 86 268,040 Deduct: Outflows Amount of eligible expenses paid during the period* (259,035) Transfer to users (8,999) Foreign exchange losses (39) (268,073) At 31 December 2017 - (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 At 7 February 2014 - Add: Inflows Transfer from designated account – EUR 500,999 Transferred funds from designated account – EUR for Petty - cash in EUR Foreign exchange gains 32 501,031 Deduct: Outflows Amount of eligible expenses paid during the period (500,998) Foreign exchange losses - (500,998) At 31 December 2016 33 ` Ministry of Education and Science of the Republic of Macedonia 25 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Petty Cash in MKD Loan Number 8332-MK Currency Macedonian Denars (“MKD”) (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 At 1 January 2017 130 Add: Inflows Transfer from Mirror Designated Account – MKD 1,075 1,075 Deduct: Outflows Amount of eligible expenses paid during the period (1,110) Foreign exchange losses (1) (1,111) At 31 December 2017 94 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 At 7 February 2014 - Add: Inflows Transfer from Mirror Designated Account – MKD 2,910 2,910 Deduct: Outflows Amount of eligible expenses paid during the period (2,780) (2,780) At 31 December 2016 130 ` Ministry of Education and Science of the Republic of Macedonia 26 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Financial Statements For the period from 01 January 2017 to 31 December 2017 Statement of Petty Cash in EUR Loan Number 8332-MK Currency EUR (Amounts in EUR) For the period from 1 January 2017 to 31 December 2017 At 1 January 2017 - Add: Inflows Transfer from Mirror Designated Account – EUR 2,420 2,420 Deduct: Outflows Amount of eligible expenses paid during the period (2,024) (2,024) At 31 December 2017 396 (Amounts in EUR) For the period from 7 February 2014 to 31 December 2016 At 7 February 2014 - Add: Inflows Transfer from Mirror Designated Account – EUR 6,083 6,083 Deduct: Outflows Amount of eligible expenses paid during the period (6,083) (6,083) At 31 December 2016 - ` Ministry of Education and Science of the Republic of Macedonia 27 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Notes to Project’s financial statements 1 General On 7 February 2014, the Ministry of Education and Science of the Republic of Macedonia (“the Ministry” or “the Borrower”), entered into the Loan Agreement numbered 8332-MK with the International Bank for Reconstruction and Development (“IBRD”) for financing the “Skills Development and Innovation Support Project” (further referred to as “the Project”) in the amount of EUR 17,700,000. The objective of the Project is to improve transparency of resource allocation and promote accountability in higher education, enhance the relevance of secondary technical vocation education, and support the Borrower's innovation capacity. The Borrower has established the Project Management Unit (“PMU”), responsible for the day- to- day activities and for procurement, financial management, disbursement and monitoring and reporting for the entire Project. The following table underlines the categories of Eligible Expenditures that may be financed out of the proceeds of the Loan (“Category”), the allocation of the amounts of the Loan to each Category, and the percentage of expenditures to be financed for the Eligible Expenditures in each Category: Percentage of the Amount of the Loan allocated Expenditures to be (expressed in Euro) financed (inclusive of Category Revised original values taxes) 1.Goods,works,non-consulting services, consulting services, training and operating costs 7,847,000 100% 2.School grants 649,000 100% 3.Innovation grants and Innovation Sub-Loans 9,159,750 100% 4.Front and Fee 44,250 Total 17,700,000 According to the provisions of the Loan Agreement, the Borrower is liable to repay the principal amount of the Loan in semi-annual installments, payable each 1st February and 1st August, commencing 1 February 2019 through 1 August 2031. The Borrower is liable to pay to IBRD a front- end fee equal to 1/4 of 1% (0.25%) of the Loan amount and interest for each interest period equal to LIBOR for the Loan Currency plus a Variable Spread. The Closing Date of the Project is 31 May 2019. The effectiveness Deadline is the date ninety days after the date of this Agreement. ` Ministry of Education and Science of the Republic of Macedonia 28 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK 2 Project Objectives, Activities and Institutional Arrangements Project Objectives and Activities The proposed Project would support the Government of Macedonia’s (GOM) initiatives geared to:  increase graduates’ competitiveness on a regional and international level;  increase labor market relevance of graduates’ skills;  make innovation a source of productivity improvement, competitiveness, increased exportability of goods, and sustained economic growth; and  increase universities and private enterprises engagement in, and their benefit from, R&D efforts and technology adoption opportunities. The Project consists of four components: Component 1: Improving Transparency of Higher Education This component will have three main sets of activities, all targeted toward improving both the transparency and efficiency of the quality assurance and finance mechanisms in the higher education sector: (i) institutional strengthening and stronger quality assurance in higher education; (ii) reforming the higher education financing model; and (iii) establishing a centralized office to foster mission-oriented research and university-industry collaboration. Sub-component 1.1: Quality Assurance in Higher Education This sub-component builds upon Bank-supplied technical assistance in higher education quality assurance (2010-2012) and would finance activities targeted toward improving the quality assurance mechanisms in higher education, including: (i) providing training for improving the administrative capacity of the Higher Education Accreditation and Evaluation Board (HEAEB) and other key players in charge of managing quality assurance activities; (ii) funding of external evaluation by foreign experts of FYR Macedonia’s higher education sector, and up; and (iii) upgrading of the education management and information system, including the development and implementation of the central data base. Sub-component 1.2: Higher Education Financing Reforms This sub-component, utilizing technical assistance and information gleaned through a Bank-sponsored pilot of a potential new finance model, would support the design and implementation of a performance-based funding model to promote transparency and efficiency in the resource allocation mechanisms. It would include the following technical assistance activities: (i) assessment of funding model options to select the most appropriate model for the Macedonian context; (ii) design of the funding model, formula and implementation plan; (iii) identification of internal performance indicators and results framework for monitoring and evaluation; and (iv) rollout of the new finding model. This subcomponent would also finance communication campaigns, outreach and dissemination events to inform different groups of stakeholders about these reforms and generate support for them. Sub-component 1.3: Development of a National Technology Transfer Office (NTTO) This subcomponent would support the development of a central office to be the system-wide interface between the research community and the industry, and a national focal point for international cooperation. It would play a key role in the conversion of the results of research into competitive products and processes, and steer research towards industry needs. The NTTO is expected to have a mandate that is broader than a typical academic technology transfers office. ` Ministry of Education and Science of the Republic of Macedonia 29 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Project Objectives, Activities and Institutional Arrangements (continued) The proposed NTTO, while performing typical tasks such as industry outreach, would additionally be a center for advising the industry in FYR Macedonia on Intellectual Property (IP) in-licensing and technology importation and integrating the innovation activities of Macedonia with EU programs. Given the small country size, and low research activities, having a technology transfer office with a broader mandate makes sense as it leverages economies of scale and prevents duplication of efforts. The subcomponent would provide technical assistance for establishment and operationalization of the NTTO and would also finance the salaries of experts and the purchase of patent and market intelligence databases. Component 2: Modernization of Secondary Technical Vocational Education and Training This component would finance activities targeted toward building the foundation of a modern and efficient secondary TVET system that is characterized by delayed tracking of students into vocational pathway, increased relevance of the standards and curriculum for the labor market and improved mechanisms for school-industry collaboration. These changes are expected to lead to the transformation of the secondary TVET from the narrow occupational to a more general and broader technical education and eventually to result in greater labor market relevance and transferability of skills, and increased flexibility in secondary TVET provision. It consists of two sub-components. Sub-component 2.1: Quality and labor market relevance of TVET provision This subcomponent would contribute to the modernization of the secondary TVET system and its relevance for the labor market needs and improving the capacity of TVET secondary schools to deliver quality TVET. Specifically, this sub-component would finance: (i) technical assistance to support the development of an overarching model for the transformation of the secondary TVET provision; (ii) development of occupational standards, competency-based curriculum and programs; (ii) efficiency assessment of the secondary TVET school network and development of a proposal for restructuring the network; (iii) development of a training program for teachers and other staff, including identification of required skills, development of training materials and rollout of the program; and (iv) carrying out of a need analysis and acquisition of equipment for school-based practical training. Sub-component 2.2: Grants for school-industry collaboration This subcomponent would finance technical assistance activities aimed at: (i) designing and implementing a grant program to support TVET activities; and (ii) provision of School Grants to selected TVET schools to finance activities to improve the labor market relevance of the vocational education and training including involving industries into the practical training delivery. Component 3: Improving the Innovative Capacity of Enterprises and Collaboration with Research Organizations This component is focused on supporting the efforts of the FYR Macedonia Fund for Innovation and Technological Development (FITD) to build the institutional capacity to stimulate innovative activities, and piloting financial instruments to support innovation and technological development in the enterprise sector. It is organized around two sub-components. Sub-component 3.1: FITD capacity building This sub-component would finance activities required to build up institutional competence of the FITD, in particular, providing support for: (i) planning and designing the programs, strategy, operations and procedures; (ii) training of FITD staff; (iii) selection of the Investment Committee and peer reviewers; (iv) mentoring and training for FITD beneficiary enterprises; and (v) marketing and communications strategy. ` Ministry of Education and Science of the Republic of Macedonia 30 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK Project Objectives, Activities and Institutional Arrangements (continued) Sub-component 3.2: Pilot of Financial Instruments to be delivered by FITD Once the FITD is established, it would provide specific funding instruments for each stage of companies’ life cycle to foster innovation. These instruments will include: (i) an accelerator; (ii) proof of concept innovation mini grants, including but not limited to IP protection, and business plan preparation for initial capital mobilization; (iii) commercialization matching grants and loans; and (iv) sector specific grants in technology development and technology absorption projects for new or improved technologies, products and processes. It is anticipated that the pilot instruments will be introduced in a phased approach starting with the accelerator and proof of concept grants. Component 4: Project Management and Monitoring and Evaluation This component would finance the activities in two sub-components to: (i) ensure effective administration and implementation of the Bank-financed project; and (ii) develop and put in place an effective M&E system. Subcomponent 4.1: Project Management This sub-component would support the operation of a Project Management Unit (PMU) reporting to a Project Director and responsible for all the day-to-day project implementation activities, as well as procurement, disbursement and accounting functions. World Bank financing would be provided for consultants employed as part of the PMU, as well as for assistance and training to all project staff, project audits, office equipment and incremental operating costs. Subcomponent 4.2: Monitoring and Evaluation M&E are crucial elements of program design as they provide important feedback mechanisms for policy, effectiveness, and credibility of the programs. The Project would support the design and implementation of (i) tools to monitor the results framework for the Project; (ii) M&E studies/surveys to establish a baseline for project results indicators as well as their measures during project implementation and upon project; (iii) impact evaluation for selected innovation programs; and (iv) skills observatory. World Bank financing would be provided for technical assistance; services and training of the Ministry of Education and Science staff engaged in monitoring; and the design, implementation, and analysis of evaluation surveys. Institutional Arrangements The PMU shall be responsible for the day-to-day Project implementation and for procurement, financial management, disbursement and monitoring, and reporting for the entire Project. The Steering Committee shall be responsible for overall Project oversight and coordination. The Working Group shall be responsible for providing necessary technical expertise and support for efficient Project implementation. The Grant Approval Committee shall be responsible for evaluating and selecting proposals for School Subprojects. The Investment Review Committee shall be responsible for evaluating and selecting proposals for Innovation Subproject. Throughout the duration of the Project the Borrower shall: (i) maintain the PMU, the Steering Committee and the Working Group; and (ii) establish and maintain the Investment Review Committee and the Grant Approval Committee; all with staff, resources and terms of reference satisfactory to the Bank. The Borrower shall carry out the Project in accordance with the Project Operational Manual and shall not amend, suspend, abrogate, repeal or waive any provision of said Manual without the prior approval of the Bank. ` Ministry of Education and Science of the Republic of Macedonia 31 “Skills Development and Innovation Support Project” IBRD Loan number 8332-MK 3 Accounting policies Following are the principle accounting policies adopted in preparation of these financial statements. These accounting policies are consistently applied to all financial periods presented. Basis of preparation The accompanying financial statements have been prepared for the purposes of reporting to IBRD, on the activities of the Project related to the loan received for the completion of the Project’s objectives, in accordance with the respective provisions set out in the Loan Agreement numbered 8332-MK signed between the IBRD and Ministry of Education and Science of the Republic of Macedonia. These financial statements are prepared on the cash receipts and disbursement basis and include all Project - related expenditures incurred, which are financed under the provisions set out in Loan Agreement numbered 8332-MK dated 7 February 2014. These instructions closely follow the World Bank’s Disbursement Guidelines for Projects. The financial statements have been prepared for the period from 1 January 2017 through 31 December 2017. Currency translation All accounts are kept in Euro as this is the reporting currency of the Project. Transactions denominated in currencies other than Euro are translated using the buying foreign exchange rates of the National Bank of the Republic of Macedonia for international payment operations of the government bodies of Republic of Macedonia prevailing at the date of the transaction. ` www.grant-thornton.com.mk