Report on the Republika Srpska part of the Project Financial Statements of the DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Financed by: - IDA Credit No. 5444 - BA For the year ended 31 December 2018 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina CONTENTS 1 Introduction 1 2 Independent Auditor's Report 2 3 Project financial statements for the year 2018 4 4 Notes to the project financial statements 7 APPENDICES A Designated account - IDA Credit No. 5444 - BA 8 B SoE Withdrawal Schedule of IDA Credit No. 5444-BA for the year ended 31 December 2018 9 C Reconciliation between World Bank's disbursement statements in XDR and IDA Credit account in EUR according to the balance sheet as of 31 December 2018; SoE Withdrawal Schedule of IDA Credit No. 5444 - BA 10 U U DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction 1.1 Objectives and activities of the Project The Project objective of the Drina Flood Protection Project (the "Project") is to provide increased protection from flood events to agricultural and commercial interests and communities in the Project area. The main activities include strengthening flood protection on the Drina River in the Bijeljina area near the confluence with the Sava River, including Project management support and institutional strengthening, through the provision of works, goods, consultants services, Training and Incremental Operating Costs. 1.2 Components of the Project The Project is comprised of the following two components: Component 1: Flood Protection Works The main activities include strengthening flood protection on the Drina River in the Bijeljina area near the confluence with the Sava River. U Component 2: Project Management and Institutional Strengthening The main activities include Project management support and institutional strengthening, through the provision of works, goods, consultants services, Training and Incremental Operating Costs. 1.3 Financing of the Project 1.3.1 IDA Credit No. 5444-BA The State of Bosnia and Herzegovina ("B&H") is the borrower of the International Development Association (IDA) Credit No. 5444-BA amounting to the equivalent of XDR 15,600,000. Under the terms of a subsidiary finance agreement between B&H and RS, funds of the equivalent of XDR 8,970,000 have been lent to RS. Categories of cost items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each category and the percentage of expenditure for cost items so to be financed in each category are as follows: U ~Amount of the %f Item Credit allocated expenditure (in XDR)be financed (2) Goods, works, non-consulting services, consulting services, training and incremental operating costs for Part A of the Project 8,970,000 100% Subtotal 8,970,000 IDA Credit No. 5444 - BA became effective on 21 May 2015. Planned closing date is 31 December 2019. 1 U a * bakertilLy Baker Tilly Re Opinion d.o.o. Grbavi6ka 4 71000 Sarajevo Bosna i Hercegovina T: +387 (0) 33 552 150 2. Independent Auditor's Report F: +387 (0) 33 552 152 info@bakertilly.ba To the State of Bosnia and Herzegovina, www.bakertilly.ba Ministry of Finance and Treasury Attn. of Minister of Finance and Treasury H.E. Mr. Vjekoslav Bevanda Report on the Project Financial Statements Opinion We have audited the accompanying project financial statements of the Republika Srpska part of the Drina Flood Protection Project (the "Project"), which comprise of Summary of sources and uses of funds, Balance sheet, Designated account statement, Statement of loan withdrawals as of and for the year ended 31 December 2018, and a summary of significant accounting policies and other explanatory notes for the year then ended, financed under IDA Credit No. 5444 - BA. In our opinion, the accompanying project financial statements present fairly, in all material aspects, the financial position of the Project as of 31 December 2018, and of the funds received and disbursed during the year then ended, in accordance with the cash basis of accounting based on International Public Sector Accounting Standard ("IPSAS"), as described in Note 4.1. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and "Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities" issued by FMSB. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Ministry of Finance and Treasury in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Project Financial Statements The management of project coordination unit is responsible for the preparation of these project financial statements in accordance with the cash basis of accounting based on IPSAS, as described in Note 4.1., and for such internal control as management determines is necessary to enable the preparation of project financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project'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 Project or to cease operations or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the financial reporting process. I I JIB: 4200960550009 - PDV: 200960550009 - Raiffeisen Bank d.d. BiH: 1610000045270008 Baker Tilly Re Opinion d.o.o. trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities I * I Responsibilities for the Audit of Financial Statements Our objectives are to obtain reasonable assurance about whether the project 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 detected 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:1dentify and assess the risks of material misstatement of the project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the project financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other requirements In addition, with respect to the SoE withdrawal schedule, adequate supporting documentation has In addition, with respect to the Statement of Expenditure, adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditure incurred; and all expenditure included in withdrawal applications and reimbursed against are eligibl financing under the project. Signed on VhAf of Baker Tilly Re Opinion d.,a.o, arajevo Nihad Fejzic, Dir ctor and Certified AuitSr T LLY Ezita Imam vic, Certified Auditor Sarajevo, Bosnia and Herzegovina 14 May 2019 I I I DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 3. Project financial statements for the year 2018 3.1 Summary of sources and uses of funds under IDA Credit No. 5444 - BA Actual Cumulative Cumulative Cumulative Cumulative Ref. 2018 2018 2017 budget variance FINANCING IDA Credit No. 5444 - I iBA 3.1.1 46,985 1,563,107 1,516,122 11,608,267 10,045,160 RTOTAL FINANCING 3.2 46,985 1,563,107 1,516,122 11,608,267 10,045,160 EXPENDITURE By Category Goods, works, non- consulting services, consulting services, training and incremental operating costs for Part Aof the Project 98,016 661,123 563,107 11,608,267 10,947,144 ITOTAL EXPENDITURE 3.2 98,016 661,123 563,107 11,608,267 10,947,144 EXPENDITURE By Component Flood Protection Works 11,594 534,513 522,919 10,983,995 10,449,482 Project Management and Institutional Strengthening 86,422 126,610 40,188 624,272 497,662 ITOTAL EXPENDITURE 3. 98,0d16 661,123 563,107 11,608,267 10,947,144 I I I I I 1 4 I I w1ll DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 3. Project financial statements for the year 2018 (continued) 3.1.1 Summary of sources and uses of funds under the IDA Credit No. 5444 - BA Actual Cumulative Cumulative Cumulative Cumulative Ref. 2018 2018 2017 budget variance FINANCING IDA Credit No. 5444-BA 11,608,267 Initial deposit - 1,000,000 1,000,000 SoE replenishments 46,985 563,107 516,122 TOTAL FINANCING 3.1 46,985 1,563,107 1,516,122 11,608,267 10,045,160 PROJECT EXPENDITURE By Category Goods, works, non- consulting services, consulting services, training and incremental operating costs for Part A Prect0 661,123 563,107 11,608,267 10,947,144 TOTAL EXPENDITURE 3.2 98,016 661,123 563,107 11,608,267 10,947,144 I I I I I I I I 5 I I DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 ____(all amounts in EUR. unless otherwise stated) 3. Project financial statements for the year 2018 (continued) 3.2 Balance sheet as of 31 December 2018 showing accumulated funds of the Project and bank balances concerning World Bank funding 31 December 31 December Ref. 2018 2017 ASSETS Project expenditure under IDA Credit No. 5444 - BA 3.1.1 661,123 563,107 661,123 563,107 Designated account - IDA Credit No 5444 - BA A 1 901,984 953,015 901,984 953,015 Total assets 1,563,107 1,516,122 LIABILITIES IDA Credit No. 5444 - BA C.1 1,563,107 1,516,122 Total liabilities 1,563,107 1,516,122 Signed and authorised by: Mr Stefan Mitrovi6 Dragana Stoji66 APCU Director Financial Manager Banja Luka, 14 May 2019 I I I I 1 6 i DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) 4. Notes to the project financial statements 4.1 Basis of preparation and accounting records These project financial statements have been prepared in accordance with the International Public Sector Accounting Standard: "Financial Reporting under the Cash Basis of Accounting" issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the accounting policies below, which have been consistently followed in all material respects and comply with the "Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities", issued by the Financial Management Sector Board. 4.2 Accounting policies The Project's fiscal year is 1 January to 31 December for the recording of all transactions. Cash basis of accounting All receipts and expenses under IDA Credit are recorded on actual receipt and payment basis of accounting as per approved categories. Project expenditure is stated at original cost on the balance sheet, Direct payments Direct payments concern the amounts paid directly from the Credit account of the World Bank. Statement of Expenditure (SoE) Statements of Expenditure are used to state the expenditure under IDA Credit during a certain period. These statements are sent to the World Bank's disbursement specialist who authorises the payment of the expenditure through the Designated account. Currency conversions The reporting currency is Euro (EUR). Sources and use of funds (payments to suppliers and contractors) in currencies other than EUR have been converted to EUR using the currency rate at the moment of the transaction. Bank balances, recorded on the balance sheet at year-end, have been converted at year - end I rate. Designated accounts This is the total amount of the withdrawals from the Credit account for the Project. The Credit account is in XDR. Interest on Designated accounts Interest earned on the Designated accounts belongs to the Borrower. 7 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX A DESIGNATED ACCOUNT STATEMENT Account owned by: Ministry of Finance and Treasury of Bosnia and Herzegovina Account No.: 5672410000610769 Depository Bank: Sberbank a.d. Banjaluka Address: Jevrejska 71, Banjaluka Related Credit: IDA Credit No. 5444-BA Currency: EUR Ref. EUR Opening balance 1 January 2018 3.2 953,015 Add: World Bank replenishments 46,985 46,985 Deduct: Payments to suppliers - Expenditure under IDA Credit 98,016 98,016 3 Ending balance 31 December 2018 3.2 901,984 I I I I 1 8 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 (all amounts in EUR, unless otherwise stated) APPENDIX B. SoE Withdrawal Schedule of IDA Credit No. 5444 - BA for the year ended 31 December 2018 Goods, works, non- consulting services, consulting services, training and incremental Initial operating costs for Part Total Total deposit A of the Project application replenished Previous years 1,000,000 563,107 563 107 1,516,122 Application 04 - 46,985 Application 05 98,016 98,016 - Cumulative 2018 1,000,000 661,123 661,123 1,563,107 * Application No. 4 was replenished in 2018 but expenses were made in 2017. ** Application No. 05 will be replenished in 2019 but expenses were made in 2018. 9 DRINA FLOOD PROTECTION PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina Project financial statements for the year ended 31 December 2018 (all amounts in EUR. unless otherwise stated) APPENDIX C Reconciliation between World Bank's disbursement statements in XDR and IDA Credit account in EUR according to the balance sheet; SoE Withdrawal Schedule of IDA Credit No. 5444-BA Changes in Changes in IDA Credit Exchange IDA Credit (in XDR) rate used (in EUR) Original amount 8,970,000 1 294121 11,608,267 Withdrawal 01 236,935 1.266168 300,000 Cumulative disbursements as of 31 December 2015 236,935 300,000 Withdrawal 02 556,202 1.258536 700,000 Cumulative disbursements as of 31 December 2016 793,137 1,000,000 Withdrawal 03 406,287 1,270339 516,122 Cumulative disbursements as of 31 December 2017 1,199,424 1,516,122 Withdrawal 04 39,030 1.203819 46,985 Cumulative disbursements as of 31 December 2018 1,238,454 1,563,107 Calculated undisbursed balance as of 31 December 2018 7,731,546 10,045,160 Undisbursed balance as per World Bank Summary for December 2018 7,731,546 1218820 9,423,363 Potential exchange rate loss (621,797) U I I I 11