THE FEDERAL GOVERNMENT OF SOMALIA PROJECT NAME: WATER FOR AGRO-PASTORAL PRODUCTIVITY AND RESILIENCE IMPLEMENTING ENTITY: MINISTRY OF PLANNING INVESTMENT AND ECONOMIC DEVELOPMENT PROJECT GRANT / CREDIT NUMBER: P167826 REPORTS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 PREPARED IN ACCORDANCE WITH THE CASH BASIS OF ACCOUNTING IN INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS), 2019 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 TABLE OF CONTENTS 1. PROJECT INFORMATION AND OVERALL PERFORMANCE ............................................ 4 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES .................................... 10 3. REPORT OF AUDITOR GENERAL ................................................................................. 12 4. STATEMENT OF RECEIPTS AND PAYMENTS ............................................................... 16 5. STATEMENT OF FINANCIAL ASSETS ........................................................................... 17 6. STATEMENT OF CASH FLOWS .................................................................................... 18 7. STATEMENT OF BUDGET COMPARISON WITH ACTUAL AMOUNTS .......................... 19 8. STATEMENT OF USES AND APPLICATION OF FUNDS BY COMPONENTS ................... 20 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS ........................................ 21 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS .......................................... 27 11. ANNEXURES ............................................................................................................... 37 2 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 ABBREVIATIONS AND ACRONYMS CBS - Central Bank of Somalia EAFS - External Assistance Fiduciary Section FGS - Federal Government Somalia FMS - Federal Member States FY - Financial Year ICT - Information and Communication Technology IDA - International Development Association IESBA - International Ethics Standards Board for Accountants’ IPSAS - International Public Sector Accounting Standards ISA - International Standards on Auditing M and E - Monitoring and Evaluation MPF - Multi-Partner Fund PFM - Public Financial Management PIU - Project Implementation Unit USD - United States of America Dollars WAPR - Water for Agro-pastoral Productivity and Resilience WB - World Bank 3 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE Name Water for Agro-pastoral Productivity and Resilience (WAPR). Objective To develop water and agricultural services among agro- pastoralist communities in dry-land areas of Somalia. Address Ministry of Water and Energy Resource (MoWER) Afgooye Road, Wadajir District Mogadishu, Somalia. The Project also has offices/branches as follows: a) Garowe, Puntland State of Somalia b) Baidoa, South West State of Somalia c) Dhusamareb, Galmudug State of Somalia 1.1 Project Information Project Start Date: 13 December 2019 Project End Date: 28 February 2023 Project Manager: Dr.Abdullahi Elmi Mohamed Project Sponsor: International Development Association (IDA) 4 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 1.2 Project Overview Line The Project is under the supervision of the Ministry of Ministry/Department Planning, Investment, and Economic Development. of the Project Project number P167826 Strategic goals of the The strategic goals of the Project are as follows: Project a) Improving access to multiple-use water resources (for human consumption, livestock, small-scale irrigation, and environmental services) in drylands of Somalia; b) Increasing the land area under sustainable landscape management practices; c) Reaching targeted beneficiaries with agricultural services; d) Promoting the uptake of productivity-enhancing innovation among target rural communities, and; e) Strengthening the adaptive capacity of rural communities in Somalia and their resilience to the impacts of climate change. Achievement of The Project Management aims to achieve the goals through strategic goals the following means: a) Facilitating community engagement on the selection of water technologies / interventions; b) Construction of water assets, incorporating labour- intensive approaches; c) Development of policies, strategies, and guidelines; d) Preparing key feasibility studies; e) Creation of village livelihood development plans f) Training on the adoption of drought resistance crops and seeds. 5 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 1.2 Project Overview (Continued) Achievement of g) Formation of implementation subgroups (e.g., strategic goals pastoralist groups, farmer groups, community garden (Continued) groups; h) Rehabilitation and protection of endangered lands; i) Establishment of trees and other vegetation in upland areas; j) Promote the uptake of alternative energy solutions; k) Establishment of community gardens and fruit tree groves; and l) Training on climate-smart farming techniques. Other important The Project “WAPR” is a scale-up Project of the Water for background Agro-Pastoralist Livelihoods Pilot Project (WALP) information of the Implemented by the Government in which eight sand dams Project were built which are contributing to the national development plan. The Ministry of Planning, Investment, and Economic Development is Coordinating the implementation of the Project which will run for a period of five years. The participating member states; Puntland, South West, Galmudug State and Somaliland will implement this Project. The primary Project beneficiaries are more than 250,000 Agro-pastoralists in Galmudug, Puntland, SouthWest and Somaliland. The Project will provide benefits in the form of access to improved water sources for multiple uses (domestic, livestock and horticulture); agricultural extension services (livestock and crops); improved livelihood resilience and adaptive know-how. Current situation The Project was formed to intervene in the following areas: that the Project was a) Support the development of multiple-use water formed to intervene sources; b) Institutional and capacity development; c) Supporting sustainable land management and livelihoods development around water points; and d) Knowledge management and learning, qualit enhancement, and implementation support. Project duration The Project started on 13 December 2020 and is expected to run until 28 February 2023. 6 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 1.2 Project Overview (Continued) 1.3 Bankers The Central Bank of Somalia is the sole banker of the Project. 1.4 Auditors The Project is audited by the Office of the Auditor General, Federal Republic of Somalia. 1.5 Roles and Responsibilities Names Title designation Role/Responsibilities Fatuma Osman Farah Accountant General Fiduciary Oversight Abdikadir Adan Director-General Authorized signatory Abdullahi Elmi Project Coordinator Project Management Samira Mohamed Financial Management Specialist Project Financial Management Hussein Jama Procurement Specialist Conducting Project procurement activities at National Level Hassan Kassim Warsame Monitoring and Evaluation (M&E) Overall Project Abdirizak Mohamoud Puntland Project Coordinator Project Coordinator at Puntland State Abdullahi Abdirahman Ali South West State Project Coordinator Project Co-ordinators Mohamed Barnaamij Galmudug Project Coordinator Project coordination at the Galmudug State of Somalia Mohamud Abdulkadir Arale External Assistance Fiduciary Section (EAFS) Director Finance Management and Payment responsibility Mawlid Mohamed Ali EAFS Head of Accountants Accountant Abifatah Hassan Osoble EAFS Accountant Accountant 7 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 1.6 Funding summary The Project is a for the duration of five years from 2019 to 2023 with an approved budget of USD 42,000,000 as highlighted in the table below: Below is the funding summary: Donor Amount received Undrawn balance Commitment- to date to date 31 December 31 December 2022 2022 USD USD USD A B A-B Grant IDA 42,000,000.00 27,059,860.00 14,940,140.00 42,000,000.00 27,059,860.00 14,940,140.00 1.7 Summary of Overall Project Performance: The approved budget for the financial year 2022 is USD 15,669,280.00. A total amount of USD 15,529,966.90 of the USD 15,669,280.00 budgeted for this year is utilized as of 31 December 2022. The percentage of the unutilized budget is 1% .the Project utilized 99% of the planned budget. 8 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 1.8 Physical progress based on outputs, outcomes, and impacts since Project commencement The Project activities implementation is progressing well, the implementation of water sites is about to be completed where the final sites selected are under the final payment stage. The Project component two and three activities implementation has started where all the component activities are about to be fully completed. The Project implemented capacity-building initiatives where the Project Consultants have gone for training related to their work. The Project Management Information System has now been functioning and all the data is entered in to the system. The Project implementation of activities increased this year, this is aimed to achieve full consumption of budget before the closing date. 1.9 Statement of Receipts and Payments analysis The Project has received a total amount of USD 16,850,376.87 as of 31 December 2022 and an amount of USD 15,529,966.90 is utilized as of 31 December 2022. An amount of USD 3,184,864.31 is available at the end of this period. 9 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Accountant General, the Director General (Authorizing Officer) for the Ministry of Planning, Investment and Economic Development and the Project Coordinator for WAPR Project are responsible for the preparation and presentation of the Project’s Financial Statements, which give a true and fair view of the state of affairs of the Project for and as at the end of the financial year (period) ended on 31 December 2022. This responsibility includes: a) Maintaining adequate financial management arrangements and ensuring that these continue to be effective throughout the reporting period; b) Maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial transactions of the Project; c) Designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the Financial Statements, and ensuring that they are free from material misstatements, whether due to error or fraud; d) Safeguarding the assets of the Project; e) Selecting and applying appropriate accounting policies; and f) Making accounting estimates that are reasonable in the circumstances. The Accountant General, the Director General (Authorizing Officer) for the Ministry of Planning, Investment and Economic Development, and the Project Coordinator for WAPR Project accept responsibility for the Project’s Financial Statements, which have been prepared in accordance with Article 45 (2) of the Public Financial Management Act, 2019 and Financial Regulation 103 (3) and in line with the Cash Basis of Accounting in International Public Sector Accounting Standards (IPSAS) 2019, as required by the Accountant General. The Accountant General, the Director General (Authorizing Officer) for the Ministry of Planning, Investment and Economic Development, and the Project Coordinator for WAPR Project are of the opinion that the Project’s Financial Statements give a true and fair view of the state of Project’s transactions during the financial year ended 31 December 2022, and of the Project’s financial position as at that date. The Accountant General, the Director General (Authorizing Officer) for the Ministry of Planning, Investment and Economic Development and the Project Coordinator for WAPR Project further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project’s Financial Statements as well as the adequacy of the systems of internal financial control. 10 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES (Continued) The Accountant General, the Director General (Authorizing Officer) for the Ministry of Planning, Investment and Economic Development and the Project Coordinator for WAPR Project confirm that the Project has complied covenants (where applicable), and that the Project’s funds received during the year under audit were used for the eligible purposes for which they were intended and were properly accounted for. Approval of the Project Financial Statements The Project Financial Statements were approved and signed by the Accountant General, the Director General (Authorizing Officer) for the Ministry of Planning, Investment and Economic Development, and the Project Coordinator for WAPR Project on _____________2024, and signed by them as here below. Project Accountant Project Coordinator Director General Samira Hassan Abdullahi Elmi Asad Yusuf 11 3. REPORT OF AUDITOR GENERAL INDEPENDENT AUDITOR’S REPORT TO THE PROJECT IMPLEMENTATION UNIT FOR WATER FOR AGRO-PASTORAL PRODUCTIVITY AND RESILIENCE (BIYOOLE) PROJECT: GRANT NUMBER P167826 Unmodified opinion We have audited the accompanying Financial Statements of Water for Agro-Pastoral Productivity and Resilience Project, Project Number P167826, funded by International Development Association, which comprise the Statement of Receipts and Payments, Statement of Financial Assets as at 31 December 2022, Statement of Cash Flows, Statement of Comparison of Budget and Actual amounts, Statement of uses and Application of Funds by components for the year then ended and notes to the Financial Statements as set out on pages 16 to 36. The Financial Statements have been prepared by the Project Management in accordance with the accounting policies described in Note 9.1 to the Financial Statements. In our opinion, the accompanying Financial Statements present fairly the cash and receipts and payments of the Project during the year ended 31 December 2022 in accordance with Cash Basis of accounting in International Public Sector Accounting Standards 2019 and in accordance with the accounting policies described in Note 9.1 to the Financial Statements and comply with the related Financing Agreements. Basis for Opinion We conducted the audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the Auditor’s responsibilities for Audit of the Financial Statements section of our Report. We are independent of the Project 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 the audit of the Financial Statements, and We have fulfilled our 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. 12 3. REPORT OF AUDITOR GENERAL (CONTINUED) Emphasis of Matter – Basis of Accounting and Restriction on Distribution and Use Without modifying our opinion, We draw your attention to Note 9.1 of the Financial Statements which describes the basis for accounting. The Financial Statements are prepared to assist Federal Republic of Somalia comply with specific financial reporting requirements of the International Development Association. As a result, the Financial Statements may not be suitable for any other purpose. Our Report is intended solely for the information, distribution and use by the International Development Association and the Federal Republic of Somalia. Other Information The Management of the Project is responsible for the Other Information. The Other Information comprises Project Information and Overall Performance included in the report but does not include the Financial Statements and our Auditor’s Report thereon. Our opinion on the Financial Statements does not cover the Other Information and We do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work We have performed on the Other Information that We obtained prior to the date of this Auditor’s Report, We conclude that there is a material misstatement of this Other Information, We are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements The Management is responsible for the preparation and fair presentation of the Financial Statements in accordance with International Public Sector Accounting Standards (Cash Basis) and for such internal control as Management determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the financial reporting process. 13 3. REPORT OF AUDITOR GENERAL (CONTINUED) Auditor’s Responsibilities for the Audit of the Financial Statements Our objective was to obtain reasonable assurance about whether the 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 Financial Statements. As part of an audit in accordance with ISAs, We exercise professional judgment and maintain professional scepticism throughout the audit. We also: a) Identify and assess the risks of material misstatement of the 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. b) 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. c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. d) Evaluate the overall presentation, structure, and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. 14 3. REPORT OF AUDITOR GENERAL (CONTINUED) Auditor’s Responsibilities for the Audit of the Financial Statements (Continued) We communicated with Management 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 identified during our audit. _________________________ H.E. Avv. Ahmed Isse Gutale Auditor General Federal Republic of Somalia Mogadishu, Somalia 29 March, 2024 The matters raised in this report are only those that came to our attention during the course of our audit and are not necessarily a comprehensive statement of all the weaknesses that exist or all improvements that might be made. You should assess recommendations for improvements for their full impact before they are implemented. This report has been prepared solely for your use as project management and should not be quoted in whole or in part without our prior written consent. No responsibility to any third party is accepted as the report has not been prepared, and is not intended, for any other purpose. 15 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 4. STATEMENT OF RECEIPTS AND PAYMENTS Notes 31 December 31 December Cumulative Project Balances 2022 2021 31 December 31 December 2022 2021 USD USD USD USD Receipts External Assistance grants 10.2 16,850,376.87 10,209,483.86 27,059,860.73 10,209,483.86 16,850,376.87 10,209,483.86 27,059,860.73 10,209,483.86 Payments Compensation of employees 10.5 170,440.00 221,860.00 392,300.00 221,860.00 Goods and services 10.6 2,319,051.50 1,159,711.39 3,478,762.89 1,159,711.39 Capital expenditure 10.7 103,308.81 421,908.61 525,217.42 421,908.61 Grants 10.8 12,937,166.59 6,541,549.52 19,478,716.11 6,541,549.52 Total payments 15,529,966.90 8,345,029.52 23,874,996.42 8,345,029.52 Surplus for the year 1,320,409.97 1,864,454.34 3,184,864.31 1,864,454.34 16 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 5. STATEMENT OF FINANCIAL ASSETS Notes 31 December 31 December 2022 2021 USD USD Financial assets Cash and cash equivalents 10.9 3,184,864.30 1,864,454.32 Total financial assets 3,184,864.30 1,864,454.32 Represented by: Surplus from the previous years 1,864,454.34 - Net Surplus for current year 1,320,409.97 1,864,454.32 Net financial position 10.9 3,184,864.31 1,864,454.32 The financial statements were approved by the Project Management on _______________ 2024 and signed on its behalf by: Project Accountant Project Coordinator Director General Samira Hassan Abdullahi Elmi Asad Yusuf The accounting policies and explanatory notes to these Financial Statements on pages 16 to 32 form an integral part of the financial statements. 17 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 6. STATEMENT OF CASH FLOWS 31 December 31-December Notes 2022 2021 USD USD Receipt 10.2 16,850,376.87 7,541,179.12 Total Receipts 16,850,376.87 7,541,179.12 Expenses Compensation of employees 10.5 170,440.00 150,980.00 Use of goods and services 10.6 2,319,051.50 746,641.12 Grants paid 12,937,166.59 4,709,515.26 Total expenses 15,426,658.09 5,607,136.38 Net cash flows from operating activities 1,423,718.78 1,934,042.74 Cash flow from investing activities - - Acquisition of property and equipment 10.7 (103,308.81) (199,375.00) Net cash flows from investing activities (103,308.81) (199,375.00) Net increase in cash and cash equivalents 1,320,409.97 1,734,667.74 Cash and cash equivalents at the start of the year 1,864,454.32 129,786.60 Cash and cash equivalents at the end of the year 10.9 3,184,864.30 1,864,454.32 18 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 7. STATEMENT OF BUDGET COMPARISON WITH ACTUAL AMOUNTS Original Revisions Final Actual Budget Percentage Budget Budget Outturn Variance Variance Receipts USD USD USD USD USD % - External assistance 15,669,280.00 - 15,669,280.00 16,850,376.87 1,181,096.87 8% Total cash receipts 15,669,280.00 - 15,669,280.00 16,850,376.87 1,181,096.87 8% Recurrent expenses Compensation of employees 190,000.00 (17,000.00) 173,000.00 170,440.00 2,560.00 1% Use of goods and services 2,316,280.00 75,000.00 2,391,280.00 2,319,051.50 72,228.50 3% Grants 13,000,000.00 - 13,000,000.00 12,937,166.59 62,833.41 0% Total recurrent expenditure 15,506,280.00 58,000.00 15,564,280.00 15,426,658.09 137,621.91 1% Capital expenditure Capital expenditure 163,000.00 (58,000.00) 105,000.00 103,308.81 1,691.19 2% Total capital expenditure 163,000.00 (58,000.00) 105,000.00 103,308.81 1,691.19 2% Total 15,669,280.00 - 15,669,280.00 15,529,966.90 139,313.10 1% Surplus - - - 1,320,409.97 1,320,409.97 19 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 8. STATEMENT OF USES AND APPLICATION OF FUNDS BY COMPONENTS Previous Years FY 2022 FY 2022 FY 2022 Cumulative Up to 2021 Previous Current Reporting Cumulative Inception to date Quarters Quarter USD USD USD USD USD A B C D=B+C E=A+D Receipts International Development Association 10,209,483.86 9,533,543.55 7,316,833.32 16,850,376.87 27,059,860.73 Total receipts 10,209,483.86 9,533,543.55 7,316,833.32 16,850,376.87 27,059,860.73 Expenditure by components 1. Support the development 1,436,164.65 3,715,318.60 2,143,271.71 5,858,590.31 7,294,754.96 2. Institutional and Capacity Development 632,646.89 387,971.25 305,195.16 693,166.41 1,325,813.30 3. Land Management and Livelihoods 460,493.60 2,104,609.20 1,300,161.08 3,404,770.28 3,865,263.88 Management and Learning 5,815,724.38 3,300,915.39 2,236,724.51 5,537,639.90 11,353,364.28 Total payments 8,345,029.52 9,508,814.44 5,985,352.46 15,494,166.90 23,839,196.42 Surplus for the year 1,864,454.34 24,729.11 1,331,480.86 1,356,209.97 3,220,664.31 20 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS 9.1 Significant Accounting Policies These are the specific principles, bases, conventions, rules and practices adopted by the Project in preparing and presenting the Financial Statements. The principal accounting policies adopted in the preparation of these Financial Statements are set out below. These policies have been consistently applied to all transactions unless otherwise stated. The specific policies applied are described in the notes below: 9.1.1 Statement of Compliance and Basis of preparation of the accounts The Financial Statements have been prepared in accordance with Public Financial Management Act (2019), Public Financial Management Regulations (2020) and related legal framework and Cash Basis of accounting in IPSAS 2019. Pursuant to Paragraph (1) and in accordance with Article (43) (2) of the Public Financial Management Act and Article 94 (1), (2) and (a) and (h) of the Public Financial Management Regulations (2020), the Financial Statements have been prepared using IPSAS, financial reporting under the Cash Basis of accounting in IPSAS 2019 as issued by the IPSAS Board of the International Federation of Accountants and as set out in the accounting policy Note below. The Cash Basis of accounting has been supplemented with appropriate disclosures as required under Article 103 (2) of the Public Financial Management Regulations (2020). The Accounting policies adopted have been applied consistently throughout. 9.1.2 Reporting entity These Financial Statements are for WAPR under the Federal Republic of Somalia and encompass the reporting entity as specified in the Public Financial Management Act, 2019 and Appropriation Act, 2020. 9.1.3 Reporting currency The functional currency of the Federal Government of Somalia is the USD because: a) Government revenues and expenditures are transacted in that currency; b) The majority of financing is provided in that currency; and c) Bank transactions and balances are principally in USD. 21 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (CONTINUED) 9.1.4 Reporting year The WAPR reporting year is for the year ended 31 December 2022 for financial year that runs from 1 January to 31 December, the calendar year. These Financial Statements are therefore for the year 1 January 2022 to 31 December 2022. The comparative figures reflect the 12 months ended 31 December 2021. 9.1.5 Payments by third parties The WAPR may also benefit from goods and services purchased on its behalf as a result of cash payments made to third parties during the year. Requests for third party payments are processed through the use of country systems and at the request of the entity, the donor makes payment directly to a third party (supplier, contractor and consultant) for eligible expenditures. An example is the direct payments processed by the World Bank upon requests from the FGS which are formally advised and verified by the Government and are included in the Financial Statements. On the other hand and through Direct Execution, third parties including donors may make payments to external suppliers outside the country systems and provide goods and services including in-kind donations e.g. food aid, big contract of works, vehicles, equipment, technical assistance or personnel services. The payments made by the third parties outside the country systems do not constitute cash receipts or payments managed by the WAPR even though the entity does benefit from such payments. Such payments are therefore not included in the Statement of Cash Receipts and Payments but are reported and disclosed accordingly where the financial value of the goods and services received can be reliably verified and determined by WAPR. During the reporting period, there were no third party payments. 9.1.6 Recognition of receipts The Project recognises all receipts from the various sources when the event occurs and the related cash has actually been received by the Government. a) Transfers from the Treasury and Other General Government Units / Entities Where transfers are received from the Treasury and / or other General Government Units / Entities, these are recognized in the Project books of account when cash is received. Cash is considered as received when a payment instruction is issued to the bank and notified to the receiving entity (Project). 22 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (CONTINUED) 9.1.6 Recognition of receipts (continued) b) Other receipts These include receipts such as proceeds from disposal of assets and refunds. These are recognised in the Financial Statements the time associated cash is received. c) External assistance External assistance is received through grants and loans from multilateral and bilateral development partners. Donations and grants Grants and donations shall be recognized in the books of accounts when cash is received. Cash is considered as received when a payment advice is received by the recipient entity (Project) or by the beneficiary. In case of grant/donation in kind, such grants are recorded upon receipt of the grant item and upon determination of the value. The date of the transaction is the value date indicated on the payment advice. Proceeds from borrowing Includes external loans acquired by the Project and is treated on cash basis and recognized as a receipt during the year they were received. Undrawn external assistance These are loans and grants at reporting date as specified in a binding agreement and relate to funding for the Project currently under development where conditions have been satisfied or their ongoing satisfaction is highly likely and the Project is anticipated to continue to completion. An analysis of the Project’s undrawn external assistance is shown in the funding summary and in Note 10.4 under Section 10 of these Financial Statements. 23 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (CONTINUED) 9.1.6 Recognition of receipts (continued) d) Other Assistance Relates to resources received from Non - Governmental Organistations and other assistance that is voluntarily provided by, for example, individuals , private entities and charitable and other organizations. 9.1.7 Recognition of payments Payments represent outlays of cash made by the entity or other agencies for and on behalf of the Project. All payments are recognised and included in the Financial Statements when cash is paid out. a) Compensation of employees Salaries and wages, Allowances, Statutory contribution for employees are recognized in the period when the compensation is paid. b) Use of Goods and Services Goods and services are recognized as payments in the period when the goods/services are consumed and paid for. If not paid for during the period where goods/services are consumed, they are included in the Statement of Financial Assets (Balance sheet) as financial liabilities with supporting schedules. 9.1.8 Property, Plant and Equipment and other non-current assets Non-current assets comprises land, buildings, plant, vehicles, equipment, and any other capital assets controlled by the WAPR. Purchases of property, plant , equipment and other non-current assets have been expensed fully in the year of purchase. However, these assets are recorded in Property and Equipment Registers at historical cost as a memorandum record. 24 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (CONTINUED) 9.1.9 In-kind donations for goods and services received In - kind contributions are donations that are made to the Project in the form of actual goods and / or services rather than in money or cash terms. These donations may include food aid, vehicles, equipment or personnel services. Where the financial value received for in - kind contributions can be reliably determined, an appropriate disclosure note is included in the Financial Statements. 9.1.10 Comparative figures for previous year Comparative figures are disclosed for all numerical information disclosed in these Financial Statements as required under IPSAS. 9.1.11 Foreign currency transactions and foreign operations Foreign currency transactions denominated in foreign currencies are recorded into USD and incorporated in the Statement of Receipts and Payments at the exchange rate ruling on the date of the transaction. Cash balances denominated in foreign currency at the year - end would be translated at the closing rate of exchange with the resulting exchange gains / (losses) dealt with as a reconciling item between the opening and closing cash balances for the financial year. 9.1.12 Cash and cash equivalents Cash and cash equivalents comprise cash and bank. Bank account balances include amounts held at Central Bank of Somalia at the end of the financial year. 9.1.13 Refunds of previous year receipts and expenditure Receipts refunded from the previous years are recorded as expenditures in the current year. Expenditures refunded from previous years are recorded as receipts in the current year. 25 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (CONTINUED) 9.1.14 Employee benefits Employee benefits include salaries, allowances and other related employment costs and these have been recognized in the Financial Statements only when actual payments are made. 9.1.15 Contingencies Contingent liabilities are recorded and disclosed when the contingency becomes evident. Contingent assets are neither recognized nor disclosed. 9.1.16 Original and final approved budget and comparison of actual and budget amounts The approved budget is developed on the same accounting basis (cash basis), same classification basis (Government Finance Statistics, 2014 economic classification), and for the same year (1 January 2022 to 31 December 2022) as for the Financial Statements. The approved budget for the financial year 2022 is USD 15,669,280.00. The original budget objectives and policies, the subsequent revisions and the material differences between the budget and actual amounts, are explained more fully in Section I of these Financial Statements. A commitment control system is in place and is implemented through the Somali Financial Management Information System with adequate system controls to ensure that no expenditure can be incurred in excess of the approved budget as may be revised. 9.1.17 Authorization Date The Financial Statements of the WAPR were authorized for publication on __________________by the Accountant General of the Federal Government of Somalia. 26 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 10.1 Exchange Rates All monetary amounts in the Financial Statements are expressed in USD, the transaction and Project reporting currency. The USD closing rates for major currencies were: Actual Actual 31 December 2022 31 December 2021 Somali Shilling (SOS/USD) 22,500 22,500 British Pound (GBP/USD) 0.641584 0.641584 Euro (EUR/USD) 0.825748 0.825748 27 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10.2 External Assistance. External assistance was received in the form of grants from multilateral donor agencies under agreements specifying the purposes for which the assistance will be utilized. The amounts in the statement of receipts and payments are only recognized when received by and are under the control of the FGS. The amount of external assistance received in the year ended 31 December 2022 consists of the following: Current FY Current FY Year balances Cumulative balances 2022 – 2022 – 31 December 31 December 31 December 31 December Previous Current 2022 2021 2022 2021 Reporting Reporting Quarters Quarter A B A+B E= C+D D USD USD USD USD USD USD Grants IDA 9,533,543.55 7,316,833.32 16,850,376.87 10,209,483.86 27,059,860.73 10,209,483.86 9,533,543.55 7,316,833.32 16,850,376.87 10,209,483.86 27,059,860.73 10,209,483.86 28 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the Year Ended 31 December 2022 10.3 Analysis of the purpose for which the external assistance was received is as follows: FY FY Year balances Cumulative balances 2022 – 2022 – 31 December 31 December 31 December 31 December Previous Current 2022 2021 2022 2021 Reporting Reporting Quarter Quarter A B A+B E= C+D D USD USD USD USD USD USD Grants IDA 9,533,543.55 7,316,833.32 16,850,376.87 10,209,483.86 27,059,860.73 10,209,483.86 9,533,543.55 7,316,833.32 16,850,376.87 10,209,483.86 27,059,860.73 10,209,483.86 Non – compliance with significant terms and conditions: There have been no instances of noncompliance with Terms and Conditions with regard to the Financing Agreement or guarantees which have resulted in the cancellation of the assistance or have given rise to an obligation to return the assistance previously given. 29 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10.4 Undrawn external assistance - grants The undrawn grant facilities available to fund future operations under binding agreements and where the terms and conditions are to be met, consist of 31 December 2022 31 December 2021 USD USD International Development Association 27,059,860.73 940,139.27 27,059,860.73 940,139.27 Undrawn borrowing facilities include an amount of USD 940,139.27 from International Development Association which is stipulated for the development of multiple-use water sources, agricultural extension services, improved livelihood resilience, and Project Management. No restrictions are imposed on the undrawn grant facilities but the disbursements for each year are planned and budgeted by using the government systems. 30 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the Year Ended 31 December 2022 10.5 Compensation of employees Current FY Current FY 2022 – Year balances Cumulative balances 2022 - Previous Current Reporting 31 December 31 December 31 December 31 December Quarter Quarter 4 2022 2021 2022 2021 A B A+B E= C+D D USD USD USD USD USD USD Allowances 119,325.00 51,115.00 170,440.00 221,860.00 392,300.00 221,860.00 119,325.00 51,115.00 170,440.00 221,860.00 392,300.00 221,860.00 31 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10.6 Use of goods and services FY 2022 - FY 2022 – Current Year balances Cumulative balances Previous Reporting Quarter Quarter 4 31 31 December 31 December 31 December December.2022 2021 2022 2021 A B = A+B E= C+D D USD USD USD USD USD USD Rent - - - 23,158.00 23,158.00 23,158.00 Utilities 27,387.25 7,418.22 34,805.47 29,189.64 63,995.11 29,189.64 Fuel and Lubricants 9,896.40 4,624.00 14,520.40 18,500.00 33,020.40 18,500.00 Communication - 10,275.00 10,275.00 - 10,275.00 - Education and training - 35,800.00 35,800.00 - 35,800.00 - Repairs and maintenance 65,180.10 97,849.44 163,029.54 50,125.10 213,154.64 50,125.10 Office consumables 14,021.00 5,459.00 19,480.00 54,306.00 73,786.00 54,306.00 Other professional fees 512,552.13 1,079,038.67 1,591,590.80 691,112.99 2,282,703.79 691,112.99 Commission on transfers (DA) 141,076.17 96,612.12 237,688.29 122,274.66 359,962.95 122,274.66 Travel expenses 134,196.00 66,316.00 200,512.00 130,981.00 331,493.00 130,981.00 General expenses 11,350.00 - 11,350.00 40,064.00 51,414.00 40,064.00 915,659.05 1,403,392.45 2,319,051.50 1,159,711.39 3,478,762.89 1,159,711.39 32 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10.7 Capital expenditure – consumption of non-current assets As explained in accounting policy all non-current assets purchased during the year are expensed during the year of purchase FY 2022 - FY 2022 – Year balances Cumulative balances Previous Quarter Current 31 December 31 December 31 December 31 December Reporting 2022 2020 2022 2021 Quarter 4 A B A+B E= C+D D USD USD USD USD USD USD Property and equipment 50,000.00 31668.81 81668.81 97,707.80 179,376.61 97,707.80 ICT - - - 114,171.81 114,171.81 114,171.81 Other property and equipment 21,640.00 - 21,640 210,029.00 231,669.00 210,029.00 71,640.00 31,668.81 103,308.81 421,908.61 525,217.42 421,908.61 33 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10.8 Grants paid The Government paid grants during the year to the following: Current FY 2022 - Current FY 2022 – Year balances Cumulative balances Previous Quarter Current Reporting 31 December 31 December 31 December 31 December Quarter 4 2022 2021 2022 2021 A B C= A+B E= C+D D USD USD USD USD USD USD Puntland State 5,121,230.52 2,089,531.74 7,210,762.26 3,142,184.11 10,352,946.37 3,142,184.11 SouthWest State 1,412,610.64 1,287,673.82 2,700,284.46 1,878,804.53 4,579,088.99 1,878,804.53 Galmudug State 1,868,349.23 1,157,770.64 3,026,119.87 1,493,021.27 4,519,141.14 1,493,021.27 Commission - - - 27,539.61 27,539.61 27,539.61 8,402,190.39 2,445,444.46 12,937,166.59 6,541,549.52 19,478,716.11 6,541,549.52 Grants to other general government units are support grants to ministries, departments, agencies within the appropriated amounts. 34 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10.9 Cash and Cash equivalents Comprise cash and bank balances of all bank accounts operated by the Project. It also includes petty cash balances held by the Project at the end of the financial year. 31 December 31 December 2022 2021 USD USD The Project Bank Account DA-A AC:2117-1432 265,732.87 242,333.24 The Project Bank Account DA-B AC:2117-1433 2,919,131.43 1,622,121.08 3,184,864.30 1,864,454.32 10.10 Accumulated Funds (Fund Balance/Surplus) The accumulated surplus (deficit) of the year-end was as follows: Accumulated surplus (deficits ) 31 December 31 December 2022 2021 USD USD At beginning of the year, 1 January 2022 1,864,454.34 129,786.60 Surplus for the year 1,320,409.97 1,734,667.74 At end of the year, 31 December 2022 3,184,864.31 1,864,454.34 35 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Reports and Financial Statements For the year ended 31 December 2022 10 EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 10.11 Payments by third parties 31 December 2022 USD Construction of buildings 123,829.76 Supply of goods 26,747.75 Supply of services 860,809.25 1,011,386.76 36 Federal Government of Somalia Water for Agro-Pastoral Productivity and Resilience Project Project Grant Number : P167826 Reports and Financial Statements For the Year Ended 31 December 2022 11. ANNEXURES 11.1 Analysis of third party payments at the end of the year Brief transaction description Date of payment Amount paid during the year Total amount Balance Total amount paid 2022 2022 2022 USD USD USD Office buildings April 2022 20 May 2022 31,533.83 - 31,533.83 Maintenance and Repairs of Building 15 November 2022 92,295.93 - 92,295.93 Equipment April 2022 12 May.2022 26,747.75 - 26,747.75 Consultancy fees for December 2022 4 April 2022 6,546.00 - 6,546.00 Consultancy fees for April 2022 10 May 2022 19351.14 - 19351.14 Consultancy fees for May 2022 6 June2022 19351.14 - 19351.14 Travel and conference expense 8 July 2022 4,059.45 - 4,059.45 consultancy fees for July 2022 24 August 2022 25,801.52 - 25,801.52 Consulting and Professional 18 October 2022 785,700.00 - 785,700.00 1,011,386.76 - 1,011,386.76 37