Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM International in East Jerusalem, West Bank and Gaza THE MINISTRY OF FINANCE Project Title PUBLIC FINANCIAL MANAGEMENT IMPROVEMENT PROJECT (P162850) Funded by THE WORLD BANK & MDTF (TF0A6949 &TF0A9433) Financial Statements And Independent Auditor’s Report For the Period from January 1, 2023 to October 31, 2023 Ramallah Al Masyoun Taj Mahal building No. 10 phone 970 2 297-5576 Fax 970 2 297-5577 E-mail: info@suleimanco.com The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Table of Contents Page No. Independent Auditor’s Report 2-3 Statement of Balance Sheet 4 Statement of Sources and Uses of Funds 5 Designated Bank Accounts Statements 6-8 Notes to the Project Financial Statements 9-14 1 Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM International in East Jerusalem, West Bank and Gaza Independent Auditor’s Report To The Ministry of Finance Ramallah Opinion We have audited the Financial Statements of “Public Financial Management Improvement Project (P162850)” (hereinafter “the Project”) funded by the World Bank & MDTF and implemented by the Ministry of Finance (hereinafter “MoF”) and High Council for Public Procurement Policies (hereinafter “HCPPP”), which comprise the Statement of Balance Sheet as at October 31, 2023, and the related Statement of Sources and Uses of Funds, Designated Bank Accounts Statements for the period from January 1, 2023 to October 31, 2023, and notes to the Financial Statements, including a summary of significant accounting policies. In our opinion, the accompanying Financial Statements present fairly, in all material respects, the Balance Sheet of “Public Financial Management Improvement Project (P162850)” funded by the World Bank & MDTF and implemented by MoF & HCPPP as at October 31, 2023, and the related Statement of Sources and Uses of Funds, Designated Bank Accounts Statements for the period then ended in accordance with the basis of accounting as described in Note 2. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) with special reference to ISA 800. 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 Project in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in areas under the jurisdiction of the Palestinian Authority, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matters Based on our review, in all material respects: 1. The Project expenditures reimbursed on basis of Statements of Expenditures (SOE) are eligible to the Grant Agreements and are reflected on the Financial Statements. 2. The Designated Bank Accounts have been used exclusively for payment of eligible expenditures as reflected in the Financial Statements. 3. The Project’s accounting system (books and records), established and maintained by the MoF to record the financial transactions of the Project, provides the basis for preparation of the Project’s Financial Statements; 4. Internal control over financial reposting involved in the preparation of replenishments, direct payments, payments through special commitments, and reimbursements can be relied upon to support the related withdrawals. 5. The Project was in all material respects in compliance with the laws, regulations, guidelines and provisions governed by the Grant Agreements. 6. Procurement Guidelines have been properly applied in accordance with the Project’s Grant Agreements. 2 Suleiman & Co. Certified Public Accountants - License No. 205 Correspondent Firm of RSM International in East Jerusalem, West Bank and Gaza Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these Financial Statements in accordance with the basis of accounting described in Note 2, and for such internal control as management determines is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. MoF is responsible for overseeing the Project’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements The objectives of our audit are to obtain reasonable assurance about whether the Project Financial Statements taken 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 skepticism throughout the audit. We also: 1. 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. 2. 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. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. 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. 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, if any. Suleiman & Co. - Certified Public Accountants Ismail M Suleiman, CPA, License number 131/2000 Ramallah, December 11, 2023 Ramallah Al Masyoun Taj Mahal building No. 10 phone 970 2 297-5576 Fax 970 2 297-5577 E-mail: info@suleimanco.com 3 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Statement of Balance Sheet (All amounts in USD) As of October 31, As of December Note 2023 31, 2022 Assets Current assets Cash at banks 7 456 220,212 Account receivable 5 - 784 Total current assets 456 220,996 Total assets 456 220,996 Liabilities and fund balance Current liabilities Accounts payable 5 - 3,063 Income tax deduction 5 - 482 Total current liabilities - 3,545 Fund balance 456 217,451 Total liabilities and fund balance 456 220,996 The accompanying notes form an integral part of these Financial Statements. 4 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Statement of Sources and Uses of Funds (All amounts in USD) For the Period from January 1, 2023 to Cumulative up to Note October 31, 2023 2022 October 31, 2023 Fund Balance- beginning of period/ year 217,451 249,035 - Sources of fund Advance payment 3 - - 400,000 Replenishments received 3 205,559 623,055 2,439,529 Reimbursment 3 79,689 355,220 654,864 Total sources of fund 285,248 978,275 3,494,393 Uses of funds Category 1: Goods, non-consulting services consultants', training & operating costs under components 1, 2 &4 4&6 468,094 773,319 2,574,018 Category 2: Goods, non-consulting services consultants', training & operating costs under component 3 4&6 34,149 236,540 919,919 Total uses of funds 502,243 1,009,859 3,493,937 Change in fund balance (216,995) (31,584) 456 Fund Balance- end of period/ year 456 217,451 456 The accompanying notes form an integral part of these Financial Statements. 5 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Designated Bank Account Statement- MoF DA- A- 3203608 Bank Account number 000/3001/001/3203608 Depository bank Bank of Palestine Address Ramallah Related loan/ credit TF0A6949 Currency U.S. Dollar (USD) For the Period from January 1, 2023 to Note October 31, 2023 2022 Balance – beginning of period/ year 185,889 128,423 Receipts during the period/ year 3 205,559 311,249 Total 391,448 439,672 Deduct Payments for project expenditures from designated bank accounts 5 391,840 253,389 Bank transfer charge 5 110 150 (Less)/ add: account receivable (784) (865) Add: amount deposited by mistake 7 - 1,109 Total 391,166 253,783 Balance – end of period/ year 7 282 185,889 The accompanying notes form an integral part of these Financial Statements. 6 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Designated Bank Account Statement- HCPPP DA- B- 3203609 Bank Account number 000/3001/001/3203609 Depository bank Bank of Palestine Address Ramallah Related loan/ credit TF0A6949 Currency U.S. Dollar (USD) For the Period from January 1, 2023 to Note October 31, 2023 2022 Balance – beginning of period/ year 34,231 29,031 Receipts during the period/ year 3 - 238,895 Total 34,231 267,926 Deduct Payments for project expenditures from designated bank accounts 5 34,149 236,386 Bank transfer charge 5 - 154 Less: Amount in ILS account 7 - (2,845) Total 34,149 233,695 Balance – end of period/ year 7 82 34,231 The accompanying notes form an integral part of these Financial Statements. 7 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Designated Bank Account Statement- MDTF DA- C- 3205500 Bank Account number 000/3001/001/3205500 Depository bank Bank of Palestine Address Ramallah Related loan/ credit TF0A9433 Currency U.S. Dollar (USD) For the Period from January 1, 2023 to Note October 31, 2023 2022 Balance – beginning of period/ year 92 95,297 Receipts during the period/ year 3 - 72,911 Total 92 168,208 Deduct Payments for project expenditures from designated bank accounts 5 - 164,716 Bank transfer charge 5 - 70 Add: amount deposited by mistake 7 - 3,330 Total - 168,116 Balance – end of period/ year 7 92 92 The accompanying notes form an integral part of these Financial Statements. 8 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Notes to the Project Financial Statements (All amounts in USD) 1. The Project and its Financing The Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority has received two grants in the amount of USD 3.5 million for the cost of Public Financial Management Improvement Project (PFMIP), the first on June 28, 2018 from the World Bank in the amount of USD 3 million and the second from MDTF on June 18, 2019 in the amount of USD 500,000. The Ministry of Finance (MoF) will implement this project in cooperation with the High Council for Public Procurement Policies (HCPPP) and State Audit & Administrative Control Bureau (SAACB). The Project development objective is to enhance the expenditure controls, financial accountability and procurement management of the Palestinian Authority. The Grant Agreements closing date will be on June 30, 2023 with a four-month grace period ending on October 31, 2023. The Project consists of the following components: 1. Component 1: Improving Budget Expenditure Management and Control (USD 1.07 million); 2. Component 2: Improving Financial Accountability of the Public Financial Management System (USD 0.88 million); 3. Component 3: Modernizing Public Procurement (USD 0.92 million); and 4. Component 4: Project Management (USD 0.63 million). The following table sets forth the budget per each category of the project: Budget from Budget from World Bank MDTF Category (USD) (USD) Category 1: Goods, non-consulting services, Consultants’ Services, Training and Operating Costs under Components 1, 2 & 4 of the Project 2,080,000 500,000 Category 2: Goods, non-consulting services, Consultants’ Services, Training and Operating Costs under Component 3 of the Project 920,000 - Total Budget 3,000,000 500,000 9 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Notes to the Project Financial Statements – continued (All amounts in USD) 2. Summary of Significant Accounting Policies The Project Financial Statements are prepared as per government applicable standards for Internationally funded projects. Significant accounting policies follow: • Basis of accounting The Project Financial Statements are prepared using modified cash basis of accounting, which is a comprehensive basis of accounting other than International Financial Reporting Standards (IFRS). Under this basis of accounting, sources of funds are recognized when related cash is received from the World Bank & MDTF and uses of funds are recognized when incurred. • Foreign currency The Project’s basic functional currency is the United States Dollar (USD). Transactions that are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Differences arising from the fluctuations in exchange rates were treated as exchange gains or losses in the Statement of Sources and Uses of Funds. 10 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Notes to the Project Financial Statements – continued (All amounts in USD) 3. Sources of Funds Up to October 31, 2023, MoF received the following payments from the World Bank & MDTF: Mof DA-A (3203608) HCPPP DA-B (3203609) MDTF DA-C (3205500) Direct Payment Advance Category Advance Category Category Advance Category Category Category Category Date of Fund Transfer Payment Category 1 2 Payment 1 2 Payment 1 2 1 2 Total Cumulative amount up to December 31, 2022 200,000 1,233,924 - 100,000 - 735,998 100,000 264,048 - 491,172 84,003 3,209,145 2023 February 8, 2023 - 127,461 - - - - - - - - - 127,461 March 31, 2023 - - - - - - - - - 79,689 - 79,689 May 4, 2023 - 63,520 - - - - - - - - - 63,520 July 18, 2023 - 14,578 - - - - - - - - - 14,578 Total 2023 - 205,559 - - - - - - - 79,689 - 285,248 Cumulative amount up to October 31, 2023 200,000 1,439,483 - 100,000 - 735,998 100,000 264,048 - 570,861 84,003 3,494,393 11 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Notes to the Project Financial Statements – continued (All amounts in USD) 4. Uses of Funds This item represents the following: Mof DA-A (3203608) HCPPP DA-B (3203609) MDTF DA-C (3205500) Direct Payment Category Category Category Category Category Category Category Date of Fund Transfer Category 1 2 Subtotal 1 2 Subtotal 1 2 Subtotal 1 2 Subtotal Total Cumulative amount up to December 31, 2022 1,250,796 - 1,250,796 - 801,767 801,767 363,956 - 363,956 491,172 84,003 575,175 2,991,694 2023 Component 1- Improving budget expenditure 327,373 - 327,373 - - - - - - 79,689 - 79,689 407,062 Component 2- Improving financial accountability 30,094 - 30,094 - - - - - - - - - 30,094 Component 3- Modernizing public procurement - - - - 34,149 34,149 - - - - - - 34,149 Component 4- Project implementation support 30,938 - 30,938 - - - - - - - - - 30,938 Total 2023 388,405 - 388,405 - 34,149 34,149 - - - 79,689 - 79,689 502,243 Cumulative amount up to October 31, 2023 1,639,201 - 1,639,201 - 835,916 835,916 363,956 - 363,956 570,861 84,003 654,864 3,493,937 12 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Notes to the Project Financial Statements – continued (All amounts in USD) 5. Payments for Project Expenditures Below is the reconciliation of the Project expenditures shown in the Designated Bank Accounts Statements with the Project expenditures shown in the Statement of Sources and Uses of Funds: For the Period from January 1, 2023 to October 31, 2023 2022 Direct MoF DA- A HCPPP DA- B MDTF DA- C Payment Total Total Payments as reported in designated bank accounts statement 391,840 34,149 - - 425,989 654,491 Direct Payment - - - 79,689 79,689 355,220 Deduct add: taxes payable as of October 31, 2023/ December 31, 2022 (482) - - - (482) 482 Add: bank transfer charge 110 - - - 110 374 Dedcut/ add: accounts payable as of October 31, 2023 (3,063) - - - (3,063) 3,063 Deduct: tax payable as of December 31, 2021 - - - - - (2,987) Deduct: account receivable as of December 31, 2022 - - - - - (784) Total uses of funds per Stsatement of Sources and Uses of Funds 388,405 34,149 - 79,689 502,243 1,009,859 6. Reconciliations Between Client Connection and MoF Records Cumulative up to October 31, 2023 IDA Financing MDTF MoF HCPPP Financing Total Project account per the client connection Advance payment transferred to MoF 200,000 100,000 100,000 400,000 Less: Amount recovered (199,718) (99,918) (99,908) (399,544) Category 1: Goods, non-consulting services consultants', training & operating costs under components 1, 2 &4 2,074,110 - 499,908 2,574,018 Category 2: Goods, non-consulting services consultants', training & operating costs under component 3 - 919,919 - 919,919 2,074,392 920,001 500,000 3,494,393 Project account per MoF records Category 1: Goods, non-consulting services consultants', training & operating costs under components 1, 2 &4 2,074,110 - 499,908 2,574,018 Category 2: Goods, non-consulting services consultants', training & operating costs under component 3 - 919,919 - 919,919 Cash at bank per MoF records as of October 31, 2023 (note 7) 282 82 92 456 2,074,392 920,001 500,000 3,494,393 13 The Ministry of Finance Public Financial Management Improvement Project (P162850) Funded by the World Bank & MDTF Financial Statements For the Period from January 1, 2023 to October 31, 2023 Notes to the Project Financial Statements – continued (All amounts in USD) 7. Cash at Banks – End of Period/ Year The cash at banks at October 31, 2023 & December 31, 2022 represents the following: As of October 31, 2023 As of December 31, 2022 MoF DA- HCPPP MDTF MoF DA- HCPPP MDTF A DA- B DA- C Total A DA- B DA- C Total Cash at bank- USD 282 82 92 456 185,889 34,231 92 220,212 Cash at bank- ILS - - - - - - - - 282 82 92 456 185,889 34,231 92 220,212 14