UKRAINIAN SOCIAL INVESTMENT FUND COMMUNITY-BASED SOCIAL SERVICE DELIVERY PROJECT, SPECIAL PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM 01 JANUARY 2021 To 31 DECEMBER 2021 Together with the independent Auditor's Report IBDO COMMUNITY-BASED SOCIAL SERVICE DELIVERY PROJECT, GRANT No. TF0A8367 Special Purpose Financial Statements For the period from 01 January 2021 to 31 December 2021 In USD Contents: INDEPENDENT AUDITORS' REPORT 1-111 STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS 1 SUMMARY OF SOURCES AND USES OF FUNDS 2 STATEMENT OF USES OF FUNDS BY CATEGORY 3 SCHEDULE OF WITHDRAWALS FROM THE GRANT ACCOUNT 4 STATEMENT OF WITHDRAWALS THROUGH THE SUMMARY OF STATEMENTS OF EXPENDITURES 5 REPORT OF CASH WITHDRAWAL FROM DESIGNATED ACCOUNT 6 DESIGNATED ACCOUNT STATEMENT 7 STATEMENT OF FACTUAL EXPENDITURES IN NATIONAL CURRENCY 8 RECONCILIATION BETWEEN RECORDS OF PIU AND THE BANK 9 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS 10 WORLD BANK AUDIT DOCUMENTATION CHECKLIST 14 www.bdo.ua BDO LLC Tel.: +38 044 393 26 87 201-203, Kharkivske Road, 10th floor Fax: +38 044 393 26 91 Kyiv e-mail: bdo@bdo.kiev.ua Ukraine, 02121 Tel.: +38 056 370 30 43 4, Andriya Fabra Str. Fax: +38 056 370 30 45 Dnipro e-mail: dnipro@bdo.com.ua Ukraine, 49000 INDEPENDENT AUDITOR'S REPORT To the Ukrainian Social Investment Fund We have audited the accompanying In our opinion, the special purpose financial statements give special purpose financial statements of true and fair view of the sources and use of funds of the the "Community-based Social Service Grant No. TF0A8367 for the Community-based Social Service Delivery Project" (further - the Delivery Project for the period from 01 January 2021 to 31 "Project"), financed from the Grant No. December 2021, in accordance with the Bank's rules. TF0A8367 provided by the Japan Social External funds have been used in compliance with the Development Fund (JSDF) through the Etra ud aebe sdi opinewt h International Bank for Reconstruction and requirements of the corresponding general conditions, Development for the period from 01 financial agreements, and the Disbursement Letter, paying January 2021 to 31 December 2021, which due attention to efficiency and cost-effectiveness; and have compars: 2been used only for the corresponding purposes. comprise: Terms of the Agreement of the Grant No. TF0A8367 do not * the special purpose statement of provide for the use of the partners' costs. sources and uses of funds for the year ended 31 December 2021; The services and the goods have been purchased in compliance with the corresponding general conditions, * the statement of uses of funds by financial agreements, and the Disbursement Letter. category; Accounting and storing of the necessary supporting * the special purpose statement of documents, accounting data and accounts regarding all expenditure for the year ended 31 Project transactions, including those concerning the December 2021; expenditures disclosed in the Statement of actual expenditures, are performed in a due manner. There is a * the statement of funds drawdown clear interconnection between accounting data and the using statements of expenditure; financial statements provided to the World Bank. Special Account statement; The prepared special purpose financial statements comply with the requirements of generally accepted accounting Notes to the special purpose principles and practices, and the instructions from the World financial statements. Bank; and truly and objectively reflect the financial position of the Project as at 31 December 2021 as well as the resources and expenditures for the period from 01 January 2021 to 31 December 2021. Opinion on expenditures Furthermore, in respect of expenditure for the period from 01 January 2021 to 31 December 2021, adequate supporting documentation has been maintained, confirming applications submitted to the Bank for reimbursement of incurred expenditure. More to that, costs specified in the applications, are subject to financing in accordance with the conditions of the Grant No. TF0A8367. Separate opinion regarding Special Accounts Statement In our opinion, the financial statements on the Special accounts give true and fair view of financial position of the Special Accounts of the Project, as at 31 December 2021 and for the period from 01 January 2021 to the date fixed in consistence with the World Bank regulations. These accounts were conducted according to the provisions of the corresponding general conditions, financial agreements, and the Disbursement Letter. BDO LLC, a Ukrainian LLC, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO MembO )irms I,BDO Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Special Purpose Financial Statements section of our report. We are independent of the Ukrainian Social Investment Fund in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA's Code), as well as ethical requirements applied in Ukraine to our audit of financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA's Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. . .... -. --- -. -- Material uncertainty related to going concern We draw attention to Note 3 to the Special Purpose Financial Statements, where the fact is disclosed that the end date of the Grant funds use is 31 October 2022 or such later date as established by the Bank. Our opinion is not modified with respect to this matter. We draw attention to Notes 4 and 5 to the Special Purpose Financial Statements of the Project, which note that in the period between the preparation of these Special Purpose Financial Statements until its approval, military aggression by the Russian Federation against Ukraine occurred and was the basis for the imposition of martial law in Ukraine from 5 hours and 30 minutes on 24 February 2022, according to the Law of Ukraine No. 2102 "On Approval of the Presidential Decree "On Introducing Martial Law in Ukraine", which lasts until its official ending. It is noted in Notes 4 and 5 that the Management and staff of the USIF and the Project are located out of the zone of active hostilities and continue to operate as usual. The management of the USIF and the Project shall take all necessary measures to ensure that the USIF and the Project operate efficiently and continue on a going concern. As noted in Notes 4 and 5, these events indicate that there is material uncertainty, which may cast significant doubt on the ability of the USIF and the Project to continue as a going concern. Our opinion is not modified with respect to this matter. Responsibility of management and those charged with governance for the special purpose financial statements Management is responsible for the preparation and fair presentation of these special purpose financial statements in accordance with the rules of the World Bank, and for such internal control as management determines is necessary to enable the preparation of the special purpose financial statements that are free from material misstatement, whether due to fraud or error. In preparing the special purpose financial statements, management is responsible for assessing the Project's ability to continue as a going concern during the disbursement period, i.e. up to 31 October 2022, 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 of the Project. 1,BDO IAuditor's responsibility for the audit of the special purpose financial statements Our objectives are to obtain reasonable assurance about whether the special purpose financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these special purpose financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the special purpose 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 internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the 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 special purpose 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 special purpose financial statements, including the disclosures, and whether the special purpose financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding 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. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The audit was performed undert isi of th Audit Partner Nikolaenko O.M. Key Audit Partner D O taenko O.M. Number of registration with the Re3istelr of Audito A) ifms Ini 13 June 2022 20197074 Kyiv M1 0 Limited Liability Company BDO. Identification code under EDRPOU: 2019 mber of registration in the Register of Auditors and Audit Entities: 2868. Legal address: 4, Andrila Fabra Street, Dnipro, 49070. Tel. 044-393-26-87. BDO LLC is included in the Register of auditors and audit entities in section 4 "Audit entities that have right to conduct statutory audit of financial statements of the public interest entities". Link to the Register: https://www.apu.com.ualsubjekty-audytorskoi-dijainosti-jaki-majut-pravo-provodyty-obovjazkovyj-audyt-finansovoi-zvitnosti- pidpryjemstv-shho-stanovtjat-suspilnyj-interes/ (III) COMMUNITY-BASED SOCIAL SERVICE DELIVERY PROJECT, GRANT No. TF0A8367 Special Purpose Financial Statements For the period from 01 January 2021 to 31 December 2021 In USD STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS The following statement, which should be read in conjunction with the independent auditors' responsibilities stated in the Independent Auditors' Report set out on pages 1-111, is made with a view to distinguishing the respective responsibilities of management and those of the independent auditors in relation to the special purpose financial statements of the Project "Community-based Social Service Delivery Project", funded by Grant No. TF0A8367, provided by the Japan Social Development Fund (JSDF) through the International Bank for Reconstruction and Development for the period from 01 January 2021 to 31 December 2021. The USIF and Project Management is responsible for the preparation of the special purpose financial statements that present fairly, in all material respects, the financial position of the Project as at 31 December 2021 and funds and expenses for the period from 01 January 2021 to 31 December 2021. In preparing the special purpose financial statements, the USIF and Project management is responsible for: * Selecting and applying appropriate accounting policies; * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * Providing additional disclosures in the notes and annexes when compliance with the accounting policies set out in Note 3 is insufficient to understand the effect of specific transactions, other events and conditions on the special purpose financial statements of the Project; * Assessing the ability of the USIF and the Project to continue as a going concern. The USIF and Project Management is also responsible for: * designing, implementing and maintaining an effective and sound system of internal controls, throughout the Project; * maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Project, and which enable them to ensure that the special purpose financial statements of the Project comply with accounting policies set out in Note 3; * taking such steps that are reasonably available to them to safeguard the assets of the Project; and * preventing and detecting fraud and other irregularities. The special purpose financial statements for 2021, as presented in this audit report, is validated on 13 June 2022. Signed on behalf of the Ukrainian Social Investm0ent'Fund: CEO Laktionov A.O. Community-based Social Service Delivery Project, Grant No. TF0A8367 SUMMARY OF SOURCES AND USES OF FUNDS For the period from 01 January 2021 to 31 December 2021 In USD Factual For the period Cumulative Opening balance Designated account Ukreximbank - US dollars 41 834 Current account Ukreximbank - hryvnya 406 Total available funds at the beginning of period: 42 240 Sources of funds: Grant of the International Bank for reconstruction and 545000 1140000 Development Total financing: 545000 1 140000 Interest accrued - 6 Project expenditure: Category 1: Goods and non-consulting services 258 156 361 470 Category 2: Consulting services 76 584 395 147 Category 3: Training 7124 53449 Category 4: Operating Costs 63 933 148 497 Category 5: Micro-projects under Part 2 of the Project 86 055 86 055 Total Project expenditure: 491 852 1 044 618 Closing balance Designated account Ukreximbank - US dollars 73 334 73 334 Current account Ukreximbank - hryvnya 22 054 22 054 95 388 95 388 Approved by, and signed on behalf of, the USIF Management: CEO Laktionov A.O. Notes on pages 10-13 are an integral part of these special purpose financial statements. Community-based Social Service Delivery Project, Grant No. TFOA8367 STATEMENT OF USES OF FUNDS BY CATEGORY For the period from 01 January 2021 to 31 December 2021 In USD Category Factual 31.12.2021 Cumulative Budget Variance Category 1: Goods and non-consulting 258 156 361 470 410000 48 530 services Category 2: Consulting services 76 584 395 147 522 000 126 853 Category 3: Training 7 124 53 449 280 000 226 551 Category 4: Operating Costs 63 933 148 497 238 000 89 503 Category 5: Micro-projects under Part 2 86055 86 055 1 400000 1 313945 of the Project Total: 491 852 1 044618 2850000 1 805 382 Notes on pages 10-13 are an integral part of these special purpose financial statements. Community-based Social Service Delivery Project, Grant No. TF0A8367 SCHEDULE OF WITHDRAWALS FROM THE GRANT ACCOUNT For the period from 01 January 2021 to 31 December 2021 In USD Payment USD Date of Application number Category withdrawal Currency Equivalent Equivalent 1/2021 DA-A 01-Mar-2021 USD 147 000 147 000 4/2021 DA-A 03-Jun-2021 USD 200000 200000 8/2021 DA-A 30-Sep-2021 USD 198000 198000 Total: 545000 Summary schedule by categories: DA-A 545 000 Total: 545000 Notes on pages 10-13 are an integral part of these special purpose financial statements. 4 Community-based Social Service Delivery Project, Grant No. TF0A8367 STATEMENT OF WITHDRAWALS THROUGH THE SUMMARY OF STATEMENTS OF EXPENDITURES For the period from 01 January 2021 to 31 December 2021 In USD Application number Category Category Category Category Category Total 1 2 3 4 5 1. Expenditures actually incurred before 01.01.2021 and recorded in applications to the World Bank during the period 01.01.2021 - 31.12.2021 9/2020 - 10998 2 155 11 370 - 24523 Total - 10998 2 155 11 370 - 24523 2. Applications submitted to the World Bank for expenditures incurred during the period 01.01.2021 - 31.12.2021. 1/2021 - 4817 - 2804 - 7621 2/2021 - 5271 - 2 808 - 8079 3/2021 - 6773 - 6567 - 13 340 4/2021 64487 5730 - 7025 12675 89917 5/2021 21 736 3 485 - 7 865 6 220 39 306 6/2021 83245 14 560 6 102 5 287 - 109 194 7/2021 15 540 5479 - 5376 - 26395 8/2021 - 6008 - 4413 - 10421 9.1/2021 4564 5 525 - 4759 13463 28 311 10/2021 - 6692 - 6021 658 13 371 Total 189 572 64340 6 102 52925 33 016 345955 3. Expenditures factually incurred for the period from 01 January 2021 to 31 December 2021 From the Grant account From designated accounts From current accounts Frntiom l currenc s 258 156 76 584 7 124 63 933 86055 491 852 in national currencies Total 258 156 76584 7124 63 933 86055 491 852 4. Table of differences in Project costs between the World Bank records and PIU for the period from 01 January 2021 to 31 December 2021 Spent according to 189 572 64 340 6 102 52 925 33 016 345 955 IBRD information Amount of expenditure for which an application to the 68 584 12 244 1 022 11 008 53039 145 897 World Bank has not been submitted as at 31.12.2021 According to PIU data 258 156 76 584 7 124 63 933 86 055 491 852 Notes on pages 10-13 are an integral part of these special purpose financial statements. 5 Community-based Social Service Delivery Project, Grant No. TF0A8367 REPORT OF CASH WITHDRAWAL FROM DESIGNATED ACCOUNT For the period from 01 January 2021 to 31 December 2021 In USD Withdrawals USD Equivalent Category Date of withdrawal Currency amount Equivalent amount Sub_account 27.01.2021 USD 1 000 1 000 Sub_account 29.01.2021 USD 10000 10000 Sub_account 25.02.2021 USD 10000 10000 Sub_account 05.03.2021 USD 1 000 1 000 Sub-account 15.03.2021 USD 2000 2000 Sub_account 29.03.2021 USD 98 000 98 000 Sub_account 05.05.2021 USD 15000 15000 Sub_account 13.05.2021 USD 5000 5000 Sub-account 26.05.2021 USD 25 000 25 000 Sub_account 08.06.2021 USD 30000 30000 Sub_account 10.06.2021 USD 45 000 45 000 Sub_account 24.06.2021 USD 20000 20000 Sub_account 30.06.2021 USD 11 000 11 000 Sub_account 22.07.2021 USD 22000 22000 Sub_account 02.08.2021 USD 4000 4000 Sub_account 26.08.2021 USD 11 000 11 000 Sub_account 06.09.2021 USD 4000 4000 Sub_account 14.09.2021 USD 9000 9 000 Sub_account 28.09.2021 USD 15000 15000 Sub_account 27.10.2021 USD 10000 10000 Sub_account 15.11.2021 USD 5 500 5 500 Sub_account 29.11.2021 USD 40000 40000 Sub_account 09.12.2021 USD 40000 40000 Sub_account 16.12.2021 USD 40000 40000 Sub_account 23.12.2021 USD 40000 40000 Total: 513 500 Summary by categories Sub_account 513 500 Total: 513 500 Notes on pages 10-13 are an integral part of these special purpose financial statements. 6 Community-based Social Service Delivery Project, Grant No. TF0A8367 DESIGNATED ACCOUNT STATEMENT For the period from 01 January 2021 to 31 December 2021 In USD Deposit bank Ukreximbank Account No. UA883223130000026005000041243 Grant No. TF0A8367 Currency US dollars BALANCE AT THE PERIOD BEGINNING 41 834 Revenues: Funds received 545 000 Interest accrued TOTAL FUNDS RECEIVED 545 000 Maintenance: costs Transfer of funds in national currency 513 500 Direct payments from designated account - Payment for bank services TOTAL COSTS 513 500 Return to the account of the bank 73 334 Notes on pages 10-13 are an integral part of these special purpose financial statements. Community-based Social Service Delivery Project, Grant No. TF0A8367 STATEMENT OF FACTUAL EXPENDITURES IN NATIONAL CURRENCY For the period from 01 January 2021 to 31 December 2021 In USD ----- Payment ----- USD Equivalent Currency Amount amount Category 1: Goods and non-consulting services UAH 7 060 353 258 156 Category 2: Consulting services UAH 2 090 579 76 584 Category 3: Training UAH 194697 7124 Category 4: Operating Costs UAH 1 746 777 63 933 Category 5: Micro-projects under Part 2 of the Project UAH 2 333 542 86 055 Total expenditures of the period 13 425 948 491 852 Notes on pages 10-13 are an integral part of these special purpose financial statements. 8 Community-based Social Service Delivery Project, Grant No. TF0A8367 RECONCILIATION BETWEEN RECORDS OF PIU AND THE BANK For the period from 01 January 2021 to 31 December 2021 In USD Grant amount 2850000 Subtract: Project costs: Category 1: Goods and non-consulting services 361 470 Category 2: Consulting services 395 147 Category 3: Training 53449 Category 4: Operating Costs 148 497 Category 5: Micro-projects under Part 2 of the Project 86 055 Total: (1 044 618) Designated account Ukreximbank - US dollars 73 334 Current account Ukreximbank - hryvnya 22 054 Accumulated interest (balance) (6) Total available funds: (95 382) Total withdrawals: (1 140000) Balance as at 31 December 2021 1 710000 Notes on pages 10-13 are an integral part of these special purpose financial statements. 9 Community-based Social Service Delivery Project, Grant No. TFOA8367 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2021 to 31 December 2021 In USD 1. Project Description The Ukrainian Social Investment Fund (UFSI, Customer) has been allocated grant funds ("Grant") for the implementation of the "Community-based Social Service Delivery Project" from the International Bank for Reconstruction and Development ("World Bank"), acting as administrator of Grant funds provided by Japan ("Donor") under the Japan Social Development Fund, and UFSI is Grant Recipient and the Project Implementing Unit. The project aims to support pilot models of social protection delivery through the development of community-based social protection services in 30 integrated territorial communities in the poorest districts of Odessa and Ternopil regions'. In addition, the Project aims to fund community-based micro-projects to improve assess of the vulnerable, such as the elderly, people with disabilities, families at risk and others. Under micro-projects, local authorities will be able to provide high-priority demand-oriented services to citizens through a variety of suppliers, including non-governmental organizations (hereinafter referred to as NGOs), private and public suppliers. Consequently, they will be able to expand the range of service providers beyond existing public institutions and learn, as far as possible, to conclude service contracts with non-state providers. The Project consists of the following parts: Part 1: Development of social protection services delivery capacity Provision of technical assistance, training and goods to develop technical capacity of selected communities' governments service providers to plan, manage and deliver social protection services to vulnerable groups, including through, inter alia, (i) carrying out participatory needs assessment; (ii) developing institutional capacity of social protection units and other relevant stakeholders in planning and managing provision of social services; (iii) conducting Training of social protection units staff and associated stakeholders in the preparation of applications for social protection services Micro-projects; and (iv) Training of existing and potential community service providers to enhance their ability to deliver social protection services. Part 2: Social protection services Micro-projects Support community-based social protection services through carrying out Micro-projects aimed at improving service delivery to vulnerable groups, as identified through participatory needs assessment carried out under Part 1 of the Project. Part 3: Project management and administration, monitoring and evaluation and knowledge dissemination Support project management, including coordination and implementation, communications, financial management and audits, procurement, monitoring and evaluation, progress reporting, operating costs and knowledge dissemination. 2. Basis of Presentation These special purpose financial statements of the Project are prepared on a cash basis and include such significant accounting policies that have been consistently applied in all material respects and are in accordance with the recommendations of the World Bank's Financial Management. Committee "Recommendations: Annual Financial Reporting and Audit of Activities, funded by the World Bank". Project financing is recognized as a source of funds for the Project at the time of receipt of funds. Project costs are recognized as the use of funds under the Project at the time of making payments. The reporting currency is US Dollars. Items included in the special purpose financial statements of the Project are valued using the currency that best reflects the economic substance of the Company's relevant events and circumstances ("functional currency"). The functional currency of the Project is US Dollars. 1 As a result of the reorganisation of three territorial communities in the Ternopit region in 2020, the number of communities participating in the Project is 28. 10 COMMUNITY-BASED SOCIAL SERVICE DELIVERY PROJECT, GRANT No. TFOA8367 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2021 to 31 December 2021 In USD Transactions in other currencies are translated into US dollars at the interbank currency exchange rate, which was effective on the date of the respective conversion of US dollars into the payment currency. Cash balances in other currencies are translated into US dollars at the interbank exchange rate of the last conversion of USD into the currency of payment. 3. Significant Accounting Policies Basis of Preparation The special purpose financial statements were prepared under the cash basis. Accounting policies were applied consistently during the entire period of the Grant funds'use. Reporting Period This report covers the period of the Grant funds usage from 01 January 2021 to 31 December 2021. The closing date of the Grant is 31 October 2022 or such later date as established by the Bank. Reporting Currency According to the requirements of the World Bank, the reporting currency is US dollar. Designated bank account The Project is being implemented by the Ukrainian Social Investment Fund (USIF). For the Project implementation, bank accounts were opened in the PJSC State Export - Import Bank of Ukraine. Recognition of receipts and expenditures The Project keeps its records and prepares its special purpose financial statements on the cash basis. Receipts are recorded when they are made on bank accounts, which are supported by advances from the IBRD. Expenditures are recorded on the date of funds withdrawal from accounts. The following methods of funding can be applied within the Grant: * Reimbursement of expenses; * Advance payments; * Direct payments. The minimum request for Direct Payment and Refund is USD 60,000. The table below defines the categories of Eligible Expenditures that can be financed from the Grant ("Category"), the allocations of the Grant funds between the Categories, and the percentage of expenditures that can be financed by Eligible Expenditures in each Category: Allocated funds of Percentage of Category the Grant (in USD) expenditures being financed (including tax) (1) Goods and non-consulting services 410 000 100% (2) Consulting services 522 000 100% (3) Training 280000 100% (4) Operating Costs 238000 100% (5) Micro-projects under Part 2 of the Project 1 400 000 100% TOTAL 2850000 All goods, works, non-consulting services and consulting services required for the Project and funded from Grant were procured in accordance with the requirements set forth in the World Bank Procurement Guidelines for IPF Borrowers (Investment Project Financing) dated July 2016 as amended in November 2017 and in August 2018 ("Procurement Guidelines"); in the " Procurement Manual for conducting very small- 11 COMMUNITY-BASED SOCIAL SERVICE DELIVERY PROJECT, GRANT No. TF0A8367 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2021 to 31 December 2021 In USD value procurement under IBRD Loans, IDA credits and grants (up to $300,000 ) dated June 2015 (sent to UFSI by the World Bank on 11 July 2019), as well as in accordance with the Recipient's Procurement Plan ("Procurement Plan") dated 27 March 2018, with changes and additions in 2021 with the World Bank's consent. 4. Economic environment Until 2020, Ukraine's economy showed signs of recovery and growth after a sharp downturn in 2014-2016. However, the spread of the COVID-19 coronavirus outbreak in early 2020 and the imposition of quarantine measures have had a negative impact on the global and Ukrainian economies. The gradual reduction of quarantine restrictions in 2021, together with expanding of vaccination, contributed to the revival of economic activity and increased business expectations, despite new strains of coronavirus. In general, GDP growth in 2021 was 3%, which was lower than expected. At the same time, the recovery of Ukraine's economy was accompanied by an acceleration of inflation to 10% year on year. Rising inflation was characteristic of the world economy as a whole. Moreover, the hryvnia exchange rate against foreign currencies strengthened somewhat in 2021. To curb inflation, the National Bank of Ukraine has raised the discount rate several times, increasing it from 6% to 9% in 2021. In January 2022, the rate was raised again to 10%. As for the possible risks for the economy of Ukraine, and, consequently, for USIF and the Project, there may be global economic disruption related to coronavirus, Ukraine's failure to comply with its obligations to repay a significant amount of public debt and the fact that in the period following the preparation of these financial reports, by the time they were approved, there was an armed Russian invasion of Ukraine - an open military attack by the Russian Federation. Martial law was declared in Ukraine. On February 21, 2022, the Russian Federation recognized the independence of the so-called Donetsk and Luhansk People's Republics and announced bringing in of its troops into the territory under their control. On February 24, Russian troops invaded Ukraine from several directions, conducting preliminary missile strikes on the territory of Ukraine. The Ukrainian leadership imposed martial law and announced mobilization. These factors may have an impact on the performance of the USIF and the Project in future periods. The management of the USIF and the Project are monitoring the state of development of the current situation and are taking steps to minimize any adverse effects as far as possible. In the preparation of these special purpose financial statements, the known and estimated effects of these factors on the special purpose financial statements of the Project during the reporting period have been considered. The management of the USIF and the Project cannot foresee all changes that may affect the economy as a whole and what effect they nay have on the future special purpose financial statements of the Project and the USIF. The management of the USIF and the Project consider that they are taking all possible measures necessary to maintain stable operations. 5. Events after the reporting period In the period after the reporting date, the conflict between Ukraine and Russia escalated. On February 21, 2022, the Russian Federation recognized the independence of the so-called Donetsk and Luhansk People's Republics and announced bringing in of its troops into the territory under their control. On February 24, Russian troops invaded Ukraine from several directions, conducting preliminary missile strikes on the territory of Ukraine. The Ukrainian leadership imposed martial law and announced mobilization. The war, now in its fourth month, claimed the lives of both Ukrainian soldiers and civilians and resulted in a large-scale economic and humanitarian crisis. Objects of military and civilian infrastructure were destroyed; a significant part of the territory of Ukraine in the east and south remains temporarily occupied and the active phase of hostilities continues at the contact line. Rocket and bomb strikes on infrastructure facilities and the population throughout Ukraine do not stop. More than 6.5 million people left Ukraine during this period, mostly women and children, and the number of internally displaced persons exceeded 8 million. As a result of the large-scale aggression of the Russian Federation against Ukraine, the level of all risks that affect the stability of the financial system and the economy has considerably increased. Ukraine's GDP losses in 2022 will be significant. Inflationary pressure remains substantial due to the decommissioning 12 COMMUNITY-BASED SOCIAL SERVICE DELIVERY PROJECT, GRANT No. TF0A8367 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2021 to 31 December 2021 In USD of production and transport infrastructure, higher production costs. Accordingly, the amount of budget expenditures to support business and the gradual recovery of the economy is growing significantly. In the first quarter of 2022, budget revenues were supported by advance dividend payments by state- owned enterprises and the transfer of the NBU profits. Given the expected limited revenues in the second quarter, further support from international donors becomes increasingly important. The management and staff of the USIF and the Project are located out of the area of active hostilities and continue to work as usual. 13 WORLD BANK AUDIT DOCUMENTATION CHECKLIST Name of Loan/Credit: World Bank UKRAINE Loan/Credit # Grant N2 TF0A8367 Audit Report: Year ended December 31, 2021 Check if Check if Included N/A I. Audit report (Opinion): A. Applicable accounting standards noted X B. Applicable auditing standards noted X C. Opinion rendered on all forms of withdrawals: 1. Statement of Expenditures X 2. Designated Account X D. All sources of financing for the project are noted X II. Financial Reports: A. Revenue Earning Entity (all of the following are required): 1. Balance sheet X 2. Cash Flow Statement X 3. Income Statement X B. Non-Revenue Earning Entity (all of the following are required): 1. Balance sheet X 2. Summary of Sources and Uses of Funds X C. If applicable (refer to Loan Agreement): 1. Statement of Expenditure (SOE) Statement X 2. Designated Account Statement X Ill. Notes to the Financial Statements X IV. Reconciliation between World Bank records and project records X V. Management Letter X 14